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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
(Amendment to No. 2 to Form 10-K)
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
_______ to _________
0-23494
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(Commission File No.)
BRIGHTPOINT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-1778566
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(State or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
6402 CORPORATE DRIVE, INDIANAPOLIS, INDIANA 46278
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(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (317) 297-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
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. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of February 17, 1998 was approximately $932,309,051. As of
February 17, 1998, there were 51,142,910 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference: None
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PART I
ITEM 1. BUSINESS.
GENERAL
Brightpoint, Inc. (the "Company" or "Brightpoint") is a leading
provider of distribution and value-added logistics services to the wireless
communications industry. The Company facilitates the effective and efficient
distribution of wireless handsets and related accessories from leading
manufacturers, under brand names such as Nokia, Ericsson, Motorola, Siemens,
Philips and Samsung, to network operators, agents, resellers, dealers and
retailers in the wireless communications market. The Company's distribution
services include purchasing, marketing, selling, warehousing, picking, packing,
shipping and "just-in-time" delivery of wireless handsets and accessories. Its
value-added logistics services include, among others, support of prepaid
programs, inventory management, product fulfillment, kitting and customized
packaging, light assembly and end-user support services. The Company is one of
the largest dedicated distributors of wireless handsets and accessories in the
world, with operations centers and/or sales offices in Argentina, Australia,
Brazil, China (including Hong Kong), Ireland, the Philippines, South Africa,
Sweden, the United Arab Emirates, the United Kingdom, the United States and
Venezuela, and provides its services to a customer base of more than 10,000
network operators, manufacturers, agents, resellers, dealers and retailers in
over 75 countries and on six continents.
For the year ended December 31, 1997, the Company's net sales and net
income were $1,035.6 million and $25.5 million, respectively, representing
increases of 76% and 102%, respectively, when compared to net sales and pro
forma net income for the year ended December 31, 1996. The Company's growth in
net sales has been driven primarily by increases in worldwide demand for
wireless handsets and accessories, by the Company's expansion into new
geographic markets, and by its increased market share resulting from
strengthening relationships with wireless handset manufacturers and network
operators. The Company's operating margin has also increased, due primarily to
the growth in its higher-margin value-added logistics services.
The Company was incorporated under the laws of the State of
Indiana in August 1989 under the name Wholesale Cellular USA, Inc. and
reincorporated under the laws of the State of Delaware in March 1994. In
September 1995, the Company changed its name to Brightpoint, Inc. The
Company's principal executive offices are located at 6402 Corporate Drive,
Indianapolis,
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Indiana 46278, and its telephone number is (317) 297-6100. Unless the context
suggests otherwise, references herein to the "Company" or "Brightpoint" mean
Brightpoint, Inc., its predecessors and its subsidiaries.
RECENT DEVELOPMENTS
On October 22, 1997, the Company declared a two-for-one common stock
split payable to stockholders of record on November 6, 1997. The split was
effected in the form of a 100% stock dividend paid on November 21, 1997.
Accordingly, all references herein related to share amounts, per share amounts
and average shares outstanding have been adjusted retroactively to reflect this
stock split.
WIRELESS COMMUNICATIONS INDUSTRY
The wireless communications industry provides voice and data
communications primarily through cellular telephone, personal communications
services ("PCS"), personal communications networks ("PCN"), satellite, enhanced
specialized mobile radio ("ESMR") and paging services. Among other factors,
economic development, advances in systems technology and equipment, the
proliferation of manufacturers and the increased number of network operators
have increased consumer acceptance and driven dramatic increases in worldwide
demand for wireless communications equipment and services.
In recent years, the markets for wireless communications equipment and
services have expanded significantly. From 1996 to 1997, the number of
worldwide wireless subscribers increased by 65 million, or 48%, to
approximately 200 million. Nonetheless, at the end of 1997, wireless
penetration was estimated at only 20% of the population within the United
States and was still, on average, less than 3.5% of the population globally,
reflecting significant worldwide opportunities for growth within the wireless
communications industry. According to a leading independent industry research
group, the number of worldwide subscribers is expected to grow to approximately
450 million subscribers by the end of 2000.
The Company believes it is well positioned to take advantage of the
following major trends taking place within the industry:
NEW NETWORK OPERATORS. The number of network operators in many
markets has increased and is expected to continue to increase as a result of
increasing deregulation within the wireless communications industry and the
introduction of new technological applications such as PCS and satellite-based
communications systems. For example, in the United States, prior to 1995, the
United States Federal Communications Commission (the "FCC")
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allowed only two network operators to provide cellular service in any one
service area. In connection with the auctioning of PCS licenses in 1995 and
1996, the FCC permitted the addition of up to six PCS network operators in
every service area. In addition, the FCC has awarded three mobile satellite
licenses to entities that are investing in satellites, which will enable them
to provide wireless phone, data, fax and paging on a global basis. The
emergence of these, and other, new wireless communications technologies and
services is expected to increase both the number of wireless network operators
in each market and the services provided, including seamless roaming, increased
service coverage, improved signal quality and greater data transmission
capacity. This increase in the number of network operators, together with the
increased number of resellers of wireless communication services in certain
markets, is expected to intensify competition for new and existing subscribers,
thereby reducing prices to subscribers and driving growth in subscribers and the
market for wireless communications equipment.
INCREASING PENETRATION OF WORLDWIDE MARKETS. The Company expects that
continuing demand for wireless services will drive increased penetration of
markets worldwide. In certain markets, such as certain Asia-Pacific and Latin
American countries, which are currently characterized by relatively low
penetration, such growth is expected to be driven by economic growth,
increased service availability and the lower cost of service compared to
conventional wireline telephony systems. In addition, certain markets such as
Sweden, Australia, Hong Kong, Japan and the United States, which are currently
characterized by higher market penetrations, are also expected to grow,
primarily as a result of increasing deregulation, the availability of
additional spectrum frequencies, the allocation of new network operator
licenses, increased competition and the emergence of new wireless technologies.
TRANSITION FROM ANALOG TO DIGITAL. The wireless communications
industry has historically provided telecommunications services primarily
through analog technology. However, new wireless networks have increasingly
been built around digital technologies, which provide increased network
capacity, more functionality, better voice quality and greater security/privacy
than analog technologies. By the time digital technologies became commercially
available in the United States during the latter part of 1996, cellular systems
in the United States had, for the most part, already been built to full
capacity (using analog technologies). Consequently, the first proponents of
the new digital technologies in the United States were the PCS network
operators, as they had not already built costly analog network infrastructures.
These PCS providers now compete with incumbent cellular network operators in
the United States for wireless subscribers. In addition, incumbent analog
cellular network
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operators in the United States are gradually beginning to shift their
subscribers toward digital coverage, a shift that, to a great degree, has
already occurred in many markets within the Company's Asia-Pacific and Europe,
Middle East and Africa divisions.
PROLIFERATION OF MANUFACTURERS. With the opportunities presented by a
rapidly expanding market for wireless communications equipment, the transition
from analog to digital technology, and the penetration of the mass consumer
market, many new manufacturers are expected to produce wireless handsets and
accessories, including certain manufacturers who have historically been
successful in providing consumer electronics to the mass consumer market. The
greater number of manufacturers is expected to heighten competition and most
likely will provide consumers with lower handset prices, broader selection,
more feature-rich products and new market channels, resulting in higher
product turnover by end users.
OUTSOURCING. As the variety of handset models expands, digital
technology evolves and distribution migrates from the agent/dealer network to
mass retailers, incumbent cellular network operators are switching from
in-house distribution to independent distribution services in order to lower
overall costs and to meet the increasing demands of the various channels to
market. In order to maintain their resources for marketing, sales and customer
retention, new cellular and PCS network operators are also increasingly
outsourcing their handset distribution, fulfillment and inventory management
functions (as opposed to building distribution infrastructure and committing
limited working capital to inventory maintenance). At the same time, at the
other end of the industry, large incumbent handset manufacturers are starting
to outsource some of their channel management functions and utilize value-added
logistics services as a means of simplifying and reducing the cost of their
worldwide distribution systems. Finally, as competition increases and prices
decrease, vendors and network operators are targeting the growing consumer
segment through mass retail channels, requiring greater levels of fulfillment
services in order to address the logistical challenges of supporting mass
retailers and consumer electronics retail stores.
GROWTH STRATEGY
The Company's primary strategies for building on its position as a
global leader in providing services to the growing wireless communications
industry include the following:
CAPTURE GROWING OUTSOURCING MARKET. The Company believes that
increasing government deregulation, competition and technological developments
within the wireless communications
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industry have caused manufacturers, network operators and resellers to focus
available internal resources on their core competencies, and to outsource an
increasing number of their product management functions to specialists such as
the Company, in an effort to reduce costs, increase productivity and improve
quality. The Company has positioned itself to capitalize on the growing trend
toward outsourcing by offering a wide variety of distribution and value-added
logistics services that effectively and efficiently move wireless handsets and
accessories through market channels. See "--Services."
EXPAND WORLDWIDE PRESENCE. The Company operates in worldwide markets.
For the year ended December 31, 1997, the Company's sales in markets outside of
North America represented approximately 74% of its total net sales, compared to
51% and 36% for the years ended December 31, 1996 and 1995, respectively.
The Company's four regional divisions, Asia-Pacific; North America;
Europe, Middle East and Africa; and Latin America, accounted for 42%, 26%, 24%
and 8%, respectively, of the Company's net sales for the year ended December
31, 1997. A summary of the Company's operations by division is presented below
(in thousands):
<TABLE>
<CAPTION>
NET SALES (BASED ON CUSTOMER LOCATION): 1997
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<S> <C>
Asia-Pacific $ 434,344
North America 267,941
Europe, Middle East and Africa 249,440
Latin America 83,924
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$1,035,649
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INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST:
Asia-Pacific $ 16,766
North America 11,316
Europe, Middle East and Africa 4,764
Latin America 4,081
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$ 36,927
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IDENTIFIABLE ASSETS:
Asia-Pacific $ 136,323
North America 154,925
Europe, Middle East and Africa 107,158
Latin America 58,296
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$ 456,702
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</TABLE>
In connection with its global expansion, the Company has created an
in-country presence in certain key markets throughout the world and intends to
continue to expand its international presence through internal growth at
existing locations, mergers and acquisitions, joint ventures, other strategic
alliances, and start-ups in new locations. During the last two years, the
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Company has significantly expanded its global presence through the acquisition
of Allied Communications (the United States and Latin America), the
acquisition of the business and certain net assets of each of Technology
Resources International Limited (China, including Hong Kong, and the United
Kingdom), Hatadicorp Pty Ltd. (Australia), Telnic AB (Sweden), Legend
International (Asia) Limited (China, including Hong Kong), and Cellular
Trading 3, C.A. and an affiliated company (Venezuela); the acquisition of the
wireless telephone business and certain net assets of Matel Tecnologia de
Teleinformatica S.A. - Matec (Brazil); and the formation, as start-ups, of
each of Brightpoint South Africa (Pty) Limited, Brightpoint Philippines, Inc.,
Brightpoint Middle East FZE (the United Arab Emirates), Brightpoint de
Argentina, S.A. and Brightpoint (Ireland) Limited.
LEVERAGE THE COMPANY'S EXPERIENCE AND EXPERTISE TO ASSIST CUSTOMERS IN
INTRODUCING NEW WIRELESS COMMUNICATIONS PRODUCTS AND TECHNOLOGIES. There are
continuously new wireless communications technologies and applications being
introduced into the wireless communications market, such as wireless local loop
and satellite-based communications, which are expected to contribute to future
subscriber growth. The Company's value-added logistics capabilities are, as a
result of their versatility, flexibility and broad-based application, virtually
indifferent to changes in telecommunications technologies and should integrate
well with the needs of the manufacturers, network operators-and resellers of new
wireless products and services. In addition, the Company already provides
distribution services for, and has established strong relationships with, many
of the wireless communications equipment manufacturers which the Company expects
to produce products utilizing these emerging technologies and applications.
These manufacturers include Nokia Mobile Phones Ltd. ("Nokia"), Ericsson Inc.
("Ericsson"), Siemens Ltd. ("Siemens"), Philips Consumer Communications
("Philips") and Samsung Telecommunications America, Inc. ("Samsung"). As a
result, the Company believes that it is well-positioned as a provider of
distribution and value-added logistics services to participate in the
proliferation of the new wireless communications technologies and products
currently entering the market or being developed.
MAINTAIN OPERATIONAL EXCELLENCE. The Company continuously seeks to
improve and streamline its distribution and process handling systems in terms
of quality, time and cost in order to establish itself as the most effective and
efficient market channel for wireless communications equipment. The Company's
operational excellence, achieved through its business systems and procedures,
proprietary information systems, state-of-the-art facilities and strong regional
management teams, allows the Company to develop strong relationships with both
the leading
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manufacturers of wireless communications equipment and its other suppliers and
customers. During 1997, the Company designed and implemented a detailed
business system and work flow procedures plan which the Company believes
enhances its ability to perform, and monitor the performance of, its
distribution and value-added logistics services. The Company's comprehensive
information systems, which the Company is in the process of integrating
throughout its global network, have given the Company the platform to develop
many proprietary solutions for its customers. These systems provide full
electronic data interchange capabilities and include proprietary modules for
order fulfillment, returns administration and a flexible service delivery
system in support of the Company's value-added logistics services. In the
first quarter of 1997, the Company completed an expansion of its
state-of-the-art operations center in Indianapolis, Indiana, increasing the
total size of such facility to 182,400 square feet and giving it the capacity
in North America necessary to assemble, package and fulfill approximately
25,000 units per day. During 1997, the Company also opened an operations
center in Sparks, Nevada and an additional facility in Indianapolis, which
together with the Company's other United States operations centers, gives the
Company the ability to serve every customer in the continental United States
with two-day ground rates. The Company has also entered into leases for
additional operations centers in Argentina, Brazil, Ireland, the Philippines
and South Africa, bringing to 16 the total number of operations centers
currently operated by the Company.
SERVICES
The Company has become one of the leading suppliers of distribution
and value-added logistics services that effectively and efficiently move
wireless handsets and accessories through market channels, primarily because of
its thorough understanding of the needs within each distribution channel and
its development of the knowledge and resources necessary to create successful
solutions. The Company currently provides services for some of the leading
manufacturers, network operators (both cellular and PCS) and resellers in the
wireless communications market.
DISTRIBUTION SERVICES. The Company's distribution services include
the purchasing, marketing, selling, warehousing, picking, packing, shipping,
and "just-in-time" delivery of a broad selection of wireless communications
products from leading manufacturers. The Company continually reviews and
evaluates wireless communications products in determining the mix of products
purchased for resale and seeks to acquire distribution rights for products
which the Company believes have the potential for significant market
penetration.
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The products distributed by the Company include a variety of handsets
designed to work on substantially all operating platforms (including analog
platforms, such as AMPS, N-AMPS, TACS and NMT, and digital platforms, such as
CDMA, GSM and TDMA) and feature prominent brand names such as Nokia, Ericsson,
Motorola, Siemens, Philips and Samsung. For each of the years ended December
31, 1996 and 1997, approximately 88% of the Company's net sales were derived
from handset sales.
In addition, the Company distributes handset accessories, such as
batteries, battery eliminators, plug-in chargers, cases, antennas and
"hands-free" kits. Among other things, the Company purchases and resells
original equipment manufacturer ("OEM") accessories, either prepackaged or in
bulk; it purchases OEM accessories in bulk and packages them according to its
customers' specifications; it purchases after-market accessories and packages
them according to its customers' specifications; and it packages and sells OEM
and after-market accessories under its own BrightLink(TM) name. Accessories
typically carry higher margins than handsets. For the years ended December 31,
1996 and 1997, sales of accessories accounted for approximately 11% and 6%,
respectively, of the Company's net sales.
VALUE-ADDED LOGISTICS SERVICES. The Company's value-added logistics
services include, among others, inventory management, product fulfillment,
programming, private labeling, light assembly, telemarketing, product warranty,
repair and refurbishment and end-user support services. In addition, the
Company has recently entered into contracts with network operators in
Australia, the Philippines and South Africa pursuant to which the Company
provides them with a wide range of value-added logistics services relating to
their wireless prepaid programs, including various inventory management,
product fulfillment and switch management services. The Company also procures
wireless handsets and accessories for its customers (using the Company's own
sources or the customers' specified vendors) and performs packaging and kitting
functions for them (whereby the Company receives orders, either directly from
customers or from customers' end-users, via electronic data interchange, and
then, on a "just-in-time" basis, makes shelf ready kits using customers'
customized packaging in satisfaction of the orders). For certain of its
customers, the Company also finances purchases of wireless handsets and
accessories up to an agreed upon credit limit. When the Company provides such
contract financing, it assumes the financial risk but typically not the risk of
obsolescence. When the customer consigns products to the Company for order
fulfillment, the financial risk and the risk of obsolescence both typically lie
with the customer.
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During the year ended December 31, 1997, the Company's fees for
value-added logistics services were approximately $58.2 million (6% of net
sales) as compared to approximately $3.4 million (less than 1% of net sales) in
the year ended December 31, 1996. Because the fees for such services have much
higher margins than those associated with handset and accessory sales, they
represent a higher than proportionate percentage of the Company's operating
profits. In addition, the Company believes that its value-added logistics
services will both expand the Company's customer base and create new revenue
streams from its existing customers.
CUSTOMERS
The Company provides distribution and value-added logistics services
to a customer base of more than 10,000 network operators, manufacturers,
agents, resellers, dealers and retailers. For each of the years ended December
31, 1996 and 1997, aggregate sales of handsets and accessories to the Company's
five largest customers accounted for approximately 15%, and no single customer
accounted for more than 10%, of the Company's net sales.
The Company generally sells its products pursuant to customer purchase
orders and ships product orders received the same day. Unless otherwise
requested, substantially all of the Company's products are delivered by common
carriers within two days of receipt of customer orders. Because orders are
filled shortly after receipt, backlog is not material to the Company's
business. The Company's value-added logistics services are typically provided
pursuant to one- to three-year, renewable agreements.
PURCHASING AND SUPPLIERS
The Company has established key relationships with leading
manufacturers of wireless communications equipment. The Company generally
negotiates directly with manufacturers and suppliers in order to ensure
adequate inventories of popular brand name products on favorable pricing terms.
In 1997, the Company purchased its products from more than 60 suppliers.
Inventory purchases are based on quality, price, service, customer demand,
product availability and brand name recognition. Certain of the Company's
suppliers provide favorable purchasing terms to the Company, including price
protection and cooperative advertising and marketing allowances. Product
manufacturers typically provide warranties which the Company extends to its
customers.
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For the years ended December 31, 1996 and 1997, the Company's three
largest sources of wireless handsets and accessories in the aggregate accounted
for approximately 51% and 65%, respectively, of the Company's product
purchases. For the year ended December 31, 1996, the Company's three largest
suppliers (Nokia, Ericsson and Lucent Technologies Inc.) accounted for
approximately 33%, 12% and 6%, respectively, of the Company's product
purchases. For the year ended December 31, 1997, the Company's three largest
suppliers (Nokia, Ericsson and Seimens) accounted for approximately 28%, 28%
and 9%, respectively, of the Company's product purchases. For these periods,
none of the Company's other suppliers accounted for more than 10% of product
purchases. Failure or delay by these or other suppliers in supplying
competitive products on favorable terms, or at all, would materially adversely
affect the Company's operating margins and the Company's ability to obtain and
deliver products on a timely and competitive basis. See "--Competition."
The Company maintains agreements with certain of its significant
suppliers, including Nokia, Ericsson and Philips. Pursuant to the Company's
most recent agreement with Nokia, the Company became Nokia's sole distributor
of wireless phones in the United States as of January 1, 1998. In addition,
the Company is Ericsson's sole distributor in the United States and Samsung's
sole distributor in the United States and Canada. Each of these three
agreements is subject to certain conditions and exceptions. Most of the
Company's other agreements with its suppliers (including its other territorial
distribution agreements with Nokia) are non-exclusive. The Company's supply
agreements typically require the Company to satisfy minimum purchase
requirements and can be terminated on short notice by either party. The
Company purchases products from other manufacturers and dealers pursuant to
purchase orders placed from time to time in the ordinary course of business.
The Company generally places orders to its suppliers by facsimile on a
daily basis. Purchase orders are typically filled within one to 21 days and
products are shipped to the Company's warehouses by common carrier. The Company
believes that its relationships with its suppliers are good.
SALES AND MARKETING
The Company's sales and marketing efforts are coordinated in each of
its four regional divisions by a Managing Director for that particular
division. Because of the service-oriented nature of the Company's business,
these executives devote a substantial amount of their time to developing and
maintaining relationships with the Company's customers in addition to managing
the overall operations of the division. Each division's sales offices are
managed by Sales Directors who report to the Managing Director of their
division and are responsible for the daily sales and
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operations of their particular sales office. Each division has telemarketers
who specialize in or focus on telephone sales to a particular type of customer
(e.g. network operator, dealer, reseller, other distributor, retailer, etc.).
In addition, the Company markets its value-added logistics services through the
Sales Directors in each of its four regional divisions and through dedicated
sales personnel. Including support personnel, the Company had approximately
160 employees involved in sales and marketing at December 31, 1997, including
40 in its Asia-Pacific division, 70 in its North America division, 40 in its
Europe, Middle East and Africa division and 10 in its Latin America division.
The Company believes that product recognition by customers and
consumers is an important factor in the marketing of the products sold by the
Company. Accordingly, the Company promotes itself and certain of its product
lines through advertising in trade publications and attendance at
international, national and regional trade shows, as well as through direct
mail solicitation, broadcast faxing and its telemarketing activities. The
Company's manufacturers and dealers use a variety of methods to promote their
products directly to consumers, including print and media advertising based on
product features. In addition, the Company has dedicated a professional sales
force to further its sales of contractual value-added logistics services.
SEASONALITY
The Company's sales are influenced by a number of seasonal
factors associated with consumer electronics and retail sales which tend to
result in increased volume in the latter part of the calendar year. The
overall growth of the Company's business has reduced the impact of such factors
on the Company's operating results. However, seasonality contributed to the
increase in the Company's sales in the fourth quarter of 1997.
COMPETITION
The Company operates in a highly competitive market and believes that
such competition will intensify in the future. The markets for wireless
communications products are characterized by intense price competition and
significant price erosion over the life of a product. The Company competes
principally on the basis of value (in terms of price, time and reliability),
service and product availability. The Company competes with numerous
well-established manufacturers and wholesale distributors of wireless
equipment, including the Company's customers and suppliers, as well as with
wireless network operators, including the Company's customers, and logistics
service providers, some of which possess substantially greater financial,
marketing, personnel and other resources than the Company. Certain of these
competitors have the financial resources necessary to withstand
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substantial price competition and implement extensive advertising and
promotional campaigns, both generally and in response to efforts by additional
competitors to enter into new markets or introduce new products.
The wireless communications equipment distribution industry has, in
the past, been characterized by low barriers to entry. However, as the market
requirement shifts from pure distribution services to a mix of distribution
services and value-added logistics services, entry barriers are expected to
rise due to the increased cost of infrastructure, the expanded human resource
requirement and the advanced management and information systems capabilities
that the value-added logistics services segment of the business mandates. The
Company's ability to continue to compete successfully will be largely dependent
on its ability to anticipate and respond to various competitive factors
affecting the industry, including new or changing outsourcing requirements, new
products which may be introduced, changes in consumer preferences, demographic
trends, international, national, regional and local economic conditions
(particularly recessionary conditions adversely affecting consumer spending)
and discount pricing strategies and promotional activities by competitors.
In the Asia-Pacific wireless product distributor market, the Company's
primary competitors are national carriers that have retail outlets with direct
end-user access and United States and foreign-based exporters and distributors,
including CellStar Corporation ("CellStar"), Techglory International Ltd. (in
Hong Kong) and Telepacific Pty Limited (in Australia). Competitors of the
Company in its North America division include network operators and other
dedicated wireless distributors such as CellStar and Pana Pacific, Inc. The
Company also competes with logistics service providers in its North America
operations, such as United Parcel Service of America, Inc. and TESSCO
Technologies Incorporated. In the Company's Europe, Middle East and Africa
division its competitors include wireless equipment manufacturers who sell
directly to the region's network operators and retailers, as well as the
network operators themselves and other distributors, such as 20/20 Logistics
Ltd. (formerly Caudwell Communications), European Telecom plc and Banner Twin
Choice plc. In the Latin America division the Company competes primarily with
CellStar and various other distributors.
The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, the Company's
success is dependent upon its ability to anticipate technological changes in
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the industry and to continually identify, obtain and successfully market new
products that satisfy evolving industry and customer requirements. The use of
alternative wireless technologies, including wireless local loop and
satellite-based communications systems, may reduce demand for existing cellular
and PCS products. Upon widespread commercial introduction, new wireless
technologies could materially change the types of products sold by the Company
and its suppliers and result in significant price competition. In addition,
products that reach the market outside of normal distribution channels, such as
"gray market" resales (e.g., unauthorized or illegal resales, which may avoid
applicable duties and taxes), may also have an adverse impact on the Company's
operations.
Although the Company believes that the scope and efficiency of its
value-added logistics services will provide it with a competitive advantage in
the distribution sector of the industry as well, there can be no assurance that
the Company will be able to continue to compete successfully in the future.
INFORMATION SYSTEMS
The Company's continued operational excellence will be partially
dependent on the functionality, performance and utilization of its information
systems. During 1996, the Company successfully implemented a comprehensive
Informix-based information system which currently maintains financial and
management controls for its operations through the use of a centralized
accounting system and a computerized management information system for its
North America division and part of its Latin America division. During the
years ended December 31, 1996 and 1997, the Company invested approximately $5.9
million and $11.1 million, respectively, in continued development and
enhancement of the system to provide electronic data interchange capabilities,
create proprietary solutions for its customers and provide a flexible service
delivery system in support of its value-added logistics services and intends to
use additional funds to integrate this information system throughout its four
divisions. The Company's information systems department has grown
substantially in resources, both through increased software and hardware and
additional employees. At December 31, 1997, there were over 65 employees in
the Company's information systems departments.
EMPLOYEES
As of December 31, 1997, the Company had approximately 675 employees,
160 in its Asia-Pacific division, 390 in its North America division, 100 in
its Europe, Middle East and Africa division and 25 in its Latin America
division. Of these employees, approximately 25
-14-
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Issuances of Unregistered Securities during the Quarter ended December
31, 1997
During the quarter ended December 31, 1997, the Company granted 161,344
shares of Common Stock to a principal of the seller in connection with the
Company's acquisition of Legend International (Asia) Limited and five-year
warrants to purchase 200,000 shares of Common Stock at $15.44 per share to a
principal of the seller in connection with the Company's acquisition of Cellular
Trading 3, C.A.
Price Range of Common Stock
The Common Stock is quoted on the Nasdaq National Market under the
symbol "CELL." The following table sets forth, on a per share basis, the high
and low sales prices of the Common Stock for the periods indicated, as reported
by the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year Ended December 31, 1996:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . $ 5.33 $ 3.60
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . 8.13 4.53
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 6.97 5.00
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . 12.10 6.13
Year Ended December 31, 1997:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . 12.50 8.13
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . 17.44 8.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 23.38 13.88
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . 24.25 11.50
</TABLE>
On February 17, 1998, the last reported sale price of the Common Stock
on the Nasdaq National Market was $19.25 per share. At February 17, 1998,
there were approximately 273 stockholders of record.
Dividend Policy
The Company has not paid cash dividends on its Common Stock other than
S corporation distributions made to its stockholders prior to the Company's
initial public offering in April 1994 and S corporation distributions made to
the stockholders of Allied Communications relating to periods prior to the
Allied Merger. The Board of Directors intends to continue a policy of
retaining earnings to finance the Company's anticipated growth and development
of its business and does not expect to declare or pay any cash dividends in the
foreseeable future. In addition, the declaration or payment of cash dividends
is prohibited under the terms of the Company's agreements relating to the
Company's line of credit facility with the Banks.
-16-
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA.
The following tables sets forth selected consolidated financial data
for each of the years in the five-year period ended December 31, 1997. The
consolidated statements of income data and balance sheet data for and as of the
end of each of such years are derived from the audited Consolidated Financial
Statements of the Company. The following selected consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements, including the notes thereto, appearing elsewhere herein:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME DATA(1):
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . $151,315 $309,227 $419,149 $589,718 $1,035,649
Cost of sales . . . . . . . 140,617 290,463 390,950 543,878 950,478
-------- -------- -------- -------- --------
Gross profit . . . . . . . 10,698 18,764 28,199 45,840 85,171
Selling, general and
administrative expenses . 7,418 11,095 14,813 20,849 43,309
-------- -------- -------- -------- --------
Income from operations . . 3,280 7,669 13,386 24,991 41,862
Merger expenses . . . . . . - - - 2,750 -
Net investment gain(2) . . - - - - 1,432
Interest expense . . . . . 103 164 1,383 2,118 6,367
-------- -------- -------- -------- --------
Income before income taxes
and minority interest . . 3,177 7,505 12,003 20,123 36,927
Income taxes(3) . . . . . . - 1,623 3,838 7,328 11,065
-------- -------- -------- -------- --------
Income before minority
interest . . . . . . . . 3,177 5,882 8,165 12,795 25,862
Minority interest in
subsidiaries' earnings . - - - 1,758 352
-------- -------- -------- -------- --------
Net income . . . . . . . . $ 3,177 $ 5,882 $ 8,165 $ 11,037 $ 25,510
======== ======== ======== ======== ========
Pro forma net income(4) . . $ 1,928 $ 4,555 $ 7,307 $ 12,622
======== ======== ======== ========
Net income per share
(pro forma for 1993
through 1996):
Basic . . . . . . . . . $ 0.10 $ 0.17 $ 0.22 $0.31 $0.55
Diluted . . . . . . . . $ 0.10 $ 0.16 $ 0.21 $0.30 $0.53
Weighted average common
shares outstanding:
Basic . . . . . . . . . 19,782 27,454 32,876 40,743 46,630
Diluted . . . . . . . . 19,782 27,848 34,208 42,279 48,461
</TABLE>
-17-
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA(1):
DECEMBER 31,
------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital . . . . . . . $ 7,039 $20,960 $ 62,219 $143,481 $281,320
Total assets . . . . . . . . 31,283 82,845 119,787 299,045 456,702
Long-term obligations . . . . 5,577 1,346 602 79,894 146,963
Stockholders' equity . . . . 3,485 20,283 64,857 94,982 199,291
</TABLE>
- ----------------
(1) On June 7, 1996, the Company completed the Allied Merger. The
transaction was accounted for using the pooling-of-interests method
and, accordingly, the Company's Consolidated Financial Statements
reflect the consolidated balance sheets and consolidated results of
operations of both the Company and Allied Communications as if the
Allied Merger had been in effect for all periods presented. See Note 2
of Notes to Consolidated Financial Statements.
(2) During 1997, the Company realized a gain, net of transaction costs,
including related bonuses to certain key employees, of approximately
$8.3 million on the sale of an equity investment. In addition, the
Company recorded $6.9 million of losses relating to other debt and
equity investments. Excluding the impact of the resulting net
investment gain of $1.4 million and related income taxes, net income
and net income per share (diluted) for the year ended December 31,
1997 would have been $24.7 million and $0.51, respectively. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 3 of Notes to Consolidated Financial
Statements.
(3) Prior to consummation of the Company's initial public offering in
April 1994, the stockholders of the Company had elected for the
Company to be treated as an S corporation. Accordingly, the income of
the Company was included in the stockholders' own income for tax
purposes, and the Company was subject to neither federal nor state
income taxes, until the Company's election under Subchapter S was
terminated on April 14, 1994. Prior to the Allied Merger, the
stockholders of Allied Communications had also elected treatment under
Subchapter S. Concurrent with the Allied Merger, on June 7, 1996,
Allied Communications' elections under Subchapter S were also
terminated. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 1 of Notes to
Consolidated Financial Statements.
(4) Pro forma net income amounts assume that each of the Company and
Allied Communications was subject to income taxes, and taxed at the
rates then in effect, for all periods presented and exclude the
after-tax effect ($2.1 million) of one-time merger expenses incurred in
1996 in connection with the Allied Merger. See Notes 1 and 2 of Notes
to Consolidated Financial Statements.
-18-
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto.
Effective June 7, 1996, the Company completed the Allied Merger
through the exchange of 7,593,750 newly issued shares of Common Stock of the
Company for all of the outstanding shares of common stock of Allied
Communications. The Allied Merger was accounted for using the
pooling-of-interests method and, consistent with such accounting treatment,
financial information presented herein for all periods reflects the combined
financial condition and results of operations of the Company and Allied
Communications.
Effective August 1, 1996, the Company completed the formation of
Brightpoint International Ltd. ("BIL"), a joint venture with Technology
Resources International Limited ("TRI"), owned 50% by the Company and 50% by
TRI. In November 1996, the Company acquired TRI's 50% ownership interest in
BIL in consideration of 1,500,000 unregistered shares of Common Stock and $5
million in cash. In October 1996, BIL acquired the business and certain assets
of Hatadicorp Pty Ltd. ("Hatadi") based in Sydney, Australia in consideration
of $2.8 million in cash and a note payable, plus a 20% ownership interest in
Brightpoint Australia Pty Ltd. (an indirect subsidiary of BIL). Both of these
combinations were accounted for using the purchase method.
In March and April of 1997, the Company acquired the remaining 20%
ownership interests in Brightpoint China Limited, Brightpoint (UK) Limited and
Brightpoint Australia Pty Limited for an aggregate consideration of 464,490
unregistered shares of Common Stock and $1.5 million in cash. In June 1997,
August 1997 and October 1997, the Company, acquired the businesses and certain
net assets of Telnic AB located in Gothenburg, Sweden, Legend International
(Asia) Limited located in Hong Kong, and Cellular Trading 3, C.A. (and an
affiliated company) located in Caracas, Venezuela, respectively, for an
aggregate consideration of 161,344 unregistered shares of Common Stock, $5.1
million in cash, and contingent cash payments of up to $14 million based upon
future operating results of the applicable businesses over the next two to four
years.
In addition, during January 1998, the Company acquired the wireless
telephone distribution business and certain net assets of Matel-Tecnologia de
Teleinformatica S.A. - Matec ("Matec") located in Sao Paulo, Brazil in
consideration of $3.5 million in cash plus a 10% ownership interest in the
subsidiary formed by the Company for the purpose of making such acquisition.
The Company completed 5-for-4, 3-for-2, 5-for-4 and 2-for-1 stock
splits in September 1995, December 1996, March 1997 and November 1997,
respectively, each in the form of a stock dividend. Accordingly, all
information included herein gives effect to such stock splits.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of net sales represented by certain items reflected in the Company's
statements of income:
-19-
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of sales . . . . . . . . . . . . . . . . . 93.3 92.2 91.8
---- ---- -----
Gross profit . . . . . . . . . . . . . . . . . 6.7 7.8 8.2
Selling, general and
administrative expenses . . . . . . . . . . 3.5 3.6 4.2
--- --- ---
Income from operations . . . . . . . . . . . . 3.2 4.2 4.0
Merger expenses . . . . . . . . . . . . . . . . -- 0.5 --
Net investment gain . . . . . . . . . . . . . . -- -- 0.1
Interest expense . . . . . . . . . . . . . . . 0.3 0.3 0.6
--- --- ---
Income before income taxes and minority
interest . . . . . . . . . . . . . . . . . 2.9 3.4 3.5
Income taxes . . . . . . . . . . . . . . . . . 1.0 1.2 1.0
--- --- ---
Income before minority interest . . . . . . . . 1.9 2.2 2.5
Minority interest in subsidiaries' earnings . . -- 0.3 --
---- ---- ----
Net income . . . . . . . . . . . . . . . . . . 1.9% 1.9% 2.5%
=== ==== ====
Pro forma net income . . . . . . . . . . . . . 1.7% 2.1%
=== ====
</TABLE>
The Company's net sales are comprised of sales of wireless handsets,
sales of related accessories and fees generated from value-added logistics
services. The Company's value-added logistics services include, among others,
support of prepaid programs, inventory management, procurement, product
fulfillment, programming, light assembly, telemarketing, private labeling,
kitting and customized packaging, financing, product warranty, repair and
refurbishment and end-user support services. Although fees for these
value-added logistics services represent a relatively small percentage of net
sales (6% for 1997), their impact on the Company's gross profit is much
greater. Compensation for the Company's distribution services, which services
include, purchasing, marketing, selling, warehousing, picking, packing,
shipping and "just-in-time" delivery, is included in the gross profit earned by
the Company through the purchases and sales of wireless handsets and related
accessories.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased by 76% to $1,035.6 million for 1997
from $589.7 million for 1996, reflecting continued strong worldwide demand for
wireless handsets and related accessories. The increased demand for wireless
products was fueled by, among other things, increasing penetration of wireless
handsets in many markets worldwide and by increased demand for replacement or
upgraded equipment. The increase in net sales was primarily attributable to an
87% increase in the number of wireless handsets sold and a 7% increase in the
Company's average selling price per wireless handset. This increase in average
selling price was the result of significant sales growth in markets where sales
are concentrated in higher priced digital handsets.
Sales of wireless handsets, sales of related accessories and fees
generated from value-added logistics services represented 88%, 6% and 6%,
respectively, of net sales for 1997 compared to 88%, 11% and 1%, respectively,
of net sales for 1996. Total units handled (handsets sold by the Company or
handsets on which the Company has performed its value-added logistics
services) in 1997 increased by more than 80% from those handled in the prior
year.
The Company operates in worldwide markets and conducts its business
activities through its four organizational divisions: Asia-Pacific; North
America; Europe, Middle East and Africa; and Latin America.
-20-
<PAGE> 20
<TABLE>
<CAPTION>
(Less than 1%)
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
---- ----
<S> <C> <C>
Net sales by division:
Asia-Pacific . . . . . . . . . .. . . 21% 42%
North America . . . . . . . . .. . . 49 26
Europe, Middle East and Africa .. . . 13 24
Latin America . . . . . . . . .. . . 17 8
</TABLE>
Within the Asia-Pacific division, the Company maintains operations in
China (including Hong Kong) (32% of total 1997 sales), Australia (9% of total
1997 sales) and the Philippines (1% of total 1997 sales). Sales in the
Asia-Pacific division grew significantly in 1997 compared to 1996 as the
Company continued to penetrate these markets through both internal growth and
acquisitions within key markets.
The operations of the Company's North America division are conducted
primarily within the United States. In its North America division, units
handled by the Company in 1997 increased 58% from 1996 due primarily to an
increase in the Company's value-added logistics services. In the many cases in
which the Company performs value-added logistics services on products, only
service fees (rather than product sales) are recorded as sales, although such
service fees typically generate higher margins. As a result of the increase in
units handled by the Company for which only service fees are recorded as
revenue, sales dollars in North America were slightly lower in 1997 than in
1996.
Within the Europe, Middle East and Africa division, the Company
operates in the United Kingdom (15% of total 1997 sales), South Africa (5% of
total 1997 sales), Sweden (3% of total 1997 sales), Ireland (less than 1% of
total 1997 sales) and the United Arab Emirates (less than 1% of total
1997 sales). Sales in this division of total 1997 sales improved during 1997
compared to 1996 due to the significant growth in units handled within all of
the region's entities.
The Company's Latin America division has operations in Miami, Florida
and Venezuela, as well as operations in Argentina and Brazil which were added
in early 1998. Sales in the Latin America division decreased slightly in 1997
when compared to 1996 due to a planned reduction in sales to other
distributors, as the Company focused on its strategies of building its
in-country presence in Latin America and selling directly to network operators.
GROSS PROFIT. Gross profit increased by 86% to $85.2 million for 1997
from $45.8 million for 1996, due to increased sales and increasing gross margin
percentages (8.2% for 1997 as compared to 7.8% for 1996). The increase in
gross margin was primarily due to the continuing execution of the Company's
strategy to provide higher-margin value-added logistics services, as well as
to increased sales in certain markets, and to certain customers, from which the
Company generated higher margins. In addition, the Company continued its
disciplined effort to reduce sales to other distributors in the North and Latin
America markets as such sales have traditionally generated lower gross margins
than sales made to network operators or their representatives.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 108% to $43.3 million for 1997 from $20.8
million for 1996. As a percentage of net sales, selling, general and
administrative expenses increased to 4.2% for 1997 as compared to 3.6% for
1996. This increase was due primarily to the Company's increased business
activities and includes the addition of extensive managerial resources in all
of the Company's operating divisions. These planned additions to available
resources are necessary to support the increasing demands placed on the Company
for its value-added logistics services and due to the additional growth
forecasted for both the Company's distribution and
-21-
<PAGE> 21
value-added logistics services. The increase was also due to depreciation and
amortization expenses resulting from investments associated with information
systems, leasehold improvements and acquisitions as well as increased rent
expense due to expanded facilities, an increase in the allowance for doubtful
accounts and growth in various marketing costs including travel, promotions and
commissions.
INCOME FROM OPERATIONS. Income from operations increased by 68% to
$41.9 million for 1997 from $25.0 million for the prior year, while the
operating margin (income from operations as a percent of net sales) decreased
to 4.0% in 1997 from 4.2% in 1996. The increase in income from operations was
due to the increase in net sales, while the decrease in operating margin was a
result of an increase in selling, general and administrative expenses as a
percent of net sales, partially offset by an increase in gross margin.
NET INCOME AND PRO FORMA NET INCOME. Net income increased by 102% to
$25.5 million in 1997 from pro forma net income of $12.6 million in 1996. This
increase was the result of increased income from operations, a $1.4 million net
investment gain (as described below) and a decrease in the effective income tax
rate to 30% in 1997 from 37% (pro forma) in 1996, partially offset by an
increase in interest expense relating to bank debt obtained to fund working
capital requirements. The decrease in the effective income tax rate was due
primarily to increased earnings in tax jurisdictions with lower statutory
rates. In addition, minority interest in subsidiaries' earnings
decreased due to the Company's purchase of all significant minority interests
in the fourth quarter of 1996 and the first and second quarters of 1997.
Generally accepted accounting principles require that certain charges
related to pooling-of-interests transactions be expensed in the period in which
the transaction is consummated. Such charges related to the Allied Merger, in
the amount of $2.1 million net of applicable taxes, were recognized as expense
in the quarter ended June 30, 1996. Pro forma amounts exclude the effect of
this one-time charge.
Prior to the Allied Merger, Allied Communications had elected to be
treated as a Subchapter S corporation and was, therefore, not subject to
federal and state income taxes. Pro forma amounts provide for income taxes on
the income not previously taxed at the corporate level.
Net income per share (diluted) increased by 77% to $0.53 for 1997 from
pro forma net income per share (diluted) of $0.30 for 1996. During
1997, there were approximately 48.5 million weighted average common shares
outstanding (diluted) as compared to approximately 42.3 million such shares
during 1996. This increase was due primarily to shares issued in connection
with the Company's August 1997 public offering and the 1997 acquisitions, as
well as to the impact of the exercise of stock options and warrants.
During 1997, the Company realized a gain on the sale of an equity
investment. The gain, net of transaction costs, including related bonuses to
certain key employees, was approximately $8.3 million. In addition, on March
31, 1997, Pocket filed for protection under Chapter 11 of the U.S. Bankruptcy
Code. Accordingly, the Company also recorded $6.9 million of losses on its
investments in Pocket and two smaller equity investments during 1997.
Excluding the impact of the net investment gain of $1.4 million and related
income taxes, net income per share (diluted) for 1997 would have been $0.51.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased by 41% to $589.7 million in 1996 from
$419.1 million in the prior year, as worldwide demand for wireless handsets and
related accessories continued to accelerate. The increased demand for wireless
products was fueled by, among other things, increasing penetration of wireless
handsets in many markets worldwide and by increased demand for replacement or
upgraded equipment.
The number of wireless handsets sold by the Company increased by 24% in 1996
compared to 1995. In addition, while period-to-period average selling prices
for wireless handsets have historically declined significantly, the average
selling price of wireless handsets sold by the Company in 1996 increased by
approximately 3% due primarily to an increase in sales of higher-priced digital
wireless handsets.
Sales of wireless handsets, sales of related accessories and fees
generated from value-added logistics services were 88%, 11% and 1%,
respectively, of net sales for 1996. Sales of wireless handsets and related
-22-
<PAGE> 22
accessories were 86% and 14%, respectively, of net sales for 1995. Total units
handled in 1996 increased by more than 50% from those handled in the prior
year.
The Company completed its merger with Allied Communications in June
1996 and formed its joint venture relating to BIL in August 1996. This
commitment to the Europe, Middle East and Africa, Asia-Pacific and Latin
America markets, resulted in significant sales growth in markets outside of
North America.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------
1995 1996
-------- --------
<S> <C> <C>
Net sales by division:
Asia-Pacific . . . . . . . . . . . . . . . . . . . . . . . . . 2% 21%
North America . . . . . . . . . . . . . . . . . . . . . . . . 64 49
Europe, Middle East and Africa . . . . . . . . . . . . . . . . 11 13
Latin America . . . . . . . . . . . . . . . . . . . . . . . . 23 17
</TABLE>
GROSS PROFIT. Gross profit increased by 63% to $45.8 million in 1996
from $28.2 million in 1995, due to the increase in wireless handset sales and
the increase in the gross margin (7.8% for 1996 as compared to 6.7% for 1995).
The increase in gross margin was due to the execution of the Company's strategy
to provide higher-margin value-added logistics services, as well as increased
sales of units on which the Company earns higher margins. In addition, the
Company made a concerted effort to reduce sales to other distributors in the
North and Latin America markets. Although this disciplined change in the North
and Latin America sales mix accounted for slower growth in those markets, the
result was an enhancement in the Company's gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 41% to $20.8 million in 1996 from $14.8
million in 1995, due primarily to the increased business activities of the
Company and acquisitions which opened new markets to the Company. The Company
increased its staff in several areas during the year, including management,
operations, sales and marketing, and information systems. These staff
enhancements were necessary to support the expanded level of business generated
by the Company. This increase was also due to increases in depreciation
expense related to investments in information systems and leasehold
improvements, rent expense due to expanded facilities and various marketing
costs including travel, promotions and commissions. Selling, general and
administrative expenses, as a percentage of net sales, remained relatively
constant.
INCOME FROM OPERATIONS. Income from operations increased by 87% to
$25.0 million in 1996 from $13.4 million in 1995. This increase was due
primarily to increases in net sales and the Company's ability to enhance its
gross margin while holding selling, general and administrative expenses
relatively constant as a percent of net sales.
PRO FORMA NET INCOME. Pro forma net income increased by 73% to $12.6
million in 1996 from $7.3 million in 1995. This increase was a result of
increased income from operations partially offset by interest expense relating
primarily to bank debt obtained for working capital purposes and by the income
attributable to minority interests.
-23-
<PAGE> 23
Pro forma net income per share (diluted) increased by 43% to $0.30 in
1996 from $0.21 in 1995. During 1996, there were approximately 42.3
million weighted average common shares outstanding (diluted) as compared to
approximately 34.2 million such shares during 1995. This increase was
due primarily to the shares issued by the Company in connection with its
acquisition of TRI's 50% ownership interest in BIL during the fourth quarter of
1996 and the impact of the exercise of stock options and warrants.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial
information for each of the eight quarters in the two-year period ended
December 31, 1997. In the opinion of the Company's management, this
information has been prepared on the same basis as the Consolidated Financial
Statements appearing elsewhere herein and includes all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the financial
results set forth herein. Results of operations for any previous quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- ------------ ------------ --------- --------- -------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . . $ 112,960 $ 119,896 $ 145,290 $ 211,572 $ 199,169 $ 220,027 $ 243,210 $ 373,243
Cost of sales . . . 105,032 111,414 133,036 194,396 183,167 202,013 222,576 342,722
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit . . . 7,928 8,482 12,254 17,176 16,002 18,014 20,634 30,521
Selling, general
and administrative
expenses . . . . 3,677 4,090 5,105 7,977 8,096 9,040 10,836 15,337
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations . . . 4,251 4,392 7,149 9,199 7,906 8,974 9,798 15,184
Merger expenses . . - 2,750 - - - - - -
Net investment gain - - - - 1,432 - - -
Interest expense . 184 439 549 946 1,123 1,983 1,283 1,978
--------- --------- --------- --------- --------- --------- --------- ---------
Income before
income taxes
and minority
interest . . . . 4,067 1,203 6,600 8,253 8,215 6,991 8,515 13,206
Income taxes . . . 1,165 806 2,349 3,008 2,443 2,097 2,557 3,967
--------- --------- --------- --------- --------- --------- --------- ---------
Income before
minority interest 2,902 397 4,251 5,245 5,772 4,894 5,958 9,239
Minority interest
in subsidiaries' - - 1,042 716 356 27 30 (60)
earnings . . . . --------- --------- --------- --------- --------- --------- --------- ---------
Net income . . . . $ 2,902 $ 397 $ 3,209 $ 4,529 $ 5,416 $ 4,867 $ 5,928 $ 9,299
========= ========= ========= ======== ========= ========= ========= =========
Pro forma net
income . . . . . $ 2,477 $ 2,407
========= =========
As a percentage of
net sales:
Net sales . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit . . 7.0 7.1 8.4 8.1 8.0 8.2 8.5 8.2
Selling, general
and administrative
expenses . . . 3.2 3.4 3.5 3.8 4.0 4.0 4.5 4.1
Income from
operations . . 3.8 3.7 4.9 4.3 4.0 4.1 4.0 4.1
Net income (pro
forma for first two
quarters of 1996) 2.2 2.0 2.2 2.1 2.7 2.2 2.4 2.5
</TABLE>
The Company's sales are influenced by a number of seasonal factors
associated with consumer electronics and retail sales which tend to result in
increased volume in the latter part of the calendar year. The overall growth
of the Company's business has reduced the impact of such factors on the
Company's
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<PAGE> 24
operating results. However, seasonality contributes to the increase in the
Company's sales in the fourth quarter of its fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements have been to fund increased
levels of accounts receivable and inventories resulting from its growth and to
fund capital expenditures, acquisitions and contract financing receivables.
The Company has historically satisfied its working capital requirements
principally through cash flow from operations, vendor financing, bank
borrowings, proceeds and tax benefits from the exercise of stock options and
the issuance of equity securities.
At December 31, 1997, the Company had working capital of approximately
$281.3 million compared to working capital of approximately $143.5 million at
December 31, 1996. This increase in working capital was primarily attributable
to an increase in accounts receivable and contract financing receivables and a
decrease in accounts payable partially offset by a decrease in inventory. This
increase in working capital was funded by the Company's August 1997 public
offering and by bank borrowings.
Net cash used by operating activities was approximately $129.2 million
for the year ended December 31, 1997, as compared to approximately $31.5
million for the year ended December 31, 1996. The increase in cash used by
operating activities for 1997 was primarily attributable to an increase in
working capital (exclusive of the increase in contract financing receivables),
partially offset by the net income earned. Net cash used by investing
activities was approximately $31.6 million for 1997, as compared to
approximately $30.6 million for 1996. The increase in cash used by investing
activities in 1997 was primarily attributable to capital expenditures for the
purchase of information systems equipment and software, the expansion of the
Company's operations center in Indianapolis, Indiana, the opening of a west
coast operations center in Sparks, Nevada, the acquisitions completed in 1997,
the continued expansion of international operations and the increase in
contract financing receivables, partially offset by the sale of the Company's
investment in certain marketable securities. Net cash provided by financing
activities was approximately $150.5 million for 1997, as compared to
approximately $76.0 million for 1996. The net cash provided by financing
activities in 1997 was primarily due to the Company's August 1997 public
offering, borrowings under the Company's credit facilities and proceeds
and tax benefits from the exercise of stock options, while net cash provided by
financing activities in 1996 was primarily due to borrowings under the
Company's credit facility and proceeds and tax benefits from the exercise of
stock options. At December 31, 1997, the Company had cash, cash equivalents
and marketable securites of approximately $6.4 million.
On June 24, 1997, the Company entered into a $200 million five-year
senior secured revolving credit facility with The First National Bank
of Chicago and Bank One, Indiana, NA, as co-agents for a group of banks
(collectively, the "Banks"). The line of credit matures in June 2002 and
generally bears interest, at the Company's option, at (i) the greater of The
First National Bank of Chicago's corporate base rate and the Federal funds
effective rate plus 0.50% (the "Base Rate") or (ii) the rate at which deposits
in United States dollars or Eurocurrencies are offered by The First National
Bank of Chicago to first-class banks in the London interbank market plus a
spread ranging from 40 to 112.5 basis points (based on the Company's leverage
ratio as defined in the credit agreement) plus a spread reserve, if any, and
provides the Company with the ability to borrow in multiple currencies and thus
to use the facility for its global working capital needs. Borrowings by the
Company's non-United States subsidiaries bear interest at various rates
negotiated with the applicable lenders based on the type and term of advance
selected and the prevailing interest rates of the country in which the
subsidiary is domiciled. At December 31, 1997, there was approximately $147
million outstanding at interest rates ranging from 5.0%
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<PAGE> 25
to 14.5% (a weighted average rate of 8.2%) and an aggregate of $12 million in
letters of credit outstanding under this credit facility, with $41 million of
credit available.
All of the Company's assets located in the United States and 65% of
the capital stock of the Company's subsidiaries domiciled outside of the United
States are pledged to the Banks as collateral, and the Company is substantially
prohibited from incurring additional indebtedness, either of which terms could,
under certain circumstances, limit the Company's ability to implement its
expansion plans. In addition to certain net worth and other financial
covenants, the Company's loan agreement with the Banks limits or prohibits the
Company, subject to certain exceptions, from declaring or paying cash
dividends, making capital distributions or other payments to stockholders,
merging or consolidating with another corporation or selling all or
substantially all of its assets.
In August 1997, the Company consummated a public offering of 5,400,000
shares of Common Stock by the Company and an additional 4,600,000 shares of
Common Stock on behalf of two stockholders (the "Selling Stockholders").
Upon consummation of the offering, the Selling Stockholders, who were former
stockholders of Allied Communications, resigned as members of the Company's
Board of Directors pursuant to an agreement with the Company. The proceeds to
the Company of approximately $75 million (net of estimated expenses) were used
to reduce the borrowings outstanding on its credit facility.
The Company has generated five-year compounded annual growth in net
sales and pro forma net income through 1997 in excess of 60% and 87%,
respectively. In order to fund the working capital necessary for this
level of growth, the Company successfully raised over $350 million of capital
(using an appropriate combination of both debt and equity capital). The
Company anticipates that to maintain similar growth in the future, it will be
necessary to continue to raise additional capital during 1998, while
maintaining appropriate leverage ratios.
The Company has increasingly emphasized the sale of products on open
account terms and has purchased increased levels of inventories to support an
expanding customer base, which resulted in increased accounts receivable days
outstanding and a decrease in inventory turns in 1996. While, in 1997, the
accounts receivable days outstanding decreased and inventory turns increased,
the Company continues to emphasize open account terms and maintains appropriate
levels of inventory to support its expanding customer base. In addition, the
Company began, in 1997, to offer financing of inventory and receivables to
certain customers under contractual arrangements.
Trade accounts receivable are generated through sales to
network operators, agents, resellers, dealers and retailers in the wireless
communication industry and are dispersed throughout the world, including Asia
and the Pacific Rim, North America, Europe, the Middle East, Africa and Latin
America. Contract financing receivables are generated through financing
transactions with network operators and their agents located in the North
American wireless communication market.
At December 31, 1997, the Company's allowance for doubtful accounts
was $3.4 million, which the Company believes was adequate for the size and
nature of its receivables at that date. Bad debt expense accounted for less
than 1% of the Company's net sales in each of 1995, 1996 and 1997.
Nevertheless, the Company's accounts receivable and contract financing
receivables are concentrated with network operators, agent dealers and mass
retailers and delays in collection or the uncollectibility of accounts
receivable or contract financing receivables could have a material adverse
effect on the Company's liquidity, working capital position and results of
operations. In connection with the Company's expanded operations, the Company
has offered open account terms to additional customers in various
worldwide markets, which subjects the Company to increased credit risk,
particularly in foreign markets, and could require the Company to increase its
allowance for doubtful accounts. The Company believes that the ability to
offer these credit terms provides it with a competitive advantage.
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<PAGE> 26
The Company seeks to minimize losses on credit sales by closely
monitoring its customers' credit worthiness and by seeking to obtain letters of
credit or similar security in connection with certain open account sales.
FOREIGN OPERATIONS AND FOREIGN CURRENCY
The Company transacts business in worldwide markets and its operations
outside of the United States have accounted for an increasing portion of the
Company's business. Accordingly, the Company's future results could be
adversely effected by a variety of factors, including changes in a specific
country's political, economic or regulatory conditions, trade protection
measures and failure or material interruption of wireless systems and services.
The Company is also exposed to foreign currency exchange rate risk
inherent in its assets, liabilities and results of operations denominated in
currencies other than the U.S. dollar, as well as interest rate risk inherent
in the Company's debt. A significant portion of the Company's operations are
located outside the United States in countries such as China (including Hong
Kong), the United Kingdom, Australia, Sweden, South Africa, the Philippines and
Brazil and other Latin America countries. The financial statements of these
operations are denominated in the local currencies of those countries. During
1997, the U.S. dollar strengthened against most of these currencies resulting
in translation of these financial statements into lower U.S. dollar amounts.
The translation of the Company's foreign currency-denominated financial
statements had less than a 5% impact on the Company's consolidated results of
operations and consolidated stockholders' equity in 1997.
The Company's subsidiaries do not typically have significant amounts
of assets, liabilities or commitments that are denominated in currencies other
than the respective operation's functional currency. The Company periodically
utilizes derivative financial instruments, including forwards, swaps and
purchased options as well as borrowings denominated in foreign currencies to
hedge certain foreign currency and interest rate exposures, with the intent of
offsetting gains and losses on the financial instruments against the gains and
losses that occur on the underlying exposures. The Company does not enter into
derivatives for speculative or trading purposes and, at December 31, 1997,
had no significant position in derivative instruments.
FUTURE OPERATING RESULTS
The following discussion and analysis, as well as other statements in
this Report on Form 10-K which are not based on historical fact, contain
forward-looking statements, and actual future results may differ materially.
Future trends for net sales and profitability are difficult to predict due to a
variety of risks and uncertainties, including, among others (i) business
conditions and growth in the Company's markets, including currency, economic
and political risks in markets in which the Company operates, (ii) availability
and prices of wireless communications products, (iii) absorption, through sales
growth, of the increasing operating costs that the Company has incurred and
continues to incur in connection with its expansion activities and provision of
value-added services, (iv) successful consummation and integration of future
acquisitions, (v) continued success of strategic relationships with wireless
equipment manufacturers, network operators and other providers of wireless
communications logistics services, (vi) ability to meet the intense industry
competition, (vii) continued access to increasing amounts of capital, and
(viii) the highly dynamic nature of the industry in which the Company
participates.
The Company expects net sales to continue to grow in all of its
divisions and to price its products and services to obtain reasonable operating
margins. Because of the dynamic nature of the industry in which the Company
operates and the impact of changes in the Company's mix of services, future
net sales and net income growth rates are difficult to estimate with
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<PAGE> 27
precision.
The Company expects its gross margin percentages to increase as the
impact of the improved sales mix and value-added services continues. Gross
margins may be affected by product, freight and other costs, price competition
and by changes in the mix of the Company's products, services, geographic
markets and customers.
The Company expects that selling, general and administrative expenses
will continue to increase in absolute dollars in connection with higher sales
levels. However, the Company anticipates its operating margins will increase
as the growth in gross margins should exceed any growth in selling, general
and administrative expenses as a percent of net sales.
Because of the aforementioned uncertainties affecting the Company's
future operating results, past performance should not be considered to be a
reliable indicator of future financial performance, and investors should not
use historical trends to anticipate future results or trends.
IMPACT OF THE YEAR 2000
Many computer systems experience problems handling dates beyond the
year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company
makes ongoing assessments of the internal readiness of its computer systems and
believes that the cost of any modification required will not have a material
effect on its results of operations or financial condition, in part because the
Company recently implemented a comprehensive Informix-based information system
that is year 2000 compliant. The Company has completed implementation of this
system in its North America division and parts of its Latin America division
and plans to complete implementation of this system at all of its significant
worldwide locations before the end of 1998. Costs associated with the year
2000 assessment and any related correction of specific problems are expensed as
incurred.
In addition, the Company is assessing the readiness of third-party
suppliers and customers whose computer systems interact with the Company's
computer systems. There is no guarantee that these third parties will timely
convert their systems or that their systems will not have an adverse effect on
the Company's systems; however, the Company plans to devote the necessary
resources to resolve any potentially significant year 2000 issues facing it,
whether from within its operations or as a result of its interaction with these
third parties, in a timely manner.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company appear
herein following Item 14 below. Quarterly Results are included in Item 7
above.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Board of Directors is divided into three classes serving staggered
three-year terms. Executive officers are elected by, and serve at the
discretion of, the Board of Directors. The directors and executive officers of
the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert J. Laikin(2) . . . . . . . 34 Chairman of the Board and Chief
Executive Officer
J. Mark Howell(1) . . . . . . . . 33 President, Chief Operating Officer
and Director
Dana E. Marlin . . . . . . . . . 37 Executive Vice President
T. Scott Housefield(3) . . . . . 40 Executive Vice President and
Director
Phillip A. Bounsall . . . . . . . 37 Executive Vice President, Chief
Financial Officer and Treasurer
Steven E. Fivel . . . . . . . . . 37 Executive Vice President, General
Counsel and Secretary
John W. Adams(3) . . . . . . . . 49 Director
Rollin M. Dick(2) . . . . . . . 66 Director
Steven B. Sands(3) . . . . . . . 39 Director
Stephen H. Simon(1) . . . . . . . 32 Director
Todd H. Stuart(1) . . . . . . . . 32 Director
Robert F. Wagner(2) . . . . . . . 62 Director
</TABLE>
- --------------
(1) Class I director, term expires in 1998
(2) Class II director, term expires in 1999
(3) Class III director, term expires in 2000
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<PAGE> 29
Robert J. Laikin, a founder of the Company, has been a director of the
Company since its inception in August 1989. Mr. Laikin has been Chairman of the
Board and Chief Executive Officer of the Company since January 1994. Mr.
Laikin was President of the Company from June 1992 until September 1996 and
Vice President and Treasurer of the Company from August 1989 until May 1992.
From July 1986 to December 1987, Mr. Laikin was Vice President and, from
January 1988 to February 1993, President of Century Cellular Network, Inc., a
company engaged in the retail sale of cellular telephones and accessories.
J. Mark Howell has been a director of the Company since October 1994.
Mr. Howell has been President of the Company since September 1996 and Chief
Operating Officer of the Company since September 1995. He was Executive Vice
President, Finance, Chief Financial Officer, Treasurer and Secretary of the
Company from July 1994 until September 1996. From July 1992 until joining the
Company, Mr. Howell was Corporate Controller for ADESA Corporation, a company
which owns and operates automobile auctions in the United States and Canada.
Prior thereto, Mr. Howell was a Manager with Ernst & Young LLP.
Dana E. Marlin has been an Executive Vice President of the Company
since August 1997. From August 1996 to August 1997 he was the Managing
Director of the Company's Asia-Pacific division. Mr. Marlin joined Brightpoint
in August 1996 as part of the formation of BIL, a joint venture established by
the Company and Technology Resources International Limited ("TRI"). Prior to
joining the Company, Mr. Marlin was a principal of TRI (whose interest in BIL
was acquired by the Company in November 1996) since its formation in July 1995.
From January 1994 to June 1995, Mr. Marlin was Executive Vice President, Sales
at Novatel Communications, Ltd., a wirelss telecommunications technology
company, and during 1993 he was Vice President - Purchasing at CellStar
Corporation, a distributor of wireless handsets and accessories.
T. Scott Housefield has been a director of the Company since January
1993 and an Executive Vice President of the Company since July 1994. From
January 1993 to June 1994, Mr. Housefield was Chief Financial Officer of the
Company and, from January 1994 to July 1994, he was Chief Operating Officer of
the Company. Prior thereto, Mr. Housefield owned and operated Housefield
Marketing Corp., a company engaged in the wholesale distribution of textiles.
Phillip A. Bounsall has been an Executive Vice President, Chief
Financial Officer and Treasurer of the Company since October 1996. From March
1994 until September 1996, Mr. Bounsall was Chief Financial Officer of Walker
Information, Inc., a provider of customer satisfaction measurement and other
information services. Previously, Mr. Bounsall was a senior manager with Ernst
& Young LLP, where he worked for 12 years.
Steven E. Fivel has been an Executive Vice President, General Counsel
and Secretary of the Company since January 1997. From December 1993 until
January 1997, Mr. Fivel was an attorney with SDG Administrative Services
Partnership, L.P., an affiliate of Simon DeBartolo Group, a publicly-held
real estate investment trust. From February 1988 to December 1993, Mr. Fivel
was an attorney with Melvin Simon & Associates, Inc., a privately-held shopping
center development company.
John W. Adams has been a director of the Company since April 1994.
Since October 1983, Mr. Adams has been Vice President of Browning Investments,
Inc., a commercial real estate development company. Mr. Adams is a trustee of
Century Realty Trust, a publicly-held real estate investment trust.
Rollin M. Dick has been a director of the Company since April 1994.
Since February 1986, Mr. Dick has been Executive Vice President and Chief
Financial Officer of Conseco, Inc., a publicly-held life
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<PAGE> 30
insurance holding company. Mr. Dick is also a director of Conseco, Inc.
and General Acceptance Corporation, a publicly-held automotive finance company.
Steven B. Sands has been a director of the Company since May 1994.
Since 1990, Mr. Sands has been Co-Chairman and Chief Executive Officer of Sands
Brothers & Co., Ltd., an investment banking firm. Mr. Sands is a director of
Semiconductor Packaging Materials Co., Inc., a semiconductor components
manufacturer; Command Security Corp., a provider of security guards; and The
Village Green Bookstore, Inc., a bookstore owner and operator, each a
publicly-held company.
Stephen H. Simon has been a director of the Company since April 1994.
Mr. Simon has been President and Chief Executive Officer of Melvin Simon &
Associates, Inc., a privately-held shopping center development company, since
February 1997. From December 1993 until February 1997, Mr. Simon was Director
of Development for SDG Administrative Services Partnership, L.P., an affiliate
of Simon DeBartolo Group, a publicly-held real estate investment trust.
From November 1991 to December 1993, Mr. Simon was Development Manager of
Melvin Simon & Associates, Inc.
Todd H. Stuart has been a director of the Company since November 1997.
Mr. Stuart has been Vice President, since May 1993, and Director of
Transportation, since May 1985, of Stuart's Inc., a provider of domestic and
international logistics and transportation services. Mr. Stuart is a director
of The National Bank of Indianapolis.
Robert F. Wagner has been a director of the Company since April 1994.
Mr. Wagner has been engaged in the practice of law with the firm of Lewis &
Wagner since 1973.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company with respect to its most recent fiscal year, Steven
E. Fivel made a late filing of a Form 3
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<PAGE> 31
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table discloses for the periods presented the
compensation for the person who served as the Company's Chief Executive Officer
and for each of the five highest paid (not including the Chief Executive
Officer) executive officers of the Company whose total individual compensation
exceeded $100,000 for the Company's fiscal year ended December 31, 1997 (the
"Named Executives"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
NAME AND PRINCIPAL ----------------- UNDERLYING
POSITION YEAR SALARY BONUS OPTIONS
- ------------------ ---- ------ ----- ----------
<S> <C> <C> <C> <C>
Robert J. Laikin ................... 1997 $200,000 $700,000 200,000
Chief Executive Officer 1996 180,000 200,000 750,000
1995 120,000 105,000 585,938
J. Mark Howell...................... 1997 200,000 700,000 200,000
President and 1996 150,000 175,000 750,000
Chief Operating Officer 1995 90,000 85,000 351,564
Dana E. Marlin ..................... 1997 162,700 200,000 400,000
Executive Vice President 1996 62,700(1) 250,000 44,250
1995 -- -- --
T. Scott Housefield ................ 1997 200,000 700,000 200,000
Executive Vice President 1996 150,000 175,000 750,000
1995 90,000 60,000 117,188
Phillip A. Bounsall ................ 1997 125,000 300,000 50,000
Executive Vice President, 1996 26,042(2) 125,000(3) 187,750
Chief Financial Officer and 1995 -- -- --
Treasurer
Steven E. Fivel .................... 1997 125,000 325,000(4) 143,750
Executive Vice President, General 1996 -- -- --
Counsel and Secretary 1995 -- -- --
</TABLE>
_______________
(1) Mr. Marlin's employment with the Company commenced on
August 1, 1996.
(2) Mr. Bounsall's employment with the Company commenced on October 14,
1996.
(3) Includes a signing bonus of $100,000.
(4) Includes a signing bonus of $25,000.
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<PAGE> 32
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to individual
stock options granted during fiscal 1997 to each of the Named Executives:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------
NAME GRANTED(1) YEAR ($/SH) DATE 5% 10%
---- ---------- ---------- -------- ---------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Robert J. Laikin . . . . . 200,000 6.3% $13.00 10/25/02 $718,332 $1,587,326
J. Mark Howell . . . . . . 200,000 6.3% 13.00 10/25/02 718,332 1,587,326
Dana E. Marlin . . . . . . 100,000(3) 3.1% 11.20 01/13/02 309,435 683,771
100,000 3.1% 15.50 08/25/02 428,236 946,291
200,000 6.3% 13.00 10/25/02 718,332 1,587,326
T. Scott Housefield . . . . 200,000 6.3% 13.00 10/25/02 718,332 1,587,326
Phillip A. Bounsall . . . . 50,000 1.6% 13.00 10/25/02 179,583 396,832
Steven E. Fivel . . . . . . 93,750(3) 2.9% 9.70 01/19/02 251,244 555,183
50,000 1.6% 13.00 10/25/02 179,583 396,832
</TABLE>
____________________
(1) All options were granted under the Company's 1994 Stock Option Plan,
except as indicated below, and are exercisable as to one-third of the
shares covered thereby on the first, second and third anniversaries of
the date of grant.
(2) The potential realizable value columns of the table illustrate values
that might be realized upon exercise of the options immediately prior
to their expiration, assuming the Company's Common Stock appreciates
at the compounded rates specified over the term of the options. These
numbers do not take into account provisions of options providing for
termination of the option following termination of employment or
nontransferability of the options and do not make any provision for
taxes associated with exercise. Because actual gains will depend
upon, among other things, future performance of the Common Stock,
there can be no assurance that the amounts reflected in this table
will be achieved.
(3) These options were granted under the Company's 1996 Stock Option Plan.
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<PAGE> 33
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
stock options by each of the Named Executives during the fiscal year ended
December 31, 1997 and the value of unexercised stock options held by the Named
Executives as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997 (1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Laikin . . . 690,104 $5,350,713 302,086 778,124 $2,433,933 $4,781,474
J. Mark Howell . . . . -- -- 406,252 778,124 3,479,239 4,781,474
Dana E. Marlin . . . . -- -- 44,250 400,000 392,719 442,500
T. Scott Housefield . . 117,188 764,066 250,000 700,000 1,911,250 3,997,500
Phillip A. Bounsall . . -- -- 62,500 175,000 477,813 999,375
Steven E. Fivel . . . . -- -- -- 143,750 -- 435,156
</TABLE>
________________
(1) Year-end values for unexercised in-the-money options represent the
positive spread between the exercise price of such options and the
year-end market value of the Common Stock.
DIRECTOR COMPENSATION
For the fiscal year ended December 31, 1997, each non-employee
director received cash compensation of $10,000 per annum, $2,500 for each
meeting of the Board of Directors attended, and $1,000 for each meeting of a
committee of the Board of Directors attended. The Company has adopted a
Non-Employee Director Stock Option Plan (the "Director Plan") pursuant to which
non-employee directors are eligible to receive options to purchase an aggregate
of 937,500 shares. The Director Plan provides that eligible directors
automatically receive a grant of options to purchase 10,000 shares of Common
Stock upon first becoming a director and, thereafter, an annual grant, in
January of each year, of options to purchase 4,000 shares. All of such options
are granted at fair market value on the date of grant and are exercisable as to
all of the shares covered thereby commencing one year from the date of grant.
To date, the Company has granted to each of Messrs. Adams, Dick, Sands, Simon
and Wagner options to purchase 94,625 shares of Common Stock pursuant to the
Director Plan and 10,000 shares of Common Stock pursuant to the Company's 1996
Stock Option Plan and has granted Mr. Stuart options to purchase 24,000 shares
of Common Stock
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<PAGE> 34
pursuant to the Director Plan. During the year ended December 31, 1997, the
Company granted options to purchase 20,000 shares, at an average exercise price
of $12.80 per share (after all stock splits), to each of Messrs. Adams, Dick,
Sands, Simon, Stuart and Wagner.
EMPLOYMENT AGREEMENTS
The Company has entered into five-year "evergreen" employment
agreements with each of Messrs. Laikin, Howell and Housefield which are
automatically renewable for successive one-year periods and provide for an
annual base compensation of $200,000 and such bonuses as the Compensation
Committee of the Board of Directors may from time to time determine. If the
Company provides the employee with notice that it desires to terminate the
agreement, there is a final five-year term commencing on the date of such
notice. The employment agreements provide for employment on a full-time basis
and contain a provision that the employee will not compete or engage in a
business competitive with the current or anticipated business of the Company
during the term of the employment agreement and for a period of two years
thereafter. The employment agreements also provide that if the employee's
employment is terminated under certain circumstances, including as a result of
a "change of control," the employee will be entitled to receive severance pay
equal to ten times the total compensation (including salary, bonus, the value
of all perquisites and the value of all stock options received or earned by the
employee) received from the Company during the twelve months prior to the date
of termination. For purposes of such agreements, a "change of control" shall
be deemed to occur, unless previously consented to in writing by the respective
employee, upon (i) the actual acquisition, or the execution of an agreement to
acquire, 20% or more of the voting securities of the Company by any person or
entity not affiliated with the respective employee (other than pursuant to a
bona fide underwriting agreement relating to a public distribution of
securities of the Company), (ii) the commencement of a tender or exchange offer
for more than 20% of the voting securities of the Company by any person or
entity not affiliated with the respective employee, (iii) the commencement of a
proxy contest against management for the election of a majority of the Board of
Directors of the Company if the group conducting the proxy contest owns, has or
gains the power to vote at least 20% of the voting securities of the Company,
(iv) a vote by the Board of Directors to merge, consolidate or sell all or
substantially all of the assets of the Company to any person or entity not
affiliated with the respective employee, or (v) the election of directors
constituting a majority of the Board of Directors who have not been nominated
or approved by the respective employee. In addition, the Company has entered
into three-year "evergreen" employment agreements with each of Messrs.
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<PAGE> 35
Bounsall and Fivel, which are automatically renewable for successive one-year
periods, provide for an annual base compensation of $150,000 as of January 1,
1998 and provide otherwise for substantially the same terms as the employment
agreements described above, except that if the employee's employment is
terminated under certain circumstances, including as a result of a change of
control, the employee will be entitled to receive severance pay equal to three
times the compensation received from the Company during the twelve months prior
to the date of termination.
-36-
<PAGE> 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of February 17, 1998 based on
information obtained from the persons named below, (i) by each person known by
the Company to own beneficially more than five percent of the Company's Common
Stock, (ii) by each of the Named Executives, (iii) by each of the Company's
directors, and (iv) by all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) SHARES OWNED
------------------- ------------------------- ------------
<S> <C> <C>
Robert J. Laikin(3) . . . . . . . . . . . . . . . . . . . . . . . 948,590 1.9 %
J. Mark Howell(4) . . . . . . . . . . . . . . . . . . . . . . . . 250,006 *
Dana E. Marlin(5) . . . . . . . . . . . . . . . . . . . . . . . . 850,000 1.7 %
T. Scott Housefield(6) . . . . . . . . . . . . . . . . . . . . . -- --
Phillip A. Bounsall(7) . . . . . . . . . . . . . . . . . . . . . -- --
Steven E. Fivel(8) . . . . . . . . . . . . . . . . . . . . . . . -- --
Rollin M. Dick (9) . . . . . . . . . . . . . . . . . . . . . . . 1,074,999 2.1 %
Steven B. Sands(10) . . . . . . . . . . . . . . . . . . . . . . . 119,125 *
John W. Adams(11) . . . . . . . . . . . . . . . . . . . . . . . . 43,750 *
Stephen H. Simon(12) . . . . . . . . . . . . . . . . . . . . . . 25,000 *
Robert F. Wagner(13) . . . . . . . . . . . . . . . . . . . . . . 25,000 *
Todd H. Stuart(14) . . . . . . . . . . . . . . . . . . . . . . . -- --
AMVESCAP PLC(15) . . . . . . . . . . . . . . . . . . . . . . . . 4,079,980 8.0 %
The Capital Group Companies, Inc.
Capital Research and Management Company
SMALLCAP World Fund, Inc. (16) . . . . . . . . . . . . . . . . . 2,732,500 5.3 %
All executive officers and directors as a group (twelve
persons)(17) . . . . . . . . . . . . . . . . . . . . . . . . . . 3,336,470 6.5 %
</TABLE>
______________________
* Less than 1%.
(1) The address for each of such individuals, unless specified otherwise
in a subsequent footnote, is in care of the Company, 6402 Corporate
Drive, Indianapolis, Indiana 46278.
(2) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from
-37-
<PAGE> 37
February 17, 1998 upon the exercise of options. Each beneficial
owner's percentage ownership is determined by assuming that options or
warrants that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of February 17, 1998
have been exercised. Unless otherwise indicated, the Company believes
that all persons named in the table have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by
them.
(3) Includes 206 shares underlying options which are exercisable within 60
days of February 17, 1998. Does not include options to purchase
978,124 shares. During October and November 1997 Mr. Laikin sold call
options covering an aggregate of 948,382 of his shares and purchased
put options covering an aggregate of 948,382 of his shares. The call
and put options become exercisable on either November 1, 1999 or May
5, 2000 and expire at the end of the date they first become
exercisable.
(4) Represents shares underlying options which are exercisable within 60
days of February 17, 1998. Does not include options to purchase
978,124 shares.
(5) Includes 100,000 shares underlying options which are exercisable
within 60 days of February 17, 1998. Does not include options to
purchase 500,000 shares. During October and November 1997 Mr. Marlin
sold call options covering an aggregate of 716,000 of his shares and
purchased put options covering an aggregate of 716,000 of his shares.
The call and put options become exercisable on either October 29, 1999
or April 28, 2000 and expire at the end of the date they first become
exercisable.
(6) Does not include options to purchase 900,000 shares.
(7) Does not include options to purchase 250,000 shares.
(8) Does not include options to purchase 187,500 shares.
(9) Includes: (i) 984,374 shares held in the name of Rollin M. Dick and
Helen E. Dick 1996 Grantor Retained Annuity Trust II, and (ii) 90,625
shares underlying options which are exercisable within 60 days of
February 17, 1998. Does not include options to purchase 14,000
shares.
(10) Includes: (i) 7,500 shares held by Ponderosa Partners, L.P., of which
Mr. Sands is a controlling stockholder, officer and director of the
corporate general partner, (ii) 20,000 shares held by Katie & Adam
Bridge Partners, L.P., of which Mr. Sands has a 50% equity interest in
the corporate general
-38-
<PAGE> 38
partner, (iii) 1,000 shares held by Ben Sands and Steven Sands, as to
which Mr. Sands has a 50% beneficial interest, and (iv) 90,625 shares
underlying options which are exercisable within 60 days of February
17, 1998. Does not include options to purchase 14,000 shares.
(11) Represents shares underlying options which are exercisable within 60
days of February 17, 1998. Does not include options to purchase
14,000 shares.
(12) Represents shares underlying options which are exercisable within 60
days of February 17, 1998. Does not include options to purchase
14,000 shares.
(13) Represents shares underlying options which are exercisable within 60
days of February 17, 1998. Does not include options to purchase
14,000 shares.
(14) Does not include options to purchase 24,000 shares.
(15) Based solely on Form 13-G filed with the Commission by AMVESCAP PLC, a
parent holding company, as part of a group consisting of itself and
the following of its subsidiaries: AVZ, Inc., Aim Management
Group Inc., AMVESCAP Group Services, Inc., INVESCO, Inc., INVESCO
North American Holdings, Inc., INVESCO Funds Group, Inc. and INVESCO
Management & Research, Inc., with respect to the group's shared voting
and dispositive power over the shares. The principal business address
for AMVESCAP PLC is 11 Devonshire Square, London EC2M 4YR, England.
(16) Based solely on Form 13-G jointly filed with the Commission by The
Capital Group Companies, Inc. ("CGC"), the parent holding company of
six investment management companies, including Capital Research and
Management Company ("CRMC"), CRMC, an investment advisor and the
wholly-owned subsidiary of CGC, and SMALLCAP World Fund, Inc., an
investment company which is advised by CRMC, pursuant to which each of
CGC and CRMC reported sole dispositive power over the shares (in the
case of CRMC, because such shares are under CRMC's discretionary
investment management and, in the case of CGC, because, as a parent
company of several investment managers, it is deemed the "beneficial
holder" of the aggregate holdings of all of the accounts managed by
its subsidiaries) and SCWF reported sole voting power over the shares.
The principal business address for the filers was listed as 333 South
Hope Street, Los Angeles, CA 90071.
(17) Includes an aggregate of 625,212 shares underlying options which are
exercisable within 60 days of February 17, 1998, including those
listed in notes (3) through (14), above.
ITEM 13. CERTAIN RELATED TRANSACTIONS.
Century Cellular Network, Inc. ("Century"), a company 50% owned by
Robert J. Laikin, Chairman of the Board of the Company, was a customer and
supplier to the Company until December 31, 1996. For the year ended December
31, 1997, the Company received approximately $679,000 from Century in full
payment of certain accounts receivable outstanding as of December 31, 1996.
In May 1997, in connection with the assignment from Century to the
Company of certain leasehold premises located in Indianapolis which were
previously guaranteed by Mr. Laikin, the third-party landlord under such lease
released Mr. Laikin from his personal guaranty.
-39-
<PAGE> 39
The Company utilizes the services of a third party for the purchase of
corporate gifts, promotional items and standard and personalized corporate
stationery. Mrs. Judy Laikin, the mother of Robert J. Laikin, owns this
advertising specialty company. For the year ended December 31, 1997, the
Company purchased approximately $386,386 of services and products from this
party. The Company believes these purchases by the Company were made on terms
no less favorable than could be made from an unrelated party.
-40-
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a)(1) The following Financial Statements are included herein:
Report of Independent Auditors
Consolidated Statements of Income for the Years Ended December
31, 1995, 1996 and 1997
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1995, 1996
and 1997
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
(a)(2) The following financial schedule for the year ended December
31, 1997 is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(a)(3) Exhibits
Exhibit
Number Description
3.1 Certificate of Incorporation of the Company, as amended (10)
3.2 Amended and Restated By-Laws of the Company (10)
-41-
<PAGE> 41
3.3 Certificate of Merger of Brightpoint, Inc. into Wholesale
Cellular USA, Inc., effective September 15, 1995. (2)
4.1 Form of Common Stock Certificate (1)
10.1 1994 Stock Option Plan (1)
10.2 1996 Stock Option Plan (8)
10.3 Non-Employee Directors Stock Option Plan (1)
10.4 Form of Employment Agreement between the Company and Robert J.
Laikin, J. Mark Howell and T. Scott Housefield (8)
10.5 Form of Amendment to Employment Agreement between the Company
and Robert J. Laikin, J. Mark Howell and T. Scott Housefield
(11)
10.6 Form of Employment Agreement between the Company and its
Executive Vice Presidents (8)
10.7 Lease Agreement between the Company and WRC Properties, Inc.,
as amended and Unconditional Guaranty of Lease by Century
Cellular Network, Inc. (1)
10.8 Lease Agreement between the Company and Park 100 Properties,
Inc. (2)
10.9 Lease Agreement between the Company and Industrial Affiliates,
Ltd. (2)
10.10 Lease Agreement between the Company and Airport Key
Corporation, dated November 30, 1995 (3)
10.11 Lease Agreement between the Company and Corporate Drive
Associates, LLC, dated June 6, 1995 (3)
10.12 Amendment to Lease Agreement between the Company and
Corporate Drive Associates, LLC, dated October 3, 1995 (3)
10.13 Second Amendment to Lease agreement between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (10)
10.14 Lease Agreement (Building Expansion) between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (10)
10.15 Lease Agreement between the Company and SCI North Carolina
Limited Partnership, dated October 21, 1997 (11)
10.16 Lease Extension Agreement between the Company and SCI North
Carolina Limited Partnership, dated January 14, 1998 (11)
-42-
<PAGE> 42
10.17 Agreement and Plan of Merger, as amended on April 29, 1996, by
and among the Company, Brightpoint Acquisition, Inc., a
wholly-owned subsidiary of the Company, Allied Communications,
Inc., Allied Communications of Florida, Inc., Allied
Communications of Georgia, Inc., Allied Communications of
Illinois, Inc., Allied Communications of Puerto Rico, Inc.,
Robert Picow and Joseph Forer. (5)
10.18 Stock Purchase Agreement, dated as of October 1, 1996, among
the Company, Brightpoint International Ltd., Technology
Resources International Ltd., Safkong Holdings Limited,
Marriott Investment & Trade Inc., John Maclean-Arnott and Dana
Marlin. (6)
10.19 Rights Agreement, dated as of February 20, 1997, between the
Company and Continental Stock Transfer Trust Company, as
Rights Agent. (7)
10.20 Lease Agreement between the Company and DP Operating
Partnership, L.P., dated as of March 1, 1997 (9)
10.21 Multicurrency Credit Agreement dated as of June 24, 1997 (the
"Credit Agreement") among the Company, Brightpoint
International Ltd., the Subsidiary Borrowers from time to
time party thereto, the Guarantors from time to time party
thereto, the Financial Institutions from time to time party
thereto as lenders, The First National Bank of Chicago as
administrative agent and Bank One, Indiana, N.A. as
syndication agent (10)
10.22 Form of Waiver and Amendment No. 1 to Credit Agreement dated
as of November 15, 1997 (11)
11.1 Statement re: computation of per share earnings (11)
21.1 Subsidiaries (11)
23.1 Consent of Ernst & Young LLP (11)
23.2 Report of Coopers & Lybrand LLP (11)
23.3 Consent of Coopers & Lybrand LLP (11)
27.1 Financial Data Schedule (11)
99.1 Cautionary Statements
____________
(1) Incorporated by reference to Registration Statement (33-75148) effective
April 7, 1994.
(2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
-43-
<PAGE> 43
(3) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(4) Incorporated by reference to Registration Statement on Form S-3 (33-97084)
effective October 24, 1995.
(5) Incorporated by reference to Current Report on Form 8-K, dated June 12,
1996.
(6) Incorporated by reference to Current Report on Form 8-K, dated December 31,
1996.
(7) Incorporated by reference to Current Report on Form 8-K, dated March 28,
1997.
(8) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
(9) Incorporated by reference to Quarterly Report on Form 10-Q for the three
months ended March 31, 1997.
(10)Incorporated by reference to Registration Statement on Form S-3 (333-29533)
effective August 6, 1997.
(11)Filed herewith.
(b) Reports on Form 8-K:
None
-44-
<PAGE> 44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997.......................... F-3
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
BRIGHTPOINT, INC.
We have audited the accompanying consolidated balance sheets of
Brightpoint, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index as Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the 1995
financial statements of Allied Communications, which are included in the
consolidated financial statements, which statements reflect net sales
constituting 36% in 1995 of the related consolidated total. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Allied Communications, is
based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Brightpoint, Inc. at December 31, 1997
and 1996, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
January 23, 1998
F-2
<PAGE> 46
BRIGHTPOINT, INC.
Consolidated Statements Of Income
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Net sales............................................... $419,149 $589,718 $1,035,649
Cost of sales........................................... 390,950 543,878 950,478
-------- -------- ----------
Gross profit............................................ 28,199 45,840 85,171
Selling, general and administrative expenses............ 14,813 20,849 43,309
-------- -------- ----------
Income from operations.................................. 13,386 24,991 41,862
Merger expenses......................................... -- 2,750 --
Net investment gain..................................... -- -- 1,432
Interest expense........................................ 1,383 2,118 6,367
-------- -------- ----------
Income before income taxes and minority interest........ 12,003 20,123 36,927
Income taxes............................................ 3,838 7,328 11,065
-------- -------- ----------
Income before minority interest......................... 8,165 12,795 25,862
Minority interest in subsidiaries' earnings............. -- 1,758 352
-------- -------- ----------
Net income.............................................. $ 8,165 $ 11,037 $ 25,510
======== ======== ==========
Pro forma data (unaudited):
Historical income before income taxes and one-time
merger expenses.................................... $ 12,003 $ 22,873
Pro forma income taxes................................ 4,696 8,493
Minority interest in subsidiaries' earnings........... -- 1,758
-------- --------
Pro forma net income.................................. $ 7,307 $ 12,622
======== ========
Net income per share (pro forma for 1995 and 1996):
Basic................................................. $ 0.22 $ 0.31 $ 0.55
======== ======== ==========
Diluted............................................... $ 0.21 $ 0.30 $ 0.53
======== ======== ==========
Weighted average common shares outstanding:
Basic................................................. 32,876 40,743 46,630
======== ======== ==========
Diluted............................................... 34,208 42,279 48,461
======== ======== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 47
BRIGHTPOINT, INC.
Consolidated Balance Sheets
(Amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,255 $ 2,941
Accounts receivable (less allowance for doubtful accounts
of $1,115 in 1996 and $3,394 in 1997).................. 113,119 212,946
Contract financing receivables............................ -- 49,470
Inventories............................................... 112,916 95,716
Marketable securities..................................... 18,000 3,478
Other current assets...................................... 8,422 26,960
-------- --------
Total current assets........................................ 266,712 391,511
Property and equipment...................................... 8,207 23,420
Goodwill.................................................... 15,232 31,161
Other assets................................................ 8,894 10,610
-------- --------
Total assets................................................ $299,045 $456,702
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $123,231 $110,191
-------- --------
Total current liabilities................................... 123,231 110,191
Deferred taxes.............................................. 330 --
Notes payable............................................... 79,564 146,963
Minority interest........................................... 938 257
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000 shares authorized;
no shares issued or outstanding........................ -- --
Common stock, $0.01 par value: 100,000 shares authorized;
43,273 and 50,396 issued and outstanding,
respectively........................................... 433 504
Additional paid-in capital................................ 73,142 160,387
Retained earnings......................................... 17,381 42,891
Unrealized gain (loss) on marketable securities, net of
tax.................................................... 3,929 (74)
Cumulative foreign currency translation adjustment........ 97 (4,417)
-------- --------
Total stockholders' equity.................................. 94,982 199,291
-------- --------
Total liabilities and stockholders' equity.................. $299,045 $456,702
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 48
BRIGHTPOINT, INC.
Consolidated Statements of Stockholders' Equity
(Amounts in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL OTHER EARNINGS TOTAL
------ ------ ---------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995.............. 30,562 $306 $ 13,029 $ -- $ 6,948 $ 20,283
S corporation dividends............... -- -- -- -- (1,365) (1,365)
Issuance of common stock, net of
costs.............................. 7,230 72 33,474 -- -- 33,546
Exercise of stock options and warrants
and related income tax benefit..... 1,996 20 4,208 -- -- 4,228
Net income............................ -- -- -- -- 8,165 8,165
------ ---- -------- ------- ------- --------
Balance at December 31, 1995............ 39,788 398 50,711 -- 13,748 64,857
S corporation dividends............... -- -- -- -- (289) (289)
Transfer of Allied Communications
undistributed S corporation
earnings........................... -- -- 7,115 -- (7,115) --
Exercise of stock options and warrants
and related income tax benefit..... 1,985 20 7,231 -- -- 7,251
Common stock issued in connection with
the purchase of Brightpoint
International Ltd.................. 1,500 15 8,085 -- -- 8,100
Foreign currency translation
adjustment......................... -- -- -- 97 -- 97
Change in unrealized gain/loss on
marketable securities, net of
tax................................ -- -- -- 3,929 -- 3,929
Net income............................ -- -- -- -- 11,037 11,037
------ ---- -------- ------- ------- --------
Balance at December 31, 1996............ 43,273 433 73,142 4,026 17,381 94,982
Exercise of stock options and warrants
and related income tax benefit..... 1,094 11 6,969 -- -- 6,980
Common stock issued in connection with
acquisition activities............. 629 6 5,447 -- -- 5,453
Issuance of common stock, net of
costs.............................. 5,400 54 74,829 -- -- 74,883
Foreign currency translation
adjustment......................... -- -- -- (4,514) -- (4,514)
Change in unrealized gain/loss on
marketable securities, net of
tax................................ -- -- -- (4,003) -- (4,003)
Net income............................ -- -- -- -- 25,510 25,510
------ ---- -------- ------- ------- --------
Balance at December 31, 1997............ 50,396 $504 $160,387 $(4,491) $42,891 $199,291
====== ==== ======== ======= ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 49
BRIGHTPOINT, INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 8,165 $ 11,037 $ 25,510
Adjustments to reconcile net income to net cash used by
operating activities:
Minority interest...................................... -- 1,758 352
Depreciation and amortization.......................... 217 1,069 4,019
Merger expenses........................................ -- 2,750 --
Net investment gain.................................... -- -- (1,432)
Deferred taxes......................................... -- 282 (2,738)
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable................................ (15,776) (43,989) (101,069)
Inventories........................................ (17,094) (45,771) 16,403
Other current assets............................... (1,176) (5,180) (17,654)
Accounts payable and accrued expenses.............. (7,536) 46,519 (52,571)
-------- -------- ---------
Net cash used by operating activities....................... (33,200) (31,525) (129,180)
INVESTING ACTIVITIES
Capital expenditures........................................ (2,521) (5,965) (18,141)
Net sales (purchases) of marketable securities.............. -- (11,431) 15,050
Acquisitions, net of cash acquired.......................... -- (5,560) (5,496)
Increase in contract financing receivables, net of unfunded
portion................................................... -- -- (18,975)
Increase in other assets.................................... (259) (7,678) (4,052)
-------- -------- ---------
Net cash used by investing activities....................... (2,780) (30,634) (31,614)
FINANCING ACTIVITIES
Net proceeds from notes payable............................. 648 71,740 68,598
Proceeds from stock offering................................ 33,546 -- 74,883
Proceeds and tax benefits from exercise of stock options and
warrants.................................................. 4,228 7,251 6,980
Payments on stockholder loans............................... (792) (554) --
Merger expenses............................................. -- (2,164) --
S corporation distributions................................. (1,365) (289) --
-------- -------- ---------
Net cash provided by financing activities................... 36,265 75,984 150,461
Effect of exchange rate changes on cash and cash
equivalents............................................... -- (296) (981)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ 285 13,529 (11,314)
Cash and cash equivalents at beginning of year.............. 441 726 14,255
-------- -------- ---------
Cash and cash equivalents at end of year.................... $ 726 $ 14,255 $ 2,941
======== ======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 50
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Brightpoint, Inc. (the Company) is a leading provider of distribution and
value-added logistics services to the wireless communications industry. The
Company facilitates the effective and efficient distribution of wireless
handsets and related accessories from leading manufacturers to network
operators, agents, resellers, dealers and retailers.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the 1995
and 1996 consolidated financial statements have been reclassified to conform to
the 1997 presentation.
On June 7, 1996, the Company completed a merger with Allied Communications,
Inc., Allied Communications of Florida, Inc., Allied Communications of Georgia,
Inc., Allied Communications of Illinois, Inc., and Allied Communications of
Puerto Rico, Inc. (Allied Communications), which were engaged in substantially
the same business as the Company. The transaction was accounted for using the
pooling-of-interests method and, accordingly, the Company's financial statements
reflect the consolidated balance sheets and consolidated results of operations
of both entities as if the merger had been in effect for all periods presented.
Net income per share for all periods presented is computed after taking
into consideration the 7.6 million shares of the Company's common stock that
were exchanged for all of the outstanding common stock of Allied
Communications. Further information pertaining to the merger is presented in
Note 2 -- Merger and Acquisitions.
There were no material differences between the accounting policies of the
Company and Allied Communications. Certain amounts in Allied Communications'
historical combined financial statements were reclassified to conform with the
presentation used by the Company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results are likely to differ from those estimates,
but management does not believe such differences will materially affect the
Company's financial position or results of operations.
Revenue Recognition
Revenue is recognized when wireless communications equipment is sold and
shipped or when the Company's logistics services have been rendered to
customers.
Cash and Cash Equivalents
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
F-7
<PAGE> 51
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
Concentrations of Risk
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable and contract
financing receivables. Trade accounts receivable are generated through sales to
network operators, agents, resellers, dealers and retailers in the wireless
communication industry and are dispersed throughout the world, including Asia
and the Pacific Rim, North America, Europe, the Middle East, Africa and Latin
America. Contract financing receivables are generated through financing
transactions with network operators and their agents located in the North
American wireless communication market. No customer accounted for more than 10%
of the Company's 1995, 1996 or 1997 net sales. The Company performs ongoing
credit evaluations of its customers and provides credit in the normal course of
business to a large number of its customers. However, consistent with industry
practice, the Company generally requires no collateral from its customers to
secure trade accounts receivable. Contract financing receivables are partially
secured by product located at the Company's facilities (see Note 4 -- Contract
Financing Receivables). The Company maintains allowances for potential credit
losses; such losses have not been significant and have been within management's
expectations.
The Company is dependent on third-party equipment manufacturers,
distributors and dealers for all of its supply of wireless communications
equipment. In 1995, 1996 and 1997, products sourced from the Company's three
largest suppliers accounted for 38%, 51% and 65% of product purchases,
respectively. The Company is dependent on the ability of its suppliers to
provide products on a timely basis and on favorable pricing terms. Although the
Company believes that its relationships with its suppliers are satisfactory,
the loss of certain principal suppliers could have a material adverse effect on
the Company.
Inventories
Inventories consist of wireless handsets and accessories and are stated at
the lower of cost (first-in, first-out method) or market.
Fair Value of Financial Instruments
The carrying amounts at December 31, 1996 and 1997, of cash and cash
equivalents, trade accounts receivable, contract financing receivables,
marketable securities, other current assets, accounts payable and accrued
expenses and notes payable approximate their fair value.
Property and Equipment
Property and equipment are stated at cost and depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
generally five to fifteen years. Leasehold improvements are stated at cost and
amortized over the lease term of the associated property. Maintenance and
repairs are charged to expense as incurred.
Goodwill
Purchase price in excess of the fair value of net assets of businesses
acquired is recorded as goodwill and is amortized on a straight-line basis over
30 years. Amortization charged to operations was $67,000 and $818,000 in 1996
and 1997, respectively. Goodwill as reflected in the consolidated balance sheet
is presented net of accumulated amortization of $67,000 and $885,000 at December
31, 1996 and 1997, respectively. The Company continually reviews the valuation
of goodwill for impairment.
F-8
<PAGE> 52
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
maintained using local currencies as the respective functional currencies.
Assets and liabilities of these subsidiaries are translated at the rates of
exchange at the balance sheet date. The resulting translation adjustments are
included as a separate component of stockholders' equity. Income and expense
items are translated at average monthly rates of exchange. Gains and losses from
foreign currency transactions of these subsidiaries are included in net income.
Income Taxes
The Company accounts for income taxes under the asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequence of events that have been recognized in
the Company's financial statements or income tax returns. Income taxes are
recognized during the year in which transactions enter into the determination of
financial statement income. Deferred taxes are provided for temporary
differences between amounts of assets and liabilities as recorded for financial
reporting purposes and such amounts as measured by tax laws.
Prior to June 7, 1996, the stockholders of Allied Communications had
elected treatment under Subchapter S of the Internal Revenue Code to include the
income of the companies in their own income for tax purposes. Concurrent with
the merger with Allied Communications on June 7, 1996, Allied Communications'
election under Subchapter S was terminated. Accordingly, Allied Communications
was not subject to federal and state income taxes until that date. The pro forma
income tax amounts presented in the consolidated statements of income include an
estimate of the income taxes that Allied Communications would have incurred had
they been tax-paying entities for 1995 and 1996.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share, which
replaces the presentation of primary earnings per share (EPS) with basic EPS and
replaces fully diluted EPS with diluted EPS. Basic net income per share is
based on the weighted average number of common shares outstanding during each
period and diluted net income per share is based on the weighted average number
of common shares and dilutive common share equivalents outstanding during each
period. The Company's common share equivalents consist of shares of common
stock issuable upon exercise of outstanding stock options and stock warrants.
Application of this standard results only in an increase in the weighted
average number of common shares outstanding for diluted EPS by the amount of
dilutive common share equivalents as defined above (see Note 8 -- Stockholders'
Equity).
Stock Options
In accordance with Statement of Financial Accounting Standards No. 123
(SFAS No. 123), Accounting for Stock-Based Compensation, the Company uses the
intrinsic value method to account for stock options, consistent with the
existing rules established by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, no compensation expense
has been recognized for stock options granted to employees.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income, and No. 131, Disclosures about Segments
of an Enterprise and Related Information.
F-9
<PAGE> 53
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
These Statements will affect the disclosure requirements for annual and interim
financial statements beginning in 1998. The Company expects that the new
reporting requirements will have no material effect on its financial position or
results of operations.
2. MERGER AND ACQUISITIONS
Year Ended December 31, 1996
In June 1996, the Company completed a merger with Allied Communications
through the exchange of 7.6 million shares of newly-issued Company common stock
in exchange for all of the outstanding shares of Allied Communications' common
stock. The merger was structured as a tax-free reorganization and was accounted
for using the pooling-of-interests method of accounting. In connection with the
merger, the Company recorded a nonrecurring charge of $2.75 million ($2.1
million net of tax) for transaction costs, including investment banking, legal,
and accounting fees, and for other estimated costs associated with the merger.
Net sales and net income for the Company and Allied Communications prior to the
combination are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Net sales:
Brightpoint, Inc................................. $269,359 $ 87,662
Allied Communications............................ 149,790 25,298
-------- --------
Combined...................................... $419,149 $112,960
======== ========
Net income, giving effect to pro forma income taxes:
Brightpoint, Inc................................. $ 5,706 $ 2,023
Allied Communications............................ 1,601 454
-------- --------
Combined...................................... $ 7,307 $ 2,477
======== ========
</TABLE>
In August 1996, the Company completed the formation of Brightpoint
International Ltd., a joint venture with Technology Resources International
Limited. The Company maintained effective controlling interest in Brightpoint
International Ltd., and therefore the operations were consolidated for financial
reporting purposes. The Company owned 50% of Brightpoint International Ltd.
until November 1996, when the Company acquired the remaining 50% of the
subsidiary. The combination was accounted for using the purchase method. The
purchase price for the remaining equity interest consisted of 1.5 million
unregistered shares of the Company's common stock, valued at $8.1 million, and
$5.0 million of cash. The resulting goodwill of $12.6 million is being amortized
over 30 years.
In October 1996, Brightpoint International Limited acquired the business
and operations of Hatadicorp Pty Ltd. (Hatadi) based in Sydney, Australia. The
newly formed Brightpoint Australia Pty Limited was owned 80 percent by
Brightpoint International Ltd. and 20 percent by the former shareholders of
Hatadi. The combination was accounted for using the purchase method and the
operations of Brightpoint Australia Pty Limited. are consolidated for financial
reporting purposes. The purchase price of $2.8 million was allocated
principally to goodwill, which is being amortized over 30 years.
Year Ended December 31, 1997
During 1997, the Company acquired certain net assets of three businesses
(separately located in Sweden, Hong Kong and Venezuela) and the remaining
minority interests of three majority-owned subsidiaries. Each of these
transactions was accounted for as a purchase and accordingly the consolidated
financial statements include the operating results of each business or minority
interest from the date of acquisition. The aggregate purchase prices consisted
of 625,834 unregistered shares of the Company's common stock, valued at
F-10
<PAGE> 54
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
$5.5 million, $6.6 million in cash, the assumption of certain
liabilities and contingent cash payments of up to $14.0 million based upon
future operating results of the applicable businesses over the next two to four
years. Goodwill of $15.2 million resulting from these acquisitions is being
amortized over 30 years.
In connection with the acquisition in Hong Kong, the Company was issued a
note receivable from the seller of $4.5 million for amounts collected by the
seller from customers on behalf of the Company. The seller became and remains an
employee of the Company.
The impact of these acquisitions was not material in relation to the
Company's consolidated results of operations. Consequently, pro forma
information is not presented.
3. INVESTMENTS
At December 31, 1996 and 1997, the Company classified its marketable equity
securities as available for sale. These securities are reported at fair value
with the unrealized gain or loss, net of tax, classified as a separate component
of stockholders' equity. At December 31, 1996, the Company had one convertible
debt investment, acquired in late 1996 from a privately-held company, which was
carried at cost and classified in other assets. There was no quoted market price
for this investment and because no events had occurred that would significantly
impact the value of the instrument, the cost of the investment was assumed to
approximate fair value at December 31, 1996.
During the first quarter of 1997, the Company realized a gain on the sale
of a marketable equity security. The gain, net of transaction costs, was
approximately $8.3 million. In addition, on March 31, 1997, the issuer of the
convertible debt security filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. Accordingly, the Company recognized $6.9 million of realized
losses on this investment and two smaller equity investments which did not
qualify as marketable securities. These transactions resulted in a net
investment gain of $1.4 million.
The following is a summary of equity securities (available-for-sale),
(in thousands):
<TABLE>
<CAPTION>
GROSS
UNREALIZED
GAINS FAIR
COST (LOSSES) VALUE
------- ---------- -------
<S> <C> <C> <C>
December 31, 1996....................................... $11,431 $6,569 $18,000
======= ====== =======
December 31, 1997....................................... $ 3,601 $ (123) $ 3,478
======= ====== =======
</TABLE>
4. CONTRACT FINANCING RECEIVABLES
The Company offers financing of inventory and receivables to certain
network operator customers and their agents under contractual arrangements.
These financing services are complementary to the inventory management and other
value-added logistics services provided by the Company. The amount financed
pursuant to these arrangements is recorded as a current asset under the caption
"Contract financing
F-11
<PAGE> 55
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
receivables." The Company has commitments under these contracts to provide
financing for these customers pursuant to various limitations defined in the
applicable service agreements.
At December 31, 1997, contract financing receivables of $49.5 million were
secured by $19.9 million of wireless products located at the Company's
facilities. The Company had not yet funded $30.5 million of the total contract
financing receivable at December 31, 1997.
The Company's contract financing activities are provided to network
operators and their authorized dealer agents located throughout the United
States. Decisions to grant credit under these arrangements are at the discretion
of the Company, are made within guidelines established by the network operators,
and are subject to the Company's normal credit granting and ongoing evaluation
processes.
5. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -------
<S> <C> <C>
Furniture and equipment..................................... $2,065 $ 6,982
Information systems equipment and software.................. 5,917 16,965
Leasehold improvements...................................... 1,450 4,007
------ -------
9,432 27,954
Less accumulated depreciation............................... 1,225 4,534
------ -------
Net property and equipment.................................. $8,207 $23,420
====== =======
</TABLE>
6. CREDIT ARRANGEMENTS
On June 24, 1997, the Company entered into a new $200 million five-year
senior secured revolving line of credit facility with The First National Bank of
Chicago and Bank One, Indiana, NA, as co-agents for a group of banks
(collectively, the "Banks"). The new credit facility replaced the Company's two
previous bank credit facilities which provided for $125 million in the
aggregate. The new credit facility matures in June 2002 and generally bears
interest, at the Company's option, at (i) the greater of The First National Bank
of Chicago's corporate base rate and the Federal funds effective rate plus .50%
(Base Rate) or (ii) the rate at which deposits in United States dollars or
Eurocurrencies are offered by The First National Bank of Chicago to first-class
banks in the London interbank market plus a spread ranging from 40 to 112.5
basis points (based on the Company's leverage ratio) plus a spread reserve, if
any. Borrowings by the Company's non-United States subsidiaries bear interest at
various rates based on the type and term of advance selected and the prevailing
interest rates of the country in which the subsidiary is domiciled. At December
31, 1997, there was $147.0 million outstanding at interest rates ranging from
5.0% to 14.5% (a weighted average rate of 8.2%) and an aggregate of $12.0
million in letters of credit under this facility, with $41.0 million of credit
available.
All of the Company's assets located in the United States and 65% of the
capital stock of the Company's subsidiaries domiciled outside of the United
States are pledged to the Banks as collateral, and the Company is substantially
prohibited from incurring additional indebtedness. In addition to certain net
worth and other financial covenants, the Company's loan agreement with the Banks
limits or prohibits the Company, subject to certain exceptions, from declaring
or paying cash dividends, making capital distributions or other payments to
stockholders, merging or consolidating with another corporation or selling all
or substantially all of its assets.
At December 31, 1996, the Company had a $75 million credit agreement with
Bank One, Indiana, NA, as agent bank for a group of banks. On January 28, 1997,
the Company amended its credit agreement with Bank One to increase available
borrowings to $100 million. In addition, at December 31, 1996, Brightpoint
F-12
<PAGE> 56
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
International Ltd. had a $25 million revolving line of credit with The First
National Bank of Chicago to provide capital for the Company's international
operating divisions. Borrowings on the Bank One credit agreement and The First
National Bank of Chicago line of credit were $56.0 million and $21.6 million at
December 31, 1996, respectively.
At December 31, 1995, 1996 and 1997, the Company was in compliance with the
covenants in its credit agreements. Interest payments for 1995, 1996 and 1997
were approximately $1.5 million, $1.6 million and $6.1 million, respectively.
7. INCOME TAXES
For financial reporting purposes, income before income taxes and minority
interest, by tax jurisdiction, is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
United States............................................ $12,003 $13,706 $11,130
Foreign.................................................. -- 6,417 25,797
------- ------- -------
$12,003 $20,123 $36,927
======= ======= =======
</TABLE>
The reconciliation of income tax expense for 1996 and 1997 computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
----------- ------------
1996 1996 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Tax at U.S. federal statutory rate.......................... 35.0% 35.0% 35.0%
State and local income taxes, net of U.S. federal benefit... 3.7 3.7 1.5
Allied Communications' Subchapter S earnings................ -- (2.5) --
Non-deductible merger expenses.............................. -- 1.7 --
Foreign sales corporation and foreign rates................. (1.6) (1.5) (5.9)
Other....................................................... -- -- (0.6)
---- ---- ----
37.1% 36.4% 30.0%
==== ==== ====
</TABLE>
The pro forma provision for income taxes includes the estimated income
taxes that would have been reported had Allied Communications been subject to
income taxes for each of the periods presented. In 1995, the pro forma income
tax expense is comprised of a provision for federal income taxes at the
statutory rate plus a state income tax provision, net of the federal tax
benefit. No other items materially impact the pro forma income tax expense
during that period. Due to the significance of the Subchapter S earnings of
Allied Communications during 1995, a reconciliation of historical income tax
expense is not presented as it would not be meaningful.
F-13
<PAGE> 57
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
Significant components of the historical and pro forma provision for income
taxes are as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
---------------- ---------------------------
1995 1996 1995 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.......................................... $3,763 $5,370 $3,028 $4,340 $ 5,050
State............................................ 1,017 1,208 978 1,035 1,308
Foreign.......................................... -- 2,184 -- 2,184 7,445
------ ------ ------ ------ -------
4,780 8,762 4,006 7,559 13,803
Deferred:
Federal.......................................... (73) (237) (146) (203) (2,262)
State............................................ (11) (32) (22) (28) (476)
------ ------ ------ ------ -------
(84) (269) (168) (231) (2,738)
------ ------ ------ ------ -------
$4,696 $8,493 $3,838 $7,328 $11,065
====== ====== ====== ====== =======
</TABLE>
Components of the Company's deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Current:
Capitalization of inventory costs...................... $ 612 $ 370
Allowance for doubtful accounts........................ 372 830
Accrued and other liabilities.......................... -- 1,030
Noncurrent:
Other long-term investments............................ -- 2,032
------- ------
984 4,262
Deferred tax liabilities:
Current:
Unrealized gain on marketable securities............... (2,640) --
Noncurrent:
Depreciation........................................... (330) (830)
------- ------
(2,970) (830)
------- ------
$(1,986) $3,432
======= ======
</TABLE>
Income tax payments were $1.9 million in 1995 and $6.2 million in each of
1996 and 1997.
Undistributed earnings of the Company's foreign operations were
approximately $22.0 million at December 31, 1997. Those earnings are considered
to be indefinitely reinvested and accordingly, no provision for U.S. federal and
state income taxes or foreign withholding taxes has been made. Upon distribution
of those earnings, the Company would be subject to U.S. income taxes (subject to
a reduction for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable; however, unrecognized foreign tax
credit carryovers would be available to reduce some portion of the U.S.
liability.
F-14
<PAGE> 58
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
8. STOCKHOLDERS' EQUITY
The Company has declared the following stock splits which were effected in
the form of stock dividends:
<TABLE>
<CAPTION>
DECLARATION DATE DIVIDEND PAYMENT DATE SPLIT RATIO
---------------- --------------------- -----------
<S> <C> <C>
August 31, 1995............................................. September 20, 1995 5 for 4
November 12, 1996........................................... December 17, 1996 3 for 2
January 28, 1997............................................ March 3, 1997 5 for 4
October 22, 1997............................................ November 21, 1997 2 for 1
</TABLE>
Accordingly, all references in the financial statements related to share
amounts, per share amounts, average shares outstanding and information
concerning stock option plans have been adjusted retroactively to reflect these
stock splits.
In October 1995, the Company consummated the sale of 7.2 million shares of
common stock (including the sale of 1.0 million shares pursuant to the
underwriters' over-allotment option) at a price of $5.07 per share in a public
offering. The net proceeds were used to repay $10.3 million outstanding under
its line of credit and for working capital and general corporate purposes.
In connection with the Allied merger completed in June 1996, Allied
Communications' Subchapter S election was terminated. Accordingly, the
undistributed retained earnings generated while Allied Communications were
Subchapter S corporations were transferred to additional paid-in capital.
In February 1997, the Company adopted a Stockholders' Rights Agreement
commonly known as a "poison pill," which provides that in the event an
individual or entity becomes a beneficial holder of 15% or more of the shares of
the Company's capital stock, other stockholders of the Company shall have the
right to purchase shares of the Company's (or in some cases, the acquiror's)
common stock at 50% of its then market value.
On April 24, 1997, the stockholders of the Company approved an amendment to
the Company's Certificate of Incorporation to increase the authorized number of
shares of common stock from 25 million to 100 million.
In August 1997, the Company consummated a public offering of 5.4 million
shares of common stock by the Company and an additional 4.6 million shares of
common stock on behalf of two stockholders (Selling Stockholders). Upon
consummation of the offering, the Selling Stockholders, who were former
stockholders of Allied Communications, resigned as members of the Company's
Board of Directors pursuant to an agreement with the Company. The Company's
proceeds of approximately $75 million (net of estimated expenses) were used to
reduce the borrowings outstanding on its bank line of credit.
The Company has authorized 1.0 million shares of preferred stock which
remain unissued. The Board of Directors has not yet determined the preferences,
qualifications, relative voting or other rights of the authorized shares of
preferred stock.
Stock Option Plans
The Company has three fixed stock option plans which reserve shares of
common stock for issuance to executives, key employees and directors.
The Company maintains the 1994 Stock Option Plan whereby employees of the
Company and others are eligible to be granted incentive stock options or
non-qualified stock options. As of January 1, 1995, a total of 1,876,000 common
shares were reserved for grant under the Plan. During 1995 and 1997, amendments
were approved which authorized increases in shares reserved for issuance to
4,220,000 and 8,200,000, respectively. In October 1996, the Company adopted the
1996 Stock Option Plan whereby employees of the Company and
F-15
<PAGE> 59
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
others are eligible to be granted non-qualified stock options. A total of
3,750,000 common shares were reserved for grant under the 1996 Plan. For both
Plans, a committee of the Board of Directors determines the time or times at
which the options will be granted, selects the employees or others to whom
options will be granted and determines the number of shares covered by each
option, purchase price, time of exercise (not to exceed ten years from the date
of the grant) and other terms.
The Company also maintains the Non-Employee Directors Stock Option Plan
whereby non-employee directors are eligible to be granted non-qualified stock
options. As of January 1, 1995, a total of 468,750 shares were reserved for
grant under the plan. During 1995, an amendment was approved which authorized an
increase in shares reserved for issuance under the plan to 937,500 shares.
Options to purchase 10,000 shares of common stock are granted to each newly
elected non-employee director and, on the first day of each year, each
individual elected and continuing as a non-employee director receives an option
to purchase 4,000 shares of common stock.
The exercise price of stock options granted may not be less than the fair
market value of a share of common stock on the date of the grant. Options become
exercisable in periods ranging from one to three years. Information regarding
these option plans for 1995 through 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- --------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES SHARES PRICE SHARES PRICE
------ ------ -------- ------ ----------
<S> <C> <C> <C> <C> <C>
Options outstanding, beginning of
year................................. 2,067,199 2,476,356 $2.95 5,098,624 $ 5.13
Options granted........................ 1,628,915 3,375,500 6.18 3,336,500 11.85
Options exercised...................... (1,211,946) (688,388) 2.39 (1,092,788) 3.47
Options canceled....................... (7,812) (64,844) 5.65 (278,750) 10.23
------------- -------------- ---------------
Options outstanding, end of year....... 2,476,356 5,098,624 5.13 7,063,586 8.36
============= ============== ===============
Option price range at end of year...... $1.33 - $4.45 $1.33 - $9.60 $1.33 - $16.94
Option price range for exercised
shares............................... $1.33 - $2.64 $1.33 - $4.45 $1.33 - $ 7.33
Options available for grant at year
end.................................. 1,854,056 2,830,793
Weighted average fair value of options
granted during the year.............. $ 2.12 $ 4.28
</TABLE>
The following table summarizes information about the fixed price stock
options outstanding at December 31, 1997.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1997 LIFE PRICE 1997 PRICE
-------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$1.33-$ 5.73 1,156,586 3 years $ 3.73 697,712 $3.35
$6.23-$ 8.00 2,796,250 4 years $ 6.25 886,250 $6.25
$8.50-$11.20 1,386,750 4 years $ 9.98 6,250 $9.60
$13.00-$16.94 1,724,000 5 years $13.55 -- --
</TABLE>
Disclosure of pro forma information regarding net income and earnings per
share is required by SFAS No. 123 as if the Company has accounted for its
employee stock options granted subsequent to December 31, 1994, under the fair
value method as defined by that Statement. The fair value for options granted by
the Company was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ----------- ------------
<S> <C> <C> <C>
Risk-free interest rate................ 5.50% 5.50% 5.25%
Dividend yield......................... 0.00% 0.00% 0.00%
Volatility factor of the expected
market price of the Company's
common stock......................... .51 .51 .51
Expected life of the options (years)... 1.99 1.99 2.33
</TABLE>
F-16
<PAGE> 60
BRIGHTPOINT, INC.
Notes to Consolidated Financial Statements -- (Continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options and stock warrants, discussed below, are amortized to expense over the
related vesting period. Because compensation expense is recognized over the
vesting period, the initial impact on pro forma net income may not be
representative of compensation expense in future years, when the effect of
amortization of multiple awards would be reflected in the consolidated
statements of income. The Company's pro forma information giving effect to the
estimated compensation expense related to stock options and warrants is as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- ------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma net income....................................... $6,336 $11,638 $ 21,044
Pro forma net income per share (diluted)................... $ 0.19 $ 0.28 $ 0.44
</TABLE>
Stock Warrants
In January 1995, the Company issued warrants to purchase up to 1,192,861
shares of common stock at $3.48 per share in connection with an agreement with
HSN Direct, Inc. Through December 31, 1997, 1,150,673 of the warrants were
exercised. The remaining outstanding warrants are exercisable by the holders at
any time until January 16, 2000.
In connection with its Venezuela acquisition, the Company issued to a
principal of the seller (Holder), who became and remains an employee of the
Company, warrants to purchase up to 200,000 shares of common stock at $15.44 per
share. These warrants become exercisable over a three-year period commencing in
1998. However, the ability of the Holder to exercise the warrants is contingent
upon the financial performance of the Company's operating subsidiary,
Brightpoint de Venezuela, C.A. The warrants expire on October 21, 2002.
9. LEASE ARRANGEMENTS
The Company leases certain furniture and equipment as well as its office
and warehouse/distribution space under operating leases.
Total rent expense under all operating leases was $0.5 million, $1.5
million and $3.3 million for 1995, 1996 and 1997, respectively.
F-17
<PAGE> 61
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate future minimum payments on the above leases are as follows
(in thousands):
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1998...................................................... $ 3,654
1999...................................................... 3,412
2000...................................................... 2,843
2001...................................................... 1,503
2002...................................................... 1,019
Thereafter.................................................. 3,922
-------
$16,353
=======
</TABLE>
10. GEOGRAPHIC OPERATIONS
The Company operates in worldwide markets. Its business activities are
conducted in four divisions: Asia-Pacific; North America; Europe, Middle East
and Africa; and Latin America. A summary of the Company's operations by division
is presented below (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Net sales:
Asia-Pacific................................................ $ 7,533 $127,629 $ 434,344
North America............................................... 269,730 287,377 267,941
Europe, Middle East and Africa.............................. 46,284 76,292 249,440
Latin America............................................... 95,602 98,420 83,924
-------- -------- ----------
$419,149 $589,718 $1,035,649
======== ======== ==========
Income before income taxes and minority interests:
Asia-Pacific................................................ $ -- $ 5,135 $ 16,766
North America............................................... 9,265 7,113 11,316
Europe, Middle East and Africa.............................. -- 3,607 4,764
Latin America............................................... 2,738 4,268 4,081
-------- -------- ----------
$ 12,003 $ 20,123 $ 36,927
======== ======== ==========
Identifiable assets:
Asia-Pacific................................................ $ -- $ 54,958 $ 136,323
North America............................................... 92,465 126,003 154,925
Europe, Middle East and Africa.............................. -- 44,451 107,158
Latin America............................................... 27,322 73,633 58,296
-------- -------- ----------
$119,787 $299,045 $ 456,702
======== ======== ==========
</TABLE>
In 1995, sales in the Asia-Pacific and Europe, Middle East and Africa
divisions were export sales from North America operations. As a result, the
Company has not allocated income before income taxes and minority interest and
identifiable assets to those divisions in 1995.
11. EMPLOYEE BENEFIT PLAN
On January 1, 1996, the Company adopted an employee savings plan which
permits employees with at least one year of service to make contributions by
salary reduction pursuant to section 401(k) of the Internal Revenue Code. The
Company matches 25% of employee contributions, up to 6% of each employee's
salary, in Company common stock. In connection with the required match, the
Company's contribution to the Plan was $56,400 and $55,400 in 1996 and 1997,
respectively.
F-18
<PAGE> 62
BRIGHTPOINT, INC.
Notes To Consolidated Financial Statements -- (Continued)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations are as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
1996 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales........................................... $112,960 $119,896 $145,290 $211,572
Gross profit........................................ 7,928 8,482 12,254 17,176
Pro forma net income, as reported................... 2,477 2,407 3,209 4,529
Pro forma net income per share:
Basic............................................. 0.06 0.06 0.08 0.11
Diluted........................................... 0.06 0.06 0.08 0.10
</TABLE>
<TABLE>
<CAPTION>
1997 FIRST SECOND THIRD FOURTH
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales........................................... $199,169 $220,027 $243,210 $373,243
Gross profit........................................ 16,002 18,014 20,634 30,521
Net income.......................................... 5,416 4,867 5,928 9,299
Net income per share:
Basic............................................. 0.12 0.11 0.12 0.18
Diluted........................................... 0.12 0.10 0.12 0.18
</TABLE>
13. SUBSEQUENT EVENT (UNAUDITED)
On January 30, 1998, the Company, through its newly formed subsidiary,
Brightpoint do Brasil Ltda., acquired the wireless telephone distribution
business and certain net assets of Matel-Tecnologia de Teleinformatica
S.A.-Matec ("Matec"), which is located in Sao Paulo, Brazil. The purchase price
consisted of approximately $3.5 million in cash plus a 10% ownership interest
in Brightpoint do Brasil Ltda. This acquisition is being accounted for using
the purchase method and the resulting goodwill is minimal.
F-19
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Amendment
No. 2 to this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BRIGHTPOINT, INC.
Dated: March 5, 1998 By: /s/ Phillip A. Bounsall
------------------------------------
Phillip A. Bounsall
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 64
BRIGHTPOINT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 1,115,000 $ 3,317,000 $ - $ 1,038,000 (1) $ 3,394,000
------------------------------------------------------------------------------------
Total.................................... $ 1,115,000 $ 3,317,000 $ - $ 1,038,000 $ 3,394,000
====================================================================================
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 691,000 $ 589,000 $ - $ 165,000 (1) $ 1,115,000
------------------------------------------------------------------------------------
Total.................................... $ 691,000 $ 589,000 $ - $ 165,000 $ 1,115,000
====================================================================================
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 450,000 $ 927,000 $ - $ 686,000 (1) $ 691,000
------------------------------------------------------------------------------------
Total.................................... $ 450,000 $ 927,000 $ - $ 686,000 $ 691,000
====================================================================================
</TABLE>
(1) Uncollectible accounts written off.
S-1
<PAGE> 65
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation of the Company, as amended (10)
3.2 Amended and Restated By-Laws of the Company (10)
3.3 Certificate of Merger of Brightpoint, Inc. into Wholesale
Cellular USA, Inc., effective September 15, 1995. (2)
4.1 Form of Common Stock Certificate (1)
10.1 1994 Stock Option Plan (1)
10.2 1996 Stock Option Plan (8)
10.3 Non-Employee Directors Stock Option Plan (1)
10.4 Form of Employment Agreement between the Company and Robert J.
Laikin, J. Mark Howell and T. Scott Housefield (8)
10.5 Form of Amendment to Employment Agreement between the Company
and Robert J. Laikin, J. Mark Howell and T. Scott Housefield
(11)
10.6 Form of Employment Agreement between the Company and its
Executive Vice Presidents (8)
10.7 Lease Agreement between the Company and WRC Properties, Inc.,
as amended and Unconditional Guaranty of Lease by Century
Cellular Network, Inc. (1)
10.8 Lease Agreement between the Company and Park 100 Properties,
Inc. (2)
10.9 Lease Agreement between the Company and Industrial Affiliates,
Ltd. (2)
10.10 Lease Agreement between the Company and Airport Key
Corporation, dated November 30, 1995 (3)
10.11 Lease Agreement between the Company and Corporate Drive
Associates, LLC, dated June 6, 1995 (3)
10.12 Amendment to Lease Agreement between the Company and
Corporate Drive Associates, LLC, dated October 3, 1995 (3)
10.13 Second Amendment to Lease agreement between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (10)
10.14 Lease Agreement (Building Expansion) between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (10)
10.15 Lease Agreement between the Company and SCI North Carolina
Limited Partnership, dated October 21, 1997 (11)
10.16 Lease Extension Agreement between the Company and SCI North
Carolina Limited Partnership, dated January 14, 1998 (11)
<PAGE> 66
10.17 Agreement and Plan of Merger, as amended on April 29, 1996, by
and among the Company, Brightpoint Acquisition, Inc., a
wholly-owned subsidiary of the Company, Allied Communications,
Inc., Allied Communications of Florida, Inc., Allied
Communications of Georgia, Inc., Allied Communications of
Illinois, Inc., Allied Communications of Puerto Rico, Inc.,
Robert Picow and Joseph Forer. (5)
10.18 Stock Purchase Agreement, dated as of October 1, 1996, among
the Company, Brightpoint International Ltd., Technology
Resources International Ltd., Safkong Holdings Limited,
Marriott Investment & Trade Inc., John Maclean-Arnott and Dana
Marlin. (6)
10.19 Rights Agreement, dated as of February 20, 1997, between the
Company and Continental Stock Transfer Trust Company, as
Rights Agent. (7)
10.20 Lease Agreement between the Company and DP Operating
Partnership, L.P., dated as of March 1, 1997 (9)
10.21 Multicurrency Credit Agreement dated as of June 24, 1997 (the
"Credit Agreement") among the Company, Brightpoint
International Ltd., the Subsidiary Borrowers from time to
time party thereto, the Guarantors from time to time party
thereto, the Financial Institutions from time to time party
thereto as lenders, The First National Bank of Chicago as
administrative agent and Bank One, Indiana, N.A. as
syndication agent (10)
10.22 Form of Waiver and Amendment No. 1 to Credit Agreement dated
as of November 15, 1997 (11)
11.1 Statement re: computation of per share earnings (11)
21.1 Subsidiaries (11)
23.1 Consent of Ernst & Young LLP (11)
23.2 Report of Coopers & Lybrand LLP (11)
23.3 Consent of Coopers & Lybrand LLP (11)
27.1 Financial Data Schedule (11)
99.1 Cautionary Statements
____________
(1) Incorporated by reference to Registration Statement (33-75148) effective
April 7, 1994.
(2) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
(3) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(4) Incorporated by reference to Registration Statement on Form S-3 (33-97084)
effective October 24, 1995.
(5) Incorporated by reference to Current Report on Form 8-K, dated June 12,
1996.
(6) Incorporated by reference to Current Report on Form 8-K, dated December 31,
1996.
(7) Incorporated by reference to Current Report on Form 8-K, dated March 28,
1997.
(8) Incorporated by reference to Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
(9) Incorporated by reference to Quarterly Report on Form 10-Q for the three
months ended March 31, 1997.
(10)Incorporated by reference to Registration Statement on Form S-3 (333-29533)
effective August 6, 1997.
(11)Filed herewith.
<PAGE> 1
EXHIBIT 10.5
BRIGHTPOINT, INC.
6402 Corporate Drive
Indianapolis, Indiana 46278
October 16, 1997
RE: EMPLOYMENT AGREEMENT DATED AS OF DECEMBER 1, 1996
BETWEEN BRIGHTPOINT, INC. (THE "EMPLOYER" OR
"COMPANY") AND _________________(THE "EMPLOYEE")
Dear Mr. ______:
Reference is made to the above-referenced employment
agreement. This letter to confirm our agreement to amend said agreement as set
forth below.
Section 9(d)(iii) is hereby amended by adding at the end of
said section the following phrase: "In the event any payments become due to
Employee pursuant to this Section 9(d), then the amount payable pursuant to
this Section 9(d) shall be increased by an amount sufficient so that after the
payment of any income taxes on the amount of any such increase and any excise
tax on any amounts payable under this Section 9(d), including the amount of
such increase that Employee may be required to pay pursuant to the Internal
Revenue Code and Treasury Regulations promulgated thereunder. The Employee
shall be entitled to receive initially the entire amount provided for in
Section 9(d) (together with any such additional payments required to cover any
excise and income taxes payable on said amount) and shall not be required to
repay to the Employer any amount which is ultimately and finally determined by
the Internal Revenue Service (or an appropriate court) to have been in excess
of the amount permitted to be received without incurring such excise tax, and
Employer agrees to use its best efforts to support the Employee's position that
such amounts are not subject to excise tax in any dispute with the Internal
Revenue Service or in any other administrative or judicial proceedings."
<PAGE> 2
Except as set forth herein, the Employment Agreement remains
in full force and effect. Please confirm your agreement to the foregoing by
executing the enclosed copy of this letter where indicated.
Very truly yours,
BRIGHTPOINT, INC.
By: /s/ Steven E. Fivel
--------------------------
Name: Steven E. Fivel
Title: Executive Vice
President
Date: October 31, 1997
Agreed and Accepted By:
- -------------------------
-2-
<PAGE> 1
EXHIBIT 10.15
LEASE AGREEMENT
THIS LEASE AGREEMENT is made this 21st day of October, 1997, between SCI
North Carolina Limited Partnership, ("Landlord"), and the Tenant named below.
Tenant: Brightpoint, Inc.
Tenant's representative, Mr. Steven E. Fivel
address, and phone no.: 5801 W. 82nd Street
Suite 105
Indianapolis, IN 46268
Premises: That portion of the Building, containing
approximately 19.2 rentable square feet, as
determined by Landlord, as shown on Exhibit A.
Project: Park 100 Industrial Center. Building 21
Building: Park 100 Industrial Center, Building 21
Tenant's Proportionate Share
of Project: 17.65%
Tenant's Proportionate Share
of Building: 17.65%
Lease Term: Beginning on the Commencement Date and ending on
the last day of the 3rd full calendar month
thereafter.
Commencement Date: October 27, 1997
Initial Monthly Base Rent: $7,040.00
Base Year: 1998
Security Deposit: $3,500.00
Broker: Browning Investments, Inc.
Addenda: Addendum A. Exhibits A and B
1. GRANTING CLAUSE. In consideration of the obligation of Tenant
to pay rent as herein provided and in consideration of the other terms,
covenants, and conditions hereof, Landlord leases to Tenant, and Tenant takes
from Landlord, the Premises, to have and to hold for the Lease Term, subject to
the terms, covenants and conditions of this Lease.
2. ACCEPTANCE OF PREMISES. Tenant shall accept the Premises in its
condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions. Landlord has made no
representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business, and Tenant waives any implied warranty that the Premises
are suitable for Tenant's intended purposes. Except as provided in Paragraph 10,
in no event shall Landlord have any obligation for any defects in the Premises
or any limitation on its use. The taking of possession of the Premises shall be
conclusive evidence that Tenant accepts the Premises and that the Premises were
in good condition at the time possession was taken except for items that are
Landlord's responsibility under Paragraph 10 and any punchlist items agreed to
in writing by Landlord and Tenant.
3. USE. The Premises shall be used only for the purpose of storage
of wireless communication products and accessories and/or receiving, storing,
shipping and selling (but limited to wholesale sales) products, materials and
merchandise made and/or distributed by Tenant and for such other lawful purposes
as may be incidental thereto; provided, however, with Landlord's prior written
consent, Tenant may also use the Premises for light manufacturing. Tenant shall
not conduct or give notice of any auction, liquidation, or going out of business
sale on the Premises. Tenant will use the Premises in a careful, safe and proper
manner and will not commit waste, overload the floor or structure of the
Premises or subject the Premises to use that would damage the Premises. Tenant
shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise,
or vibrations to emanate from the
<PAGE> 2
Premises, or take any other action that would constitute a nuisance or would
disturb, unreasonably interfere with, or endanger Landlord or any tenants of the
Project. Outside storage, including without limitation, storage of trucks and
other vehicles, is prohibited without Landlord's prior written consent. The
Premises shall not be used as a place of public accommodation under the
Americans With Disabilities Act or similar state statutes or local ordinances or
any regulations promulgated thereunder, all as may be amended from time to time.
Tenant will not use or permit the Premises to be used for any purpose or in any
manner that would void Tenant's or Landlord's insurance, increase the insurance
risk, or cause the disallowance of any sprinkler credits. If any increase in the
cost of any insurance on the Premises or the Project is caused by Tenant's use
or occupation of the Premises, or because Tenant vacates the Premises, then
Tenant shall pay the amount of such increase to Landlord. Any occupation of the
Premises by Tenant prior to the Commencement Date shall be subject to all
obligations of Tenant under this Lease.
4. BASE RENT. Tenant shall pay Base Rent in the amount set forth
above. The first month's Base Rent and the Security Deposit shall be due and
payable on the date hereof, and Tenant promises to pay to Landlord in advance,
without demand, deduction or set-off, monthly installments of Base Rent on or
before the first day of each calendar month succeeding the Commencement Date.
Payments of Base Rent for any fractional calendar month shall be prorated. All
payments required to be made by Tenant to Landlord hereunder shall be payable at
such address as Landlord may specify from time to time by written notice
delivered in accordance herewith. The obligation of Tenant to pay Base Rent and
other sums to Landlord and the obligations of Landlord under this Lease are
independent obligations. Tenant shall have no right at any time to abate,
reduce, or setoff any rent due hereunder except as may be expressly provided in
this Lease. If Tenant is delinquent in any monthly installment of Base Rent or
of estimated Excess Operating Expenses (as hereinafter defined) for more than 5
days, Tenant shall pay to Landlord on demand a late charge equal to 5 percent of
such delinquent sum. The provision for such late charge shall be in addition to
all of Landlord's other rights and remedies hereunder or at law and shall not be
construed as a penalty.
5. SECURITY DEPOSIT. The Security Deposit shall be held by
Landlord as security for the performance of Tenant's obligations under this
Lease. The Security Deposit is not an advance rental deposit or a measure of
Landlord's damages in case of Tenant's default. Upon each occurrence of an Event
of Default (hereinafter defined), Landlord may use all or part of the Security
Deposit to pay delinquent payments due under this Lease, and the cost of any
damage, injury, expense or liability caused by such Event of Default, without
prejudice to any other remedy provided herein or provided by law. Tenant shall
pay Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease and the Premises to a person or entity assuming
Landlord's obligations under this Paragraph 5.
6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term
subsequent to the Base Year, on the same date that Base Rent is due, Tenant
shall pay Landlord an amount equal to 1/12 of the annual cost, as estimated by
Landlord from time to time, of Tenant's Proportionate Share (hereinafter
defined) of Excess Operating Expenses for the Project. Payments thereof for any
fractional calendar month shall be prorated. The term "Excess Operating
Expenses" means Operating Expenses for the applicable year in excess of
Operating Expenses for the Base Year. The term "Operating Expenses" means all
costs and expenses incurred by Landlord with respect to the ownership,
maintenance, and operation of the Project including, but not limited to costs
of: Taxes (hereinafter defined) and fees payable to tax consultants and
attorneys for consultation and contesting taxes; insurance; utilities;
maintenance, repair and replacement of all portions of the Project, including
without limitation, paving and parking areas, roads, roofs, alleys, and
driveways, mowing, landscaping, exterior painting, utility lines, heating,
ventilation and air conditioning systems, lighting, electrical systems and other
mechanical and building systems; amounts paid to contractors and subcontractors
for work or services performed in connection with any of the foregoing; charges
or assessments of any association to which the Project is subject; property
management fees payable to a property manager, including any affiliate of
Landlord, or if there is no property manager, an administration fee of 15
percent of the total amount of Operating Expenses; security services, if any;
trash collection, sweeping and removal; and additions or alterations made by
Landlord to the Project or the Building in order to comply with Legal
Requirements (other than those expressly required herein to be made by Tenant)
or that are appropriate to the continued operation of the Project or the
Building as a bulk warehouse facility in the market area, provided that the cost
of such additions or alterations that are required to be capitalized for federal
income tax purposes shall be amortized on a straight line basis over a period
equal to the lesser of the useful life thereof for federal income tax purposes
or 10 years. Operating Expenses do not include costs, expenses, depreciation or
2
<PAGE> 3
amortization for capital repairs and capital replacements required to be made by
Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlord with respect thereto, leasing
commissions, or the costs of renovating space for tenants.
If Tenant's total payments of Operating Expenses for any year are
less than Tenant's Proportionate Share of Excess Operating Expenses for such
year, then Tenant shall pay the difference to Landlord within 30 days after
demand and, if more, then Landlord shall retain such excess and credit it
against Tenant's next payments. For purposes of calculating Tenant's
Proportionate Share of Excess Operating Expenses, a year shall mean a calendar
year except the last year, which shall end on the expiration of this Lease. For
purposes of calculating Excess Operating Expenses for the last year of the Lease
Term, Operating Expenses for the Base Year shall be reduced proportionately
based upon the number of days that this Lease is in effect during such last
year. With respect to Operating Expenses which Landlord allocates to the entire
Project, Tenant's "Proportionate Share" shall be the percentage set forth on the
first page of this Lease as Tenant's Proportionate Share of the Project as
reasonably adjusted by Landlord in the future for changes in the physical size
of the Premises or the Project; and, with respect to Operating Expenses which
Landlord allocated only to the Building, Tenant's "Proportionate Share" shall be
the percentage set forth on the first page of this Lease as Tenant's
Proportionate Share of the Building as reasonably adjusted by Landlord in the
future for changes in the physical size of the Premises or the Building.
Landlord may equitably increase Tenant's Proportionate Share for any item of
expense or cost reimbursable by Tenant that relates to a repair, replacement, or
service that benefits only the Premises or only a portion of the Project or
Building that includes the Premises or that varies with occupancy or use.
7. UTILITIES. Tenant shall pay for all water, gas, electricity,
heat, light, power, telephone, sewer, sprinkler services, refuse and trash
collection, and other utilities and services used on the Premises, all
maintenance charges for utilities, and any storm sewer charges or other similar
charges for utilities imposed by any governmental entity or utility provider,
together with any taxes, penalties, surcharges or the like pertaining to
Tenant's use of the Premises. Landlord may cause at Tenant's expense any
utilities to be separately metered or charged directly to Tenant by the
provider. Tenant shall pay its share of all charges for jointly metered
utilities based upon consumption, as reasonably determined by Landlord. No
interruption or failure of utilities shall result in the termination of this
Lease or the abatement of rent. Tenant agrees to limit use of water and sewer
for normal restroom use.
8. TAXES. Landlord shall pay all taxes, assessments and
governmental charges (collectively referred to as "Taxes") that accrue against
the Project during the Lease Term, which shall be included as part of the
Operating Expenses charged to Tenant. Landlord may contest by appropriate legal
proceedings the amount, validity, or application of any Taxes or liens thereof.
All capital levies or other taxes assessed or imposed on Landlord upon the rents
payable to Landlord under this Lease and any franchise tax, any excise,
transaction, sales or privilege tax, assessment, levy or charge measured by or
based, in whole or in part, upon such rents from the Premises and/or the Project
or any portion thereof shall be paid by Tenant to Landlord monthly in estimated
installments or upon demand, at the option of Landlord, as additional rent;
provided, however, in no event shall Tenant be liable for any net income taxes
imposed on Landlord unless such net income taxes are in substitution for any
Taxes payable hereunder. If any such tax or excise is levied or assessed
directly against Tenant, then Tenant shall be responsible for and shall pay the
same at such times and in such manner as the taxing authority shall require.
Tenant shall be liable for all taxes levied or assessed against any personal
property or fixtures placed in the Premises, whether levied or assessed against
Landlord or Tenant.
9. INSURANCE. Landlord shall maintain all risk property insurance
covering the full replacement cost of the Building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem necessary, including, but not limited to, commercial liability insurance
and rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to Tenant. The Project or Building may be included in
a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises.
Tenant, at its expense, shall maintain during the Lease Term: all
risk property insurance covering the full replacement cost of all property and
improvements installed or placed in the Premises by Tenant at Tenant's expense;
worker's compensation insurance with no less than the minimum limits required by
law; employer's liability insurance with such limits as required by law; and
commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together
3
<PAGE> 4
with such additional umbrella coverage as Landlord may reasonably require) for
property damage, personal injuries, or deaths of persons occurring in or about
the Premises. Landlord may from time to time require reasonable increases in any
such limits. The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claimsmade basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant's policies). Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance.
The all risk property insurance obtained by Landlord and Tenant
shall include a waiver of subrogation by the insurers and all rights based upon
an assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its officers,
directors, employees, managers, agents, invitees or contractors shall be liable
to the other for loss or damage caused by any risk coverable by all risk
property insurance, and each party waives any claims against the other party,
and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.
10. LANDLORD'S REPAIRS. Landlord shall maintain, at its expense,
the structural soundness of the roof, foundation, and exterior walls of the
Building in good repair, reasonable wear and tear and uninsured losses and
damages caused by Tenant, its agents and contractors excluded. The term "walls"
as used in this Paragraph 10 shall not include windows, glass or plate glass,
doors or overhead doors, special store fronts, dock bumpers, dock plates or
levelers, or office entries. Tenant shall promptly give Landlord written notice
of any repair required by Landlord pursuant to this Paragraph 10, after which
Landlord shall have a reasonable opportunity to repair.
11. TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas and
other common areas of the Building, including, but not limited to driveways,
alleys, landscape and grounds surrounding the Premises. Subject to Landlord's
obligation in Paragraph 10, Tenant, at its expense, shall repair, replace and
maintain in good condition all portions of the Premises and all areas,
improvements and systems exclusively serving the Premises including, without
limitation, dock and loading areas, truck doors, plumbing, water, and sewer
lines up to points of common connection, fire sprinklers and fire protection
systems, entries, doors, ceilings and roof membrane, windows, interior walls,
and the interior side of demising walls, and heating, ventilation and air
conditioning systems. Such repair and replacements include capital expenditures
and repairs whose benefit may extend beyond the Term. Heating, ventilation and
air conditioning systems and other mechanical and building systems serving (lie
Premises shall be maintained at Tenant's expense pursuant to maintenance service
contracts entered into by Tenant or, at Landlord's election, by Landlord. The
scope of services and contractors under such maintenance contracts shall be
reasonably approved by Landlord. At Landlord's request, Tenant shall enter into
a joint maintenance agreement with any railroad that services the Premises. If
Tenant fails to perform any repair or replacement for which it is responsible,
Landlord may perform such work and be reimbursed by Tenant within 10 days after
demand therefor. Subject to Paragraphs 9 and 15, Tenant shall bear the full cost
of any repair or replacement to any part of the Building or Project that results
from damage caused by Tenant, its agents, contractors, or invitees and any
repair that benefits only the Premises.
12. TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations,
additions, or improvements made by or on behalf of Tenant to the Premises
("Tenant-Made Alterations") shall be subject to Landlord's prior written
consent. Tenant shall cause, at its expense, all Tenant-Made Alterations to
comply with insurance requirements and with Legal Requirements and shall
construct at its expense any alteration or modification required by Legal
Requirements as a result of any Tenant-Made Alterations. All Tenant-Made
Alterations shall be constructed in a good and workmanlike manner by contractors
reasonably acceptable to Landlord and only good grades of materials shall be
used. All plans and specifications for any Tenant-Made Alterations shall be
submitted to Landlord for its approval. Landlord may monitor construction of the
Tenant-Made Alterations. Tenant shall reimburse Landlord for its costs in
reviewing plans and specifications and in monitoring construction. Landlord's
right to review plans and specifications and to monitor construction shall be
solely for its own benefit, and Landlord shall have no duty to see that such
plans and specifications or construction comply with
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applicable laws, codes, rules and regulations. Tenant shall provide Landlord
with the identities and mailing addresses of all persons performing work or
supplying materials, prior to beginning such construction, and Landlord may post
on and about the Premises notices of nonresponsibility pursuant to applicable
law. Tenant shall furnish security or make other arrangements satisfactory to
Landlord to assure payment for the completion of all work free and clear of
liens and shall provide certificates of insurance for worker's compensation and
other coverage in amounts and from an insurance company satisfactory to Landlord
protecting Landlord against liability for personal injury or property damage
during construction. Upon completion of any Tenant-Made Alterations, Tenant
shall deliver to Landlord sworn statements setting forth the names of all
contractors and subcontractors who did work on the Tenant-Made Alterations and
final lien waivers from all such contractors and subcontractors. Upon surrender
of the Premises, all Tenant-Made Alterations and any leasehold improvements
constructed by Landlord or Tenant shall remain on the Premises as Landlord's
property, except to the extent Landlord's requires removal at Tenant's expense
of any such items or Landlord and Tenant have otherwise agreed in writing in
connection with Landlord's consent to any Tenant-Made Alterations. Tenant shall
repair any damage caused by such removal.
Tenant, at its own cost and expense and without Landlord's prior
approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.
13. SIGNS. Tenant shall not make any changes to the exterior of
the Premises, install any exterior lights, decorations, balloons, flags,
pennants, banners, or painting, or erect or install any signs, windows or door
lettering, placards, decorations, or advertising media of any type which can be
viewed from the exterior of the Premises, without Landlord's prior written
consent. Upon surrender or vacation of the Premises, Tenant shall have removed
all signs and repair, paint, and/or replace the building facia surface to which
its signs are attached. Tenant shall obtain all applicable governmental permits
and approvals for sign and exterior treatments. All signs, decorations,
advertising media, blinds, draperies and other window treatment or bars or other
security installations visible from outside the Premises shall be subject to
Landlord's approval and conform in all respects to Landlord's requirements.
14. PARKING. Tenant shall be entitled to park in common with other
tenants of the Project in those areas designated for nonreserved parking.
Landlord may allocate parking spaces among Tenant and other tenants in the
Project if Landlord determines that such parking facilities are becoming
crowded. Landlord shall not be responsible for enforcing Tenant's parking rights
against any third parties.
15. RESTORATION. If at any time during the Lease Term the Premises
are damaged by a fire or other casualty, Landlord shall notify Tenant within 60
days after such damage as to the amount of time Landlord reasonably estimates it
will take to restore the Premises. If the restoration time is estimated to
exceed 6 months, either Landlord or Tenant may elect to terminate this Lease
upon notice to the other party given no later than 30 days after Landlord's
notice. If neither party elects to terminate this Lease or if Landlord estimates
that restoration will take 6 months or less, then, subject to receipt of
sufficient insurance proceeds, Landlord shall promptly restore the Premises
excluding the improvements installed by Tenant or by Landlord and paid by
Tenant, subject to delays arising from the collection of insurance proceeds or
from Force Majeure events. Tenant at Tenant's expense shall promptly perform,
subject to delays arising from the collection of insurance proceeds, or from
Force Majeure events, all repairs or restoration not required to be done by
Landlord and shall promptly reenter the Premises and commence doing business in
accordance with this Lease. Notwithstanding the foregoing, either party may
terminate this Iease if the Premises are damaged during the last year of the
Lease Term and Landlord reasonably estimates that it will take more than one
month to repair such damage. Tenant shall pay to Landlord with respect to any
damage to the Premises the amount of the commercially reasonable deductible
under Landlord's insurance policy (currently $10,000) within 10 days after
presentment of Landlord's invoice. If the damage involves the premises of other
tenants, Tenant shall pay the portion of the deductible that the cost of the
restoration of the Premises bears to the total cost of restoration, as
determined by Landlord. Base Rent and Operating Expenses shall be abated for the
period of repair and restoration in the proportion which the area of the
Premises, if any, which is not usable by Tenant bears to the total area of the
Premises. Such abatement shall be the sole remedy of Tenant, and except as
provided herein, Tenant waives any right to terminate the Lease by reason of
damage or casualty loss.
16. CONDEMNATION. If any part of the Premises or the Project
should be taken for any public or quasi-public use under governmental law,
ordinance, or regulation, or by right of eminent domain or by private purchase
in lieu thereof (a "Taking" or "Taken"), and the Taking would prevent or
materially
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interfere with Tenant's use of the Premises or in Landlord's judgment would
materially interfere with or impair its ownership or operation of the Project,
then upon written notice by Landlord this Lease shall terminate and Base Rent
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, the Base Rent payable
hereunder during the unexpired Lease Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. In the event of any such Taking,
Landlord shall be entitled to receive the entire price or award from any such
Taking without any payment to Tenant, and Tenant hereby assigns to Landlord
Tenant's interest, if any, in such award. Tenant shall have the right, to the
extent that same shall not diminish Landlord's award, to make a separate claim
against the condemning authority (but not Landlord) for such compensation as may
be separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant's Trade Fixtures, if a separate award for such items is made to Tenant.
17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written
consent, Tenant shall not assign this Lease or sublease the Premises or any part
thereof or mortgage, pledge, or hypothecate its leasehold interest or grant any
concession or license within the Premises and any attempt to do any of the
foregoing shall be void and of no effect. For purposes of this paragraph, a
transfer of the ownership interests controlling Tenant shall be deemed an
assignment of this Lease unless such ownership interests are publicly traded.
Notwithstanding the above, Tenant may assign or sublet the Premises, or any part
thereof, to any entity controlling Tenant, controlled by Tenant or under common
control with Tenant (a "Tenant Affiliate"), without the prior written consent of
Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable
out-of-pocket expenses in connection with any assignment or sublease. Upon
Landlord's receipt of Tenant's written notice of a desire to assign or sublet
the Premises, or any part thereof (other than to a Tenant Affiliate), Landlord
may, by giving written notice to Tenant within 30 days after receipt of Tenant's
notice, terminate this Lease with respect to the space described in Tenant's
notice, as of the date specified in Tenant's notice for the commencement of the
proposed assignment or sublease.
Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations wider this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings). In the event that the rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease, then Tenant shall be bound and
obligated to pay Landlord as additional rent hereunder all such excess rental
and other excess consideration within 10 days following receipt thereof by
Tenant.
If this Lease be assigned or if the Premises be subleased (whether
in whole or in part) or in the event of the mortgage, pledge, or hypothecation
of Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder Landlord may collect rent from
the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent set forth in the preceding paragraph, apply the amount
collected to the next rent payable hereunder; and all such rentals collected by
Tenant shall be held in trust for Landlord and immediately forwarded to
Landlord. No such transaction or collection of rent or application thereof by
Landlord, however, shall be deemed a waiver of these provisions or a release of
Tenant from the further performance by tenant of its covenants, duties, or
obligations hereunder.
18. INDEMNIFICATION. Except for the negligence of Landlord, its
agents, employees or contractors, and to the extent permitted by law, Tenant
agrees to indemnify, defend and hold harmless Landlord, and Landlord's agents,
employees and contractors, from and against any and all losses, liabilities,
damages, costs and expenses (including attorneys' fees) resulting from claims by
third parties for injuries to any person and damage to or theft or
misappropriation or loss of property occurring in or about the Project and
arising from the use and occupancy of the Premises or from any activity, work,
or thing done, permitted or suffered by Tenant in or about the Premises or due
to any other act or omission of Tenant, its subtenants, assignees, invitees,
employees, contractors and agents. The furnishing of insurance required
hereunder shall not be deemed to limit Tenant's obligations under this Paragraph
18.
19. INSPECTION AND ACCESS. Landlord and its agents,
representatives, and contractors may enter the Premises at any reasonable time
to inspect the Premises and to make such repairs as may be required or permitted
pursuant to this Lease and for any other business purpose. Landlord and
Landlord's representatives may enter the Premises during business hours for the
purpose of showing the Premises to prospective purchasers or, during the last
year of the Lease Term, to prospective tenants. Landlord may erect a suitable
sign on the Premises stating the Premises are available to let or that the
Project is
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available for sale. Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises,
provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.
20. QUIET ENJOYMENT. If Tenant shall perform all of the covenants
and agreements herein required to be performed by Tenant, Tenant shall, subject
to the terms of this Lease, at all times during the Lease Term, have peaceful
and quiet enjoyment of the Premises against any person claiming by, through or
under Landlord.
21. SURRENDER. Upon termination of the Lease Term or earlier
termination of Tenant's right of possession, Tenant shall surrender the Premises
to Landlord in the same condition as received, broom clean, ordinary wear and
tear and casualty loss and condemnation covered by Paragraphs 15 and 16
excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so
removed by Tenant as permitted or required herein shall be deemed abandoned and
may be stored, removed, and disposed the by Landlord at Tenant's expense, and
Tenant waives all claims against Landlord for any damages resulting from
Landlord's retention and disposition of the property. All obligations of Tenant
hereunder not fully performed as of the termination of the Lease Term shall
survive the termination of the Lease Term, including without limitation,
indemnity obligations, payment obligations with respect to Excess Operating
Expenses and all obligations concerning the condition and repair of the
Premises.
22. HOLDING OVER. If Tenant retains possession of the Premises
after the termination of the Lease Term, unless otherwise agreed in writing,
such possession shall be subject to immediate termination by Landlord at any
time, and all of the other terms and provisions of this Lease (excluding any
expansion or renewal option or other similar right or option) shall be
applicable during such holdover period, except that Tenant shall pay Landlord
from time to time, upon demand, as Base Rent for the holdover period, an amount
equal to 1.5 times the Base Rent in effect on the termination date, computed on
a monthly basis for each month or part thereof during such holding over. All
other payments shall continue under the terms of this Lease. In addition, Tenant
shall be liable for all damages incurred by Landlord as a result of such holding
over. No holding over by Tenant, whether with or without consent of Landlord,
shall operate to extend this Lease except as otherwise expressly provided, and
this Paragraph 22 shall not be construed as consent for Tenant to retain
possession of the Premises.
23. EVENTS OF DEFAULT. Each of the following events shall be an
event of default ("Event of Default") by Tenant under this Lease:
(i) Tenant shall fail to pay any installment of Base Rent or any
other payment required herein when due, and such failure shall continue for a
period of 5 days from the date such payment was due.
(ii) Tenant or any guarantor or surety of Tenant's obligations
hereunder shall (A) make a general assignment for the benefit of creditors; (B)
commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or of
any substantial part of its property (collectively a "proceeding for relief");
(C) become the subject of any proceeding for relief which is not dismissed
within 60 days of its filing or entry; or (D) die or suffer a legal disability
(if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise
fail to maintain its legal existence (if Tenant, guarantor or surety is a
corporation, partnership or other entity).
(iii) Any insurance required to be maintained by Tenant pursuant
to this Lease shall be cancelled or terminated or shall expire or shall be
reduced or materially changed except, in each case, as permitted in this Lease.
(iv) Tenant shall not occupy or shall vacate the Premises or shall
fail to continuously operate its business at the Premises for the permitted use
set forth herein, whether or not Tenant is in monetary or other default under
this Lease.
(v) Tenant shall attempt or there shall occur any assignment,
subleasing or other transfer of Tenant's interest in or with respect to this
Lease except as otherwise permitted in this Lease.
(vi) Tenant shall fail to discharge any lien placed upon the
Premises in violation of this Lease within 30 days after any such lien or
encumbrance is filed against the Premises.
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(vii) Tenant shall fail to comply with any provision of this Lease
other than those specifically referred to in this Paragraph 23, and except as
otherwise expressly provided herein, such default shall continue for more than
30 days after Landlord shall have given Tenant written notice of such default.
24. LANDLORD'S REMEDIES. Upon each occurrence of an Event of
Default and so long as such Event of Default shall be continuing, Landlord may
at any time thereafter at its election: terminate this Lease or Tenant's right
of possession, (but Tenant shall remain liable as hereinafter provided) and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord, without formal demand or notice of any kind, to re-enter the Premises
by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in
place and use, or remove and store, all of the furniture, fixtures and equipment
at the Premises.
If Landlord terminates this Lease, Landlord may recover from
Tenant the sum of: all Base Rent and all other amounts accrued hereunder to the
date of such termination; the cost of reletting the whole or any part of the
Premises, including without limitation brokerage fees and/or leasing commissions
incurred by Landlord, and costs of removing and storing Tenant's or any other
occupant's property, repairing, altering, remodeling, or otherwise putting the
Premises into condition acceptable to a new tenant or tenants, and all
reasonable expenses incurred by Landlord in pursuing its remedies, including
reasonable attorneys' fees and court costs; and the excess of the then present
value of the Base Rent and other amounts payable by Tenant under this Lease as
would otherwise have been required to be paid by Tenant to Landlord during the
period following the termination of this Lease measured from the date of such
termination to the expiration date stated in this Lease, over the present value
of any net amounts which Tenant establishes Landlord can reasonably expect to
recover by reletting the Premises for such period, taking into consideration the
availability of acceptable tenants and other market conditions affecting
leasing. Such present values shall be calculated at a discount rate equal to the
90day U.S. Treasury bill rate at the date of such termination.
If Landlord terminates Tenant's right of possession (but not this
Lease), Landlord may, but shall be under no obligation to, relet the Premises
for the account of Tenant for such rent and upon such terms as shall be
satisfactory to Landlord without thereby releasing Tenant from any liability
hereunder and without demand or notice of any kind to Tenant. For the purpose of
such reletting Landlord is authorized to make any repairs, changes, alterations,
or additions in or to the Premises as Landlord deems reasonably necessary or
desirable. If the Premises are not relet, then Tenant shall pay to Landlord as
damages a sum equal to the amount of the rental reserved in this Lease for such
period or periods, plus the cost of recovering possession of the Premises
(including attorneys' fees and costs of suit), the unpaid Base Rent and other
amounts accrued hereunder at the time of repossession, and the costs incurred in
any attempt by Landlord to relet the Premises. If the Premises are relet and a
sufficient sum shall not be realized from such reletting [after first deducting
therefrom, for retention by Landlord, the unpaid Base Rent and other amounts
accrued hereunder at the time of reletting, the cost of recovering possession
(including attorneys' fees and costs of suit), all of the costs and expense of
repairs, changes, alterations, and additions, the expense of such reletting
(including without limitation brokerage fees and leasing commissions) and the
cost of collection of the rent accruing therefrom] to satisfy the rent provided
for in this Lease to be paid, then Tenant shall immediately satisfy and pay any
such deficiency. Any such payments due Landlord shall be made upon demand
therefor from time to time and Tenant agrees that Landlord may file suit to
recover any sums failing due from time to time. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect in
writing to terminate this Lease for such previous breach.
Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the Premises and/or a termination of this Lease by Landlord, whether by
agreement or by operation of law, it being understood that such surrender and/or
termination can be effected only by the written agreement of Landlord and
Tenant. Any law, usage, or custom to the contrary notwithstanding, Landlord
shall have the right at all times to enforce the provisions of this Lease in
strict accordance with the terms hereof; and the failure of Landlord at any time
to enforce its rights under this Lease strictly in accordance with same shall
not be construed as having created a custom in any way or manner contrary to the
specific terms, provisions, and covenants of this Lease or as having modified
the same. Tenant and Landlord further agree that forbearance or waiver by
Landlord to enforce its rights pursuant to this Lease or at law or in equity,
shall not be a waiver of Landlord's right to enforce one or more of its rights
in connection with any subsequent default. A receipt by Landlord of rent or
other payment with knowledge of the breach of any covenant hereof shall not be
deemed a waiver of such breach, and no waiver by Landlord of any provision of
this Lease shall be deemed to have been made unless expressed in writing and
signed by Landlord. To the
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greatest extent permitted by law, Tenant waives the service of notice of
Landlord's intention to re-enter as provided for in any statute, or to institute
legal proceedings to that end, and also waives all right of redemption in case
Tenant shall be dispossessed by a judgment or by warrant of any court or judge.
The terms "enter," "re-enter," "entry" or "re-entry," as used in this Lease, are
not restricted to their technical legal meanings. Any reletting of the Premises
shall be on such terms and conditions as Landlord in its sole discretion may
determine (including without limitation a term different than the remaining
Lease Term, rental concessions, alterations and repair of the Premises, lease of
less than the entire Premises to any tenant and leasing any or all other
portions of the Project before reletting the Premises). Landlord shall not be
liable, nor shall Tenant's obligations hereunder be diminished because of,
Landlord's failure to relet the Premises or collect rent due in respect of such
reletting.
25. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not
be in default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord's obligations hereunder. All obligations of Landlord under this
Lease will be binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" in this Lease shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord thereafter
accruing, but such obligations shall be binding during the Lease Term upon each
new owner for the duration of such owner's ownership. Any liability of Landlord
under this Lease shall be limited solely to its interest in the Project, and in
no event shall any personal liability be asserted against Landlord in connection
with this Lease nor shall any recourse be had to any other property or assets of
Landlord.
26. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO
TRIAL BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING
OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
27. SUBORDINATION. This Lease and Tenant's interest and rights
hereunder are and shall be subject and subordinate at all times to the lien of
any first mortgage, now existing or hereafter created on or against the Project
or the Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant agrees,
at the election of the holder of any such mortgage, to attorn to any such
holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder. Notwithstanding the foregoing, any such
holder may at any time subordinate its mortgage to this Lease, without Tenant's
consent, by notice in writing to Tenant, and thereupon this Lease shall be
deemed prior to such mortgage without regard to their respective dates of
execution, delivery or recording and in that event such holder shall have the
same rights with respect to this Lease as though this Lease had been executed
prior to the execution, delivery and recording of such mortgage and had been
assigned to such holder. The term "mortgage" whenever used in this Lease shall
be deemed to include deeds of trust, security assignments and any other
encumbrances, and any reference to the "holder" of a mortgage shall be deemed to
include the beneficiary under a deed of trust.
28. MECHANIC'S LIENS. Tenant has no express or implied authority
to create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost or
expense based on or arising out of asserted claims or liens against the
leasehold estate or against the interest of Landlord in the Premises or under
this Lease. Tenant shall give Landlord immediate written notice of the placing
of any lien or encumbrance against the Premises and cause such lien or
encumbrance to be discharged within 30 days of the filing or recording thereof;
provided, however, Tenant may contest such liens or encumbrances as long as such
contest prevents foreclosure of the lien or encumbrance and Tenant causes such
lien or encumbrance to be bonded or insured over in a manner satisfactory to
Landlord within such 30 day period.
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29. ESTOPPEL CERTIFICATES. Tenant agrees, from time to time,
within 10 days after request of Landlord, to execute and deliver to Landlord, or
Landlord's designee, any estoppel certificate requested by Landlord, stating
that this Lease is in full force and effect, the date to which rent has been
paid, that Landlord is not in default hereunder (or specifying in detail the
nature of Landlord's default), the termination date of this Lease and such other
matters pertaining to this Lease as may be requested by Landlord. Tenant's
obligation to furnish each estoppel certificate in a timely fashion is a
material inducement for Landlord's execution of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate.
30. ENVIRONMENTAL REQUIREMENTS. Except for Hazardous Material
contained in products used by Tenant in de minimis quantities for ordinary
cleaning and office purposes, Tenant shall not permit or cause any party to
bring any Hazardous Material upon the Premises or transport, store, use,
generate, manufacture or release any Hazardous Material in or about the Premises
without Landlord's prior written consent. Tenant, at its sole cost and expense,
shall operate its business in the Premises in strict compliance with all
Environmental Requirements and shall remediate in a manner satisfactory to
Landlord any Hazardous Materials release on or from the Project by Tenant, its
agents, employees, contractors, subtenants or invitees. Tenant shall complete
and certify to disclosure statements as requested by Landlord from time to time
relating to Tenant's transportation, storage, use, generation, manufacture, or
release of Hazardous Materials on the Premises. The term "Environmental
Requirements" means all applicable present and future statutes, regulations,
ordinances, rules, codes, judgments, orders or other similar enactments of any
governmental authority or agency regulating or relating to health, safety, or
environmental conditions on, under, or about the Premises or the environment,
including without limitation, the following: the Comprehensive Environmental
Response, Compensation and Liability Act; the Resource Conservation and Recovery
Act; and all state and local counterparts thereto, and any regulations or
policies promulgated or issued thereunder. The term "Hazardous Materials" means
and includes any substance, material, waste, pollutant, or contaminant listed or
defined as hazardous or toxic, under any Environmental Requirements, asbestos
and petroleum, including crude oil or any fraction thereof, natural gas, or
synthetic gas usable for fuel (or mixtures of natural gas and such synthetic
gas). As defined in Environmental Requirements, Tenant is and shall be deemed to
be the "operator" of Tenant's "facility" and the "owner" of all Hazardous
Materials brought on the Premises by Tenant, its agents, employees, contractors
or invitees, and the wastes, byproducts, or residues generated, resulting, or
produced therefrom.
Tenant shall indemnify, defend, and hold Landlord harmless from
and against any and all losses (including, without limitation, diminution in
value of the Premises or the Project and loss of rental income from the
Project), claims, demands, actions, suits, damages (including, without
limitation, punitive damages), expenses (including, without limitation,
remediation, removal, repair, corrective action, or cleanup expenses), and costs
(including, without limitation, actual attorneys' fees, consultant fees or
expert fees and including, without limitation, removal or management of any
asbestos brought into the Premises or disturbed in breach of the requirements of
this Paragraph 30, regardless of whether such removal or management is required
by law) which are brought or recoverable against, or suffered or incurred by
Landlord as a result of any release of Hazardous Materials for which Tenant is
obligated to remediate as provided above or any other breach of the requirements
under this Paragraph 30 by Tenant, its agents, employees, contractors,
subtenants, assignees or invitees, regardless of whether Tenant had knowledge of
such noncompliance. The obligations of Tenant under this Paragraph 30 shall
survive any termination of this Lease.
Landlord shall have access to, and a right to perform inspections
and tests of, the Premises to determine Tenant's compliance with Environmental
Requirements, its obligations under this Paragraph 30, or the environmental
condition of the Premises. Access shall be granted to Landlord upon Landlord's
prior notice to Tenant and at such times so as to minimize, so far as may be
reasonable under the circumstances, any disturbance to Tenant's operations. Such
inspections and tests shall be conducted at Landlord's expense, unless such
inspections or tests reveal that Tenant has not complied with any Environmental
Requirement, in which case Tenant shall reimburse Landlord for the reasonable
cost of such inspection and tests. Landlord's receipt of or satisfaction with
any environmental assessment in no way waives any rights that Landlord holds
against Tenant.
31. RULES AND REGULATIONS. Tenant shall, at all times during the
Lease Term and any extension thereof, comply with all reasonable rules and
regulations at any time or from time to time established by Landlord covering
use of the Premises and the Project. The current rules and regulations arc
attached hereto. In the event of any conflict between said rules and regulations
and other provisions of this Lease, the other terms and provisions of this Lease
shall control. Landlord shall not have any liability or obligation for the
breach of any rules or regulations by other tenants in the Project.
10
<PAGE> 11
32. SECURITY SERVICE. Tenant acknowledges and agrees that, while
Landlord may patrol the Project, Landlord is not providing any security services
with respect to the Premises and that Landlord shall not be liable to Tenant
for, and Tenant waives any claim against Landlord with respect to, any loss by
theft or any other damage suffered or incurred by Tenant in connection with any
unauthorized entry into the Premises or any other breach of security with
respect to the Premises.
33. FORCE MAJEURE. Landlord shall not be held responsible for
delays in the performance of its obligations hereunder when caused by strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, delay in issuance of permits, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of Landlord ("Force Majeure").
34. ENTIRE AGREEMENT. This Lease constitutes the complete and
entire agreement of Landlord and Tenant with respect to the subject matter
hereof. No representations, inducements, promises or agreements, oral or
written, have been made by Landlord or Tenant, or anyone acting on behalf of
Landlord or Tenant, which are not contained herein, and any prior agreements,
promises, negotiations, or representations are superseded by this Lease. This
Lease may not be amended except by an instrument in writing signed by both
parties hereto.
35. SEVERABILITY. If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws, then and in that
event, it is the intention of the parties hereto that the remainder of this
Lease shall not be affected thereby. It is also the intention of the parties to
this Lease that in lieu of each clause or provision of this Lease that is
illegal, invalid or unenforceable, there be added, as a part of this Lease, a
clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
36. BROKERS. Tenant represents and warrants that it has dealt with
no broker, agent or other person in connection with this transaction and that no
broker, agent or other person brought about this transaction, other than the
broker, if any, set forth on the first page of this Lease, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction.
37. MISCELLANEOUS. (a) Any payments or charges due from Tenant to
Landlord hereunder shall be considered rent for all purposes of this Lease.
(b) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.
(c) All notices required or permitted to be given under this Lease
shall be in writing and shall be sent by registered or certified mail, return
receipt requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below,
and with a copy sent to Landlord at 14100 East 35th Place. Aurora. Colorado
80011. Either party may by notice given aforesaid change its address for all
subsequent notices. Except where otherwise expressly provided to the contrary,
notice shall be deemed given upon delivery.
(d) Except as otherwise expressly provided in this Lease or as
otherwise required by law, Landlord retains the absolute right to withhold any
consent or approval, which shall not be unreasonably withheld.
(e) Neither this Lease nor a memorandum of lease shall be filed by
or on behalf of Tenant in any public record. Landlord may prepare and file, and
upon request by Landlord Tenant will execute, a memorandum of lease.
(f) The normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Lease or any exhibits or amendments hereto.
(g) The submission by Landlord to Tenant of this Lease shall have
no binding force or effect, shall not constitute an option for the leasing of
the Premises, nor confer any right or impose any obligations upon either party
until execution of this Lease by both parties.
<PAGE> 12
(h) Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way define, limit or
otherwise describe the scope or intent of this Lease, or any provision hereof,
or in any way affect the interpretation of this Lease.
(i) Any amount not paid by Tenant within 5 days after its due date
in accordance with the terms of this Lease shall bear interest from such due
date until paid in full at the lesser of the highest rate permitted by
applicable law or 15 percent per year. It is expressly the intent of Landlord
and Tenant at all times to comply with applicable law governing the maximum rate
or amount of any interest payable on or in connection with this Lease. If
applicable law is ever judicially interpreted so as to render usurious any
interest called for under this Lease, or contracted for, charged, taken,
reserved, or received with respect to this Lease, then it is Landlord's and
Tenant's express intent that all excess amounts theretofore collected by
Landlord be credited on the applicable obligation (or, if the obligation has
been or would thereby be paid in full, refunded to Tenant), and the provisions
of this Lease immediately shall be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder.
(j) Construction and interpretation of this Lease shall be
governed by the laws of the state in which the Project is located, excluding any
principles of conflicts of laws.
(k) Time is of the essence as to the performance of Tenant's
obligations under this Lease.
(l) All exhibits and addenda attached hereto are hereby
incorporated into this Lease and made a part hereof. In the event of any
conflict between such exhibits or addenda and the terms of this Lease, such
exhibits or addenda shall control.
39. LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND
OFFICERS OF SECURITY CAPITAL INDUSTRIAL TRUST. Any obligation or liability
whatsoever of Security Capital Industrial Trust, a Maryland real estate
investment trust, which may arise at any time under this Lease or any obligation
or liability which may be incurred by it pursuant to any other instrument,
transaction, or undertaking contemplated hereby shall not be personally binding
upon, nor shall resort for the enforcement thereof be had to the property of,
its trustees, directors, shareholders, officers, employees or agents, regardless
of whether such obligation or liability is in the nature of contract, tort, or
otherwise.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
as of the day and year first above written.
TENANT: LANDLORD:
Brightpoint, Inc. SCI NORTH CAROLINA LIMITED
PARTNERSHIP
By: By:
Title: Executive Vice President Title: Senior Vice President
Address: Address:
5801 W. 82nd Street 100 Division Street
Suite 105 Suite 101
Indianapolis IN 46268 Bensenville. IL 60106
Notices:
Mr. Steven E. Fivel
Executive Vice President, General Counsel
Brightpoint, Inc.
6402 Corporate Drive
Indianapolis, IN 46278
12
<PAGE> 13
Rules and Regulations
1. The sidewalk, entries, and driveways of the Project shall not be obstructed
by Tenant, or its agents, or used by them for any purpose other than ingress and
egress to and from the Premises.
2. Tenant shall not place any objects, including antennas, outdoor furniture,
etc., in the parking areas, landscaped areas or other areas outside of its
Premises, or on the roof of the Project.
3. Except for seeing-eye dogs, no animals shall be allowed in the offices,
halls, or corridors in the Project.
4. Tenant shall not disturb the occupants of the Project or adjoining buildings
by the use of any radio or musical instrument or by the making of loud or
improper noises.
5. If Tenant desires telegraphic, telephonic or other electric connections in
the Premises, Landlord or its agent will direct the electrician as to where and
flow the wires may be introduced; and, without such direction, no boring or
cutting of wires will be permitted. Any such installation or connection shall be
made at Tenant's expense.
6. Tenant shall not install or operate any steam or gas engine or boiler, or
other mechanical apparatus in the Premises, except as specifically approved in
die Lease. The use of oil, gas or inflammable liquids for heating, lighting or
any other purpose is expressly prohibited. Explosives or other articles deemed
extra hazardous shall not be brought into the Project.
7. Parking any type of recreational vehicles is specifically prohibited on or
about the Project. Except for the overnight parking of operative vehicles, no
vehicle of any type shall be stored in the parking areas at any time. In the
event that a vehicle is disabled, it shall be removed within 48 hours. There
shall be no "For Sale" or other advertising signs oil or about any parked
vehicle. All vehicles shall be parked in the designated parking areas in
conformity with all signs and other markings. All parking will be open parking,
and no reserved parking, numbering or lettering of individual spaces will be
permitted except as specified by Landlord.
8. Tenant shall maintain the Premises free from rodents, insects and other
pests.
9. Landlord reserves the right to exclude or expel from the Project any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs or who shall in any manner do any act in violation of the Rules
and Regulations of the Project.
10. Tenant shall not cause any unnecessary labor by reason of Tenant's
carelessness or indifference in the preservation of good order and cleanliness.
Landlord shall not be responsible to Tenant for any loss of property on the
Premises, however occurring, or for any damage done to the effects of Tenant by
the janitors or any other employee or person.
11. Tenant shall give Landlord prompt notice of any defects in the water, lawn
sprinkler, sewage, gas pipes, electrical lights and fixtures, heating apparatus,
or any other service equipment affecting the Premises.
12. Tenant shall not permit storage outside the Premises, including without
limitation, outside storage of trucks and other vehicles, or dumping of waste or
refuse or permit any harmful materials to be placed in any drainage system or
sanitary system in or about the Premises.
13. All moveable trash receptacles provided by the trash disposal firm for the
Premises must be kept in the trash enclosure areas, if any, provided for that
purpose.
14. No auction, public or private, will be permitted on the Premises or the
Project.
15. No awnings shall be placed over the windows in the Premises except with the
prior written consent of Landlord.
16. The Premises shall not be used for lodging, sleeping or cooking or for any
immoral or illegal purposes or for any purpose other than that specified in the
Lease. No gaining devices shall be operated in the Premises.
13
<PAGE> 14
17. Tenant shall ascertain from Landlord the maximum amount of electrical
current which call safely be used in the Premises, taking into account the
capacity of the electrical wiring in the Project and the Premises and (lie needs
of other tenants, and shall not use more than such safe capacity. Landlord's
consent to the installation of electric equipment shall not relieve Tenant from
the obligation not to use more electricity than such safe capacity.
18. Tenant assumes full responsibility for protecting the Premises from theft,
robbery and pilferage.
19. Tenant shall not install or operate on the Premises any machinery or
mechanical devices of a nature not directly related to Tenant's ordinary use of
the Premises and shall keep all such machinery free of vibration, noise and air
waves which
<PAGE> 15
ADDENDUM A
MISCELLANEOUS PROVISIONS
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED OCTOBER 21, 1997, BETWEEN
SCI NORTH CAROLINA LIMITED PARTNERSHIP
and
BRIGTHPOINT, INC.
1. During the primary Lease Term, Landlord will be responsible for HVAC
replacements, provided that Tenant is in full compliance with its
maintenance obligations set forth in Paragraph 11 of the Lease. Routine
maintenance and replacement of non-capital components and any damage due to
Tenant negligence will remain a Tenant responsibility, subject to the
waiver of subrogation provisions of Paragraph 9 of this Lease.
2. Tenant has the right to extent this Lease for an additional three (3) month
term, from February 1, 1998, to April 30, 1998. Landlord or Tenant has the
right to terminate this Lease during this three (3) month extension period
with thirty (30) days prior written notice. The monthly base rent for this
additional term will remain at $7,040.00.
<PAGE> 1
EXHIBIT 10.16
EXTENSION AGREEMENT
THIS EXTENSION AGREEMENT is entered into as of the 14th day of January,
1998, by and between SCI North Carolina Limited Partnership (the "Lessor") and
Brightpoint, Inc.(the "Lessee").
WITNESSETH:
WHEREAS, Lessor, by a Lease dated 21st day of October 1997, leased to
Lessee certain premises known as 5801 West 82nd Street, Suite 105, Indianapolis,
Indiana (hereinafter the "Demised Premises"), and being more particularly
described in said Lease, and;
WHEREAS, Lessor and Lessee desire to extend the term of the Lease and
otherwise modify its terms and conditions as set forth below.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Lessor and Lessee agree as follows:
1. Term. The term of Lease is extended for six (6) months, such that the
Lease shall terminate on the July 31, 1998.
2. Except as modified herein, the Lease, and all of the terms and
conditions thereof, shall remain in full force and effect and the same are
hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have signed this Extension Agreement
as of the day and year first above written.
_________________________________
LESSOR:
SCI North Carolina Limited Partnership
By:
Name: Walter C. Rakowich
Title: Managing Director
Lessor
___________________________________
LESSEE:
Brightpoint, Inc.
By:
Name: Steven E. Fivel
Title: Executive Vice President
General Counsel
Lessee
<PAGE> 1
EXHIBIT-10.22
WAIVER AND AMENDMENT NO. 1
TO MULTICURRENCY CREDIT AGREEMENT
Dated as of November 15, 1997
THIS WAIVER AND AMENDMENT NO. 1 TO MULTICURRENCY CREDIT
AGREEMENT ("Amendment") is made as of November 15, 1997 by and among
BRIGHTPOINT, INC., BRIGHTPOINT INTERNATIONAL LTD., the subsidiary borrowers from
time to time party thereto (collectively, the "Borrowers"), the guarantors from
time to time party thereto (the "Guarantors"), the financial institutions listed
on the signature pages hereof as lenders (the "Lenders"), BANK ONE, INDIANA,
NATIONAL ASSOCIATION, in its individual capacity as a Lender and as syndication
agent (the "Syndication Agent"), and THE FIRST NATIONAL BANK OF CHICAGO, in its
individual capacity as a Lender and as administrative agent (the "Administrative
Agent"; and together with the Syndication Agent, the "Agents") on behalf of the
Lenders under that certain Multicurrency Credit Agreement dated as of June 24,
1997 by and among the Borrowers, the Guarantors, the Lenders and the Agents, as
modified by the letter agreement dated August 8, 1997 (as so modified, and as
further amended, modified or restated, the "Credit Agreement"). Defined terms
used herein and not otherwise defined herein shall have the meaning given to
them in the Credit Agreement.
WITNESSETH
WHEREAS, the Borrowers, the Guarantors, the Lenders and the
Agents are parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Lenders amend
the Credit Agreement in certain respects; and
WHEREAS, the Lenders and the Agents are willing to amend the
Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers, the Guarantors, the Lenders and the Agents have agreed to the
following amendments to the Credit Agreement.
1. Amendments to Credit Agreement. Effective as of October 31, 1997 and
subject to the satisfaction of the conditions precedent set forth in Section 3
below, the Credit Agreement is hereby amended as follows:
1.1 Section 1.1 of the Credit Agreement is hereby amended
to add the following definitions thereto in the appropriate alphabetical order:
"Domestic Subsidiary" shall mean a Subsidiary formed pursuant to the
laws of any state of the United States.
<PAGE> 2
"Material Subsidiary" shall mean a direct or indirect Subsidiary of the
Company whose consolidated total assets (directly and together with its
Subsidiaries) are, at any time, greater than $1,000,000.
1.2. Section 6.2(M) of the Credit Agreement is hereby
amended and as so amended and restated shall read in its entirety as follows:
"(M) Additional Guarantors/Pledge of Capital Stock. (a) Brightpoint
will cause each Material Subsidiary which is a Domestic Subsidiary and which is
not a Subsidiary Borrower, within 30 days after becoming a Material Subsidiary,
to execute and deliver to the Administrative Agent a Guarantor Assumption Letter
pursuant to which it agrees to be bound by the provisions of Article IX,
together with corporate resolutions and such other corporate documentation as
the Administrative Agent may reasonably request, all in form and substance
reasonably satisfactory to the Administrative Agent.
(b) Brightpoint shall deliver an agreement evidencing the pledge, to
the Administrative Agent, for the benefit of the Holders of Secured Obligations,
of 65% of the Capital Stock of each Material Subsidiary which is not a Domestic
Subsidiary and which is not a Subsidiary Borrower, within 60 days after such
Subsidiary has become a Material Subsidiary, together with corporate resolutions
and such other corporate documentation as the Administrative Agent may
reasonably request, all in form and substance reasonably satisfactory to the
Administrative Agent."
1.3 Clause (vii) of Section 6.3(E) of the Credit Agreement is
hereby amended by replacing the dollar amount "$10,000,000" with the dollar
amount "$20,000,000".
1.4. Section 6.3(G) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(G) Conduct of Business; Subsidiaries; Acquisitions. Neither
Brightpoint nor any of its Subsidiaries shall engage in any business other than
the businesses engaged in by them on the date hereof and any business or
activities which are substantially similar, related or incidental thereto.
Brightpoint shall not and shall not permit any of its Subsidiaries to enter into
any transaction or series of transactions in which it acquires all or any
significant portion of the assets (including, without limitation, the Capital
Stock thereof) of another Person unless such purchase meets the following
requirements (each such purchase constituting a "PERMITTED ACQUISITION"):
(1) prior to each such purchase, Brightpoint shall deliver to
the Administrative Agent and the Lenders a certificate from one of
Brightpoint's Authorized Officers certifying that no Default or
Unmatured Default shall have occurred and be continuing or would result
from such transaction or transactions or the incurrence of any
Indebtedness in connection therewith; provided, that the Administrative
Agent, in its sole discretion or at the request of the Required
Lenders, may require that Brightpoint deliver to the Administrative
Agent and the Lenders a certificate from one of Brightpoint's
Authorized Officers demonstrating to the satisfaction of the
Administrative Agent and the Required Lenders that after giving effect
to such transaction or transactions and the incurrence of any
Indebtedness permitted by Section 6.3(A) in connection therewith on a
pro forma basis as if such acquisition and such incurrence of
Indebtedness had occurred on the first day of the twelve-month period
ending on the last day of Brightpoint's most recently completed fiscal
quarter, Brightpoint would have been in compliance with all provisions
of Section 6.4 at all times during such twelve-month period;
(2) the purchase is consummated pursuant to a negotiated
acquisition agreement on a non-hostile basis and involves the purchase
of a business line similar, related or incidental to that of
Brightpoint's and its Subsidiaries as of the Closing Date; and
<PAGE> 3
(3) the aggregate purchase price (including assumed
liabilities) in connection with all such transactions during any twelve
month period shall not exceed:
(A) for any single transaction or series of related
transactions, $10,000,000; provided not more than $5,000,000
of such amount shall be consideration paid in cash or Cash
Equivalents; and
(B) for all transactions during the twelve-month
period ending on the date of such transaction, $20,000,000;
provided not more than $10,000,000 of such amount shall be
consideration paid in cash or Cash Equivalents."
1.4. Section 6.4(F) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(F) Capital Expenditures. Brightpoint will not, nor will it permit any
Subsidiary to, expend, or be committed to expend, for Capital Expenditures
during any one fiscal year in the aggregate for Brightpoint and its Subsidiaries
in excess of (a) $20,000,000 for the fiscal year ending December 31, 1997, (b)
$20,000,000 for the fiscal year ending December 31, 1998 and (c) for each fiscal
year thereafter the sum of (i) $20,000,000 plus (ii) the product of $2,000,000
multiplied by the number of complete fiscal years after December 31, 1998."
2. Limited Waivers. Upon the effectiveness of this Amendment, the
Lenders hereby waive:
(a) the Default or Defaults, if any, arising out of any breach
by the Borrowers of Section 6.4(F) or Section 6.2(G) of the Credit
Agreement which may have occurred prior to the effectiveness of this
Amendment; provided, that, if this Amendment had been effective at the
time of such Default, the circumstances causing such Default would not
then cause a Default;
(b) the Default arising out of the breach by the Borrowers of
Section 6.2(N) of the Credit Agreement by reason of the failure of
Brightpoint International Ltd. to pledge of 65% of the Capital Stock of
Brightpoint Sweden AB to the Administrative Agent, for the benefit of
the Holders of Secured Obligations, on or prior to October 31, 1997;
and
(c) the Default arising out of the breach by the Borrowers of
Section 6.2(G) of the Credit Agreement arising out of the failure of
Brightpoint to deliver, prior to the acquisition by Brightpoint China
Limited of Legend International (Asia) Limited, a certificate from one
of Brightpoint's Authorized Officers certifying that no Default or
Unmatured Default shall have occurred and be continuing or would result
from such transaction or transactions or the incurrence of any
Indebtedness in connection therewith.
3. Conditions of Effectiveness. This Amendment shall become effective
and be deemed effective as of October 31, 1997, if, and only if, the
Administrative Agent shall have received each of the following:
3
<PAGE> 4
(a) duly executed originals of this Amendment from the
Borrowers, the Guarantors and the Required Lenders;
(b) a duly executed original of the Share Pledge Agreement
between Brightpoint International Ltd. and The First National Bank of
Chicago, as Administrative Agent, evidencing the pledge of 65% of the
Capital Stock of Brightpoint Sweden AB to the Administrative Agent, for
the benefit of the Holders of Secured Obligations, together with such
other documentation necessary to effectuate such pledge;
(c) a certificate from one of Brightpoint's Authorized
Officers certifying that no Default or Unmatured Default has occurred
and is continuing or will result from the acquisition by Brightpoint
China Limited of Legend International (Asia) Limited or the incurrence
of Indebtedness, if any, in connection therewith; and
(d) such other documents, instruments and agreements as the
Administrative Agent may reasonably request.
4. Representations and Warranties of the Borrowers. The Borrowers
hereby represent and warrant as follows:
(a) This Amendment and the Credit Agreement as previously
executed and as amended hereby, constitute legal, valid and binding obligations
of the Borrowers and are enforceable against the Borrowers in accordance with
their terms.
(b) Upon the effectiveness of this Amendment, the Borrowers
hereby reaffirm all covenants, representations and warranties made in the Credit
Agreement and other Loan Documents, to the extent the same are not amended
hereby, and agree that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this Amendment.
5. Reference to the Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 1 hereof, on and after
the date hereof, each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import shall mean and be a
reference to the Credit Agreement, as amended previously and as amended hereby.
(b) Except as specifically amended and waived above, the
Credit Agreement and all other documents, instruments and agreements executed
and/or delivered in connection therewith shall remain in full force and effect,
and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Administrative Agent or any of the Lenders,
nor constitute a waiver of any provision of the Credit Agreement or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
6. Costs and Expenses. The Borrowers agree to pay all reasonable costs,
fees and out-of-pocket expenses (including attorneys' fees and expenses charged
to the Administrative Agent) incurred by the Administrative Agent in connection
with the preparation, arrangement, execution and enforcement of this Amendment.
4
<PAGE> 5
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS)
OF THE STATE OF ILLINOIS.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed by one or more of the
parties to the Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Amendment, the Credit Agreement
and the other Loan Documents. In the event an ambiguity or question of intent or
interpretation arises, this Amendment, the Credit Agreement and the other Loan
Documents shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Amendment, the Credit
Agreement or any of the other Loan Documents.
11. Reaffirmation of Guaranties and other Loan Documents. Each of the
Guarantors, without in any way establishing a course of dealing, as evidenced by
its signature below, hereby consents to the execution and delivery of this
Amendment by the parties hereto, (ii) agrees that this Amendment shall not limit
or diminish the obligations of such Guarantor under the Credit Agreement or any
other Loan Documents, (iii) reaffirms its obligations under the Credit Agreement
and other Loan Documents, and (iv) agrees that such obligations remain in full
force and effect and is hereby ratified and confirmed.
5
<PAGE> 6
IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first above written.
BRIGHTPOINT, INC.
as a Borrower and Guarantor
By:___________________________
Name:
Title:
BRIGHTPOINT INTERNATIONAL LTD.
as a Borrower and Guarantor
By:___________________________
Name:
Title:
BRIGHTPOINT (UK) LIMITED,
as a Subsidiary Borrower and
Guarantor
By:___________________________
Name:
Title:
BRIGHTPOINT AUSTRALIA PTY. LIMITED,
as a Subsidiary Borrower and
Guarantor
By:___________________________
Name:
Title:
BRIGHTPOINT CHINA LIMITED,
as a Subsidiary Borrower and
Guarantor
By:___________________________
Name:
Title:
Signature Page Brightpoint, Inc.
Amendment to Credit Agreement
<PAGE> 7
BRIGHTPOINT EMA LIMITED,
as a Guarantor
By:___________________________
Name:
Title:
BRIGHTPOINT AUSTRALASIA PTY. LIMITED,
as a Guarantor
By:___________________________
Name:
Title:
BRIGHTPOINT INTERNATIONAL (ASIA PACIFIC)
PTE LTD., as a Guarantor
By:___________________________
Name:
Title:
BRIGHTPOINT F.S.C. INC., as a Guarantor
By:___________________________
Name:
Title:
RPS INDUSTRIES COMPANY LIMITED, as a Guarantor
By:___________________________
Name:
Title:
Signature Page Brightpoint, Inc.
Amendment to Credit Agreement
<PAGE> 8
THE FIRST NATIONAL BANK OF CHICAGO
as the Administrative Agent, an
Issuing Lender, the Swing Line
Lender, an Alternate Currency Agent
and as a Lender
By:___________________________
Name:
Title:
BANK ONE, INDIANA, NATIONAL ASSOCIATION
as the Syndication Agent, an Issuing
Lender and as a Lender
By:___________________________
Name:
Title:
BANK BOSTON, N.A.
as a Lender
By:___________________________
Name:
Title:
CORESTATES BANK, N.A.
as a Lender
By:___________________________
Name:
Title:
SUNTRUST BANK OF CENTRAL FLORIDA,
NATIONAL ASSOCIATION
as a Lender
By:___________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
as a Lender
By:___________________________
Name:
Title:
Signature Page Brightpoint, Inc.
Amendment to Credit Agreement
<PAGE> 9
CREDIT LYONNAIS CHICAGO BRANCH
as a Lender
By:___________________________
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
CHICAGO BRANCH
as a Lender
By:___________________________
Name:
Title:
THE FUJI BANK, LIMITED
as a Lender
By:___________________________
Name:
Title:
Signature Page Brightpoint, Inc.
Amendment to Credit Agreement
<PAGE> 1
EXHIBIT 11.1
BRIGHTPOINT, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Basic:
Average shares outstanding 32,876 40,743 46,630
========= ========= =========
Historical income before income taxes $ 12,003 $ 22,873 $ 36,927
and one-time merger expenses
Deduct income taxes, pro forma for 1995 and 1996 4,696 8,493 11,065
Deduct minority interest in subsidiaries' earnings - 1,758 352
--------- --------- ---------
Net income, pro forma for 1995 and 1996 $ 7,307 $ 12,622 $ 25,510
========= ========= =========
Per share amount $ 0.22 $ 0.31 $ 0.55
========= ========= =========
Diluted:
Average shares outstanding 32,876 40,743 46,630
Net effect of dilutive stock options and warrants
issued after April 7, 1994 - based on the
treasury stock method using average
market price 1,332 1,536 1,831
--------- --------- ---------
Total 34,208 42,279 48,461
========= ========= =========
Historical income before income taxes $ 12,003 $ 22,873 $ 36,927
Deduct income taxes, pro forma for 1995 and 1996 4,696 8,493 11,065
Deduct minority interest in subsidiaries' earnings - 1,758 352
--------- --------- ---------
Net income, pro forma for 1995 and 1996 $ 7,307 $ 12,622 $ 25,510
========= ========= =========
Per share amount $ 0.21 $ 0.30 $ 0.53
========= ========= =========
</TABLE>
<PAGE> 1
Exhibit 21.1
Subsidiaries
------------
Subsidiary Jurisdiction
- ---------- ------------
Brightpoint Latin America Holdings, Inc. Indiana
Brightpoint de Argentina, S.A. Argentina
Brightpoint de Venezuela, C.A. Venezuela
Brightpoint do Brasil Ltda. Brazil
Brightpoint International Ltd. Delaware
Brightpoint EMA Limited United Kingdom
Brightpoint (UK) Limited United Kingdom
Brightpoint (South Africa) (Proprietary) Ltd. South Africa
Brightpoint Sweden A.B. Sweden
Brightpoint Middle East FZE U.A.E.
Brightpoint (Ireland) Limited Ireland
Brightpoint Philippines, Inc. Philippines
Brightpoint Australasia Pty Ltd. Australia
Brightpoint (Asia Pacific) Pte Ltd. Singapore
R.P.S. Industries Company Limited Hong Kong
Brightpoint Australia Pty Limited Australia
Brightpoint China Limited Hong Kong
Brightpoint FSC, Inc. Barbados
Brightpoint Global Access, Inc. Indiana
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-90986, 333-3535, and 333-36823) pertaining to the Brightpoint,
Inc. 1994 Stock Option Plan and Nonemployee Director Stock Option Plan, in the
Registration Statement (Form S-8 No. 333-36829) pertaining to the Brightpoint,
Inc. 1996 Stock Option Plan, in the Registration Statement (Form S-8 No.
333-2242) pertaining to the Brightpoint, Inc. 401(k) Plan, in the Registration
Statement (Form S-3 No. 33-91112) pertaining to certain options and warrants of
Brightpoint, Inc., in the Registration Statement (Form S-3 No. 333-3569)
pertaining to certain warrants of Brightpoint, Inc., and in the Registration
Statements (Form S-3 No. 333-15663, 333-29533,333-07892, and 333-37587)
pertaining to certain common stock of Brightpoint, Inc. of our report dated
January 23, 1998 with respect to the consolidated financial statements and
schedule included in this Amendment No. 2 to the Annual Report (Form 10-K) of
Brightpoint, Inc.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 5, 1998
<PAGE> 1
EXHIBIT 23.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Allied Communications, Inc. and Affiliates:
We have audited the accompanying combined balance sheets of Allied
Communications, Inc. and Affiliates as of December 31, 1995, and the related
combined statements of income, stockholders' equity and cash flows for the
years ended December 31, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects the combined financial position of Allied
Communications, Inc. and Affiliates as of December 31, 1995 and the combined
results of their operations and their cash flows for the years ended December
31, 1994 and 1995 in conformity with generally accepted accounting principles.
As described in Note 12, the 1995 combined financial statements were restated
to reflect an increase in cost of sales and accounts payable.
/s/ Coopers & Lybrand LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 23, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF COOPERS & LYBRAND, LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-90986, 333-3535, and 333-36823) pertaining to the Brightpoint,
Inc. 1994 Stock Option Plan and Nonemployee Director Stock Option Plan, in the
Registration Statement (Form S-8 No. 333-36829) pertaining to the Brightpoint,
Inc. 1996 Stock Option Plan, in the Registration Statement (Form S-8 No.
333-2242) pertaining to the Brightpoint, Inc. 401(k) Plan, in the Registration
Statement (Form S-3 No. 33-91112) pertaining to certain options and warrants of
Brightpoint, Inc., in the Registration Statement (Form S-3 No. 333-3569)
pertaining to certain warrants of Brightpoint, Inc., and in the Registration
Statements (Form S-3 No. 333-15663, 333-29533, 333-07892, and 333-37587)
pertaining to certain common stock of Brightpoint, Inc. of our report dated
February 23, 1996, relating to the combined balance sheet of Allied
Communications, Inc. and its affiliates for the year ended December 31, 1995 in
the related combined statements of income, stockholder's equity and cash flows
for the year ended December 31, 1995 included in this Amendment No. 2 to the
Annual Report (Form 10-K) of Brightpoint, Inc.
/s/ Coopers & Lybrand LLP
Philadelphia, Pennsylvania
March 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Restated Schedule contains summary financial information extracted from the
consolidated financial statements included in the registrant's Annual Report on
Form 10-K of which this schedule is an exhibit thereto and is qualified in its
entirety by reference to such consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<CASH> 726 14,255 2,941
<SECURITIES> 0 18,000 3,478
<RECEIVABLES> 57,979 114,234 265,810
<ALLOWANCES> 691 1,115 3,394
<INVENTORY> 56,313 112,916 95,716
<CURRENT-ASSETS> 116,547 266,712 391,511
<PP&E> 3,444 9,432 27,954
<DEPRECIATION> 510 1,225 4,534
<TOTAL-ASSETS> 119,787 299,045 456,702
<CURRENT-LIABILITIES> 54,328 123,231 110,191
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 398 433 504
<OTHER-SE> 64,658 94,766 198,787
<TOTAL-LIABILITY-AND-EQUITY> 119,787 299,045 456,702
<SALES> 419,149 589,718 1,035,649
<TOTAL-REVENUES> 419,149 589,718 1,035,649
<CGS> 390,950 543,878 950,478
<TOTAL-COSTS> 390,950 543,878 950,478
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 1,383 2,118 6,367
<INCOME-PRETAX> 12,003 20,123 36,927
<INCOME-TAX> 3,838 7,328 11,065
<INCOME-CONTINUING> 8,165 11,037 25,510
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,165 11,037 25,510
<EPS-PRIMARY> 0<F1><F2> 0<F1><F2> 0.55<F2>
<EPS-DILUTED> 0<F1><F2> 0<F1><F2> 0.53<F2>
<FN>
<F1>Historical net income per share amounts for 1995 and 1996 are not presented
because such information is not meaningful as the Company was not a tax paying
entity on a consolidated basis for all periods presented. Pro forma basic
earnings per share amounts that include estimates of income tax amounts that
the Company would have incurred had it been a tax paying entity and exclude the
after-tax effect of one-time merger expenses of $2.1 million in 1996 were $0.22
and $0.31 for the years ended December 31, 1995 and 1996, respectively.
Diluted earnings per share amounts were $0.21 and $0.30 for the
two years ended December 31, 1995 and 1996, respectively.
<F2>The earnings per share, as presented, have been adjusted to give effect to
the Company's 2-1 stock split of its common stock effected in the form of a 100%
stock dividend paid on November 21, 1997 to stockholders of record on
November 6, 1997.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CAUTIONARY STATEMENTS
Certain statements in this Form 10-K and in the documents incorporated by
reference herein constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the ability to hire and retain key personnel;
successful completion and integration of future acquisitions; relationships
with and dependence on third-party wireless communications equipment
manufacturers and suppliers, network operators and other providers of wireless
communications logistics services; uncertainties relating to business and
economic conditions in markets in which the Company operates; uncertainties
relating to government and regulatory policies and other political risks;
uncertainties relating to customer plans and commitments; dependence on the
wireless communications industry; pricing and availability of wireless
communications equipment materials and inventories; rapid technological
developments and obsolescence in the wireless communications industry;
potential performance issues with suppliers and customers; governmental export
and import policies; global trade policies; worldwide political stability and
economic growth; the highly competitive environment in which the Company
operates; potential entry of new, well-capitalized competitors into the
Company's markets; changes in the Company's capital structure and cost of
capital; the Company's continued ability, through sales growth, to absorb the
increasing costs incurred and to be incurred in connection with its expansion
activities and provision of value-added logistics services; uncertainties
inherent in international operations; and foreign currency fluctuations. The
words "believe," "expect," "anticipate," "intend," and "plan" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date of the statement was made.
23
