-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GtzHGOu3PH5Dg4KOWvrkRhWOVzWRE++ttTshVnGhouf1NdqiD+T9d1OE7d30jDEc 6x7ezs3e6PmQwkNojzR37Q== 0000930661-00-000431.txt : 20000229 0000930661-00-000431.hdr.sgml : 20000229 ACCESSION NUMBER: 0000930661-00-000431 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLSTAR CORP CENTRAL INDEX KEY: 0000913590 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 752479727 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22972 FILM NUMBER: 554860 BUSINESS ADDRESS: STREET 1: 1730 BRIERCROFT DR CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 2144665000 MAIL ADDRESS: STREET 1: 1730 BRIERCROFT DRIVE CITY: CARROLLTON STATE: TX ZIP: 75006 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Commission File Number Ended November 30, 1999 0-22972 ---------------- CELLSTAR CORPORATION (Exact name of registrant as specified in its charter) ---------------- Delaware 75-2479727 (State of Incorporation) (I.R.S. Employer Identification No.) 1730 Briercroft Court Carrollton, Texas 75006 Telephone (972) 466-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of Class) Rights to Purchase Series A Preferred Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] On February 22, 2000, the aggregate market value of the voting stock held by nonaffiliates of the Company was approximately $346,965,660, based on the closing sale price of $8.813 as reported by the NASDAQ/NMS. (For purposes of determination of the above stated amount, only directors, executive officers and 10% or greater stockholders have been deemed affiliates). On February 22, 2000, there were 60,112,096 outstanding shares of Common Stock, $0.01 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held during 2000 are incorporated by reference into Part III of this Form 10-K. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CELLSTAR CORPORATION INDEX TO FORM 10-K
Page Number ------ Part I. Item 1. Business....................................................... 3 Item 2. Properties..................................................... 12 Item 3. Legal Proceedings.............................................. 12 Item 4. Submission of Matters to a Vote of Security Holders............ 13 Part II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................................... 14 Item 6. Selected Consolidated Financial Data........................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................. 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 23 Item 8. Consolidated Financial Statements and Supplementary Data....... 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................. 25 Part III. Item 10. Directors and Executive Officers of the Registrant............ 26 Item 11. Executive Compensation........................................ 26 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................................ 26 Item 13. Certain Relationships and Related Transactions................ 26 Part IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................................................... 27
2 PART I. Item 1. Business General CellStar Corporation (the "Company") is a leading global provider of distribution and value-added logistics services to the wireless communications industry, with operations in the Asia-Pacific Region, the Latin American Region, the European Region and the North American Region. The Company facilitates the effective and efficient distribution of handsets, related accessories, and other wireless products from leading manufacturers to network operators, agents, resellers, dealers and retailers. In many of the Company's markets, the Company provides activation services that generate new subscribers for its wireless carrier customers. The "Asia-Pacific Region" consists of the People's Republic of China ("PRC"), including Hong Kong, Taiwan, Singapore, The Philippines and Malaysia. The "Latin American Region" consists of Mexico, Brazil, Venezuela, Chile, Peru, Colombia, Argentina and the Company's Miami, Florida operations. The "European Region" consists of the United Kingdom, Sweden, The Netherlands and Poland. The "North American Region" currently consists of the United States. The Company's distribution services include purchasing, selling, warehousing, picking, packing, shipping and "just-in-time" delivery of wireless handsets and accessories. In addition, the Company offers its customers value-added services, including Internet-based supply chain services (AOS On-LineSM), Internet-based tracking and reporting, inventory management, marketing, prepaid wireless, product fulfillment, kitting and customized packaging, private labeling, light assembly, accounts receivable management and end-user support services. The Company also provides wireless activation services and operates retail locations in certain markets from which wireless communications products and accessories are marketed to the public. The Company, a Delaware corporation, was formed in 1993 to hold the stock of National Auto Center, Inc., a company that is now an operating subsidiary. National Auto Center was originally formed in 1981 to distribute and install automotive aftermarket products. In 1984, the Company began offering wireless communications products and services. In 1989, the Company became an authorized distributor of Motorola, Inc. ("Motorola") wireless handsets in certain portions of the United States. The Company entered into similar arrangements with Motorola in the Latin American Region in 1991, the Asia- Pacific Region in 1994 and the European Region in 1996. The Company has also entered into similar distributor agreements with other manufacturers, including Nokia Mobile Phones, Inc. ("Nokia"), Ericsson Inc. ("Ericsson"), LG International Corp. Ltd. ("LG") and QUALCOMM Incorporated ("QUALCOMM"). The Company's revenues grew at a 35.1% compound annual rate for the five fiscal years ended November 30, 1999, and increased 16.9% for the year ended November 30, 1999, compared to the prior fiscal year. The Company's continued growth will depend upon, among other things, its ability to maintain its operating margins, continue to secure an adequate supply of competitive products on a timely basis and on commercially reasonable terms, the Company's ability to secure adequate financial resources, continually turn its inventories and accounts receivable, successfully manage growth (including monitoring operations, controlling costs, maintaining adequate information systems and effective inventory and credit controls), manage operations that are geographically dispersed, achieve significant penetration in existing and new geographic markets, and hire, train and retain qualified employees who can effectively manage and operate its business. Wireless communications technology encompasses wireless communications devices such as handheld, mobile and transportable handsets, pagers and two- way radios. Since its inception in 1983, the wireless handset market has grown rapidly. Continued strong growth in the worldwide subscriber base and the convergence of existing and emerging technologies into a single multi-function handset connected to a wireless web should create significant new opportunities for CellStar. The Company believes that the wireless communications industry should continue to grow for a number of reasons. Economic growth, increased service availability and the lower cost of wireless service compared to conventional landline telephone systems should the Company 3 believes, continue to create demand for wireless communications products. The Company also believes that the change from analog to digital technology and the introduction of satellite-based communications services should increase overall market growth and encourage consumers to purchase the next generation of wireless communications products. In addition, advanced digital technologies and satellite-based systems have led to increases in the number of network operators and resellers, which has promoted greater competition for subscribers and, the Company believes, has resulted in increased demand for wireless communications products. Finally, the proliferation of new products is expected to lower prices, increase product selection and expand sales channels. The Company generated 83.8% of its revenues in 1999 from operations conducted outside the United States. The Company's foreign operations are subject to various political and economic risks including, but not limited to, the following: political instability; currency controls; currency devaluations; exchange rate fluctuations; risks related to the Euro conversion; potentially unstable channels of distribution; increased credit risks; export control laws that might limit the markets the Company can enter; inflation; changes in laws related to foreign ownership of businesses abroad; foreign tax laws; changes in import/export regulations, including enforcement policies; and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal political or economic instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. The Company's consolidated financial statements and accompanying notes, which includes certain geographic information, are in Part IV. Asia-Pacific Region The Company believes that in the Asia-Pacific Region, primarily in the PRC, demand for wireless communications services has been and should continue to be driven by an unsatisfied demand for basic phone service due to the lack of adequate landline service and limited wireless penetration. The Company believes that wireless systems in this region offer a more attractive alternative to landline systems because wireless systems do not require the substantial amount of time and investment in infrastructure (in the form of buried or overhead cables) associated with landline systems. Based on these and other factors, as well as the large population bases and economic growth in this region, the Company believes that phone users should increasingly use wireless systems. The key to the Company's expansion in the Asia-Pacific Region has been its relationships with wireless equipment manufacturers. The Company historically has entered a new market in this region with the support of at least one major manufacturer. The Company offers wireless handsets and accessories manufactured by Original Equipment Manufacturers ("OEMs"), such as Motorola and Nokia, and aftermarket accessories manufactured by a variety of suppliers. Throughout the Asia-Pacific Region, CellStar acts as a wholesale distributor of wireless handsets to large and small volume purchasers. CellStar (Asia) Corporation Limited ("CellStar Asia"), the oldest of the Company's business units in the region, derives its revenue principally from wholesale sales of wireless handsets to Hong Kong-based companies that ship these products to the remainder of the PRC and Taiwan. Shanghai CellStar International Trading Company, Ltd. ("CellStar Shanghai"), a wholly-owned, limited liability foreign trade company established in Shanghai, PRC, commenced domestic wholesale operations in the PRC in 1997 using a local commodities exchange market as an intermediary, pursuant to an experimental initiative permitting market access as authorized by the Shanghai municipal government. CellStar Shanghai purchases wireless handsets locally manufactured by Motorola and Nokia and wholesales those products to distributors and retailers located throughout the PRC. CellStar Shanghai has also entered into cooperative arrangements with certain local distributors that allow them to establish wholesale and retail operations using CellStar's trademarks. Under the terms of such arrangements, CellStar Shanghai provides services, sales support, training and access to promotional materials for use in their operations. As a result of these cooperative 4 arrangements, more than 1,000 retail points of sale in Shanghai display the CellStar name and trademarks. In exchange, those distributors agree to purchase most of their requirements of wireless handsets from CellStar Shanghai and further agree to allow CellStar Shanghai to purchase up to 50% of their operation if and when foreign ownership of domestic retail operations is allowed by the PRC government. CellStar Shanghai currently deals with numerous local distributors, including distributors located in the ten largest metropolitan areas in the PRC. CellStar Shanghai leases warehouse, showroom and office space in the Pudong district of Shanghai. Although the Company's business in the Asia-Pacific Region is predominantly wholesale, retail operations are also conducted in each country, except the PRC. The Company has historically acted through wholly-owned subsidiaries in each of the countries in this region; however, some of the retail operations may be owned jointly with local partners, depending on the market and regulatory environment in the host country. The Company commenced operations in Taiwan in 1995. The Taiwanese market is becoming increasingly important to the Company's strategy for the Asia-Pacific Region. In April 1999, the Company entered into a strategic alliance with Arcoa Communications Co., Ltd. ("Arcoa"), the largest telecommunications retail store chain in Taiwan. As a result of this alliance, the Company became the primary supplier of Motorola-licensed handsets and accessories to Arcoa's more than 400 retail outlets in Taiwan. In January 2000, the Company strengthened its relationship with Arcoa by acquiring 3.5% of the issued and outstanding common stock of Arcoa. The Company entered the Singapore, Philippines and Malaysia markets in 1995 and conducts wholesale and retail operations in each country. In Malaysia, the Company is a minority partner (49%) in a joint venture. The following table outlines the Company's entry into the Asia-Pacific Region:
Type of Operation Year (as of November 30, Country Entered 1999) ------- ------- -------------------- Hong Kong.................................... 1993 Wholesale Singapore.................................... 1995 Wholesale and Retail The Philippines.............................. 1995 Wholesale and Retail Malaysia..................................... 1995 Wholesale and Retail Taiwan....................................... 1995 Wholesale and Retail China........................................ 1997 Wholesale
At November 30, 1999, the Company sold its products to over 500 wholesale customers in the Asia-Pacific Region (excluding customers of the Company's Malaysian joint venture), the ten largest of which accounted for approximately 17% of the Company's consolidated revenues in fiscal 1999. The Company offers a broad product mix in the Asia-Pacific Region, including products that are compatible with digital and analog systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company markets its products to a variety of wholesale purchasers, including retailers, exporters and wireless carriers, through its direct sales force and through trade shows. To penetrate local markets in certain countries, the Company has made use of subagent and license relationships. Latin American Region As in the Asia-Pacific Region, the Company believes that demand for wireless communications services in the Latin American Region has been and should continue to be driven by an unsatisfied demand for basic phone service due to the lack of adequate landline service and to limited wireless penetration. The Company believes that wireless systems in this region offer a more attractive alternative to landline systems because wireless systems do not require the substantial amount of time and investment in infrastructure (in the form of buried or overhead cables) associated with landline systems. Based on these and other factors, as well as the large population bases and economic growth in this region, the Company believes that phone users should increasingly use wireless communications systems. 5 The key to the Company's operations in the Latin American Region has been its relationships with wireless equipment manufacturers and wireless service carriers. The Company offers wireless communications handsets, related accessories and other wireless products manufactured by OEMs, such as Motorola, Nokia, LG and Ericsson, and aftermarket accessories manufactured by a variety of suppliers to mass merchandisers and other retailers. The Company distributes products in the Latin American Region for manufacturers such as Motorola, Nokia and Ericsson. The Company, through its Miami, Florida operations, acts as a wholesale distributor of wireless communications products in the Latin American Region to large volume purchasers, such as the large wireless carriers, as well as to smaller volume purchasers. As a result, the Company's Miami, Florida, operations are included in the Latin American Region. Although the Company's business in the Latin American Region is predominantly wholesale and value-added fulfillment services, retail operations are also conducted by the Company in each country, except Brazil and Colombia. The Company has historically acted through wholly-owned subsidiaries in each of the countries in this region. Since 1998, the Company has conducted its operations in Brazil primarily through a majority owned (51%) joint venture. As of November 30, 1999, the Company operated 45 retail locations (including kiosks) in the Latin American Region, the majority of which are located in Mexico, Venezuela and Peru. The following table outlines the Company's entry into the Latin American Region:
Type of Operation Year (as of November 30, Country Entered 1999) ------- ------- -------------------- Mexico....................................... 1991 Wholesale and Retail Venezuela.................................... 1993 Wholesale and Retail Brazil....................................... 1993 Wholesale Chile........................................ 1993 Wholesale and Retail Colombia..................................... 1994 Wholesale Argentina.................................... 1995 Wholesale and Retail Peru......................................... 1998 Wholesale and Retail
At November 30, 1999, the Company sold its products to over 1,200 wholesale customers in the Latin American Region, the ten largest of which accounted for approximately 20% of the Company's consolidated revenues in fiscal 1999. The Company offers a broad product mix in the Latin American Region, including products that are compatible with digital, analog and satellite systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company markets its products through direct sales and advertising. In those markets where it conducts retail operations, the Company primarily utilizes direct mailings and newspapers to promote its retail operations. To penetrate local markets, the Company has made use of subagent relationships in certain countries. European Region The Company believes that demand for wireless communications services in the European Region will continue to expand due to the increasing affordability and availability of such services and shorter development cycles for new products and product and service enhancements. The Company's revenues in this region are impacted significantly by the trading activities carried out in its U.K. subsidiary. These trading activities are, in turn, impacted significantly by global economic and market conditions and the demand for and availability of wireless handsets. The Company's U.K. subsidiary sells wireless handsets, pagers, mobile radio and other wireless communications equipment and related accessory products throughout Europe. The Company's subsidiaries in Sweden and Poland distribute products in their respective countries and in other European markets for several manufacturers, including Ericsson, Nokia and Motorola. In August 1999, the Company acquired Montana Telecommunications Group, B.V. in The Netherlands to expand the Company's sales and market presence in The 6 Netherlands, Belgium and Luxembourg. The Company's Netherlands subsidiary also distributes products in other European markets for several manufacturers, including Ericsson and Nokia. The key to the Company's expansion in the European Region has been its relationships with wireless equipment manufacturers. The Company distributes products in the European Region primarily for Ericsson, Nokia and Motorola. CellStar acts as a wholesale distributor of wireless communications products in the European Region to large volume purchasers, such as the large wireless carriers, as well as to smaller volume purchasers. The Company operates a distribution facility in Manchester, England, and Amsterdam, The Netherlands, to serve customers in the European Region. The Company's largest wholesale customers in the region are wireless carriers. Although the Company's business in the European Region is predominantly wholesale, it also conducts retail operations in Poland and The Netherlands. As of November 30, 1999, the Company operated 16 retail locations (including kiosks) in Poland and one retail location in The Netherlands. The Company has historically acted through wholly-owned subsidiaries in each of the countries in this region. The Company's U.K. subsidiary, the oldest of the Company's business units in the region, derives most of its revenue from trading activities and the wholesale sales of wireless handsets and accessories throughout Europe. Trading in wireless handsets involves the purchase of wireless handsets from sources other than the manufacturers or network operators (i.e., trading companies) and the sale of those handsets to other trading companies. Each of the Company's subsidiaries in the United Kingdom, Sweden and The Netherlands are building a broader wholesale customer base and strengthening their relationships with manufacturers and carriers throughout Europe. Based on market conditions in Poland, the Company decided in the fourth quarter of 1999 to sell its Polish operations. The following table outlines the Company's entry into the European Region:
Type of Operation Year (as of November 30, Country Entered 1999) ------- ------- -------------------- United Kingdom............................... 1997 Wholesale Sweden....................................... 1998 Wholesale Poland....................................... 1998 Wholesale and Retail The Netherlands.............................. 1999 Wholesale and Retail
At November 30, 1999, the Company sold its products to over 1,800 wholesale customers in the European Region, the ten largest of which accounted for approximately 5% of the Company's consolidated revenues in fiscal 1999. The Company offers a broad product mix in the European Region, including products that are compatible with digital, analog and satellite systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company markets its products through direct sales and advertising. In those markets where it conducts retail operations, the Company primarily utilizes direct mailings and newspapers to promote its retail operations. North American Region In the United States, wireless communications services were developed as an alternative to conventional landline systems and have been among the fastest growing market segments in the communications industry. The Company believes that the U.S. market for wireless services should continue to expand due to the increasing affordability and availability of such services and shorter development cycles for new products and product and service enhancements. In addition, many wireless service providers are upgrading their existing systems from analog to digital technology as a result of capacity constraints in many of the larger wireless markets and to respond to competition. Digital technology offers other advantages, such as improved overall average signal quality, improved call security, lower incremental costs for additional subscribers, and the ability to provide data transmission services. 7 At November 30, 1999, the Company sold its products to over 900 customers in the North American Region, the ten largest of which accounted for approximately 7% of the Company's consolidated revenues in fiscal 1999. The Company offers wireless handsets and accessories manufactured by OEMs, such as Motorola, Ericsson, Nokia, QUALCOMM, Sony Electronics Inc. ("Sony") and NEC Corporation ("NEC") and aftermarket accessories manufactured by a variety of suppliers. The Company's distribution operations and value-added services complement these manufacturer distribution channels by allowing these manufacturers to sell and distribute their products to smaller volume purchasers and retailers. The Company offers a broad product mix in the United States, including products that are compatible with digital, analog and satellite systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. In addition to its distribution services, the Company provides various value-added facilitation and fulfillment services, including aftermarket and OEM product packaging and configuration, inventory management, order processing, return and repair management, credit and collections and handset sales. The Company believes that opportunities continue to exist for it to assist wireless communications carriers and Internet-based wireless handset and accessory retailers in meeting their supply and distribution needs by providing complete order-fulfillment services. The Company anticipates an increased demand for such services as new and existing wireless carriers, manufacturers and Internet-based retailers continue to outsource these activities in order to reduce their costs and focus on their own core businesses. In February 1999, the Company sold part of its debt and equity investment in Topp Telecom, Inc. ("Topp") to a wholly-owned subsidiary of Telefonos de Mexico, S.A. de C.V. ("TelMex"), and other Topp shareholders for $7.0 million. In September 1999, the Company sold its remaining debt and equity investment in Topp to the same subsidiary of TelMex for $26.5 million. The Company will continue to distribute wireless handsets, pre-paid airtime cards and related accessories pursuant to a new agreement reached with Topp in November 1999. In December 1998, the Company sold its retail stores located in the Dallas- Fort Worth area to SWBW. In April 1999, the Company sold its retail stores in the Kansas City area to SWBW. As of November 30, 1999, the Company operates two retail locations in the United States--one in Austin, Texas, and one in Houston, Texas. The Company markets its products nationally to wholesale purchasers using, among other methods, direct sales strategies, the Internet, strategic account management, trade shows and trade journal advertising. The Company offers advertising allowances, ready-to-use advertising materials and displays, easy access to hard-to-find products, credit terms, a variety of name brand products and highly-responsive customer service. The Company continues to develop and enhance the functionality of its AOS On-Line and netXtremeSM programs. These programs are proprietary, Internet- based order entry and supply chain services software and systems designed to assist the Company's customers in the submission of orders, the tracking of such orders and the analysis of business activities with the Company. AOS On- Line and netXtreme greatly enhance a customer's ability to actively manage its inventories and reduce supply chain delays. In addition, the Company assists customers in developing e-commerce platforms and solutions designed to enhance sales and reduce product delivery and activation delays. Industry Relationships The Company has established strong relationships with leading wireless equipment manufacturers and wireless service carriers. These relationships have been key to the Company's expansion. Although the Company purchased its products from more than 20 suppliers in fiscal 1999, the majority of the Company's purchases were from Motorola, Nokia, Ericsson, LG and QUALCOMM. For the year ended November 30, 1999, Motorola accounted for approximately 50% of the Company's product purchases. 8 The Company has various supply contracts with terms of approximately one year with Motorola, Nokia, Ericsson, QUALCOMM and Sony that specify territories, minimum purchase levels, pricing and payment terms. These contracts typically provide the Company with "price protection," or the right to receive the benefit of price decreases on products currently in the Company's inventory if such products were purchased by the Company within a specified period of time prior to the effective date of the price decrease. The Company's expansion has been due to several factors, one of which is its relationship with Motorola, historically one of the largest manufacturers of wireless products in the world and the Company's largest supplier. In July 1995, Motorola purchased a split-adjusted 2,089,312 shares of the outstanding common stock of the Company. The Company believes that its relationship with Motorola and its other suppliers should enable it to continue to offer a wide variety of wireless communications products in all markets. While the Company believes that its relationship with Motorola and other significant vendors is satisfactory, there can be no assurance that these relationships will continue. In the second half of 1999, the Company experienced shortages in supply for certain products that are in high demand. No assurance can be given that product shortages will not occur in the future. The loss of Motorola or any other significant vendor or a substantial price increase imposed by any vendor or a shortage of product available from its vendors could have a materially adverse impact on the Company. Asset Management The Company continues to invest in and focus on technology to improve financial and information control systems. During 1999, the Company continued to make significant progress on several information technology initiatives: (i) implementation and rollout of data mart and decision support applications to improve sales and inventory analysis, (ii) upgrades to the corporate headquarter network backbone to improve reliability and performance, (iii) implementation of a common electronic mail and groupware solution worldwide, (iv) implementation of remote access and computing for all traveling workforce, and (v) upgrade of all internet security and electronic commerce platforms. In addition, the Company, through the rollout of a common application suite to its international sites, provided improvements in work flow at various sites and positioned the Company to be Year 2000 compliant. Key efforts for 2000 include: (i) increasing electronic commerce capabilities through the rollout of additional features in the Company's Advanced Order System (AOS); (ii) expansion of internet-based commerce to international markets; (iii) increasing XML-based catalog and order management capabilities; and (iv) rollout of data mart and reporting applications to international customers. These initiatives will continue to position the Company to take advantage of the market trends with internet-based commerce and further provide opportunities to integrate the Company's systems with their customers' systems. The Company purchases its products from more than 20 suppliers that ship directly to the Company's warehouse or distribution facilities. Inventory purchases are based on quality, price, service, market demand, product availability and brand recognition. Certain of the Company's major vendors provide favorable purchasing terms to the Company, including price protection credits, stock balancing, increased product availability and cooperative advertising and marketing allowances. The Company provides stock balancing to certain of its customers. Inventory control is important to the Company's ability to maintain its margins while offering its customers competitive prices and rapid delivery of a wide variety of products. The Company uses its integrated management information technology systems, specifically its inventory management, electronic purchase order and sales modules (AOS On-Line and netXtreme), to help manage inventory and sales margins. Typically, the Company ships its products within 24 hours from receipt of customer orders and, therefore, backlog is not considered material to the Company's business. The market for wireless products is characterized by rapidly changing technology and frequent new product introductions, often resulting in product obsolescence or short product life cycles. The Company's success 9 depends in large part upon its ability to anticipate and adapt its business to such technological changes. There can be no assurance that the Company will be able to identify, obtain and offer products necessary to remain competitive or that competitors or manufacturers of wireless communications products will not market products that have perceived advantages over the Company's products or that render the products sold by the Company obsolete or less marketable. The Company maintains a significant investment in its product inventory and, therefore, is subject to the risks of inventory obsolescence and excessive inventory levels. The Company attempts to limit these risks by managing inventory turns and by entering into arrangements with its vendors, including price protection credits and return privileges for slow-moving products. The Company's significant inventory investment in its international operations exposes it to certain political and economic risks. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-- International Operations." Significant Trademarks The Company markets certain of its products under the trade name CellStar. The Company has registered its trade name on the Principal Register of the United States Patent and Trademark Office and has registered or applied for registration of its trade name in certain foreign jurisdictions. The Company also has filed for registrations of its other trade names in the United States and other jurisdictions where it does business. Competition The Company operates in a highly competitive environment and believes that such competition will intensify in the future. The Company competes primarily on the basis of inventory availability and selection, delivery time, service and price. Many of the Company's competitors are larger and have greater capital and management resources than the Company. In addition, potential users of wireless systems may find their communications needs satisfied by other current and developing technologies. The Company's ability to remain competitive will therefore depend upon its ability to anticipate and adapt its business to such technological changes. There can be no assurance that the Company will be successful in anticipating and adapting to such technological changes. In the current U.S. wireless communications products market, the Company's primary competitors are manufacturers, wireless carriers and other independent distributors such as Brightpoint, Inc. The Company also competes with logistics companies. Competitors of the Company in the Asia-Pacific, Latin American and European Regions include manufacturers, national carriers that have retail outlets with direct end-user access, and U.S. and foreign-based exporters and distributors. The Company is also subject to competition from gray market activities by third parties that are legal, but are not authorized by manufacturers, or that are illegal (e.g., activities that avoid applicable duties or taxes). In addition, the Company competes for activation fees and residual fees with agents and subagents for the wireless carriers. Employees As of November 30, 1999, the Company had approximately 1,425 employees worldwide. In Mexico and Argentina, approximately 205 employees are subject to labor agreements. The Company has never experienced any material labor disruption and is unaware of any efforts or plans to organize additional employees. Management believes that its labor relations are satisfactory. 10 Executive Officers of the Registrant The following table sets forth certain information concerning the executive officers of the Company: Alan H. Goldfield.......... 56 Chief Executive Officer and Chairman of the Board Dale H. Allardyce.......... 50 President and Chief Operating Officer A.S. Horng................. 42 Chairman and Chief Executive Officer of CellStar (Asia) Corporation Limited Austin P. Young............ 59 Senior Vice President, Chief Financial Officer and Treasurer Daniel T. Bogar............ 40 Senior Vice President--American Regions Elaine Flud Rodriguez...... 43 Senior Vice President, General Counsel and Secretary Raymond L. Durham.......... 38 Corporate Controller
Alan H. Goldfield is a founder of the Company and has been the Chairman of the Board and Chief Executive Officer of the Company since its formation. Mr. Goldfield served as President of the Company from its formation until March 1995 and from August 1996 until December 1996. Mr. Goldfield serves as an officer and director of the Company pursuant to his employment agreement. Dale H. Allardyce has served as the President and Chief Operating Officer of the Company since November 1999. Previously, Mr. Allardyce served as Executive Vice President--Operations for ENTEX Information Services, Inc., a personal computer systems integrator, from February 1995 to December 1998. From January 1993 to February 1995, Mr. Allardyce served as Senior Vice President of THORN Americas, Inc., a nationwide chain of rent-to-own stores and a subsidiary of UK based THORN EMI. From March 1982 to December 1992, Mr. Allardyce was employed by The Southland Corporation, the owner and operator of a nationwide convenience store chain, where he served as Vice President of distribution, food processing and procurement from 1987 to 1992. Mr. Allardyce serves as an officer of the Company pursuant to his employment agreement. A.S. Horng has served as Chairman of CellStar Asia since January 1998 and has also served as Chief Executive Officer of such company since April 1997 and General Manager since 1993. From April 1997 until January 1998, Mr. Horng served as Vice Chairman of CellStar Asia, and from April 1997 until October 1997, Mr. Horng served as President of CellStar Asia. From 1991 to 1993, Mr. Horng was President of C-Mart USA Corporation, a distributor and manufacturer of aftermarket wireless phone accessory products. Mr. Horng serves the Company pursuant to his employment agreement. Austin P. Young has served as Senior Vice President, Chief Financial Officer and Treasurer since November 1999. Prior to joining CellStar, Mr. Young served as a Director and Executive Vice President--Finance and Administration of Metamor Worldwide, Inc., an information technology and staffing services firm, from August 1996 until November 1998. He was also Senior Vice President and Chief Financial Officer of American General Corporation, a diversified insurance and financial services company, from 1988 to 1996. Before joining American General, Mr. Young was a partner with KPMG LLP, one of the largest independent professional accounting firms, where he spent 22 years of his professional career. Mr. Young serves as an officer of the Company pursuant to his employment agreement and is a certified public accountant. Daniel T. Bogar has served as Senior Vice President--American Regions since May 1999. Previously, Mr. Bogar served as Vice President--Latin American Region from January 1998 to May 1999. In addition, Mr. Bogar served as a director of the Company from July 1994 to March 1999. Mr. Bogar has served as Vice President of South American Operations and has been responsible for the Company's Latin American operations since 1992. Elaine Flud Rodriguez has been Senior Vice President, General Counsel and Secretary since January 2000. Previously, Ms. Rodriguez served as Vice President, General Counsel and Secretary since joining the Company in October 1993. From October 1991 to August 1993, she was General Counsel and Secretary of Zoecon Corporation, a pesticide manufacturer and distributor owned by Sandoz Ltd. Prior thereto, she was engaged in 11 the private practice of law with Atlas & Hall and Akin, Gump, Strauss, Hauer & Feld. Ms. Rodriguez is licensed to practice in the states of Texas and Louisiana. Ms. Rodriguez serves as an officer of the Company pursuant to her employment agreement. Raymond L. Durham has served as Corporate Controller since November 1999 and acting Corporate Controller from July 1999 until November 1999. From March 1997 until July 1999, Mr. Durham served as Director of Audit Services for the Company. Prior to joining the Company, he was with KPMG LLP, one of the largest independent professional accounting firms, from 1986 until 1997 where he held several positions including Audit Senior Manager from 1990 until 1997. Mr. Durham is a certified public accountant. The Company's success is substantially dependent on the efforts of Alan H. Goldfield, its Chairman and Chief Executive Officer, and certain other of the Company's executive officers and key employees. The loss or interruption of the continued full-time service of Mr. Goldfield or other of the Company's executive officers and key employees could materially and adversely affect the Company's business. Although the Company has entered into employment agreements with Mr. Goldfield and several other officers and employees, there can be no assurance that the Company will be able to retain their services. The Company does not maintain key man insurance on the life of Mr. Goldfield or any other officer of the Company. To support its continued growth, the Company will be required to effectively recruit, develop and retain additional qualified management. The inability of the Company to attract and retain such necessary personnel could also have a materially adverse effect on the Company. Item 2. Properties As of November 30, 1999, the Company had a total of 27 operating facilities in the Asia-Pacific Region (including kiosks, but not including facilities of the Company's Malaysian joint venture), 26 of which were leased, a total of 82 operating facilities in the Latin American Region (including kiosks), 81 of which were leased, and a total of 23 operating facilities in the European Region (including kiosks), all of which were leased. These facilities serve as offices, warehouses, distribution centers or retail locations. The Company's corporate headquarters and principal North American Region distribution facility is located at 1730 and 1728 Briercroft Court in Carrollton, Texas. Both facilities are owned by the Company. As of November 30, 1999, the Company had four other operating facilities in the North American Region, all of which were leased. In December 1998 and April 1999, the Company sold all but two of its retail store operations in the North American Region. In October 1999, the Company ceased operations at its 58,900 square foot distribution facility located in Chino, California. The Company believes that suitable additional space will be available, if necessary, to accommodate future expansion of its operations. Item 3. Legal Proceedings During the period from May 1999 through July 1999, seven purported class action lawsuits were filed in the United States District Court for the Southern District of Florida, Miami Division, styled as follows: (1) Elfie Echavarri v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (2) Mark Krug v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (3) Jewell Wright v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (4) Theodore Weiss v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (5) Tony LaBella v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (6) Thomas F. Petrone v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; and (7) Adele Brody v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins. Each of the above lawsuits sought certification as a class action to represent those persons who purchased the publicly traded securities of the Company during the period from March 19, 1998, to September 21, 1998. Each of these lawsuits alleges that the Company issued a series of materially false and misleading statements concerning the Company's results of 12 operations and investment in Topp, resulting in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The court entered an order on September 26, 1999 consolidating the above lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel. On November 8, 1999, the lead plaintiffs filed a consolidated complaint. The Company has filed a Motion to Dismiss the consolidated complaint, but the court has not yet rendered a decision. The Company believes that it has fully complied with all applicable securities laws and regulations and that it has meritorious defenses to the allegations made in the consolidated complaint. The Company intends to vigorously defend the consolidated action if its Motion to Dismiss is denied. On August 3, 1998, the Company announced that the Securities and Exchange Commission is conducting an investigation of the Company relating to its compliance with federal securities laws. The Company believes that it has fully complied with all securities laws and regulations and is cooperating with the Commission staff in its investigation. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of the Company's security holders during the fiscal quarter ended November 30, 1999. 13 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock is quoted on the NASDAQ Stock Market under the symbol "CLST." The following table sets forth, on a per share basis for the periods indicated, the high and low closing sale prices for the common stock as reported by the NASDAQ Stock Market. Sales prices have been adjusted to give effect to a two-for-one stock split on June 23, 1998.
High Low ------- ------ Fiscal Year ended November 30, 1999 Quarter Ended: February 28, 1999........................................ $12.500 6.219 May 31, 1999............................................. 12.688 6.313 August 31, 1999.......................................... 9.063 5.250 November 30, 1999........................................ 10.438 5.500 Fiscal Year ended November 30, 1998 Quarter Ended: February 28, 1998........................................ $16.156 9.438 May 31, 1998............................................. 18.391 12.938 August 31, 1998.......................................... 17.875 6.625 November 30, 1998........................................ 9.563 3.063
As of February 22, 2000, there were 271 stockholders of record, although the Company believes that the number of beneficial owners is significantly greater than that number because a large number of shares are held of record by CEDE & Co. The Company has never declared or paid cash dividends on its common stock. The Company currently intends to retain all earnings to finance the continued growth and development of its business and does not anticipate paying cash dividends on the common stock in the foreseeable future. Any future determination as to the payment of cash dividends will depend on a number of factors, including future earnings, capital requirements, the financial condition and prospects of the Company and any restrictions under the Company's credit agreements existing from time to time, as well as other factors the Board of Directors may deem relevant. The Company's current multicurrency revolving credit facility restricts the payment of dividends by the Company to its stockholders. There can be no assurance that the Company will pay any dividends in the future. 14 Item 6. Selected Consolidated Financial Data The financial data presented below, as of and for each of the years in the five-year period ended November 30, 1999, were derived from the Company's audited financial statements. The selected consolidated financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's Consolidated Financial Statements and Notes thereto, included elsewhere herein.
Year Ended November 30, -------------------------------------------------- 1999 1998 1997 1996 1995 ---------- --------- --------- ------- ------- (In thousands, except per share data and operating data) Statements of Operations Data: Revenues.............. $2,333,805 1,995,850 1,482,814 947,601 811,915 Cost of sales......... 2,140,375 1,823,075 1,325,488 810,000 702,074 ---------- --------- --------- ------- ------- Gross profit.......... 193,430 172,775 157,326 137,601 109,841 ---------- --------- --------- ------- ------- Operating expenses: Selling, general and administrative expenses............ 111,613 116,747 81,319 135,585 76,553 Impairment of assets held for sale....... 5,480 -- -- -- -- Lawsuit settlement... -- 7,577 -- -- -- Restructuring charge.............. 3,639 -- -- -- -- ---------- --------- --------- ------- ------- Total operating expenses............. 120,732 124,324 81,319 135,585 76,553 ---------- --------- --------- ------- ------- Operating income...... 72,698 48,451 76,007 2,016 33,288 Other income (expense): Interest expense..... (19,027) (14,446) (7,776) (8,350) (6,144) Equity in income (loss) of affiliated companies, net...... 31,933 (28,448) 465 (219) 3,222 Gain on sale of assets.............. 8,774 -- -- 128 -- Other, net........... (1,876) 1,389 2,260 (441) (28) ---------- --------- --------- ------- ------- Total other income (expense)............ 19,804 (41,505) (5,051) (8,882) (2,950) ---------- --------- --------- ------- ------- Income (loss) before income taxes......... 92,502 6,946 70,956 (6,866) 30,338 Provision (benefit) for income taxes..... 23,415 (7,418) 17,323 (453) 7,442 ---------- --------- --------- ------- ------- Net income (loss)..... $ 69,087 14,364 53,633 (6,413) 22,896 ========== ========= ========= ======= ======= Net income (loss) per share:(1) Basic................ $ 1.16 0.24 0.92 (0.11) 0.41 Diluted.............. $ 1.12 0.24 0.89 (0.11) 0.41 Weighted average number of shares:(1) Basic................ 59,757 58,865 58,144 57,821 56,466 Diluted.............. 65,589 60,656 60,851 57,821 56,466 Operating Data: International revenues, including export sales, as a percentage of revenues............. 83.8% 76.3% 66.7% 64.0% 63.5%(2) At November 30, -------------------------------------------------- 1999 1998 1997 1996 1995 ---------- --------- --------- ------- ------- (In thousands) Balance Sheet Data: Working capital....... $ 332,841 259,923 259,954 71,365 74,410 Total assets.......... $ 706,438 775,525 497,111 298,551 314,921 Notes payable to financial institutions and current portion of long-term debt....... $ 50,609 85,023 -- 56,704 99,187 Long-term debt, less current portion...... $ 150,000 150,000 150,000 6,285 6,880 Stockholders' equity.. $ 250,524 177,791 160,865 104,263 111,295
- -------- (1) Common stock amounts have been retroactively adjusted to give effect to a two-for-one stock split, which was made in the form of a stock dividend distributed on June 23, 1998 and a three-for-two stock split, which was made in the form of a stock dividend distributed on June 17, 1997. (2) Includes export sales of $90.2 million in 1995 to CellStar Asia prior to June 3, 1995 when it became a wholly-owned subsidiary of the Company. 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company is a leading global provider of distribution and value-added logistics services to the wireless communications industry, with operations in Asia-Pacific, Latin America, Europe and North America. The Company facilitates the effective and efficient distribution of handsets, related accessories and other wireless products from leading manufacturers to network operators, agents, resellers, dealers and retailers. In many of its markets, the Company provides activation services that generate new subscribers for its wireless carrier customers. From 1995 through 1999, the Company's revenues grew from $811.9 million to $2,333.8 million. Sales of wireless communications products have increased primarily as a result of greater market penetration due in part to decreasing unit prices and service costs. The Company's diluted net income per share in 1999 increased to $1.12 from $0.24 in 1998. The Company derives substantially all revenues from net product sales, which includes sales of handsets and other wireless communications products. The Company also derives revenues from value-added services, activations, residual income, and prepaid wireless services. Value-added service revenues include fulfillment service fees, handling fees and assembly revenues. Activation income includes commissions paid by a wireless carrier when a customer initially subscribes for wireless service through the Company. Residual income includes payments received from carriers based on the wireless handset usage by a customer activated by the Company. Special Cautionary Notice Regarding Forward-Looking Statements Certain of the matters discussed under the captions "Business," "Properties," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report may constitute "forward-looking" statements for purposes of the Securities Act and the Exchange Act and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, the words "anticipates," "estimates," "believes," "continues," "expects," "projections," "forecasts," "intends," "may," "might," "could," "should," and similar expressions are intended to be among the statements that identify forward-looking statements. Various factors that could cause the actual results, performance or achievements of the Company to differ materially from the Company's expectations are disclosed in this report ("Cautionary Statements"), including, without limitation, those statements made in conjunction with the forward-looking statements included under the captions identified above and otherwise herein. All written and oral forward-looking statements attributable to the Company are expressly qualified in their entirety by the Cautionary Statements. 16 Results of Operations The following table sets forth certain consolidated statements of operations data for the Company expressed as a percentage of revenues for the past three fiscal years:
1999 1998 1997 ----- ----- ----- Revenues................................................... 100.0% 100.0 100.0 Cost of sales.............................................. 91.7 91.3 89.4 ----- ----- ----- Gross profit............................................. 8.3 8.7 10.6 Selling, general and administrative expenses............... 4.8 5.8 5.5 Impairment of assets held for sale......................... 0.2 -- -- Lawsuit settlement......................................... -- 0.4 -- Restructuring charge....................................... 0.2 -- -- ----- ----- ----- Operating income......................................... 3.1 2.5 5.1 Other income (expense): Interest expense......................................... (0.8) (0.7) (0.5) Equity in income (loss) of affiliated companies, net..... 1.4 (1.4) -- Gain on sale of assets................................... 0.4 -- -- Other, net............................................... (0.1) -- 0.2 ----- ----- ----- Total other income (expense)........................... 0.9 (2.1) (0.3) ----- ----- ----- Income before income taxes............................... 4.0 0.4 4.8 Provision (benefit) for income taxes....................... 1.0 (0.3) 1.2 ----- ----- ----- Net income................................................. 3.0% 0.7 3.6 ===== ===== =====
The amount of revenues and the approximate percentages of revenues attributable to the Company's operations for the past three fiscal years are shown below:
1999 1998 1997 ---------------- --------------- --------------- (Dollars in thousands) Asia-Pacific Region........... $ 769,412 33.0% 513,869 25.7 422,751 28.5 Latin American Region......... 717,273 30.7 705,624 35.4 497,336 33.6 European Region............... 469,991 20.1 303,520 15.2 69,142 4.6 North American Region......... 377,129 16.2 472,837 23.7 493,585 33.3 ---------- ----- --------- ----- --------- ----- Total....................... $2,333,805 100.0% 1,995,850 100.0 1,482,814 100.0 ========== ===== ========= ===== ========= =====
Revenues from the Company's Miami, Florida, warehouse ("Miami") have been classified as Latin American Region revenues as these revenues are primarily exports to South American countries, either by the Company or by exporter customers. Fiscal 1999 Compared to Fiscal 1998 Revenues. The Company's revenues increased $337.9 million, or 16.9% from $1,995.9 million to $2,333.8 million. Revenue growth in the second half of 1999 was impacted by a global shortage of handsets. Worldwide demand in 1999 was greater than both manufacturers and component suppliers anticipated. As a result, there have been continued component and handset shortages for which increased production capacity, in many instances, requires long lead times. The shortages differ by region of the world, by manufacturer, and by handset model. While improving, the outlook shows shortages continuing throughout the first and second quarter of 2000. Revenues in the Asia-Pacific Region increased $255.5 million, or 49.7% from $513.9 million to $769.4 million. The Company's operations in the PRC, including Hong Kong, provided $528.6 million in revenue, an increase of $123.7 million, or 30.6% from $404.9 million. This increase continued to be driven by the strong 17 demand in the PRC, coupled with a broadened source of product manufactured in- country and the impact of the PRC's tighter customs controls on imported products, which began in the third quarter of 1998. The Company's operations in Taiwan provided the largest percentage growth in the region, providing $187.4 million in revenue, an increase of $119.0 million, or 174.0%, from $68.4 million. Demand in Taiwan increased due to the entry of several new wireless carriers into the market during 1998 as well as the introduction of new high-end digital handsets. Revenue from the Company's Singapore operations increased $12.8 million, or 31.5%, from $40.6 million to $53.4 million. This increase was due to increased demand for wireless products as a result of the strengthening of the general economic, financial and currency conditions in the Southern Asia-Pacific area. The Latin American Region provided $717.3 million of revenues, compared to $705.6 million, or a 1.7% increase. Revenues in Brazil, Mexico, Venezuela, Colombia, and Chile increased $93.9 million, or 94.0%, $84.8 million, or 58.8%, $25.5 million, or 49.4%, $11.8 million, or 278.7%, and $9.4 million, or 75.4%, respectively. The increase in Brazil was due to revenue growth in the Company's majority-owned joint venture, which benefited from the privatization of the telecommunication industry and the entry of additional carriers into the wireless market during the latter half of 1998. The increase in Mexico was largely due to carrier promotions coupled with the introduction of the calling-party-pays billing process. The increase in Venezuela was a result of additional handset sales to carriers. The Company was also awarded an exclusive two-year contract to supply services for prepaid phone kits in connection with the sale of its prepaid wireless business in Venezuela in March 1999. The increases in Colombia and Chile are attributable to new contracts with some of the carriers in those countries and also a carrier promotion in Chile. Revenues in the remainder of the region decreased $213.7 million, or 54.3%, primarily in Miami. The decrease in Miami was due to increased product availability from in-country suppliers, thereby reducing export sales from Miami. The Company's European Region recorded revenues of $470.0 million, an increase of $166.5 million, or 54.9%, from $303.5 million. This increase reflected continued growth from the Company's U.K. operation, arising primarily from sales in international markets, as well as from increased revenues from the operation in Sweden, which was acquired in the first quarter of 1998, and partly from the acquisition of CellStar Netherlands in the third quarter of 1999. North American Region revenues were $377.1 million, a decrease of $95.7 million, or 20.2%, compared to $472.8 million. The decrease was primarily a result of lower product sales to Pacific Bell Mobile Services ("PBMS") in 1999 as compared to 1998 as PBMS is increasingly coordinating its handset distribution directly with manufacturers. The decrease was also attributable to a continued decrease in the retail business due to the sale of almost all of the Company's retail stores in early 1999. The overall decrease in revenues was partially offset by an increase in the U.S. wholesale business of $30.3 million, or 11.7%. Gross Profit. Gross profit increased $20.6 million, or 11.9%, from $172.8 million to $193.4 million, while gross profit as a percentage of revenues decreased from 8.7% to 8.3%. The increase in gross profit was principally due to increases in the European, North American and Asia-Pacific Regions. The increase in the European Region was due to the continued growth of the U.K. operation and the increased revenues from the Company's operation in Sweden and the Netherlands. The North American Region benefited from improved margins in its core wholesale business. The overall increase in the Asia-Pacific Region was primarily due to the increase in Taiwan, which was offset partially by a decrease in the PRC. The decrease in gross profit as a percentage of revenues was due primarily to decreases in market prices of certain handsets, the decision to reduce prices on some slower-moving inventory in the Asia- Pacific Region to liquidate it during periods of higher demand, and an increase in revenues from the European Region, which has lower margin percentages than the Company's other regions. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $5.1 million, or 4.4% from $116.7 million to $111.6 million. This decrease was primarily attributable to: a decrease in the provision for doubtful accounts receivable of $3.2 million, from $13.6 million in 1998 to $10.4 million in 1999; the effects of the second quarter reorganization and consolidation of the North and Latin American Regions operations and the centralization of management in the Asia-Pacific Region; and charges in 1998 to de-emphasize 18 or eliminate certain businesses. These decreases were partially offset by an increase in costs associated with the Company's revenue growth. Overall selling, general and administrative expenses as a percentage of revenues decreased to 4.8% from 5.8%. Bad debt expenses as a percentage of revenues decreased to 0.4% in 1999 from 0.7% in 1998. Impairment of Assets Held for Sale. Based on the market conditions in Poland, the Company decided in the fourth quarter of 1999 to sell its operations in Poland. The Company recorded an impairment charge of $5.5 million, including $4.5 million of goodwill amortization, to reduce the carrying value of the assets to their estimated net realizable value. Restructuring Charge. The Company recognized a restructuring charge of $3.6 million associated with the reorganization and consolidation of the management for the Company's Latin American and North American Regions as well as the centralization of management in the Asia-Pacific Region. Interest Expense. Interest expense increased to $19.0 million from $14.4 million, primarily as a result of an increase in the average debt outstanding related to the Company's operations in Brazil, as well as an increase in average borrowings under the Company's Multicurrency Revolving Credit Facility. Equity in Income (Loss) of Affiliated Companies. Equity in income (loss) of affiliated companies increased $60.3 million to income of $31.9 million, as compared to a loss of $28.4 million in 1998. In February 1999, the Company sold part of its equity investment in Topp to a wholly-owned subsidiary of TelMex. At the closing, the Company also sold a portion of its debt investment to certain other shareholders of Topp. As a result of these transactions, the Company received cash in the amount of $7.0 million, retained a $22.5 million note receivable and a 19.5% equity ownership interest in Topp, and recorded a pre-tax gain of $5.8 million. In September 1999, the Company sold its remaining debt and equity interest in Topp to the TelMex subsidiary for $26.5 million in cash, resulting in a pre-tax gain of $26.1 million. Beginning in the third quarter of 1998 the Company became the primary source of funding for Topp through the supply of handsets and, therefore, recognized Topp's net loss to the extent of the Company's entire debt and equity investment in Topp. In 1998, the Company recognized $29.2 million in losses on its debt and equity investment in Topp. Gain on Sale of Assets. The Company recorded a gain of $8.8 million in 1999 primarily associated with the sale of its prepaid operations in Venezuela and its retail stores in the Dallas-Fort Worth and Kansas City areas. Other, Net. Other, net decreased $3.3 million, from income of $1.4 million to expense of $1.9 million. This decrease was primarily due to a $2.6 million foreign currency transaction loss realized from the conversion of U.S. dollar denominated debt in Brazil into a Brazilian real denominated credit facility. Provision (Benefit) for Income Taxes. Income tax expense increased $30.8 million primarily as a result of an $85.6 million increase in income before income taxes and an increase in the Company's effective tax rate to 25.3%. The higher effective tax rate was attributable to higher income before income taxes, primarily in the U.S., Latin American and European Regions. In both the Latin American and the European Regions the statutory tax rates are generally comparable to the statutory rate in the U.S., and higher than the statutory rates in the Asia-Pacific Region. Fiscal 1998 Compared to Fiscal 1997 Revenues. Revenues increased $513.1 million, or 34.6%, from $1,482.8 million in 1997 to $1,995.9 million in 1998. Revenues in the Asia-Pacific Region increased $91.1 million, or 21.5%, from $422.8 million in 1997 to $513.9 million in 1998. The Company's operations in the PRC provided $404.9 million in revenue, an increase of $85.2 million, or 26.6%, from $319.7 million. This increase was due to continued strong demand in the PRC, 19 a broadened source of product manufactured there and the impact of tighter customs controls beginning in August 1998. The Company's operations in Taiwan provided $68.4 million of revenue, an increase of $52.3 million, or 324.8%, from $16.1 million. The increase was due to higher demand resulting from the entry of several new carriers into the wireless market in the first fiscal quarter of 1998. Revenue from the Company's Singapore operations decreased $46.4 million, or 53.3%, from $87.0 million to $40.6 million. This decrease was due to decreased demand for wireless products as a result of the general economic, financial and currency conditions in the southern Asia-Pacific area. The Company's operations in the Latin American Region provided $705.6 million of revenues in 1998, compared to $497.3 million in 1997, or a 41.9% increase. Revenues in Brazil, Mexico, Venezuela, Peru and Chile increased $92.4 million, or 1,230.5%, $76.7 million, or 113.5%, $37.3 million, or 260.3%, $13.1 million, and $11.5 million, or 1,195.7%, respectively. The increase in Brazil was due to revenue growth in the Company's majority-owned joint venture, which benefited from the privatization of the telecommunications industry and the entry of additional carriers into the wireless market during the latter half of 1998. The increase in Mexico was due to an extension of a promotion by the principal wireless carrier, which began the promotion in the fourth quarter of 1997. The increase in Venezuela was fueled by the Company's prepaid wireless businesses. The Company began its operations in Peru through the Company's acquisition of a prepaid cellular business in the second quarter of 1998. The increase in Chile was due to carrier promotions, which started in the second quarter of 1998 and lasted through the third quarter of 1998. Revenues in the remainder of the region decreased $22.7 million, primarily in Miami and Argentina. The decrease in Miami was largely due to an increase in demand for digital handsets and increased product availability from in-country suppliers, thereby reducing export sales from Miami. The decrease in revenues in Argentina was caused by significant subscriber cancellations and excess inventory held by the carriers. Revenues from the Company's European Region were $303.5 million in 1998 compared to $69.1 million in 1997, an increase of $234.4 million, or 339.2%. This increase was due to the continued growth of the Company's U.K. operation, arising primarily from sales in international markets, and revenues from operations acquired in Sweden and Poland earlier in the year. North American Region revenues decreased 4.2% from $493.6 million in 1997 to $472.8 million in 1998. The decrease was due to a decrease in net product sales of $10.8 million and continued decreases in both activation and residual income. The decrease in net product sales was largely due to decreasing unit sales prices, which was partially offset by increases in revenues from distribution and fulfillment contracts for the provision of products and value-added services. Gross Profit. Gross profit increased $15.5 million, or 9.9%, from $157.3 million in 1997 to $172.8 million in 1998, while gross profit as a percentage of revenues decreased from 10.6% in 1997 to 8.7% in 1998. The increase in gross profit was due to the increase in wholesale revenues, which revenues were comprised primarily of net product sales. The decrease in gross profit as a percentage of revenues was due primarily to a decrease in U.S. retail revenues, which have a higher gross profit margin than wholesale revenues, to the impact of lower margins in the PRC as compared to those historically recognized in Hong Kong and to an increase in international sales by the U.K. operations, which have lower margins than the Company's other regions. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $35.4 million, or 43.5%, from $81.3 million in 1997 to $116.7 million in 1998. This increase was principally due to costs incurred from the continued build-out of infrastructure, costs associated with business expansion activities and costs to de-emphasize or eliminate certain businesses. Overall selling, general and administrative expenses as a percentage of revenues increased to 5.8% in 1998 from 5.5% in 1997. Bad debt expense as a percentage of revenues increased to 0.7% in 1998 from 0.2% in 1997. Lawsuit Settlement. The Company recorded a special charge of $7.6 million, which primarily represented the Company's portion of the settlement of the class action lawsuit. 20 Interest Expense. Interest expense increased to $14.4 million in 1998 from $7.8 million in 1997. The increase was due to the addition of long-term debt at the end of 1997 and an increase in debt related to the Company's operation in Brazil. Equity in (Loss) Income of Affiliated Companies, Net. The significant equity in loss of affiliated companies in 1998 was primarily a result of the Company's recognition of $29.2 million of losses on its entire debt and equity investment in Topp. Beginning in the third quarter of 1998, the Company became the primary source of funding for Topp through the supply of handsets and, therefore, recognized all of Topp's net loss to the extent of the Company's entire debt and equity investment. Other, Net. Other, net, decreased $0.9 million, from income of $2.3 million in 1997 to $1.4 million in 1998. This decrease was primarily due to foreign currency transaction losses of $0.7 million as a result of the European Region's financing activities conducted with the International Financial Services Center ("IFSC") in Dublin, Ireland. Provision (Benefit) for Income Taxes. The Company's effective tax rate and income tax expense decreased due to higher losses before income taxes in countries, primarily in the U.S., for which the benefits are recordable, and increases in income before taxes in foreign countries where tax rates are low or tax holidays are in effect. Liquidity and Capital Resources During the year ended November 30, 1999, the Company relied primarily on cash available at November 30, 1998, cash generated from operations, cash received of $41.8 million from sale of assets, principally its debt and equity investment in Topp, and borrowings under its Multicurrency Revolving Credit Facility (the "Facility") to fund working capital, capital expenditures and expansions. On April 8, 1999, the amount of the Facility was reduced from $135.0 million to $115.0 million due to the release of a syndication member bank. On August 2, 1999, the Company restructured its Facility to add flexibility for foreign working capital funding and capitalization. Also under this restructuring, the Company received expanded borrowing capacity on its domestic assets. At February 18, 2000, the Company had available $48.7 million of unused borrowing capacity under the Facility. Compared to November 30, 1998, accounts receivable, inventories and accounts payable decreased $43.5 million, $84.6 million and $98.3 million, respectively. These improvements reflect strong demand worldwide for the Company's products, a global shortage of certain handset models and the Company's continued focus on asset management. As of November 30, 1999 and January 31, 2000, the Company's Brazilian operations had borrowed $8.9 million and $12.0 million, respectively, using credit facilities denominated in Brazilian reals with Brazilian banks. In conjunction therewith, the Company has $9.15 million of letters of credit outstanding against its Facility to guarantee the repayment of the principal plus interest and all other contractual obligations of its Brazilian operations to two Brazilian banks. At November 30, 1999, the Company's operations in the PRC had a $12.5 million loan from a PRC bank bearing interest at 5.52% which matures in September 2000 and is fully collateralized by a U.S. dollar cash deposit. The cash deposit was made via an intercompany loan from the operating entity in Hong Kong as a mechanism to secure the repayment of these funds. This $12.5 million loan was used to secure an RMB line of credit for the U.S. dollar equivalent of $12.5 million. At November 30, 1999, $12.0 million had been borrowed against the line of credit and bears interest at 5.85% with maturity dates through September 2000. The Company anticipates that it should have sufficient cash available to meet its current capital requirements and expansion plans. Capital is expected to be provided by available cash on hand, cash generated from operations, amounts available from the Facility and various other funded debt sources. The Company believes that it should have the ability to expand its borrowing sources to accommodate expected capital needs in the future. 21 International Operations The Company's foreign operations are subject to various political and economic risks including, but not limited to, the following: political instability; currency controls; currency devaluations; exchange rate fluctuations; risks related to the Euro conversion; potentially unstable channels of distribution; increased credit risks; export control laws that might limit the markets the Company can enter; inflation; changes in laws related to foreign ownership of businesses abroad; foreign tax laws; changes in import/export regulations, including enforcement policies; and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal political or economic instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. The Company has not experienced any material foreign currency transaction gains or losses during the last three fiscal years except for a $2.6 million foreign currency transaction loss realized in early 1999 from the conversion of U.S. dollar denominated debt in Brazil into a Brazilian real denominated credit facility. The Company manages the risk of foreign currency devaluation by attempting to increase prices of products sold at or above the anticipated rate of local currency devaluation relative to the U.S. dollar, by indexing certain of its receivables to exchange rates in effect at the time of their payment, and by entering into foreign currency forward derivatives as determined prudent by management. During the latter half of 1998, the Company's sales from Miami to customers exporting into South American countries began to decline as a result of a shift in demand towards digital handsets, which demand the Company could not meet, and increased in-country product availability in Latin America. The Company expects to focus its efforts on servicing large, financially sound carrier partners from the Company's Latin American subsidiaries. Since 1998 the Company's Brazilian operations have been primarily conducted through a majority-owned joint venture. A primary supplier of handsets to the joint venture in 1998 and 1999 was a Brazilian importer who purchased product from Miami. Sales to the importer are excluded from the Company's consolidated revenues, and the related gross profit is deferred until the handsets are sold by the Brazilian joint venture to customers. The Company expects the amount of purchases by the importer from Miami to decrease in fiscal 2000. The Company expects the majority of purchases in 2000 to come from in-country suppliers. In January 1999, the Brazilian government allowed the value of the real to float freely against other foreign currencies, which resulted in a significant devaluation of the real against the U.S. dollar. From November 1998 through March 1999, the Company used Brazilian real non-deliverable forward ("NDF") contracts to manage currency exposure risk related to credit sales made to the Brazilian importer. Payment for these sales was remitted by the importer using the Brazilian real rate of exchange against the U.S. dollar on the day the Company recorded the sale to the Brazilian importer. Foreign currency rate fluctuations caused bad debt expense of $26.4 million related to the payments remitted by the importer. This expense was recorded in selling, general and administrative expenses for the year ended November 30, 1999, but this expense was completely offset by gains realized on NDF contract settlements, which gains also were recorded in selling, general and administrative expenses. At February 18, 2000, the Company has no Brazilian real NDF contracts outstanding. Currently, under agreements made since January 1999, the Brazilian joint venture is paid by major customers at the current value of the real against the U.S. dollar on the date of payment. The Company may be exposed to foreign currency losses from the time the Brazilian joint venture remits payment to the importer in Brazilian reals and the importer pays the Company in U.S. dollars. The ability of the importer to remit U.S. dollar payments to the Company may be restricted if the Brazilian government imposes currency controls. At February 18, 2000, the Company had $ 7.0 million in accounts receivable due from the importer and the Company's Brazilian joint venture has accounts payable of $3.0 million to the importer. Based on present market conditions in Poland, the Company decided, in the fourth quarter of 1999, to sell its operation in Poland. The Company has engaged a third party to identify potential buyers. The Company 22 recorded an impairment charge of $5.5 million, including $4.5 million of goodwill amortization, to reduce the carrying value of the assets to their estimated net realizable value. Year 2000 The Company implemented a plan to assess and resolve Year 2000 issues that could have affected the Company. The Company has not encountered any material problems in its critical systems subsequent to December 31, 1999 related to the Year 2000 issue and had also not encountered any material problems with critical third party vendors. The Company believes that it is unlikely that future problems will occur related to the Year 2000 issue, but there can be no such assurance. The Company will continue to monitor any new issues or concerns relative to Year 2000. The Company's costs of compliance with Year 2000 requirements were immaterial because the Company was in the process of upgrading or establishing systems to keep pace with its growth. Impact of Inflation Historically, inflation has not had a significant impact on the Company's overall operating results. However, the effects of inflation in volatile economies in foreign markets could have an adverse impact on the Company. Seasonality and Cyclicality The effects of seasonal fluctuations have not historically been apparent in the Company's operating results due to the Company's rapid growth in revenues. However, the Company's sales are influenced by a number of seasonal factors in the different countries and markets in which it operates, including the purchasing patterns of customers, product promotions of competitors and suppliers, availability of distribution channels, and product supply and pricing. The Company's sales are also influenced by cyclical economic conditions in the different countries and markets in which it operates. An economic downturn in one of the Company's principal markets could have a materially adverse effect on the Company's operating results. Accounting Pronouncement Not Yet Adopted In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), which was amended by Statement 137 issued in July 1999. Statement 137 delayed the effective date of Statement 133. Statement 133 is now effective for all interim and annual periods of the Company commencing December 1, 2000. Given the Company's current and anticipated derivative activities, management does not believe the adoption of Statement 133 should have a material effect on the Company's consolidated financial position and results of operations. Item 7(A). Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk For the year ended November 30, 1999, the Company recorded in other income (expense), net foreign currency losses of $4.1 million primarily due to the valuation of foreign currencies in the Company's Latin American operations. In January 1999, the Brazilian government allowed the value of the real to float freely against other foreign currencies, which resulted in a significant devaluation of the real against the U.S. dollar. In February 1999, the Company's $5.7 million U.S. dollar denominated debt in Brazil was converted into a Brazilian real denominated credit facility by the Company's majority- owned Brazilian joint venture. On conversion, the joint venture realized a foreign currency transaction loss of $2.6 million due to the devaluation of the Brazilian real against the U.S. dollar. The Company's $12.0 million of debt at January 31, 2000, in Brazil is denominated in Brazilian reals. 23 Since 1998 the Company's Brazilian operations have primarily been conducted through a majority-owned joint venture. A primary supplier of handsets to the joint venture in 1998 and 1999 was a Brazilian importer who purchased product from Miami. Currently, under agreements made since January 1999, the Brazilian joint venture is paid by major customers at the current value of the real against the U.S. dollar on the date of payment. The Company may be exposed to foreign currency losses from the time the Brazilian joint venture remits payment to the importer in Brazilian reals and the importer pays the Company in U.S. dollars. The ability of the importer to remit U.S. dollar payments to the Company may be restricted if the Brazilian government imposes currency controls. At February 18, 2000, the Company had $7.0 million in accounts receivable due from the importer and the Company's Brazilian joint venture has accounts payable of $3.0 million to the importer. The Company expects the amount of purchases by the importer from Miami to decrease in fiscal 2000. The Company expects the majority of purchases in 2000 to come from in-country suppliers. The Company manages foreign currency risk by attempting to increase prices of products sold at or above the anticipated exchange rate of the local currency relative to the U.S. dollar, by indexing certain of its accounts receivable to exchange rates in effect at the time of their payment, and by entering into foreign currency hedging instruments in certain instances. The Company consolidates the bulk of its foreign exchange exposure related to intercompany transactions in its IFSC. These transactional exposures are managed using various derivative alternatives depending on the length and size of the exposure. At November 30, 1999, The Company's operations in the PRC had a $12.5 million loan from a PRC bank bearing interest at 5.52% which matures in September 2000 and is fully collateralized by a U.S. dollar cash deposit. The cash deposit was made via an intercompany loan from the operating entity in Hong Kong as a mechanism to secure the repatriation of these funds. This $12.5 million loan was used to secure an RMB line of credit for the U.S. dollar equivalent of $12.5 million. At November 30, 1999, $12.0 million had been borrowed against the line of credit and bears interest at 5.85% with maturity dates through September 2000. In February 2000, the Hong Kong operating entity advanced the PRC operation an additional $20.0 million to increase the line of credit with the PRC bank to a U.S. dollar equivalent of $32.5 million. The Company has foreign exchange exposure on the funds as they have effectively been converted into RMB. The Company continues to evaluate exposure and related protection measures. Interest Rate Risk The interest rate of the Company's Facility is an index rate at the time of borrowing plus an applicable margin on certain borrowings. The interest rate is based on either the agent bank's prime lending rate or the London Interbank Offered Rate. Additionally, the applicable margin is subject to increases as the Company's ratio of consolidated funded debt to consolidated cash flow increases. During the year ended November 30, 1999, the interest rates of borrowings under the Facility ranged from 6.44% to 8.75%. A one percent change in variable interest rates would not have a material impact on the Company. The Company manages its borrowing under the Facility each business day to minimize interest expense. The borrowings of the Company's Brazilian operations are short-term in nature, typically less than six months. Through November 30, 1998, annual rates on borrowings by the Brazilian operations ranged from approximately 36% to 48%. As a result of the devaluation of the Brazilian real against the U.S. dollar in January 1999, annual interest rates for the Company during parts of 1999 ranged from 32% to 63% in Brazil. At November 30, 1999, annual interest rates ranged from 20% to 28%. The Brazilian operations borrowings, including accrued interest, at January 31, 2000 were $12.0 million. The Company continues to evaluate financing alternatives to reduce interest expense for its Brazilian operations. The Company has short-term borrowings in the PRC as discussed in Foreign Exchange Risk. The Company's $150.0 million in long-term debt has a fixed coupon interest rate of 5.0%. 24 Derivative Financial Instruments The Company uses various derivative financial instruments as part of an overall strategy to manage the Company's exposure to market risk associated with interest rate and foreign currency exchange rate fluctuations. The Company uses foreign currency forward contracts to manage the foreign currency exchange rate risks associated with international operations. The Company evaluates the use of interest rate swaps and cap agreements to manage its interest risk on debt instruments, including the reset of interest rates on variable rate debt. The Company does not hold or issue derivative financial instruments for trading purposes. The risk of loss to the Company in the event of non-performance by any counterparty under derivative financial instrument agreements is not significant. All counterparties are rated A or higher by Moody's and Standard and Poor's. Although the derivative financial instruments expose the Company to market risk, fluctuations in the value of the derivatives are mitigated by expected offsetting fluctuations in the matched instruments. The Company manages foreign currency risk by attempting to increase prices of products sold at or above the anticipated exchange rate of the local currency relative to the U.S. dollar, by indexing certain of its accounts receivable to exchange rates in effect at the time of their payment, and by entering into foreign currency hedging instruments in certain instances. The Company consolidates the bulk of its foreign exchange exposure related to intercompany transactions in its IFSC. These transactional exposures are managed using various derivative alternatives depending on the length and size of the exposure. The Company uses foreign currency forward contracts to reduce exposure to exchange rate risks primarily associated with transactions in the regular course of the Company's international operations. The forward contracts establish the exchange rates at which the Company should purchase or sell the contracted amount of local currencies for specified foreign currencies at a future date. The Company uses forward contracts, which are short-term in nature (45 days to one year), and receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. The major currency exposures hedged by the Company are the British pound, Dutch guilder, Euro and Polish zloty. The carrying amount and fair value of these contracts are not significant. The U.S. dollar equivalent of contractual amounts of the Company's forward exchange contracts consists of the following (in thousands):
November 30, January 31, 1999 2000 ------------ ----------- British pound.................................... $ 4,905 4,975 Euro............................................. 2,947 2,842 Polish zloty..................................... 867 884 ------- ----- $ 8,719 8,701 ======= =====
The Company had no interest rates swap or cap contracts outstanding at November 30, 1999, or January 31, 2000. Item 8. Consolidated Financial Statements and Supplementary Data See Index to Consolidated Financial Statements on Page F-1 of this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. 25 PART III. Item 10. Directors and Executive Officers of the Registrant The information required by this item regarding Directors of the Company is set forth in the Proxy Statement (the "Proxy Statement") to be delivered to the Company's stockholders in connection with the Company's 2000 Annual Meeting of Stockholders under the heading "Election of Directors," which information is incorporated herein by reference. The information required by this item regarding executive officers of the Company is set forth under the heading "Executive Officers of the Registrant" in Part I of this Form 10-K, which information is incorporated herein by reference. Item 11. Executive Compensation The information required by this item is set forth in the Proxy Statement under the heading "Executive Compensation," which information is incorporated herein by reference. Information contained in the Proxy Statement under the captions "Executive Compensation--Report of the Compensation Committee of the Board of Directors on Executive Compensation" and "Comparative Performance Graph" is not incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is set forth in the Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management," which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required by this item is set forth in the Proxy Statement under the caption "Certain Transactions," which information is incorporated herein by reference. 26 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1. Consolidated Financial Statements See Index to Consolidated Financial Statements on page F-1 of this Form 10-K. 2. Financial Statement Schedules See Index to Consolidated Financial Statements on page F-1. 3. Exhibits
Number Description ------ ----------- 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation (the "Certificate of Incorporation").(1) 3.2 Certificate of Amendment to Certificate of Incorporation.(14) 3.3 Amended and Restated Bylaws of CellStar Corporation.(17) 4.1 The Certificate of Incorporation, Certificate of Amendment to Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are incorporated into this item by reference.(1)(14)(13) 4.2 Specimen Common Stock Certificate of CellStar Corporation.(2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement").(3) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997.(4) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation").(3) 4.6 Form of Rights Certificate.(3) 4.7 Certificate of Correction of Certificate of Designation.(4) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and The Bank of New York, as Trustee.(12) 10.1 Employment Agreement, effective as of December 1, 1994, by and between CellStar Corporation and Alan H. Goldfield.(2)(18) 10.2 Employment Agreement, effective January 22, 1998, by and between CellStar (Asia) Corporation Limited, CellStar Corporation and Hong An- Hsien.(13)(18) 10.3 Employment Agreement, effective as of November 12, 1999, by and between CellStar, Ltd., CellStar Corporation and Dale H. Allardyce.(17)(18) 10.4 Employment Agreement, effective as of November 5, 1999, by and between CellStar, Ltd., CellStar Corporation and Austin P. Young.(17)(18) 10.5 Employment Agreement, effective as of January 21, 2000, by and between CellStar, Ltd., CellStar Corporation and Elaine Flud Rodriguez.(17)(18) 10.6 Agreement by and between Motorola Inc., by and through its Pan American Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1997 (United States).(6)(19) 10.7 Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd., effective September 20, 1996.(5)(19)
27
Number Description ------ ----------- 10.8 Agreement by and between National Auto Center, Inc. and the Pan American Cellular Subscriber Division of Motorola Inc., dated as of January 1, 1995 (Latin American and Caribbean Territory).(7) 10.9 Registration Rights Agreement by and between the Company and Audiovox Corporation.(9) 10.10 Form of Warrant for the purchase of shares of common stock to be issued to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc.(9) 10.11 Stock Purchase Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995.(1) 10.12 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995.(1) 10.13 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan.(10) 10.14 Registration Rights Agreement, dated as of June 2, 1995, between Hong An Hsien and CellStar Corporation.(13)(18) 10.15 Registration Rights Agreement, entered into as of May 30, 1997, between Leap International PTE LTD and CellStar Corporation.(11) 10.16 Purchase Agreement, dated October 7, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc.(12) 10.17 Registration Rights Agreement, dated as of October 14, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc.(12) 10.18 Agreement, dated as of April 28, 1995, by and between CellStar, Ltd. and Motorola, Inc., Greater China Cellular Subscriber Division (People's Republic of China).(8) 10.19 Separation Agreement and Release Agreement between Richard M. Gozia and CellStar, Ltd., CellStar Corporation, and all affiliated entities, dated April 21, 1999.(15)(18) 10.20 Amended and Restated Credit Agreement, dated as of August 2, 1999, among CellStar Corporation, each of the banks or other lending institutions signatory thereto, and Chase Securities, Inc. as lead arranger and book manager.(16) 10.21 Stock Purchase Agreement, dated as of September 3, 1999, among CellStar Telecom, Inc., Inmobiliaria Azltan, S.A. de C.V., and Topp Telecom, Inc.(16) 10.22 Letter Agreement between Pacific Bell Mobile Services and CellStar, Ltd. dated as of May 31, 1999.(16) 10.23 Amendment to Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd. dated as of May 31, 1999.(16)(19) 10.24 Pledge Agreement, dated as of July 10, 1998, between CellStar Telecom, Inc. and Chase Bank of Texas, National Association.(16) 10.25 Contribution and Indemnification Agreement, dated as of July 10, 1998, among CellStar Corporation and the affiliated entities signatory thereto.(16) 10.26 Guaranty, dated as of July 10, 1998, provided by CellStar Telecom, Inc., Florida Properties, Inc., CellStar Global Satellite Service, Ltd. to Chase Bank of Texas, National Association and the other banks and lending institutions signatory to the Credit Agreement.(16) 10.27 Pledge Agreement, dated as of July 10, 1998, between NAC Holdings, Inc. and Chase Bank of Texas, National Association.(16) 10.28 Pledge Agreement, dated as of July 10, 1998, between CellStar Corporation and Chase Bank of Texas, National Association.(16) 10.29 Pledge Agreement, dated as of July 10, 1998, between National Auto Center, Inc. and Chase Bank of Texas, National Association.(16)
28
Number Description ------ ----------- 10.30 Guarantor Security Agreement, dated as of July 10, 1998, among CellStar Telecom, Inc. Florida Properties, Inc., CellStar Global Satellite Service, Ltd. and Chase Bank of Texas, National Association.(16) 10.31 First Amendment to Amended and Restated Credit Agreement, dated November 23, 1999, among CellStar Corporation and each of the banks and lending institutions signatory thereto.(17) 10.32 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan, amended and effective as of January 21, 2000.(17)(18) 21.1 Subsidiaries of the Company.(17) 23.1 Consent of KPMG LLP.(17) 27.1 Financial Data Schedule.(17) 99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated as of July 20, 1995.(1)
- -------- (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the fiscal year ended November 30, 1996, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1997, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the fiscal year ended November 30, 1994, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1 and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997 and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Current Report on Form 8- K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (13) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the fiscal year ended November 30, 1997, and incorporated herein by reference. (14) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference. (15) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference. (16) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1998, and incorporated herein by reference. (17) Filed herewith. (18) The exhibit is a management contract or compensatory plan or arrangement. (19) Certain provisions of this exhibit are subject to a request for confidential treatment filed with the Securities and Exchange Commission. 4. Reports on Form 8-K None 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CELLSTAR CORPORATION /s/ Alan H. Goldfield By: _________________________________ Alan H. Goldfield Chairman of the Board and Chief Executive Officer Date: February 25, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Alan H. Goldfield Chairman of the Board and February 25, 2000 ______________________________________ Chief Executive Officer Alan H. Goldfield (Principal Executive Officer) /s/ Dale H. Allardyce President and Chief February 25, 2000 ______________________________________ Operating Officer Dale H. Allardyce /s/ Austin P. Young Senior Vice President, February 25, 2000 ______________________________________ Chief Financial Officer Austin P. Young and Treasurer (Principal Financial Officer) /s/ Raymond L. Durham Corporate Controller February 25, 2000 ______________________________________ (Principal Accounting Raymond L. Durham Officer) Director February 25, 2000 ______________________________________ J. L. Jackson /s/ James L. Johnson Director February 25, 2000 ______________________________________ James L. Johnson /s/ Dale V. Kesler Director February 25, 2000 ______________________________________ Dale V. Kesler /s/ Terry S. Parker Director February 25, 2000 ______________________________________ Terry S. Parker /s/ Sheldon I. Stein Director February 25, 2000 ______________________________________ Sheldon I. Stein /s/ Jere W. Thompson Director February 25, 2000 ______________________________________ Jere W. Thompson
30 CELLSTAR CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements Independent Auditors' Report............................................... F-2 Consolidated Balance Sheets as of November 30, 1999 and 1998............... F-3 Consolidated Statements of Operations for the years ended November 30, 1999, 1998 and 1997....................................................... F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended November 30, 1999, 1998 and 1997...................... F-5 Consolidated Statements of Cash Flows for the years ended November 30, 1999, 1998 and 1997....................................................... F-6 Notes to Consolidated Financial Statements................................. F-7 Schedule II--Valuation and Qualifying Accounts for the years ended November 30, 1999, 1998 and 1997................................................... S-1
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders CellStar Corporation: We have audited the consolidated financial statements of CellStar Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CellStar Corporation and subsidiaries as of November 30, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three- year period ended November 30, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Dallas, Texas January 14, 2000 F-2 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS November 30, 1999 and 1998 (Dollars in thousands, except per share data)
1999 1998 ASSETS -------- ------- Current assets: Cash and cash equivalents................................. $ 95,498 47,983 Accounts receivable (less allowance for doubtful accounts of $33,152 and $33,361, respectively).................... 306,235 349,760 Inventories............................................... 189,866 274,438 Deferred income tax assets................................ 15,127 18,670 Prepaid expenses.......................................... 32,029 16,806 -------- ------- Total current assets.................................... 638,755 707,657 Property and equipment, net................................. 27,481 27,858 Goodwill (less accumulated amortization of $10,483 and $4,032 respectively)....................................... 32,584 32,910 Other assets................................................ 7,618 7,100 -------- ------- $706,438 775,525 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $212,999 311,326 Notes payable to financial institutions................... 50,609 85,023 Accrued expenses.......................................... 24,864 39,395 Income taxes payable...................................... 8,646 8,601 Deferred income tax liabilities........................... 8,796 3,389 -------- ------- Total current liabilities............................... 305,914 447,734 Long-term debt.............................................. 150,000 150,000 -------- ------- Total liabilities....................................... 455,914 597,734 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued.................................. -- -- Common stock, $.01 par value, 200,000,000 shares authorized; 60,057,096 and 58,963,218 shares issued and outstanding, respectively................................ 601 590 Additional paid-in capital................................ 80,929 76,962 Common stock warrant...................................... -- 4 Accumulated other comprehensive loss--foreign currency translation adjustments.................................. (8,509) (8,181) Retained earnings......................................... 177,503 108,416 -------- ------- Total stockholders' equity.............................. 250,524 177,791 -------- ------- $706,438 775,525 ======== =======
See accompanying notes to consolidated financial statements. F-3 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended November 30, 1999, 1998, and 1997 (In thousands, except per share data)
1999 1998 1997 ---------- --------- --------- Revenues..................................... $2,333,805 1,995,850 1,482,814 Cost of sales................................ 2,140,375 1,823,075 1,325,488 ---------- --------- --------- Gross profit............................... 193,430 172,775 157,326 Selling, general and administrative expenses.................................... 111,613 116,747 81,319 Impairment of assets held for sale........... 5,480 -- -- Lawsuit settlement........................... -- 7,577 -- Restructuring charge......................... 3,639 -- -- ---------- --------- --------- Operating income........................... 72,698 48,451 76,007 Other income (expense): Interest expense........................... (19,027) (14,446) (7,776) Equity in income (loss) of affiliated companies, net............................ 31,933 (28,448) 465 Gain on sale of assets..................... 8,774 -- -- Other, net................................. (1,876) 1,389 2,260 ---------- --------- --------- Total other income (expense)............. 19,804 (41,505) (5,051) ---------- --------- --------- Income before income taxes................. 92,502 6,946 70,956 Provision (benefit) for income taxes......... 23,415 (7,418) 17,323 ---------- --------- --------- Net income................................. $ 69,087 14,364 53,633 ========== ========= ========= Net income per share: Basic...................................... $ 1.16 0.24 0.92 ========== ========= ========= Diluted.................................... $ 1.12 0.24 0.89 ========== ========= =========
See accompanying notes to consolidated financial statements. F-4 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years ended November 30, 1999, 1998, and 1997 (In thousands)
Accumulated Common Stock Additional Common other ------------- paid-in stock comprehensive Retained Shares Amount capital warrant loss earnings Total ------ ------ ---------- ------- ------------- -------- ------- Balance at November 30, 1996................... 57,821 $193 68,167 4 (4,520) 40,419 104,263 Comprehensive income: Net income............ -- -- -- -- -- 53,633 53,633 Foreign currency translation adjustment........... -- -- -- -- (1,949) -- (1,949) ------- Total comprehensive income............. 51,684 Common stock issued under stock option plans................. 334 2 2,167 -- -- -- 2,169 Common stock issued for acquisition of minority interest..... 344 1 2,748 -- -- -- 2,749 Three-for-two stock split................. -- 97 (97) -- -- -- -- ------ ---- ------ --- ------ ------- ------- Balance at November 30, 1997................... 58,499 293 72,985 4 (6,469) 94,052 160,865 Comprehensive income: Net income............ -- -- -- -- -- 14,364 14,364 Foreign currency translation adjustment........... -- -- -- -- (1,712) -- (1,712) ------- Total comprehensive income............. 12,652 Common stock issued under stock option plans................. 464 5 4,269 -- -- -- 4,274 Two-for-one common stock split........... -- 292 (292) -- -- -- -- ------ ---- ------ --- ------ ------- ------- Balance at November 30, 1998................... 58,963 590 76,962 4 (8,181) 108,416 177,791 Comprehensive income: Net income............ -- -- -- -- -- 69,087 69,087 Foreign currency translation adjustment........... -- -- -- -- (328) -- (328) ------- Total comprehensive income............. 68,759 Common stock issued under stock option plans................. 533 5 3,969 -- -- -- 3,974 Exercise of common stock warrant......... 561 6 (2) (4) -- -- -- ------ ---- ------ --- ------ ------- ------- Balance at November 30, 1999................... 60,057 $601 80,929 -- (8,509) 177,503 250,524 ====== ==== ====== === ====== ======= =======
See accompanying notes to consolidated financial statements. F-5 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 30, 1999, 1998, and 1997 (In thousands)
1999 1998 1997 -------- --------- --------- Cash flows from operating activities: Net income..................................... $ 69,087 14,364 53,633 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for doubtful accounts............... 11,643 14,120 4,239 Provision for inventory obsolescence.......... 23,012 12,434 4,830 Depreciation and amortization................. 16,911 11,426 5,063 Gain on sale of assets........................ (8,774) -- -- Equity in loss (income) of affiliated companies, net............................... (31,933) 28,448 (465) Deferred income taxes......................... 8,950 (13,073) 1,754 Changes in certain operating assets and liabilities: Accounts receivable.......................... 29,751 (208,437) (46,516) Inventories.................................. 61,232 (90,164) (100,761) Prepaid expenses............................. (15,201) (8,803) (5,040) Other assets................................. (2,327) (116) 241 Accounts payable............................. (99,349) 119,360 44,523 Accrued expenses............................. (16,070) 19,760 2,624 Income taxes payable......................... 882 (2,109) 9,192 -------- --------- --------- Net cash provided by (used in) operating activities................................. 47,814 (102,790) (26,683) -------- --------- --------- Cash flows from investing activities: Purchases of property and equipment............ (8,499) (12,498) (6,212) Acquisitions of businesses, net of cash acquired...................................... (2,301) (13,526) -- Proceeds from sale of assets................... 41,778 -- -- Acquisition of minority interests.............. -- (900) (502) Purchase of equity investments................. -- -- (3,412) -------- --------- --------- Net cash provided by (used in) investing activities................................. 30,978 (26,924) (10,126) -------- --------- --------- Cash flows from financing activities: Net borrowings (payments) on notes payable to financial institutions........................ (34,414) 82,030 (56,136) Checks not presented for payment............... -- 17,719 -- Net proceeds from issuance of long-term debt... -- -- 144,979 Principal payments on long-term debt........... -- -- (6,853) Net proceeds from issuance of common stock..... 3,137 3,302 2,169 -------- --------- --------- Net cash provided by (used in) financing activities................................. (31,277) 103,051 84,159 -------- --------- --------- Net increase (decrease) in cash and cash equivalents.................................... 47,515 (26,663) 47,350 Cash and cash equivalents at beginning of year.. 47,983 74,646 27,296 -------- --------- --------- Cash and cash equivalents at end of year........ $ 95,498 47,983 74,646 ======== ========= =========
See accompanying notes to consolidated financial statements. F-6 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) Basis for Presentation CellStar Corporation and subsidiaries (the "Company") is a global provider of distribution and value-added logistics services to the wireless communications industry, with operations in Asia-Pacific, Latin America, Europe and North America. The Company facilitates the effective and efficient distribution of handsets, related accessories and other wireless products from leading manufacturers to network operators, agents, resellers, dealers and retailers. In many of its markets, the Company provides activation services that generate new subscribers for its wireless carrier customers. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation. (b) Use of Estimates Management of the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities in preparation of these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (c) Inventories Inventories are stated at the lower of cost (primarily on a moving average basis) or market. (d) Property and Equipment Property and equipment are recorded at cost. Depreciation of equipment is provided over the estimated useful lives of the respective assets, which range from three to thirty years, on a straight-line basis. Leasehold improvements are amortized over the shorter of their useful life or the related lease term. Major renewals are capitalized, while maintenance, repairs and minor renewals are expensed as incurred. (e) Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized using the straight-line method over 20 years. The Company assesses the net realizable value of this intangible asset by determining the estimated future cash flows related to such assets. In the event that assets are found to be carried at amounts which are in excess of estimated future operating cash flows, then the goodwill will be adjusted to a level commensurate with a discounted cash flow analysis of the underlying assets. (f) Impairment of Long-Lived Assets Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (g) Equity Investments in Affiliated Companies The Company accounts for its investments in common stock of affiliated companies using the equity method or the modified equity method, if required. The investments are included in other assets in the accompanying consolidated balance sheets. F-7 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (h) Revenue Recognition For the Company's wholesale business, revenue is recognized when product is shipped. In accordance with contractual agreements with wireless service providers, the Company receives an activation commission for obtaining subscribers for wireless services in connection with the Company's retail operations. The agreements contain various provisions for additional commissions ("residual commissions") based on subscriber usage. The agreements also provide for the reduction or elimination of activation commissions if subscribers deactivate service within stipulated periods. The Company recognizes revenue for activation commissions on the wireless service providers' acceptance of subscriber contracts and residual commissions when earned and provides an allowance for estimated wireless service deactivations, which is reflected as a reduction of accounts receivable and revenues in the accompanying consolidated financial statements. The Company recognizes fee revenue when the service is performed. (i) Foreign Currency Assets and liabilities of the Company's foreign subsidiaries have been translated at the rate of exchange at the end of each period. Revenues and expenses have been translated at the weighted average rate of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated as other comprehensive income or loss in stockholders' equity, except for subsidiaries located in countries whose economies are considered highly inflationary. In such cases, translation adjustments are included primarily in other income (expense) in the accompanying consolidated statements of operations. Net transaction gains or (losses) for the years ended November 30, 1999, 1998 and 1997 were ($3.4) million, $0.3 million and ($1.4) million, respectively. The currency exchange rates of the Latin American countries in which the Company conducts operations have historically been volatile. The Company manages the risk of foreign currency devaluation by attempting to increase prices of products sold at or above the anticipated rate of local currency devaluation relative to the U.S. dollar, by indexing certain of its receivables to exchange rates in effect at the time of their payment and by entering into non-deliverable foreign currency forward contracts in certain instances. (j) Derivative Financial Instruments The Company uses financial instruments to manage its exposure to movements in foreign exchange rates. The use of these financial instruments modifies the exposure of these risks with the intent to reduce the risk to the corporation. The Company does not use financial instruments for trading purposes nor is the Company party to leveraged derivatives. Foreign exchange instruments that hedge the currency exposure on intercompany loans and sales transactions are accounted for using hedge accounting. Under hedge accounting, these contracts are valued at current spot rates at the market's close, and the change in value offsets the related transaction losses or gains. The Company used foreign currency non-deliverable forward ("NDF") contracts to manage certain foreign exchange risks in conjunction with transactions with E.A. Electronicos e Componentes Ltda. [see Footnote 2(b)]. These contracts did not qualify as hedges against financial statement exposure. Gains or losses on these contracts represent the difference between the forward rate available on the underlying currency against the U.S. dollar for the remaining maturity of the contracts as of the balance sheet date and the contracted forward rate and are included in selling, general and administrative expenses in the consolidated statements of operations. (k) Preopening Costs Labor and certain other costs related to the opening of new retail locations are expensed as incurred. (l) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial F-8 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (m) Net Income (Loss) Per Share Basic net income per common share is based on the weighted average number of common shares outstanding for the relevant period. Diluted net income per common share is based on the weighted average number of common shares outstanding plus the dilutive effect of potentially issuable common shares pursuant to stock options, warrants, and convertible debentures. A reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the years ended November 30, 1999, 1998, and 1997, follows (in thousands, except per share data):
1999 1998 1997 ------- ------ ------ Basic: Net income.............................................. $69,087 14,364 53,633 ======= ====== ====== Weighted average number of shares outstanding........... 59,757 58,865 58,144 ======= ====== ====== Net income per share.................................. $ 1.16 0.24 0.92 ======= ====== ====== Diluted: Net income.............................................. $69,087 14,364 53,633 Interest on convertible notes, net of tax effect........ 4,500 -- 567 ------- ------ ------ Adjusted net income................................... $73,587 14,364 54,200 ======= ====== ====== Weighted average number of shares outstanding........... 59,757 58,865 58,144 Effect of dilutive securities: Stock options and warrant............................. 411 1,791 2,024 Convertible notes..................................... 5,421 -- 683 ------- ------ ------ Weighted average number of shares outstanding including effect of dilutive securities.......................... 65,589 60,656 60,851 ======= ====== ====== Net income per share.................................. $ 1.12 0.24 0.89 ======= ====== ======
Options to purchase 2.3 million, 1.3 million, and 0.1 million shares of common stock for 1999, 1998 and 1997, respectively, were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. Diluted weighted average shares outstanding at November 30, 1998 do not include 5.4 million common equivalent shares issuable for the convertible notes, as their effect would be anti-dilutive. (n) Comprehensive Income Comprehensive income consists of net income and foreign currency translation adjustments and is presented in the consolidated statements of stockholders' equity and comprehensive income. The Company does not tax effect its foreign currency translation adjustments since it considers the unremitted earnings of its foreign subsidiaries to be indefinitely reinvested. F-9 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (o) Consolidated Statements of Cash Flow Information For purposes of the consolidated statements of cash flows, the Company considers all highly-liquid investments with an original maturity of 90 days or less to be cash equivalents. The Company paid approximately $19.4 million, $13.0 million and $7.1 million of interest for the years ended November 30, 1999, 1998 and 1997, respectively. The Company paid approximately $13.6 million, $8.7 million and $6.4 million of income taxes for the years ended November 30, 1999, 1998 and 1997, respectively. (p) Stock Option Plans The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"), and related interpretations, in accounting for its fixed stock option plans. Accordingly, compensation expense is recorded on the date of grant of options only if the current market price of the underlying stock exceeds the exercise price. (2) Related Party Transactions (a) Transactions with Motorola Motorola purchased 2.1 million shares of the Company's common stock in July 1995 and is a major supplier of handsets and accessories. Total purchases from Motorola approximated $1,055.1 million, $1,276.1 million and $1,057.2 million for the years ended November 30, 1999, 1998 and 1997, respectively. Included in accounts payable at November 30, 1999 and 1998 was approximately $87.5 million and $200.3 million, respectively, due to Motorola for purchases of inventory. (b) Transactions with E.A. Electronicos e Componentes Ltda. Since 1998, the Company's Brazilian operations have been primarily conducted through a majority-owned joint venture. The primary supplier of handsets to the joint venture was a Brazilian importer, E.A. Electronicos e Componentes Ltda. ("E.A."), who is a customer of the Company. Sales to E.A. are excluded from the Company's consolidated revenues, and the related gross profit is deferred until the handsets are sold by the Brazilian joint venture to customers. At November 30, 1999 and 1998, the Company had accounts receivable of $7.0 million and $58.5 million, respectively, due from E.A. and accounts payable of $10.5 million and $50.9 million, respectively, due to E.A. From November 1998 through March 1999, the Company used Brazilian real NDF contracts to manage currency exposure risk related to credit sales made to E.A. Payment for these sales was remitted by E.A. using the Brazilian real rate exchange against the U.S. dollar on the day the Company recorded the sale to E.A. Foreign currency rate fluctuations caused bad debt expense of $26.4 million related to the payments remitted by the importer. This expense was included in selling, general and administrative expenses for the year ended November 30, 1999, but was completely offset by gains realized on NDF contract settlements, which gains also were included in selling, general and administrative expenses. F-10 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (3) Fair Value of Financial Instruments The carrying amounts of current assets and liabilities as of November 30, 1999 and 1998 approximate fair value due to the short maturity of these instruments. The fair value of the Company's long-term debt represents quoted market prices as of November 30, 1999 and 1998 as set forth in the table below (in thousands):
1999 1998 ---------------- --------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ------- -------- ------ Long-term debt........................... $150,000 116,350 $150,000 91,500 ======== ======= ======== ======
(4) Property and Equipment Property and equipment consisted of the following at November 30, 1999 and 1998 (in thousands):
1999 1998 -------- -------- Land and building..................................... $ 9,382 9,298 Furniture, fixtures and equipment..................... 28,937 23,895 Jet aircraft.......................................... 4,454 4,454 Leasehold improvements................................ 5,137 4,159 -------- -------- 47,910 41,806 Less accumulated depreciation and amortization........ (20,429) (13,948) -------- -------- $ 27,481 27,858 ======== ========
(5) Investments in Affiliated Companies At November 30, 1999 and 1998, investments in affiliated companies includes a 49% interest in CellStar Amtel Sdn. Bhd. ("Amtel"), a Malaysian company. Amtel is a distributor of wireless handsets. The Company's investment in Amtel approximates its equity in Amtel's net assets. At November 30, 1998, investments in affiliated companies included an 18% voting interest in the common stock of Topp Telecom, Inc. ("Topp"). Topp is a reseller of wireless airtime through the provision of prepaid wireless services. In November 1997, the Company made a $3.0 million equity investment in Topp, which represented an 18% voting interest in its common stock, and began supplying Topp with handsets. Topp incurred substantial operating losses associated with the acquisition costs of expanding its customer base. Beginning in the Company's third fiscal quarter of 1998, the Company became Topp's primary source of funding through the Company's supply of handsets. Accordingly, the Company then began to account for its debt and equity investment in Topp under the modified equity method. Under this method, in 1998 the Company recognized Topp's net loss to the extent of the Company's entire debt and equity investment, or $29.2 million. In February 1999, the Company sold part of its equity investment in Topp to a wholly-owned subsidiary of TelMex. At the closing, the Company also sold a portion of its debt investment to certain other shareholders of Topp. As a result of these transactions, the Company received cash in the amount of $7.0 million, retained a $22.5 million note receivable and a 19.5% equity ownership interest in Topp, and recorded a pre-tax gain of $5.8 million. In September 1999, the Company sold its remaining debt and equity interest in Topp for $26.5 million in cash, resulting in a pre-tax gain of $26.1 million. F-11 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Summary financial information for Topp as of and for the eleven months ended November 30, 1998 (unaudited, in thousands) follows: As of November 30, 1998: Current assets................................................. $13,303 Total assets................................................... 16,575 Current liabilities............................................ 34,062 Total liabilities.............................................. 58,852 Stockholders' deficit.......................................... (42,277)
For the eleven months ended November 30, 1998: Revenues........................................................ $ 34,491 Gross margin.................................................... 8,183 Net loss........................................................ (35,788)
(6) Debt Notes payable to financial institutions consisted of the following at November 30, 1999 and 1998 (in thousands):
1999 1998 ------- ------ Multicurrency revolving credit facility.................... $17,200 73,500 Brazilian credit facilities................................ 8,872 11,523 PRC credit facilities...................................... 24,537 -- ------- ------ $50,609 85,023 ======= ======
On October 15, 1997, the Company entered into a $135.0 million Multicurrency Revolving Credit Facility (the "Facility") with a syndicate of banks. On April 8, 1999, the amount of the Facility was reduced from $135.0 million to $115.0 million due to the release of a syndication member bank. On August 2, 1999, the Company restructured its Facility to add additional flexibility for foreign working capital funding and capitalization. Also under this restructuring the Company received expanded borrowing capacity on its domestic assets. The Facility has a term of approximately five years and provides the ability to borrow up to $25.0 million in certain currencies that are customarily offered to banks in the London interbank market and are convertible into dollars. Fundings under the Facility are limited by a borrowing base test, which is measured monthly. Borrowings under the Facility are made under London Interbank Offering Rate contracts, generally for 30-90 days, or at the bank's prime lending rate. Total interest charged on those borrowings includes an applicable margin that is subject to certain increases if the Company's ratio of consolidated funded debt to consolidated cash flow is greater than or equal to 3.0 to 1.0, which is determined at the end of each fiscal quarter. At November 30, 1999, the interest rate on the Facility borrowing was 8.75%. The Facility is secured by the Company's accounts receivable, property, plant and equipment and all other real property. The Facility contains, among other provisions, covenants relating to the maintenance of minimum net worth and certain financial ratios, dividend payments, additional debt, mergers and acquisitions and dispositions of assets. At November 30, 1999, the Company had available $66.5 million of unused borrowing capacity. As of November 30, 1999, the Company's Brazilian operations had borrowed $8.9 million, including accrued interest thereon, under credit facilities with several Brazilian banks. All $8.9 million was denominated in Brazilian reals. Interest rates on borrowings in Brazil range from approximately 20% to 28%. In conjunction with these credit facilities, the Company issued $9.15 million of letters of credit against its Facility to guarantee the repayment of the principal plus interest and all other contractual obligations of its Brazilian operations to one of the Brazilian banks. F-12 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At November 30, 1999, The Company's operations in the People's Republic of China ("PRC") had a $12.5 million loan from a PRC bank bearing interest at 5.52% which matures in September 2000 and is fully collateralized by a U.S. dollar cash deposit. The cash deposit was made via an intercompany loan from the operating entity in Hong Kong as a mechanism to secure the repatriation of these funds. This $12.5 million loan was used to secure an RMB line of credit for the U.S. dollar equivalent of $12.5 million. At November 30, 1999, $12.0 million had been borrowed against the line of credit and bears interest at 5.85% with maturity dates through September 2000. The weighted average interest rate on short-term borrowings at November 30, 1999 and 1998, was 7.5% and 7.3%, respectively. At November 30, 1999 and 1998, long-term debt consisted of $150.0 million of the Company's 5% Convertible Subordinated Notes Due October 15, 2002 (the "Notes"), which are convertible into 5.4 million shares of common stock at $27.668 per share at any time prior to maturity. Subsequent to October 18, 2000, the Notes are redeemable at the option of the Company, in whole or in part, initially at 102% and thereafter at prices declining to 100% at maturity, together with accrued interest. The Notes were initially issued pursuant to an exempt offering and were subsequently registered under the Securities Act of 1933, along with the common stock into which the Notes are convertible. (7) Income Taxes The Company's income (loss) before income taxes was comprised of the following for the years ended November 30, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ------- ------- ------ United States..................................... $13,430 (48,413) 22,539 International..................................... 79,072 55,359 48,417 ------- ------- ------ Total........................................... $92,502 6,946 70,956 ======= ======= ======
Provision (benefit) for income taxes for the years ended November 30, 1999, 1998 and 1997 consisted of the following (in thousands):
Current Deferred Total ------- -------- ------- Year ended November 30, 1999: United States: Federal................................... $ (28) 3,245 3,217 State..................................... 897 407 1,304 International............................... 13,596 5,298 18,894 ------- ------- ------- $14,465 8,950 23,415 ======= ======= ======= Year ended November 30, 1998: United States: Federal................................... $(2,553) (15,283) (17,836) State..................................... 1,067 (849) 218 International............................... 7,141 3,059 10,200 ------- ------- ------- $ 5,655 (13,073) (7,418) ======= ======= ======= Year ended November 30, 1997: United States: Federal................................... $ 4,408 1,736 6,144 State..................................... 1,134 89 1,223 International............................... 10,027 (71) 9,956 ------- ------- ------- $15,569 1,754 17,323 ======= ======= =======
F-13 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Provision (benefit) for income taxes differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to income before income taxes as a result of the following for the years ended November 30, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ------- -------- ------- Expected tax expense (benefit).................... $32,376 2,431 24,835 International and U.S. tax effects attributable to international operations......................... (8,628) (11,207) (7,022) State income taxes, net of Federal benefits....... 848 142 795 Equity in (loss) income of affiliated companies, net.............................................. 6 781 (163) Other, net........................................ (1,187) 435 (1,122) ------- -------- ------- Actual tax (benefit) expense.................... $23,415 (7,418) 17,323 ======= ======== =======
As a result of certain activities undertaken by the Company, income in certain foreign countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, primarily through 1999. The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $3.0 million, $5.3 million and $1.5 million, respectively, for 1999, 1998 and 1997, respectively. The tax effect of temporary differences underlying significant portions of deferred income tax assets and liabilities at November 30, 1999 and 1998, is presented below (in thousands):
1999 1998 ------- ------ Deferred income tax assets: United States: Accounts receivable.................................... $ 2,746 12,744 Inventory adjustments for tax purposes................. 4,666 3,425 Class action lawsuit settlement........................ -- 2,498 Net operating loss carryforwards....................... 2,306 -- Foreign tax credit carryforwards....................... 2,308 -- Other, net............................................. 2,279 340 International: Accounts receivable.................................... -- 189 Net operating loss carryforwards....................... 4,172 1,913 Other, net............................................. 822 135 ------- ------ 19,299 21,244 Valuation allowance..................................... (4,172) (2,574) ------- ------ $15,127 18,670 ======= ====== Deferred income tax liabilities: International: Other, net............................................. $ 8,796 3,389 ======= ======
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. The valuation allowance for deferred income tax assets as of December 1, 1998 and 1997, was $2.6 million and $1.4 million, respectively. The net change in the total valuation allowance for the years ended November 30, 1999 and 1998, was an increase of $1.6 million and $1.2 million, respectively. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, F-14 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes it is more likely than not the Company should realize the benefits of these deductible differences. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Company does not provide for U.S. Federal income taxes or tax benefits on the undistributed earnings and/or losses of its international subsidiaries because earnings are reinvested and, in the opinion of management, should continue to be reinvested indefinitely. At November 30, 1999, the Company had not provided U.S. Federal income taxes on earnings of international subsidiaries of approximately $181.9 million. On distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and certain withholding taxes in the various international jurisdictions. Determination of the related amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with this hypothetical calculation. Because many types of transactions are susceptible to varying interpretations under foreign and domestic income tax laws and regulations, the amounts recorded in the accompanying consolidated financial statements may be subject to change on final determination by the respective taxing authorities. Management believes it has made an adequate tax provision. (8) Leases The Company leases certain warehouse and office facilities, equipment and retail stores under operating leases which range from two to 99 years and which facility and retail store leases generally contain renewal options. Rental expense for operating leases was $6.0 million, $5.6 million and $4.3 million for the years ended November 30, 1999, 1998 and 1997, respectively. Future minimum lease payments under operating leases as of November 30, 1999 are as follows (in thousands):
Year ending November 30, Amount ------------------------ ------- 2000............................................................ $ 6,202 2001............................................................ 3,954 2002............................................................ 2,976 2003............................................................ 2,321 2004............................................................ 935 Thereafter...................................................... 206 ------- $16,594 =======
(9) Impairment of Assets Held for Sale. Based on the market conditions in Poland, the Company decided, in the fourth quarter of 1999, to sell its Polish operations. The Company recorded an impairment charge of $5.5 million, including $4.5 million of goodwill amortization, to reduce the carrying value of the assets to their estimated net realizable value. For 1999, and 1998, revenues for the operations in Poland were $7.4 million and $9.9 million, respectively. F-15 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (10) Lawsuit Settlement During the period from May 14, 1996 through July 22, 1996, four separate purported class action lawsuits were filed in the United States District Court, Northern District of Texas, Dallas Division, against the Company, certain of the Company's current and former officers, directors and employees, and the Company's independent auditors. The four lawsuits were consolidated, and the State of Wisconsin Investment Board was appointed lead plaintiff in the consolidated action. On November 19, 1998, the Company entered into a Stipulation of Settlement that resolved all claims pending in the suit. The settlement was approved by the Court on January 25, 1999, and all remaining claims were dismissed. (11) Restructuring Charge As part of the Company's strategy to streamline its organizational structure, beginning in the second quarter of 1999 the Company reorganized and consolidated the management of the Company's Latin American and North American Regions and centralized the management in the Company's Asia-Pacific Region. As a result, the consolidated statements of operations for the year ended November 30, 1999, include a charge of $3.6 million related to the reorganization. Of the total costs, $0.8 million consisted of non-cash outlays and the remaining $2.8 million consisted of cash outlays, of which $2.4 had been paid at November 30, 1999. The components of the restructuring charge were as follows (in thousands): Employee termination costs........................................ $2,373 Write-down of assets.............................................. 760 Other............................................................. 506 ------ $3,639 ======
(12) Gain on Sale of Assets The Company recorded a gain of $8.8 million for the year ended November 30, 1999 associated with the sale of the following (in thousands): Prepaid operations in Venezuela................................... $5,197 Retail stores in the United States................................ 2,911 Other............................................................. 666 ------ $8,774 ======
(13) Concentration of Credit Risk and Major Customer Information Pacific Bell Mobile Services, a North American Region customer, accounted for less than 10% of revenues in the year ended November 30, 1999, approximately 10% or $194.6 million, and approximately 12%, or $178.2 million, of revenues for the years ended November 30, 1998 and 1997, respectively. No other customer accounted for 10% or more of consolidated revenues in any of the years ended November 30, 1999, 1998 or 1997. (14) Segment and Related Information The Company operates predominantly within one industry, wholesale and retail sales of wireless telecommunications products. The Company's management evaluates operations primarily on income before interest and income taxes in the following reportable geographic regions: Asia-Pacific, Latin America, which includes Mexico and the Company's Miami, Florida, operations ("Miami"), Europe and North America, primarily the United States. Revenues and operations of Miami are included in Latin America since Miami's F-16 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) activities are primarily for export to South American countries, either by the Company or through its exporter customers. The Corporate segment includes headquarters operations, income and expenses not allocated to reportable segments, and interest expense on the Company's Facility and Notes. The accounting policies of the reportable segments are the same as those described in note (1). Intersegment sales and transfers are not significant. Segment information for the years ended November 30, 1999, 1998 and 1997 follows (in thousands):
Asia- Latin North Pacific America Europe America Corporate Total -------- ------- ------- ------- --------- --------- November 30, 1999: Revenues from external customers............ $769,412 717,273 469,991 377,129 -- 2,333,805 Impairment of assets held for sale........ -- -- 705 -- 4,775 5,480 Restructuring charge.. 1,277 -- -- 2,302 60 3,639 Operating income (loss)............... 41,537 31,580 10,281 17,529 (28,229) 72,698 Equity in income (loss) of affiliated companies, net....... (18) -- -- 31,951 -- 31,933 Income (loss) before interest and income taxes................ 41,102 31,013 10,208 48,555 (23,230) 107,648 Total assets.......... 240,523 261,618 56,536 126,208 21,553 706,438 Depreciation and amortization......... 1,869 2,564 6,426 3,683 2,369 16,911 November 30, 1998: Revenues from external customers............ $513,869 705,624 303,520 472,837 -- 1,995,850 Lawsuit settlement.... -- -- -- -- 7,577 7,577 Operating income (loss)............... 38,727 28,541 5,226 527 (24,570) 48,451 Equity in income (loss) of affiliated companies, net....... 768 -- -- (29,216) -- (28,448) Income (loss) before interest and income taxes................ 37,804 27,959 6,482 (28,437) (25,337) 18,471 Total assets.......... 235,147 319,944 54,659 152,004 13,771 775,525 Depreciation and amortization......... 2,012 3,742 670 3,197 1,805 11,426 November 30, 1997: Revenues from external customers............ $422,751 497,336 69,142 493,585 -- 1,482,814 Operating income (loss)............... 44,535 41,446 (145) 5,475 (15,304) 76,007 Equity in income (loss) of affiliated company.............. 465 -- -- -- -- 465 Income (loss) before interest and income taxes................ 45,437 41,216 (215) 7,219 (17,055) 76,602 Total assets.......... 120,728 168,532 15,438 183,687 8,726 497,111 Depreciation and amortization......... 1,417 715 152 1,691 1,088 5,063
A reconciliation from the segment information to the income before income taxes included in the consolidated statements of operations for the years ended November 30, 1999, 1998, and 1997 follows (in thousands):
1999 1998 1997 -------- ------- ------ Income (loss) before interest and income taxes per segment information............................... $107,648 18,471 76,602 Interest expense per the consolidated statements of operations........................................ (19,027) (14,446) (7,776) Interest income included in other, net in the consolidated statements of operations............. 3,881 2,921 2,130 -------- ------- ------ Income before income taxes per the consolidated statements of operations.......................... $ 92,502 6,946 70,956 ======== ======= ======
F-17 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Geographical information for the years ended November 30, 1999, 1998 and 1997, follows (in thousands):
1999 1998 1997 --------------------- -------------------- -------------------- Long-lived Long-lived Long-lived Revenues Assets Revenues Assets Revenues Assets ---------- ---------- --------- ---------- --------- ---------- United States........... $ 531,328 15,830 834,521 17,336 866,866 14,409 People's Republic of China, including Hong Kong................... 528,572 1,869 404,883 1,770 319,703 2,004 United Kingdom.......... 341,090 798 209,439 372 69,142 466 All other countries..... 932,815 8,984 547,007 8,380 227,103 5,998 ---------- ------ --------- ------ --------- ------ $2,333,805 27,481 1,995,850 27,858 1,482,814 22,877 ========== ====== ========= ====== ========= ======
(15) Acquisitions (a) Business Acquired In August 1999, the Company acquired the business and certain net assets of Montana Telecommunications Group B.V. in The Netherlands in a transaction accounted for as a purchase. The purchase price was $2.3 million, which resulted in $1.0 million of goodwill with an estimated life of 20 years. Additional payments based on future operating results of the business over the next four years may be paid in cash. The Company acquired three companies during 1998: (i) TA Intercall AB (Sweden), January 1998; (ii) Digicom Spoka zo.o. (Poland), March 1998; and (iii) ACC del Peru (Peru), May 1998. Each of these transactions was accounted for as a purchase. The aggregate of the purchase prices was $18.2 million, which resulted in $18.1 million of goodwill with an estimated life of 20 years. Additional payments based on future operating results of the applicable businesses over the next two years may be paid either in cash or common stock at the Company's option. The consolidated financial statements include the operating results of each business from the date of acquisition. The impact of these acquisitions was not material in relation to the Company's consolidated financial position or results of operations. Contingent payments, if paid for the above transactions, will be accounted for as goodwill. (b) Acquisition of Minority Interest in CellStar Pacific On May 30, 1997, the Company acquired the remaining 20% minority interest of CellStar Pacific, the Company's Singapore subsidiary, which conducts operations in Singapore, The Philippines, and Malaysia, for common stock valued at $2.7 million and $0.5 million in cash. (16) Stockholders' Equity (a) Common Stock Warrant and Options At November 30, 1998, the Company had outstanding a warrant exercisable for 1.3 million restricted shares of its common stock at $4.60 per share. In December 1998, the warrant holder and the Company amended the warrant agreement to remove the restriction on the resale of the common stock issuable on exercise of the warrants and to pay the exercise price in shares of common stock. The holder subsequently exercised the warrants and was issued 0.6 million shares of common stock. The Company has a stock option plan (the "Plan") covering 8.0 million shares of its common stock. Options under the Plan expire ten years from the date of grant unless earlier terminated due to the death, F-18 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) disability, retirement or other termination of service of the optionee. Options have vesting schedules ranging from 100% on the first anniversary of the date of grant to 25% per year commencing on the first anniversary of the date of grant. The exercise price is equal to the fair market value of the common stock on the date of grant. The Company also has an incentive stock option plan for certain officers of the Company covering 150,000 shares of common stock. The Company also has a stock option plan for non-employee directors ("Directors' Option Plan"). The Directors' Option Plan provides that each non- employee director of the Company as of the date the Directors' Option Plan was adopted and each person who thereafter becomes a non-employee director should automatically be granted an option to purchase 7,500 shares of common stock. The exercise price is equal to the fair market value of the common stock on the date of grant. A total of 150,000 shares of common stock are authorized for issuance pursuant to the Directors' Option Plan. Each option granted under the Directors' Option Plan becomes exercisable six months after its date of grant and expires ten years from the date of grant unless earlier terminated due to the death, disability, retirement or other termination of service of the optionee. The per share weighted-average fair market value of stock options granted during the years ended November 30, 1999, 1998 and 1997, was $4.45, $6.375 and $7.249, respectively, on the date of grant using the Black-Scholes option- pricing model with the following weighted-average assumptions:
1999 1998 1997 ---- ---- ---- Dividend yield.......................................... 0.0% 0.0% 0.0% Volatility.............................................. 81.0% 83.0% 77.0% Risk-free interest rate................................. 5.1% 5.4% 6.0% Expected term of options (in years)..................... 3.4 3.2 3.7
The Company applies Opinion 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("Statement 123"), the Company's net income would have been the pro forma amounts below for the years ended November 30, 1999, 1998 and 1997 (in thousands):
1999 1998 1997 ------- ------ ------ Net income as reported.............................. $69,087 14,364 53,633 Diluted net income per share as reported............ 1.12 0.24 0.89 Pro forma net income................................ 67,605 10,136 51,380 Pro forma diluted net income per share.............. 1.11 0.17 0.87
Pro forma net income reflects only options granted after November 30, 1995. Therefore, the full impact of calculating compensation cost for stock options under Statement 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of four years and compensation cost for options granted prior to December 1, 1995, is not considered. F-19 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock option activity during the years ended November 30, 1999, 1998 and 1997, is as follows:
1999 1998 1997 ------------------- ------------------- ------------------- Weighted- Weighted- Weighted- Average Average Average Number of Exercise Number of Exercise Number of Exercise shares Prices shares Prices shares Prices --------- --------- --------- --------- --------- --------- Granted................. 1,487,450 $8.057 2,095,458 $11.491 2,448,500 $12.499 Exercised............... 532,878 5.545 464,378 7.110 334,406 6.484 Forfeited............... 1,369,012 9.444 1,075,062 19.680 162,500 6.988 Outstanding, end of year................... 4,275,588 8.617 4,690,028 8.704 4,134,010 9.965 Exercisable, end of year................... 1,929,149 7.829 1,417,757 6.531 1,192,876 6.374 Reserved for future grants under the Plan.. 2,701,376 Reserved for future grants under the Directors' Option Plan................... 90,000
For options outstanding and exercisable as of November 30, 1999, the exercise prices and remaining lives were:
Options Outstanding Options Exercisable ------------------------------------ --------------------- Weighted- Weighted- Weighted- Average Average Average Number Remaining Life Exercise Number Exercise Range of Exercise Prices Outstanding (in years) Prices Exercisable Prices - ------------------------ ----------- -------------- --------- ----------- --------- $2.170-6.170............ 1,104,502 6.1 $5.866 913,377 $5.912 $6.219-8.250............ 1,499,002 8.1 7.454 454,377 6.892 $8.375-12.030........... 1,557,584 8.4 11.103 505,895 11.201 $12.688-19.880.......... 114,500 7.1 16.559 55,500 16.313 --------- --------- 4,275,588 7.7 8.617 1,929,149 7.829 ========= =========
(b) Stockholder Rights Plan The Company adopted a Stockholder Rights Plan, which provides that the holders of the Company's common stock receive one-third of a right ("Right") for each share of the Company's common stock they own. Each Right entitles the holder to buy one one-thousandth of a share of Series A Preferred Stock, par value $.01 per share, at a purchase price of $80.00, subject to adjustment. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15% or more of the outstanding shares of common stock of the Company. Under those circumstances, the holders of Rights would be entitled to buy shares of the Company's common stock or stock of an acquirer of the Company at a 50% discount. The Rights expire on January 9, 2007, unless earlier redeemed by the Company. (17) Commitments and Contingencies (a) Litigation During the period from May 1999 through July 1999, seven purported class action lawsuits were filed in the United States District Court for the Southern District of Florida, styled as follows: (1) Elfie Echavarri v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (2) Mark Krug v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (3) Jewell Wright v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (4) Theodore Weiss v. CellStar F-20 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (5) Tony LaBella v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (6) Thomas E. Petrone v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (7) Adele Brody v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins. Each of the above lawsuits seeks certification as a class action to represent those persons who purchased the publicly traded securities of the Company during the period from March 19, 1998 to September 21, 1998. Each of these lawsuits alleges that the Company issued a series of materially false and misleading statements concerning the Company's results of operations and the Company's investment in Topp, resulting in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10(b)(5) promulgated thereunder. The court entered an order on September 26, 1999 consolidating the above lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel. The lead plaintiffs filed a consolidated complaint. On November 8, 1999, the Company filed a Motion to Dismiss the consolidated complaint but the Court has not yet rendered a decision. The Company believes that it has complied with all SEC laws and regulations and that it has meritorious defenses to these allegations and intends to vigorously defend the consolidated action if the Motion to Dismiss is denied. The Company is also a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these matters should not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. (b) SEC Investigation On August 3, 1998, the Company announced that the Securities and Exchange Commission is conducting an investigation of the Company relating to its compliance with Federal securities laws. The Company believes that it has fully complied with all securities laws and regulations and is cooperating with the Commission in its investigation. (c) Financial Guarantee The Company has guaranteed up to MYR 13.0 million (Malaysian ringgits), or $3.4 million as of November 30, 1999, for bank borrowings of its Malaysian joint venture. (d) 401(k) Savings Plan The Company established a savings plan for employees in 1994. Employees are eligible to participate if they were full-time employees as of July 1, 1994, or on completing 90 days of service. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. Under provisions of the plan, eligible employees are allowed to contribute as much as 15% of their compensation, up to the annual maximum allowed by the Internal Revenue Service. The Company may make a discretionary matching contribution based on the Company's profitability. During the years ended November 30, 1999, 1998 and 1997, the Company made contributions of approximately $0.3 million to the plan. (e) Foreign Currency Contracts The Company uses foreign currency forward contracts to reduce exposure to exchange rate risks primarily associated with transactions in the regular course of the Company's international operations. The forward contracts establish the exchange rates at which the Company should purchase or sell the contracted amount of local currencies for specified foreign currencies at a future date. The Company uses forward contracts, which are short-term in nature (45 days to one year), and receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. F-21 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The major currency exposures hedged by the Company are the British pound, Dutch guilder, Euro and Polish zloty. The carrying amount and fair value of these contracts are not significant. The U.S. dollar equivalent of contractual amounts of the Company's forward exchange contracts consist of the following at November 30, 1999 (in thousands): British pound...................................................... $4,905 Euro............................................................... 2,947 Polish zloty....................................................... 867 ------ $8,719 ======
F-22 CELLSTAR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) (In thousands, except per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter -------- ------- ------- ------- 1999 Revenues....................... $515,348 570,325 560,222 687,910 Gross profit................... 43,639 49,058 47,706 53,027 Net income..................... 15,591(a) 13,969(b) 14,998 24,529 (c) Net income per share: Basic........................ 0.26 0.23 0.25 0.41 Diluted...................... 0.26 0.23 0.25 0.39 1998 Revenues....................... $406,745 445,660 501,750 641,695 Gross profit................... 41,410 44,902 41,025 45,438 Net income (loss).............. 14,248 16,599 2,390(d) (18,873)(e) Net income (loss) per share: Basic........................ 0.24 0.28 0.04 (0.32) Diluted...................... 0.23 0.27 0.04 (0.32)
- -------- (a) In the first quarter of 1999, the Company's operations were affected by the gain on the sale of part of its equity and debt investment in Topp, a gain associated with the sale of all its retail stores in the Dallas-Fort Worth area, and a loss on the conversion of a U.S. dollar denominated loan into Brazilian reals. (b) In the second quarter of 1999, the Company's operations were affected by the restructuring charge associated with the reorganization and consolidation of the management for the Company's Latin American and North American Regions as well as the centralization of the management in the Asia-Pacific Region and the sale of its prepaid operation in Venezuela and retail stores in the Kansas City area. (c) In the fourth quarter of 1999, the Company's operations were affected by the gain on the sale of the remaining debt and equity interest in Topp and a charge to reduce the carrying value of CellStar Poland Sp. zo.o. (d) In the third quarter of 1998, the Company's operations were affected by the recognition of a portion of Topp's net loss based on its most recent quarter-end, June 30, 1998, and the Company's adoption of the modified equity method of accounting. (e) In the fourth quarter of 1998, the Company's operations were affected by its recognition of Topp's net loss to the extent of the Company's entire debt and equity investment in Topp; the settlement of the class action lawsuit; and the cost of de-emphasizing or eliminating certain businesses. F-23 CELLSTAR CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Years ended November 30, 1999, 1998 and 1997 (In thousands)
Balance Charged Balance at to costs Charged to Deductions, at end beginning and activation net of of of period expenses income(a) recoveries period --------- -------- ---------- ----------- ------- Allowance for doubtful accounts: November 30, 1999......... $33,361 10,392 1,251 (11,852) 33,152 November 30, 1998......... 23,857 13,639 481 (4,616) 33,361 November 30, 1997......... 29,023 3,131 1,108 (9,405) 23,857 Reserve for inventory obsolescence: November 30, 1999......... $12,082 23,012 -- (20,226) 14,868 November 30, 1998......... 2,795 12,434 -- (3,147) 12,082 November 30, 1997......... 8,322 4,830 -- (10,357) 2,795
- -------- (a) The Company, under agent agreements, earns activation commissions from wireless service providers on engaging subscribers for wireless handset services in connection with the Company's retail operations. The agent agreements also provide for the reduction or elimination of activation commissions if the subscribers deactivate service within a stipulated period. The Company reduces activation income for increases in the allowance for estimated deactivations. S-1 EX-3.3 2 AMENDED AND RESTATED BYLAWS EXHIBIT 3.3 AMENDED AND RESTATED BYLAWS OF CELLSTAR CORPORATION (as effective January 21, 2000) ARTICLE I - OFFICES ------------------- SECTION ONE. REGISTERED OFFICE. The registered office of the corporation ----------- ----------------- shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the registered agent in charge thereof is The Corporation Trust Company. SECTION TWO. OTHER OFFICES. In addition to its registered office in the ----------- ------------- State of Delaware, the corporation may have an office or offices both within and without the State of Delaware at such places as shall be determined from time to time by the Board of Directors or as the business of the corporation may require. ARTICLE II - MEETINGS OF STOCKHOLDERS ------------------------------------- SECTION ONE. PLACE OF MEETINGS. All meetings of the stockholders for the ----------- ----------------- election of Directors shall be held in the City of Carrollton, County of Dallas, State of Texas, at such place as may be fixed from time to time by the Board of Directors, or at such other place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of the stockholders for any other purpose may be held at such time and place, either within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION TWO. ANNUAL MEETINGS. The annual meeting of the stockholders of the ----------- --------------- corporation for the purpose of electing directors and transacting such other business as properly may be brought before the meeting shall be held on such date and at such time and place, either within or without the State of Delaware, as shall be designated by the Board of Directors and stated in the notice of the meeting. SECTION THREE. SPECIAL MEETINGS. Special meetings of the stockholders, for ------------- ---------------- any purpose or purposes, unless otherwise prescribed by statute, shall be called as provided in the Amended and Restated Certificate of Incorporation. SECTION FOUR. NOTICE OF MEETINGS. Notice of the date, hour, place and ------------ ------------------ purposes of every meeting of the stockholders shall be delivered personally or mailed not less than ten (10) days nor more than sixty (60) days previous thereto, to each stockholder of record then entitled to vote who shall have furnished a written address to the Secretary of the corporation for that purpose. Such further notice shall be given as may be required by law or the Amended and Restated Certificate of Incorporation. Business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice. Meetings may be held without notice if all stockholders then entitled to vote are present or represented thereat, or if notice is waived by those not present or represented. SECTION FIVE. QUORUM AND ADJOURNMENT OF MEETINGS. ------------ ---------------------------------- (A) The holders of record of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of the business except as otherwise provided by law, by the Amended and Restated Certificate of Incorporation or by these Amended and Restated Bylaws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person, or represented by proxy, shall have power to adjourn the meeting, from time to time, by majority vote of those present, without notice other than announcement at the meeting, until the requisite number of shares of stock then entitled to vote shall be present. At such adjourned meeting at which such requisite number of shares of stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. (B) The number of shares required to constitute a quorum, as set forth above, may not be reduced to less than a majority of the shares issued and outstanding without approval of the stockholders. SECTION SIX. VOTING; PROXY. Each outstanding share of the corporation's ----------- ------------- capital stock will be entitled to one vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of the shares of any class or series are increased, limited or denied by the Amended and Restated Certificate of Incorporation. At each meeting of the stockholders, every stockholder then having the right to vote at such meeting shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three (3) years prior to such meeting, unless said instrument provides for a longer period. No shares of stock of the corporation may be voted by proxy at any stockholder meeting by any person unless, prior to or at the time of the commencing of the meeting or reconvening of any adjournment thereof, such proxy shall have been filed with the Secretary of the corporation. A duly executed proxy shall be irrevocable if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot, except as otherwise provided in the Amended and Restated Certificate of Incorporation or as may be required by law. When a quorum is present at any meeting, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall decide any questions brought before such meeting, unless the question is one upon which, by express provision of statute or of the Amended and Restated Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decisions of such questions. There shall be no cumulative voting. SECTION SEVEN. ELECTION OF DIRECTORS. Directors shall be nominated and ------------- --------------------- elected as provided in the Amended and Restated Certificate of Incorporation and shall be elected by a 2 plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. SECTION EIGHT. STOCKHOLDERS LIST. It shall be the duty of the officer who ------------- ----------------- shall have charge of the stock ledger to prepare or make, at least ten (10) days before every election, a complete list of stockholders entitled to vote, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open for said ten (10) days to the examination of any stockholder during the usual hours for business and shall be produced and kept either at a place within the city where the meeting is to be held that is specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list of stockholders shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION NINE. INSPECTORS OF ELECTION. The corporation, in advance of each ------------ ---------------------- meeting of stockholders, shall appoint one (1) or more inspectors of election to assist the Secretary of the corporation in the conduct of elections at such meeting. If any inspector of election shall for any reason fail to attend and to act at such meeting, an inspector of election may be appointed by the chairman of the meeting. SECTION TEN. ORDER OF BUSINESS. At each meeting of the stockholders, one of ----------- ----------------- the following persons, in the order in which they are listed (and in the absence of the first, the next, and so on), shall serve as chairman of the meeting: Chairman of the Board, President, Vice Presidents (in the order of their seniority if more than one) and Secretary. The order of business at each such meeting shall be as determined by the chairman of the meeting. Except as may be limited by law or the Amended and Restated Certificate of Incorporation, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. ARTICLE III - BOARD OF DIRECTORS -------------------------------- SECTION ONE. BOARD OF DIRECTORS. The business and affairs of the ----------- ------------------ corporation shall be managed by a Board of Directors. The Board of Directors may exercise all such powers of the corporation and do all such lawful acts and things on its behalf as are not by statute or by the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws directed or required to be exercised or done by stockholders. The Board of Directors may adopt such rules and regulations not inconsistent with the provisions of law, the Amended and Restated Certificate of Incorporation of the corporation, or these Amended and Restated Bylaws for the 3 conduct of its meetings and management of the affairs of the corporation as the Board may deem proper. SECTION TWO. NUMBER; ELECTION; TENURE AND CLASSIFICATION. The number of ----------- ------------------------------------------- directors constituting the Board shall be as determined pursuant to the Amended and Restated Certificate of Incorporation. Directors need not be stockholders. They shall be elected as provided in the Amended and Restated Certificate of Incorporation, and shall serve until their respective successors shall be elected and qualified or until their earlier resignation or removal. SECTION THREE. MEETINGS. Meetings of the Board of Directors shall be held ------------- -------- at such place, within or without the State of Delaware, as may from time to time be fixed by resolution of the Board of Directors or may be specified in the call of any meeting. Regular meetings of the Board of Directors shall be held at such times and at such places as may from time to time be fixed by resolution of the Board of Directors, and no notice of such regular meetings need be given. Special meetings may be held at any time upon the call of the Chairman of the Board, the Presi dent or of three (3) directors, by oral, telegraphic or written notice, duly delivered, sent or mailed to each director not less than three (3) days before such meeting. A meeting of the Board of Directors may be held, without notice, immediately after the annual meeting of the stockholders, at the same place at which such meeting was held. Meetings may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing. SECTION FOUR. QUORUM; VOTING. A quorum for the transaction of business at ------------ -------------- all meetings of the Board of Directors shall consist of a majority of the directors then in office. If, however, such quorum shall not be present, the directors present shall have power to adjourn the meeting, from time to time, by majority vote, without notice other than announcement at the meeting, until the requisite number of directors shall be present. The act of the majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws. SECTION FIVE. VACANCIES. Vacancies on the Board of Directors shall be ------------ --------- filled in accordance with the provisions of the Amended and Restated Certificate of Incorporation. SECTION SIX. RESIGNATION AND REMOVAL. A director may resign at any time by ----------- ----------------------- giving written notice to the Board of Directors or to the President of the corporation. Such resignation shall take effect upon receipt thereof by the Board of Directors or by the President, unless otherwise specified therein. Removal of directors shall be governed by the provisions of the Amended and Restated Certificate of Incorporation. SECTION SEVEN. COMPENSATION. Each director shall receive for services ------------- ------------ rendered as a director of the corporation such compensation and reimbursements as may be fixed by the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 4 SECTION EIGHT. TELEPHONIC MEETINGS OF BOARD OF DIRECTORS. The Board of ------------- ----------------------------------------- Directors may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at such meeting. SECTION NINE. ACTION WITHOUT MEETING. Unless otherwise restricted by the ------------ ---------------------- Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or committee. ARTICLE IV - COMMITTEES ----------------------- SECTION ONE. COMPENSATION COMMITTEE. ----------- ---------------------- (A) There may be a Compensation Committee of the Board of Directors consisting of two (2) or more directors of the corporation designated by resolution passed by a majority of the entire Board of Directors. Members of the Compensation Committee shall have such powers as shall be conferred or authorized by the resolution establishing such Committee and shall hold office during their terms as directors; provided that the Board of Directors shall have the power at any time to remove any of the members thereof and to appoint other directors in lieu of the persons so removed. The Board of Directors shall also designate the Chairman of the Compensation Committee. (B) All action of the Compensation Committee shall be reported to the Board of Directors at its meeting next succeeding such action. Regular minutes of the proceedings of the Compensation Committee shall be kept in a book provided for that purpose. Vacancies in the Compensation Committee shall be filled by the Board of Directors. (C) A majority of the Compensation Committee shall be necessary to constitute a quorum, and, in every case, an affirmative vote of a majority of the members shall be necessary for the passage of any resolution. It shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board of Directors, and it shall also meet at the call of the chairman or of any two (2) members of the Compensation Committee. If the Compensation Committee fails to fix its own rules, the provisions in these Amended and Restated Bylaws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply. 5 SECTION TWO. AUDIT COMMITTEE. ----------- --------------- (A) There may be an Audit Committee of the Board of Directors consisting of at least three (3) members designated by resolution passed by a majority of the entire Board of Directors. The members shall meet the qualifications for members established by the Audit Committee in its rules or charter from time to time. Members of the Audit Committee shall hold office during their terms as directors, provided the Board of Directors shall have the power at any time to remove any of the members thereof and to appoint other directors in lieu of the persons so removed. The Board of Directors shall also designate the chairman of the Audit Committee. The Audit Committee shall review the scope of the independent auditors' examinations of the corporation's financial statements and receive and review their reports. The Audit Committee shall also meet with the independent auditors, receive recommendations or suggestions for changes in accounting procedures and initiate and supervise any special investigations it may choose to undertake. (B) All action of the Audit Committee shall be reported to the Board of Directors at its meeting next succeeding such action and shall be subject to revision and alteration by the Board of Directors, provided that no rights of third parties shall be affected by any such provision or alteration. Regular minutes of the proceedings of the Audit Committee shall be kept in a book provided for that purpose. Vacancies in the Audit Committee shall be filled by the Board of Directors. (C) A majority of the members of the Audit Committee shall be necessary to constitute a quorum, and, in every case, an affirmative vote of a majority of the members shall be necessary for the passage of any resolution. It shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board of Directors, and it shall also meet at the call of the chairman or of any two (2) members of the Audit Committee. If the Audit Committee fails to fix its own rules, the provisions in these Amended and Restated Bylaws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply as nearly as may be. SECTION THREE. DESIGNATION AND POWERS OF OTHER COMMITTEES. The Board of ------------- ------------------------------------------ Directors may, in its discretion, by the affirmative vote of a majority of the entire Board of Directors, appoint such other committees of two or more directors which shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them. A majority of any such committee, if the committee be composed of more than two members, may determine its action and fix the time and place of its meetings unless the Board of Directors shall otherwise provide. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, or to discharge any such committees. SECTION FOUR. PROCEDURE; MEETINGS; QUORUM. Regular meetings of any ------------ --------------------------- committee of the Board of Directors, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of any committee of the Board shall be called at the request of any member thereof. Notice of each special meeting of any committee of the Board shall be sent by mail, 6 telegraph or telephone, or be delivered personally to each member thereof not later than the day before the day on which the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of such notice to such member. Any special meeting of any committee of the Board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the Board need not be given. Any committee of the Board may adopt such rules and regulations not inconsistent with the provisions of law, the Amended and Restated Certificate of Incorporation of the corporation or these Amended and Restated Bylaws for the conduct of its meetings as such committee may deem proper. A majority of a committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. In the absence or disqualification of a member, the remaining members, whether or not a quorum, may fill a vacancy. Each committee of the Board of Directors shall keep written minutes of its proceedings, a copy of which is to be filed with the secretary of the corporation, and shall report on such proceedings to the Board. ARTICLE V - OFFICERS -------------------- SECTION ONE. EXECUTIVE OFFICERS. The Board of Directors, at its first ----------- ------------------ meeting after each annual meeting of stockholders, shall choose a Chairman of the Board and shall choose a President who shall be a member of the Board of Directors, and one or more Vice Presidents, a Chief Financial Officer, a Secretary, a Treasurer and such other officers as it shall deem necessary, who need not be members of the Board of Directors. Any two or more offices may be held by the same person. SECTION TWO. OTHER OFFICERS AND AGENTS. The Board of Directors may, by ------------ ------------------------- resolution, at any time, appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such offices as shall be determined from time to time by the Board of Directors. To the extent it deems advisable and in the best interests of the corporation, the Board of Directors may, by resolution, at any time, delegate the authority granted by this Section to the Chairman of the Board, Chief Executive Officer and President of the Company, subject to ratification by the Board of Directors. SECTION THREE. TENURE; RESIGNATION; REMOVAL AND VACANCIES. The officers of ------------- -------------------------------- --------- the corporation shall hold office until their death, their successors are elected and qualify in their stead or until their resignation or removal, whichever shall first occur; provided, however, that if the term of office of any officer elected or appointed pursuant to Section Two of this Article V shall have been fixed by the Board of Directors, he shall cease to hold such office not later than the date of expiration of such term regardless of whether any other person shall have been elected or appointed to succeed him. Any officer or agent elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of the majority of the entire Board of Directors; provided, however, that any such removal shall be 7 without prejudice to the rights, if any, of the officer so employed under any employment contract or other agreement with the corporation. An officer may resign at any time upon written notice to the Board of Directors. If the office of any officer becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the Board of Directors may choose a successor or successors to hold such office for such term as may be specified by the Board of Directors. SECTION FOUR. COMPENSATION. The salaries of all executive officers of the ------------ ------------ corporation shall be fixed by the Compensation Committee of the Board of Directors unless overruled by the action of the Board of Directors. To the extent it deems advisable and in the best interests of the corporation, the Board of Directors may, by resolution, at any time, delegate the authority granted by this Section to the Chairman of the Board, Chief Executive Officer and President of the Corporation, subject to ratification by the Board of Directors or the Company Committee. SECTION FIVE. AUTHORITY AND DUTIES. All officers as between themselves and ------------ -------------------- the corporation, shall have such authority and perform such duties in the management of the corporation as may be provided in these Amended and Restated Bylaws. In addition to the powers and duties hereinafter specifically prescribed for the respective officers, the Board of Directors may from time to time impose or confer upon any of the officers such additional duties and powers as the Board of Directors may see fit, and the Board of Directors may from time to time impose or confer any or all of the duties and powers hereinafter specifically prescribed for any officer upon any other officer or officers. SECTION SIX. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside ----------- --------------------- at all meetings of the stockholders and of the Board of Directors at which he is present. Except where by law the signature of the President is required, the Chairman of the Board shall possess the same power as the President to sign all certificates, contracts and other instruments of the corporation. The Chairman of the Board shall have such other powers and perform such other duties as from time to time may be conferred or imposed upon him by the Board of Directors. SECTION SEVEN. PRESIDENT. The President of the corporation shall be the ------------- --------- chief administrative officer of the corporation and, subject to the control of the Board of Directors and the Chief Executive Officer, will supervise and control all of the business and affairs of the corporation and, in connection therewith, shall be authorized to delegate to other officers of the corporation such of his powers and duties as the President at such times and in such manner as he may deem to be advisable. He shall possess power to sign all certificates, contracts and other instruments of the corporation. He shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors. He shall perform all such other duties as are incident to his office or are properly required of him by the Board of Directors. He shall vote, in the name of the corporation, stock or securities in other corporations or associations held by the corporation, unless another officer is designated by the Board of Directors for the purpose. He shall from time to time report to the Board of Directors all matters within his 8 knowledge which the interest of the corporation may require to be brought to their notice, and shall also perform such other duties as may be assigned to him from time to time by the Board of Directors. SECTION EIGHT. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the ------------- ----------------------- corporation shall have, subject only to the Board of Directors, general and active management and supervision of the business and affairs of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall have all powers and duties or supervision and management usually vested in the general manager of a corporation, including the supervision and direction of all other officers of the corporation and the power to appoint and discharge agents and employees. SECTION NINE. CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the ------------ ----------------------- corporation shall assist the President in the general control and management of the business affairs of the corporation and shall have such other authority and responsibilities and perform such other duties as the President shall delegate or as the President or the Board of Directors shall assign to him. When specifically authorized by action of the Board of Directors, he shall possess power to sign all certificates, contracts and other instruments of the corporation. He shall from time to time report to the Board of Directors all matters within his knowledge which the interest of the corporation may require to be brought to their notice. SECTION TEN. VICE PRESIDENTS. When specifically authorized by action of the ------------ --------------- Board of Directors, each Vice President shall possess power to sign all certificates, contracts and other instruments of the corporation, and shall have such other authority and perform such other duties as may be assigned to them from time to time by the Board of Directors or as may be designated by these Amended and Restated Bylaws, the Chairman of the Board or the President. SECTION ELEVEN. CORPORATE SECRETARY. -------------- ------------------- (A) The Corporate Secretary (hereinafter called the ("Secretary") shall attend all meetings of the Board of Directors and stockholders and act as secretary thereof, and shall record all votes and the minutes of all proceedings in a book for that purpose belonging to the corporation to be kept in his custody and shall perform like duties for all committees of the Board of Directors. He shall give or cause to be given notice of all meetings of the stockholders and of the directors. He shall keep in safe custody the seal of the corporation and shall in general perform all of the duties incident to the office of Secretary, subject to the control of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board or the President. (B) The Secretary shall act as transfer agent of the corporation and/or registrar of its capital stock, with the usual duties pertaining thereto; provided, however, that the Board of Directors may, by resolution, as to any class of its capital stock appoint one or more persons one or more persons or corporations as transfer agents and/or registrars in his stead. 9 (C) Each Assistant Secretary shall have the powers of the Secretary subject to the direction of the Chairman of the Board, the President, the Secretary or the Board of Directors. SECTION TWELVE. TREASURER. -------------- --------- (A) The Treasurer shall have custody of all funds and securities of the corporation which may come into his hands. He may endorse, on behalf of the corporation, for collection, checks, notes and other obligations, and shall deposit the same to the credit of the corporation in such banks or depositories as the Board of Directors may designate, or pursuant to the authority of general or special resolutions of the Board of Directors. Whenever required by the Chairman of the Board, the President or the Board of Directors, he shall render a statement of his accounts. He shall enter regularly, in books of the corporation to be kept by him for the purpose, full and accurate accounts of all moneys received and paid by him on the account of the corporation; he shall at any reasonable time exhibit his books and accounts to any director of the corporation during business hours; and, he shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board or the President. He shall give a bond for the faithful discharge of his duties in such sum as the Board of Directors may require. (B) Each Assistant Treasurer shall have such of the other duties, and perform such of the duties, of the Treasurer, as may be prescribed by the Board of Directors, the Chairman of the Board, the President or the Treasurer. SECTION THIRTEEN. DUTIES OF OFFICERS MAY BE DELEGATED. For any reason that ---------------- ----------------------------------- the Directors may deem sufficient, the Board of Directors may delegate the powers or duties of any officer to any other person, for the time being, except where otherwise provided by statute. ARTICLE VI - CERTIFICATES OF STOCK ---------------------------------- SECTION ONE. FORM AND SIGNATURE. Every stockholder shall have a certificate ----------- ------------------ signed by the Chairman of the Board, the President or a Vice President and the Treasurer, Secretary or an Assistant Secretary, certifying the number of shares owned by him in the corporation. Such certificate shall be in such form as the Board of Directors may from time to time prescribe, and shall be countersigned and registered in such manner, if any, as the Board of Directors, by resolution, may prescribe. If the corporation has a transfer agent or an assistant transfer agent or a transfer clerk acting on its behalf, and a registrar, the signature of any such officer of the corporation may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 10 SECTION TWO. REGISTRATION OF TRANSFER. The shares of stock of the ----------- ------------------------ corporation shall be transferable on the books of the corporation by the holder thereof, in person or by his duly authorized attorney, upon surrender for cancellation of a certificate or certificates for the same number of shares, with an assignment and power of transfer duly endorsed thereon or ascribed thereto, duly executed, with such proof of the authenticity of the signature as the corporation or its agents may reasonably require; provided, however, that, if the corporation has a transfer agent, such transfers of stock in accordance with this Section Two of Article VI shall be the responsibility of such transfer agent. SECTION THREE. CLOSING OF TRANSFER BOOKS. The Board of Directors shall have ------------- ------------------------- the power to close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for payment or any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and, in such case, such stockholders, and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividends, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. SECTION FOUR. ISSUANCE OF NEW SHARES OF STOCK. In the event the corporation ------------ ------------------------------- issues new shares of stock, the stockholders shall not be entitled to preemptive rights. SECTION FIVE. LOST CERTIFICATES. The Board of Directors may direct a new ------------ ----------------- certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, on the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION SIX. REGISTERED STOCKHOLDERS. The corporation shall be entitled to ------------ ----------------------- recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for cause and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable 11 or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII - GENERAL PROVISIONS -------------------------------- SECTION ONE. CONTRACTS, DEEDS, OTHER INSTRUMENTS, ETC. Contracts and other ----------- ----------------------------------- --- instruments in writing may be made on behalf and in the name of the corporation as follows: (i) by the officers authorized so to do under Article V of these Amended and Restated Bylaws, and if required by law, under the corporation seal, attested by the Secretary or an Assistant Secretary; and (ii) by such officers and such other persons as the President of the corporation may, in writing, authorize so to do with respect to specified types of contracts and other instruments, such authorizations to also specify whether the corporate seal and attestation by the Secretary or an Assistant Secretary shall be required; and, if so executed, shall be binding upon the corporation, provided, however, that the Board of Directors may, by resolution, authorize the execution of contracts, deeds and other instruments in writing generally or in specific instances in such manner and by such persons as may therein be designated. No person shall have authority, on behalf of the corporation, to sign checks, drafts or other instruments for the payment of money or notes or acceptances unless specifically authorized by the Board of Directors or these Amended and Restated Bylaws. SECTION TWO. NOTICES. ----------- ------- (A) Whenever by law, the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws notice is required to be given to any director, officer or stockholder, and no provisions is made as to how such notice shall be given, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in the post office or letter box, in a postage prepaid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the corporation, or in default of other address, to such director, officer or stockholder at the General Post office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed. (B) Any stockholder, director or officer may waive any notice required to be given by law or under these Amended and Restated bylaws. SECTION THREE. FISCAL YEAR. The fiscal year shall begin the first day of -------------- ----------- December in each year. SECTION FOUR. BOARD OF DIRECTORS' ANNUAL STATEMENT. The Board of Directors ------------ ------------------------------------ shall present at each annual meeting, and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the corporation. 12 SECTION FIVE. AMENDMENTS. These Amended and Restated Bylaws may be altered, ------------ ---------- amended or repealed or new Bylaws may be adopted by a majority of the entire Board of Directors, without any action on the part of the stockholders, at any meeting of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such meeting; provided, however, that any such alteration, amendment, repeal or adoption must be effected in accordance with the Amended and Restated Certificate of Incorporation. The stockholders of the corporation shall have the power to adopt, amend or repeal any provisions of the Amended and Restated Bylaws only to the extent and in the manner provided in the Amended and Restated Certificate of Incorporation of the corporation. Notwithstanding any other provision contained herein to the contrary, these Amended and Restated Bylaws shall not be amended so as to make them inconsistent with any provision of the Amended and Restated Certificate of Incorporation. The affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock (as defined in the Amended and Restated Certificate of Incorporation), voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with the preceding sentence. SECTION SIX. APPLICATION OF THESE AMENDED AND RESTATED BYLAWS. In the event ----------- -------------------------------- --------------- that any provision of these Amended and Restated Bylaws is or may be in conflict with any law of the United States, of the State of Delaware, or of any other governmental body or power having jurisdiction of this corporation, or over the subject matter to which such provision of these Amended and Restated Bylaws applies, or may apply, such provision of these Amended and Restated Bylaws shall be inoperative to the extent only that the operation thereof conflicts with such law, and shall in all other respects be in full force and effect. SECTION SEVEN. INDEMNIFICATION BY CORPORATION. ------------- ------------------------------ (A) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as director, officer, employee or agent (including trustee) of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the corporation (funds paid or required to be paid to any person as a result of the provisions of this Section Seven shall be returned to the corporation or reduced, as the case may be, to the extent that such person receives funds pursuant to an indemnification from any such other corporation, partnership, joint venture, trust or enterprise) to the fullest extent permissible under Delaware law, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actu ally and reasonably incurred by such person in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its --------------- equivalent, shall not, of itself, create a presumption that the person seeking indemnification did not 13 act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. Entry of a judgment by consent as part of a settlement shall not be deemed a final adjudication of liability for negligence or misconduct in the performance of any duty, nor of any other issue or matter. (B) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent (including trustee) of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the corporation (funds paid or required to be paid to any person as a result of the provisions of this Section Seven shall be returned to the corporation or reduced, as the case may be, to the extent that such person receives funds pursuant to an indemnification from any such other corporation, partnership, joint venture, trust or enterprise) to the fullest extent permissible under Delaware law against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action, suit or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (C) To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraph (A) or (B) of this Section Seven, or in defense of any claim, issue or matter therein, he shall be indemnified by the corporation against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (D) Any indemnification under paragraph (A) or (B) of this Section Seven (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (A) and (B) of this Section Seven. Such determination shall be made as follows: (i) by majority vote of the directors who were not parties to such action, suit or proceeding, even though less than a quorum of the Board of Directors; or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or (iii) by the holders of a majority of the shares of capital stock of the corporation entitled to vote thereon. 14 (E) Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid in advance of final disposition upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Section Seven. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (F) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section Seven shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. (G) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section Seven shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION EIGHT. CORPORATE SEAL. The corporate seal shall have inscribed ------------- -------------- thereon the name of the corporation and the words "Corporate Seal, Delaware". SECTION NINE. CONFLICTS WITH AMENDED AND RESTATED CERTIFICATE OF ------------ -------------------------------------------------- INCORPORATION. In the event of a conflict between the provisions of these - ------------- Amended and Restated Bylaws and the Amended and Restated Certificate of Incorporation, the provisions of the Amended and Restated Certificate of Incorporation shall control. The affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock (as defined in the Amended and Restated Certificate of Incorporation), voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Section Nine. 15 EX-10.3 3 EMPLOYMENT AGREEMENT - DALE H. ALLARDYCE EXHIBIT 10.3 EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the 12th day of November, 1999 (the "Effective Date"), by and between CellStar Ltd. (the "Employer"), CellStar Corporation, a Delaware corporation and parent company of Employer ("Parent"), and Dale H. Allardyce (the "Employee"). R E C I T A L S --------------- WHEREAS, Employer desires to obtain the benefit of the services of Employee as an employee of Employer for the period of time provided in this Agreement; and WHEREAS, Employee desires to render services for Employer on the terms and conditions hereinafter provided; and WHEREAS, Employer desires that Employee be able to participate in Parent's stock option and incentive compensation plans; and WHEREAS, the Compensation Committee of the Board of Directors of Parent deems it advisable and in the best interests of Parent and Employer to enter into this Employment Agreement with Employee; A G R E E M E N T ----------------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE I Employment 1.1 Employment. Effective on the Effective Date the Employer shall employ ---------- the Employee and the Employee shall accept employment by the Employer for the period and upon the terms and conditions contained in this Agreement. 1.2 Term. The term of this Agreement shall commence on the Effective Date ---- and shall end on the four (4) year anniversary of the Effective Date (the "Original Term"), unless earlier terminated as provided herein (the period from the Effective Date to the four (4) year anniversary of the Effective Date, or to the date of such earlier termination, as applicable, is hereinafter referred to as the "Term"). At the expiration of the Original Term, this Agreement shall automatically be renewed on a year to year basis unless notice of any decision not to renew this Agreement is given by the Employer or the Employee at least 365 days prior to the expiration of the Original Term or any such one year term or unless earlier terminated as provided herein. 1.3 Position and Duties. ------------------- (a) Position. During the Term, the Employee shall serve as President -------- and Chief Operating Officer of Employer, with authority, duties and responsibilities consistent with such position, and shall perform such other services for Employer, Parent and their affiliated entities consistent with such position as may be reasonably assigned to him from time to time by senior management and/or the boards of directors of Employer and/or Parent. During the Term, Employee shall, if so elected or appointed, also accept election or appointment, and serve, as an officer and/or director of Employer or any of its affiliated entities and perform the duties appropriate thereto, without additional compensation other than as set forth herein. Employee's actions hereunder shall at all times be subject to the direction of the senior management and the boards of directors of Employer and Parent. (b) Commitment. During the Term, the Employee shall devote ---------- substantially all of his business time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of Employer, Parent and their affiliated entities. Subject to the foregoing, the Employee may serve in any capacity with any civic, educational or charitable organization; provided that such activities and services do not interfere or conflict with the performance of his duties hereunder. Further subject to the foregoing, the Employee may serve as a director of other corporations; provided, however, that such service or position is approved -------- ------- in advance by the Board of Directors of Parent and further that such service or position does not at any time during the Term interfere or conflict with the performance of his duties hereunder. Employee shall comply with policies, standards and regulations established from time to time by senior management and/or the boards of directors of Employer and Parent. 1.4 Compensation. ------------ (a) Base Salary. Subject to Section 1.4(c) below, beginning on the ----------- Effective Date, Employer shall pay the Employee as compensation an aggregate salary ("Base Salary") of $400,000 per year during the Term, or such greater amount as shall be approved in accordance with the policies of Employer and/or Parent, as applicable. The Base Salary for each year shall be paid by Employer in accordance with the regular payroll practices of Employer. (b) Annual Incentive Payment. Each year during the Term, the Employee ------------------------ shall be eligible to participate in an annual incentive plan approved by the Compensation Committee of Parent's Board of Directors. Subject to any required approvals of the Compensation Committee of the Board of Directors of Parent and subject to achievement of specified goals (the "Goals"), for the fiscal year ending in November 1999, Employee will be eligible to earn a pro rated annual incentive payment at the 50% target level (i.e., 50% of his base salary earned during such fiscal year), which incentive payment may be less than such target level or up to two times such target level. 2 (c) Withholding. With respect to any compensation received by ----------- Employee with respect to Employee's services for Employer or any of its affiliates, Employer will deduct such withholding and other payroll taxes as are required to be withheld by Employer under applicable law. (d) Stock Options. Parent will recommend to the Compensation ------------- Committee of the Board of Directors of Parent that Employee be granted a stock option (the "Option") entitling him to purchase 200,000 shares of Parent's common stock at the reported market closing sales price thereof on the date of grant. The Option shall become exercisable by the Employee at the rate of 25% of the shares covered thereby per year, beginning on the first anniversary of the Effective Date in accordance with the terms of the Parent's 1993 Amended and Restated Long Term Incentive Plan; provided, -------- however, that any unvested portion of the Option shall immediately vest if ------- the Employee's employment is terminated Without Cause (defined below) or for Company Breach (defined below) or as a result of a Change in Control (defined below). The Option shall contain such additional terms as are set forth in Parent's 1993 Amended and Restated Long Term Incentive Plan and as are established by the Compensation Committee of the Board of Directors of Parent. Employee shall be entitled to annual consideration for future grants in amounts (if any) and on terms and conditions to be determined by the Compensation Committee of the Board of Directors. (e) Payment and Reimbursement of Expenses. During the Term, Employer ------------------------------------- shall pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in performing his obligations under this Agreement in accordance with the policies and procedures of Employer or Parent, provided that the Employee properly accounts therefor in accordance with the regular policies of Employer or Parent, as applicable. (f) Fringe Benefits and Perquisites. During the Term, the Employee ------------------------------- shall be entitled to participate in or receive benefits under any stock purchase, profit-sharing, pension, retirement, paid time off, life, medical, dental, disability or other plan or arrangement made generally available by Employer or Parent to employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Employee shall be credited with 10 years of service with the Employer as of the Effective Date for purposes of determining eligibility and vesting for paid time off and short-term disability benefits. (g) Relocation Expenses. The Employee acknowledges and agrees that he ------------------- will relocate his primary residence to the Dallas/Fort Worth area in order to perform his duties and responsibilities under this Agreement. In connection with such relocation: (i) The Employer agrees to reimburse the Employee for the reasonable costs of temporary corporate housing in the Dallas/Fort Worth area for up to 180 days from the Effective Date. 3 (ii) The Employer agrees to reimburse Employee for the cost of Employee's trips home to Connecticut on a bi-weekly basis for up to 180 days from the Effective Date. Reimbursable expenses include round trip coach air fare and any reasonable out-of-pocket expenses (i.e., airport parking). (iii) The Employer shall reimburse Employee for the cost of two (2) house hunting trips for members of the Employee's immediate family. Reimbursable expenses include round trip coach air fare, automobile rental, reasonable costs for meals, lodging (if needed) and other reasonable out-of-pocket expenses. (iv) The Employer shall reimburse Employee for all normal and customary costs associated with the sale of Employee's current residence, including broker's fees not to exceed 6%. (v) The Employer shall reimburse Employee for all normal and customary costs associated with the purchase of a residence in the Dallas/Fort Worth area, including but not limited to survey fees, loan origination fees, title insurance and attorneys fees. (vi) The Employer shall reimburse Employee for all normal and customary moving costs for household goods from Connecticut to the Dallas/Fort Worth area. (vii) The Employer shall reimburse Employee for all reasonable and customary out-of-pocket travel expenses incurred by Employee and his immediate family during the actual relocation from Connecticut to the Dallas/Fort Worth area. All amounts reimbursed pursuant to this subsection shall be grossed up for all applicable taxes. 1.5 Termination. ----------- (a) Disability. Employer may terminate this Agreement for Disability. ---------- "Disability" shall exist if, because of ill health or physical or mental disability, the Employee shall have been unable to perform his duties under this Agreement, with reasonable accommodation by the Employer, as determined in good faith by Parent's Board of Directors or a committee thereof, for a period of 180 consecutive days, or if, in any 12-month period, the Employee shall have been unable or shall have failed to perform his duties for a period of 270 or more business days, irrespective of whether or not such days are consecutive. (b) Cause. Employer may terminate the Employee's employment for ----- Cause. Termination for "Cause" shall mean termination because of the Employee's (i) the willful failure by Employee to perform his duties, provided that no act, or failure to act, on the Employee's part shall be considered "willful" unless the Board of Directors, in the 4 reasonable exercise of its business judgment, determines that such act or failure to act was committed without good faith and without a reasonable belief that such act or failure to act was in the best interests of the Employer, Parent or their affiliated entities, (ii) misconduct that causes or is likely to cause material economic harm to Employer, Parent or their affiliated entities or that brings or is likely to bring material discredit to the reputation of Employer, Parent or any of their affiliated entities, as determined by the Board of Directors of Parent in good faith, (iii) failure to substantially follow directions of senior management or the boards of directors of Employer or Parent that are consistent with his duties under this Agreement, provided that no act, or failure to act, on the Employee's part shall be deemed to constitute Cause unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that the Employee's act, or failure to act, was in or not opposed to the best interest of Employer, (iv) conviction of, or entry of a pleading of guilty or nolo contendre to, any felony involving moral turpitude or entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting Employee from participating in the conduct of the affairs of Employer, Parent or their affiliated entities, or (v) any other material breach of any provision of this Agreement. Items (i), (ii), (iii) and (v) of this subsection shall not constitute Cause unless Employer or Parent notified the Employee thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Cause. Furthermore, if the Employee's actions are curable, items (i), (ii), (iii) and (v) of this subsection shall not constitute Cause unless the Employee fails to cure such matter within 30 days after such notice is sent or given under this Agreement. It is understood that "Cause" shall not include a failure to perform due to a Disability. (c) Without Cause. During the Term, Employer may terminate the ------------- Employee's employment Without Cause, subject to the provisions of subsection 1.6(c) (Termination Without Cause or for Company Breach). ----------------------------------------------- Termination "Without Cause" shall mean termination of the Employee's employment by Employer other than termination for Cause or for Disability. (d) Company Breach. The Employee may terminate his employment -------------- hereunder for Company Breach. For purposes of this Agreement a "Company Breach" shall be deemed to occur in the event of a material breach of this Agreement by Employer or Parent; provided, however, that the Employee shall -------- ------- not be entitled to terminate for Company Breach unless the Employee notifies Employer thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Company Breach, and unless Employer fails to cure such Company Breach within 30 days after such notice is sent or given under this Agreement. For purposes of this Agreement, a material breach by Employer or Parent shall include, without limitation, (i) the material reduction without his consent of the title, authority, duties or responsibilities that the Employee has on the Effective Date, (ii) the reduction in the Employee's annual base salary as in effect on the Effective Date, (iii) if the Employee's eligibility for a bonus in any fiscal year (provided that all performance standards established for him have been achieved) shall be, in terms of a percentage of base salary, any 5 amount less than the percentage of base salary established for the Chief Executive Officer of Parent for such fiscal year, (iv) if the Employee's eligibility for bonus in any fiscal year shall be based on performance standards that are materially greater or different than those established for the Chief Executive Officer of Parent, or (v) the relocation of the Employer's principal office, or the Employee's own office location as assigned to him by Employer, to a location more than 50 miles from the present location of Employer's principal office. (e) Change in Control. The Employee may terminate his employment ----------------- hereunder within 12 months of a Change in Control (defined below): (i) "Change in Control" shall mean any of the following: (1) any consolidation or merger of Parent in which Parent is not the continuing or surviving corporation or pursuant to which shares of Parent's common stock would be converted into cash, securities or other property, other than a merger of Parent in which the holders of Parent common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Parent; (3) any approval by the stockholders of Parent of any plan or proposal for the liquidation or dissolution of Parent; (4) the cessation of control (by virtue of their not constituting a majority of directors) of Parent's Board of Directors by the individuals (the "Continuing Directors") who (x) at the date of this Agreement were directors or (y) become directors after the date of this Agreement and whose election or nomination for election by Parent's stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the date of this Agreement or whose election or nomination for election was previously so approved); or (5) (A) the acquisition of beneficial ownership ("Beneficial Ownership"), within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of an aggregate of 15% or more of the voting power of Parent's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the Exchange Act) who Beneficially Owned less than 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this Agreement, (B) the 6 acquisition of Beneficial Ownership of an additional 5% of the voting power of Parent's outstanding voting securities by any person or group who Beneficially Owned at least 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this agreement, or (C) the execution by Parent and a stockholder of a contract that by its terms grants such stockholder (in its, hers or his capacity as a stockholder) or such stockholder's Affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933 (an "Affiliate")) including, without limitation, such stockholder's nominee to Parent's Board of Directors (in its, hers or his capacity as an Affiliate of such stockholder), the right to veto or block decisions or actions of Parent's Board of Directors; provided, however, that -------- ------- notwithstanding the foregoing, the events described in items (A), (B) or (C) above shall not constitute a Change in Control hereunder if the acquiror is (aa) Alan H. Goldfield or his Affiliates, (bb) a trustee or other fiduciary holding securities under an employee benefit plan of Employer, Parent or one of their affiliated entities and acting in such capacity, (cc) a corporation owned, directly or indirectly, by the stockholders of Parent in substantially the same proportions as their ownership of voting securities of Parent or (dd) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act or (ee) in the case of an acquisition described in items (A) or (B) above (but not in the case of an acquisition described in item (C) above), any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; provided further, -------- ------- however that none of the following shall constitute a Change in ------- Control: (aa) the right of the holders of any voting securities of Parent to vote as a class on any matter or (bb) any vote required of disinterested or unaffiliated directors or stockholders including, without limitation, pursuant to Section 144 of the Delaware General Corporation Law or Rule 16b-3 promulgated pursuant to the Exchange Act. (6) subject to applicable law, in a Chapter 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving Parent to a case under Chapter 7. (f) Without Good Reason. During the Term, the Employee may terminate ------------------- his employment Without Good Reason upon 30 days prior written notice to Employer of such termination, which notice may be waived by Employer in Employer's discretion. Termination "Without Good Reason" shall mean termination of the Employee's employment by the Employee other than termination for Company Breach. (g) Explanation of Termination of Employment. Any party terminating ---------------------------------------- this Agreement shall give prompt written notice ("Notice of Termination") to the other party hereto advising such other party of the termination of this Agreement stating in reasonable 7 detail the basis for such termination. The Notice of Termination shall indicate whether termination is being made for Cause, Without Cause or for Disability (if Employer has terminated the Agreement) or for Company Breach, upon a Change in Control or Without Good Reason (if the Employee has terminated the Agreement). (h) Date of Termination. "Date of Termination" shall mean the last ------------------- day of Employee's employment, as determined in accordance with this Section 1.5. 1.6 Compensation Upon Termination. ----------------------------- (a) During Disability. During any period that the Employee fails to ----------------- perform his duties hereunder because of ill health or physical or mental disability, he shall continue to receive his full salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination, ------------ after giving effect to all disability benefits received by Employee under the terms of any applicable disability policy. (b) Termination for Cause or Without Good Reason. If Employer shall -------------------------------------------- terminate the Employee's employment for Cause or if the Employee shall terminate his employment Without Good Reason, then Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall ------------ terminate, except that Employer shall pay the Employee his accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through ------------ the Date of Termination. (c) Termination Without Cause or for Company Breach. If Employer ----------------------------------------------- shall terminate the Employee's employment Without Cause or if the Employee shall terminate his employment for Company Breach, then Employer shall pay to the Employee, as severance pay in a lump sum on the 15th day following the Date of Termination, the following amounts: (i) his accrued but unpaid Base Salary through the Date of Termination at the rate in effect as of the Date of Termination; and (ii) in lieu of any further Base Salary and Annual Incentive Payments for periods subsequent to the Date of Termination, an amount equal to the product of (A) the sum of Employee's Base Salary at the rate in effect as of the Date of Termination plus the amount of the Annual Incentive Payment paid to the Employee for the preceding year (or an annualized equivalent of the Annual Incentive Payment paid for any shorter period) divided by 365 and (B) multiplied by the lesser of (y) 720, or (z) the number of days from the Date of Termination to the last day of the Original Term or the applicable renewal term, but in no event less than 365 days. 8 In addition, the Employee will be entitled to a prorated portion of any annual incentive payment earned for the fiscal year in which his employment is terminated, if earned in accordance with the terms of its grant. Employee hereby acknowledges and agrees that the payments by the Employer under this Section 1.6(c) shall be the sole and exclusive remedy of the Employee for termination of Employee's employment Without Cause or by reason of a Company Breach, and Employee hereby waives any and all other remedies under law or in equity. If the Employee terminates his employment for Company Breach based upon a material reduction by Employer of the Employee's Base Salary, then for purposes of this subsection 1.6(c) (Termination Without Cause or for -------------------------------- Company Breach), the Employee's Base Salary as of the Date of Termination -------------- shall be deemed to be the Employee's Base Salary immediately prior to the reduction that the Employee claims as grounds for Company Breach. (d) Termination Upon a Change in Control. If the Employee terminates ------------------------------------ his employment after a Change in Control pursuant to subsection 1.5(e) (Change in Control), then Employer shall pay to the Employee as severance ------------------ pay and as liquidated damages (because actual damages are difficult to ascertain), in a lump sum, in cash, within 15 days after termination, an amount which, when combined with all payments under Section 1.6(c), equals $100 less than three (3) times the Employee's "annualized includable compensation for the base period" (as defined in Section 280G of the Internal Revenue Code of 1986); provided, however, that if such lump sum -------- ------- severance payment, either alone or together with other payments or benefits, either cash or non-cash, that the Employee has the right to receive from Employer, including, but not limited to, accelerated vesting or payment of any deferred compensation, options, stock appreciation rights or any benefits payable to the Employee under any plan for the benefit of employees, would constitute an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986), then such lump sum severance payment or other benefit shall be reduced to the largest amount that will not result in receipt by the Employee of a parachute payment. The determination of the amount of the payment described in this subsection shall be made by Parent's independent auditors. (e) Termination for Disability. If Employer shall terminate the -------------------------- Employee's employment for Disability, Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall terminate, except ------------ that Employer shall pay the Employee accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination, ------------ after giving effect to all disability benefits received by Employee under the terms of any applicable disability policy. (f) Employee Benefits. Employer shall maintain in full force and ----------------- effect (to the extent consistent with past practice), for the continued benefit of Employee and, if 9 applicable, his wife and children, the employee benefits set forth in subsections 1.4(f) (Fringe Benefits and Perquisites) through the Date of ------------------------------- Termination (subject to the provisions of Section 1.6(e)); provided that his continued participation or, if applicable, the participation of his wife and children, is possible under the general terms and conditions of such plans and programs. Following the Date of Termination, Employee and his eligible dependents shall be eligible for continued health coverage in accordance with the terms of applicable law. 1.7 Death of Employee. If Employee dies prior to the expiration of this ----------------- Agreement, Employee's employment and other obligations under this Agreement shall automatically terminate and all compensation to which Employee is or would have been entitled hereunder (including without limitation under subsections 1.4(a) (Base Salary) and 1.4(b) (Annual Incentive Payment)) shall terminate as ----------- ------------------------ of the end of the month in which Employee's death occurs; provided, however, -------- ------- that (i) Employer shall pay to Employee's estate, as soon as practicable, a prorated Annual Incentive Payment, if earned in accordance with Parent's annual incentive plan; and (ii) for the balance of the month in which Employee's death occurs, Employee's wife and children shall be entitled to receive their benefits under Employer's group hospitalization, medical and dental plans (if any), to the extent permitted under the terms of such plans, and thereafter Employee's dependents shall have a right to continued health coverage in accordance with the terms of applicable law. ARTICLE 2 Non-Competition and Confidentiality 2.1 Training/Confidential Information. For purposes of this Article 2 --------------------------------- (Non-Competition and Confidentiality), the term "the Company" shall be construed - ------------------------------------ also to include Employer, Parent and any and all Affiliates of Employer and Parent. The Company agrees that it will provide Employee with specialized knowledge and training regarding the business in which the Company is involved, and will provide Employee with initial and ongoing confidential information and trade secrets of the Company (hereinafter referred to as "Confidential Information"). For purposes of this Agreement, Confidential Information includes, but is not limited to: (a) Customer lists and prospect lists developed by the Company; (b) Information regarding the Company's customers which Employee acquired as a result of his employment with the Employer, including but not limited to, customer contracts, work performed for customers, customer contacts, customer requirements and needs, data used by the Company to formulate customer bids, customer financial information and other information regarding the customer's business; (c) Information regarding the Company's vendors which Employee acquired as a result of his employment with the Employer, including but not limited to, product and service information and other information regarding the business activities of such vendors; 10 (d) Information related to the Company's business, including but not limited to marketing strategies and plans, sales procedures, operating policies and procedures, pricing and pricing strategies, business plans, sales, profits, and other business and financial information of the Company; (e) Training materials developed by and utilized by the Company; (f) Any other information which Employee acquired as a result of his employment with the Employer and which Employee has a reasonable basis to believe the Company would not want disclosed to a business competitor or to the general public. (g) Information which: (i) is proprietary to, about or created by the Company; (ii) gives the Company some competitive advantage, the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company; (iii) is not typically disclosed to non-employees by the Company, or otherwise is treated as confidential by the Company; or (iv) is designated as Confidential Information by the Company or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential to the Company. Notwithstanding the foregoing, Confidential Information shall not include any information that is or has become public knowledge, other than by acts by the Employee or representatives of the Employee in violation of this Agreement. 2.2 Non-Disclosure. The Employee acknowledges, understands and agrees -------------- that all Confidential Information, whether developed by the Company or others or whether developed by the Employee while carrying out the terms and provisions of this Agreement (or previously while serving as an officer of the Company), shall be the exclusive and confidential property of the Company and (i) shall not be disclosed to any person (except as otherwise required by law or legal process) other than employees of the Company and professionals engaged on behalf of the Company, and other than disclosure in the scope of the Company's business in accordance with the Company's policies for disclosing information, (ii) shall be safeguarded and kept from unintentional disclosure and (iii) shall not be used for the Employee's personal benefit. Subject to the terms of the preceding sentence, the Employee shall not use, copy or transfer Confidential Information other than as is necessary in carrying out his duties under this Agreement. 11 2.3 Return of Company Property and Information. Upon termination of ------------------------------------------ employment, or at any earlier time as directed by Company, Employee shall immediately deliver to Company any and all Confidential Information in Employee's possession, any other documents or information which Employee acquired as a result of his employment with Employer, and any copies of such documents/information. Employee shall not retain any originals or copies of such documents or materials related to Company's business which Employee came into possession of or created as a result of his employment at Company. Employee acknowledges that such information, documents and materials are the exclusive property of Company. Upon termination of employment, or at any earlier time as directed by Company, Employee shall immediately deliver to Company any property of Company in Employee's possession. Employee agrees that should he fail to return any Company property, Company shall be entitled to deduct from any sums otherwise due Employee (including, but not necessarily limited to wages and expense reimbursements) the cost and/or value of any property which Employee fails to return, up to the maximum amount allowed by law. Employee hereby authorizes Company to deduct and/or withhold any such sums from Employee's wages and/or other sums due Employee. 2.4 Non-Competition. --------------- (a) Description of Proscribed Actions. During the Term and for a --------------------------------- period of 18 months thereafter (or 12 months thereafter in the event of Termination Without Cause or for Company Breach), in consideration for the obligations of Employer and Parent hereunder, including without limitation their disclosure (pursuant to subsection 2.1 (Training/Confidential --------------------- Information) above) of Confidential Information, the Employee shall not: ----------- (i) directly or indirectly, engage or invest in, own, manage, operate, control or participate in the ownership, management, operation or control of, be employed by, associated or in any manner connected with, or render services or advice to, any Competing Business (defined below); provided, however, that the Employee may -------- ------- invest in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if (x) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act and (y) the Employee does not beneficially own (as defined Rule 13d-3 promulgated under the Exchange Act) in excess of 5% of the outstanding capital stock of such enterprise; (ii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, solicit, divert or take away any suppliers, customers or clients of the Company or any of its Affiliates; or 12 (iii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, either (i) hire, attempt to hire, contact or solicit with respect to hiring, any employee of Employer or Parent or any Affiliate thereof, (ii) induce or otherwise counsel, advise or encourage any employee of Employer, Parent or any Affiliate thereof to leave the employment of Employer, Parent or any Affiliate thereof, or (iii) induce any representative or agent of Employer, Parent or any Affiliate thereof to terminate or modify its relationship with Employer, Parent or such Affiliate. (b) Judicial Modification. The Employee agrees that if a court of --------------------- competent jurisdiction determines that the length of time or any other restriction, or portion thereof, set forth in this Section 2.4 (Non- --- Competition) is overly restrictive and unenforceable, the court may reduce ----------- or modify such restrictions to those which it deems reasonable and enforceable under the circumstances, and as so reduced or modified, the parties hereto agree that the restrictions of this Section 2.4 (Non- --- Competition) shall remain in full force and effect. The Employee further ----------- agrees that if a court of competent jurisdiction determines that any provision of this Section 2.4 (Non-Competition) is invalid or against --------------- public policy, the remaining provisions of this Section 2.4 (Non- --- Competition) and the remainder of this Agreement shall not be affected ----------- thereby, and shall remain in full force and effect. (c) Nature of Restrictions. The Employee acknowledges that the ---------------------- business of Employer and Parent and their Affiliates is international in scope and that the Restrictions imposed by this Agreement are legitimate, reasonable and necessary to protect Employer's, Parent's and their Affiliates' investment in their businesses and the goodwill thereof. The Employee acknowledges that the scope and duration of the restrictions contained herein are reasonable in light of the time that the Employee has been or will be engaged in the business of Employer, Parent and/or their Affiliates, and the Employee's relationship with the suppliers, customers and clients of Employer, Parent and their Affiliates. The Employee further acknowledges that the restrictions contained herein are not burdensome to the Employee in light of the consideration paid therefor and the other opportunities that remain open to the Employee. Moreover, the Employee acknowledges that he has other means available to him for the pursuit of his livelihood. (d) Competing Business. "Competing Business" shall mean any ------------------ individual, business, firm, company, partnership, joint venture, organization, or other entity engaged in the wholesale distribution or retail sales of wireless communication equipment in any domestic or international market area in which Employer, Parent or any of their Affiliates does business at any time during the Employee's employment with Employer or any of its Affiliates. 13 2.5 Injunctive Relief. Because of the Employee's experience and ----------------- reputation in the industries in which Employer, Parent and their Affiliates operate, and because of the unique nature of the Confidential Information, the Employee acknowledges, understands and agrees that Employer and Parent will suffer immediate and irreparable harm if the Employee fails to comply with any of his obligations under Article 2 (Non-Competition and Confidentiality) of this ----------------------------------- Agreement, and that monetary damages will be inadequate to compensate Employer and Parent for such breach. Accordingly, the Employee agrees that Employer and Parent shall, in addition to any other remedies available to them at law or in equity, be entitled to injunctive relief to enforce the terms of Article 2 (Non- --- Competition and Confidentiality), without the necessity of proving inadequacy of - ------------------------------- legal remedies or irreparable harm. ARTICLE 3 Representations and Warranties by Employee Employee hereby represents and warrants, the same being part of the essence of this Agreement, that, as of the Effective Date, he is not a party to any agreement, contract or understanding, and that no facts or circumstances exist, that would in any way restrict or prohibit him from undertaking or performing any of his obligations under this Agreement. The foregoing representation and warranty shall remain in effect throughout the Term. ARTICLE 4 Indemnification Parent agrees to indemnify, and advance expenses to, the Employee to the extent provided in the Certificate of Incorporation and Bylaws of Parent as of the date of this Agreement. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under Parent's Certificate of Incorporation and Bylaws and this Agreement, it is the intent of the parties hereto that the Employee shall enjoy by this Agreement the greater benefits so afforded by such change. ARTICLE 5 Miscellaneous 5.1 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 5.2 Indulgences, Etc. Neither the failure nor any delay on the part of ----------------- either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver 14 thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 5.3 Employee's Sole Remedy. The Employee's sole remedy shall be against ---------------------- Employer or Parent for any claim, liability or obligation of any nature whatsoever arising out of or relating to this Agreement or an alleged breach of this Agreement or for any other claim arising out of the termination of the Employee's employment hereunder (collectively, "Employee Claims"). The Employee shall have no claim or right of any nature whatsoever against any of Employer's or its Affiliates' directors, former directors, officers, former officers, employees, former employees, stockholders, former stockholders, agents, former agents or the independent counsel in their individual capacities arising out of or relating to any Employee Claim. The Employee hereby releases and covenants not to sue any person other than Employer or Parent over any Employee Claim. The persons described in this Section 5.3 (other than Employer, Parent and the Employee) shall be third-party beneficiaries of this Agreement for purposes of enforcing the terms of this Section 5.3 (Employee's Sole Remedy) against the ----------------------- Employee. 5.4 Notices. All notices, requests, demands and other communications ------- required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received when sent by telecopy (with a copy sent by mail) or when personally delivered or one business day after it is sent by overnight service, addressed as set forth below: If to the Employee: Dale H. Allardyce 10 Keeler's Ridge Wilton, Connecticut 06897 If to Employer or Parent: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subsection for the giving of notice, which shall be effective only upon receipt. 5.5 Provisions Separable. The provisions of this Agreement are -------------------- independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable 15 by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 5.6 Entire Agreement. This Agreement contains the entire understanding ---------------- between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained, which shall be deemed terminated effective immediately. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 5.7 Headings; Index. The headings of paragraphs herein are included --------------- solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 5.8 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without giving effect to principles of conflict of laws. 5.9 Dispute Resolution. Subject to Employer's and Parent's right to seek ------------------ injunctive relief in court as provided in Section 2.5 (Injunctive Relief) of ----------------- this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 5.9 (Dispute Resolution), to arbitration. ------------------ (a) Arbitrators. The arbitration shall be heard and determined by one ----------- arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves -------- ------- more than $2,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. If (x) the parties cannot agree on the sole arbitrator, (y) one party refuses to appoint its party-appointed arbitrator within said thirty (30) day period or (z) the party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal, then the appointing authority for the implementation of such procedure shall be the Senior United States District Judge for the Northern District of Texas, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. If the Senior United States District Judge for the Northern District of Texas refuses or fails to act as the appointing authority within ninety (90) days after being requested to do so, then the appointing authority shall be the Chief Executive Officer of the American Arbitration Association, who shall appoint an independent arbitrator 16 who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be made by majority vote. (b) Proceedings. Unless otherwise expressly agreed in writing by the ----------- parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Dallas, Texas, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. 5.10 Survival. The covenants and agreements of the parties set forth in -------- Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous) ----------------------------------- ------------- are of a continuing nature and 17 shall survive the expiration, termination or cancellation of this Agreement, regardless of the reason therefor. 5.11 Subrogation. In the event of payment under this Agreement, Employer ----------- and Parent shall be subrogated to the extent of such payment to all of the rights of recovery of the Employee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable Employer or Parent effectively to bring suit to enforce such rights. 5.12 No Duplication of Payments. Employer and Parent shall not be liable -------------------------- under this Agreement to make any payment in connection with any claim made against the Employee to the extent the Employee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 5.13 Binding Effect, Etc. This Agreement shall be binding upon and inure -------------------- to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Employer, Parent, spouses, heirs, and personal and legal representatives. Employer and Parent shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of their business or assets, by written agreement in form and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Employer or Parent would be required to perform if no such succession had taken place. 5.14 Contribution. If the indemnity contained in this Agreement is ------------ unavailable or insufficient to hold the Employee harmless in a Claim for an Indemnifiable Event, then separate from and in addition to the indemnity provided elsewhere herein, Parent shall contribute to Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of the Employee in connection with such Claim in such proportion as appropriately reflects the relative benefits received by, and fault of, Parent on the one hand and the Employee on the other in the acts, transactions or matters to which the Claim relates and other equitable considerations. 5.15 Parent Guaranty. Parent guarantees the payment and performance of all --------------- obligations of Employer under this Agreement and agrees it will pay or perform those obligations if for any reason Employer fails to do so. This guarantee is absolute, continuing, irrevocable and not conditional or contingent. Any notice given hereunder to either Employer or Parent will be deemed to be notice to Parent for purposes of this guaranty. 18 IN WITNESS WHEREOF, Employer and Parent have caused this Agreement to be executed by their officer/general partner thereunto duly authorized, and Employee has signed this Agreement, as of the date first set forth above. CELLSTAR LTD By: National Auto Center, Inc. General Partner By: /s/ Alan H. Goldfield ---------------------------------- Alan H. Goldfield Chairman and CEO CELLSTAR CORPORATION By: /s/ Alan H. Goldfield ---------------------------------- Alan H. Goldfield Chairman and CEO /s/ Dale H. Allardyce -------------------------------------- Dale H. Allardyce 19 EX-10.4 4 EMPLOYMENT AGREEMENT - AUSTIN P. YOUNG EXHIBIT 10.4 EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the 5th day of November, 1999 (the "Effective Date"), by and between CellStar Ltd. (the "Employer"), CellStar Corporation, a Delaware corporation and parent company of Employer ("Parent"), and Austin P. Young (the "Employee"). R E C I T A L S - - - - - - - - WHEREAS, Employer desires to obtain the benefit of the services of Employee as an employee of Employer for the period of time provided in this Agreement; and WHEREAS, Employee desires to render services for Employer on the terms and conditions hereinafter provided; and WHEREAS, Employer desires that Employee be able to participate in Parent's stock option and incentive compensation plans; and WHEREAS, the Compensation Committee of the Board of Directors of Parent deems it advisable and in the best interests of Parent and Employer to enter into this Employment Agreement with Employee; A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE I Employment 1.1 Employment. Effective on the Effective Date the Employer shall employ ---------- the Employee and the Employee shall accept employment by the Employer for the period and upon the terms and conditions contained in this Agreement. 1.2 Term. The term of this Agreement shall commence on the Effective Date ---- and shall end on November 30, 2003 (the "Original Term"), unless earlier terminated as provided herein (the period from the Effective Date to November 30, 2003, or to the date of such earlier termination, as applicable, is hereinafter referred to as the "Term"). At the expiration of the Original Term, this Agreement shall automatically be renewed on a year to year basis unless notice of any decision not to renew this Agreement is given by the Employer or the Employee at least thirty (30) days prior to the expiration of the Original Term or any such one year term or unless earlier terminated as provided herein. 1.3 Position and Duties. ------------------- (a) Position. During the Term, the Employee shall serve as Senior -------- Vice President and Chief Financial Officer of Employer, with authority, duties and responsibilities consistent with such position, and shall perform such other services for Employer, Parent and their affiliated entities consistent with such position as may be reasonably assigned to him from time to time by senior management and/or the boards of directors of Employer and/or Parent. In such position, Employee shall be responsible for accounting, internal and external financial reporting, tax, treasury, risk and working capital management, financial and acquisition analysis, investments, and all other financial matters. During the Term, Employee shall, if so elected or appointed, also accept election or appointment, and serve, as an officer and/or director of Employer or any of its affiliated entities and perform the duties appropriate thereto, without additional compensation other than as set forth herein. Employee's actions hereunder shall at all times be subject to the direction of the senior management and the boards of directors of Employer and Parent. (b) Commitment. During the Term, the Employee shall devote ---------- substantially all of his business time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of Employer, Parent and their affiliated entities. Subject to the foregoing, the Employee may serve in any capacity with any civic, educational or charitable organization; provided that such activities and services do not interfere or conflict with the performance of his duties hereunder. Employee shall comply with policies, standards and regulations established from time to time by senior management and/or the boards of directors of Employer and Parent. 1.4 Compensation. ------------ (a) Base Salary. Subject to Section 1.4(c) below, beginning on the ----------- Effective Date, Employer shall pay the Employee as compensation an aggregate salary ("Base Salary") of $350,000 per year during the Term, or such greater amount as shall be approved in accordance with the policies of Employer and/or Parent, as applicable. The Base Salary for each year shall be paid by Employer in accordance with the regular payroll practices of Employer. (b) Annual Incentive Payment. Each year during the Term, the Employee ------------------------ shall be eligible to participate in an annual incentive plan approved by the Compensation Committee of Parent's Board of Directors. Subject to any required approvals of the Compensation Committee of the Board of Directors of Parent and subject to achievement of specified goals (the "Goals"), for the fiscal year ending in November 1999, Employee will be eligible to earn a pro rated annual incentive payment at the 50% target level (i.e., 50% of his base salary earned during such fiscal year), which incentive payment may be less than such target level or up to two times such target level. 2 (c) Withholding. With respect to any compensation received by ----------- Employee with respect to Employee's services for Employer or any of its affiliates, Employer will deduct such withholding and other payroll taxes as are required to be withheld by Employer under applicable law. (d) Stock Options. Parent will recommend to the Compensation ------------- Committee of the Board of Directors of Parent that Employee be granted a stock option (the "Option") entitling him to purchase 150,000 shares of Parent's common stock at the reported market closing sales price thereof on the date of grant. The Option shall become exercisable by the Employee at the rate of 25% of the shares covered thereby per year, beginning on the first anniversary of the Effective Date in accordance with the terms of the Parent's 1993 Amended and Restated Long Term Incentive Plan. The Option shall contain such additional terms as are set forth in Parent's 1993 Amended and Restated Long Term Incentive Plan and as are established by the Compensation Committee of the Board of Directors of Parent. Employee shall be entitled to annual consideration for future grants in amounts (if any) and on terms and conditions to be determined by the Compensation Committee of the Board of Directors. (e) Payment and Reimbursement of Expenses. During the Term, Employer ------------------------------------- shall pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in performing his obligations under this Agreement in accordance with the policies and procedures of Employer or Parent, provided that the Employee properly accounts therefor in accordance with the regular policies of Employer or Parent, as applicable. (f) Fringe Benefits and Perquisites. During the Term, the Employee ------------------------------- shall be entitled to participate in or receive benefits under any stock purchase, profit-sharing, pension, retirement, paid time off, life, medical, dental, disability or other plan or arrangement made generally available by Employer or Parent to employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Employee shall be credited with 10 years of service with the Employer as of the Effective Date for purposes of determining eligibility and vesting for paid time off and short-term disability benefits. (g) Relocation Expenses. The Employee acknowledges and agrees that he ------------------- will relocate his primary residence to the Dallas/Fort Worth area in order to perform his duties and responsibilities under this Agreement. In connection with such relocation: (i) The Employer agrees to reimburse the Employee for the reasonable costs of temporary corporate housing in the Dallas/Fort Worth area for a 120 day period starting on the Effective Date. (ii) The Employer agrees to reimburse Employee for the cost of Employee's trips home to Houston on a bi-weekly basis for 120 day period starting 3 on the Effective Date. Reimbursable expenses include round trip coach air fare and any reasonable out-of-pocket expenses (i.e., airport parking). (iii) The Employer shall reimburse Employee for the cost of two (2) house hunting trips for members of the Employee's immediate family. Reimbursable expenses include round trip coach air fare, automobile rental, reasonable costs for meals, lodging (if needed) and other reasonable out-of-pocket expenses. (iv) The Employer shall reimburse Employee for all normal and customary costs associated with the sale of Employee's current residence, including broker's fees not to exceed 6%. (v) The Employer shall reimburse Employee for all normal and customary costs associated with the purchase of a residence in the Dallas/Fort Worth area, including but not limited to survey fees, loan origination fees, title insurance and attorneys fees. (vi) The Employer shall reimburse Employee for all normal and customary moving costs for household goods from Houston, Texas to the Dallas/Fort Worth area. (vii) The Employer shall reimburse Employee for all reasonable and customary out-of-pocket travel expenses incurred by Employee and his immediate family during the actual relocation from Houston, Texas to the Dallas/Fort Worth area. All amounts reimbursed pursuant to this subsection shall be grossed up for all applicable taxes. 1.5 Termination. ----------- (a) Disability. Employer may terminate this Agreement for Disability. ---------- "Disability" shall exist if, because of ill health or physical or mental disability, the Employee shall have been unable to perform his duties under this Agreement, with reasonable accommodation by the Employer, as determined in good faith by Parent's Board of Directors or a committee thereof, for a period of 180 consecutive days, or if, in any 12-month period, the Employee shall have been unable or shall have failed to perform his duties for a period of 270 or more business days, irrespective of whether or not such days are consecutive. (b) Cause. Employer may terminate the Employee's employment for ----- Cause. Termination for "Cause" shall mean termination because of the Employee's (i) continued unsatisfactory job performance after written warning has been issued identifying deficiencies, (ii) misconduct that causes or is likely to cause material economic harm to 4 Employer, Parent or their affiliated entities or that brings or is likely to bring material discredit to the reputation of Employer, Parent or any of their affiliated entities, as determined by the Board of Directors of Parent in good faith, (iii) failure to substantially follow directions of senior management or the boards of directors of Employer or Parent that are consistent with his duties under this Agreement, provided that no act, or failure to act, on the Employee's part shall be deemed to constitute Cause unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that the Employee's act, or failure to act, was in or not opposed to the best interest of Employer, (iv) conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude or entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting Employee from participating in the conduct of the affairs of Employer, Parent or their affiliated entities, or (v) any other material breach of any provision of this Agreement. Items (i), (ii), (iii) and (v) of this subsection shall not constitute Cause unless Employer or Parent notified the Employee thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Cause. Furthermore, if the Employee's actions are curable, items (i), (ii), (iii) and (v) of this subsection shall not constitute Cause unless the Employee fails to cure such matter within 30 days after such notice is sent or given under this Agreement. It is understood that "Cause" shall not include a failure to perform due to a Disability. (c) Without Cause. During the Term, Employer may terminate the ------------- Employee's employment Without Cause, subject to the provisions of subsection 1.6(c) (Termination Without Cause or for Company Breach). ----------------------------------------------- Termination "Without Cause" shall mean termination of the Employee's employment by Employer other than termination for Cause or for Disability. (d) Company Breach. The Employee may terminate his employment -------------- hereunder for Company Breach. For purposes of this Agreement a "Company Breach" shall be deemed to occur in the event of a material breach of this Agreement by Employer or Parent; provided, however, that the Employee shall -------- ------- not be entitled to terminate for Company Breach unless the Employee notifies Employer thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Company Breach, and unless Employer fails to cure such Company Breach within 30 days after such notice is sent or given under this Agreement. For purposes of this Agreement, a material breach by Employer or Parent shall include, without limitation, (i) the material reduction without his consent of the title, authority, duties or responsibilities that the Employee has on the Effective Date, (ii) the reduction in the Employee's annual base salary as in effect on the Effective Date, (iii) if the Employee's eligibility for a bonus in any fiscal year (provided that all performance standards established for him have been achieved) shall be, in terms of a percentage of base salary, any amount less than the percentage of base salary established for the Chief Executive Officer of Parent for such fiscal year, (iv) if the Employee's eligibility for bonus in any fiscal year shall be based on performance standards that are materially greater or different than those established for the Chief Executive Officer of Parent, or (v) the relocation of the Employer's 5 principal office, or the Employee's own office location as assigned to him by Employer, to a location more than 50 miles from the present location of Employer's principal office. (e) Change in Control. The Employee may terminate his employment ----------------- hereunder within 12 months of a Change in Control (defined below): (i) "Change in Control" shall mean any of the following: (1) any consolidation or merger of Parent in which Parent is not the continuing or surviving corporation or pursuant to which shares of Parent's common stock would be converted into cash, securities or other property, other than a merger of Parent in which the holders of Parent common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Parent; (3) any approval by the stockholders of Parent of any plan or proposal for the liquidation or dissolution of Parent; (4) the cessation of control (by virtue of their not constituting a majority of directors) of Parent's Board of Directors by the individuals (the "Continuing Directors") who (x) at the date of this Agreement were directors or (y) become directors after the date of this Agreement and whose election or nomination for election by Parent's stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the date of this Agreement or whose election or nomination for election was previously so approved); or (5) (A) the acquisition of beneficial ownership ("Beneficial Ownership"), within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of an aggregate of 15% or more of the voting power of Parent's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the Exchange Act) who Beneficially Owned less than 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this Agreement, (B) the acquisition of Beneficial Ownership of an additional 5% of the voting power of Parent's outstanding voting securities by any person or group who Beneficially Owned at least 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this agreement, or (C) the execution 6 by Parent and a stockholder of a contract that by its terms grants such stockholder (in its, hers or his capacity as a stockholder) or such stockholder's Affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933 (an "Affiliate")) including, without limitation, such stockholder's nominee to Parent's Board of Directors (in its, hers or his capacity as an Affiliate of such stockholder), the right to veto or block decisions or actions of Parent's Board of Directors; provided, however, that notwithstanding the foregoing, the events -------- ------- events described in items (A), (B) or (C) above shall not constitute a Change in Control hereunder if the acquiror is (aa) Alan H. Goldfield or his Affiliates, (bb) a trustee or other fiduciary holding securities under an employee benefit plan of Employer, Parent or one of their affiliated entities and acting in such capacity, (cc) a corporation owned, directly or indirectly, by the stockholders of Parent in substantially the same proportions as their ownership of voting securities of Parent or (dd) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act or (ee) in the case of an acquisition described in items (A) or (B) above (but not in the case of an acquisition described in item (C) above), any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; provided further, however that none of the -------- ------- ------- following shall constitute a Change in Control: (aa) the right of the holders of any voting securities of Parent to vote as a class on any matter or (bb) any vote required of disinterested or unaffiliated directors or stockholders including, without limitation, pursuant to Section 144 of the Delaware General Corporation Law or Rule 16b-3 promulgated pursuant to the Exchange Act. (6) subject to applicable law, in a Chapter 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving Parent to a case under Chapter 7. (f) Without Good Reason. During the Term, the Employee may terminate ------------------- his employment Without Good Reason upon 30 days prior written notice to Employer of such termination, which notice may be waived by Employer in Employer's discretion. Termination "Without Good Reason" shall mean termination of the Employee's employment by the Employee other than termination for Company Breach. (g) Explanation of Termination of Employment. Any party terminating ---------------------------------------- this Agreement shall give prompt written notice ("Notice of Termination") to the other party hereto advising such other party of the termination of this Agreement stating in reasonable detail the basis for such termination. The Notice of Termination shall indicate whether termination is being made for Cause, Without Cause or for Disability (if Employer has terminated the Agreement) or for Company Breach, upon a Change in Control or Without Good Reason (if the Employee has terminated the Agreement). 7 (h) Date of Termination. "Date of Termination" shall mean the last ------------------- day of Employee's employment, as determined in accordance with this Section 1.5. 1.6 Compensation Upon Termination. ----------------------------- (a) During Disability. During any period that the Employee fails to ----------------- perform his duties hereunder because of ill health or physical or mental disability, he shall continue to receive his full salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination, ------------ after giving effect to all disability benefits received by Employee under the terms of any applicable disability policy. (b) Termination for Cause or Without Good Reason. If Employer shall -------------------------------------------- terminate the Employee's employment for Cause or if the Employee shall terminate his employment Without Good Reason, then Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall ------------ terminate, except that Employer shall pay the Employee his accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through ------------ the Date of Termination. (c) Termination Without Cause or for Company Breach. If Employer ----------------------------------------------- shall terminate the Employee's employment Without Cause or if the Employee shall terminate his employment for Company Breach, then Employer shall pay to the Employee, as severance pay in a lump sum on the 15th day following the Date of Termination, the following amounts: (i) his accrued but unpaid Base Salary through the Date of Termination at the rate in effect as of the Date of Termination; and (ii) in lieu of any further Base Salary and Annual Incentive Payments for periods subsequent to the Date of Termination, an amount equal to the product of (A) the sum of Employee's Base Salary at the rate in effect as of the Date of Termination plus the amount of the Annual Incentive Payment paid to the Employee for the preceding year (or an annualized equivalent of the Annual Incentive Payment paid for any shorter period) divided by 365 and (B) multiplied by the lesser of (y) 720, or (z) the number of days from the Date of Termination to the last day of the Original Term or the applicable renewal term, but in no event less than 365 days. In addition, the Employee will be entitled to a prorated portion of any annual incentive payment earned for the fiscal year in which his employment is terminated, if earned in accordance with the terms of its grant. Employee hereby acknowledges and agrees that the payments by the Employer under this Section 1.6(c) shall be the sole and exclusive remedy of the Employee for termination 8 of Employee's employment Without Cause or by reason of a Company Breach, and Employee hereby waives any and all other remedies under law or in equity. If the Employee terminates his employment for Company Breach based upon a material reduction by Employer of the Employee's Base Salary, then for purposes of this subsection 1.6(c) (Termination Without Cause or for -------------------------------- Company Breach), the Employee's Base Salary as of the Date of Termination -------------- shall be deemed to be the Employee's Base Salary immediately prior to the reduction that the Employee claims as grounds for Company Breach. (d) Termination Upon a Change in Control. If the Employee terminates ------------------------------------ his employment after a Change in Control pursuant to subsection 1.5(e) (Change in Control), then Employer shall pay to the Employee as severance ----------------- pay and as liquidated damages (because actual damages are difficult to ascertain), in a lump sum, in cash, within 15 days after termination, an amount which, when combined with all payments under Section 1.6(c), equals $100 less than three (3) times the Employee's "annualized includable compensation for the base period" (as defined in Section 280G of the Internal Revenue Code of 1986); provided, however, that if such lump sum -------- ------- severance payment, either alone or together with other payments or benefits, either cash or non-cash, that the Employee has the right to receive from Employer, including, but not limited to, accelerated vesting or payment of any deferred compensation, options, stock appreciation rights or any benefits payable to the Employee under any plan for the benefit of employees, would constitute an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986), then such lump sum severance payment or other benefit shall be reduced to the largest amount that will not result in receipt by the Employee of a parachute payment. The determination of the amount of the payment described in this subsection shall be made by Parent's independent auditors. (e) Termination for Disability. If Employer shall terminate the -------------------------- Employee's employment for Disability, Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall terminate, except ------------ that Employer shall pay the Employee accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination, ------------ after giving effect to all disability benefits received by Employee under the terms of any applicable disability policy. (f) Employee Benefits. Employer shall maintain in full force and ----------------- effect (to the extent consistent with past practice), for the continued benefit of Employee and, if applicable, his wife and children, the employee benefits set forth in subsections 1.4(f) (Fringe Benefits and Perquisites) ------------------------------- through the Date of Termination (subject to the provisions of Section 1.6(e)); provided that his continued participation or, if applicable, the participation of his wife and children, is possible under the general terms and conditions of such plans and programs. Following the Date of Termination, Employee and his eligible dependents shall be eligible for continued health coverage in accordance with the terms of applicable law. 9 1.7 Death of Employee. If Employee dies prior to the expiration of this ----------------- Agreement, Employee's employment and other obligations under this Agreement shall automatically terminate and all compensation to which Employee is or would have been entitled hereunder (including without limitation under subsections 1.4(a) (Base Salary) and 1.4(b) (Annual Incentive Payment)) shall terminate as ----------- ------------------------ of the end of the month in which Employee's death occurs; provided, however, -------- ------- that (i) Employer shall pay to Employee's estate, as soon as practicable, a prorated Annual Incentive Payment, if earned in accordance with Parent's annual incentive plan; and (ii) for the balance of the month in which Employee's death occurs, Employee's wife and children shall be entitled to receive their benefits under Employer's group hospitalization, medical and dental plans (if any), to the extent permitted under the terms of such plans, and thereafter Employee's dependents shall have a right to continued health coverage in accordance with the terms of applicable law. ARTICLE 2 Non-Competition and Confidentiality 2.1 Training/Confidential Information. For purposes of this Article 2 --------------------------------- (Non-Competition and Confidentiality), the term "the Company" shall be construed ----------------------------------- also to include Employer, Parent and any and all Affiliates of Employer and Parent. The Company agrees that it will provide Employee with specialized knowledge and training regarding the business in which the Company is involved, and will provide Employee with initial and ongoing confidential information and trade secrets of the Company (hereinafter referred to as "Confidential Information"). For purposes of this Agreement, Confidential Information includes, but is not limited to: (a) Customer lists and prospect lists developed by the Company; (b) Information regarding the Company's customers which Employee acquired as a result of his employment with the Employer, including but not limited to, customer contracts, work performed for customers, customer contacts, customer requirements and needs, data used by the Company to formulate customer bids, customer financial information and other information regarding the customer's business; (c) Information regarding the Company's vendors which Employee acquired as a result of his employment with the Employer, including but not limited to, product and service information and other information regarding the business activities of such vendors; (d) Information related to the Company's business, including but not limited to marketing strategies and plans, sales procedures, operating policies and procedures, pricing and pricing strategies, business plans, sales, profits, and other business and financial information of the Company; (e) Training materials developed by and utilized by the Company; 10 (f) Any other information which Employee acquired as a result of his employment with the Employer and which Employee has a reasonable basis to believe the Company would not want disclosed to a business competitor or to the general public. (g) Information which: (i) is proprietary to, about or created by the Company; (ii) gives the Company some competitive advantage, the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company; (iii) is not typically disclosed to non-employees by the Company, or otherwise is treated as confidential by the Company; or (iv) is designated as Confidential Information by the Company or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential to the Company. Notwithstanding the foregoing, Confidential Information shall not include any information that is or has become public knowledge, other than by acts by the Employee or representatives of the Employee in violation of this Agreement. 2.2 Non-Disclosure. The Employee acknowledges, understands and agrees -------------- that all Confidential Information, whether developed by the Company or others or whether developed by the Employee while carrying out the terms and provisions of this Agreement (or previously while serving as an officer of the Company), shall be the exclusive and confidential property of the Company and (i) shall not be disclosed to any person (except as otherwise required by law or legal process) other than employees of the Company and professionals engaged on behalf of the Company, and other than disclosure in the scope of the Company's business in accordance with the Company's policies for disclosing information, (ii) shall be safeguarded and kept from unintentional disclosure and (iii) shall not be used for the Employee's personal benefit. Subject to the terms of the preceding sentence, the Employee shall not use, copy or transfer Confidential Information other than as is necessary in carrying out his duties under this Agreement. 2.3 Return of Company Property and Information. Upon termination of ------------------------------------------ employment, or at any earlier time as directed by Company, Employee shall immediately deliver to Company any and all Confidential Information in Employee's possession, any other documents or information which Employee acquired as a result of his employment with Employer, and any copies of such documents/information. Employee shall not retain any originals or copies of such documents or materials related to Company's business which Employee came into possession of or created as a result of his employment at Company. Employee acknowledges that such information, documents and materials are the exclusive property of Company. Upon termination of employment, or at any 11 earlier time as directed by Company, Employee shall immediately deliver to Company any property of Company in Employee's possession. Employee agrees that should he fail to return any Company property, Company shall be entitled to deduct from any sums otherwise due Employee (including, but not necessarily limited to wages and expense reimbursements) the cost and/or value of any property which Employee fails to return, up to the maximum amount allowed by law. Employee hereby authorizes Company to deduct and/or withhold any such sums from Employee's wages and/or other sums due Employee. 2.4 Non-Competition. --------------- (a) Description of Proscribed Actions. During the Term and for a --------------------------------- period of 18 months thereafter (or 12 months thereafter in the event of Termination Without Cause or for Company Breach), in consideration for the obligations of Employer and Parent hereunder, including without limitation their disclosure (pursuant to subsection 2.1 (Training/Confidential --------------------- Information) above) of Confidential Information, the Employee shall not: ----------- (i) directly or indirectly, engage or invest in, own, manage, operate, control or participate in the ownership, management, operation or control of, be employed by, associated or in any manner connected with, or render services or advice to, any Competing Business (defined below); provided, however, that the Employee may -------- ------- invest in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if (x) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act and (y) the Employee does not beneficially own (as defined Rule 13d-3 promulgated under the Exchange Act) in excess of 5% of the outstanding capital stock of such enterprise; (ii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, solicit, divert or take away any suppliers, customers or clients of the Company or any of its Affiliates; or (iii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, either (i) hire, attempt to hire, contact or solicit with respect to hiring, any employee of Employer or Parent or any Affiliate thereof, (ii) induce or otherwise counsel, advise or encourage any employee of Employer, Parent or any Affiliate thereof to leave the employment of Employer, Parent or any Affiliate thereof, or (iii) induce 12 any representative or agent of Employer, Parent or any Affiliate thereof to terminate or modify its relationship with Employer, Parent or such Affiliate. (b) Judicial Modification. The Employee agrees that if a court of --------------------- competent jurisdiction determines that the length of time or any other restriction, or portion thereof, set forth in this Section 2.4 (Non- --- Competition) is overly restrictive and unenforceable, the court may reduce ----------- or modify such restrictions to those which it deems reasonable and enforceable under the circumstances, and as so reduced or modified, the parties hereto agree that the restrictions of this Section 2.4 (Non- --- Competition) shall remain in full force and effect. The Employee further ----------- agrees that if a court of competent jurisdiction determines that any provision of this Section 2.4 (Non-Competition) is invalid or against --------------- public policy, the remaining provisions of this Section 2.4 (Non- --- Competition) and the remainder of this Agreement shall not be affected ----------- thereby, and shall remain in full force and effect. (c) Nature of Restrictions. The Employee acknowledges that the ---------------------- business of Employer and Parent and their Affiliates is international in scope and that the Restrictions imposed by this Agreement are legitimate, reasonable and necessary to protect Employer's, Parent's and their Affiliates' investment in their businesses and the goodwill thereof. The Employee acknowledges that the scope and duration of the restrictions contained herein are reasonable in light of the time that the Employee has been or will be engaged in the business of Employer, Parent and/or their Affiliates, and the Employee's relationship with the suppliers, customers and clients of Employer, Parent and their Affiliates. The Employee further acknowledges that the restrictions contained herein are not burdensome to the Employee in light of the consideration paid therefor and the other opportunities that remain open to the Employee. Moreover, the Employee acknowledges that he has other means available to him for the pursuit of his livelihood. (d) Competing Business. "Competing Business" shall mean any ------------------ individual, business, firm, company, partnership, joint venture, organization, or other entity engaged in the wholesale distribution or retail sales of wireless communication equipment in any domestic or international market area in which Employer, Parent or any of their Affiliates does business at any time during the Employee's employment with Employer or any of its Affiliates. 2.5 Injunctive Relief. Because of the Employee's experience and ----------------- reputation in the industries in which Employer, Parent and their Affiliates operate, and because of the unique nature of the Confidential Information, the Employee acknowledges, understands and agrees that Employer and Parent will suffer immediate and irreparable harm if the Employee fails to comply with any of his obligations under Article 2 (Non-Competition and Confidentiality) of this ----------------------------------- Agreement, and that monetary damages will be inadequate to compensate Employer and Parent for such breach. Accordingly, the Employee agrees that Employer and Parent shall, in addition to any other remedies available to them at law or in equity, be entitled to injunctive relief to enforce the terms of Article 2 13 (Non-Competition and Confidentiality), without the necessity of proving ----------------------------------- inadequacy of legal remedies or irreparable harm. ARTICLE 3 Representations and Warranties by Employee Employee hereby represents and warrants, the same being part of the essence of this Agreement, that, as of the Effective Date, he is not a party to any agreement, contract or understanding, and that no facts or circumstances exist, that would in any way restrict or prohibit him from undertaking or performing any of his obligations under this Agreement. The foregoing representation and warranty shall remain in effect throughout the Term. ARTICLE 4 Indemnification Parent agrees to indemnify, and advance expenses to, the Employee to the extent provided in the Certificate of Incorporation and Bylaws of Parent as of the date of this Agreement. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under Parent's Certificate of Incorporation and Bylaws and this Agreement, it is the intent of the parties hereto that the Employee shall enjoy by this Agreement the greater benefits so afforded by such change. ARTICLE 5 Miscellaneous 5.1 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 5.2 Indulgences, Etc. Neither the failure nor any delay on the part of ----------------- either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 14 5.3 Employee's Sole Remedy. The Employee's sole remedy shall be against ---------------------- Employer or Parent for any claim, liability or obligation of any nature whatsoever arising out of or relating to this Agreement or an alleged breach of this Agreement or for any other claim arising out of the termination of the Employee's employment hereunder (collectively, "Employee Claims"). The Employee shall have no claim or right of any nature whatsoever against any of Employer's or its Affiliates' directors, former directors, officers, former officers, employees, former employees, stockholders, former stockholders, agents, former agents or the independent counsel in their individual capacities arising out of or relating to any Employee Claim. The Employee hereby releases and covenants not to sue any person other than Employer or Parent over any Employee Claim. The persons described in this Section 5.3 (other than Employer, Parent and the Employee) shall be third-party beneficiaries of this Agreement for purposes of enforcing the terms of this Section 5.3 (Employee's Sole Remedy) against the ---------------------- Employee. 5.4 Notices. All notices, requests, demands and other communications ------- required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received when sent by telecopy (with a copy sent by mail) or when personally delivered or one business day after it is sent by overnight service, addressed as set forth below: If to the Employee: Austin P. Young 6200 Arnot Houston, Texas 77007 If to Employer or Parent: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subsection for the giving of notice, which shall be effective only upon receipt. 5.5 Provisions Separable. The provisions of this Agreement are -------------------- independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 5.6 Entire Agreement. This Agreement contains the entire understanding ---------------- between the parties hereto with respect to the subject matter hereof, and supersedes all prior and 15 contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained, which shall be deemed terminated effective immediately. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 5.7 Headings; Index. The headings of paragraphs herein are included solely --------------- for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 5.8 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without giving effect to principles of conflict of laws. 5.9 Dispute Resolution. Subject to Employer's and Parent's right to seek ------------------ injunctive relief in court as provided in Section 2.5 (Injunctive Relief) of ----------------- this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 5.9 (Dispute Resolution), to arbitration. ------------------ (a) Arbitrators. The arbitration shall be heard and determined by one ----------- arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves -------- ------- more than $2,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. If (x) the parties cannot agree on the sole arbitrator, (y) one party refuses to appoint its party-appointed arbitrator within said thirty (30) day period or (z) the party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal, then the appointing authority for the implementation of such procedure shall be the Senior United States District Judge for the Northern District of Texas, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. If the Senior United States District Judge for the Northern District of Texas refuses or fails to act as the appointing authority within ninety (90) days after being requested to do so, then the appointing authority shall be the Chief Executive Officer of the American Arbitration Association, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be made by majority vote. (b) Proceedings. Unless otherwise expressly agreed in writing by the ----------- parties to the arbitration proceedings: 16 (i) The arbitration proceedings shall be held in Dallas, Texas, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. 5.10 Survival. The covenants and agreements of the parties set forth in -------- Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous) ----------------------------------- ------------- are of a continuing nature and shall survive the expiration, termination or cancellation of this Agreement, regardless of the reason therefor. 5.11 Subrogation. In the event of payment under this Agreement, Employer ----------- and Parent shall be subrogated to the extent of such payment to all of the rights of recovery of the Employee, who shall execute all papers required and shall do everything that may be necessary to secure such 17 rights, including the execution of such documents necessary to enable Employer or Parent effectively to bring suit to enforce such rights. 5.12 No Duplication of Payments. Employer and Parent shall not be liable -------------------------- under this Agreement to make any payment in connection with any claim made against the Employee to the extent the Employee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 5.13 Binding Effect, Etc. This Agreement shall be binding upon and inure to -------------------- the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Employer, Parent, spouses, heirs, and personal and legal representatives. Employer and Parent shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of their business or assets, by written agreement in form and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Employer or Parent would be required to perform if no such succession had taken place. 5.14 Contribution. If the indemnity contained in this Agreement is ------------ unavailable or insufficient to hold the Employee harmless in a Claim for an Indemnifiable Event, then separate from and in addition to the indemnity provided elsewhere herein, Parent shall contribute to Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of the Employee in connection with such Claim in such proportion as appropriately reflects the relative benefits received by, and fault of, Parent on the one hand and the Employee on the other in the acts, transactions or matters to which the Claim relates and other equitable considerations. 5.15 Parent Guaranty. Parent guarantees the payment and performance of all --------------- obligations of Employer under this Agreement and agrees it will pay or perform those obligations if for any reason Employer fails to do so. This guarantee is absolute, continuing, irrevocable and not conditional or contingent. Any notice given hereunder to either Employer or Parent will be deemed to be notice to Parent for purposes of this guaranty. ********* [Remainder of page intentionally left blank.] 18 IN WITNESS WHEREOF, Employer and Parent have caused this Agreement to be executed by their officer/general partner thereunto duly authorized, and Employee has signed this Agreement, as of the date first set forth above. CELLSTAR LTD By: National Auto Center, Inc. General Partner By: /s/ Elaine Flud Rodriguez ---------------------------------------- Elaine Flud Rodriguez Vice President and General Counsel CELLSTAR CORPORATION By: /s/ Elaine Flud Rodriguez ---------------------------------------- Elaine Flud Rodriguez Vice President and General Counsel /s/ Austin P. Young --------------------------------------------- Austin P. Young 19 EX-10.5 5 EMPLOYMENT AGREEMENT - ELAINE FLUD RODRIGUEZ EXHIBIT 10.5 EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the 21st day of January, 2000 (the "Effective Date"), by and between CellStar Ltd. (the "Employer"), CellStar Corporation, a Delaware corporation and parent company of Employer ("Parent"), and Elaine Flud Rodriguez (the "Employee"). R E C I T A L S --------------- WHEREAS, Employer desires to obtain the benefit of the services of Employee as an employee of Employer for the period of time provided in this Agreement; and WHEREAS, Employee desires to render services for Employer on the terms and conditions hereinafter provided; and WHEREAS, Employer desires that Employee participate in Parent's stock option and incentive compensation plans; and WHEREAS, the Compensation Committee of the Board of Directors of Parent deems it advisable and in the best interests of Parent and Employer to enter into this Employment Agreement with Employee; A G R E E M E N T ----------------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE I Employment 1.1 Employment. Effective on the Effective Date the Employer shall employ ---------- the Employee and the Employee shall accept employment by the Employer for the period and upon the terms and conditions contained in this Agreement. 1.2 Term. The term of this Agreement shall commence on the Effective Date ---- and shall end on the four year anniversary of the Effective Date (the "Original Term"), unless earlier terminated as provided herein (the period from the Effective Date to the four year anniversary of the Effective Date, or to the date of such earlier termination, as applicable, is hereinafter referred to as the "Term"). At the expiration of the Original Term, this Agreement shall automatically be renewed on a year to year basis unless notice of any decision not to renew this Agreement is given by the Employer or the Employee at least thirty (30) days prior to the expiration of the Original Term or any such one year term or unless earlier terminated as provided herein. 1.3 Position and Duties. ------------------- (a) Position. During the Term, the Employee shall serve as Senior -------- Vice President, Secretary and General Counsel of Employer, with authority, duties and responsibilities consistent with such position, and shall perform such other services for Employer, Parent and their affiliated entities consistent with such position as may be reasonably assigned to her from time to time by senior management and/or the boards of directors of Employer and/or Parent. During the Term, Employee shall, if so elected or appointed, also accept election or appointment, and serve, as an officer and/or director of Employer or any of its affiliated entities and perform the duties appropriate thereto, without additional compensation other than as set forth herein. Employee's actions hereunder shall at all times be subject to the direction of the senior management and the boards of directors of Employer and Parent. (b) Commitment. During the Term, the Employee shall devote ---------- substantially all of her business time, energy, skill and best efforts to the performance of her duties hereunder in a manner that will faithfully and diligently further the business and interests of Employer, Parent and their affiliated entities. Subject to the foregoing, the Employee may serve in any capacity with any civic, educational or charitable organization; provided that such activities and services do not interfere or conflict with the performance of her duties hereunder. Employee shall comply with policies, standards and regulations established from time to time by senior management and/or the boards of directors of Employer and Parent. 1.4 Compensation. ------------ (a) Base Salary. Subject to Section 1.4(c) below, beginning on the ----------- Effective Date, Employer shall pay the Employee as compensation an aggregate salary ("Base Salary") of $250,000 per year during the Term, or such greater amount as shall be approved in accordance with the policies of Employer and/or Parent, as applicable. The Base Salary for each year shall be paid by Employer in accordance with the regular payroll practices of Employer. (b) Annual Incentive Payment. Each year during the Term, the Employee ------------------------ shall be eligible to participate in an annual incentive plan approved by the Compensation Committee of Parent's Board of Directors. Subject to any required approvals of the Compensation Committee of the Board of Directors of Parent and subject to achievement of specified goals (the "Goals"), for the fiscal year ending in November 2000, Employee will be eligible to earn a pro rated annual incentive payment at the 50% target level (i.e., 50% of her base salary earned during such fiscal year), which incentive payment may be less than such target level or up to two times such target level. (c) Withholding. With respect to any compensation received by ----------- Employee with respect to Employee's services for Employer or any of its affiliates, Employer will deduct 2 such withholding and other payroll taxes as are required to be withheld by Employer under applicable law. (d) Stock Options. Parent will recommend to the Compensation ------------- Committee of the Board of Directors of Parent that Employee be granted a stock option (the "Option") entitling her to purchase 56,362 shares of Parent's common stock at the reported market closing sales price thereof on the date of grant. The Option shall become exercisable by the Employee at the rate of 25% of the shares covered thereby per year, beginning on the first anniversary of the Effective Date in accordance with the terms of the Parent's 1993 Amended and Restated Long Term Incentive Plan. The Option shall contain such additional terms as are set forth in Parent's 1993 Amended and Restated Long Term Incentive Plan and as are established by the Compensation Committee of the Board of Directors of Parent. Employee shall be entitled to annual consideration for future grants in amounts (if any) and on terms and conditions to be determined by the Compensation Committee of the Board of Directors. (e) Payment and Reimbursement of Expenses. During the Term, Employer ------------------------------------- shall pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in performing her obligations under this Agreement in accordance with the policies and procedures of Employer or Parent, provided that the Employee properly accounts therefor in accordance with the regular policies of Employer or Parent, as applicable. (f) Fringe Benefits and Perquisites. During the Term, the Employee ------------------------------- shall be entitled to participate in or receive benefits under any stock purchase, profit-sharing, pension, retirement, paid time off, life, medical, dental, disability or other plan or arrangement made generally available by Employer or Parent to employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Employee shall be credited with the greater of 10 years or her actual years of service with the Employer as of the Effective Date for purposes of determining eligibility and vesting for paid time off and short-term disability benefits. 1.5 Termination. ----------- (a) Disability. Employer may terminate this Agreement for Disability. ---------- "Disability" shall exist if, because of ill health or physical or mental disability, the Employee shall have been unable to perform her duties under this Agreement, with reasonable accommodation by the Employer, as determined in good faith by Parent's Board of Directors or a committee thereof, for a period of 180 consecutive days, or if, in any 12-month period, the Employee shall have been unable or shall have failed to perform her duties for a period of 270 or more business days, irrespective of whether or not such days are consecutive. (b) Cause. Employer may terminate the Employee's employment for ----- Cause. Termination for "Cause" shall mean termination because of the Employee's (i) continued 3 unsatisfactory job performance after written warning has been issued identifying deficiencies, (ii) misconduct that causes or is likely to cause material economic harm to Employer, Parent or their affiliated entities or that brings or is likely to bring material discredit to the reputation of Employer, Parent or any of their affiliated entities, as determined by the Board of Directors of Parent in good faith, (iii) failure to substantially follow directions of senior management or the boards of directors of Employer or Parent that are consistent with her duties under this Agreement, provided that no act, or failure to act, on the Employee's part shall be deemed to constitute Cause unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that the Employee's act, or failure to act, was in or not opposed to the best interest of Employer, (iv) conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude or entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting Employee from participating in the conduct of the affairs of Employer, Parent or their affiliated entities, or (v) any other material breach of any provision of this Agreement. Items (i), (ii), (iii) and (v) of this subsection shall not constitute Cause unless Employer or Parent notified the Employee thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Cause. Furthermore, if the Employee's actions are curable, items (i), (ii), (iii) and (v) of this subsection shall not constitute Cause unless the Employee fails to cure such matter within 30 days after such notice is sent or given under this Agreement. It is understood that "Cause" shall not include a failure to perform due to a Disability. (c) Without Cause. During the Term, Employer may terminate the ------------- Employee's employment Without Cause, subject to the provisions of subsection 1.6(c) (Termination Without Cause or for Company Breach). ----------------------------------------------- Termination "Without Cause" shall mean termination of the Employee's employment by Employer other than termination for Cause or for Disability. (d) Company Breach. The Employee may terminate her employment -------------- hereunder for Company Breach. For purposes of this Agreement a "Company Breach" shall be deemed to occur in the event of a material breach of this Agreement by Employer or Parent; provided, however, that the Employee shall -------- ------- not be entitled to terminate for Company Breach unless the Employee notifies Employer thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Company Breach, and unless Employer fails to cure such Company Breach within 30 days after such notice is sent or given under this Agreement. For purposes of this Agreement, a material breach by Employer or Parent shall include, without limitation, (i) the reduction in the Employee's annual base salary as in effect on the Effective Date, or (ii) if the Employee's eligibility for a bonus in any fiscal year (provided that all performance standards established for her have been achieved) shall be, in terms of a percentage of base salary, any amount less than the percentage of base salary established for the Chief Executive Officer of Parent for such fiscal year. 4 (e) Change in Control. The Employee may terminate her employment ----------------- hereunder within 12 months of a Change in Control (defined below): (i) "Change in Control" shall mean any of the following: (1) any consolidation or merger of Parent in which Parent is not the continuing or surviving corporation or pursuant to which shares of Parent's common stock would be converted into cash, securities or other property, other than a merger of Parent in which the holders of Parent common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Parent; (3) any approval by the stockholders of Parent of any plan or proposal for the liquidation or dissolution of Parent; (4) the cessation of control (by virtue of their not constituting a majority of directors) of Parent's Board of Directors by the individuals (the "Continuing Directors") who (x) at the date of this Agreement were directors or (y) become directors after the date of this Agreement and whose election or nomination for election by Parent's stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the date of this Agreement or whose election or nomination for election was previously so approved); or (5) (A) the acquisition of beneficial ownership ("Beneficial Ownership"), within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of an aggregate of 15% or more of the voting power of Parent's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the Exchange Act) who Beneficially Owned less than 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this Agreement, (B) the acquisition of Beneficial Ownership of an additional 5% of the voting power of Parent's outstanding voting securities by any person or group who Beneficially Owned at least 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this agreement, or (c) the execution by Parent and a stockholder of a contract that by its terms grants such stockholder (in its, hers or his capacity as a stockholder) or such stockholder's Affiliate (as defined in Rule 405 promulgated under the Securities Act of 5 1933 (an "Affiliate")) including, without limitation, such stockholder's nominee to Parent's Board of Directors (in its, hers or his capacity as an Affiliate of such stockholder), the right to veto or block decisions or actions of Parent's Board of Directors; provided, however, that notwithstanding the foregoing, the events -------- ------- described in items (A), (B) or (C) above shall not constitute a Change in Control hereunder if the acquiror is (aa) Alan H. Goldfield or his Affiliates, (bb) a trustee or other fiduciary holding securities under an employee benefit plan of Employer, Parent or one of their affiliated entities and acting in such capacity, (cc) a corporation owned, directly or indirectly, by the stockholders of Parent in substantially the same proportions as their ownership of voting securities of Parent or (dd) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act or (ee) in the case of an acquisition described in items (A) or (B) above (but not in the case of an acquisition described in item (C) above), any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; provided further, however that none of the following shall -------- ------- ------- constitute a Change in Control: (aa) the right of the holders of any voting securities of Parent to vote as a class on any matter or (bb) any vote required of disinterested or unaffiliated directors or stockholders including, without limitation, pursuant to Section 144 of the Delaware General Corporation Law or Rule 16b-3 promulgated pursuant to the Exchange Act. (6) subject to applicable law, in a Chapter 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving Parent to a case under Chapter 7. (f) Without Good Reason. During the Term, the Employee may terminate ------------------- her employment Without Good Reason upon 30 days prior written notice to Employer of such termination, which notice may be waived by Employer in Employer's discretion. Termination "Without Good Reason" shall mean termination of the Employee's employment by the Employee other than termination for Company Breach. (g) Explanation of Termination of Employment. Any party terminating ---------------------------------------- this Agreement shall give prompt written notice ("Notice of Termination") to the other party hereto advising such other party of the termination of this Agreement stating in reasonable detail the basis for such termination. The Notice of Termination shall indicate whether termination is being made for Cause, Without Cause or for Disability (if Employer has terminated the Agreement) or for Company Breach, upon a Change in Control or Without Good Reason (if the Employee has terminated the Agreement). (h) Date of Termination. "Date of Termination" shall mean the last ------------------- day of Employee's employment, as determined in accordance with this Section 1.5. 6 1.6 Compensation Upon Termination. ----------------------------- (a) During Disability. During any period that the Employee fails to ----------------- perform her duties hereunder because of ill health or physical or mental disability, she shall continue to receive her full salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination, ------------ after giving effect to all disability benefits received by Employee under the terms of any applicable disability policy. (b) Termination for Cause or Without Good Reason. If Employer shall -------------------------------------------- terminate the Employee's employment for Cause or if the Employee shall terminate her employment Without Good Reason, then Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall ------------ terminate, except that Employer shall pay the Employee her accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through ------------ the Date of Termination. (c) Termination Without Cause or for Company Breach. If Employer ----------------------------------------------- shall terminate the Employee's employment Without Cause or if the Employee shall terminate her employment for Company Breach, then Employer shall pay to the Employee, as severance pay in a lump sum on the 15th day following the Date of Termination, the following amounts: (i) her accrued but unpaid Base Salary through the Date of Termination at the rate in effect as of the Date of Termination; and (ii) in lieu of any further Base Salary and Annual Incentive Payments for periods subsequent to the Date of Termination, an amount equal to the product of (A) the sum of Employee's Base Salary at the rate in effect as of the Date of Termination plus the amount of the Annual Incentive Payment paid to the Employee for the preceding year (or an annualized equivalent of the Annual Incentive Payment paid for any shorter period) divided by 365 and (B) multiplied by the lesser of (y) 720, or (z) the number of days from the Date of Termination to the last day of the Original Term or the applicable renewal term, but in no event less than 365 days. In addition, the Employee will be entitled to a prorated portion of any annual incentive payment earned for the fiscal year in which her employment is terminated, if earned in accordance with the terms of its grant. Employee hereby acknowledges and agrees that the payments by the Employer under this Section 1.6(c) shall be the sole and exclusive remedy of the Employee for termination of Employee's employment Without Cause or by reason of a Company Breach, and Employee hereby waives any and all other remedies under law or in equity. 7 If the Employee terminates her employment for Company Breach based upon a material reduction by Employer of the Employee's Base Salary, then for purposes of this subsection 1.6(c) (Termination Without Cause or for -------------------------------- Company Breach), the Employee's Base Salary as of the Date of Termination -------------- shall be deemed to be the Employee's Base Salary immediately prior to the reduction that the Employee claims as grounds for Company Breach. (d) Termination Upon a Change in Control. If the Employee terminates ------------------------------------ her employment after a Change in Control pursuant to subsection 1.5(e) (Change in Control), then Employer shall pay to the Employee as severance ------------------ pay and as liquidated damages (because actual damages are difficult to ascertain), in a lump sum, in cash, within 15 days after termination, an amount which, when combined with all payments under Section 1.6(c), equals $100 less than three (3) times the Employee's "annualized includable compensation for the base period" (as defined in Section 280G of the Internal Revenue Code of 1986); provided, however, that if such lump sum -------- ------- severance payment, either alone or together with other payments or benefits, either cash or non-cash, that the Employee has the right to receive from Employer, including, but not limited to, accelerated vesting or payment of any deferred compensation, options, stock appreciation rights or any benefits payable to the Employee under any plan for the benefit of employees, would constitute an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986), then such lump sum severance payment or other benefit shall be reduced to the largest amount that will not result in receipt by the Employee of a parachute payment. The determination of the amount of the payment described in this subsection shall be made by Parent's independent auditors. (e) Termination for Disability. If Employer shall terminate the -------------------------- Employee's employment for Disability, Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall terminate, except ------------ that Employer shall pay the Employee accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination, ------------ after giving effect to all disability benefits received by Employee under the terms of any applicable disability policy. (f) Employee Benefits. Employer shall maintain in full force and ----------------- effect (to the extent consistent with past practice), for the continued benefit of Employee and, if applicable, her spouse and children, the employee benefits set forth in subsections 1.4(f) (Fringe Benefits and ------------------- Perquisites) through the Date of Termination (subject to the provisions of ----------- Section 1.6(e)); provided that her continued participation or, if applicable, the participation of her spouse and children, is possible under the general terms and conditions of such plans and programs. Following the Date of Termination, Employee and her eligible dependents shall be eligible for continued health coverage in accordance with the terms of applicable law. 8 1.7 Death of Employee. If Employee dies prior to the expiration of this ----------------- Agreement, Employee's employment and other obligations under this Agreement shall automatically terminate and all compensation to which Employee is or would have been entitled hereunder (including without limitation under subsections 1.4(a) (Base Salary) and 1.4(b) (Annual Incentive Payment)) shall terminate as ----------- ------------------------ of the end of the month in which Employee's death occurs; provided, however, -------- ------- that (i) Employer shall pay to Employee's estate, as soon as practicable, a prorated Annual Incentive Payment, if earned in accordance with Parent's annual incentive plan; and (ii) for the balance of the month in which Employee's death occurs, Employee's wife and children shall be entitled to receive their benefits under Employer's group hospitalization, medical and dental plans (if any), to the extent permitted under the terms of such plans, and thereafter Employee's dependents shall have a right to continued health coverage in accordance with the terms of applicable law. ARTICLE 2 NON-COMPETITION AND CONFIDENTIALITY 2.1 Training/Confidential Information. For purposes of this Article 2 --------------------------------- (Non-Competition and Confidentiality), the term "the Company" shall be construed - ------------------------------------ also to include Employer, Parent and any and all Affiliates of Employer and Parent. The Company agrees that it will provide Employee with specialized knowledge and training regarding the business in which the Company is involved, and will provide Employee with initial and ongoing confidential information and trade secrets of the Company (hereinafter referred to as "Confidential Information"). For purposes of this Agreement, Confidential Information includes, but is not limited to: (a) Customer lists and prospect lists developed by the Company; (b) Information regarding the Company's customers which Employee acquired as a result of her employment with the Employer, including but not limited to, customer contracts, work performed for customers, customer contacts, customer requirements and needs, data used by the Company to formulate customer bids, customer financial information and other information regarding the customer's business; (c) Information regarding the Company's vendors which Employee acquired as a result of her employment with the Employer, including but not limited to, product and service information and other information regarding the business activities of such vendors; (d) Information related to the Company's business, including but not limited to marketing strategies and plans, sales procedures, operating policies and procedures, pricing and pricing strategies, business plans, sales, profits, and other business and financial information of the Company; (e) Training materials developed by and utilized by the Company; 9 (f) Any other information which Employee acquired as a result of her employment with the Employer and which Employee has a reasonable basis to believe the Company would not want disclosed to a business competitor or to the general public. (g) Information which: (i) is proprietary to, about or created by the Company; (ii) gives the Company some competitive advantage, the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company; (iii) is not typically disclosed to non-employees by the Company, or otherwise is treated as confidential by the Company; or (iv) is designated as Confidential Information by the Company or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential to the Company. Notwithstanding the foregoing, Confidential Information shall not include any information that is or has become public knowledge, other than by acts by the Employee or representatives of the Employee in violation of this Agreement. 2.2 Non-Disclosure. The Employee acknowledges, understands and agrees that -------------- all Confidential Information, whether developed by the Company or others or whether developed by the Employee while carrying out the terms and provisions of this Agreement (or previously while serving as an officer of the Company), shall be the exclusive and confidential property of the Company and (i) shall not be disclosed to any person (except as otherwise required by law or legal process) other than employees of the Company and professionals engaged on behalf of the Company, and other than disclosure in the scope of the Company's business in accordance with the Company's policies for disclosing information, (ii) shall be safeguarded and kept from unintentional disclosure and (iii) shall not be used for the Employee's personal benefit. Subject to the terms of the preceding sentence, the Employee shall not use, copy or transfer Confidential Information other than as is necessary in carrying out her duties under this Agreement. 2.3 Return of Company Property and Information. Upon termination of ------------------------------------------ employment, or at any earlier time as directed by Company, Employee shall immediately deliver to Company any and all Confidential Information in Employee's possession, any other documents or information which Employee acquired as a result of her employment with Employer, and any copies of such documents/information. Employee shall not retain any originals or copies of such documents or materials related to Company's business which Employee came into possession of or created as a result of her employment at Company. Employee acknowledges that such information, documents and materials are the exclusive property of Company. Upon termination of employment, or at any 10 earlier time as directed by Company, Employee shall immediately deliver to Company any property of Company in Employee's possession. Employee agrees that should she fail to return any Company property, Company shall be entitled to deduct from any sums otherwise due Employee (including, but not necessarily limited to wages and expense reimbursements) the cost and/or value of any property which Employee fails to return, up to the maximum amount allowed by law. Employee hereby authorizes Company to deduct and/or withhold any such sums from Employee's wages and/or other sums due Employee. 2.4 Non-Competition. --------------- (a) Description of Proscribed Actions. During the Term and for a --------------------------------- period of 18 months thereafter (or 12 months thereafter in the event of Termination Without Cause or for Company Breach), in consideration for the obligations of Employer and Parent hereunder, including without limitation their disclosure (pursuant to subsection 2.1 (Training/Confidential --------------------- Information) above) of Confidential Information, the Employee shall not: ----------- (i) directly or indirectly, engage or invest in, own, manage, operate, control or participate in the ownership, management, operation or control of, be employed by, associated or in any manner connected with, or render services or advice to, any Competing Business (defined below); provided, however, that the Employee may -------- ------- invest in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if (x) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act and (y) the Employee does not beneficially own (as defined Rule 13d-3 promulgated under the Exchange Act) in excess of 5% of the outstanding capital stock of such enterprise; (ii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for her own benefit or for the benefit of any other person or entity, solicit, divert or take away any suppliers, customers or clients of the Company or any of its Affiliates; or (iii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for her own benefit or for the benefit of any other person or entity, either (i) hire, attempt to hire, contact or solicit with respect to hiring, any employee of Employer or Parent or any Affiliate thereof, (ii) induce or otherwise counsel, advise or encourage any employee of Employer, Parent or any Affiliate thereof to leave the employment of Employer, Parent or any Affiliate thereof, or (iii) induce 11 any representative or agent of Employer, Parent or any Affiliate thereof to terminate or modify its relationship with Employer, Parent or such Affiliate. (b) Judicial Modification. The Employee agrees that if a court of --------------------- competent jurisdiction determines that the length of time or any other restriction, or portion thereof, set forth in this Section 2.4 (Non- --- Competition) is overly restrictive and unenforceable, the court may reduce ----------- or modify such restrictions to those which it deems reasonable and enforceable under the circumstances, and as so reduced or modified, the parties hereto agree that the restrictions of this Section 2.4 (Non- --- Competition) shall remain in full force and effect. The Employee further ----------- agrees that if a court of competent jurisdiction determines that any provision of this Section 2.4 (Non-Competition) is invalid or against --------------- public policy, the remaining provisions of this Section 2.4 (Non- --- Competition) and the remainder of this Agreement shall not be affected ----------- thereby, and shall remain in full force and effect. (c) Nature of Restrictions. The Employee acknowledges that the ---------------------- business of Employer and Parent and their Affiliates is international in scope and that the Restrictions imposed by this Agreement are legitimate, reasonable and necessary to protect Employer's, Parent's and their Affiliates' investment in their businesses and the goodwill thereof. The Employee acknowledges that the scope and duration of the restrictions contained herein are reasonable in light of the time that the Employee has been or will be engaged in the business of Employer, Parent and/or their Affiliates, and the Employee's relationship with the suppliers, customers and clients of Employer, Parent and their Affiliates. The Employee further acknowledges that the restrictions contained herein are not burdensome to the Employee in light of the consideration paid therefor and the other opportunities that remain open to the Employee. Moreover, the Employee acknowledges that she has other means available to her for the pursuit of her livelihood. (d) Competing Business. "Competing Business" shall mean any ------------------ individual, business, firm, company, partnership, joint venture, organization, or other entity engaged in the wholesale distribution or retail sales of wireless communication equipment in any domestic or international market area in which Employer, Parent or any of their Affiliates does business at any time during the Employee's employment with Employer or any of its Affiliates. 2.5 Injunctive Relief. Because of the Employee's experience and ----------------- reputation in the industries in which Employer, Parent and their Affiliates operate, and because of the unique nature of the Confidential Information, the Employee acknowledges, understands and agrees that Employer and Parent will suffer immediate and irreparable harm if the Employee fails to comply with any of her obligations under Article 2 (Non-Competition and Confidentiality) of this ----------------------------------- Agreement, and that monetary damages will be inadequate to compensate Employer and Parent for such breach. Accordingly, the Employee agrees that Employer and Parent shall, in addition to any other remedies available to them at law or in equity, be entitled to injunctive relief to enforce the terms of Article 2 12 (Non-Competition and Confidentiality), without the necessity of proving ---------------------------------- inadequacy of legal remedies or irreparable harm. ARTICLE 3 Representations and Warranties by Employee Employee hereby represents and warrants, the same being part of the essence of this Agreement, that, as of the Effective Date, she is not a party to any agreement, contract or understanding, and that no facts or circumstances exist, that would in any way restrict or prohibit her from undertaking or performing any of her obligations under this Agreement. The foregoing representation and warranty shall remain in effect throughout the Term. ARTICLE 4 Indemnification Parent agrees to indemnify, and advance expenses to, the Employee to the extent provided in the Certificate of Incorporation and Bylaws of Parent as of the date of this Agreement. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under Parent's Certificate of Incorporation and Bylaws and this Agreement, it is the intent of the parties hereto that the Employee shall enjoy by this Agreement the greater benefits so afforded by such change. ARTICLE 5 Miscellaneous 5.1 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 5.2 Indulgences, Etc. Neither the failure nor any delay on the part of ----------------- either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 13 5.3 Employee's Sole Remedy. The Employee's sole remedy shall be against ---------------------- Employer or Parent for any claim, liability or obligation of any nature whatsoever arising out of or relating to this Agreement or an alleged breach of this Agreement or for any other claim arising out of the termination of the Employee's employment hereunder (collectively, "Employee Claims"). The Employee shall have no claim or right of any nature whatsoever against any of Employer's or its Affiliates' directors, former directors, officers, former officers, employees, former employees, stockholders, former stockholders, agents, former agents or the independent counsel in their individual capacities arising out of or relating to any Employee Claim. The Employee hereby releases and covenants not to sue any person other than Employer or Parent over any Employee Claim. The persons described in this Section 5.3 (other than Employer, Parent and the Employee) shall be third-party beneficiaries of this Agreement for purposes of enforcing the terms of this Section 5.3 (Employee's Sole Remedy) against the ----------------------- Employee. 5.4 Notices. All notices, requests, demands and other communications ------- required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received when sent by telecopy (with a copy sent by mail) or when personally delivered or one business day after it is sent by overnight service, addressed as set forth below: If to the Employee: Elaine Flud Rodriguez 11469 Cromwell Court Dallas, Texas 75229 If to Employer or Parent: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: Chief Executive Officer Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subsection for the giving of notice, which shall be effective only upon receipt. 5.5 Provisions Separable. The provisions of this Agreement are independent -------------------- of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 5.6 Entire Agreement. This Agreement contains the entire understanding ---------------- between the parties hereto with respect to the subject matter hereof, and supersedes all prior and 14 contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained, which shall be deemed terminated effective immediately. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 5.7 Headings; Index. The headings of paragraphs herein are included solely --------------- for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 5.8 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without giving effect to principles of conflict of laws. 5.9 Dispute Resolution. Subject to Employer's and Parent's right to seek ------------------ injunctive relief in court as provided in Section 2.5 (Injunctive Relief) of ----------------- this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 5.9 (Dispute Resolution), to arbitration. ------------------ (a) Arbitrators. The arbitration shall be heard and determined by one ----------- arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves -------- ------- more than $2,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. If (x) the parties cannot agree on the sole arbitrator, (y) one party refuses to appoint its party-appointed arbitrator within said thirty (30) day period or (z) the party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal, then the appointing authority for the implementation of such procedure shall be the Senior United States District Judge for the Northern District of Texas, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. If the Senior United States District Judge for the Northern District of Texas refuses or fails to act as the appointing authority within ninety (90) days after being requested to do so, then the appointing authority shall be the Chief Executive Officer of the American Arbitration Association, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be made by majority vote. (b) Proceedings. Unless otherwise expressly agreed in writing by the ----------- parties to the arbitration proceedings: 15 (i) The arbitration proceedings shall be held in Dallas, Texas, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. 5.10 Survival. The covenants and agreements of the parties set forth in -------- Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous) ----------------------------------- ------------- are of a continuing nature and shall survive the expiration, termination or cancellation of this Agreement, regardless of the reason therefor. 5.11 Subrogation. In the event of payment under this Agreement, Employer ----------- and Parent shall be subrogated to the extent of such payment to all of the rights of recovery of the Employee, who shall execute all papers required and shall do everything that may be necessary to secure such 16 rights, including the execution of such documents necessary to enable Employer or Parent effectively to bring suit to enforce such rights. 5.12 No Duplication of Payments. Employer and Parent shall not be liable -------------------------- under this Agreement to make any payment in connection with any claim made against the Employee to the extent the Employee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 5.13 Binding Effect, Etc. This Agreement shall be binding upon and inure -------------------- to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Employer, Parent, spouses, heirs, and personal and legal representatives. Employer and Parent shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of their business or assets, by written agreement in form and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Employer or Parent would be required to perform if no such succession had taken place. 5.14 Contribution. If the indemnity contained in this Agreement is ------------ unavailable or insufficient to hold the Employee harmless in a Claim for an Indemnifiable Event, then separate from and in addition to the indemnity provided elsewhere herein, Parent shall contribute to Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of the Employee in connection with such Claim in such proportion as appropriately reflects the relative benefits received by, and fault of, Parent on the one hand and the Employee on the other in the acts, transactions or matters to which the Claim relates and other equitable considerations. 5.15 Parent Guaranty. Parent guarantees the payment and performance of all --------------- obligations of Employer under this Agreement and agrees it will pay or perform those obligations if for any reason Employer fails to do so. This guarantee is absolute, continuing, irrevocable and not conditional or contingent. Any notice given hereunder to either Employer or Parent will be deemed to be notice to Parent for purposes of this guaranty. ********* [Remainder of page intentionally left blank.] 17 IN WITNESS WHEREOF, Employer and Parent have caused this Agreement to be executed by their officer/general partner thereunto duly authorized, and Employee has signed this Agreement, as of the date first set forth above. CELLSTAR LTD By: National Auto Center, Inc. General Partner By: /s/ Alan H. Goldfield ----------------------------------- Alan H. Goldfield Chairman and CEO CELLSTAR CORPORATION By: /s/ Alan H. Goldfield ----------------------------------- Alan H. Goldfield Chairman and CEO /s/ Elaine Flud Rodriguez ---------------------------------------- Elaine Flud Rodriguez 18 EX-10.31 6 1ST AMDNT TO AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 10.31 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ----------------------------- This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of November 23, 1999, is among CELLSTAR CORPORATION, a - ---------- Delaware corporation (the "Borrower"), each of the banks or other lending -------- institutions which is or may from time to time become a signatory to the Agreement (hereinafter defined) or any successor or permitted assignee thereof (each a "Bank" and collectively, the "Banks"), THE FIRST NATIONAL BANK OF ---- ----- CHICAGO, as syndication agent (the "Syndication Agent"), NATIONAL CITY BANK, as ----------------- documentation agent (the "Documentation Agent"), CHASE BANK OF TEXAS, NATIONAL ------------------- ASSOCIATION (formerly known as Texas Commerce Bank National Association), a national banking association ("CBT"), as agent for itself and the other Banks, --- as issuer of Letters of Credit under the Agreement, and as the swing line lender (in such capacity, together with its successors in such capacity, the "Administrative Agent"), and THE CHASE MANHATTAN BANK, as alternate currency - --------------------- agent (in such capacity, together with its successors in such capacity, the "Alternate Currency Agent"). - ------------------------- RECITALS: A. The Borrower, the Banks, the Syndication Agent, the Documentation Agent, the Administrative Agent and the Alternate Currency Agent have entered into that certain Amended and Restated Credit Agreement dated as of August 2, 1999 (the "Agreement"). --------- B. The Borrower, the Banks, the Syndication Agent, the Documentation Agent, the Administrative Agent and the Alternate Currency Agent now desire to amend the Agreement as provided herein. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I --------- Definitions ----------- 1.1 Definitions. Capitalized terms used in this Amendment, to the extent ----------- not otherwise defined herein, shall have the same meanings as in the Agreement, as amended hereby. ARTICLE II ---------- Amendments ---------- 2.1 Amendment to Section 10.5(i)(F). Effective as of the date hereof, the ------------------------------- dollar amount "$20,000,000" appearing in Section 10.5(i)(F) of the Agreement is hereby amended to read "$15,000,000". 2.2 Amendment to Section 10.5(i)(H). Effective as of the date hereof, the ------------------------------- dollar amount "$80,000,000" appearing in Section 10.5(i)(H) of the Agreement is hereby amended to read "$100,000,000". ARTICLE III ----------- Conditions Precedent -------------------- 3.1 Conditions. The effectiveness of this Amendment is subject to the ---------- satisfaction of the following conditions precedent: (a) Representations and Warranties. The representations and ------------------------------ warranties contained herein and in all other Loan Documents, as amended hereby, shall be true and correct as of the date hereof as if made on the date hereof. (b) No Default. No Default shall have occurred and be continuing. ---------- (c) Corporate Matters. All corporate proceedings taken in connection ----------------- with the transactions contemplated by this Amendment and all documents, instruments, and other legal matters incident thereto shall be satisfactory to the Administrative Agent and its legal counsel, Winstead Sechrest & Minick P.C. (d) Additional Documentation. The Administrative Agent shall have ------------------------ received such additional approvals, opinions, or documents as the Administrative Agent or its legal counsel, Winstead Sechrest & Minick P.C., may reasonably request. ARTICLE IV ---------- Ratifications, Representations and Warranties --------------------------------------------- 4.1 Ratifications. The terms and provisions set forth in this Amendment ------------- shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Borrower agrees that the Agreement, as amended hereby, and the other Loan Documents shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. -2- 4.2 Representations and Warranties. Borrower hereby represents and ------------------------------ warrants to the Administrative Agent and the Banks that (1) the execution, delivery, and performance by the Borrower and the Guarantors of this Amendment and compliance with the terms and provisions hereof have been duly authorized by all requisite action on the part of each such Person and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) the articles of incorporation, certificate of incorporation, bylaws, partnership agreement or other organizational documents of any such Person, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any material agreement or instrument to which any such Person is a party or by which any of them or any of their property is bound or subject, (2) the representations and warranties contained in the Agreement, as amended hereby, and any other Loan Document are true and correct on and as of the date hereof as though made on and as of the date hereof, and (3) no Default has occurred and is continuing. ARTICLE V --------- Miscellaneous ------------- 5.1 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Bank or any closing shall affect the representations and warranties or the right of the Administrative Agent or any Bank to rely upon them. 5.2 Reference to Agreement. Each of the Loan Documents, including the ---------------------- Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement shall mean a reference to the Agreement as amended hereby. 5.3 Expenses of the Administrative Agent. Borrower agrees to pay on ------------------------------------ demand all costs and expenses incurred by the Administrative Agent in connection with the preparation, negotiation, and execution of this Amendment and any and all amendments, modifications, and supplements thereto, including without limitation the costs and fees of the Administrative Agent's legal counsel, and all costs and expenses incurred by the Administrative Agent in connection with the enforcement or preservation of any rights under the Agreement, as amended hereby, or any other Loan Document, including without limitation the costs and fees of the Administrative Agent's legal counsel. 5.4 Severability. Any provision of this Amendment held by a court of ------------ competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 5.5 APPLICABLE LAW. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN -------------- THE OTHER LOAN DOCUMENTS, THIS AMENDMENT AND ALL OTHER -3- LOAN DOCUMENTS SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 5.6 Successors and Assigns. This Amendment is binding upon and shall ---------------------- inure to the benefit of the Borrower, the Banks, the Syndication Agent, the Documentation Agent, the Administrative Agent and the Alternate Currency Agent and their respective successors and assigns, except the Borrower shall not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent. 5.7 Counterparts. This Amendment may be executed in one or more ------------ counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 5.8 Headings. The headings, captions, and arrangements used in this -------- Amendment are for convenience only and shall not affect the interpretation of this Amendment. 5.9 Release of Claims. The Borrower and the Guarantors each hereby ----------------- acknowledge and agree that none of them has any and there are no claims or offsets against or defenses or counterclaims to the terms and provisions of or the obligations of the Borrower, any Guarantor or any Subsidiary created or evidenced by the Agreement or any of the other Loan Documents, and to the extent any such claims, offsets, defenses or counterclaims exist, Borrower and the Guarantors each hereby waives, and hereby release the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent and each of the Banks from, any and all claims, offsets, defenses and counterclaims, whether known or unknown, such waiver and release being with full knowledge and understanding of the circumstances and effects of such waiver and release and after having consulted legal counsel with respect thereto. 5.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS ---------------- AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO REGARDING THIS AMENDMENT AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. -4- Executed as of the date first written above. BORROWER: -------- CELLSTAR CORPORATION By: \s\ Elaine Flud Rodriguez ------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President AGENTS AND BANKS: ---------------- CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as Texas Commerce Bank National Association), as Administrative Agent and as a Bank By: \s\ Allen K. King ------------------------------------- Name: Allen K. King Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO, as Syndication Agent and as a Bank By: \s\ Timothy A. Smith ------------------------------------- Name: Timothy A. Smith Title: Vice President NATIONAL CITY BANK, as Documentation Agent and as a Bank By: \s\ Tom Gurbach ------------------------------------- Name: Tom Gurbach Title: Vice President -5- THE CHASE MANHATTAN BANK, as Alternate Currency Agent and as a Bank By: \s\ John F. Gehebe ------------------------------------- Name: John F. Gehebe Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: \s\ Robert Ivosevich ------------------------------------- Name: Robert Ivosevich Title: Senior Vice President WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: \s\ Craig T. Scheef ------------------------------------- Name: Craig T. Scheef Title: Vice President Each of the undersigned Guarantors hereby (a) consents and agrees to this Amendment, and (b) agrees that its Guaranty shall continue to be the legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms. NATIONAL AUTO CENTER, INC. By: \s\ Elaine Flud Rodriguez ------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President -6- CELLSTAR, LTD. By: National Auto Center, Inc., General Partner By: \s\ Elaine Flud Rodriguez -------------------------------- Name: Elaine Flud Rodriguez Title: Vice President CELLSTAR FULFILLMENT, LTD. By: CellStar Fulfillment, Inc., General Partner By: \s\ Elaine Flud Rodriguez -------------------------------- Name: Elaine Flud Rodriguez Title: Vice President CELLSTAR WEST, INC. By: \s\ Elaine Flud Rodriguez ------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President ACC-CELLSTAR, INC. By: \s\ Elaine Flud Rodriguez ------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President -7- CELLSTAR FINANCO, INC. By: \s\ Elaine Flud Rodriguez ------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President CELLSTAR FULFILLMENT, INC. By: \s\ Elaine Flud Rodriguez ------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President NAC HOLDINGS, INC. By: \s\ Elaine Flud Rodriguez ------------------------------------- Name: Elaine Flud Rodriguez Title: President CELLSTAR INTERNATIONAL CORPORATION/ ASIA By:\s\ Elaine Flud Rodriguez -------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President AUDIOMEX EXPORT CORP. By:\s\ Elaine Flud Rodriguez -------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President -8- CELLSTAR INTERNATIONAL CORPORATION/SA By:\s\ Elaine Flud Rodriguez -------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President CELLSTAR AIR SERVICES, INC. By:\s\ Elaine Flud Rodriguez -------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President A & S AIR SERVICE, INC. By:\s\ Elaine Flud Rodriguez -------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President CELLSTAR TELECOM, INC. By:\s\ Elaine Flud Rodriguez -------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President -9- FLORIDA PROPERTIES, INC. By:\s\ Elaine Flud Rodriguez -------------------------------------- Name: Elaine Flud Rodriguez Title: Vice President CELLSTAR GLOBAL SATELLITE SERVICE, LTD. By: National Auto Center, Inc., General Partner By:\s\ Elaine Flud Rodriguez ---------------------------------- Name: Elaine Flud Rodriguez Title: Vice President -10- EX-10.32 7 1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN EXHIBIT 10.32 CELLSTAR CORPORATION 1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN (as amended and restated through January 21, 2000) This Plan amends and restates the CellStar Corporation 1993 Stock Option Plan, as previously amended and restated, which first became effective on December 3, 1993. Capitalized terms used herein are defined in Article 2 hereof. To the extent permitted under Rule 16b-3, Sections 162(m) and 422 of the Code, and any other applicable law or regulation, the Committee shall have the power, in its sole discretion, to apply any or all of the amendments effected hereby to outstanding Stock Options previously granted under the Plan; provided that, to the extent that the application of any such amendment to an outstanding Stock Option shall have an Adverse Consequence for the Company and/or a Participant, such amendment shall not apply unless it is specifically approved by the Committee and consented to by the Participant. This Plan, as amended and restated, shall be effective as of January 21, 2000. ARTICLE 1 PURPOSE The purpose of the Plan is to attract and retain key Employees, Nonemployee Directors and Advisors of the Company and its Subsidiaries and to provide such persons with a proprietary interest in the Company through the granting of Stock Options, Stock Appreciation Rights, Restricted Stock, and/or Cash Awards, whether granted singly, in combination, or in tandem. The Plan is designed to (a) increase the interest of such persons in the welfare of the Company and its Subsidiaries; (b) furnish an incentive to such persons to continue their services for the Company and/or its Subsidiaries; and (c) provide a means through which the Company and its Subsidiaries may attract able persons to enter their employ or serve as Advisors. Unless otherwise specified by the Compensation Committee at the time of grant, with respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee. ARTICLE 2 DEFINITIONS For purposes of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: 2.1 "Adverse Consequence" means (i) the loss of qualification of a Stock Option for special treatment under Rule 16b-3 or the commencement of a new holding period under such rule; (ii) the -1- disqualification of a Stock Option as an Incentive Stock Option or the repricing of such Stock Option; or (iii) the Company's inability to claim the Section 162(m) Exception with respect to a Stock Option or the repricing of such Stock Option. 2.2 "Advisor" means any person performing advisory or consulting services for the Company or any Subsidiary, with or without compensation, to whom the Company chooses to grant an Award in accordance with the Plan, provided that bona fide services must be rendered by such person and such services shall not be rendered in connection with the offer or sale of securities in a capital raising transaction. 2.3 "Applicable Law" shall have the meaning set forth in Article 3 below. 2.4 "Award" means the grant under the Plan of any Stock Options, Stock Appreciation Rights, shares of Restricted Stock, or Cash Award, whether granted singly, in combination, or in tandem (sometimes individually referred to herein as an "Incentive"). 2.5 "Award Agreement" means a written agreement between a Participant and the Company that sets out the terms of the grant of an Award. 2.6 "Award Period" means the period during which one or more Incentives granted under an Award may be exercised. 2.7 "Board" means the Board of Directors of the Company. 2.8 "Cash Award" means an Award granted pursuant to Article 9 of the Plan. 2.9 "Change of Control" means any of the following: (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of the surviving corporation immediately after the merger; (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (iii) approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iv) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals (the "Continuing Directors") who (x) at the effective date of this Plan were directors or (y) become directors after the effective date of this Plan and whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who were directors at the effective date of this Plan or whose election or nomination for election was previously so approved; (v) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7; or (vi) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an aggregate of 15% or more of the voting power of the Company's outstanding voting securities by any person or persons acting as a group (within the meaning of Rule 13d-5 under the Exchange Act) who beneficially owned less than 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan, or the acquisition of beneficial ownership of an additional 5% of the voting power of the Company's outstanding voting securities by any person or group who beneficially owned at least 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan; provided, however, that, -------- ------- notwithstanding the foregoing, an acquisition shall not constitute a Change of -2- Control hereunder if the acquiror is (v) Alan H. Goldfield ("Goldfield"); (w) a trustee or other fiduciary holding securities under an employee benefit plan of the Company and acting in such capacity; (x) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company; (y) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act; or (z) any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; and provided further that no Change of Control shall be deemed to have occurred from a transfer of the Company's voting securities by Goldfield to (v) a member of Goldfield's immediate family (within the meaning of Rule 16a- 1(e) of the Exchange Act) either during Goldfield's lifetime or by will or the laws of descent and distribution; (w) any trust as to which Goldfield or a member (or members) of his immediate family is the beneficiary; (x) any trust as to which Goldfield is the settlor with sole power to revoke; (y) any entity over which Goldfield has the power, directly or indirectly, to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities, by contract or otherwise; or (z) any charitable trust, foundation or corporation under Section 501(c)(3) of the Code that is funded by Goldfield. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Change of Control," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. 2.10 "Code" means the Internal Revenue Code of 1986, as amended. 2.11 "Committee" means the committee(s) appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan. 2.12 "Common Stock" means the Common Stock, par value, $.01 per share, of the Company or, in the event that the outstanding shares of such Common Stock are hereafter changed into or exchanged for shares of a different stock or security of the Company or another corporation, such other stock or security. 2.13 "Company" means CellStar Corporation, a Delaware corporation. 2.14 "Date of Grant" means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement. 2.15 "Discretionary Amendment" means any amendment to the Plan that does not require stockholder approval. 2.16 "Employee" means any employee (including any employee who is also a director and/or officer) of the Company or its Subsidiaries. 2.17 "Employment Agreement" means an agreement between the Company or any Subsidiary and a Participant, setting forth the terms and conditions of the Participant's employment by the Company or such Subsidiary. For purposes of the Plan, such term shall also be deemed to include any agreement between the Company or any Subsidiary and an Advisor, setting forth the terms and conditions of the Advisor's services for the Company or such Subsidiary. 2.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. -3- 2.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.20 "Fair Market Value" of a share of Common Stock means such value as is determined by the Committee on the basis of such factors as it deems appropriate; provided that, if the Common Stock is traded on a national securities exchange or transactions in the Common Stock are quoted on the NASDAQ National Market System, such value shall be determined by the Committee on the basis of the last reported sale price for the Common Stock on the date for which such determination is relevant, as reported on the national securities exchange or the NASDAQ National Market System, as the case may be. If the Common Stock is not listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, the Committee shall make a determination of Fair Market Value on the basis of the closing bid and asked quotations for such stock on the date for which such determination is relevant (as reported by a recognized stock quotation service) or, in the event that there are no bid or asked quotations for such stock on the date for which such determination is relevant, then on the basis of the mean between the closing bid and asked quotations on the date nearest preceding the date for which such determination is relevant for which such bid and asked quotations were available. In no event shall "Fair Market Value" be less than the par value of the Common Stock. 2.21 "Incentive" shall have the meaning given it in Section 2.4 above. 2.22 "Incentive Stock Option" or "ISO" means a Stock Option that by its terms is intended to be treated as an "incentive stock option" within the meaning of Section 422 of the Code. 2.23 "Mandated Restrictions" shall have the meaning set forth in Article 3 below. 2.24 "Nonemployee Director" means a member of the Board of Directors of the Company or any Subsidiary who is not an Employee. 2.25 "Non-qualified Stock Option" means any Stock Option that does not qualify as an Incentive Stock Option. 2.26 "Option Exercise Price" means the price that must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock. 2.27 "Option Period" means the period during which a Stock Option may be exercised. 2.28 "Participant" shall mean an Employee, Nonemployee Director or Advisor to whom an Award is granted under this Plan. 2.29 "Plan" means this CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan, as amended from time to time. 2.30 "Reporting Participant" means a Participant who is subject to the reporting requirements of Section 16 of the Exchange Act. 2.31 "Restricted Stock" means shares of Common Stock issued or transferred to a Participant pursuant to this Plan, which shares are subject to the restrictions or limitations set forth in Article 7 of this Plan and in the related Restricted Stock Agreement. -4- 2.32 "Restricted Stock Agreement" means a written agreement between the Company and a Participant with respect to an Award of Restricted Stock. 2.33 "Retirement" means Termination of Service at or after the Company's established retirement age, unless otherwise defined in a particular Award Agreement. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Retirement," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. 2.34 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time. 2.35 "SAR Price" means the price that must be paid by a Participant upon exercise of an SAR, which shall be at least the Fair Market Value of each share of Common Stock covered by the SAR, determined on the Date of Grant of the SAR. 2.36 "Section 162(m)" means Section 162(m) of the Code and the regulations promulgated thereunder from time to time. 2.37 "Section 162(m) Exception" means the exception under Section 162(m) for "qualified performance-based compensation." 2.38 "Stock Appreciation Right" or "SAR" means the right to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares. 2.39 "Stock Appreciation Right Agreement" means an agreement between the Company and a Participant setting forth the terms and conditions of an Award of Stock Appreciation Rights. 2.40 "Stock Option" means a Non-qualified Stock Option or an Incentive Stock Option to purchase Common Stock. 2.41 "Stock Option Agreement" means a written agreement between the Company and a Participant setting forth the terms and conditions of an Award of Stock Options. 2.42 "Subsidiary" means a subsidiary corporation of the Company, within the meaning of Section 424(f) of the Code; provided that, with respect to any Awards under the Plan other than Incentive Stock Options, the term "Subsidiary" shall be deemed to include (i) any limited partnership, if the Company or any subsidiary corporation owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (ii) any partnership, if the partners thereof are composed only of the Company, any subsidiary corporation, or any limited partnership listed in item (i) above. 2.43 "Ten Percent Owner" means a person who owns, or is deemed within the meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or its parent (within the meaning of Section 424(e) of the Code) or -5- Subsidiaries). Whether a person is a Ten Percent Owner shall be determined with respect to a Stock Option based on the facts existing immediately prior to the Date of Grant of such Stock Option. 2.44 "Termination of Service" occurs when a Participant who is an Employee, Nonemployee Director or Advisor shall cease to serve as an Employee, Nonemployee Director or Advisor for any reason; provided that, with respect to Incentive Stock Options, Termination of Service occurs when a Participant ceases to serve as an Employee. 2.45 "Total and Permanent Disability" of a Participant means that the Participant is qualified for long-term disability benefits under the Company's disability plan or insurance policy; or, if no such plan or policy is then in existence, that the Participant, because of ill health, physical or mental disability or any other reason beyond his or her control, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee; provided that, with respect to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the Code. With respect to any Award other than an Incentive Stock Option, to the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Total and Permanent Disability," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. ARTICLE 3 ADMINISTRATION 3.1 In General. The Plan shall be administered by the Board or by a committee appointed by the Board, consisting of at least two members of the Board; provided that, (i) with respect to any Award that is intended to satisfy the requirements of Rule 16b-3, such Award shall be granted and administered by the full Board or by a committee of the Board consisting of at least such number of directors as are required from time to time by Rule 16b-3, and each such Board or committee member shall meet such qualifications as are required by Rule 16b-3 from time to time; and (ii) with respect to any Award that is intended to satisfy the requirements of the Section 162(m) Exception, such Award shall be granted and administered by a committee of the Board consisting of at least such number of directors as are required from time to time to satisfy the Section 162(m) Exception, and each such committee member shall meet such qualifications as are required, from time to time, to satisfy the Section 162(m) Exception. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. 3.2 Grants By The Committee. Subject to the provisions of the Plan and except as provided in Section 3.3 below, the Committee shall have the sole discretion and authority to determine and designate from time to time the eligible persons to whom Awards will be granted and to determine and interpret the terms and provisions of each Award Agreement, including without limitation the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee. The Committee shall determine whether an Award shall include one type of Incentive, two -6- or more Incentives granted in combination, or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive). 3.3 Delegation of Authority by Committee. Subject to the provisions of the Plan, the Committee may from time to time delegate to the Chief Executive Officer of the Company (the "CEO") the authority, subject to such terms as the Committee shall determine, to determine and designate from time to time the eligible persons to whom Awards may be granted and to perform other specified functions under the Plan; provided, however, that the CEO may not grant any Award to, or perform any function related to an Award of, any individual (i) then subject to Section 16 of the Exchange Act or (ii) who is or, in the determination of the Committee, may become a "covered employee" as that term is defined in Section 162(m) of the Code, and any such grant or function relating to such individuals shall be performed solely by the Committee to ensure compliance with the applicable requirements of the Exchange Act and the Code. Any such delegation of authority by the Committee shall be set forth in writing and shall specify the all of the terms and conditions of the delegation. The written delegation of authority may: (i) authorize the CEO to grant Awards pursuant to Sections 6.1, 7.1, 8.1, and 9.1 of the Plan and may set forth the types of Awards that may be granted, (ii) specify the number of shares of Common Stock that may be awarded to any individual Participant and to all Participants during a specified period of time, (iii) specify the amount of any Cash Award and any conditions, limitations, or restrictions to be imposed on Cash Awards, and (iv) specify the exercise price (or the method for determining the exercise price) of an Award, the Option Period, vesting schedule, and any other terms, conditions, or restrictions that may be imposed by the Committee in its sole discretion. The written delegation of the authority shall require the CEO to provide the Committee, on at least a quarterly basis, a report that identifies the Awards granted, the Participants to whom Awards have been granted, the number of shares of Common Stock subject to each Award, the exercise price, and any other terms which are in the CEO's discretion as set forth in the written delegation of authority. Any Award granted by the CEO pursuant to a written delegation of authority shall be deemed granted by the Committee, and any action properly taken by the CEO pursuant to a written delegation of authority shall be deemed the action of the Committee, and all such grants and actions shall be subject to Section 3.4 of the Plan. 3.4 Interpretation of the Plan. Subject to the provisions of the Plan, the Committee shall have sole discretion and authority to (i) interpret the Plan; (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan; (iii) modify or amend any Award Agreement or waive any conditions or restrictions applicable to any Stock Option or SAR (or the exercise thereof) or to any shares of Restricted Stock; and (iv) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. With respect to restrictions ("Mandated Restrictions") in the Plan that are based on the requirements of Rule 16b-3, Section 422 of the Code, the Section 162(m) Exception, the rules of any exchange upon which the Company's securities are listed, or any other applicable law, rule or restriction (collectively, "Applicable Law"), to the extent that any such Mandated Restrictions are no longer required by Applicable Law as determined by the Committee in the Committee's sole discretion, the Committee and the CEO, as applicable, shall have the authority to grant Awards that are not subject to such Mandated Restrictions and/or to waive any such Mandated Restrictions with respect to outstanding Awards. -7- ARTICLE 4 ELIGIBILITY Any Employee, Nonemployee Director, or Advisor whose judgment, initiative, and efforts contributed or may be expected to contribute to the successful performance of the Company is eligible to participate in the Plan; provided that only Employees shall be eligible to receive Incentive Stock Options; and provided further that, to the extent required by Applicable Law, no member of the Committee shall be eligible to participate in the Plan. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee, Nonemployee Director, or Advisor. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine; provided that no Participant may receive during any fiscal year of the Company Awards in the form of shares of Common Stock, including Stock Options, SARs or Restricted Stock, the aggregate of which shall exceed 250,000 shares of Common Stock. Except as required by this Plan, Awards granted at different times need not contain similar provisions. The Committee's determinations under the Plan (including without limitation determinations of which persons, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Employees, Nonemployee Directors and/or Advisors who receive, or are eligible to receive, Awards under the Plan. ARTICLE 5 SHARES SUBJECT TO PLAN The number of shares of Common Stock that may be issued pursuant to Awards granted under the Plan is 8,000,000 (as may be adjusted in accordance with Articles 12 and 13 hereof). Such shares of Common Stock may be made available from either authorized but unissued Common Stock or Common Stock held by the Company in its treasury. To the extent permitted by the stockholder approval requirements of Rule 16b-3, Sections 162(m) and 422 of the Code, and any other applicable law or regulation, shares of Common Stock previously subject to Awards which are forfeited, terminated, settled in cash in lieu of Common Stock, or exchanged for Awards that do not involve Common Stock, or that are subject to expired and unexercised Stock Options or SARs, shall immediately become available for Awards under the Plan. During the term of this Plan, the Company will at all times reserve and keep available a number of shares of Common Stock sufficient to satisfy the requirements of this Plan. ARTICLE 6 STOCK OPTIONS 6.1 GRANT OF STOCK OPTIONS. The Committee may, in its sole discretion, grant Stock Options in accordance with the terms and conditions set forth in the Plan. The grant of a Stock Option shall be evidenced by a Stock Option Agreement setting forth the Date of Grant, the total number of shares purchasable pursuant to the Stock Option, the Option Period, the vesting schedule (if any), and such other terms and provisions as are consistent with the Plan. 6.2 OPTION EXERCISE PRICE. The Option Exercise Price for any Stock Option shall be determined by the Committee and shall be no less than One Hundred Percent (100%) of the Fair Market Value per share of Common Stock on the Date of Grant; provided that, with respect to any Incentive Stock Option that is -8- granted to a Ten Percent Owner, the Option Exercise Price shall be at least 110% of the Fair Market Value of the Common Stock on the Date of Grant. 6.3 OPTION PERIOD. The Option Period for any Stock Option shall be determined by the Committee; provided that no portion of any Stock Option may be exercised after the expiration of ten (10) years from its Date of Grant; and provided further that, with respect to any Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant. 6.4 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries or parent) are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent that any Stock Option is granted under the Plan that is first exercisable in excess of the foregoing limitations, such Stock Option shall be deemed to be a Non- qualified Stock Option. 6.5 EXERCISE OF STOCK OPTIONS. Subject to the terms, conditions, and restrictions of the Plan, each Stock Option may be exercised in accordance with the terms of the Stock Option Agreement pursuant to which the Stock Option is granted. If the Committee imposes conditions upon exercise of any Stock Option, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Stock Option may be exercised; provided that, the Committee shall not, without the Participant's consent, accelerate any Incentive Stock Option if such acceleration would disqualify such Stock Option as an Incentive Stock Option. Notwithstanding anything in the Plan to the contrary, to the extent required by Rule 16b-3, a Reporting Participant may not exercise a Stock Option or Stock Appreciation Right until at least six months have expired from the "date of grant" (within the meaning of Rule 16b-3). Subject to such administrative regulations as the Committee may from time to time adopt, a Stock Option will be deemed exercised for purposes of the Plan when (i) written notice of exercise has been received by the Company at its principal office (which notice shall set forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised and the date of exercise thereof, which shall be at least three (3) days after giving such notice, unless an earlier time shall have been mutually agreed upon) and (ii) payment of the Option Exercise Price is received by the Company in accordance with Section 6.6 below; provided that, with respect to a cashless exercise of any Stock Option (in accordance with clause (c) of Section 6.6 below), such Stock Option will be deemed exercised for purposes of the Plan on the date of sale of the shares of Common Stock received upon exercise. No Stock Option may be exercised for a fractional share of Common Stock. 6.6 PAYMENT OF OPTION EXERCISE PRICE. The Option Exercise Price may be paid as follows: (a) in cash or by certified check, bank draft, or money order payable to the order of the Company, (b) with Common Stock (including Restricted Stock), valued at its Fair Market Value on the date of exercise, (c) by delivery (including by FAX) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted -9- Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted. Upon payment of all amounts due from the Participant, the Company shall cause certificates for the Common Stock then being purchased to be delivered to the Participant (or the person exercising the Participant's Stock Option in the event of his death) at its principal business office or other mutually agreed upon location within ten (10) business days after the exercise. If the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, the Participant's right to purchase such Common Stock may be terminated by the Company. 6.7 LIMITATION ON INCENTIVE STOCK OPTION CHARACTERIZATION. To the extent that any Stock Option fails to qualify as an Incentive Stock Option, such Stock Option will be considered a Non-qualified Stock Option. 6.8 TERMINATION OF SERVICE. Unless otherwise permitted by the Committee, in its sole discretion, in the event of Termination of Service of a Participant, any Stock Options held by such Participant shall be exercisable as follows: (a) Termination Due to Death or Total and Permanent Disability. In the event of a Participant's Termination of Service due to death or Total and Permanent Disability, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of the Participant's death or Total and Permanent Disability (as applicable), for a period of twelve (12) months after the Participant's death or Total and Permanent Disability (as applicable) or until the expiration of the original Option Period (if sooner). (b) Termination Due to Retirement. In the event of a Participant's Termination of Service due to Retirement, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of the Participant's Retirement, for a period of three (3) months after the date of the Participant's Retirement or until the expiration of the original Option Period (if sooner). (c) Termination for Reasons Other than Death, Total and Permanent Disability, or Retirement. In the event of a Participant's Termination of Service for any reason other than death, Total and Permanent Disability, or Retirement, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of such Termination of Service, for a period of thirty (30) days after the date of such Termination of Service or until the expiration of the original Option Period (if sooner). -10- 6.9 TRANSFERABILITY OF STOCK OPTIONS. (a) Incentive Stock Options. Incentive Stock Options may not be transferred or assigned other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant's legally authorized representative, and each Stock Option Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in this Section 6.9(a) that is not required for compliance with Section 422 of the Code. (b) Non-qualified Stock Options. (1) Participants Other Than Reporting Participants. With respect to Non-qualified Stock Options granted hereunder to any Participant who is not a Reporting Participant, the Committee may, in its sole discretion, provide in any Stock Option Agreement (or in an amendment to any existing Stock Option Agreement) such provisions regarding transferability of the Non-qualified Stock Options as the Committee, in its sole discretion, deems appropriate. (2) Reporting Participants. Except as may be specified by the Committee in accordance with the following paragraph, a Non-qualified Stock Option granted to a Reporting Participant may not be transferred or assigned other than by will or the laws of descent and distribution or pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of ERISA, or the rules thereunder. The designation by a Reporting Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may, in its sole discretion, provide in any Stock Option Agreement (or in an amendment to any existing Stock Option Agreement) that Non-qualified Stock Options granted hereunder to a Reporting Participant may be transferred to members of the Reporting Participant's immediate family, trusts for the benefit of such immediate family members and partnerships in which such immediate family members are the only partners, provided that there cannot be any consideration for the transfer. The Committee may waive or modify any limitation contained in this Section 6.9(b)(2) that is not required for compliance with Rule 16b-3. ARTICLE 7 RESTRICTED STOCK 7.1 GRANT OF RESTRICTED STOCK. The Committee may, in its sole discretion, grant Restricted Stock Awards in accordance with the terms and conditions set forth in the Plan. The grant of an Award of Restricted Stock shall be evidenced by a Restricted Stock Agreement setting forth (i) the Date of Grant, (ii) the number of shares of Restricted Stock awarded, (iii) the price, if any, to be paid by the Participant for such Restricted Stock, (iv) the time or times within which such Award may be subject to forfeiture, (v) specified performance goals, or other criteria, if any, that the Committee determines must be met in order to remove any restrictions (including vesting) on such Award, and (vi) such other terms and provisions as are consistent -11- with the Plan. The provisions of Restricted Stock Awards need not be the same with respect to each Participant. 7.2 RESTRICTIONS AND CONDITIONS. Each Restricted Stock Award shall confer upon the recipient thereof the right to receive a specified number of shares of Common Stock in accordance with the terms and conditions of each Participant's Restricted Stock Agreement and the restrictions and conditions set forth below: (a) The shares of Common Stock awarded hereunder to a Participant shall be restricted for a period of time (the "Restriction Period") to be determined by the Committee for each Participant at the time of the Award. The restrictions shall prohibit the sale, transfer, pledge, assignment or other encumbrance of such shares and shall provide for possible reversion thereof to the Company in accordance with subparagraph (f) during the Restriction Period. The Restriction Period shall commence on the Date of Grant and, unless otherwise established by the Committee in the Restricted Stock Agreement, shall expire upon satisfaction of the conditions set forth in the Award Agreement, which conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) any other factor, as determined by the Committee in its sole discretion. The Committee may, in its sole discretion, remove any or all of the restrictions on such Restricted Stock whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Award, such action is appropriate. (b) From the Date of Grant of a Restricted Stock Award, the Participant shall have, with respect to his or her shares of Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon, subject to forfeiture of such rights, as provided in subparagraph (f) below. (c) Each Participant who is awarded Restricted Stock shall be issued a stock certificate or certificates in respect of such shares of Common Stock, which shall be registered in the name of the Participant, but shall be delivered by the Participant to the Company together with a stock power endorsed in blank. Each such certificate shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, substantially in the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN THE CELLSTAR CORPORATION 1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN AND IN A RELATED AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND CELLSTAR CORPORATION. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE AT THE PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF, AND WILL BE FURNISHED WITHOUT CHARGE UPON WRITTEN REQUEST BY THE RECORD HOLDER TO, CELLSTAR CORPORATION, 1730 BRIERCROFT COURT, CARROLLTON, TEXAS 75006." -12- Each Restricted Stock Agreement shall require that (i) each Participant, by his or her acceptance of Restricted Stock, shall irrevocably grant to the Company a power of attorney to transfer any shares so forfeited to the Company and agrees to execute any documents requested by the Company in connection with such forfeiture and transfer, and (ii) such provisions regarding returns and transfers of stock certificates with respect to forfeited shares of Common Stock shall be specifically performable by the Company in a court of equity or law. (d) Upon the lapse of a Restriction Period, the Company will return the stock certificates representing shares of Common Stock with respect to which the restrictions have lapsed to the Participant or his or her legal representative, and pursuant to the instruction of the Participant or his or her legal representative will issue a certificate for such shares that does not bear the legend set forth in subparagraph (c) above. (e) Any other securities or assets (other than ordinary cash dividends) that are received by a Participant with respect to shares of Restricted Stock awarded to such Participant, which shares are still subject to restrictions established in accordance with subparagraph (a) above, will be subject to the same restrictions and will be delivered by the Participant to the Company as provided in subparagraph (c) above. (f) Subject to the provisions of the particular Award Agreement, and unless otherwise permitted by the Committee in its sole discretion, upon Termination of Service for any reason during the Restriction Period, any nonvested shares of Restricted Stock held by such Participant shall be forfeited by the Participant. In the event a Participant has paid any consideration to the Company for forfeited Restricted Stock, the Company shall, as soon as practicable after the event causing forfeiture (but in any event within 5 business days), pay to the Participant, in cash, an amount equal to the total consideration paid by the Participant for such forfeited shares. Upon any forfeiture, all rights of a Participant with respect to the forfeited shares of Restricted Stock shall cease and terminate, without any further obligation on the part of the Company. 7.3 NOTICE TO COMPANY OF SECTION 83(B) ELECTION. Any Participant who exercises an election under Section 83(b) of the Code to have his or her receipt of shares of Restricted Stock taxed currently, without regard to restrictions, must give notice to the Company of such election immediately upon making such election. Any such election must be made within 30 days after the effective date of issuance and cannot be revoked except with the consent of the Internal Revenue Service. ARTICLE 8 STOCK APPRECIATION RIGHTS 8.1 GRANTS OF SARs. The Committee may, in its sole discretion, grant Stock Appreciation Rights in accordance with the terms and conditions set forth in the Plan. Each SAR Agreement may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as are determined by the Committee in its sole discretion. An SAR may be granted in combination with, in addition to, or completely independent of, a Stock Option or any other Award. An SAR shall entitle a Participant to surrender to the Company all or a portion of the SAR in exchange for an amount equal to the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the SAR Price, multiplied by the total number of shares of Common Stock with respect to which the SAR shall have been exercised. -13- 8.2 SAR PRICE. The SAR Price for any share of Common Stock subject to an SAR shall be no less than One Hundred Percent (100%) of the Fair Market Value of the share on the Date of Grant. 8.3 AWARD PERIOD. Subject to Section 8.9 below, the Award Period for any Stock Appreciation Right shall be determined by the Committee; provided that no portion of any Stock Appreciation Right may be exercised after the expiration of ten (10) years from its Date of Grant. 8.4 FORM OF PAYMENT. In the discretion of the Committee, the Company may satisfy its payment obligation upon a Participant's exercise of an SAR (i) in cash, (b) in shares of Common Stock valued at their Fair Market Value on the date of exercise, or (c) in part with cash and in part with shares of Common Stock. 8.5 EXERCISE OF SARS. Subject to the following paragraph, each Stock Appreciation Right shall be exercisable in accordance with the terms of the Stock Appreciation Rights Agreement pursuant to which the Stock Appreciation Right is granted. Subject to the conditions of this Section 8.5 and such administrative regulations as the Committee may from time to time adopt, an SAR may be exercised by the delivery of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the date of exercise thereof, which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the date of exercise, the Participant shall receive from the Company in exchange therefor payment in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) of one share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered. A transaction under the Plan involving the exercise of an SAR and the receipt of cash in complete or partial settlement of the SAR by a Reporting Participant shall be subject to the satisfaction of all of the following conditions: (a) the Company shall have been subject to and complied with the reporting requirements of Section 13(a) of the Exchange Act for at least one year prior to the exercise of the SAR; (b) the Company regularly releases for publication quarterly and annual summary statements of sales and earnings; (c) any election by the Reporting Participant to receive cash in full or partial settlement of the SAR, as well as the exercise by the insider of the SAR for cash, shall have been made during the period beginning on the third business day following the date of release of the financial data specified in subparagraph (b) above and ending on the twelfth day following such date, unless the exercise by the participant of the SAR is for cash and the date of exercise is automatic or fixed in advance under the Plan and is outside the control of the participant, in which case the condition in this subparagraph (c) shall not be applicable; and (d) The SAR must be held for six months from the date of acquisition to the date of cash settlement. If the conditions to the exercise of an SAR by a Reporting Participant contained in Rule 16b-3 are subsequently modified, the foregoing conditions shall automatically be deemed amended to incorporate such -14- modifications. Furthermore, the Committee may waive any limitation contained in this Section that is not required for compliance with Rule 16b-3. 8.6 EFFECT ON STOCK OPTIONS AND VICE-VERSA. Whenever a Stock Appreciation Right is granted in relation to a Stock Option and the exercise of one affects the right to exercise the other, the number of shares of stock available under the Stock Option to which the Stock Appreciation Right relates will decrease by a number equal to the number of shares of Common Stock for which the Stock Appreciation Right is exercised. Upon the exercise of a Stock Option, any related SAR will terminate as to any number of shares of Common Stock subject to such Stock Appreciation Right that exceeds the total number of shares of Common Stock for which the Stock Option remains unexercised. 8.7 TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise permitted by the Committee, in its sole discretion, in the event of Termination of Service of a Participant, any Stock Appreciation Rights held by such Participant shall be exercisable as set forth below; provided that, whenever a Stock Appreciation Right is granted in relation to a Stock Option and the exercise of one affects the right to exercise the other, the Stock Appreciation Right may be exercised only during the period, if any, within which the Stock Option to which it relates may be exercised. (a) Termination Due to Death or Total and Permanent Disability. In the event of a Participant's Termination of Service due to death or Total and Permanent Disability, such Participant's Stock Appreciation Rights may be exercised, to the extent such Stock Appreciation Rights could have been exercised by the Participant on the date of the Participant's death or Total and Permanent Disability (as applicable), for a period of twelve (12) months after the Participant's death or Total and Permanent Disability (as applicable) or until the expiration of the original Award Period (if sooner). (b) Termination Due to Retirement. In the event of a Participant's Termination of Service due to Retirement, such Participant's Stock Appreciation Rights may be exercised, to the extent such Stock Appreciation Rights could have been exercised by the Participant on the date of the Participant's Retirement, for a period of three (3) months after the date of the Participant's Retirement or until the expiration of the original Award Period (if sooner). (c) Termination for Reasons Other than Death, Total and Permanent Disability, or Retirement. In the event of a Participant's Termination of Service for any reason other than death, Total and Permanent Disability, or Retirement, such Participant's Stock Appreciation Rights may be exercised, to the extent such Stock Appreciation Rights could have been exercised on the date of such Termination of Service, for a period of thirty (30) days after the date of such Termination of Service or until the expiration of the original Award Period (if sooner). 8.8 TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. (a) Participants Other Than Reporting Participants. Subject to Section 8.9 below, with respect to SARs granted hereunder to any Participant who is not a Reporting Participant, the Committee may, in its sole discretion, provide in any Stock Appreciation Rights Agreement (or in an amendment to any existing Stock Appreciation Rights Agreement) such provisions regarding transferability of the SARs as the Committee, in its sole discretion, deems appropriate. -15- (b) Reporting Participants. Subject to Section 8.9 below, and except as may be specified by the Committee in accordance with the following paragraph, a Stock Appreciation Right granted to a Reporting Participant may not be transferred or assigned other than by will or the laws of descent and distribution or pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of ERISA, or the rules thereunder. The designation by a Reporting Participant of a beneficiary will not constitute a transfer of the SAR. Subject to Section 8.9 below, the Committee may, in its sole discretion, provide in any Stock Appreciation Rights Agreement (or in an amendment to any existing Stock Appreciation Rights Agreement) that Stock Appreciation Rights granted hereunder to a Reporting Participant may be transferred to members of the Reporting Participant's immediate family, trusts for the benefit of such immediate family members and partnerships in which such immediate family members are the only partners, provided that there cannot be any consideration for the transfer. The Committee may waive or modify any limitation contained in this Section 8.8(b) that is not required from compliance with Rule 16b-3. 8.9 TANDEM INCENTIVE STOCK OPTION - STOCK APPRECIATION RIGHT. Whenever an Incentive Stock Option and a Stock Appreciation Right are granted together and the exercise of one affects the right to exercise the other, the following requirements shall apply: (a) The Stock Appreciation Right shall expire no later than the expiration of the underlying Incentive Stock Option; (b) The Stock Appreciation Right may be for no more than the difference between the Stock Option Exercise Price of the underlying Incentive Stock Option and the Fair Market Value of the Common Stock subject to the underlying Incentive Stock Option at the time the SAR is exercised; (c) The Stock Appreciation Right is transferable only when the underlying Incentive Stock Option is transferable, and under the same conditions; (d) The Stock Appreciation Right may be exercised only when the underlying Incentive Stock Option is eligible to be exercised; and (e) The Stock Appreciation Right may be exercised only when the Fair Market Value of the Common Stock subject to the underlying Incentive Stock Option exceeds the Option Exercise Price of the underlying Incentive Stock Option. ARTICLE 9 CASH AWARDS 9.1 GRANT OF CASH AWARDS. The Committee may, in its sole discretion, grant Cash Awards in accordance with the terms and conditions set forth in the Plan. Each related Award Agreement shall set forth (i) the amount of the Cash Award, (ii) the time or times within which such Award may be subject to forfeiture, if any, (iii) specified performance goals, or other criteria, if any, as the Committee may determine -16- must be met in order to remove any restrictions (including vesting) on such Award, and (iv) any other terms, limitations, restrictions, and conditions of the Incentive that are consistent with this Plan. The Award Agreement shall also set forth the vesting period for the Cash Award, if any, which shall commence on the Date of Grant and, unless otherwise established by the Committee in the Award Agreement, shall expire upon satisfaction of the conditions set forth in the Award Agreement. Such conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) other comparable measurements of Company performance, as may be determined by the Committee in its sole discretion. 9.2 TERMINATION OF SERVICE. Subject to the provisions of the particular Award Agreement, and unless otherwise permitted by the Committee, in its sole discretion, upon Termination of Service for any reason during a vesting period (if any), the nonvested portion of a Cash Award shall be forfeited by the Participant. Upon any forfeiture, all rights of a Participant with respect to the forfeited Cash Award shall cease and terminate, without any further obligation on the part of the Company. 9.3 FORM OF PAYMENT. In the sole discretion of the Committee, the Company may satisfy its obligation under a Cash Award by the distribution of that number of shares of Common Stock, Stock Options, or Restricted Stock, or any combination thereof, having an aggregate Fair Market Value (as of the date of payment) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash. If required by Rule 16b-3 at the time of distribution, any shares of Common Stock distributed to a Reporting Participant must be held by such Participant for at least six months from the date of distribution. ARTICLE 10 AMENDMENT OR DISCONTINUANCE The Plan may be amended or discontinued by the Board, or, if the Board has specifically delegated this authority to the Committee, by the Committee, without the approval of the stockholders; provided that no amendment shall be made without approval of the stockholders of the Company if such approval is required under the Code, Rule 16b-3, the requirements of any exchange upon which the Company's securities are listed, or any other applicable law or regulation. In addition, no termination or amendment of the Plan may, without the consent of the Participant to whom any Award has theretofore been granted, adversely affect the rights of such Participant with respect to such Award. ARTICLE 11 TERM Unless sooner terminated by action of the Board, the Plan will terminate on December 3, 2003. ARTICLE 12 CAPITAL ADJUSTMENTS If at any time while the Plan is in effect, or while unexercised Stock Options or SARs or unvested shares of Restricted Stock are outstanding, there shall be any increase or decrease in the number of issued -17- and outstanding shares of Common Stock resulting from (1) the declaration or payment of a stock dividend, (2) any recapitalization resulting in a stock split-up, combination, or exchange of shares of Common Stock, or (3) other increase or decrease in such shares effected without receipt of consideration by the Company, then and in such event: (a) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under the Plan and in the maximum number of shares of Common Stock then subject to being awarded to a Participant, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock shall continue to be subject to being so awarded; (b) Appropriate adjustments shall be made in the number of shares of Common Stock purchasable under outstanding, unexercised Stock Options and the Option Exercise Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Exercise Price; (c) Appropriate adjustments shall be made in the number of shares of Common Stock subject to outstanding, unexercised SARs and the SAR Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; and (d) Appropriate adjustments shall be made in the number of outstanding shares of Restricted Stock with respect to which restrictions have not yet lapsed prior to any such change. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, (i) the number, or Option Exercise Price, of shares of Common Stock then subject to outstanding Stock Options granted under the Plan, (ii) the number, or SAR Price, of SARs then subject to outstanding SARs granted under the Plan, or (iii) the number of outstanding shares of Restricted Stock. Upon the occurrence of each event requiring an adjustment with respect to Stock Options, SARs, or shares of Restricted Stock, the Company shall mail to each affected Participant its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant. ARTICLE 13 RECAPITALIZATION, MERGER AND CONSOLIDATION (a) The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company's capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of -18- all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) to which a holder of the number of shares of Common Stock subject to the Incentive would have been entitled. (c) In the event of any merger or consolidation pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised or unvested portions of outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving or consolidated company that were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives to thereafter pertain to such stock, securities, cash, or property in accordance with their terms (subject to subparagraph (d) below). Notwithstanding the foregoing, however, all such Incentives may be canceled by the Board as of the effective date of any such reorganization, merger, or consolidation, by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the exercise during the thirty (30) day period next preceding such effective date of any outstanding Stock Options or SARs, whether or not vested in accordance with their original terms, and by waiving all restrictions on outstanding shares of Restricted Stock. (d) In the event of a Change of Control, then, notwithstanding any other provision in this Plan to the contrary, all unmatured installments of Incentives outstanding shall thereupon automatically be accelerated and exercisable in full, and all restrictions and/or performance goals with respect to any Incentive shall be deemed satisfied. The determination of the Committee that any of the foregoing conditions has been met shall be binding and conclusive on all parties. ARTICLE 14 LIQUIDATION OR DISSOLUTION In case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant may thereafter receive upon exercise of any Option or SAR (in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive) the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such), then in such event the exercise prices then in effect with respect to any outstanding Stock Options or SARs shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company's Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution. -19- ARTICLE 15 INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS Stock Options, SARs and shares of Restricted Stock may be granted under the Plan from time to time in substitution for options, stock appreciation rights or shares of restricted stock held by employees of a corporation who become or are about to become Employees of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of stock of the employing corporation. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options, stock appreciation rights or shares of restricted stock in substitution for which they are granted. ARTICLE 16 MISCELLANEOUS PROVISIONS 16.1 INVESTMENT INTENT. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution. 16.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary. 16.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation. 16.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein. 16.5 COMPLIANCE WITH SECURITIES LAWS AND OTHER RULES AND REGULATIONS. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall have no obligation to sell or issue shares of Common Stock under any Incentive if the Committee determines, in its sole discretion, that issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority (including Section 16 of the Exchange Act) or any securities exchange or other forum in which shares of Common Stock are traded; and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require -20- such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. 16.6 WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF ISO HOLDING PERIOD. (a) Condition Precedent. Whenever shares of Common Stock are to be issued pursuant an Award, the Company shall have the right to require the Participant to remit to the Company an amount sufficient to satisfy federal, state, local or other withholding tax requirements prior to the delivery of any certificate or certificates for such shares of Common Stock. (b) Manner of Satisfying Withholding Obligation. When a Participant is required to pay to the Company an amount required to be withheld under applicable tax laws in connection with an Award, such payment may be made (i) in cash, (ii) by check, (iii) if permitted by the Committee, by delivery to the Company of shares of Common Stock already owned by the Participant having a Fair Market Value on the date the amount of tax to be withheld is to be determined (the "Tax Date") equal to the amount required to be withheld, (iv) with respect to Stock Options, through the withholding by the Company ("Company Withholding") of a portion of the shares of Common Stock acquired upon the exercise of the Stock Options (provided that, with respect to any Stock Option held by a Reporting Participant, at least six months has elapsed between the Date of Grant of such Stock Option and the exercise involving tax withholding) having a Fair Market Value on the Tax Date equal to the amount required to be withheld, or (v) in any other form of valid consideration, as permitted by the Committee in its discretion; provided that a Reporting Participant shall not be permitted to satisfy his or her withholding obligation through Company Withholding unless required to do so by the Committee, in its sole discretion. The Committee may waive or modify any limitation contained in this Section that is not required for compliance with Rule 16b-3. (c) Notice of Disposition of Stock Acquired Pursuant to Incentive Stock Options. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code. 16.7 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company. 16.8 LEGEND. Each certificate representing shares of Common Stock issued to a Participant pursuant to the Plan shall bear the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof and the applicable security laws (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed): -21- On the face of the certificate: "Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate." On the reverse: "The shares of stock evidenced by this certificate are subject to and transferrable only in accordance with that certain CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan, as amended from time to time, a copy of which is on file at the principal office of the Company in Carrollton, Texas. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan. By acceptance of this certificate, any holder, transferee or pledge hereof agrees to be bound by all of the provisions of said Plan." Insert the following legend on the certificate if the shares were not issued in a transaction registered under the applicable federal and state securities laws: "Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company." A copy of this Plan shall be kept on file in the principal office of the Company in Carrollton, Texas. IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of January 21, 2000, by its President and Secretary pursuant to prior action taken by the Board. CELLSTAR CORPORATION By: /s/ Dale H. Allardyce --------------------- Dale H. Allardyce President and COO Attest: /s/ Elaine Flud Rodriguez - ------------------------- Elaine Flud Rodriguez, Secretary -22- EX-21.1 8 SUBSIDIARIES OF THE COMPANY Exhibit 21.1 ------------ List of Subsidiaries and Foreign Affiliates ------------------------------------------- and Percentage of CellStar Corporation's Ownership /1/ -------------------------------------------------- (as of February 23, 2000) Name of Subsidiary Incorporation - ------------------ ------------- National Auto Center, Inc. Delaware CellStar Financo, Inc. Delaware CellStar Air Services, Inc. Delaware A&S Air Service, Inc. Delaware CellStar Telecom, Inc. Delaware CellStar Fulfillment, Inc. Delaware CellStar International Corporation/Asia Delaware CellStar International Corporation/SA Delaware NAC Holdings, Inc. Nevada Florida Properties, Inc. Texas Audiomex Export Corp. Texas CellStar, Ltd. Texas Limited Partnership CellStar Fulfillment, Ltd. Texas Limited Partnership CellStar Global Satellite Services, Ltd. Texas Limited Partnership CellStar, S.A. Argentina CellStar Argentina, S.A. Argentina CellStar Foreign Sales Corporation Barbados CellStar International Telefonia Celular Ltda. Brazil CellStar do Brasil Ltda. /2/ Brazil Saporito Holdings, Inc. British Virgin Islands Soverign Eagle Investment Company British Virgin Islands Gingham Management Limited Bahamas Sizemore International B.V. Netherlands Antilles CellStar Celular Chile, S.A. Chile CellStar de Colombia, S.A. Colombia - ----------------------------------------- /1/ 100%, unless otherwise stated. /2/ 51% owned. Name of Subsidiary Incorporation - ------------------ ------------- CellStar Ecuador, S.A. Ecuador CellStar Telecommunications Service Hong Kong (Asia) Limited /3/ CellStar (Asia) Corporation Limited Hong Kong HCL-CellStar Ltd. /4/ India CellStar Ireland Ireland CellStar Amtel Sdn Bhd /5/ Malaysia Sunrise Mobil Sdn Bhd Malaysia Celular Express S.A. de C.V. Mexico CellStar Celular C.A. Venezuela CellStar Mexico S.A. de C.V. Mexico Celular Express Management S.A. de C.V. Mexico Shanghai CellStar International Trading Co. Ltd. Peoples Republic of China Shanghai Fengxing CellStar International Peoples Republic of China Trading Co. Ltd. Shenzhen CellStar Honbo Telecommunication Peoples Republic of China Co. Ltd. /6/ CellStar del Peru, S.A. Peru CellStar Philippines, Inc. Philippines CellStar Poland Spolka zo.o. Poland CellStar Pacific Pte. Ltd. Singapore CellStar Singapore Pte. Ltd. Singapore CellStar Holding AB Sweden CellStar-Intercall AB Sweden CellStar Telecommunications Taiwan Co. Ltd. Taiwan CellStar (UK) Ltd. United Kingdom CellStar Netherlands Holdings, B.V. The Netherlands CellStar Netherlands, B.V. The Netherlands CellStar Celular, C.A. Venezuela - ------------------------------------------------ /3/ 60% owned. /4/ 50% owned. /5/ 30% directly owned and 19% beneficially owned. /6/ 51% owned. EX-23.1 9 CONSENT OF KPMG LLP Exhibit 23.1 Independent Auditors' Consent The Board of Directors and Stockholders CellStar Corporation: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-87754, 333-23381 and 333-77415) and Form S-3 (No. 333-41753) of CellStar Corporation of our report dated January 14, 2000, relating to the consolidated balance sheets of CellStar Corporation and subsidiaries as of November 30, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended November 30, 1999, and the related schedule, which report appears in the November 30, 1999 annual report on Form 10-K of CellStar Corporation. /S/ KPMG LLP KPMG LLP Dallas, Texas February 25, 2000 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR NOV-30-1999 DEC-01-1998 NOV-30-1999 95,498 0 339,387 33,152 189,866 638,755 47,910 20,429 706,438 305,914 150,000 0 0 601 249,923 706,438 2,333,805 2,333,805 2,140,375 2,140,375 71,509 10,392 19,027 92,502 23,415 69,087 0 0 0 69,087 1.16 1.12
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