-----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, OVdXVFOphKt2cZX+Zch8j1yKtApuFuUAg3oZ2fPcwx2JkBPr9M4bCbbgVP7wB2r5 t+Ykc4YxvsEcNOPoT2h2lw== /in/edgar/work/20000717/0000930661-00-001721/0000930661-00-001721.txt : 20000920 0000930661-00-001721.hdr.sgml : 20000920 ACCESSION NUMBER: 0000930661-00-001721 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000717 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLSTAR CORP CENTRAL INDEX KEY: 0000913590 STANDARD INDUSTRIAL CLASSIFICATION: [5065 ] IRS NUMBER: 752479727 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22972 FILM NUMBER: 674051 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-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2000 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to______________ Commission File Number 0-22972 CELLSTAR CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2479727 ---------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1730 Briercroft Court 75006 Carrollton, Texas ------ --------------------- (Zip Code) (Address of principal executive offices) (972) 466-5000 ------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- On July 12, 2000 there were 60,142,221 outstanding shares of Common Stock, $0.01 par value per share. 1 CELLSTAR CORPORATION INDEX TO FORM 10-Q
Page PART I - FINANCIAL INFORMATION Number - ------ --------------------- ------ Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (unaudited) May 31, 2000 and November 30, 1999 3 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three and six months ended May 31, 2000 and 1999 4 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS (unaudited) 5 Six months ended May 31, 2000 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six months ended May 31, 2000 and 1999 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21 PART II - OTHER INFORMATION - ------- ----------------- Item 1. LEGAL PROCEEDINGS 22 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 22
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CellStar Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except per share data)
May 31, November 30, 2000 1999 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 79,684 95,498 Accounts receivable (less allowance for doubtful accounts of $56,968 and $33,152, respectively) 302,613 306,235 Inventories 275,566 189,866 Deferred income tax assets 27,021 15,127 Prepaid expenses 26,759 32,029 ------------ ------------ Total current assets 711,643 638,755 Property and equipment, net 25,320 27,481 Goodwill (less accumulated amortization of $11,385 and $10,483, respectively) 31,222 32,584 Other assets 12,631 7,618 ------------ ------------ $ 780,816 706,438 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 285,707 212,999 Notes payable to financial institutions 97,486 50,609 Accrued expenses 25,502 24,864 Income taxes payable 1,781 8,646 Deferred income tax liabilities 1,453 8,796 ------------ ------------ Total current liabilities 411,929 305,914 Long-term debt 150,000 150,000 ------------ ------------ Total liabilities 561,929 455,914 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued - - Common stock, $.01 par value, 200,000,000 shares authorized; 60,142,221 and 60,057,096 shares issued and outstanding, respectively 602 601 Additional paid-in capital 81,298 80,929 Accumulated other comprehensive loss - foreign currency translation adjustments (10,283) (8,509) Retained earnings 147,270 177,503 ------------ ------------ Total stockholders' equity 218,887 250,524 ------------ ------------ $ 780,816 706,438 ============ ============
See accompanying notes to unaudited consolidated financial statements. 3 CellStar Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)
Three months Six months ended May 31, ended May 31, ----------------------------- ---------------------------------- 2000 1999 2000 1999 ------------- ------------- --------------- ---------------- Revenues $ 561,370 570,325 1,151,229 1,085,673 Cost of sales 553,944 521,267 1,095,520 992,976 ------------- ------------- --------------- ---------------- Gross profit 7,426 49,058 55,709 92,697 Selling, general and administrative expenses 58,059 28,304 90,298 53,922 Restructuring charge - 2,868 (157) 2,868 ------------- ------------- --------------- ---------------- Operating income (loss) (50,633) 17,886 (34,432) 35,907 Other income (expense): Equity in income (loss) of affiliated companies (466) 100 (381) 6,123 Gain on sale of assets - 6,047 - 8,247 Interest expense (4,702) (5,396) (8,773) (10,077) Other, net 182 (716) 396 (2,303) ------------- ------------- --------------- ---------------- Total other income (expense) (4,986) 35 (8,758) 1,990 ------------- ------------- --------------- ---------------- Income (loss) before income taxes (55,619) 17,921 (43,190) 37,897 Provision (benefit) for income taxes (15,940) 3,952 (12,957) 8,337 ------------- ------------- --------------- ---------------- Net income (loss) $ (39,679) 13,969 (30,233) 29,560 ============= ============= =============== ================ Net income (loss) per share: Basic $ (0.66) 0.23 (0.50) 0.50 ============= ============= =============== ================ Diluted $ (0.66) 0.23 (0.50) 0.48 ============= ============= =============== ================
See accompanying notes to unaudited consolidated financial statements. 4 CellStar Corporation and Subsidiaries Consolidated Statement of Stockholders' Equity and Comprehensive Loss Six months ended May 31, 2000 (Unaudited) (In thousands)
Accumulated Additional other Common Stock paid-in comprehensive Retained ---------------------- Shares Amount capital loss earnings Total ---------- ---------- ------------- --------------- ------------- ------------- Balance at November 30, 1999 60,057 $ 601 80,929 (8,509) 177,503 250,524 Comprehensive loss: Net loss - - - - (30,233) (30,233) Foreign currency translation adjustment - - - (1,774) - (1,774) ---------- Total comprehensive loss (32,007) Common stock issued under stock option plans 85 1 369 - - 370 --------- --------- ------------ ----------- ------------ ---------- Balance at May 31, 2000 60,142 $ 602 81,298 (10,283) 147,270 218,887 ========= ========= ============ =========== ============ ==========
See accompanying notes to unaudited consolidated financial statements. 5 CellStar Corporation and Subsidiaries Consolidated Statements of Cash Flows Six months ended May 31, 2000 and 1999 (Unaudited) (In thousands)
2000 1999 ------------- ------------- Cash flows from operating activities: Net income (loss) $ (30,233) 29,560 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 6,394 5,862 Equity in (income) loss of affiliated companies, net 381 (6,123) Gain on sale of assets - (8,247) Deferred income taxes (19,237) (2,770) Changes in operating assets and liabilities net of effects from acquisitions of businesses: Accounts receivable 2,351 72,066 Inventories (85,700) 87,206 Prepaid expenses 5,270 (5,059) Other assets (5,962) (896) Accounts payable 72,708 (145,900) Accrued expenses 638 (21,665) Income taxes payable (6,865) (1,674) ------------ ----------- Net cash provided by (used in) operating activities (60,255) 2,360 Cash flows from investing activities: Proceeds from sale of assets - 14,148 Purchases of property and equipment (2,722) (4,402) Acquisitions of businesses, net of cash acquired (84) - ------------ ----------- Net cash provided by (used in) investing activities (2,806) 9,746 Cash flows from financing activities: Net borrowings on notes payable to financial institutions 46,877 5,624 Net proceeds from issuance of common stock 370 600 ------------ ----------- Net cash provided by financing activities 47,247 6,224 Net increase (decrease) in cash and cash equivalents (15,814) 18,330 Cash and cash equivalents at beginning of period 95,498 47,983 ------------ ----------- Cash and cash equivalents at end of period $ 79,684 66,313 ============ ===========
See accompanying notes to unaudited consolidated financial statements. 6 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (1) Basis of Presentation Although the interim consolidated financial statements of CellStar Corporation and subsidiaries (the "Company") are unaudited, Company management is of the opinion that all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the results have been reflected therein. Operating revenues and net income for any interim period are not necessarily indicative of results that may be expected for the entire year. These statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended November 30, 1999. Certain prior period financial statement amounts have been reclassified to conform to the current year presentation. (2) Net Income (Loss) Per Share Basic net income (loss) per common share is based on the weighted average number of common shares outstanding for the relevant period. Diluted net income (loss) 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 a warrant, stock options and convertible notes. 7 A reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three and six months ended May 31, 2000 and 1999 follows (in thousands, except per share data):
Three months ended May 31 -------------------------- 2000 1999 ----------- ----------- Basic: Net income (loss) $ (39,679) 13,969 =========== =========== Weighted average number of shares outstanding 60,137 59,614 =========== =========== Net income (loss) per share $ (0.66) 0.23 =========== =========== Diluted: Net income (loss) $ (39,679) 13,969 Interest on convertible notes, net of tax effect - 1,125 ----------- ----------- Adjusted net income (loss) $ (39,679) 15,094 =========== =========== Weighted average number of shares outstanding 60,137 59,614 Effect of dilutive securities: Stock options and warrant - 653 Convertible notes - 5,422 ----------- ----------- Weighted average number of shares outstanding and effect of dilutive securities 60,137 65,689 =========== =========== Net income (loss) per share $ (0.66) 0.23 =========== ===========
Six months ended May 31 -------------------------- 2000 1999 ----------- ----------- Basic: Net income (loss) $ (30,233) 29,560 =========== =========== Weighted average number of shares outstanding 60,121 59,564 =========== =========== Net income (loss) per share $ (0.50) 0.50 =========== =========== Diluted: Net income (loss) $ (30,233) 29,560 Interest on convertible notes, net of tax effect - 2,250 ----------- ----------- Adjusted net income (loss) $ (30,233) 31,810 =========== =========== Weighted average number of shares outstanding 60,121 59,564 Effect of dilutive securities: Stock options and warrant - 632 Convertible notes - 5,422 ----------- ----------- Weighted average number of shares outstanding and effect of dilutive securities 60,121 65,618 =========== =========== Net income (loss) per share $ (0.50) 0.48 =========== ===========
8 Options to purchase 3.9 million shares of common stock for the three months ended May 31, 2000, and 3.1 million for the six months ended May 31, 2000, 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. The subordinated convertible notes were not dilutive for the three and six month periods ended May 31, 2000. Options to purchase 1.9 million shares of common stock for the three months ended May 31, 1999, and 2.0 million for the six months ended May 31, 1999, 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. (3) 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 geographical regions: Asia- Pacific, Latin America, which includes Mexico and the Company's Miami, Florida operations ("Miami"), Europe, and North America. Revenues and operating results of Miami are included in Latin America since Miami's activities are primarily for export customers. The Corporate group includes headquarter operations and income and expenses not allocated to reportable segments. Intersegment sales and transfers are not significant. 9 Segment information for the three and six months ended May 31, 2000 and 1999 follows (in thousands):
Asia- Latin North Pacific America Europe America Corporate Total -------------- ------------- ------------ -------------------------- --------- Three months ended May 31, 2000: Revenues from external customers $ 231,388 160,526 66,503 102,953 - 561,370 Income (loss) before interest and taxes 1,461 (28,095) (3,654) (15,673) (6,245) (52,206) Three months ended May 31, 1999: Revenues from external customers $ 193,580 186,877 89,063 100,805 - 570,325 Income (loss) before interest and taxes 9,222 15,655 1,908 1,015 (5,337) 22,463
2000 1999 -------------- -------------- Income (loss) before interest and income taxes per segment information...................... $ (52,206) 22,463 Interest expense per the consolidated statements of operations.............................. (4,702) (5,396) Interest income included in other, net in the consolidated statements of operations......... 1,289 854 -------------- -------------- Income (loss) before income taxes per the consolidated statements of operations............. $ (55,619) 17,921 ============== ==============
Asia- Latin North Pacific America Europe America Corporate Total -------------- ------------- ------------ ----------- ------------- --------- Six months ended May 31, 2000: Revenues from external customers $ 473,306 315,732 181,781 180,410 - 1,151,229 Income (loss) before interest and taxes 13,183 (23,072) (960) (14,828) (10,910) (36,587) Six months ended May 31, 1999: Revenues from external customers $ 327,283 357,129 198,318 202,943 - 1,085,673 Income (loss) before interest and taxes 17,333 20,537 4,807 12,859 (9,365) 46,171
2000 1999 -------------- -------------- Income (loss) before interest and income taxes per segment information..................... $ (36,587) 46,171 Interest expense per the consolidated statements of operations............................. (8,773) (10,077) Interest income included in other, net in the consolidated statements of operations........ 2,170 1,803 -------------- -------------- Income (loss) before income taxes per the consolidated statements of operations............. $ (43,190) 37,897 ============== ==============
10 (4) United Kingdom International Trading Operations In April 2000, the Company curtailed a significant portion of its U.K. international trading operations following third party theft and fraud losses. The trading business involves the purchase of products from suppliers other than manufacturers and the sale of those products to customers other than network operators or their dealers and other representatives. As a result, the Company experienced a reduction in revenues for the Europe Region in the quarter ended May 31, 2000 and anticipates a reduction in revenues during the balance of the year ending November 30, 2000. For the quarter ended May 31, 2000, the Company recorded a $4.4 million charge consisting of $3.2 million for third party theft and fraud losses during the purchase, transfer of title and transport of six shipments of wireless handsets and $1.2 million in inventory obsolescence expense for inventory price reductions incurred while the international trading business was curtailed pending investigation. The Company is negotiating to obtain an insurance settlement and is pursuing legal action where appropriate. However, the ultimate recovery, if any, in relation to these losses cannot be determined at this time. (5) Brazil Since 1998, the Company's Brazilian operations have been primarily conducted through a majority-owned joint venture. Following an extensive review of its operations in Brazil, the Company concluded that its joint venture structure, together with foreign exchange risk, the high cost of capital in that country, accumulated losses, and the prospect of ongoing losses, were not optimal for success in that market. As a result, the Company has elected to exit the Brazil market and intends to divest its 51% interest in its joint venture. The Company's operations in Brazil have incurred a $9.3 million loss in 2000, including the write down of certain assets to fair value. The Company has also fully reserved certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter of 2000 and which were further affected by the decision to exit Brazil. (6) Redistributor Business The Company is phasing out a major portion of its redistributor business in the Miami and North American operations due to the volatility of the redistributor business, the relatively lower margins and higher credit risks. Redistributors are distributors that do not have existing direct relationships with manufacturers and who do not have long-term carrier or dealer/agent relationships. These distributors purchase product on a spot basis to fulfill intermittent customer demand and do not have long-term predictable product demand. Combined revenues for the six months ended May 31, 2000 and 1999 for the redistributor business were $31.5 million and $59.6 million, respectively. (7) Amendment to Multicurrency Revolving Credit Facility Based on results for the three months ended May 31, 2000, the Company would not have been in compliance with one of its covenants under its Multicurrency Revolving Credit Facility (the "Facility"). As of July 12, 2000, the Company had negotiated an amendment to the Facility that assists the Company in complying with the covenant. The relief provided by the amendment will be available through the third quarter of 2000. The amount of the Facility was also reduced from $115.0 million to $100.0 million. As a result of the July 12, 2000 amendment to the Facility, interest rates will increase by 25 basis points for the balance of the year. The Company and its banking syndicate have begun negotiations for a future amendment to address a longer-term solution to covenant concerns. However, no assurance can be given that the Company and its banking syndicate will achieve a longer-term solution. 11 (8) Inventory Obsolescence Expense and Bad Debt Expense Inventory obsolescence expense of $21.8 million and $23.5 million for the three months and six months ended May 31, 2000, respectively, is included in cost of goods sold in the accompanying consolidated statements of operations. Bad debt expense of $25.5 million and $29.9 million for the three months and six months ended May 31, 2000, respectively, is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. (9) Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustment and aggregates $(41.1) million and $(32.0) million for the three and six month periods ended May 31, 2000, respectively. For the three and six month periods ended May 31, 1999 comprehensive income aggregates $13.1 million and $28.5 million, respectively. (10) Contingencies Refer to Part II, Item 1, "Legal Proceedings." 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company reported a net loss of $39.7 million, or $0.66 per diluted share, for the second quarter of 2000 compared with net income of $14.0 million or $0.23 per diluted share, for the same quarter last year. In the second quarter of 2000, the Company decided to divest its majority interest in its Brazil joint venture, phase out a major portion of its North America and Miami redistributor business, and substantially reduced international trading operations conducted by its U.K. subsidiary due to third party theft and fraud losses. Also during the second quarter of 2000, the Company recorded inventory obsolescence expense of $21.8 million, bad debt expense of $25.5 million, and $3.2 million in theft and fraud losses related to the U.K. international trading operations. In addition, the Company experienced a decline in gross margins due to a shift in geographic revenue mix and competitive margin pressures. The second quarter of 1999 was impacted by several non-operating items, including (i) a pre-tax charge of $2.9 million related to the reorganization and consolidation of the management for the Company's Latin American and North American Regions and the centralization of its Asia-Pacific Region's management, and (ii) pre-tax gains totaling $6.0 million from the sale of its prepaid operation in Venezuela and the sale of the Company's retail stores in the Kansas City area. Without the effects of these items, net income for the second quarter of 1999 would have been $11.4 million, or $0.19 per diluted share. Special Cautionary Notice Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements relating to such matters as anticipated financial performance and business prospects. When used in this Quarterly Report, the words "should", "may," "intends", "expects," "anticipates," "will" and similar expressions are intended to be among the statements that identify forward-looking statements. From time to time, the Company may also publish forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward- looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors, including foreign currency risks, revaluation, devaluation and fluctuations in relative exchange rates, political instability, changes in foreign laws, regulations and tariffs, new technologies, competition, customer and vendor relationships, unstable channels of distribution, seasonality, inventory obsolescence and availability, "gray market" resales, and inflation could cause the Company's actual results and experience to differ materially from anticipated results or other expectations expressed in the Company's forward-looking statements. 13 Results of Operations The following table sets forth certain unaudited consolidated statements of operations data for the Company expressed as a percentage of revenues for the three and six months ended May 31, 2000 and 1999:
Three months Six months ended May 31 ended May 31 ---------------------- ----------------------- 2000 1999 2000 1999 --------- --------- ---------- --------- Revenues 100.0% 100.0 100.0 100.0 Cost of sales 98.7 91.4 95.2 91.5 --------- --------- ---------- --------- Gross profit 1.3 8.6 4.8 8.5 Selling, general and administrative expenses 10.3 5.0 7.8 5.0 Restructuring charge - 0.5 - 0.2 --------- --------- ---------- --------- Operating income (loss) (9.0) 3.1 (3.0) 3.3 Other income (expense): Equity in income (loss) of affiliated companies (0.1) - - 0.6 Gain on sale of assets - 1.1 - 0.7 Interest expense (0.8) (1.0) (0.8) (0.9) Other, net - (0.1) - (0.2) --------- --------- ---------- --------- Total other income (expense) (0.9) - (0.8) 0.2 --------- --------- ---------- --------- Income (loss) before income taxes (9.9) 3.1 (3.8) 3.5 Provision (benefit) for income taxes (2.8) 0.7 (1.1) 0.8 --------- --------- ---------- --------- Net income (loss) (7.1)% 2.4 (2.7) 2.7 ========= ========= ========== =========
14 Three Months Ended May 31, 2000 Compared to Three Months Ended May 31, 1999 Revenues. The Company's revenues decreased $8.9 million, or 1.6%, from $570.3 million to $561.4 million. Revenues in the Asia-Pacific Region increased $37.8 million, or 19.5%, from $193.6 million to $231.4 million. The Company's operations in the People's Republic of China, including Hong Kong ("PRC"), provided $153.2 million in revenue, an increase of $26.2 million or 20.6%, from $127.0 million. This increase was due to continued strong demand in the PRC and the build-up of extensive sales channels. The Company's operations in Taiwan provided $48.8 million of revenue, a decrease of $4.0 million, from $52.8 million. Demand decreased in Taiwan due to the political uncertainty surrounding the presidential election in March and Taiwan's relationship with the PRC. In the Philippines, revenues for the quarter increased $14.7 million to $19.0 million due to carrier promotions and receipt by the Company in the fourth quarter of 1999 of certain distribution rights to Nokia products in the Philippines. Latin America Region revenues were $160.5 million for the second quarter ended May 31, 2000, a 14.1% decrease from the prior year revenues of $186.9 million. Revenues in Brazil declined $45.9 million. In 2000, sales to the Company's major customer in Brazil were greatly reduced due to the increased availability of in-country manufactured product. The Company has elected to exit the Brazil market (see "International Operations"). Revenues in Venezuela declined $11.1 million, reflecting continuing market softness caused by political and economic instability due to upcoming local elections. Revenues from the Miami export operations were down $12.7 million, reflecting the Company's decision to phase out a major portion of its redistributor channel, and the declining export market due to increasing availability of in-country manufactured product. The Company is phasing out a major portion of its redistributor business in the Miami and North American operations due to the volatility of the redistributor business, the relatively lower margins and higher credit risks. Also, supply shortages in the third and fourth quarters of 1999 significantly weakened the redistributor channel, reducing the number of financially viable redistributors and creating operating and financial difficulties for others. Combined revenues for the quarter for the redistributor business were $13.3 million in 2000 and $33.9 million in 1999. Revenues in Mexico increased $36.7 million, or 58.1%, due primarily to an aggressive new subscriber promotion by PEGASO during the quarter. Combined revenues from CellStar's Argentina, Colombia and Peru operations more than doubled to $15.3 million. North America Region revenues were $103.0 million, up 2.1% from $100.8 million for the prior year. This was the region's first revenue increase since the fourth quarter of 1998. The region's revenues have been impacted by a major customer that began coordinating its distribution directly with manufacturers. Excluding revenues from that customer, second quarter 2000 revenues for the region increased $35.2 million, or 51.9%. Revenues for the Europe Region decreased to $66.5 million in the second quarter from $89.1 million in the prior comparable quarter, due to the Company's decision to curtail its U.K. international trading operations (see "International Operations"). Quarterly results included a $3.6 million increase in revenues from Sweden, as well as revenues of $6.8 million from the Company's operations in The Netherlands, which was acquired in the third quarter of 1999. Gross Profit. Gross profit decreased $41.7 million, or 84.9%, from $49.1 million to $7.4 million. The decrease in gross profit was primarily due to $21.8 million in inventory obsolescence as a result of price declines during the quarter and $3.2 million in third party theft and fraud losses related to the U.K. international trading operations. Excluding these provisions, the decrease in gross profit as a percentage of revenues was primarily due to a shift in geographic revenue mix, lack of digital handsets in North America, competitive margin pressures including an oversupply of analog handsets in North America and an oversupply of handsets in Asia Pacific, and a delay in the introduction of new models by manufacturers, including WAP enabled phones. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $29.8 million, or 105.3% from $28.3 million to $58.1 million. This increase was principally due to bad debt 15 expense of $25.5 million, up from $4.0 million for the second quarter last year. The increase was primarily from certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter of 2000 and which were further affected by the Company's decision to sell its majority interest in its joint venture in Brazil and the phase out of a major portion of the redistributor business in its Miami and North America operations. The increase in selling, general and administrative expenses was also attributable to costs associated with business expansion activities and professional expenses. Overall selling, general and administrative expenses as a percentage of revenues increased to 10.3% from 5.0%. Restructuring Charge. The Company's results of operations for the second quarter of 1999 include a pre-tax restructuring charge of $2.9 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 the management in the Asia-Pacific Region. Gain on Sale of Assets. In the second quarter of 1999, the Company recorded a pre-tax gain of $6.0 million associated with the sale of its prepaid operations in Venezuela and the sale of the Company's retail stores in the Kansas City area. Interest Expense. Interest expense decreased to $4.7 million from $5.4 million primarily as a result of lower interest expense in Brazil. Other, Net. Other, net increased from expense of $0.7 million in the second quarter of 1999 to income of $0.2 million in 2000. This increase was primarily due to lower foreign currency losses related to Brazil. Income Taxes. Income tax expense decreased from a provision of $4.0 million in 1999 to a benefit of $15.9 million in 2000. The annual effective tax rate increased to 30.0% from 22.0%. The higher effective tax rate was attributable to changes in the expected geographical mix of income (loss) before income taxes. 16 Six Months Ended May 31, 2000 Compared to Six Months Ended May 31, 1999 Revenues. The Company's revenues increased $65.5 million, or 6.0%, from $1,085.7 million to $1,151.2 million. Revenues in the Asia-Pacific Region increased $146.0 million, or 44.6%, from $327.3 million to $473.3 million. The Company's operations in the PRC provided $321.2 million in revenue, an increase of $98.5 million, or 44.2%, from $222.7 million. This increase was due to continued strong demand in the PRC and the build-up of extensive sales channels. The Company's operations in Taiwan provided $102.4 million of revenue, an increase of $22.6 million, or 28.3%, from $79.8 million. Demand in Taiwan increased due to the introduction of new high- end handsets in the first quarter of 2000, but was slowed in the second quarter of 2000 due to the political uncertainty surrounding the presidential election in March and Taiwan's relationship with the PRC. In the Philippines, revenues increased $22.6 million to $31.0 million due to carrier promotions and receipt by the Company in the fourth quarter of 1999 of certain distribution rights to Nokia products in the Philippines. The Latin American Region provided $315.7 million of revenues, compared to $357.1 million, or an 11.6% decrease. Revenues in Mexico increased $91.2 million due primarily to increased carrier business. Revenues for Brazil were down $105.0 million from last year. In 1999, the recently completed privatization of the telecommunications industry was driving rapid growth in carrier sales. In 2000, sales to the Company's major customer in Brazil were greatly reduced due to the increased availability of in-country manufactured product. The Company has elected to exit the Brazil market (see "International Operations"). Revenues from the Venezuela operations declined $23.8 million. The decline was a result of the effects of the torrential floods in late 1999, the positive impact on last year's first quarter of a special carrier promotion, and continuing market softness caused by political and economic instability due to upcoming local elections. Revenues from the Company's operations in Miami decreased $19.2 million from 1999 as increased product availability from in-country manufacturers in Latin America continued to reduce export sales from Miami. The Company is phasing out a major portion of its redistributor business in its Miami and North American operations due to the volatility of the redistributor business, the relatively lower margins, and higher credit risks. Also, supply shortages in the third and fourth quarters of 1999 significantly weakened the redistributor channel, reducing the number of financially viable redistributors and creating operating and financial difficulties for others. Combined revenues from the redistributor business were $31.5 million and $59.6 million in 2000 and 1999, respectively. Combined revenues from the operations in Argentina, Chile, Colombia and Peru increased $15.6 million. North American Region revenues were $180.4 million, a decrease of $22.5 million, or 11.1% when compared to $202.9 million. The decrease was primarily a result of a decline in product sales to a major customer that began coordinating its distribution directly with manufacturers. Excluding revenues from that customer, revenues increased $41.0 million or 30.6% from 1999. The Company's Europe Region recorded revenues of $181.8 million, a decrease of $16.5 million, or 8.3%, from $198.3 million, primarily due to the Company's decision to curtail its U.K. international trading operations in April 2000 (see "International Operations"). Revenues from Sweden declined $4.6 million primarily due to product shortages in the first quarter of 2000. Revenues from The Netherlands, which was acquired in the third quarter of 1999, were $15.6 million. Gross Profit. Gross profit decreased $37.0 million, or 39.9% from $92.7 million to $55.7 million. The decrease in gross profit is primarily due to $23.5 million in inventory obsolescence primarily as a result of price declines during the second quarter and $3.2 million in third party theft and fraud losses related to the U.K. international trading operations. Excluding these provisions, the decrease in gross profit as a percentage of revenues was primarily due to a shift in geographic revenue mix, lack of digital handsets in North America, competitive margin pressures including an oversupply of analog handsets in North America and an oversupply of handsets in Asia Pacific, and a delay in the introduction of new models by manufacturers, including WAP enabled phones. 17 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $36.4 million, or 67.5% from $53.9 million to $90.3 million. This increase was primarily due to bad debt expense of $29.9 million, up from $6.5 million for the same period last year. The increase was primarily from certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter of 2000 and which were further affected by the Company's decision to sell its majority interest in its joint venture in Brazil and the phase out of a major portion of the redistributor business in its Miami and North America operations. The increase in selling, general and administrative expenses was also attributable to costs associated with business expansion activities and professional expenses. Overall selling, general and administrative expenses as a percentage of revenues increased to 7.8% from 5.0%. Restructuring Charge. The Company's results of operations include a pre-tax restructuring charge of $2.9 million in 1999 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. Equity in Income (Loss) of Affiliated Companies. Equity in income (loss) of affiliated companies decreased from income of $6.1 million in 1999 to a loss of $0.4 million in 2000. In February 1999, the Company sold part is its equity investment in Topp Telecom, Inc. ("Topp") to a wholly owned subsidiary of Telefonos de Mexico S.A. de C.V. ("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 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 a pre-tax gain of $26.1 million. Gain on Sale of Assets. In 1999, the Company recorded a pre-tax gain of $8.2 million associated with the sale of its prepaid operations in Venezuela and the sale of the Company's retail stores in the Dallas-Fort Worth and Kansas City areas. Interest Expense. Interest expense decreased to $8.8 million from $10.1 million primarily as a result of cash received from the sale of the Company's remaining debt and equity interest in Topp in September 1999 and lower interest rates in Brazil compared to 1999. Other, Net. Other, net changed from an expense of $2.3 million to income of $0.4 million. This change was primarily due to a $2.6 million foreign currency transaction loss realized in 1999 from the conversion of U.S. dollar denominated debt in Brazil into a Brazilian real denominated credit facility. Income Taxes. Income tax expense decreased from $8.3 million in 1999 to a benefit of $13.0 million in 2000. The Company's effective tax rate increased to 30.0% from 22.0%. The higher effective tax rate was attributable to changes in the expected geographical mix of income (loss) before income taxes. 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, potentially unstable channels of distribution, increased credit risks, export control laws that might limit markets the Company can enter, inflation, changes in laws related to foreign ownership of business abroad, foreign tax laws, changes in import/export regulations, including enforcement policies, "gray market" resales, 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. During the second half of 1998, the Company's sales from Miami to customers exporting into South American countries began to decline as a result of increased in-country manufactured product availability in South America, primarily Brazil. The Company expects to focus its efforts on servicing large, financially sound carrier partners from the Company's Latin American subsidiaries. 18 Since 1998, the Company's Brazilian operations have been primarily conducted through a majority-owned joint venture. Following an extensive review of its operations in Brazil, the Company concluded that its joint venture structure, together with foreign exchange risk, the high cost of capital in that country, alternative uses of capital, accumulated losses, and the prospect of ongoing losses, were not optimal for success in that market. As a result, the Company has elected to exit the Brazil market and intends to divest its 51% interest in its joint venture. The Company's operations in Brazil have incurred a $9.3 million loss in 2000 including the write down of certain assets to fair value. The Company has also fully reserved certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter, and which were further affected by the decision to exit Brazil. In April 2000, the Company curtailed a significant portion of its U.K. international trading operations following third party theft and fraud losses. The trading business involves the purchase of products from suppliers other than manufacturers and the sale of those products to customers other than network operators or their dealers and other representatives. The Company experienced a reduction in revenues for the Europe Region in the quarter ended May 31, 2000 and anticipates a reduction in revenues during the balance of the year ending November 30, 2000. For the quarter ended May 31, 2000, the Company recorded a $4.4 million charge consisting of $3.2 million from third party theft and fraud losses during the purchase, transfer of title and transport of six shipments of wireless handsets, and $1.2 million in inventory obsolescence expense for inventory price reductions incurred while the international trading business was curtailed pending investigation. The Company is negotiating to obtain an insurance settlement and is pursuing legal action where appropriate. However, the ultimate recovery in relation to these losses, if any, cannot be determined at this time. Liquidity and Capital Resources During the six months ended May 31, 2000, the Company relied on cash available at November 30, 1999, cash generated from operations, and borrowings under its Multicurrency Revolving Credit Facility (the "Facility") to fund working capital, capital expenditures and expansions. At July 12, 2000 the Company had available $46.5 million of unused borrowing capacity under the Facility. Compared to November 30, 1999, accounts receivable decreased $3.6 million, while inventories and accounts payable increased $85.7 million and $72.7 million, respectively. This increase in inventory and accounts payable was primarily in North America and Miami and primarily relates to a series of purchases from a major supplier that granted extended payment terms in conjunction with these purchases. As of May 31, 2000 and June 30, 2000, the Company's Brazilian operations had borrowed $13.0 million and $20.8 million, respectively, using credit facilities denominated in Brazilian reals with Brazilian banks. The Company has $9.2 million of letters of credit outstanding against its Facility to guarantee the repayment of the principal and accrued interest and all other contractual obligations of its Brazilian operations to several Brazilian banks. At May 31, 2000, the Company's operations in the PRC had two lines of credit available to them, one for USD $12.5 million and the second for RMB $180 million ($21.9 million equivalent), bearing interest at 5.52% and 5.85%, respectively. The loans mature through March 2001 and are 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. At May 31, 2000 and June 30, 2000, $34.2 million and $40.2 million, respectively, had been borrowed against the lines of credit in the PRC. As a result of this method of funding operations in the PRC, the consolidated balance sheet at May 31, 2000 reflects $35.4 million in cash that is restricted as collateral on these advances and a corresponding $34.2 million in notes payable. Subsequent to the end of the quarter, the Hong Kong operating entity increased its intercompany advance to the PRC by $11.0 million for a total funding of $46.4 million to support the PRC's growth. Based on results for the three months ended May 31, 2000, the Company would not have been in compliance with one of its covenants under its Facility. As of July 12, 2000, the Company had negotiated an amendment to the Facility that assists the Company in complying with the covenant. The relief provided by the amendment will be available through the third quarter of 2000. The amount of the Facility was also reduced from $115.0 million to $100.0 million. As a result of the July 12, 2000 amendment to the Facility, interest rates will increase by 25 basis points for the 19 balance of the year. The Company and its banking syndicate have begun negotiations for a future amendment to address a longer-term solution to covenant concerns. However, no assurance can be given that the Company and its banking syndicate will achieve a longer- term solution. 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 under the Facility, amounts available from new debt sources, 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. Accounting Pronouncements Not Yet Adopted In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), which was amended by Statement 137 issued in July 1999 and Statement 138 issued in June 2000. 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. FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB Opinion No. 25" ("FIN 44") in March 2000. Among other issues, this interpretation clarifies the definition of employee for purposes of applying APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of previously fixed stock options or awards and the accounting for an exchange of stock compensation awards in a business combination. The Interpretation is effective July 1, 2000, but certain conclusions in the Interpretation cover specific events that occurred after either December 15, 1998 or January 12, 2000. Management believes that FIN 44 will not have a material effect on the Company's financial position and consolidated results of operations upon adoption. In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the staff's views in applying general accepted accounting principles to revenue recognition and accounting for deferred costs in the financial statements. Based on the Company's current revenue recognition policies, SAB 101 is not expected to materially impact the Company's consolidated financial position and results of operations. 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk For the quarter ended May 31, 2000, the Company recorded in other income (expense), net foreign currency losses of $1.2 million primarily due to the revaluations of foreign currency related to the Company's Europe operations. Regarding the intercompany advances from the Hong Kong entity to the PRC entity, the Company has foreign exchange exposure on the funds as they have been effectively converted into RMB. As of May 31, 2000 and June 30, 2000, the Company's Brazilian operations had borrowed $13.0 million and $20.8 million, respectively, using credit facilities denominated in Brazilian reals with Brazilian banks. The Company continues to evaluate foreign currency exposures and related protection measures. 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 major currency exposures hedged by the Company are the British pound, Dutch guilder, Euro and Swedish Krona. The carrying amount and fair value of these contracts are not significant. Contractual amounts of the Company's forward exchange contracts at May 31, 2000 and June 30, 2000, respectively are $11.7 million and $13.9 million. 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 six months ended May 31, 2000, the interest rates of borrowings under the Facility ranged from 7.74% to 9.75%. As a result of the July 12, 2000 amendment to the Facility, interest rates will increase by 25 basis points for the balance of the year. The Company manages its borrowings 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 May 31, 2000, annual rates on borrowings by the Brazilian joint venture operations ranged from approximately 30% to 36%. The Brazilian operations' borrowings at May 31, 2000, were $13.0 million. The Company has short-term borrowings in the PRC as discussed in Liquidity and Capital Resources. The Company's $150.0 million in long-term debt has a fixed coupon interest rate of 5.0% and is due in October 2002. 21 PART II - OTHER INFORMATION Item 1. 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. Each lawsuit 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 lawsuit alleges that the Company issued a series of materially false and misleading statements concerning the Company's results of 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 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's 51% joint venture in Brazil has received an assessment of approximately $4.9 million from the Brazil state tax authorities related to disallowed ICMS tax credits on purchased products. The Company believes the joint venture has complied with all applicable tax rules and regulations and has valid defenses. The joint venture is vigorously contesting the assessment. Accordingly, an accrual for this assessment is not reflected in the accompanying financial statements. If the joint venture is unsuccessful in defending against such assessment, the joint venture would be subject to penalties and interest. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these other matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits. 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation ("Certificate of Incorporation"). (1) 3.2 Certificate of Amendment to Certificate of Incorporation. (7) 3.3 Amended and Restated Bylaws of CellStar Corporation. (3) 4.1 The Certificate of Incorporation, Certificate of Amendment to Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are incorporated into this item by reference. (1)(7)(3) 4.2 Specimen Common Stock Certificate of CellStar Corporation. (2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and 22 ChaseMellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement"). (4) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation"). (4) 4.6 Form of Rights Certificate. (4) 4.7 Certificate of Correction of Certificate of Designation. (5) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and the Bank of New York, as Trustee. (6) 10.1 Second Amendment to Amended and Restated Credit Agreement, dated July 12, 2000, among CellStar Corporation and each of the banks and lending institutions signatory thereto. (8) 27.1 Financial Data Schedule. (8) ____________________ (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8 - A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Registration Statement on Form 8 -A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (7) 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. (8) Filed herewith. (B) Reports on Form 8-K. None. 23 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CELLSTAR CORPORATION /s/ AUSTIN P. YOUNG -------------------------------------------------- By: Austin P. Young Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ RAYMOND L. DURHAM -------------------------------------------------- By: Raymond L. Durham Corporate Controller (Principal Accounting Officer) Date: July 17, 2000 24 EXHIBIT INDEX ------------- Exhibit No. Description - ------- ---------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation ("Certificate of Incorporation"). (1) 3.2 Certificate of Amendment to Certificate of Incorporation. (7) 3.3 Amended and Restated Bylaws of CellStar Corporation. (3) 4.1 The Certificate of Incorporation, Certificate of Amendment to Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are incorporated into this item by reference. (1)(7)(3) 4.2 Specimen Common Stock Certificate of CellStar Corporation. (2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement"). (4) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation"). (4) 4.6 Form of Rights Certificate. (4) 4.7 Certificate of Correction of Certificate of Designation. (5) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and the Bank of New York, as Trustee. (6) 10.1 Second Amendment to Amended and Restated Credit Agreement, dated July 12, 2000, among CellStar Corporation and each of the banks and lending institutions signatory thereto. (8) 27.1 Financial Data Schedule. (8) ____________________ (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8 - A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. 25 (5) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (7) 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. (8) Filed herewith. 26 EX-10.1 2 0002.txt SECOND AMEND. TO AMENDED AND RESTATED CREDIT AGR. EXHIBIT 10.1 SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ----------------------------- This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of July 12, 2000, 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"), BANK ONE, NA (formerly known as ---- ----- 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 -------------------- ("Chase"), 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, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of November 23, 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 New Definitions. Effective as of May 31, 2000, Section 1.1 of the --------------- Agreement is hereby amended to add the following definitions, to read in their respective entireties as follows: "Eligible Analog Inventory" means all Eligible Inventory consisting of ------------------------- analog phones. "Eligible Non-Analog Inventory" means all Eligible Inventory other ----------------------------- than Eligible Analog Inventory. "Fee Agreements" has the meaning specified in Section 9.12. -------------- ------------ "Second Quarter Special Charges" means the following special charges ------------------------------ recorded in the Borrower's fiscal quarter ending May 31, 2000: (a) Up to $5,900,000 related to reserves for Brazil related exit expenses; (b) Up to $5,500,000 for the reserve for accounts receivable related to the Miami redistribution business; (c) Up to $17,300,000 related to the reserve for US-based Brazilian accounts receivable; and (d) Up to $2,100,000 related to special expenses incurred on behalf of Asia Pacific. 2.2 Deleted Definitions. Effective as of the date hereof, Section 1.1 of ------------------- the Agreement is hereby amended to delete the definitions of "Alternate Advance Rate Availability Period", "Exception Period", "Permitted Overadvance Period" and "Price Protected Inventory". 2.3 Amended Definitions. Effective as of the date hereof, the respective ------------------- definitions of each of the following terms set forth in Section 1.1 of the ----------- Agreement are hereby amended to read in their respective entireties as follows: "Applicable Percentage" means, for any day, (a) with respect to --------------------- Eurodollar Advances, the margin of interest over the Eurodollar Rate that is applicable when any Applicable Rate based on the Eurodollar Rate is determined under this Agreement, (b) with respect to Floating Rate Advances, the margin of interest over the Alternate Base Rate that is applicable when any Applicable Rate based on the Alternate Base Rate is determined under this Agreement, (c) with respect to Alternate Currency Advances, the margin of interest over the Alternate Currency Rate that is applicable when any Applicable Rate based on the Alternate Currency Rate is determined under this Agreement, (d) with respect to commitment fees payable under Section 2.9, the commitment fee percentage that is applicable ----------- when any such commitment fee is determined under this Agreement, and (e) with respect to letter of credit fees payable under Section 3.5, the letter ----------- of credit fee percentage that is applicable when any such letter of credit fee is determined under this Agreement. The Applicable Percentage is subject to adjustment (upwards or downwards, as appropriate) based on the ratio of Consolidated Funded Debt to Consolidated Cash Flow; provided that from and including July 12, 2000 until the due date for the Compliance Certificate for the fiscal quarter ending August 31, 2000, the Applicable Percentage shall be the Applicable Percentage prescribed in Category 5 below. On each date a Compliance Certificate is due under Section 9.1(d), -------------- commencing with the Compliance Certificate for the fiscal quarter ending August 31, 2000, the Applicable Percentage shall be adjusted to reflect the Applicable Percentage prescribed below for the ratio of Consolidated Funded Debt to Consolidated Cash Flow as demonstrated by such Compliance Certificate: -2-
Applicable Ratio of Percentage Consolidated for Eurodollar Applicable Funded Debt to Advances and Margin Applicable Consolidated Alternate for Floating Letter of Applicable Category Cash Flow Currency Advances Rate Advances Credit Fees Commitment Fee -------- --------- ----------------- ------------- ----------- -------------- 1 Less than 1.00 to 1.00 1.625% 0.25% 1.625% 0.250% 2 Greater than or equal 1.750% 0.25% 1.750% 0.250% to 1.00 to 1.00, but less than 1.50 to 1.00 3 Greater than or equal 2.000% 0.50% 2.000% 0.375% to 1.50 to 1.00, but less than 2.25 to 1.00 4 Greater than or equal 2.250% 0.75% 2.250% 0.375% to 2.25 to 1.00, but less than 3.00 to 1.00 5 Greater than or equal 2.500% 1.00% 2.500% 0.500% to 3.00 to 1.00 but less than 3.50 to 1.00 6 Greater than or equal 2.750% 1.25% 2.750% 0.500% to 3.50 to 1.00
After each adjustment of the Applicable Percentage in accordance herewith due to a change in the ratio of Consolidated Funded Debt to Consolidated Cash Flow as demonstrated by the Compliance Certificate, the new Applicable Percentage shall apply to all Advances made or outstanding thereafter until the next date that a Compliance Certificate is due under Section 9.1(d) and -------------- demonstrates a change in the ratio of Consolidated Funded Debt to Consolidated Cash Flow to an amount so that another Applicable Percentage shall be applied. Upon the request of the Agent, the Borrower must demonstrate to the reasonable satisfaction of the Agent the required applicable ratio in order to obtain an adjustment to a lower Applicable Percentage. If the Borrower fails to furnish to the Agent any Compliance Certificate by the date required by this Agreement, then the maximum Applicable Percentage shall apply at all times after such date for all Advances made or outstanding after such date until the Borrower furnishes the required Compliance Certificate to the Agent. "Borrowing Base" means an amount equal to the sum of (i) 80% of the -------------- Eligible Accounts, plus (ii) the lesser of (A) the sum of 50% of Eligible Non-Analog Inventory plus 40% of Eligible Analog Inventory, or (B) the Inventory Cap. If the Banks so elect, the Borrowing Base shall also include such portion of Credit Insured Accounts as the Banks shall elect. The Banks shall have no obligation to allow any of the Credit Insured Accounts to be included in the Borrowing Base. Any election by the Banks to include Credit Insured Accounts in the Borrowing Base and any election regarding the amount or percentage of Credit Insured Accounts to be included in the Borrowing Base shall require the unanimous approval of all of the Banks, which approval may be given or withheld in the exercise of each Bank's sole and absolute discretion. -3- "Commitment" means (i) as to the Administrative Agent, the obligation ---------- of the Administrative Agent to make Swing Line Advances pursuant to Section ------- 2.2 and issue Letters of Credit pursuant to Section 3.1, and (ii) as to --- ----------- each Bank, the obligation of such Bank to make Advances pursuant to Sections 2.1 and 2.2 and participate in Letters of Credit pursuant to ------------ --- Sections 3.1 and 3.3 in an aggregate principal amount at any time ------------ --- outstanding up to but not exceeding the amount set forth below opposite the name of such Bank under the heading "Commitment":
BANK COMMITMENT ---- ---------- CBT $21,739,130.43 Bank One, NA $21,739,130.43 National City Bank $21,739,130.43 Credit Lyonnais New York Branch $17,391,304.35 Wells Fargo Bank Texas, National Association $17,391,304.35
, or the Commitment amount assigned or retained pursuant to an Assignment and Acceptance, or the Commitment amount for such Bank specified in documentation executed pursuant to Section 2.12; in each case, as such ------------ amount may be reduced pursuant to Section 2.10 or terminated pursuant to ------------ Section 2.10 or Section 12.2; provided, however, that with regard to CBT's ------------ ------------- Commitment, the commitment to make Alternate Currency Advances shall be the commitment of Chase. Notwithstanding anything to the contrary contained herein, CBT shall have no commitment to make Alternate Currency Advances, and Chase shall have no commitment to make any Advances other than Alternate Currency Advances. "Maximum Rate" means, at any time, the maximum rate of interest under ------------ applicable law that the Agent or the Banks may charge the Borrower. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments, and other charges in respect of the Loan Documents that constitute interest under applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrower at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be the applicable weekly ceiling described in, and computed in accordance with, Chapter 303 of the Texas Finance Code. "Total Commitment Amount" means the aggregate amount of the ----------------------- Commitments of the Banks, which amount is $100,000,000 as of July 12, 2000 and may be increased to $135,000,000 subject to and in accordance with the terms, conditions and provisions of Section 2.12. For purposes of the ------------ definitions of "Total Commitment Amount" and "Required Banks" set forth in ----------------------- -------------- this Section 1.1, the portion of the Total Commitment Amount attributable ----------- to the Commitment of Chase and CBT shall be deemed to be held by CBT. 2.4 Change of Control. Effective as of the date hereof, the reference to ----------------- "Richard M. Gozia" appearing in subsection (c) of the definition of "Change of -------------- Control" set forth in Section 1.1 of the Agreement is hereby amended to read ----------- "Dale H. Allardyce". -4- 2.5 Repayment of Advances. Effective as of the date hereof, Section 2.4 --------------------- ----------- of the Agreement is hereby amended to read in its entirety as follows: Section 2.4 Repayment of Advances. The Borrower shall make a payment --------------------- to the Agent during the month of August on or before August 31, 2000, such payment to be in the amount equal to all management services fees and intellectual property royalty fees billed under the Fee Agreements during the quarter ending August 31, 2000, and shall make a payment to the Agent during the month of November on or before November 30, 2000, such payment to be in the amount equal to all management services fees and intellectual property royalty fees billed under the Fee Agreements during the quarter ending November 30, 2000, each such payment to be applied to repay Advances in such amount. Such amounts so paid may be reborrowed subject to the terms, conditions and provisions of this Agreement. The Borrower shall repay the unpaid principal amount of all Advances on the Termination Date. 2.6 Accordion Provision. Effective as of the date hereof, the amount -------------------- "$20,000,000" appearing in Section 2.12 of the Agreement is hereby amended to ------------ read "$35,000,000". 2.7 Amendment to Section 4.3. Effective as of the date hereof, Section ------------------------- ------- 4.3 of the Agreement is hereby amended to read in its entirety as follows: - --- Section 4.3 Mandatory Prepayment. If at any time the amount equal to -------------------- the sum of (i) the outstanding principal amount of the Advances (including without limitation the Equivalent Amount of any Alternate Currency Advances), plus (ii) the Letter of Credit Liabilities exceeds the lesser of the Borrowing Base or the Total Commitment Amount (the amount of such excess being referred to herein as the "Overadvance"), the Borrower shall ----------- promptly prepay the outstanding Advances by the amount of the Overadvance plus accrued and unpaid interest on the amount so prepaid or, if no Advances are outstanding, the Borrower shall immediately pledge to the Agent cash or cash equivalent investments in an amount equal to the Overadvance as security for the Obligations. 2.8 Compliance Certificate. Effective as of the date hereof, subsection ---------------------- ---------- (d) of Section 9.1 of the Agreement is hereby amended to read in its entirety - --- ----------- as follows: (d) Compliance Certificate. (i) Concurrently with the delivery of ---------------------- each of the financial statements referenced to in subsections 9.1(a) and ------------------ (b), a Compliance Certificate showing calculation of the financial covenants, and (ii) unless the appropriate parties hereto have entered into an amendment to this Agreement on or before November 22, 2000, pursuant to which Borrower has demonstrated that it is and will be in compliance with all covenants, terms and provisions of this Agreement as amended by such amendment, Borrower will furnish to the Agent and each Bank on or before November 22, 2000, a Compliance Certificate showing calculation of the financial covenants as of October 31, 2000 and that Borrower and the Subsidiaries are in compliance with all terms, covenants and provisions of this Agreement, provided that Borrower acknowledges that the Agent and the Banks do not and shall not have any commitment or obligation to enter into any such amendment, and none of the Banks or the Agent have made any representation or warranty regarding any such amendment to Borrower or any other Person; -5- 2.9 Fee Agreements. Effective as of the date hereof, Article IX of the -------------- ---------- Agreement is hereby amended to add the following Section 9.12 to the end ------------ thereof, such section to read in its entirety as follows: Section 9.12 Fee Agreements. The Borrower will enter into and cause -------------- to be maintained management services agreements and intellectual property royalty agreements with certain Foreign Subsidiaries, providing for payments from such Foreign Subsidiaries to the Borrower of management services fees and intellectual property royalty fees, respectively, calculated in accordance with Schedule 9.12 (such management services ------------- agreements and intellectual property royalty agreements being herein called the "Fee Agreements"). The Borrower shall comply with and perform all of -------------- its obligations under the Fee Agreements and shall bill and collect all fees and amounts payable thereunder. It is understood and agreed that Schedule 9.12 may change from time to time based upon the results of ------------- transfer pricing studies which may be performed by the Borrower from time to time. 2.10 Financial Covenants. Effective as of May 31, 2000, Sections 11.2, ------------------- ------------- 11.3, 11.4, 11.5 and 11.6 of the Agreement are hereby amended to read in their - ---- ---- ---- ---- respective entireties as follows: Section 11.2 Consolidated Interest Coverage Ratio. The Borrower will ------------------------------------ maintain or cause to be maintained, as of the end of each fiscal quarter of the Borrower and as of October 31, 2000, an Interest Coverage Ratio of not less than 3.0 to 1.0 for the 12 months then ended. Section 11.3 Companies Interest Coverage Ratio. The Borrower will --------------------------------- maintain or cause to be maintained, as of the end of each fiscal quarter of the Borrower and as of October 31, 2000, a ratio of (a) the Companies Cash Flow to (b) interest expense of the Borrower and the Subsidiaries on a consolidated basis of not less than 1.25 to 1.0 for the most recent 12 months then ended, provided that for purposes of calculating the foregoing ratio for each of Borrower's fiscal quarters ending May 31, 2000 and August 31, 2000 only, but not at any time thereafter, the Second Quarter Special Charges shall be added back to net income to the extent deducted from gross income in determining Companies Cash Flow for such period. In the event it is determined (by the most recent Compliance Certificate or otherwise) that the Companies Cash Flow is not sufficient to cause compliance with this Section 11.3, then within 10 days after such determination, the Borrower ------------ will cause to be transferred to the Companies from the other Subsidiaries cash in an amount which when added to the Companies Cash Flow is sufficient to cause compliance with this Section 11.3, and, to the extent they comply ------------ with such covenant, the Companies shall be deemed to have met the requirements of this Section 11.3 for the relevant period of determination, ------------ except as hereinafter provided. Notwithstanding anything to the contrary contained herein, (a) the Companies may not use the transferred cash described in the preceding sentence to meet the ratio requirements of this Section 11.3 in more than two consecutive fiscal quarters, and (b) the ------------ Companies may not use the transferred cash described in the preceding sentence to meet the ratio requirement of this Section 11.3 for the ------------ compliance determination to be made as of October 31, 2000. Such transferred cash shall remain with the Companies, notwithstanding any other covenants to the contrary contained herein, until the Companies have demonstrated compliance with this Section 11.3 without the benefit of such ------------ transferred cash. Section 11.4 Minimum Turnover Ratio. The Borrower will maintain or ---------------------- cause to be maintained, as of the end of each fiscal quarter of Borrower and as of October 31, 2000, a ratio of Consolidated Cost of Goods Sold to Consolidated Average Inventory of not less than 6.0 to -6- 1.0, provided that calculation of the ratio required by this Section 11.4 as of October 31, 2000 shall be calculated as though the last quarter ended on October 31, 2000. Section 11.5 Consolidated Funded Debt to Consolidated Cash Flow -------------------------------------------------- Ratio. The Borrower will maintain or cause to be maintained, as of the end ----- of each fiscal quarter of Borrower and as of October 31, 2000, a ratio of Consolidated Funded Debt, as of the date of determination, to Consolidated Cash Flow, for the most recent 12 months then ended, of not greater than 3.5 to 1.0. Section 11.6 Consolidated Senior Debt to Consolidated Cash Flow -------------------------------------------------- Ratio. The Borrower will maintain or cause to be maintained, as of the end ----- of each fiscal quarter of Borrower and as of October 31, 2000, a ratio of Consolidated Senior Debt, as of the date of determination, to Consolidated Cash Flow, for the most recent 12 months then ended, of not greater than 2.5 to 1.0. 2.11 Amendment to Compliance Certificate. Effective as of May 31, 2000, ----------------------------------- Exhibit D to the Credit Agreement is hereby amended to read in its entirety as - --------- set forth on Annex I hereto. ------- 2.12 Amendment to Borrowing Base Report. Effective as of the date hereof, ---------------------------------- Exhibit E to the Credit Agreement is hereby amended to read in its entirety as - --------- set forth on Annex II hereto. -------- 2.13 Schedule 9.12. Effective as of the date hereof, the Agreement is ------------- hereby amended to add Schedule 9.12 thereto, which schedule shall read in its ------------- entirety as set forth on Annex III hereto. --------- 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, Locke Liddell & Sapp LLP. (d) Additional Documentation. The Administrative Agent shall have ------------------------ received such additional approvals, opinions, or documents as the Administrative Agent or its legal counsel, Locke Liddell & Sapp LLP, may reasonably request. (e) Fees. Borrower shall have paid to Agent, for the account of each ---- Bank that executes and delivers this Amendment (except Chase), an amendment fee in the amount of its Commitment multiplied by 20 basis points. -7- 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. 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. -8- 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 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. This Amendment shall not be effective unless and until the Agent, the requisite Banks, the Borrower and the Guarantors have each executed and delivered a counterpart hereof; provided, however that execution and delivery by Holdings shall not be required for effectiveness of this Amendment, but Holdings shall execute and deliver this Amendment no later than August 31, 2000, and failure to do so by such date shall constitute an Event of Default under the Agreement. 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. -9- Executed as of the date first written above. BORROWER: -------- CELLSTAR CORPORATION By: /s/ AUSTIN P. YOUNG ----------------------------------- Name: Austin P. Young ----------------------------- Title: Senior Vice President, Chief ----------------------------- Financial Officer & Treasurer ----------------------------- 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 ----------------------------------- Allen K. King ----------------------------------- Vice President ----------------------------------- BANK ONE, NA (formerly known as The First National Bank of Chicago), as Syndication Agent and as a Bank By: /s/ CHRISTOPHER CHILD ----------------------------------- Name: Christopher Child ----------------------------- Title: Senior V.P./C.O. ----------------------------- NATIONAL CITY BANK, as Documentation Agent and as a Bank By: /S/ SCOTT BREWER ---------------------------------- Name: Scott Brewer ---------------------------------- Title: A. V. P. ---------------------------------- -10- 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: ---------------------------------- Name: ----------------------------- Title: ---------------------------- WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION (formerly known as Wells Fargo Bank (Texas), National Association) By: /s/ BRIAN P. RIORDAN ---------------------------------- Name: Brian P. Riordan ---------------------------- Title: Banking Officer --------------------------- 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/ AUSTIN P. YOUNG ----------------------------------- Name: Austin P. Young ----------------------------- Title: Senior Vice President, Chief ----------------------------- Financial Officer & Treasurer ----------------------------- -11- CELLSTAR, LTD. By: National Auto Center, Inc., General Partner /s/ AUSTIN P. YOUNG By:___________________________________ Austin P. Young Name:______________________________ Senior Vice President, Chief Financial Officer & Treasurer Title:_____________________________ CELLSTAR FULFILLMENT, LTD. By: CellStar Fulfillment, Inc., General Partner /s/ AUSTIN P. YOUNG By:___________________________________ Austin P. Young Name:______________________________ Senior Vice President, Chief Financial Officer & Treasurer Title:_____________________________ CELLSTAR FINANCO, INC. /s/ AUSTIN P. YOUNG By:___________________________________ Austin P. Young Name:______________________________ Senior Vice President, Chief Financial Officer & Treasurer Title:_____________________________ CELLSTAR FULFILLMENT, INC. /s/ AUSTIN P. YOUNG By:___________________________________ Austin P. Young Name:______________________________ Senior Vice President, Chief Financial Officer & Treasurer Title:_____________________________ -12- NAC HOLDINGS, INC. By: /s/ ELAINE FLUD RODRIGUEZ ------------------------------------ Elaine Flud Rodriguez President CELLSTAR INTERNATIONAL CORPORATION/ASIA By: /s/ AUSTIN P. YOUNG ------------------------------------ Name: Austin P. Young ------------------------------- Title: Senior Vice President, Chief ------------------------------ Financial Officer & Treasurer ------------------------------- AUDIOMEX EXPORT CORP. By: /s/ AUSTIN P. YOUNG ------------------------------------ Name: Austin P. Young ------------------------------- Title: Senior Vice President, Chief ------------------------------ Financial Officer & Treasurer ------------------------------- CELLSTAR INTERNATIONAL CORPORATION/SA By: /s/ AUSTIN P. YOUNG ------------------------------------ Name: Austin P. Young ------------------------------- Title: Senior Vice President, Chief ------------------------------ Financial Officer & Treasurer ------------------------------- CELLSTAR AIR SERVICES, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------ Name: Austin P. Young ------------------------------- Title: Senior Vice President, Chief ------------------------------ Financial Officer & Treasurer ------------------------------- -13- A & S AIR SERVICE, INC. By:/s/ AUSTIN P. YOUNG ----------------------------------- Name: Austin P. Young ------------------------------ Title: Senior Vice President, ----------------------------- Chief Financial Officer ----------------------------- and Treasurer ----------------------------- CELLSTAR TELECOM, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------- Name: Austin P. Young ------------------------------ Title: Senior Vice President, ----------------------------- Chief Financial Officer ----------------------------- and Treasurer ----------------------------- FLORIDA PROPERTIES, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------- Name: Austin P. Young ------------------------------ Title: Senior Vice President, ----------------------------- Chief Financial Officer ----------------------------- and Treasurer ----------------------------- CELLSTAR GLOBAL SATELLITE SERVICE, LTD. By: National Auto Center, Inc., General Partner By: /s/ AUSTIN P. YOUNG ----------------------------------- Name: Austin P. Young ------------------------------ Title: Senior Vice President, ----------------------------- Chief Financial Officer ----------------------------- and Treasurer ----------------------------- -14- ANNEX I ------- EXHIBIT D TO AMENDED AND RESTATED CREDIT AGREEMENT Compliance Certificate ---------------------- COMPLIANCE CERTIFICATE ---------------------- TO: Chase Bank of Texas, National Association, as Administrative Agent 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Attention: Allen K. King Ladies and Gentlemen: The undersigned is the president, chief executive officer, the chief financial officer or the corporate controller of CELLSTAR CORPORATION, a Delaware corporation (the "Borrower"), and is authorized to make and deliver -------- this certificate pursuant to that certain Amended and Restated Credit Agreement dated as of August 2, 1999, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of November 23, 1999, and as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated as of July ___, 2000 (as the same has been and may be amended, supplemented or modified from time to time, being hereinafter referred to as the "Credit Agreement"), among the Borrower, each of the banks or other lending ---------------- institutions which is or may become a party thereto and the successors and permitted assigns thereof, Bank One, NA (formerly known as 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, a national banking association, as administrative agent for itself and each of the other Banks, as issuer of Letters of Credit thereunder and as the swing line lender (the "Administrative Agent"), and The -------------------- Chase Manhattan Bank, as alternate currency agent (the "Alternate Currency ------------------ Agent"). All terms defined in the Credit Agreement shall have the same meaning - ----- herein. In connection with the foregoing and pursuant to the terms and provisions of the Credit Agreement, the undersigned hereby certifies to the Agent and each Bank that the following statements are true and correct: A. Representations and Warranties. The representations and warranties ------------------------------ contained in Article VIII of the Credit Agreement and in each of the other Loan ------------ Documents are true and correct on and as of the date hereof with the same force and effect as if made on and as of such date. B. Financial Covenants. The information set forth below is true and ------------------- correct based upon the financial statements delivered herewith as of the last day of the fiscal quarter next preceding the date of this certificate or such other date of determination as may be set forth below: (1) Consolidated Tangible Net Worth as of ___________, ______: (a) Stockholders' or owners' equity of the Borrower and the Subsidiaries on a consolidated basis as of such date................................................................. $___________ (b) Amount at which shares of capital stock of any Person appear as an asset on the balance sheet of such Person........................................................................ $___________ (c) Goodwill, including amounts that represent the excess of the purchase price paid for assets or stock over the value assigned thereto......................................................... $___________ (d) Patents, trademarks, trade names, and copyrights........................................................ $___________ (e) Deferred expenses....................................................................................... $___________ (f) Loans and advances to any stockholder, director, officer, partner or employee of the Borrower, any Subsidiary, or any Affiliate of the Borrower or any Subsidiary............................ $___________ (g) All other assets which are properly classified as intangible assets..................................... $___________ (h) Sum of Lines (b), (c), (d), (e), (f) and (g)............................................................ $___________ (i) Tangible Net Worth (Difference of Line (a) minus Line (h)).............................................. $___________ (j) Sum of net income, after provision for income taxes, of the Borrower and the Subsidiaries on a consolidated basis (without any deduction for losses) for each fiscal quarter of the Borrower ended through such date beginning with the fiscal quarter ending August 31, 1999................................................................... $___________ (k) 50% of Line (j)......................................................................................... $___________ (l) With respect to any issuance, sale or other disposition of any shares of capital stock or other equity securities of Borrower of any class (or any securities convertible or exchangeable for any such shares, or any rights, warrants or
COMPLIANCE CERTIFICATE - Page 1 options to subscribe for or purchase any such shares), the aggregate gross proceeds of such issuance, sale or other disposition, less the following: ---- (i) placement agent fees, (ii) underwriting discounts and commissions, (iii) bank and other lender fees, and (iv) legal fees and other expenses payable by the issuer in connection with such issuance, sale or other disposition, to the extent such proceeds are received by the Borrower.............................................................................. $___________ (m) Minimum Consolidated Tangible Net Worth required by Section 11.1 of Credit Agreement ------------ ($150,000,000 plus Line (k) plus Line (1))............................................................ $___________
(2) Consolidated Interest Coverage Ratio as of ___________, ______ (for the 12 ------------------------------------ month period most recently ended): (a) The sum of the following, calculated on a consolidated basis for the Borrower and the Subsidiaries, without duplication: (i) the amount of net income for the 12 month period most recently ended (whether positive or negative) before interest expense, income taxes and extraordinary items, net of (ii) all non-cash items (such as deferred taxes, depreciation, amortization of goodwill and all other non-cash charges accrued but not actually paid) which, in determining net income for such period, were deducted from (or included in) gross income for such period; provided, however, that for purposes of the foregoing calculation, changes in the -------- ------- allowance for doubtful accounts shall not be treated as a non-cash item.................................. $___________ (b) Interest expense of the Borrower and the Subsidiaries on a consolidated basis............................ $___________ (c) Ratio of Line (a) to Line (b)............................................................................ ____ to ____ (d) Minimum Consolidated Interest Coverage Ratio required by Section 11.2 of Credit Agreement................ 3.0 to 1.0 ------------
(3) Companies Interest Coverage Ratio as of _____________, ______ (for the 12 --------------------------------- month period then ended): (a) The sum of the following, calculated on a combined basis for the Companies, without duplication: (i) the amount of net income for the 12 month period most recently ended (whether positive or negative) before interest expense, income taxes and extraordinary items, net of (ii) all non-cash items (such as deferred taxes, depreciation, amortization of goodwill and all other non-cash charges accrued but not actually paid) which, in determining net income for such period, were deducted from (or included in) gross income for such period; provided, -------- however, that for purposes of calculating the foregoing, changes in the allowance for doubtful ------- accounts shall not be treated as a non-cash item/1/...................................................... $___________ (b) Interest expense of the Borrower and the Subsidiaries on a consolidated basis (Line 2(b))................ $___________ (c) Ratio of Line (a) to Line (b)............................................................................ ____ to ____ (d) Amount of cash transferred from Subsidiaries to the Companies as permitted by Section 11.3 of the Credit Agreement/2/............................................................... $___________ ------------ (e) Ratio of Line (a) plus Line (d) to Line (b).............................................................. ____ to ____
_________________________ /1/ In the calculation of Companies Cash Flow for certain periods, certain special or non-recurring charges shall be excluded, or added back to net income, in accordance with Section 11.3 of the Credit Agreement and the definition of ------------ Companies Cash Flow set forth in Section 1.1 of the Credit Agreement. ----------- /2/ In the event it is determined that the Companies Cash Flow is not sufficient with Section 11.3 of the Credit Agreement, then within ten days after ------------ such determination, the Borrower will cause to be transferred to the Companies from the other Subsidiaries cash in an amount which when added to the Companies Cash Flow is sufficient to cause compliance with Section 11.3 of the Credit ------------ Agreement, and, to the extent they comply with such covenant, the Companies shall be deemed to have met the requirements of Section 11.3 of the Credit ------------ Agreement for the relevant period of determination, except as hereinafter provided. The Companies may not use transferred cash to meet the ratio requirement of Section 11.3 of the Credit Agreement in more than two consecutive ------------ fiscal quarters. The Companies may not use transferred cash to meet the ratio requirement of Section 11.3 of the Credit Agreement for the compliance ------------ determination as of October 31, 2000. Such transferred cash shall remain with the Companies, notwithstanding any other covenants to the contrary contained herein, until the Companies have demonstrated compliance with Section 11.3 of ------------ the Credit Agreement without the benefit of such transferred cash. COMPLIANCE CERTIFICATE - Page 2 (f) Minimum Companies Interest Coverage Ratio required by Section 11.3 of Credit Agreement.... 1.25 to 1.0 ------------
(4) Minimum Turnover Ratio for the quarter ended ___________, ______:/3/ ---------------------- (a) Cost of goods sold for the Borrower and the Subsidiaries on a consolidated basis in the period of the four fiscal quarters then ended............................................................. $___________ (b) Consolidated Average Inventory Per Quarter for each of the most recent four fiscal quarters then ended: Beginning Ending Inventory Inventory Quarters Amount Amount -------- ------ ------ 1 $_______ + $_______ /2 = ............................ $___________ 2 $_______ + $_______ /2 = ............................ $___________ 3 $_______ + $_______ /2 = ............................ $___________ 4 $_______ + $_______ /2 = ............................ $___________ (c) Total sum of Consolidated Average Inventory Per Quarter for quarters shown in Line (b)............. $___________ (d) Consolidated Average Inventory (Line (c) divided by four).......................................... $___________ (e) Turnover Ratio (Ratio of Line (a) to Line (d))..................................................... ____ to ____ (f) Minimum Turnover Ratio required by Section 11.4 of Credit Agreement................................ 6.0 to 1.0 ------------
(5) Consolidated Funded Debt to Consolidated Cash Flow Ratio as of __________, ______: (a) On a consolidated basis for the Borrower and the Subsidiaries in accordance with GAAP, all obligations for borrowed money (whether as a direct obligor on a promissory note, bond, debenture or other similar instrument, as a reimbursement obligor with respect to an issued letter of credit or similar instrument, as an obligor under a Guarantee for borrowed money, or as any other type of direct or contingent obligor) as of the date of determination................ $___________ (b) On a consolidated basis for the Borrower and the Subsidiaries, without duplicating any amount included in Line (a) above, the capitalized amount of all obligations to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a consolidated balance sheet of the Borrower under GAAP (other than the interest component of such obligations), as of the date of determination, determined in accordance with GAAP.................................................. $___________ (c) Consolidated Funded Debt (the sum of Line (a) plus Line (b))....................................... $___________ (d) Consolidated Cash Flow (Line (2)(a))............................................................... $___________ (e) Ratio of Line (c) to Line (d)...................................................................... _____ to ___ (f) Maximum Consolidated Funded Debt to Consolidated Cash Flow Ratio permitted by Section 11.5 of the Credit Agreement............................................................... 3.5 to 1.0 ------------
(6) Consolidated Senior Debt to Consolidated Cash Flow Ratio as of _____________, ______: (a) Consolidated Funded Debt (Line (5)(c))............................................................ $___________ (b) Subordinated Debt................................................................................. $___________ (c) Consolidated Senior Debt (Line (a) minus Line (b))................................................ $___________ (d) Consolidated Cash Flow (Line (2)(a)).............................................................. $___________ (e) Ratio of Line (c) to Line (d)..................................................................... ____ to ____ (f) Maximum Consolidated Senior Debt to Consolidated Cash Flow Ratio permitted by Section 11.6 of the Credit Agreement.............................................................. 2.5 to 1.0 ------------
(7) Intercompany Loans and Capital Contributions as of ____________, _______: (a) Capital contributions by the Borrower or any Subsidiary to any other Subsidiary or any _______________________ /3/ Calculation of this ratio as of October 31, 2000 shall be calculated as though the last quarter ended on October 31, 2000. COMPLIANCE CERTIFICATE - Page 3 Foreign Affiliate (other than as described in subsections (B) through (E) of Section 10.5(i) of the --------------- --- --------------- Credit Agreement) during the current fiscal year through the fiscal quarter most recently ended or other date of determination specified above/4/................................................ $___________ (b) Capital contributions by the Borrower or any Subsidiary to any other Subsidiary or any Foreign Affiliate (other than as described in subsections (B) through (E) of Section 10.5(i) of the --------------- --- --------------- Credit Agreement) during the fiscal year most recently ended/5/......................................... $___________ (c) Maximum amount of such capital contributions permitted by subsection (F) of Section 10.5(i) of ---------- --- --------------- the Credit Agreement during any fiscal year............................................................. $15,000,000 (d) Aggregate amount of loans and advances by the Borrower or any Subsidiary to any Foreign Affiliate outstanding as of such date............................................................................. $___________ (e) Maximum aggregate amount of such loans and advances permitted to be outstanding at any time............ $10,000,000 (f) Aggregate amount of loans and advances by the Borrower or any Subsidiary to any other Subsidiary (other than as described in subsections (B) and (C) of Section 10.5(i) of the ----------------------- --------------- Credit Agreement) outstanding as of such date./6/...................................................... $___________ (g) Maximum aggregate amount of such loans and advances permitted to be outstanding at any time: (1) Stockholders' equity in the Borrower as of such date............................................... $___________ (2) 20% of Line (1).................................................................................... $___________ (3) Greater of $100,000,000 or Line (2)................................................................ $___________
The undersigned hereby certifies that (a) the above information and calculations are true and correct and not misleading as of the date hereof, (b) Borrower has delivered to the Agent and the Banks all financial information and reports required by the Credit Agreement by the dates provided therein, and (c) no Default has occurred and is continuing. CELLSTAR CORPORATION By:______________________________ Name:_________________________ Title:________________________ Dated as of:___________________ _______________________ /4/ For each Compliance Certificate other than each Compliance Certificate delivered for any fiscal year-end of the Borrower. /5/ For each Compliance Certificate delivered for any fiscal year-end of the Borrower. /6/ Amounts loaned or advanced by the Borrower or any Subsidiary to any Subsidiary that are in turn loaned or advanced by that Subsidiary to another Subsidiary shall be counted only once for purposes of this calculation. COMPLIANCE CERTIFICATE - Page 4 ANNEX II -------- EXHIBIT E TO AMENDED AND RESTATED CREDIT AGREEMENT Borrowing Base Report --------------------- BORROWING BASE REPORT TO: Chase Bank of Texas, National Association, as Administrative Agent 2200 Ross Avenue Post Office Box 660197 Dallas, Texas 75266-0197 Attention: Allen K. King Ladies and Gentlemen: This Borrowing Base Report for the month ending ___________, 19___, is executed and delivered by CELLSTAR CORPORATION, a Delaware corporation (the "Borrower"), pursuant to that certain Amended and Restated Credit Agreement -------- dated as of August 2, 1999, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of November 23, 1999, and as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated as of July ___, 2000 (as the same has been or may be amended, supplemented, modified or restated from time to time, the "Credit Agreement"), ---------------- among the Borrower, each of the banks or other lending institutions which is or may from time to time become a signatory thereto and any successors or permitted assigns thereof (each a "Bank" and, collectively, the "Banks"), Bank One, NA ---- ----- (formerly known as The First National Bank of Chicago), as syndication agent (the "Syndication Agent"), National City Bank, as documentation agent ----------------- ("Documentation Agent"), and Chase Bank of Texas, National Association, a ------------------- national banking association, as administrative agent for the Banks, as issuer of Letters of Credit thereunder and as the swing line lender (in such capacity, together with its successors in such capacity, the "Administrative Agent"). All -------------------- terms used herein shall have the meanings assigned to them in the Credit Agreement. The Borrower represents and warrants to the Agent and each Bank that all information contained herein is true, correct, and complete, and that the total Eligible Accounts, Eligible Inventory, Eligible Analog Inventory and Eligible Non-Analog Inventory referred to below represent the Eligible Accounts, Eligible Inventory, Eligible Analog Inventory and Eligible Non-Analog Inventory that qualify for purposes of determining the Borrowing Base under the Credit Agreement. ACCOUNTS RECEIVABLE: 1. Gross Accounts of the Companies (ending balance for period ended ______________, 19__) .................................................................................. $____________ 2. Less: Ineligible Accounts (determined pursuant to the definition of Eligible Accounts in the Credit Agreement, without duplication): (a) Accounts not complying with applicable law........................................................... $____________ (b) Accounts outstanding for more than 90 days past the original date of invoice......................... $____________ (c) Accounts created outside of the ordinary course of business ......................................... $____________ (d) Accounts from unenforceable contracts or contracts not fully completed by any Company ............... $____________ (e) Accounts including progress billings ................................................................ $____________ (f) Accounts from sales on bill-and-hold, guaranteed sale, sale-and-return, etc. ........................ $____________ (g) Accounts subject to a lien other than liens held by the Agent or permitted by Section 10.2 of the Credit Agreement .................................................................................... $____________ (h) Accounts as to which any Company does not have good and indefeasible title .......................... $____________ (i) Accounts subject to anti-assignment provisions ...................................................... $____________ (j) Accounts subject to setoff, dispute, etc. ........................................................... $____________ (k) Accounts owed by account debtors subject to bankruptcy, etc. ........................................ $____________ (l) Accounts evidenced by chattel paper or instruments .................................................. $____________ (m) Accounts subject to default by any party thereto..................................................... $____________ (n) Accounts owed by Foreign Subsidiaries ............................................................... $____________ (o) Accounts owed by Foreign Affiliates ................................................................. $____________ (p) Accounts owed by other Affiliates of any Company, except for accounts owed by Topp Telecom for sales of inventory in the ordinary course of the Companies' business............................. $____________ (q) Accounts owed by employees of any Company ........................................................... $____________ (r) Accounts owed by other foreign account debtors in excess of $15,000,000 ............................. $____________ (s) Accounts not payable in Dollars ..................................................................... $____________ (t) Accounts owed by each account debtor with over 20% of the balances owed by such account debtor and its Affiliates to the Companies on a consolidated basis outstanding for more than 90 days past the original date of invoice................................................................... $____________ (u) All accounts owed by each account debtor if balances owed by such account debtor and its Affiliates constitute more than 10% of the total accounts receivable of the Companies on a consolidated basis............................................................................................... $____________ (v) Accounts owed by the United States of America or any agency thereof for which the Federal Assignment of Claims Act of 1940, as amended, has not been complied with. .......................... $____________ (w) Contra accounts owed by any Company to the account debtor which are payable pursuant to terms which are not ordinary and customary...................................................................... $____________ (x) Contra accounts owed by any Company to the account debtor which are past due or otherwise in default ............................................................................................ $____________ (y) Past due credits.................................................................................... $____________ 3. Total Ineligible Accounts (sum of Lines 2(a)-(y)) ............................................................ $____________ 4. Total Eligible Accounts (Line 1 minus Line 3) ................................................................ $____________
BORROWING BASE REPORT - Page 1 INVENTORY: 5. Total Inventory of the Companies (valued at lesser of actual cost for purchase from original wholesale supplier or fair market value) ..................................................................... $____________ 6. Less: Ineligible Inventory (determined pursuant to the definition of Eligible Inventory in the Credit Agreement, without duplication) (a) Work-in-process inventory .......................................................................... $____________ (b) Value of obsolescence reserve (expressed as a positive number) ..................................... $____________ (c) Inventory shipped or delivered on consignment, sale or return, or similar terms..................... $____________ (d) Inventory in transit (except inventory in transit from Motorola, Nokia or Ericsson to the Companies' main warehouse in Carrollton, Texas, the Companies' warehouse with Circle Freight at DFW Airport, Texas, or any of the Companies' warehouses in Miami, Florida or Chino, California, which is properly documented and insured pursuant to shipping documents and insurance, and proof thereof, satisfactory to the Agent).......................................................................... $____________ (e) Inventory which is offsite, except offsite inventory covered by a waiver and agreement satisfactory to Agent .............................................................................. $____________ (f) Service or repair parts or equipment ............................................................... $____________ (g) Inventory located at location for which required landlord's waiver not received .................... $____________ (h) Inventory subject to dispute as to any Company's title or right to possession ...................... $____________ (i) Inventory located outside of the United States of America .......................................... $____________ (j) Inventory not in good condition or that does not comply with any applicable law or governmental standard for manufacture, use, or sale ............................................................. $____________ (k) Inventory determined to be unmarketable by the Agent ............................................... $____________ (l) Inventory subject to a lien other than liens held by the Agent or permitted by Section 10.2 of the Credit Agreement ................................................................................... $____________ 7. Total Ineligible Inventory (sum of Lines 6(a)-(l)) ........................................................... $____________ 8. Total Eligible Inventory of Companies (Line 5 minus Line 7) .................................................. $____________ 9. Eligible Analog Inventory (amount of Eligible Inventory consisting of analog phones).......................... $____________ 10. Eligible Non-Analog Inventory (Line 8 minus Line 9)........................................................... $____________ BORROWING BASE: 11. Total Eligible Accounts (Line 4) ............................................................................. $____________ 12. Total Eligible Inventory (Line 8) ............................................................................ $____________ 13. Eligible Analog Inventory (Line 9)............................................................................ $____________ 14. Eligible Non-Analog Inventory (Line 10)....................................................................... $____________ 15. 80% of Line 11................................................................................................ $____________ 16. 60% of the Total Commitment Amount............................................................................ $____________ 17. 40% of Line 13................................................................................................ $____________ 18. 50% of Line 14 ............................................................................................... $____________ 19. Sum of Line 17 plus Line 18................................................................................... $____________ 20. Lesser of Line 16 or Line 19.................................................................................. $____________ 21. Borrowing Base: Sum of Line 15 plus Line 20.................................................................. $____________ 22. Outstanding Principal Amount of Advances ..................................................................... $____________ 23. Outstanding Letter of Credit Liabilities ..................................................................... $____________ 24. Sum of Line 22 plus Line 23................................................................................... $____________ 25. Available Credit Amount or amount to be paid if negative (the lesser of the Total Commitment Amount or Line 21, minus Line 24)............................................................................................ $____________
The Borrower further represents and warrants to the Agent and the Banks that the representations and warranties contained in Article VIII of the Credit Agreement are true and correct on and as of the date of this Borrowing Base Report as if made on and as of the date hereof, and that no Default has occurred and is continuing. Date _____________________ NATIONAL AUTO CENTER, INC. By: ___________________________ Name: _____________________ Title:_____________________ cc: The Chase Manhattan Bank Agency Services One Chase Manhattan Plaza, 8/th/ Floor New York, New York 10081 Attention: Deborah Rockower Muniram Appana Fax No: (212) 522-5777 BORROWING BASE REPORT - Page 2 ANNEX III SCHEDULE 9.12 TO AMENDED AND RESTATED CREDIT AGREEMENT Calculation of Fees Under Fee Agreements ---------------------------------------- EX-27.1 3 0003.txt FINANCIAL DATA SCHEDULE
5 1,000 6-MOS 3-MOS NOV-30-2000 NOV-30-2000 DEC-01-1999 MAR-01-2000 MAY-31-2000 MAY-31-2000 79,684 79,684 0 0 359,581 359,581 56,968 56,968 275,566 275,566 711,643 711,643 49,647 49,647 24,327 24,327 780,816 780,816 411,929 411,929 150,000 150,000 0 0 0 0 602 602 218,285 218,285 780,816 780,816 1,151,229 561,370 1,151,229 561,370 1,095,520 553,944 1,095,520 553,944 60,225 32,870 29,901 25,473 8,773 4,702 (43,190) (55,619) (12,957) (15,940) (30,233) (39,679) 0 0 0 0 0 0 (30,233) (39,679) (0.50) (0.66) (0.50) (0.66)
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