-----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, A5IHG+FVBGcsZHmXHNAgDq30E5T8q/u6oALowH+xoLrll0KT4tU3qUh90Bpdni48 OgUvu8xbPvQyk7cJALeRkg== 0000930661-01-000498.txt : 20010307 0000930661-01-000498.hdr.sgml : 20010307 ACCESSION NUMBER: 0000930661-01-000498 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLSTAR CORP CENTRAL INDEX KEY: 0000913590 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 752479727 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22972 FILM NUMBER: 1557599 BUSINESS ADDRESS: STREET 1: 1730 BRIERCROFT DR CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 2144665000 MAIL ADDRESS: STREET 1: 1730 BRIERCROFT DRIVE CITY: CARROLLTON STATE: TX ZIP: 75006 10-K 1 0001.txt FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Commission File Number Ended November 30, 2000 0-22972 ------------ CELLSTAR CORPORATION (Exact name of registrant as specified in its charter) ------------ Delaware 75-2479727 (State of Incorporation) (I.R.S. Employer Identification No.) 1730 Briercroft Court Carrollton, Texas 75006 Telephone (972) 466-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share (Title of Class) Rights to Purchase Series A Preferred Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] On February 23, 2001, the aggregate market value of the voting stock held by nonaffiliates of the Company was approximately $44,785,675, based on the closing sale price of $1.12 as reported by the NASDAQ/NMS. (For purposes of determination of the above stated amount, only directors, executive officers and 10% or greater stockholders have been deemed affiliates). On February 23, 2001, there were 60,142,221 outstanding shares of Common Stock, $0.01 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held during 2001 are incorporated by reference into Part III of this Form 10-K. ================================================================================ CELLSTAR CORPORATION INDEX TO FORM 10-K
Page Number ------ PART I. Item 1. Business 2 Item 2. Properties 11 Item 3. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6. Selected Consolidated Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 7(A). Quantitative and Qualitative Disclosures About Market Risk 24 Item 8. Consolidated Financial Statements and Supplementary Data 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 25 PART III. Item 10. Directors and Executive Officers of the Registrant 26 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 26 Item 13. Certain Relationships and Related Transactions 26 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 27
1 PART I. Item 1. Business General CellStar Corporation (the "Company" or "CellStar") is a leading global provider of distribution and value-added logistics services to the wireless communications industry, with operations in Asia-Pacific, Latin America, Europe and North America. The Company facilitates the effective and efficient distribution of handsets, related accessories, and other wireless products from leading manufacturers to network operators, agents, resellers, dealers and retailers. In many of the Company's markets, the Company provides activation services that generate new subscribers for its wireless carrier customers. The "Asia-Pacific Region" consists of Taiwan, Singapore, The Philippines, Malaysia, Japan, Korea and the People's Republic of China ("PRC"), including Hong Kong. The "Latin American Region" consists of Mexico, Chile, Peru, Colombia, Argentina and the Company's Miami, Florida operations. Until the Company completed the sale of its Venezuela operations on December 26, 2000, Venezuela was included in the Latin American Region. The "European Region" consists of the United Kingdom, Sweden and The Netherlands. The "North American Region" consists of the United States. The Company's distribution services include purchasing, selling, warehousing, picking, packing, shipping and "just-in-time" delivery of wireless handsets and accessories. In addition, the Company offers its customers value-added services, including Internet-based supply chain services (AOS On-LineSM), Internet-based tracking and reporting, inventory management, marketing, prepaid wireless, product fulfillment, kitting and customized packaging, private labeling, light assembly, accounts receivable management and end-user support services. The Company also provides wireless activation services and operates retail locations in certain markets from which wireless communications products and accessories are marketed to the public. The Company markets its products to wholesale purchasers using, among other methods, direct sales strategies, the Internet, strategic account management, trade shows and trade journal advertising. The Company offers advertising allowances, ready-to-use advertising materials and displays, easy access to hard-to-find products, credit terms, a variety of name brand products and highly-responsive customer service. The Company, a Delaware corporation, was formed in 1993 to hold the stock of National Auto Center, Inc., ("National Auto Center") a company that is now an operating subsidiary. National Auto Center was originally formed in 1981 to distribute and install automotive aftermarket products. In 1984, National Auto Center began offering wireless communications products and services. In 1989, National Auto Center became an authorized distributor of Motorola, Inc. ("Motorola") wireless handsets in certain portions of the United States. National Auto Center entered into similar arrangements with Motorola in the Latin American Region in 1991, and the Company entered into similar arrangements with Motorola in the Asia-Pacific Region in 1994 and the European Region in 1996. The Company has also entered into similar distributor agreements with other manufacturers, including Nokia Mobile Phones, Inc. ("Nokia"), Ericsson Inc. ("Ericsson"), LG International Corp. Ltd. ("LG"), Samsung Telecommunications America, Inc. ("Samsung") and Kyocera Wireless Corp. ("Kyocera"). Wireless communications technology encompasses wireless communications devices such as handheld, mobile and transportable handsets, pagers and two-way radios. Since its inception in 1983, the wireless handset market has grown rapidly. Continued strong growth in the worldwide subscriber base and the convergence of existing and emerging technologies into a single multi-function handset connected to a wireless web should create significant new opportunities for the Company. The Company believes that the wireless communications industry should continue to grow for a number of reasons, including the following: economic growth, increased service availability and the lower cost of wireless service compared to conventional landline telephone systems. The Company also believes that advanced digital technologies have led to increases in the number of network operators and resellers, which has promoted greater competition for subscribers and, the Company believes, has resulted in increased demand for wireless communications products. Finally, the proliferation of new products is expected to lower prices, increase product selection and expand sales channels. The Company's revenues grew at a 25.0% compound annual rate for the five fiscal years ended November 30, 2000, and increased 6.1% for the year ended November 30, 2000, compared to the prior fiscal year. The Company generated 79.8% of its revenues in 2000 from operations conducted outside the United States. 2 Cautionary Statements The Company's success will depend upon, among other things, its ability to maintain its operating margins, continue to secure an adequate supply of competitive products on a timely basis and on commercially reasonable terms, service its indebtedness and meet covenant requirements, secure adequate financial resources, continually turn its inventories and accounts receivable, successfully manage growth (including monitoring operations, controlling costs, maintaining adequate information systems and effective inventory and credit controls), manage operations that are geographically dispersed, achieve significant penetration in existing and new geographic markets, and hire, train and retain qualified employees who can effectively manage and operate its business. The Company's foreign operations are subject to various political and economic risks including, but not limited to, the following: political instability; economic instability; currency controls; currency devaluations; exchange rate fluctuations; potentially unstable channels of distribution; increased credit risks; export control laws that might limit the markets the Company can enter; inflation; changes in laws related to foreign ownership of businesses abroad; foreign tax laws; changes in cost of and access to capital; 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 or internal political or economic instability in any nation where the Company conducts business, could have a material adverse effect on the Company. The Company's consolidated financial statements and accompanying notes, which include certain business segment and geographic information, are in Part IV. Asia-Pacific Region The Company believes that in the Asia-Pacific Region, primarily in the PRC, demand for wireless communications services has been and should continue to be driven by an unsatisfied demand for basic phone service due to the lack of adequate landline service and limited wireless penetration. The Company believes that wireless systems in this region offer a more attractive alternative to landline systems because wireless systems do not require the substantial amount of time and investment in infrastructure (in the form of buried or overhead cables) associated with landline systems. Based on these and other factors, as well as the large population base and economic growth in this region, the Company believes that phone users should increasingly use wireless systems. The Company offers wireless handsets and accessories manufactured by Original Equipment Manufacturers ("OEMs"), such as Motorola, LG and Nokia, and aftermarket accessories manufactured by a variety of suppliers. Throughout the Asia-Pacific Region, CellStar acts as a wholesale distributor of wireless handsets to large and small volume purchasers. CellStar (Asia) Corporation Limited ("CellStar Asia"), the oldest of the Company's business units in the region, derives its revenue principally from wholesale sales of wireless handsets to Hong Kong-based companies that ship these products to the remainder of the PRC and Taiwan. Shanghai CellStar International Trading Company, Ltd. ("CellStar Shanghai"), a wholly-owned, limited liability foreign trade company established in Shanghai, PRC, commenced domestic wholesale operations in the PRC in 1997 using a local commodities exchange market as an intermediary, pursuant to an experimental initiative permitting market access as authorized by the Shanghai municipal government. CellStar Shanghai purchases wireless handsets locally manufactured by Motorola and Nokia and wholesales those products to distributors and retailers located throughout the PRC. CellStar Shanghai has also entered into cooperative arrangements with certain local distributors that allow them to establish wholesale and retail operations using CellStar's trademarks. Under the terms of such arrangements, CellStar Shanghai provides services, sales support, training and access to promotional materials for use in their operations. As a result of these cooperative arrangements, more than 1,000 retail points of sale in the PRC display the CellStar name and trademarks. In exchange, those distributors agree to purchase most of their requirements of wireless handsets from CellStar Shanghai. 3 CellStar Shanghai currently deals with numerous local distributors, including distributors located in the ten largest metropolitan areas in the PRC. CellStar Shanghai leases warehouse, showroom and office space in the Pudong district of Shanghai, as well as two other warehouses in Beijing and Guangzhou. Although the Company's business in the Asia-Pacific Region is predominantly wholesale, retail operations are also conducted in Singapore, Malaysia and Taiwan. The Company has historically acted through wholly-owned subsidiaries in each of the countries in this region; however, some of the retail operations may be owned jointly with local partners, depending on the market and regulatory environment in the host country. The Company commenced operations in Taiwan in 1995. In 1999, the Company entered into a strategic alliance with Arcoa Communications Co., Ltd. ("Arcoa"), the largest telecommunications retail store chain in Taiwan. As a result of this alliance, the Company became the primary supplier of Motorola-licensed handsets and accessories to Arcoa's more than 400 retail outlets in Taiwan. In January 2000, the Company strengthened its relationship with Arcoa by acquiring 3.5% of the issued and outstanding common stock of Arcoa. The Company entered the Singapore, The Philippines and Malaysia markets in 1995 and conducts wholesale and retail operations in each country. In Malaysia, the Company is a minority partner (49%) in a joint venture. Due to the continuing deterioration in the Malaysia market, the Company intends to divest its ownership interest in the Malaysia joint venture in 2001. In 2000, the Company established a wholly-owned subsidiary in Japan and an 80% owned subsidiary in Korea to locate and purchase product and to develop relationships with local handset manufacturers in those areas. The following table outlines the Company's entry into the Asia-Pacific Region: Year Type of Operation (as of Country Entered November 30, 2000) ------- ------- ------------------ Hong Kong 1993 Wholesale Singapore 1995 Wholesale and Retail The Philippines 1995 Wholesale Malaysia 1995 Wholesale and Retail Taiwan 1995 Wholesale and Retail People's Republic of China 1997 Wholesale Japan 2000 Purchasing Korea 2000 Purchasing At November 30, 2000, the Company sold its products to over 200 wholesale customers in the Asia-Pacific Region (excluding customers of the Company's Malaysia joint venture), the ten largest of which accounted for approximately 23% of the Company's consolidated revenues in fiscal 2000. The Company offers a broad product mix compatible with digital systems in the Asia-Pacific Region and anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company markets its products to a variety of wholesale purchasers, including retailers, exporters and wireless carriers, through its direct sales force and through trade shows. To penetrate local markets in certain countries, the Company has made use of subagent and license relationships. Latin American Region As in the Asia-Pacific Region, the Company believes that demand for wireless communications services in the Latin American Region has been and should continue to be driven by an unsatisfied demand for basic phone service due to the lack of adequate landline service and to limited wireless penetration. The Company believes that wireless systems in this region offer a more attractive alternative to landline systems because wireless systems do not require the substantial amount of time and investment in infrastructure (in the form of buried or overhead cables) associated with landline systems. Based on these and other factors, as well as the large population base and economic growth in this region, the Company believes that phone users should increasingly use wireless communications systems. 4 The Company in the Latin American Region offers wireless communications handsets, related accessories and other wireless products manufactured by OEMs, such as Motorola, Nokia, Samsung, Kyocera and Ericsson, and aftermarket accessories manufactured by a variety of suppliers to carriers, mass merchandisers and other retailers. The Company, through its Miami, Florida ("Miami") operations, acts as a wholesale distributor of wireless communications products in the Latin American Region to large volume purchasers, such as wireless carriers, as well as to smaller volume purchasers. As a result, the Company's Miami operations are included in the Latin American Region. In the quarter ended May 31, 2000, the Company began phasing out a major portion of its redistributor business in Miami due to the volatility of such business, the relatively lower margins and higher credit risks. Redistributors are distributors without existing direct relationships with manufacturers and without long-term carrier or dealer/agent relationships. Such distributors purchase product on a spot basis to fulfill intermittent customer demand and do not have a long-term predictable product demand. Due to the reduction in the redistributor business and the increased availability of in-country manufactured product, the Company has experienced a significant decline in exports from its Miami operation and intends to restructure or consolidate its Miami operation in 2001. Although the Company's business in the Latin American Region is predominantly wholesale and value-added fulfillment services, retail operations are conducted by the Company in all countries. On November 30, 2000, the Company operated 34 retail locations (including kiosks) in the Latin American Region, the majority of which are located in Mexico. The Company has historically acted through wholly-owned subsidiaries in each of the countries in this region. From 1998 until August 2000, the Company conducted its operations in Brazil primarily through a majority owned (51%) joint venture. After a review of its Brazil operations, the Company decided in the quarter ended May 31, 2000 to exit the Brazil market and divest its 51% interest in the joint venture based on the joint venture structure, foreign exchange risk, high cost of capital, alternative uses of capital, accumulated losses, and the prospect of ongoing losses. The Company completed divestiture of its 51% joint venture on August 25, 2000. The Company decided during the quarter ended August 31, 2000, based on the current and future economic and political outlook in Venezuela, to divest its operations in Venezuela. The Company exited the Venezuela market on December 26, 2000. The following table outlines the Company's entry into the Latin American Region: Year Type of Operation (as of Country Entered November 30, 2000) ------- ------- ------------------ Mexico 1991 Wholesale and Retail Chile 1993 Wholesale and Retail Venezuela 1993 Wholesale and Retail (Exited Venezuela December 26, 2000) Colombia 1994 Wholesale and Retail Argentina 1995 Wholesale and Retail Peru 1998 Wholesale and Retail At November 30, 2000, the Company sold its products to over 1,450 wholesale customers in the Latin American Region, the ten largest of which accounted for approximately 15% of the Company's consolidated revenues in fiscal 2000. The Company offers a broad product mix in the Latin American Region, including products that are compatible with digital and analog systems, and anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company markets its products through direct sales and advertising. In all markets except Peru, the Company uses direct mailings and newspapers to promote its retail operations. To penetrate local markets, the Company has made use of subagent relationships in certain countries. 5 European Region The Company acts as a wholesale distributor of wireless communications products in the European Region to large volume purchasers, such as large wireless carriers, as well as to smaller volume purchasers. The Company uses distribution facilities in Manchester, England, Stockholm, Sweden, and Amsterdam, The Netherlands, to serve customers in the European Region. The Company in the European Region offers wireless communications handsets, related accessories and other wireless products manufactured by OEMs such as Motorola, Nokia, and Ericsson, and aftermarket accessories manufactured by a variety of suppliers to carriers, mass merchandisers and other retailers. In 1999, the Company acquired Montana Telecommunications Group, B.V. in The Netherlands to expand the Company's sales and market presence in The Netherlands, Belgium and Luxembourg. In the third quarter of 2000, the Company completed the sale of its operations in Poland. In April 2000, the Company curtailed a significant portion of its U.K. international trading operations following third party theft and fraud losses. Trading in wireless handsets involves the purchase of wireless handsets from sources other than the manufacturers or network operators (i.e., trading companies) and the sale of those handsets to other trading companies. The curtailment in the Company's trading activities had a significant impact on revenues and profit for the Company's U.K. operation and on the European Region as a whole. The Company's largest wholesale customers in the region are wireless carriers. Although the Company's business in the European Region is predominantly wholesale, it has one retail location in The Netherlands. The Company has historically acted through wholly-owned subsidiaries in each of the countries in this region. The following table outlines the Company's entry into the European Region: Year Type of Operation (as of Country Entered November 30, 2000) ------- ------- ------------------ United Kingdom 1996 Wholesale Sweden 1998 Wholesale The Netherlands 1999 Wholesale and Retail At November 30, 2000, the Company sold its products to over 1,050 wholesale customers in the European Region, the ten largest of which accounted for approximately 4% of the Company's consolidated revenues in fiscal 2000. The Company offers a broad product mix compatible with digital systems in the European Region and anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company markets its products through direct sales and advertising. In The Netherlands, the Company primarily uses direct mailings and newspapers to promote its retail operations. 6 North American Region In the United States, wireless communications services were developed as an alternative to conventional landline systems and have been among the fastest growing market segments in the communications industry. The Company believes that the U.S. market for wireless services should continue to expand due to the increasing affordability and availability of such services and shorter development cycles for new products and product and service enhancements. In addition, many wireless service providers are upgrading their existing systems from analog to digital technology as a result of capacity constraints in many of the larger wireless markets and to respond to competition. Digital technology offers certain advantages, such as improved overall average signal quality, improved call security, lower incremental costs for additional subscribers, and the ability to provide data transmission services. At November 30, 2000, the Company sold its products to over 1,250 customers in the North American Region, the ten largest of which accounted for approximately 10% of the Company's consolidated revenues in fiscal 2000. The Company offers wireless handsets and accessories manufactured by OEMs, such as Motorola, Ericsson, Nokia, Kyocera, Sony Electronics Inc. ("Sony") and NEC Corporation ("NEC") and aftermarket accessories manufactured by a variety of suppliers. The Company's distribution operations and value-added services complement these manufacturer distribution channels by allowing these manufacturers to sell and distribute their products to smaller volume purchasers and retailers. The Company offers a broad product mix in the United States, including products that are compatible with digital and analog systems and anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company continues to develop and enhance the functionality of its AOS On-Line and netXtremeSM programs. These programs are proprietary, Internet-based order entry and supply chain services software and systems designed to assist the Company's customers in the submission of orders, the tracking of such orders and the analysis of business activities with the Company. AOS On-Line and netXtreme greatly enhance a customer's ability to actively manage its inventories and reduce supply chain delays. In addition, the Company assists customers in developing e-commerce platforms and solutions designed to enhance sales and reduce product delivery and activation delays. As of November 30, 2000, the Company operates two retail locations in the United States--one in Austin, Texas, and one in Houston, Texas. 7 Industry Relationships The Company has established strong relationships with leading wireless equipment manufacturers and wireless service carriers. Although the Company purchased its products from more than 15 suppliers in fiscal 2000, the majority of the Company's purchases were from Motorola, Nokia, Ericsson, LG, Samsung and Kyocera. For the year ended November 30, 2000, Motorola accounted for approximately 46% of the Company's product purchases. The Company has various supply contracts with terms of approximately one year with Motorola, Nokia, Ericsson, Samsung, Kyocera, NEC, LG and Sony that specify territories, minimum purchase levels, pricing and payment terms. These contracts typically provide the Company with "price protection," or the right to receive the benefit of price decreases on products currently in the Company's inventory if such products were purchased by the Company within a specified period of time prior to the effective date of the price decrease. The Company's expansion has been due to several factors, one of which is its relationship with Motorola, historically one of the largest manufacturers of wireless products in the world and the Company's largest supplier. In July 1995, Motorola purchased a split-adjusted 2,089,312 shares of the outstanding common stock of the Company. The Company believes that its relationship with Motorola and its other suppliers should enable it to continue to offer a wide variety of wireless communications products in all markets. While the Company believes that its relationship with Motorola and other significant vendors is satisfactory, there can be no assurance that these relationships will continue. The loss of Motorola or any other significant vendor or a substantial price increase imposed by any vendor or a shortage or oversupply of product available from its vendors could have a materially adverse impact on the Company. No assurance can be given that product shortages or product surplus will not occur in the future. Asset Management The Company continues to invest in and focus on technology to improve financial and information control systems. During 2000, the Company continued to make progress on several information technology initiatives: (i) implementation and rollout of data mart and decision support applications to improve sales and inventory analysis, (ii) upgrades to the corporate headquarter network backbone including enhanced redundancy and failover infrastructure as part of 24x7x365 availability, (iii) implementation of a common electronic mail and groupware solution worldwide, (iv) implementation of remote access and computing for all traveling workforce, and (v) upgrade of all internet security and electronic commerce platforms. Key efforts for 2001 include: (i) increasing electronic commerce capabilities through the rollout of additional features in the Company's AOS On-Line system designed to support end user fulfillment; (ii) expansion of internet-based commerce to international markets; (iii) increasing XML-based catalog and order management capabilities; and (iv) rollout of data mart and reporting applications to international customers. These initiatives will continue to position the Company to take advantage of the market trends with internet-based commerce and further provide opportunities to integrate the Company's systems with their customers' systems. The Company purchases its products from more than 15 suppliers that ship directly to the Company's warehouse or distribution facilities. Inventory purchases are based on quality, price, service, market demand, product availability and brand recognition. Certain of the Company's major vendors provide favorable purchasing terms to the Company, including price protection credits, stock balancing, increased product availability and cooperative advertising and marketing allowances. The Company provides stock balancing to certain of its customers. 8 Inventory control is important to the Company's ability to maintain its margins while offering its customers competitive prices and rapid delivery of a wide variety of products. The Company uses its integrated management information technology systems, specifically its inventory management, electronic purchase order and sales modules (AOS On-Line and netXtreme), to help manage inventory and sales margins. Typically, the Company ships its products within 24 hours from receipt of customer orders and, therefore, backlog is not considered material to the Company's business. The market for wireless products is characterized by rapidly changing technology and frequent new product introductions, often resulting in product obsolescence or short product life cycles. The Company's success depends in large part upon its ability to anticipate and adapt its business to such technological changes. There can be no assurance that the Company will be able to identify, obtain and offer products necessary to remain competitive or that competitors or manufacturers of wireless communications products will not market products that have perceived advantages over the Company's products or that render the products sold by the Company obsolete or less marketable. The Company maintains a significant investment in its product inventory and, therefore, is subject to the risks of inventory obsolescence and excessive inventory levels. The Company attempts to limit these risks by managing inventory turns and by entering into arrangements with its vendors, including price protection credits and return privileges for slow-moving products. The Company's significant inventory investment in its international operations exposes it to certain political and economic risks. See "Item 1. Business--Cautionary Statements" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--International Operations." Significant Trademarks The Company markets certain of its products under the trade name CellStar. The Company has registered its trade name on the Principal Register of the United States Patent and Trademark Office and has registered or applied for registration of its trade name in certain foreign jurisdictions. The Company also has filed for registrations of its other trade names in the United States and other jurisdictions where it does business. Competition The Company operates in a highly competitive environment and believes that such competition will intensify in the future. The Company competes primarily on the basis of inventory availability and selection, delivery time, service and price. Many of the Company's competitors are larger and have greater capital and management resources than the Company. In addition, potential users of wireless systems may find their communications needs satisfied by other current and developing technologies. The Company's ability to remain competitive will therefore depend upon its ability to anticipate and adapt its business to such technological changes. There can be no assurance that the Company will be successful in anticipating and adapting to such technological changes. In the current U.S. wireless communications products market, the Company's primary competitors are manufacturers, wireless carriers and other independent distributors such as Brightpoint, Inc. The Company also competes with logistics companies. Competitors of the Company in the Asia-Pacific, Latin American and European Regions include manufacturers, national carriers that have retail outlets with direct end-user access, and U.S. and foreign-based exporters and distributors. The Company is also subject to competition from gray market activities by third parties that are legal, but are not authorized by manufacturers, or that are illegal (e.g., activities that avoid applicable duties or taxes). In addition, the Company competes for activation fees and residual fees with agents and subagents for the wireless carriers. 9 Employees As of November 30, 2000, the Company had approximately 1,300 employees worldwide. In Mexico and Argentina, approximately 220 employees are subject to labor agreements. The Company has never experienced any material labor disruption and is unaware of any efforts or plans to organize additional employees. Management believes that its labor relations are satisfactory. Executive Officers of the Registrant The following table sets forth certain information concerning the executive officers of the Company: Alan H. Goldfield 57 Chief Executive Officer and Chairman of the Board Dale H. Allardyce 51 President and Chief Operating Officer A.S. Horng 43 Chairman and Chief Executive Officer of CellStar (Asia) Corporation Limited Austin P. Young 60 Senior Vice President, Chief Financial Officer and Treasurer Elaine Flud Rodriguez 44 Senior Vice President, General Counsel and Secretary Raymond L. Durham 39 Vice President, Corporate Controller Alan H. Goldfield is a founder of the Company and has been the Chairman of the Board and Chief Executive Officer of the Company since its formation. Mr. Goldfield served as President of the Company from its formation until March 1995 and from August 1996 until December 1996. Mr. Goldfield serves as an officer and director of the Company pursuant to his employment agreement. Dale H. Allardyce has served as the President and Chief Operating Officer of the Company since November 1999. Previously, Mr. Allardyce served as Executive Vice President--Operations for ENTEX Information Services, Inc., a personal computer systems integrator, from February 1995 to December 1998. From January 1993 to February 1995, Mr. Allardyce served as Senior Vice President of THORN Americas, Inc., a nationwide chain of rent-to-own stores and a subsidiary of UK based THORN EMI. From March 1982 to December 1992, Mr. Allardyce was employed by The Southland Corporation, the owner and operator of a nationwide convenience store chain, where he served as Vice President of distribution, food processing and procurement from 1987 to 1992. Mr. Allardyce serves as an officer of the Company pursuant to his employment agreement. A.S. Horng has served as Chairman of CellStar Asia since January 1998 and has also served as Chief Executive Officer of such company since April 1997 and General Manager since 1993. From April 1997 until January 1998, Mr. Horng served as Vice Chairman of CellStar Asia, and from April 1997 until October 1997, Mr. Horng served as President of CellStar Asia. From 1991 to 1993, Mr. Horng was President of C-Mart USA Corporation, a distributor and manufacturer of aftermarket wireless phone accessory products. Mr. Horng serves the Company pursuant to his employment agreement. Austin P. Young has served as Senior Vice President, Chief Financial Officer and Treasurer since November 1999. Prior to joining CellStar, Mr. Young served as a Director and Executive Vice President--Finance and Administration of Metamor Worldwide, Inc., an information technology and staffing services firm, from August 1996 until November 1998. He was also Senior Vice President and Chief Financial Officer of American General Corporation, a diversified insurance and financial services company, from 1988 to 1996. Before joining American General, Mr. Young was a partner with KPMG LLP, one of the largest independent professional accounting firms, where he spent 22 years of his professional career. Mr. Young serves as an officer of the Company pursuant to his employment agreement and is a certified public accountant. Elaine Flud Rodriguez has been Senior Vice President, General Counsel and Secretary since January 2000. Previously, Ms. Rodriguez served as Vice President, General Counsel and Secretary since joining the Company in October 1993. From October 1991 to August 1993, she was General Counsel and Secretary of Zoecon Corporation, a pesticide manufacturer and distributor owned by Sandoz Ltd. Prior thereto, she was engaged in the private practice 10 of law with Atlas & Hall and Akin, Gump, Strauss, Hauer & Feld. Ms. Rodriguez is licensed to practice in the states of Texas and Louisiana. Ms. Rodriguez serves as an officer of the Company pursuant to her employment agreement. Raymond L. Durham has served as Vice President, Corporate Controller since February 2001, Corporate Controller from November 1999 until January 2001, and acting Corporate Controller from July 1999 until November 1999. From March 1997 until July 1999, Mr. Durham served as Director of Audit Services for the Company. Prior to joining the Company, he was with KPMG LLP, one of the largest independent professional accounting firms, from 1986 until 1997 where he held several positions including Audit Senior Manager from 1990 until 1997. Mr. Durham is a certified public accountant. The Company's success is substantially dependent on the efforts of Alan H. Goldfield, its Chairman and Chief Executive Officer, and certain other of the Company's executive officers and key employees. The loss or interruption of the continued full-time service of Mr. Goldfield or other of the Company's executive officers and key employees could materially and adversely affect the Company's business. Although the Company has entered into employment agreements with Mr. Goldfield and several other officers and employees, there can be no assurance that the Company will be able to retain their services. The Company does not maintain key man insurance on the life of Mr. Goldfield or any other officer of the Company. To support its continued growth, the Company will be required to effectively recruit, develop and retain additional qualified management. The inability of the Company to attract and retain such necessary personnel could also have a materially adverse effect on the Company. Item 2. Properties As of November 30, 2000, the Company had a total of 29 operating facilities in the Asia-Pacific Region (including kiosks, but not including facilities of the Company's Malaysia joint venture), 28 of which were leased, a total of 53 operating facilities in the Latin American Region (including kiosks), all of which were leased, and a total of 6 operating facilities in the European Region (including kiosks), all of which were leased. These facilities serve as offices, warehouses, distribution centers or retail locations. The Company's corporate headquarters and principal North American Region distribution facility is located at 1730 and 1728 Briercroft Court in Carrollton, Texas. Both facilities are owned by the Company. As of November 30, 2000, the Company had three other operating facilities in the North American Region, all of which were leased. The Company believes that suitable additional space will be available, if necessary, to accommodate future expansion of its operations. Item 3. Legal Proceedings During the period from May 1999 through July 1999, seven purported class action lawsuits were filed in the United States District Court for the Southern District of Florida, Miami Division, styled as follows: (1) Elfie Echavarri v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (2) Mark Krug v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (3) Jewell Wright v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (4) Theodore Weiss v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (5) Tony LaBella v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (6) Thomas F. Petrone v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; and (7) Adele Brody v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins. Each of the above lawsuits sought certification as a class action to represent those persons who purchased the publicly traded securities of the Company during the period from March 19, 1998, to September 21, 1998. Each of these lawsuits alleges that the Company issued a series of materially false and misleading statements concerning the Company's results of operations and investment in Topp Telecom, Inc. ("Topp") resulting in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder. 11 The Court entered an order on September 26, 1999 consolidating the above lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel. On November 8, 1999, the lead plaintiffs filed a consolidated complaint. The Company filed a Motion to Dismiss the consolidated complaint and the Court granted that motion on August 3, 2000. The plaintiffs filed a Second Amended and Consolidated Complaint on September 1, 2000, essentially re-alleging the violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder. The Company filed a Motion to Dismiss plaintiffs' Second Amended and Consolidated Complaint on November 2, 2000, 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 Second Amended and Consolidated Complaint. The Company intends to vigorously defend the consolidated action if its Motion to Dismiss is denied. On August 3, 1998, the Company announced that the Securities and Exchange Commission is conducting an investigation of the Company relating to its compliance with federal securities laws. The Company believes that it has fully complied with all securities laws and regulations and is cooperating with the Commission staff in its investigation. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of the Company's security holders during the fiscal quarter ended November 30, 2000. 12 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock is quoted on the NASDAQ Stock Market under the symbol "CLST." The following table sets forth, on a per share basis for the periods indicated, the high and low closing sale prices for the common stock as reported by the NASDAQ Stock Market. High Low ---- --- Fiscal Year ended November 30, 2000 Quarter Ended: February 29, 2000 $11.500 8.188 May 31, 2000 9.375 2.438 August 31, 2000 4.000 2.156 November 30, 2000 4.375 1.656 Fiscal Year ended November 30, 1999 Quarter Ended: February 28, 1999 $12.500 6.219 May 31, 1999 12.688 6.313 August 31, 1999 9.063 5.250 November 30, 1999 10.438 5.500 As of February 23, 2001, there were 272 stockholders of record, although the Company believes that the number of beneficial owners is significantly greater than that number because a large number of shares are held of record by CEDE & Co. The Company has never declared or paid cash dividends on its common stock. The Company currently intends to retain all earnings to finance the continued growth and development of its business and does not anticipate paying cash dividends on the common stock in the foreseeable future. Any future determination as to the payment of cash dividends will depend on a number of factors, including future earnings, capital requirements, the financial condition and prospects of the Company and any restrictions under the Company's credit agreements existing from time to time, as well as other factors the Board of Directors may deem relevant. The Company's current multicurrency revolving credit facility restricts the payment of dividends by the Company to its stockholders. There can be no assurance that the Company will pay any dividends in the future. 13 Item 6. Selected Consolidated Financial Data The financial data presented below, as of and for each of the years in the five-year period ended November 30, 2000, were derived from the Company's audited financial statements. The selected consolidated financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's Consolidated Financial Statements and Notes thereto, included elsewhere herein.
Year Ended November 30, ------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------ ----------- ---------- ---------- ---------- (In thousands, except per share data and operating data) Statements of Operations Data: Revenues $2,475,682 2,333,805 1,995,850 1,482,814 947,601 Cost of sales 2,358,654 2,140,375 1,823,075 1,325,488 810,000 ------------ ----------- ---------- ---------- ---------- Gross profit 117,028 193,430 172,775 157,326 137,601 Operating expenses: Selling, general and administrative expenses 169,232 111,613 116,747 81,319 135,585 Impairment of assets 12,339 5,480 - - - Lawsuit settlement - - 7,577 - - Restructuring charge (157) 3,639 - - - ------------ ----------- ---------- ---------- ---------- Operating income (loss) (64,386) 72,698 48,451 76,007 2,016 Other income (expense): Interest expense (19,113) (19,027) (14,446) (7,776) (8,350) Equity in income (loss) of affiliated companies, net (1,805) 31,933 (28,448) 465 (219) Gain on sale of assets 6,200 8,774 - - 128 Other, net 932 (1,876) 1,389 2,260 (441) ------------ ----------- ---------- ---------- ---------- Total other income (expense) (13,786) 19,804 (41,505) (5,051) (8,882) ------------ ----------- ---------- ---------- ---------- Income (loss) before income taxes (78,172) 92,502 6,946 70,956 (6,866) Provision (benefit) for income taxes (18,761) 23,415 (7,418) 17,323 (453) ------------ ----------- ---------- ---------- ---------- Net income (loss) $ (59,411) 69,087 14,364 53,633 (6,413) ============ =========== ========== ========== ========== Net income (loss) per share: (1) Basic $ (0.99) 1.16 0.24 0.92 (0.11) Diluted $ (0.99) 1.12 0.24 0.89 (0.11) Weighted average number of shares: (1) Basic 60,131 59,757 58,865 58,144 57,821 Diluted 60,131 65,589 60,656 60,851 57,821 Operating Data: International revenues, including export sales, as a percentage of revenues 79.8% 83.8 76.3 66.7 64.0
At November 30, ------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ------------ --------------- --------------- ---------- ------------- (In thousands) Balance Sheet Data: Working capital $269,923 332,841 259,923 259,954 71,365 Total assets 856,829 706,438 775,525 497,111 298,551 Notes payable to financial institutions and current portion of long-term debt 127,128 50,609 85,023 - 56,704 Long-term debt, less current portion 150,000 150,000 150,000 150,000 6,285 Stockholders' equity 189,131 250,524 177,791 160,865 104,263
(1) Common stock amounts have been retroactively adjusted to give effect to a two-for-one stock split, which was made in the form of a stock dividend distributed on June 23, 1998 and a three-for-two stock split, which was made in the form of a stock dividend distributed on June 17, 1997. 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview CellStar is a leading global provider of distribution and value-added logistics services to the wireless communications industry, with operations in Asia-Pacific, Latin America, North America and Europe. CellStar facilitates the effective and efficient distribution of handsets, related accessories and other wireless products from leading manufacturers to network operators, agents, resellers, dealers and retailers. In many of its markets, CellStar provides activation services that generate new subscribers for its wireless carrier customers. From 1996 through 2000, the Company's revenues grew from $947.6 million to $2,475.7 million. Sales of wireless communications products have increased primarily as a result of greater market penetration due in part to decreasing unit prices and service costs. During 2000, the Company divested its majority interest in its Brazil joint venture, announced its intent to divest its Venezuela operations, phased out a major portion of its North America and Miami redistributor business, and substantially reduced its international trading operations conducted by its U.K. subsidiary. In addition, the Company experienced a decline in gross margins in 2000 primarily due to competitive margin pressures and a shift in geographic revenue mix. The Company also experienced an increase in bad debt expense of $41.1 million in 2000. As a result, the Company incurred a net loss of $0.99 per diluted share in 2000, compared to net income of $1.12 per diluted share in 1999. The Company derives substantially all revenues from net product sales, which includes sales of handsets and other wireless communications products. The Company also derives revenues from value-added services, including activations, residual income, and prepaid wireless services. Value-added service revenues include fulfillment service fees, handling fees and assembly revenues. Activation income includes commissions paid by a wireless carrier to the Company when a customer initially subscribes for the carrier's wireless service through the Company. Residual income includes payments received from carriers based on the wireless handset usage by a customer activated by the Company. Special Cautionary Notice Regarding Forward-Looking Statements Certain of the matters discussed under the captions "Business," "Properties," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report may constitute "forward-looking" statements for purposes of the Securities Act of 1933, as amended, and the Exchange Act and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, the words "anticipates," "estimates," "believes," "continues," "expects," "projections," "forecasts," "intends," "may," "might," "could," "should," and similar expressions are intended to be among the statements that identify forward-looking statements. Various factors that could cause the actual results, performance or achievements of the Company to differ materially from the Company's expectations are disclosed in this report ("Cautionary Statements"), including, without limitation, those statements made in conjunction with the forward-looking statements included under the captions identified above and otherwise herein. All written and oral forward-looking statements attributable to the Company are expressly qualified in their entirety by the Cautionary Statements. 15 Results of Operations The following table sets forth certain consolidated statements of operations data for the Company expressed as a percentage of revenues for the past three fiscal years:
2000 1999 1998 -------- -------- -------- Revenues 100.0% 100.0 100.0 Cost of sales 95.3 91.7 91.3 -------- -------- -------- Gross profit 4.7 8.3 8.7 Selling, general and administrative expenses 6.8 4.8 5.8 Impairment of assets 0.5 0.2 - Lawsuit settlement - - 0.4 Restructuring charge - 0.2 - -------- -------- -------- Operating income (loss) (2.6) 3.1 2.5 Other income (expense): Interest expense (0.8) (0.8) (0.7) Equity in income (loss) of affiliated companies, net (0.1) 1.4 (1.4) Gain on sale of assets 0.3 0.4 - Other, net - (0.1) - -------- -------- -------- Total other income (expense) (0.6) 0.9 (2.1) -------- -------- -------- Income (loss) before income taxes (3.2) 4.0 0.4 Provision (benefit) for income taxes (0.8) 1.0 (0.3) -------- -------- -------- Net income (loss) (2.4)% 3.0 0.7 ======== ======== ========
The amount of revenues and the approximate percentages of revenues attributable to the Company's operations by region for the past three fiscal years are shown below:
2000 1999 1998 ------------------------------ ------------------------------- ----------------------------- (Dollars in thousands) Asia-Pacific Region $1,024,762 41.4 % 769,412 33.0 513,869 25.7 Latin American Region 636,354 25.7 717,273 30.7 705,624 35.4 North American Region 499,171 20.2 377,129 16.2 472,837 23.7 European Region 315,395 12.7 469,991 20.1 303,520 15.2 -------------- ----------- --------------- ------------ ------------ ------------- Total $2,475,682 100.0 % 2,333,805 100.0 1,995,850 100.0 ============== =========== =============== ============ ============ =============
Revenues from the Company's Miami operation have been classified as Latin American Region revenues as these revenues are primarily exports to South American countries, either by the Company or by exporter customers. 16 Fiscal 2000 Compared to Fiscal 1999 Revenues. The Company's revenues increased $141.9 million, or 6.1% from $2,333.8 million to $2,475.7 million. Revenues in the Asia-Pacific Region increased $255.4 million, or 33.2% from $769.4 million to $1,024.8 million. The Company's operations in the PRC, including Hong Kong, provided $725.4 million in revenue, an increase of $196.8 million, or 37.2% from $528.6 million. This increase continued to be driven by the strong demand in the PRC and the build-up of sales channels. The Company's operations in Taiwan provided $207.7 million in revenue, an increase of $20.3 million, or 10.8%, from $187.4 million. Demand in Taiwan increased due to the introduction of new high-end handsets. However, Taiwan's growth was impacted negatively in the fourth quarter of 2000 by political uncertainty in the country and concern about Taiwan's relationship with the PRC. Taiwan's fourth quarter 2000 revenues of $44.2 million were its lowest quarterly revenues since the first quarter of 1999 when revenues were $27.0 million. In The Philippines, revenues increased $33.5 million to $48.7 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 growth rate over 1999, however, decreased in the second half of 2000. Revenues in the second half of 2000 were $17.7 million reflecting the slowdown in the Philippine economy. Revenues in Singapore were $42.9 million in 2000 compared to $38.3 million in 1999. The Latin American Region provided $636.4 million of revenues, compared to $717.3 million, a decrease of $80.9 million, or 11.3%. Revenues in Mexico increased $154.3 million to $383.3 million in 2000 due primarily to increased carrier business. Revenues for Brazil were down $153.2 million in 2000 to $40.6 million. In 1999, the recently completed privatization of the telecommunications industry was driving rapid growth in carrier sales in Brazil. In 2000, sales to the Company's major customer in Brazil were greatly reduced due to the increased availability of in-country manufactured product. In August 2000, the Company completed the divestiture of its 51% interest in its Brazil operations (see "International Operations"). Revenues from the Venezuela operations declined $40.4 million in 2000 to $36.6 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 market softness in 2000 caused by political and economic instability. In the third quarter 2000, the Company decided to exit its Venezuela operations and completed its sale of that operation in December 2000 (see "International Operations"). Revenues from the Company's operations in Miami decreased $75.1 million to $79.1 million in 2000 as increased product availability from in-country manufacturers in Latin America continued to reduce export sales from Miami. The Company began phasing out a major portion of its redistributor business in its Miami and North American operations in the second quarter 2000, 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. Revenues from the redistributor business for Miami and North America were $57.4 million and $158.6 million in 2000 and 1999, respectively. Due to the reduction in the redistributor business and the decline in export sales, the Company intends to restructure or consolidate its Miami operation in 2001. Revenues in Colombia increased $32.1 million to $48.1 million primarily reflecting increased carrier activity business in the fourth quarter of 2000. Combined revenues from the operations in Argentina, Chile, and Peru increased from $47.1 million in 1999 to $48.6 million in 2000. North America Region revenues were $499.2 million, up 32.4% from $377.1 million for the prior year. U.S. revenues continued to benefit from strong promotional activity by several customers, as well as the addition of new customers and expanded markets. In the first quarter of 2001, the Company converted a major U.S. account to a consignment basis with fulfillment fees, which will reduce revenue potential for 2001 by approximately $100 million, but will also reduce inventory risk and the need for working capital. The Company's Europe Region recorded revenues of $315.4 million, a decrease of $154.6 million, or 32.9% from $470.0 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 increased $6.7 million to $118.7 million in 2000. Revenues from operations in The Netherlands, which were acquired in the third quarter of 1999, were $30.7 million. The Company sold its operations in Poland in the third quarter of 2000. 17 Gross Profit. Gross profit decreased $76.4 million, or 39.5% from $193.4 million to $117.0 million. The decrease in gross profit can be attributed to a shift in geographic revenue mix, shortages of digital handsets in North America, and global industry price competition, including an oversupply of analog handsets in North America and an oversupply of handsets in the Asia-Pacific Region during parts of 2000. The Company's commitment to defend market share in the face of intense global industry price competition, particularly in the Asia-Pacific Region, also negatively impacted the gross margin percentage. Based on 1999's handset shortages and industry forecasts of higher demand, manufacturers significantly increased production in 2000. However, worldwide handset sales, while significantly higher in 2000, were still below industry forecasts. This resulted in a surplus of product during parts of 2000 driving stronger-than-usual competition for market share, mainly in the Asia-Pacific Region and to a lesser extent in the Latin American Region. The decrease in gross profit is also partially due to $32.3 million in inventory obsolescence caused primarily by 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, also in the second quarter. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $57.6 million, or 51.6% from $111.6 million to $169.2 million. This increase was primarily due to bad debt expense of $51.5 million, up from $10.4 million for 1999. This bad debt expense related to: (i) certain U.S.-based accounts receivable from Brazilian importers, the collectibility of which deteriorated significantly in the second quarter of 2000, and which were further affected by the Company's decision to divest its majority interest in its joint venture in Brazil; (ii) accounts receivable from redistributors, many of which were impacted by the supply shortage in 1999 and were also further affected by the phase out of a major portion of the redistributor business in the Company's Miami and North America operations; (iii) accounts receivable in the Asia-Pacific Region whose businesses have been adversely affected by competitive market conditions in Asia; and (iv) a receivable in the U.S. from a satellite handset customer. 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 6.8% from 4.8%. Impairment of Assets. In 2000, the Company decided to exit its Venezuela operations. The Company recorded a $4.9 million non-cash impairment charge to reduce the carrying value of certain Venezuela assets, primarily goodwill, to their estimated fair value. In December 2000, the Company completed the sale of its Venezuela operations at approximately carrying value. In the fourth quarter of 2000, the Company recorded a non-cash goodwill impairment charge of $6.4 million related to the operations in Peru due to a major carrier customer's proposed changes to an existing contract that adversely changed the long-term prospects of the Peru operations. In the fourth quarter of 1999, based on the market conditions in Poland, the Company decided to sell its operations in Poland and completed the sale in the third quarter of 2000. The Company recorded an impairment charge of $5.5 million, including a $4.5 million writedown of goodwill to reduce the carrying value of the assets in Poland to their estimated fair value (see "International Operations"). Restructuring Charge. The Company's results of operations include a pre-tax restructuring charge of $3.6 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 $31.9 million in 1999 to a loss of $1.8 million in 2000. In 2000, the Company incurred losses of $1.8 million related to its minority interest in CellStar Amtel Sdn. Bhd. ("Amtel"), a joint venture in which the Company owns a 49% interest. As a result of the continuing deterioration in the Malaysia market, the Company has decided to limit further exposure, currently estimated to be up to $2.5 million, by divesting its ownership interest in the joint venture in 2001. In February 1999, the Company sold part of its equity investment in 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 18 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 the third quarter of 2000, the Company recorded a pre-tax gain of $6.0 million, from the completion of the divestiture of its 51% ownership interest in its Brazil joint venture (see "International Operations"). During the third quarter of 2000, the Company also completed the sale of its Poland operations and recognized a pre-tax gain of $0.2 million. In 1999, the Company recorded a pre-tax gain of $8.8 million primarily 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 increased from $19.0 million in 1999 to $19.1 million in 2000. Other, Net. Other, net changed from an expense of $1.9 million to income of $0.9 million. This change was primarily due to (i) 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, (ii) losses due to the revaluations of foreign currency related to the Company's European operations in 2000, and (iii) offset by an increase in interest income. Income Taxes. Income tax expense decreased from $23.4 million in 1999 to a benefit of $18.8 million in 2000 due to the losses incurred in 2000. The Company's effective tax rate decreased to 24.0% from 25.3%. The lower effective tax rate was attributable to changes in the geographic mix of income (loss) before income taxes and an increased valuation allowance for capital losses and carry forwards related to international operations. Fiscal 1999 Compared to Fiscal 1998 Revenues. The Company's revenues increased $337.9 million, or 16.9% from $1,995.9 million to $2,333.8 million. Revenue growth in the second half of 1999 was impacted by a global shortage of handsets. Worldwide demand in 1999 was greater than both manufacturers and component suppliers had anticipated. As a result, there were continued component and handset shortages for which increased production capacity, in many instances, required long lead times. The shortages differed by region of the world, by manufacturer, and by handset model. Revenues in the Asia-Pacific Region increased $255.5 million, or 49.7% from $513.9 million to $769.4 million. The Company's operations in the PRC, including Hong Kong, provided $528.6 million in revenue, an increase of $123.7 million, or 30.6% from $404.9 million. This increase continued to be driven by the strong demand in the PRC, coupled with a broadened source of product manufactured in-country and the impact of the PRC's tighter customs controls on imported products, which began in the third quarter of 1998. The Company's operations in Taiwan provided the largest percentage growth in the region, providing $187.4 million in revenue, an increase of $119.0 million, or 174.0%, from $68.4 million. Demand in Taiwan increased due to the entry of several new wireless carriers into the market during 1998 as well as the introduction of new high-end digital handsets. Revenue from the Company's operations in Singapore and The Philippines increased $12.8 million, or 31.5%, from $40.6 million to $53.4 million. This increase was due to increased demand for wireless products as a result of the strengthening of the general economic, financial and currency conditions in the Southern Asia-Pacific area. The Latin American Region provided $717.3 million of revenues, compared to $705.6 million, or a 1.7% increase. Revenues in Brazil, Mexico, Venezuela, Colombia, and Chile increased $93.9 million, or 94.0%, $84.8 million, or 58.8%, $25.5 million, or 49.4%, $11.8 million, or 278.7%, and $9.4 million, or 75.4%, respectively. The increase in Brazil was due to revenue growth in the Company's majority-owned joint venture, which benefited from the privatization of the telecommunication industry and the entry of additional carriers into the wireless market during the latter half of 1998. The increase in Mexico was largely due to carrier promotions coupled with the introduction of the calling-party-pays billing process. The increase in Venezuela was a result of additional handset sales to carriers. The Company was also awarded an exclusive two-year contract to supply services for prepaid phone kits in connection with the sale of its prepaid wireless business in Venezuela in March 1999. The increases in Colombia and Chile are attributable to new contracts with some of the carriers in those countries and also a carrier 19 promotion in Chile. Revenues in the remainder of the region decreased $213.7 million, or 54.3%, primarily in Miami. The decrease in Miami was due to increased product availability from in-country suppliers, thereby reducing export sales from Miami. The Company's European Region recorded revenues of $470.0 million, an increase of $166.5 million, or 54.9%, from $303.5 million. This increase reflected continued growth from the Company's U.K. operation, arising primarily from its international trading operations, as well as from increased revenues from the operation in Sweden, which was acquired in the first quarter of 1998, and partly from the acquisition of CellStar Netherlands in the third quarter of 1999. North American Region revenues were $377.1 million, a decrease of $95.7 million, or 20.2%, compared to $472.8 million. The decrease was primarily a result of lower product sales to Pacific Bell Mobile Services ("PBMS") in 1999 as compared to 1998 as PBMS increasingly coordinated its handset distribution directly with manufacturers. The decrease was also attributable to a continued decrease in the retail business due to the sale of almost all of the Company's retail stores in early 1999. The overall decrease in revenues was partially offset by an increase in the U.S. wholesale business of $30.3 million, or 11.7%. Gross Profit. Gross profit increased $20.6 million, or 11.9%, from $172.8 million to $193.4 million, while gross profit as a percentage of revenues decreased from 8.7% to 8.3%. The increase in gross profit was principally due to increases in the European, North American and Asia-Pacific Regions. The increase in the European Region was due to the continued growth of the U.K. operation and the increased revenues from the Company's operation in Sweden and the Netherlands. The North American Region benefited from improved margins in its core wholesale business. The overall increase in the Asia-Pacific Region was primarily due to the increase in Taiwan, which was offset partially by a decrease in the PRC. The decrease in gross profit as a percentage of revenues was due primarily to decreases in market prices of certain handsets, the decision to reduce prices on some slower-moving inventory in the Asia-Pacific Region to liquidate it during periods of higher demand, and an increase in revenues from the European Region, which has lower margin percentages than the Company's other regions. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $5.1 million, or 4.4% from $116.7 million to $111.6 million. This decrease was primarily attributable to: a decrease in bad debt expense of $3.2 million, from $13.6 million in 1998 to $10.4 million in 1999; the effects of the second quarter reorganization and consolidation of the North and Latin American Regions operations and the centralization of management in the Asia-Pacific Region; and charges in 1998 to de-emphasize or eliminate certain businesses. These decreases were partially offset by an increase in costs associated with the Company's revenue growth. Overall selling, general and administrative expenses as a percentage of revenues decreased to 4.8% from 5.8%. Bad debt expense as a percentage of revenues decreased to 0.4% in 1999 from 0.7% in 1998. Impairment of Assets. Based on the market conditions in Poland, the Company decided in the fourth quarter of 1999 to sell its operations in Poland. The Company recorded an impairment charge of $5.5 million, including a $4.5 million writedown of goodwill to reduce the carrying value of the assets to their estimated fair value. Restructuring Charge. The Company recognized a restructuring charge of $3.6 million associated with the reorganization and consolidation of the management for the Company's Latin American and North American Regions as well as the centralization of management in the Asia-Pacific Region. Interest Expense. Interest expense increased to $19.0 million from $14.4 million, primarily as a result of an increase in the average debt outstanding related to the Company's operations in Brazil, as well as an increase in average borrowings under the Company's Multicurrency Revolving Credit Facility. Equity in Income (Loss) of Affiliated Companies. Equity in income (loss) of affiliated companies increased 20 $60.3 million to income of $31.9 million, as compared to a loss of $28.4 million in 1998. In February 1999, the Company sold part of its equity investment in Topp to a wholly-owned subsidiary of TelMex. At the closing, the Company also sold a portion of its debt investment to certain other shareholders of Topp. As a result of these transactions, the Company received cash in the amount of $7.0 million, retained a $22.5 million note receivable and a 19.5% equity ownership interest in Topp, and recorded a pre-tax gain of $5.8 million. In September 1999, the Company sold its remaining debt and equity interest in Topp to the TelMex subsidiary for $26.5 million in cash, resulting in a pre-tax gain of $26.1 million. Beginning in the third quarter of 1998 the Company became the primary source of funding for Topp through the supply of handsets and, therefore, recognized Topp's net loss to the extent of the Company's entire debt and equity investment in Topp. In 1998, the Company recognized $29.2 million in losses on its debt and equity investment in Topp. Gain on Sale of Assets. The Company recorded a gain of $8.8 million in 1999 primarily associated with the sale of its prepaid operations in Venezuela and its retail stores in the Dallas-Fort Worth and Kansas City areas. Other, Net. Other, net decreased $3.3 million, from income of $1.4 million to expense of $1.9 million. This decrease was primarily due to a $2.6 million foreign currency transaction loss realized from the conversion of U.S. dollar denominated debt in Brazil into a Brazilian real denominated credit facility. Provision (Benefit) for Income Taxes. Income tax expense increased $30.8 million primarily as a result of an $85.6 million increase in income before income taxes and an increase in the Company's effective tax rate to 25.3%. The higher effective tax rate was attributable to higher income before income taxes, primarily in the U.S., Latin American and European Regions. In both the Latin American and the European Regions the statutory tax rates are generally comparable to the statutory rate in the U.S., and higher than the statutory rates in the Asia-Pacific Region. Liquidity and Capital Resources During the year ended November 30, 2000, the Company relied primarily on cash available at November 30, 1999, funds generated from operations and borrowings under its Multicurrency Revolving Credit Facility (the "Facility") to fund working capital, capital expenditures and expansions. At February 28, 2001, the Company had available $16.1 million of unused borrowing capacity under the Facility. Compared to November 30, 1999, accounts receivable increased $39.8 million, inventories increased $75.8 million and accounts payable increased $145.3 million. The increase in accounts receivable was primarily due to increased business in the United States and large sales transactions with carriers in Mexico and Colombia in November 2000. Inventory increased to support sales growth and the ending of the supply shortage that existed in 1999. Accounts payable increased due to growth and several large transactions in November. Effective August 25, 2000, the Company sold its 51% interest in its Brazil joint venture to its joint venture partner, Fontana Business Corp. To facilitate the closing of the transaction, the Company repaid certain debt of the joint venture to the extent it was collateralized by letters of credit issued under the Company's Facility. The Company received promissory notes totaling $8.5 million from CellStar do Brazil, Ltda. These notes are fully reserved and will remain fully reserved pending receipt of payments by the Company. At November 30, 2000, the Company's operations in the PRC had three lines of credit, one for USD $12.5 million, the second for RMB 215 million (approximately USD $26.0 million) and the third for RMB 50 million (approximately USD $6.0 million), bearing interest at 7.16%, 5.85% and 2.34% respectively. The loans have maturity dates through August 2001. The first two lines of credit are fully collateralized by U.S. dollar cash deposits. The cash deposit was made via an intercompany loan from the operating entity in Hong Kong as a 21 mechanism to secure repatriation of these funds. The third line of credit is supported by a RMB 15.0 million cash collateral deposit and a promissory note. At November 30, 2000 and January 31, 2001, the U.S. dollar equivalent of $44.4 million and $38.5 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 November 30, 2000 reflects USD $42.6 million in cash that is restricted as collateral on these advances and a corresponding USD $44.4 million in notes payable. At 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 following which the Company was in compliance with the covenant. The amount of the Facility was also reduced from $115.0 million to $100.0 million. At August 31, 2000, the Company was not in compliance with another of its covenants and subsequently received a waiver for this covenant. As of November 10, 2000, the Company had negotiated another amendment to the Facility which allowed the Company to remain in compliance by extending the date by which a compliance certificate was required to be delivered to its banks. The date for delivering the compliance certificate was extended again by an additional amendment as of December 20, 2000. At November 30, 2000, the outstanding balance under the Facility was $82.7 million and is included in notes payable to financial institutions in the accompanying consolidated balance sheet. In addition, letters of credit of $3.7 million have been issued under the Facility. Borrowings under the Facility are made under the London Interbank Offering Rate (LIBOR) contracts, generally for 30-90 days, or at the bank's prime lending rate and include an applicable margin. At November 30, 2000, the interest rate on the Facility borrowing under the LIBOR rate was 9.529% and the prime rate was 10.75%. As of January 30, 2001, the Company had negotiated an additional amendment to its Facility that assists the Company in complying with certain covenants through March 2, 2001. The amount of the Facility was reduced from $100.0 million to $86.4 million. On February 27, 2001, the Company and its banking syndicate negotiated and executed a Second Amended and Restated Credit Agreement which further reduces the amount of the Facility to $85.0 million on February 28, 2001, $74.0 million on July 31, 2001, $65.0 million on September 30, 2001, and $50.0 million on December 15, 2001. Such Second Amended and Restated Credit Agreement further (i) increases the applicable interest rate margin by 25 basis points, (ii) shortens the term of the Facility from June 1, 2002 to March 1, 2002, (iii) provides additional collateral for such Facility in the form of additional stock pledges and mortgages on real property, (iv) provides for dominion of funds by the banks for the Company's U.S. operations, (v) limits the borrowing base, and (vi) tightens restrictions on the Company's ability to fund its operations, particularly its non-U.S. operations. Based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, the Company anticipates that its cash flow from operations, together with amounts available under its Facility and existing unrestricted cash balances, will be adequate to meet its anticipated cash requirements in the foreseeable future. In the event that existing unrestricted cash balances, cash flows and available borrowings under the Facility are not sufficient to meet future cash requirements, the Company may be required to reduce planned expenditures or seek additional financing. The Company can provide no assurances that reductions in planned expenditures would be sufficient to cover shortfalls in available cash or that additional financing would be available or, if available, offered on terms acceptable to the Company. International Operations The Company's foreign operations are subject to various political and economic risks including, but not limited to, the following: political instability; economic instability; currency controls; currency devaluations; exchange rate fluctuations; potentially unstable channels of distribution; increased credit risks; export control laws that might limit the markets the Company can enter; inflation; changes in laws related to foreign ownership of businesses abroad; foreign tax laws; trade disputes among nations; changes in cost of capital; changes in import/export regulations, including enforcement policies, "gray market" resales, tariff and freight rates. Such risks and other factors beyond the control of the Company in any nation where the Company conducts business could have a material adverse effect on the Company. From 1998 to 2000, the Company's Brazil operations were primarily conducted through a majority-owned joint venture. Following a 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, in the second quarter of 2000, the Company elected to exit the Brazil market and to divest its 51% interest in its joint venture. In August 2000, the Company completed its divestiture of its 51% interest in its joint venture (see note 14 to the consolidated financial statements for a summary of the results of the Brazil operations). The Company fully reserved certain U.S.-based accounts receivable from Brazilian importers in the second quarter of 2000, the 22 collectibility of which significantly deteriorated in the second quarter of 2000, and which were further affected by the decision, in the second quarter, to exit Brazil. During the quarter ended August 31, 2000, the Company decided, based on the current and future economic and political outlook in Venezuela, to divest its operations in Venezuela and to focus its resources on more profitable, lower risk, growth markets. For the quarter ended August 31, 2000, the Company recorded an impairment charge of $4.9 million to reduce the carrying value of certain Venezuela assets, primarily goodwill, to their estimated fair value (see note 15 to the consolidated financial statements for a summary of the results of the Venezuela operations). In December 2000, the Company sold its Venezuela operations at approximately carrying value. 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 of the curtailment, the Company experienced a reduction in revenues for the U.K. operation after the first quarter of 2000 compared to 1999. 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. In the third quarter of 2000, the Company completed the sale of its operations in Poland and recognized a gain of $0.2 million. 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. In the second quarter of 2000, the Company phased out a major portion of its redistributor business in Miami. Overall, revenues declined in 2000 to $79.1 million from $154.2 million in 1999 for the Company's operation in Miami and are expected to continue to decline in 2001. As a result, the Company intends to restructure or consolidate its operation in Miami in 2001. In the fourth quarter of 2000, the Company recorded a non-cash goodwill impairment charge of $6.4 million related to the operations in Peru due to a major carrier customer's proposed changes to an existing contract that adversely changed the long-term prospects of the Peru operations. In 2000, the Company incurred losses of $1.8 million related to its minority interest in Amtel. As a result of the continuing deterioration in the Malaysia market, the Company intends to limit further exposure by divesting its ownership in the joint venture. The carrying value of the investment at November 30, 2000 is zero. However, the Company will be required to recognize future losses, if any, of Amtel up to the amount of debt and payables of Amtel guaranteed by the Company which is currently estimated to be up to $2.5 million. Impact of Inflation Historically, inflation has not had a significant impact on the Company's overall operating results. However, the effects of inflation in volatile economies in foreign markets could have a material adverse impact on the Company. Seasonality and Cyclicality The effects of seasonal fluctuations have not historically been apparent in the Company's operating results due to the Company's rapid growth in revenues. However, the Company's sales are influenced by a number of seasonal factors in the different countries and markets in which it operates, including the purchasing patterns of customers, product promotions of competitors and suppliers, availability of distribution channels, and product supply and pricing. The Company's sales are also influenced by cyclical economic conditions in the different countries and markets in which it operates. An economic downturn in one of the Company's principal markets could have a materially adverse effect on the Company's operating results. Accounting Pronouncement Not Yet Adopted In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), amended by Statement 138 issued in June 2000. 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. 23 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 generally accepted accounting principles to revenue recognition and accounting for deferred costs in the financial statements and is effective no later than the fourth quarter of fiscal years beginning after December 15, 1999. Based on the Company's current revenue recognition policies, SAB 101 is not expected to materially impact the Company's financial position and consolidated results of operations. Item 7(A). Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk For the year ended November 30, 2000, and 1999, respectively, the Company recorded in other income (expense), net foreign currency losses of $4.2 million and $4.1 million, primarily due to the revaluations of foreign currency related to the Company's European operations in 2000 and to the Company's Latin American operations in 1999. 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. The Company manages foreign currency risk by attempting to increase prices of products sold at or above the anticipated exchange rate of the local currency relative to the U.S. dollar, by indexing certain of its accounts receivable to exchange rates in effect at the time of their payment and by entering into foreign currency hedging instruments in certain instances. The Company consolidates the bulk of its foreign exchange exposure related to intercompany transactions in its international finance subsidiary. These transactional exposures are managed using various derivative alternatives depending on the length and size of the exposure. 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 risk of loss to the Company in the event of non-performance by any counterparty under derivative financial instrument agreements is not significant. All counterparties are rated A or higher by Moody's and Standard and Poor's. Although the derivative financial instruments expose the Company to market risk, fluctuations in the value of the derivatives are mitigated by expected offsetting fluctuations in the matched instruments. The Company uses foreign currency forward contracts to reduce exposure to exchange rate risks primarily associated with transactions in the regular course of the Company's international operations. The forward contracts establish the exchange rates at which the Company should purchase or sell the contracted amount of local currencies for specified foreign currencies at a future date. The Company uses forward contracts, which are short-term in nature (45 days to one year), and receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. The major currency exposures hedged by the Company are the British pound, Dutch glider, Euro and Swedish 24 Krona. The carrying amount and fair value of these contracts are not significant. Contractual amounts of the Company's forward exchange contracts at November 30, 2000 and January 31, 2001, respectively, are $18.7 million and $36.9 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 year ended November 30, 2000, the interest rates of borrowings under the Facility ranged from 8.75% to 10.75%. As a result of the July 12, 2000 amendment to the Facility, interest rates increased by 50 basis points. As a result of the February 27, 2001 amendment to the Facility, interest rates will increase by 25 basis points. A one percent change in variable interest rates will not have a material impact on the Company. The Company manages its borrowings under the Facility each business day to minimize interest expenses. 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. Fair value of the long-term debt was $37.3 million and $116.4 million at November 30, 2000 and 1999, respectively. Item 8. Consolidated Financial Statements and Supplementary Data See Index to Consolidated Financial Statements on Page F-1 of this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable. 25 PART III. Item 10. Directors And Executive Officers of the Registrant The information required by this item regarding Directors of the Company is set forth in the Proxy Statement (the "Proxy Statement") to be delivered to the Company's stockholders in connection with the Company's 2001 Annual Meeting of Stockholders under the heading "Election of Directors," which information is incorporated herein by reference. The information required by this item regarding executive officers of the Company is set forth under the heading "Executive Officers of the Registrant" in Part I of this Form 10-K, which information is incorporated herein by reference. Item 11. Executive Compensation The information required by this item is set forth in the Proxy Statement under the heading "Executive Compensation," which information is incorporated herein by reference. Information contained in the Proxy Statement under the captions "Executive Compensation--Report of the Compensation Committee of the Board of Directors on Executive Compensation" and "Comparative Performance Graph" is not incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is set forth in the Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management," which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required by this item is set forth in the Proxy Statement under the caption "Certain Transactions," which information is incorporated herein by reference. 26 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 1. Consolidated Financial Statements See Index to Consolidated Financial Statements on page F-1 of this Form 10-K. 2. Financial Statement Schedules See Index to Consolidated Financial Statements on page F-1 of this Form 10-K. 27 3. Exhibits
Number Description - ------ ---------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation (the "Certificate of Incorporation"). (1) 3.2 Certificate of Amendment to Certificate of Incorporation. (14) 3.3 Amended and Restated Bylaws of CellStar Corporation. (17) 4.1 The Certificate of Incorporation, Certificate of Amendment to Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are incorporated into this item by reference. (1)(14)(13) 4.2 Specimen Common Stock Certificate of CellStar Corporation. (2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement"). (3) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (4) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation"). (3) 4.6 Form of Rights Certificate. (3) 4.7 Certificate of Correction of Certificate of Designation. (4) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and The Bank of New York, as Trustee. (12) 10.1 Employment Agreement, effective as of December 1, 1994, by and between CellStar Corporation and Alan H. Goldfield. (2)(20) 10.2 Employment Agreement, effective January 22, 1998, by and between CellStar (Asia) Corporation Limited, CellStar Corporation and Hong An- Hsien. (13)(20) 10.3 Employment Agreement, effective as of November 12, 1999, by and between CellStar, Ltd., CellStar Corporation and Dale H. Allardyce. (17)(20) 10.4 Employment Agreement, effective as of November 5, 1999, by and between CellStar, Ltd., CellStar Corporation and Austin P. Young. (17)(20) 10.5 Employment Agreement, effective as of January 21, 2000, by and between CellStar Ltd., CellStar Corporation and Elaine Flud Rodriguez. (17)(20) 10.6 Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd., effective September 20, 1996. (5)(21)
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Number Description - ------ ---------------------------------------------------------------------- 10.7 Registration Rights Agreement by and between the Company and Audiovox Corporation. (9) 10.8 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.9 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan. (10) 10.10 Registration Rights Agreement, dated as of June 2, 1995, between Hong An Hsien and CellStar Corporation. (13)(20) 10.11 Purchase Agreement, dated October 7, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc. (12) 10.12 Registration Rights Agreement, dated as of October 14, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc. (12) 10.13 Agreement, dated as of April 28, 1995, by and between CellStar, Ltd. and Motorola, Inc., Greater China Cellular Subscriber Division (People's Republic of China). (8) 10.14 Separation Agreement and Release Agreement between Richard M. Gozia and CellStar, Ltd., CellStar Corporation, and all affiliated entities, dated April 21, 1999. (15)(20) 10.15 Amended and Restated Credit Agreement, dated as of August 2, 1999, among CellStar Corporation, each of the banks or other lending institutions signatory thereto, and Chase Securities, Inc. as lead arranger and book manager. (16) 10.16 Stock Purchase Agreement, dated as of September 3, 1999, among CellStar Telecom, Inc., Inmobiliaria Azltan, S.A. de C.V., and Topp Telecom, Inc. (16) 10.17 Letter Agreement between Pacific Bell Mobile Services and CellStar, Ltd. dated as of May 31, 1999. (16) 10.18 Amendment to Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd. dated as of May 31, 1999. (16)(21) 10.19 Pledge Agreement, dated as of July 10, 1998, between CellStar Telecom, Inc. and Chase Bank of Texas, National Association. (16)
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Number Description - ------ ---------------------------------------------------------------------- 10.20 Contribution and Indemnification Agreement, dated as of July 10, 1998, among CellStar Corporation and the affiliated entities signatory thereto. (16) 10.21 Guaranty, dated as of July 10, 1998, provided by CellStar Telecom, Inc., Florida Properties, Inc., CellStar Global Satellite Service, Ltd. to Chase Bank of Texas, National Association and the other banks and lending institutions signatory to the Credit Agreement. (16) 10.22 Pledge Agreement, dated as of July 10, 1998, between NAC Holdings, Inc. and Chase Bank of Texas, National Association. (16) 10.23 Pledge Agreement, dated as of July 10, 1998, between CellStar Corporation and Chase Bank of Texas, National Association. (16) 10.24 Pledge Agreement, dated as of July 10, 1998, between National Auto Center, Inc. and Chase Bank of Texas, National Association. (16) 10.25 Guarantor Security Agreement, dated as of July 10, 1998, among CellStar Telecom, Inc. Florida Properties, Inc., CellStar Global Satellite Service, Ltd. and Chase Bank of Texas, National Association. (16) 10.26 Consent, Ratification and Confirmation, dated as of August 2, 1999, by and among CellStar Corporation, National Auto Center, Inc., CellStar, Ltd., CellStar Fulfillment, Ltd., CellStar West, Inc., CellStar Air Services, Inc., A&S Air Service, Inc., CellStar International Corporation/SA, AudioMex Export Corp., CellStar International Corporation/Asia, CellStar Fulfillment, Inc., NAC Holdings, Inc., ACC-CellStar, Inc., CellStar Finance, Inc., CellStar Telecom, Inc., Florida Properties, Inc., and CellStar Global Satellite Service, Ltd., for the benefit of The First National Bank of Chicago, as Syndication Agent, National City Bank, as Documentation Agent, Chase Bank of Texas, National Association, as Administrative Agent, and The Chase Manhattan Bank, as Alternate Currency Agent. (19) 10.27 First Amendment to Amended and Restated Credit Agreement, dated November 23, 1999, among CellStar Corporation and each of the banks and lending institutions signatory thereto. (17) 10.28 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan, amended and effective as of January 21, 2000. (17)(20) 10.29 Distribution Agreement, dated as of April 15, 2000, by and between Motorola, Inc. by and through its Personal Communications Sector Latin America Group and CellStar, Ltd. (19)(21) 10.30 Second Amendment to Amended and Restated Credit Agreement, dated as of July 12, 2000, among CellStar Corporation and each of the banks or other lending institutions which is or may from time to time become a signatory thereof. (18) 10.31 Third Amendment to Amended and Restated Credit Agreement dated as of November 10, 2000, among CellStar Corporation, each of the banks or other lending institutions which is or may from time to time become a signatory to the Amended and Restated Credit Agreement, Bank One, N.A., as Syndication Agent, National City Bank, as Documentation Agent and The Chase Manhattan Bank, as the Administrative Agent and Alternate Currency Agent. (19) 10.32 Fourth Amendment to Amended and Restated Credit Agreement dated as of December 20, 2000, among CellStar Corporation, each of the banks or other lending institutions which is or may from time to time become a signatory to the Amended and Restated Credit Agreement, Bank One, N.A., as Syndication Agent, National City Bank, as Documentation Agent and The Chase Manhattan Bank as the Administrative Agent and Alternate Currency Agent. (19) 10.33 Fifth Amendment to Amended and Restated Credit Agreement dated as of January 30, 2001, among CellStar Corporation, each of the banks or other lending institutions which is or may from time to time become a signatory to the Amended and Restated Credit Agreement, Bank One, N.A., as Syndication Agent, National City Bank, as Documentation Agent and The Chase Manhattan Bank as the Administrative Agent and Alternate Currency Agent. (19) 10.34 Wireless Products Agreement by and between Motorola, Inc., by and through its Cellular Subscriber Sector, and CellStar, Ltd., effective November 15, 2000. (19)(21) 10.35 Aircraft and Asset Purchase Agreement, dated as of January 30, 2001, by and between A & S Air Service, Inc. and Alan H. Goldfield. (19)
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Number Description - ------ ---------------------------------------------------------------------- 21.1 Subsidiaries of the Company. (19) 23.1 Consent of KPMG LLP. (19) 99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated as of July 20, 1995. (1)
___________ (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1997, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1994, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1 and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997 and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (13) Previously filed as an exhibit to the Company's Annual Report on Form10-K for the fiscal year ended November 30, 1997, and incorporated herein by reference. (14) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference. (15) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference. (16) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1998, and incorporated herein by reference. (17) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1999 and incorporated herein by reference. (18) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2000, and incorporated herein by reference. (19) Filed herewith. (20) The exhibit is a management contract or compensatory plan or agreement. (21) Certain provisions of this exhibit are subject to a request for confidential treatment filed with the Securities and Exchange Commission. 4. Reports on Form 8-K None 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By /s/ Alan H. Goldfield -------------------------------------------- Alan H. Goldfield Chairman of the Board and Chief Executive Officer Date: February 28, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ Alan H. Goldfield Date: February 28, 2001 ---------------------------------------------- Alan H. Goldfield Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By /s/ Dale H. Allardyce Date: February 28, 2001 ---------------------------------------------- Dale H. Allardyce President and Chief Operating Officer By /s/ Austin P. Young Date: February 28, 2001 ---------------------------------------------- Austin P. Young Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Raymond L. Durham Date: February 28, 2001 ---------------------------------------------- Raymond L. Durham Vice President, Corporate Controller (Principal Accounting Officer) By /s/ J. L. Jackson Date: February 28, 2001 ---------------------------------------------- J. L. Jackson Director By /s/ James L. Johnson Date: February 28, 2001 ---------------------------------------------- James L. Johnson Director By /s/ Dale V. Kesler Date: February 28, 2001 ---------------------------------------------- Dale V. Kesler Director 32 By /s/ Terry S. Parker Date: February 28, 2001 ---------------------------------------------- Terry S. Parker Director By /s/ Jere W. Thompson Date: February 28, 2001 ---------------------------------------------- Jere W. Thompson Director 33 CELLSTAR CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements Independent Auditors' Report F-2 Consolidated Balance Sheets as of November 30, 2000 and 1999. F-3 Consolidated Statements of Operations for the years ended November 30, 2000, 1999 and 1998 F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the years ended November 30, 2000, 1999 and 1998 F-5 Consolidated Statements of Cash Flows for the years ended November 30, 2000, 1999 and 1998 F-6 Notes to Consolidated Financial Statements F-7 Schedule II - Valuation and Qualifying Accounts for the years ended November 30, 2000, 1999 and 1998 S-1
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders CellStar Corporation: We have audited the consolidated financial statements of CellStar Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CellStar Corporation and subsidiaries as of November 30, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Dallas, Texas January 12, 2001 except as to note 6 which is as of February 27, 2001 F-2 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS November 30, 2000 and 1999 (Amounts in thousands, except share data)
2000 1999 --------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 77,023 70,498 Restricted cash 42,622 25,000 Accounts receivable (less allowance for doubtful accounts of $75,810 and $33,152, respectively) 345,996 306,235 Inventories 265,644 189,866 Deferred income tax assets 30,866 15,127 Prepaid expenses 25,470 32,029 -------------- --------------- Total current assets 787,621 638,755 Property and equipment, net 22,015 27,481 Goodwill (less accumulated amortization of $17,408 and $10,483 respectively) 23,532 32,584 Deferred income tax assets 14,489 - Other assets 9,172 7,618 -------------- --------------- $ 856,829 706,438 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 358,305 212,999 Notes payable to financial institutions 127,128 50,609 Accrued expenses 22,744 24,864 Income taxes payable 2,948 8,646 Deferred income tax liabilities 6,573 8,796 -------------- --------------- Total current liabilities 517,698 305,914 Long-term debt 150,000 150,000 -------------- --------------- Total liabilities 667,698 455,914 -------------- --------------- 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 (10,861) (8,509) Retained earnings 118,092 177,503 -------------- --------------- Total stockholders' equity 189,131 250,524 -------------- --------------- $ 856,829 706,438 ============== ===============
See accompanying notes to consolidated financial statements. F-3 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended November 30, 2000, 1999, and 1998 (In thousands, except per share data)
2000 1999 1998 ----------- ----------- ----------- Revenues $ 2,475,682 2,333,805 1,995,850 Cost of sales 2,358,654 2,140,375 1,823,075 ----------- ----------- ----------- Gross profit 117,028 193,430 172,775 Selling, general and administrative expenses 169,232 111,613 116,747 Impairment of assets 12,339 5,480 - Lawsuit settlement - - 7,577 Restructuring charge (157) 3,639 - ----------- ----------- ----------- Operating income (loss) (64,386) 72,698 48,451 Other income (loss): Interest expense (19,113) (19,027) (14,446) Equity in income (loss) of affiliated companies, net (1,805) 31,933 (28,448) Gain on sale of assets 6,200 8,774 - Other, net 932 (1,876) 1,389 ----------- ----------- ----------- Total other income (expense) (13,786) 19,804 (41,505) ----------- ----------- ----------- Income (loss) before income taxes (78,172) 92,502 6,946 Provision (benefit) for income taxes (18,761) 23,415 (7,418) ----------- ----------- ----------- Net income (loss) $ (59,411) 69,087 14,364 =========== =========== =========== Net income (loss) per share: Basic $ (0.99) 1.16 0.24 =========== =========== =========== Diluted $ (0.99) 1.12 0.24 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) Years ended November 30, 2000, 1999, and 1998 (In thousands)
Accumulated Additional Common other Common Stock paid-in stock comprehensive Retained ----------------------- Shares Amount capital warrant loss earnings Total ---------- ---------- ---------- ---------- ------------ ----------- --------- Balance at November 30, 1997 58,499 $ 293 72,985 4 (6,469) 94,052 160,865 Comprehensive income: Net income - - - - - 14,364 14,364 Foreign currency translation adjustment - - - - (1,712) - (1,712) --------- Total comprehensive income 12,652 Common stock issued under stock option plans 464 5 4,269 - - - 4,274 Two-for-one common stock split - 292 (292) - - - - ---------- ---------- ---------- ---------- ------------ ----------- -------- Balance at November 30, 1998 58,963 590 76,962 4 (8,181) 108,416 177,791 Comprehensive Income: Net income - - - - - 69,087 69,087 Foreign currency translation adjustment - - - - (328) - (328) --------- Total comprehensive income 68,759 Common stock issued under stock option plans 533 5 3,969 - - - 3,974 Exercise of common stock warrant 561 6 (2) (4) - - - ---------- ---------- ---------- ---------- ------------ ----------- -------- Balance at November 30, 1999 60,057 601 80,929 - (8,509) 177,503 250,524 Comprehensive Loss: Net loss - - - - - (59,411) (59,411) Foreign currency translation adjustment - - - - (2,352) - (2,352) --------- Total comprehensive loss (61,763) Common stock issued under stock option plans 85 1 369 - - - 370 ---------- ---------- ---------- ---------- ------------ ----------- -------- Balance at November 30, 2000 60,142 $ 602 81,298 - (10,861) 118,092 189,131 ========== ========== ========== ========== ============ =========== ========
See accompanying notes to consolidated financial statements. F-5 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 30, 2000, 1999, and 1998 (In thousands)
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ (59,411) 69,087 14,364 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for doubtful accounts 51,636 11,643 14,120 Provision for inventory obsolescence 32,255 23,012 12,434 Depreciation, amortization and impairment of assets 23,571 16,911 11,426 Gain on sale of assets (6,200) (8,774) - Equity in loss (income) of affiliated companies, net 1,805 (31,933) 28,448 Deferred income taxes (32,451) 8,950 (13,073) Changes in certain operating assets and liabilities: Accounts receivable (101,243) 29,751 (208,437) Inventories (119,867) 61,232 (90,164) Prepaid expenses 2,705 (15,201) (8,803) Other assets (648) (2,327) (116) Accounts payable 162,681 (99,349) 119,360 Accrued expenses 1,474 (16,070) 19,760 Income taxes payable (5,698) 882 (2,109) ---------- --------- --------- Net cash provided by (used in) operating activities (49,391) 47,814 (102,790) ---------- --------- --------- Cash flows from investing activities: Purchases of property and equipment (5,461) (8,499) (12,498) Acquisitions of businesses, net of cash acquired (4,241) (2,301) (13,526) Proceeds from sale of assets 377 41,778 - Purchase of investment (4,144) - - Acquisition of minority interests - - (900) Increase in restricted cash (17,622) (25,000) - ---------- --------- --------- Net cash provided by (used in) investing activities (31,091) 5,978 (26,924) ---------- --------- --------- Cash flows from financing activities: Net borrowings (payments) on notes payable to financial institutions 86,637 (34,414) 82,030 Checks not presented for payment - - 17,719 Net proceeds from issuance of common stock 370 3,137 3,302 ---------- --------- --------- Net cash provided by (used in) financing activities 87,007 (31,277) 103,051 ---------- --------- --------- Net increase (decrease) in cash and cash equivalents 6,525 22,515 (26,663) Cash and cash equivalents at beginning of year 70,498 47,983 74,646 ---------- --------- --------- Cash and cash equivalents at end of year $ 77,023 70,498 47,983 ========== ========= =========
See accompanying notes to consolidated financial statements. F-6 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) Basis for Presentation CellStar Corporation and subsidiaries (the "Company") is a leading global provider of distribution and value-added logistics services to the wireless communications industry, with operations in Asia-Pacific, Latin America, Europe and North America. The Company facilitates the effective and efficient distribution of handsets, related accessories and other wireless products from leading manufacturers to network operators, agents, resellers, dealers and retailers. In many of its markets, the Company provides activation services that generate new subscribers for its wireless carrier customers. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation. (b) Use of Estimates Management of the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities in preparation of these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (c) Inventories Inventories are stated at the lower of cost (primarily on a moving average basis) or market and are comprised of finished goods. (d) Property and Equipment Property and equipment are recorded at cost. Depreciation of equipment is provided over the estimated useful lives of the respective assets, which range from three to thirty years, on a straight-line basis. Leasehold improvements are amortized over the shorter of their useful life or the related lease term. Major renewals are capitalized, while maintenance, repairs and minor renewals are expensed as incurred. (e) Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized using the straight-line method over 20 years. The Company assesses the recoverability of this intangible asset by determining the estimated future cash flows related to such acquired assets. In the event that goodwill is found to be carried at an amount that is in excess of estimated future operating cash flows, then the goodwill will be adjusted to a level commensurate with a discounted cash flow analysis using a discount rate reflecting the Company's average cost of funds. (f) Impairment of Long-Lived Assets Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. F-7 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (g) Equity Investments in Affiliated Companies The Company accounts for its investments in common stock of affiliated companies using the equity method or the modified equity method, if required. The investments are included in other assets in the accompanying consolidated balance sheets. (h) Revenue Recognition For the Company's wholesale business, revenue is generally recognized when product is shipped. In accordance with contractual agreements with wireless service providers, the Company receives an activation commission for obtaining subscribers for wireless services in connection with the Company's retail operations. The agreements contain various provisions for additional commissions ("residual commissions") based on subscriber usage. The agreements also provide for the reduction or elimination of activation commissions if subscribers deactivate service within stipulated periods. The Company recognizes revenue for activation commissions on the wireless service providers' acceptance of subscriber contracts and residual commissions when earned and provides an allowance for estimated wireless service deactivations, which is reflected as a reduction of accounts receivable and revenues in the accompanying consolidated financial statements. The Company recognizes fee revenue when the service is completed. (i) Foreign Currency Assets and liabilities of the Company's foreign subsidiaries have been translated at the rate of exchange at the end of each period. Revenues and expenses have been translated at the weighted average rate of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated as other comprehensive loss in stockholders' equity, except for subsidiaries located in countries whose economies are considered highly inflationary. In such cases, translation adjustments are included primarily in other income (expense) in the accompanying consolidated statements of operations. Net foreign currency transaction gains (losses) for the years ended November 30, 2000, 1999 and 1998 were ($9.4) million, ($3.4) million and $0.3 million, respectively. The currency exchange rates of the Latin American and Asia Pacific countries in which the Company conducts operations have historically been volatile. The Company manages the risk of foreign currency devaluation by attempting to increase prices of products sold at or above the anticipated rate of local currency devaluation relative to the U.S. dollar, by indexing certain of its receivables to exchange rates in effect at the time of their payment and by entering into non-deliverable foreign currency forward contracts in certain instances. (j) Derivative Financial Instruments The Company uses 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. Foreign exchange contracts that hedge the currency exposure on intercompany loans and sales transactions are valued at current spot rates at the market's close, and the change in value is recognized currently. The Company used foreign currency non-deliverable forward ("NDF") contracts to manage certain foreign exchange risks in conjunction with transactions with E.A. Electronicos e Componentes Ltda. (see note 2(b)). These contracts did not qualify as hedges against financial statement exposure. Gains or losses on these contracts represent the difference between the forward rate available on the underlying currency against the U.S. dollar for the remaining maturity of the contracts as of the balance sheet date and the contracted forward rate and are included in selling, general and administrative expenses in the consolidated statements of operations. F-8 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (k) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (l) 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 stock options, warrants, and convertible debentures. A reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations for the years ended November 30, 2000, 1999, and 1998, follows (in thousands, except per share data):
2000 1999 1998 --------------- -------------- -------------- Basic: Net income (loss) $ (59,411) 69,087 14,364 =============== ============== ============== Weighted average number of shares outstanding 60,131 59,757 58,865 =============== ============== ============== Net income (loss) per share $ (0.99) 1.16 0.24 =============== ============== ============== Diluted: Net income (loss) $ (59,411) 69,087 14,364 Interest on convertible notes, net of tax effect - 4,500 - --------------- -------------- -------------- Adjusted net income (loss) $ (59,411) 73,587 14,364 =============== ============== ============== Weighted average number of shares outstanding 60,131 59,757 58,865 Effect of dilutive securities: Stock options and warrant - 411 1,791 Convertible notes - 5,421 - --------------- -------------- -------------- Weighted average number of shares outstanding including effect of dilutive securities 60,131 65,589 60,656 =============== ============== ============== Net income (loss) per share $ (0.99) 1.12 0.24 =============== ============== ==============
Outstanding options to purchase 4.7 million, 2.3 million and 1.3 million shares of common stock at November 30, 2000, 1999 and 1998, respectively, were not included in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. Diluted weighted average shares outstanding at November 30, 2000 and 1998 do not include 5.4 million common equivalent shares issuable for the convertible notes, as their effect would be anti-dilutive. F-9 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (m) Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments and is presented in the consolidated statements of stockholders' equity and comprehensive income (loss). The Company does not tax effect its foreign currency translation adjustments since it considers the unremitted earnings of its foreign subsidiaries to be indefinitely reinvested. (n) Consolidated Statements of Cash Flow Information For purposes of the consolidated statements of cash flows, the Company considers all highly-liquid investments with an original maturity of 90 days or less to be cash equivalents. The Company paid approximately $17.9 million, $19.4 million and $13.0 million of interest for the years ended November 30, 2000, 1999 and 1998, respectively. The Company paid approximately $14.5 million, $13.6 million and $8.7 million of income taxes for the years ended November 30, 2000, 1999 and 1998, respectively. (o) Stock Option Plans The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"), and related interpretations, in accounting for grants to employees and non-employee directors under its fixed stock option plans. Accordingly, compensation expense is recorded on the date of grant of options only if the current market price of the underlying stock exceeds the exercise price. (2) Related Party Transactions (a) Transactions with Motorola Motorola purchased 2.1 million shares of the Company's common stock in July 1995 and is a major supplier of handsets and accessories to the Company. Total purchases from Motorola approximated $1,074.3 million, $1,055.1 million and $1,276.1 million for the years ended November 30, 2000, 1999 and 1998, respectively. Included in accounts payable at November 30, 2000 and 1999 was approximately $113.3 million and $87.5 million, respectively, due to Motorola for purchases of inventory. (b) Transactions with E.A. Electronicos e Componentes Ltda. From 1998 until 2000 when the Company sold its interest in the joint venture (see note 14), the Company's Brazil operations had been primarily conducted through a majority-owned joint venture. The primary supplier of handsets to the joint venture was a Brazilian importer, E.A. Electronicos e Componentes Ltda. ("E.A."), which was a customer of the Company. Sales to E.A. were excluded from the Company's consolidated revenues, and the related gross profit was deferred until the handsets were sold by the Brazil joint venture to customers. At November 30, 1999, the Company had accounts receivable of $7.0 million due from E.A. and accounts payable of $10.5 million due to E.A. From November 1998 through March 1999, the Company used Brazilian real NDF contracts to manage currency exposure risk related to credit sales made to E.A. Payment for these sales was remitted by E.A. using the Brazilian real rate exchange against the U.S. dollar on the day the Company recorded the sale to E.A. Foreign currency rate fluctuations caused bad debt expense of $26.4 million related to the payments remitted by the importer. This expense was included in selling, general and administrative expenses for the year ended November 30, 1999, but was completely offset by gains realized on NDF contract settlements, which gains also were included in selling, general and administrative expenses. (c) Sale of Aircraft to Chief Executive Officer In December 1993, the Company and the Company's Chief Executive Officer entered into an agreement pursuant to which the Company purchased the Chief Executive Officer's jet aircraft at book value. Pursuant to that agreement, the Company sold the Company's jet aircraft back to the Chief Executive Officer for book value in January 2001. F-10 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (3) Fair Value of Financial Instruments The carrying amounts of accounts receivable, accounts payable and notes payable as of November 30, 2000 and 1999 approximate fair value due to the short maturity of these instruments. The fair value of the Company's long-term debt represents quoted market prices as of November 30, 2000 and 1999 as set forth in the table below (in thousands):
2000 1999 ---------------------------- ----------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- --------- --------- Long-term debt $ 150,000 37,320 $ 150,000 116,350 ========== ========== ========= =========
(4) Property and Equipment Property and equipment consisted of the following at November 30, 2000 and 1999 (in thousands):
2000 1999 --------- ---------- Land and buildings $ 8,695 9,382 Furniture, fixtures and equipment 29,054 28,937 Jet aircraft 4,454 4,454 Leasehold improvements 5,457 5,137 --------- ---------- 47,660 47,910 Less accumulated depreciation and amortization (25,645) (20,429) --------- ---------- $ 22,015 27,481 ========= ==========
(5) Investments in Affiliated Companies At November 30, 2000 and 1999, investments in affiliated companies includes a 49% interest in CellStar Amtel Sdn. Bhd. ("Amtel"), a Malaysian company. Amtel is a distributor of wireless handsets. At November 30, 1999, the Company's investment in Amtel approximated its equity in Amtel's net assets. In 2000, the Company incurred losses of $1.8 million related to its minority interest in Amtel. As a result of the continuing deterioration in the Malaysia market, the Company intends to limit further exposure by divesting its ownership in the joint venture. The carrying value of the investment at November 30, 2000 is zero. However, the Company will be required to recognize future losses, if any, of Amtel up to the amount of debt and payables of Amtel guaranteed by the Company, which is currently estimated to be up to $2.5 million. In November 1997, the Company made a $3.0 million equity investment which represented an 18% voting interest in the common stock of Topp Telecomm, Inc. ("Topp") and began supplying Topp with handsets. Topp is a reseller of wireless airtime through the provision of prepaid wireless services. F-11 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Topp incurred substantial operating losses associated with the acquisition costs of expanding its customer base. Beginning in the Company's third fiscal quarter of 1998, the Company became Topp's primary source of funding through the Company's supply of handsets. Accordingly, the Company then began to account for its debt and equity investment in Topp under the modified equity method. Under this method, in 1998 the Company recognized Topp's net loss to the extent of the Company's entire debt and equity investment, or $29.2 million. In February 1999, the Company sold part of its equity investment in Topp to a wholly-owned subsidiary of Telefonos de Mexico S.A. de C.V. At the closing, the Company also sold a portion of its debt investment to certain other shareholders of Topp. As a result of these transactions, the Company received cash in the amount of $7.0 million, retained a $22.5 million note receivable and a 19.5% equity ownership interest in Topp, and recorded a pre-tax gain of $5.8 million. In September 1999, the Company sold its remaining debt and equity interest in Topp for $26.5 million in cash, resulting in a pre-tax gain of $26.1 million. In January 2000, the Company acquired 3.5% of the issued and outstanding common stock of Arcoa Communications Co. Ltd, a telecommunications retail store chain in Taiwan. The investment is carried at the acquisition cost of $4.1 million. (6) Debt Notes payable to financial institutions consisted of the following at November 30, 2000 and 1999 (in thousands):
2000 1999 --------- --------- Multicurrency revolving credit facility $ 82,700 17,200 Brazilian credit facilities - 8,872 Peoples' Republic of China ("PRC") credit facilities 44,428 24,537 --------- --------- $ 127,128 50,609 ========= =========
On October 15, 1997, the Company entered into a five year $135.0 million Multicurrency Revolving Credit Facility (the "Facility") with a syndicate of banks. On April 8, 1999, the amount of the Facility was reduced from $135.0 million to $115.0 million due to the release of a syndication member bank. On August 2, 1999, the Company restructured its Facility to add additional flexibility for foreign working capital funding and capitalization. At May 31, 2000, the Company would not have been in compliance with one of its covenants under the Facility. As of July 12, 2000, the Company had negotiated an amendment to the Facility following which the Company was in compliance with the covenant. The amount of the Facility was also reduced from $115.0 million to $100.0 million. At August 31, 2000, the Company was not in compliance with another of its covenants and subsequently received an additional amendment following which the Company was in compliance. As of November 10, 2000, the Company had negotiated another amendment to the Facility which allowed the Company to remain in compliance by extending the date by which a compliance certificate was required to be delivered to its banks. The date for delivering the compliance certificate was extended again by an additional amendment as of December 20, 2000. As of January 30, 2001, the Company had negotiated an amendment to the Facility that assists the Company in complying with certain covenants through March 2, 2001. The amount of the Facility was reduced from $100.0 million to $86.4 million. F-12 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fundings under the Facility are limited by a borrowing base test, which is measured monthly. Borrowings under the Facility are made under London Interbank Offering Rate contracts, generally for 30-90 days, or at the bank's prime lending rate. Total interest charged on those borrowings includes an applicable margin that is subject to certain increases based on the ratio of consolidated funded debt to consolidated cash flow determined at the end of each fiscal quarter. At November 30, 2000, the interest rate on the Facility borrowing under the LIBOR rate was 9.529% and the prime rate was 10.75%. The Facility is secured by the Company's accounts receivable, property, plant and equipment and all other real property. The Facility contains, among other provisions, covenants relating to the maintenance of minimum net worth and certain financial ratios, dividend payments, additional debt, mergers and acquisitions and dispositions of assets. On February 27, 2001, the Company and its banking syndicate negotiated and executed a Second Amended and Restated Credit Agreement which further reduces the amount of the Facility to $85.0 million on February 28, 2001, $74.0 million on July 31, 2001, $65.0 million on September 30, 2001, and $50.0 million on December 15, 2001. Such Second Amended and Restated Credit Agreement further (i) increases the applicable interest rate margin by 25 basis points, (ii) shortens the term of the Facility from June 1, 2002 to March 1, 2002, (iii) provides additional collateral for such Facility in the form of additional stock pledges and mortgages on real property, (iv) provides for dominion of funds by the banks for the Company's U.S. operations, (v) limits the borrowing base, and (vi) tightens restrictions on the Company's ability to fund its operations, particularly its non-U.S. operations. As of November 30, 1999, the Company's Brazil operations had borrowed $8.9 million, including accrued interest thereon, under credit facilities with several Brazilian banks. All $8.9 million was denominated in Brazilian reals. Interest rates on borrowings in Brazil range from approximately 20% to 28%. At November 30, 2000, the Company's operations in the PRC had three lines of credit, one for USD $12.5 million, the second for RMB 215 million (approximately USD $26.0 million) and the third for RMB 50 million (approximately USD $6.0 million), bearing interest at 7.16%, 5.85% and 2.34%, respectively. The loans have maturity dates through August 2001. The first two lines of credit are fully collateralized by U.S. dollar cash deposits. The cash deposit was made via an intercompany loan from the operating entity in Hong Kong as a mechanism to secure repatriation of these funds. The third line of credit is supported by a RMB 15.0 million cash collateral deposit and a promissory note. At November 30, 2000, the U.S. dollar equivalent of $44.4 million had been borrowed against the lines of credit in the PRC. As a result of this method of funding operations in the PRC, the accompanying consolidated balance sheet at November 30, 2000 reflects USD $42.6 million in cash that is restricted as collateral on these advances and a corresponding USD $44.4 million in notes payable. The weighted average interest rate on short-term borrowings at November 30, 2000 and 1999, was 9.7% and 7.5% respectively. At November 30, 2000 and 1999, long-term debt consisted of $150.0 million of the Company's 5% Convertible Subordinated Notes Due October 15, 2002 (the "Notes"), which are convertible into 5.4 million shares of common stock at $27.668 per share at any time prior to maturity. Subsequent to October 18, 2000, the Notes are redeemable at the option of the Company, in whole or in part, initially at 102% and thereafter at prices declining to 100% at maturity, together with accrued interest. The Notes were initially issued pursuant to an exempt offering and were subsequently registered under the Securities Act of 1933, along with the common stock into which the Notes are convertible. Based upon current and anticipated levels of operations, and aggressive efforts to reduce inventories and accounts receivable, the Company anticipates that its cash flow from operations, together with amounts available under its Facility and existing unrestricted cash balances, will be adequate to meet its anticipated cash requirements in the foreseeable future. In the event that existing unrestricted cash balances, cash flows and available borrowings under the Facility are not sufficient to meet future cash requirements, the Company may be required to reduce planned expenditures or seek additional financing. The Company can provide no assurances that reductions in planned expenditures would be sufficient to cover shortfalls in available cash or that additional financing would be available or, if available, offered on terms acceptable to the Company. (7) Income Taxes The Company's income (loss) before income taxes was comprised of the following for the years ended November 30, 2000, 1999 and 1998 (in thousands): 2000 1999 1998 ---------- ---------- ---------- United States $ (79,595) $ 13,430 (48,413) International 1,423 79,072 55,359 ---------- ---------- ---------- Total $ (78,172) $ 92,502 6,946 ========== ========== ========== F-13 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Provision (benefit) for income taxes for the years ended November 30, 2000, 1999 and 1998 consisted of the following (in thousands):
Current Deferred Total ---------- ----------- ----------- Year ended November 30, 2000: United States: Federal $ - (26,386) (26,386) State 1,138 (1,693) (555) International 12,552 (4,372) 8,180 ---------- ----------- ----------- $ 13,690 (32,451) (18,761) ========== =========== =========== Year ended November 30, 1999: United States: Federal $ (28) 3,245 3,217 State 897 407 1,304 International 13,596 5,298 18,894 ---------- ----------- ----------- $ 14,465 8,950 23,415 ========== =========== =========== Year ended November 30, 1998: United States: Federal $ (2,553) (15,283) (17,836) State 1,067 (849) 218 International 7,141 3,059 10,200 ---------- ---------- ----------- $ 5,655 (13,073) (7,418) ========== ========== ===========
Provision (benefit) for income taxes differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to income before income taxes as a result of the following for the years ended November 30, 2000, 1999 and 1998 (in thousands):
2000 1999 1998 ------------- ----------- --------- Expected tax expense (benefit) $ (27,360) 32,376 2,431 International and U.S. tax effects attributable to international operations (4,731) (8,869) (9,065) State income taxes, net of Federal benefits (361) 848 142 Equity in (loss) income of affiliated companies, net 631 6 (5,073) Non-deductible goodwill and other 1,919 371 204 Change in valuation allowance 11,763 (131) 3,741 Foreign accumulated earnings tax 1,228 - - Other, net (1,850) (1,186) 202 ------------- ----------- --------- Actual tax (benefit) expense $ (18,761) 23,415 (7,418) ============= =========== =========
As a result of certain activities undertaken by the Company, income in certain foreign countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, primarily through 1999. The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $1.4 million, $3.0 million and $5.3 million, respectively, for 2000, 1999 and 1998, respectively. F-14 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The tax effect of temporary differences underlying significant portions of deferred income tax assets and liabilities at November 30, 2000 and 1999, is presented below (in thousands):
2000 1999 ----------- --------- Deferred income tax assets: United States: Accounts receivable $ 14,387 2,746 Inventory adjustments for tax purposes 2,827 4,666 Net operating loss carryforwards 20,789 2,306 Foreign tax credit carryforwards 2,656 2,308 Capital Losses 4,639 - Other, net 4,381 2,279 International: Accounts receivable 2,091 - Net operating loss carryforwards 8,640 4,172 Other, net 880 822 ----------- --------- 61,290 19,299 Valuation allowance (15,935) (4,172) ----------- --------- $ 45,355 15,127 =========== ========= Deferred income tax liabilities - international inventory adjustments for tax purposes $ 6,573 8,796 =========== =========
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. The valuation allowance for deferred income tax assets as of December 1, 1999 and 1998, was $4.2 million and $2.6 million, respectively. The net change in the total valuation allowance for the years ended November 30, 2000 and 1999, was an increase of $11.8 million and $1.6 million, respectively. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes it is more likely than not the Company should realize the benefits of these deductible differences. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. At November 30, 2000, the Company had U.S. Federal net operating loss carryforwards of approximately $59.4 million, which will begin to expire in 2018. The Company does not provide for U.S. Federal income taxes or tax benefits on the undistributed earnings and/or losses of its international subsidiaries because earnings are reinvested and, in the opinion of management, should continue to be reinvested indefinitely. At November 30, 2000, the Company had not provided U.S. Federal income taxes on earnings of international subsidiaries of approximately $177.3 million. On distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and certain withholding taxes in the various international jurisdictions. Determination of the related amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with this hypothetical calculation. F-15 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Because many types of transactions are susceptible to varying interpretations under foreign and domestic income tax laws and regulations, the amounts recorded in the accompanying consolidated financial statements may be subject to change on final determination by the respective taxing authorities. Management believes it has made an adequate tax provision. (8) Leases The Company leases certain warehouse and office facilities, equipment and retail stores under operating leases that range from two to six years. Facility and retail store leases generally contain renewal options. Rental expense for operating leases was $5.0 million, $6.0 million and $5.6 million for the years ended November 30, 2000, 1999 and 1998, respectively. Future minimum lease payments under operating leases as of November 30, 2000 are as follows (in thousands): Year ending November 30, Amount -------------- --------- 2001 $ 4,542 2002 3,387 2003 2,546 2004 1,811 2005 1,700 Thereafter 428 --------- $ 14,414 ========= (9) Impairment of Assets In the third quarter of 2000, the Company decided to exit its Venezuela operations (see note 15). The Company recorded a $4.9 million impairment charge to reduce the carrying value of certain Venezuela assets, primarily goodwill, to their estimated fair value. In December 2000, the Company completed the sale of its Venezuela operations at approximately carrying value. In the fourth quarter of 2000, the Company recorded a non-cash goodwill impairment charge of $6.4 million due to a major carrier customer's proposed changes to an existing contract that adversely changed the long-term prospects of the Peru operations. In the fourth quarter of 1999, based on the market conditions in Poland, the Company decided to sell its operations in Poland. The sale was completed in 2000 resulting in a gain of $0.2 million. The Company recorded an impairment charge of $5.5 million, including a $4.5 million writedown of goodwill to reduce the carrying value of the assets of the operations in Poland to their estimated fair value. Revenues for the operations in Poland were $2.2 million, $7.4 million and $9.9 million for the years ended November 30, 2000, 1999, and 1998, respectively. (10) Lawsuit Settlement During the period from May 14, 1996 through July 22, 1996, four separate purported class action lawsuits were filed in the United States District Court, Northern District of Texas, Dallas Division, against the Company, certain of the Company's current and former officers, directors and employees, and the Company's independent auditors. The four lawsuits were consolidated, and the State of Wisconsin Investment Board was appointed lead plaintiff in the consolidated action. On November 19, 1998, the Company entered into a Stipulation of Settlement that resolved all claims pending in the suit. The settlement was approved by the Court on January 25, 1999, and all remaining claims were dismissed. F-16 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (11) Restructuring Charge As part of the Company's strategy to streamline its organizational structure, beginning in the second quarter of 1999 the Company reorganized and consolidated the management of the Company's Latin American and North American Regions and centralized the management in the Company's Asia-Pacific Region. As a result, the consolidated statement of operations for the year ended November 30, 1999, includes a charge of $3.6 million related to the reorganization. Of the total costs, $0.8 million consisted of non-cash outlays and the remaining $2.8 million consisted of cash outlays, which were paid in full by November 30, 2000. The components of the restructuring charge were as follows (in thousands): Employee termination costs $ 2,373 Write-down of assets 760 Other 506 ------- $ 3,639 ======= (12) Gain on Sale of Assets The Company recorded a gain of $6.2 million for the year ended November 30, 2000, associated with the sale of the following (in thousands): Brazil joint venture $ 6,048 Poland operations 152 ------- $ 6,200 ======= The Company recorded a gain of $8.8 million for the year ended November 30, 1999 associated with the sale of the following (in thousands): Prepaid operations in Venezuela $ 5,197 Retail stores in the United States 2,911 Other 666 ------- $ 8,774 ======= (13) 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. As a result of the curtailment, the Company experienced a reduction in revenues for the U.K. operations after the first quarter of 2000 compared to 1999. 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. F-17 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 in relation to these losses, if any, cannot be determined at this time. (14) Brazil Since 1998, the Company's Brazil operations were primarily conducted through a majority-owned joint venture. Following a 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, in the second quarter of 2000 the Company elected to exit the Brazil market. On August 25, 2000, the Company completed the divestiture of its 51% ownership in the joint venture to its joint venture partner, Fontana Business Corp. Following is a summary of the operations related to Brazil (amounts in thousands):
Year ended November 30, ------------------------------------- 2000 1999 1998 ----------- ---------- --------- Revenues $ 40,602 193,756 99,877 Cost of sales 41,567 178,829 95,927 ----------- ---------- --------- Gross profit (loss) (965) 14,927 3,950 Selling, general and administrative expenses 10,038 10,255 7,081 ----------- ---------- --------- Operating income (loss) (11,003) 4,672 (3,131) ----------- ---------- --------- Other income (expense): Gain on sale of assets 6,047 - - Interest expense (3,474) (5,098) (2,448) Other, net - (2,249) 801 ----------- ---------- --------- Total other income (expense) 2,573 (7,347) (1,647) ----------- ---------- --------- Loss before income taxes $ (8,430) (2,675) (4,778) =========== ========== =========
The Company recognized a pre-tax gain on sale of $6.0 million in conjunction with the disposition of its 51% interest in the joint venture in the third quarter of 2000. The Company had a negative carrying value in its 51% interest in the joint venture as a result of losses previously recognized. In the disposition, the Company obtained promissory notes totaling $8.5 million related to the Company's funding of certain U.S. letters of credit supporting Brazilian debt obligations. These promissory notes are fully reserved and will remain reserved pending receipt of payments by the Company. F-18 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) During the quarter ended May 31, 2000, the Company also fully reserved certain U.S.-based accounts receivable from Brazilian importers, the collectibility of which deteriorated significantly in the second quarter of 2000 and which were further affected by the decision, in the second quarter, to exit Brazil. (15) Venezuela During the quarter ended August 31, 2000, the Company decided, based upon the current and expected future economic and political climate in Venezuela, to divest its operations in Venezuela. For the quarter ended August 31, 2000, the Company recorded an impairment charge of $4.9 million to reduce the carrying value of certain Venezuela assets, primarily goodwill, to their estimated fair value. The Company subsequently sold its operations in Venezuela in December at approximately carrying value. Following is a summary of the Venezuela operations (amounts in thousands):
Year ended November 30, ------------------------------------- 2000 1999 1998 ----------- ---------- --------- Revenues $ 36,639 77,077 51,607 Cost of sales 35,342 67,995 41,341 ----------- ---------- --------- Gross profit 1,297 9,082 10,266 Selling, general and administrative expenses 8,630 4,212 5,016 Impairment of assets 4,930 - - ----------- ---------- --------- Operating income (loss) (12,263) 4,870 5,250 ----------- ---------- --------- Other income (expense): Gain on sale of assets - 5,197 - Interest expense (8) (14) (10) Other, net (1,039) (593) (200) ----------- ---------- --------- Total other income (expense) (1,047) 4,590 (210) ----------- ---------- --------- Income (loss) before income taxes $(13,310) 9,460 5,040 =========== ========== =========
(16) 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. Revenues for the redistributor business for Miami and the North American Region for the years ended November 30, 2000, 1999 and 1998, were $57.4 million, $158.6 million and $344.4 million, respectively. (17) Inventory Obsolescence Expense and Bad Debt Expense Inventory obsolescence expense of $32.3 million, $23.0 million and $12.4 million for the years ended November 30, 2000, 1999 and 1998, respectively, is included in cost of goods sold in the accompanying consolidated statements of operations. F-19 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Bad debt expense of $51.5 million, $10.4 million and $13.6 million for the years ended November 30, 2000, 1999 and 1998 respectively, is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. (18) Concentration of Credit Risk and Major Customer Information Pacific Bell Mobile Services, a North American Region customer, accounted for approximately 10% of revenues or $194.6 million of revenues for the year ended November 30, 1998. No customer accounted for 10% or more of consolidated revenues in the years ended November 30, 2000 and 1999. (19) Segment and Related Information The Company operates predominantly within one industry, wholesale and retail sales of wireless telecommunications products. The Company's management evaluates operations primarily on income before interest and income taxes in the following reportable geographic regions: Asia-Pacific, Latin America, which includes Mexico and the Company's Miami, Florida operations ("Miami"), Europe and North America, primarily the United States. Revenues and operations of Miami are included in Latin America since Miami's activities are primarily for export to South American countries, either by the Company or through its exporter customers. The Corporate segment includes headquarters operations, income and expenses not allocated to reportable segments, and interest expense on the Company's Facility and Notes. Corporate segment assets primarily consist of cash, cash equivalents and deferred income tax assets. The accounting policies of the reportable segments are the same as those described in note (1). Intersegment sales and transfers are not significant. Segment information for the years ended November 30, 2000, 1999 and 1998 follows (in thousands):
Asia- Latin North Pacific America America Europe Corporate Total ------------- ---------- ---------------------- ---------- --------- November 30, 2000: Revenues from external customers $1,024,762 636,354 499,171 315,395 - 2,475,682 Impairment of assets - 11,365 974 - - 12,339 Operating income (loss) 7,770 (38,724) (10,882) 2,263 (24,813) (64,386) Equity in income (loss) of affiliated companies, net (1,805) - - - - (1,805) Income (loss) before interest and income taxes 6,361 (31,623) (18,478) 2,450 (22,528) (63,818) Total assets 289,677 256,907 170,532 56,824 82,889 856,829 Depreciation, amortization and impairment of assets 1,905 14,492 3,661 810 2,703 23,571 Capital expenditures 1,256 2,052 1,309 452 392 5,461 November 30, 1999: Revenues from external customers $ 769,412 717,273 377,129 469,991 - 2,333,805 Impairment of assets - - - 5,480 - 5,480 Restructuring charge 1,277 - 2,302 - 60 3,639 Operating income (loss) 41,537 31,580 17,529 5,506 (23,454) 72,698 Equity in income (loss) of affiliated companies, net (18) - 31,951 - - 31,933 Income (loss) before interest and income taxes 41,102 31,013 48,555 5,433 (18,455) 107,648 Total assets 240,523 261,618 126,208 56,536 21,553 706,438 Depreciation, amortization and impairment of assets 1,869 2,564 3,683 6,426 2,369 16,911 Capital expenditures (1) 1,028 3,522 3,072 877 - 8,499 November 30, 1998: Revenues from external customers $ 513,869 705,624 472,837 303,520 - 1,995,850 Lawsuit settlement - - - - 7,577 7,577 Operating income (loss) 38,727 28,541 527 5,226 (24,570) 48,451 Equity in income (loss) of affiliated companies, net 768 - (29,216) - - (28,448) Income (loss) before interest and income taxes 37,804 27,959 (28,437) 6,482 (25,337) 18,471 Total assets 235,147 319,944 152,004 54,659 13,771 775,525 Depreciation and amortization 2,012 3,742 3,197 670 1,805 11,426 Capital expenditures (1) 968 5,922 5,082 526 - 12,498
- ------------------ (1) Prior to 2000, Corporate segment property and equipment was reported in North America. F-20 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A reconciliation from the segment information to the income (loss) before income taxes included in the consolidated statements of operations for the years ended November 30, 2000, 1999, and 1998 follows (in thousands):
2000 1999 1998 ----------- ---------- ----------- Income (loss) before interest and income taxes per segment information $ (63,818) 107,648 18,471 Interest expense per the consoldiated statements of operations (19,113) (19,027) (14,446) Interest income included in other, net in the consolidated statements of operations 4,759 3,881 2,921 ----------- ---------- ----------- Income (loss) before income taxes per the consolidated statements of operations $ (78,172) 92,502 6,946 =========== ========== ===========
Geographical information for the years ended November 30, 2000, 1999 and 1998, follows (in thousands):
2000 1999 1998 ------------------------- --------------------------- ------------------------------- Long-lived Long-lived Long-lived Revenues Assets Revenues Assets Revenues Assets ------------ ---------- ------------ ----------- -------------- -------------- United States $ 578,262 15,257 531,328 19,538 834,521 25,448 People's Republic of China, which includes Hong Kong 725,409 6,591 528,572 3,296 404,883 1,797 United Kingdom 163,797 637 341,090 798 209,439 372 Mexico 383,256 3,038 228,959 2,469 144,178 1,572 All other countries 624,958 5,664 703,856 8,998 402,829 5,769 ------------ ---------- ------------ ----------- -------------- -------------- $ 2,475,682 31,187 $ 2,333,805 35,099 1,995,850 34,958 ============ ========== ============ =========== ============== ==============
For purposes of the geographical information above, the Company's Miami operations are included in the United States. Revenues are attributed to individual countries based on the location of the originating transaction. (20) Acquisitions In August 1999, the Company acquired the business and certain net assets of Montana Telecommunications Group B.V. in The Netherlands in a transaction accounted for as a purchase. The purchase price was $2.3 million, which resulted in $1.0 million of goodwill with an estimated life of 20 years. Additional payments based on future operating results of the business over the four year period subsequent to acquisition may be paid in cash. The Company acquired three companies during 1998: (i) TA Intercall AB (Sweden), January 1998; (ii) Digicom Spoka zo.o. (Poland), March 1998; and (iii) ACC del Peru (Peru), May 1998. Each of these transactions was accounted for as a purchase. The aggregate of the original purchase prices was $18.2 million, which resulted in $18.1 million of goodwill with an estimated life of 20 years. Additional payments based on operating results of Sweden for the three years subsequent to acquisition may be paid either in cash or common stock at the Company's option. In 2000, $4.0 million of additional goodwill was recorded for Sweden based upon the estimated payment amount. The consolidated financial statements include the operating results of each business from the date of acquisition. The impact of these acquisitions was not material in relation the Company's consolidated financial position or results of operations. F-21 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (21) Stockholders' Equity (a) Common Stock Warrant and Options At November 30, 1998, the Company had outstanding a warrant exercisable for 1.3 million restricted shares of its common stock at $4.60 per share. In December 1998, the warrant holder and the Company amended the warrant agreement to remove the restriction on the resale of the common stock issuable on exercise of the warrant and to pay the exercise price in shares of common stock. The holder subsequently exercised the warrant and was issued 0.6 million shares of common stock. The Company has a stock option plan (the "Plan") covering 11.15 million shares of its common stock. Options under the Plan expire ten years from the date of grant unless earlier terminated due to the death, disability, retirement or other termination of service of the optionee. Options have vesting schedules ranging from 100% on the first anniversary of the date of grant to 25% per year commencing on the first anniversary of the date of grant. The exercise price is equal to the fair market value of the common stock on the date of grant. The Company also has a stock option plan for non-employee directors ("Directors' Option Plan"). The Directors' Option Plan provides that each non- employee director of the Company as of the date the Directors' Option Plan was adopted and each person who thereafter becomes a non-employee director should automatically be granted an option to purchase 7,500 shares of common stock. The exercise price is equal to the fair market value of the common stock on the date of grant. A total of 150,000 shares of common stock are authorized for issuance pursuant to the Directors' Option Plan. Each option granted under the Directors' Option Plan becomes exercisable six months after its date of grant and expires ten years from the date of grant unless earlier terminated due to the death, disability, retirement or other termination of service of the optionee. Non-employee directors also receive an annual grant of an option for 5,000 shares of Company common stock under the Plan. Such options vest over a four year period and have an exercise price equal to the fair market value of the Company's common stock as of market close on the date of grant. The per share weighted-average fair value of stock options granted during the years ended November 30, 2000, 1999 and 1998, was $5.85, $4.45 and $6.375, respectively, on the date of grant using the Black-Scholes option- pricing model with the following weighted-average assumptions:
2000 1999 1998 ----------- ----------- ----------- Dividend yield 0.00% 0.00 0.00 Volatility 88.00 81.00 83.00 Risk-free interest rate 6.50 5.10 5.40 Expected term of options (in years) 3.4 3.4 3.2
The Company applies Opinion 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net income (loss) would have been the pro forma amounts below for the years ended November 30, 2000, 1999 and 1998 (in thousands, except per share amounts): F-22 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2000 1999 1998 ------------ ------------ ------------ Net income (loss) as reported $ (59,411) 69,087 14,364 Diluted net income (loss) per share as reported (0.99) 1.12 0.24 Pro forma net income (loss) (62,433) 67,605 10,136 Pro forma diluted net income (loss) per share (1.04) 1.11 0.17
Stock option activity during the years ended November 30, 2000, 1999 and 1998, is as follows:
2000 1999 1998 ---------------------- ---------------------- ------------------------ Weighted- Weighted- Weighted- Average Average Average Number Exercise Number Exercise Number Exercise of shares Prices of shares Prices of shares Prices --------- ---------- ---------- --------- ----------- ---------- Granted 1,513,695 $ 9.553 1,487,450 $ 8.057 2,095,458 $ 11.491 Exercised 85,125 4.654 532,878 5.545 464,378 7.110 Forfeited 1,019,851 9.559 1,369,012 9.444 1,075,062 19.680 Outstanding, end of year 4,684,307 8.782 4,275,588 8.617 4,690,028 8.704 Exercisable, end of year 2,189,689 8.121 1,929,149 7.829 1,417,757 6.531 Reserved for future grants under the Plan 5,057,532 Reserved for future grants under the Directors' Option Plan 90,000
For options outstanding and exercisable as of November 30, 2000, the exercise prices and remaining lives were:
Average Average Average Number Remaining Life Exercise Number Exercise Range of Exercise Prices Outstanding (in years) Prices Exercisable Prices - -------------------------- -------------------- ------------------------- -------------- ---------------- ------------------ $2.2500 - 6.4060 1,172,500 5.6 $ 5.9034 968,125 $ 6.1077 $6.4380 - 8.3750 1,199,502 7.4 $ 7.6997 573,252 $ 7.4166 $8.6700 - 9.8750 1,216,679 9.1 $ 9.8433 11,250 $ 8.6700 $10.3130 - 19.880 1,095,626 7.2 $ 11.8705 637,062 $ 11.8041 -------------------- ---------------- 4,684,307 7.3 $ 8.7824 2,189,689 $ 8.1208 ==================== ================
F-23 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (b) Stockholder Rights Plan The Company has a Stockholder Rights Plan, which provides that the holders of the Company's common stock receive one-third of a right ("Right") for each share of the Company's common stock they own. Each Right entitles the holder to buy one one-thousandth of a share of Series A Preferred Stock, par value $.01 per share, at a purchase price of $80.00, subject to adjustment. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15% or more of the outstanding shares of common stock of the Company. Under those circumstances, the holders of Rights would be entitled to buy shares of the Company's common stock or stock of an acquirer of the Company at a 50% discount. The Rights expire on January 9, 2007, unless earlier redeemed by the Company. (22) Commitments and Contingencies (a) Litigation During the period from May 1999 through July 1999, seven purported class action lawsuits were filed in the United States District Court for the Southern District of Florida, styled as follows: (1) Elfie Echavarri v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (2) Mark Krug v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (3) Jewell Wright v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (4) Theodore Weiss v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (5) Tony LaBella v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (6) Thomas E. Petrone v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (7) Adele Brody v. CellStar Corporation, Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins. Each of the above lawsuits sought certification as a class action to represent those persons who purchased the publicly traded securities of the Company during the period from March 19, 1998 to September 21, 1998. Each of these lawsuits alleges that the Company issued a series of materially false and misleading statements concerning the Company's results of operations and the Company's investment in Topp, resulting in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, and Rule 10b-5 promulgated thereunder. The Court entered an order on September 26, 1999 consolidating the above lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel. The lead plaintiffs filed a consolidated complaint on November 8, 1999. The Company filed a Motion to Dismiss the consolidated complaint, and the Court granted that motion on August 3, 2000. The plaintiffs filed a Second Amended and Consolidated Complaint on September 1, 2000, essentially re-alleging the violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder. The Company filed a Motion to Dismiss plaintiffs' Second Amended and Consolidated Complaint on November 2, 2000, 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 Second Amended and Consolidated Complaint. The Company intends to vigorously defend the consolidated action if its Motion to Dismiss is denied. The Company is also a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these matters should not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. (b) SEC Investigation On August 3, 1998, the Company announced that the Securities and Exchange Commission is conducting an investigation of the Company relating to its compliance with Federal securities laws. The Company believes that it has fully complied with all securities laws and regulations and is cooperating with the Commission in its investigation. F-24 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (c) Financial Guarantee The Company has guaranteed up to MYR 5.9 million (Malaysian ringgits), or $1.5 million as of November 30, 2000, for bank borrowings of Amtel. In addition, the Company has guaranteed certain accounts payable of Amtel at November 30, 2000. The Company is not guaranteeing future debt or accounts payables of Amtel. As of January 31, 2001, the aggregate bank borrowings and accounts payable of Amtel guaranteed by the Company was approximately $2.5 million. (d) 401(k) Savings Plan The Company established a savings plan for employees in 1994. Employees are eligible to participate if they were full-time employees as of July 1, 1994, or on completing 90 days of service. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. Under provisions of the plan, eligible employees are allowed to contribute as much as 15% of their compensation, up to the annual maximum allowed by the Internal Revenue Service. The Company may make a discretionary matching contribution based on the Company's profitability. The Company made contributions of approximately $0.2 million to the plan in 2000 and $0.3 million to the plan in each of 1999 and 1998. (e) Foreign Currency Contracts The Company uses foreign currency forward contracts to reduce exposure to exchange rate risks primarily associated with transactions in the regular course of the Company's international operations. The forward contracts establish the exchange rates at which the Company should purchase or sell the contracted amount of local currencies for specified foreign currencies at a future date. The Company uses forward contracts, which are short-term in nature (45 days to one year), and receives or pays the difference between the contracted forward rate and the exchange rate at the settlement date. 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. The contractual amount of the Company's forward exchange contracts at November 30, 2000, was $18.7 million. F-25 CELLSTAR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) (In thousands, except per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter ------------- ------------ ----------- ------------- 2000 Revenues $589,859 561,370 629,793 694,660 Gross profit 48,283 7,426 24,193 37,126 Net income 9,446 (39,679) (a) (13,319) (b) (15,859) (c) Net income per share: Basic 0.16 (0.66) (0.22) (0.26) Diluted 0.16 (0.66) (0.22) (0.26) 1999 Revenues $515,348 570,325 560,222 687,910 Gross profit 43,639 49,058 47,706 53,027 Net income (loss) 15,591 (d) 13,969 (e) 14,998 24,529 (f) Net income (loss) per share: Basic 0.26 0.23 0.25 0.41 Diluted 0.26 0.23 0.25 0.39
(a) In the second quarter of 2000, the Company's operations were affected by significant declines in gross profit due to competitive margin pressures and by increases in bad debt expense related to the redistributor business and Brazil related receivables. (b) In the third quarter of 2000, the Company's operations were affected by charges related to its decision to exit its Venezuela operations and the gain on the divestiture of its 51% interest in the Brazil joint venture. (c) In the fourth quarter of 2000, the Company's operations were affected by accounts receivable reserves for accounts whose businesses have been adversely affected by competitive market conditions in Asia and the United States, and a non-cash goodwill impairment charge for its Peru operations. (d) In the first quarter of 1999, the Company's operations were affected by the gain on the sale of part of its equity and debt investment in Topp, a gain associated with the sale of all its retail stores in the Dallas-Fort Worth area, and a loss on the conversion of a U.S. dollar denominated loan into Brazilian reals. (e) In the second quarter of 1999, the Company's operations were affected by the restructuring charge associated with the reorganization and consolidation of the management for the Company's Latin American and North American Regions as well as the centralization of the management in the Asia-Pacific Region and the sale of its prepaid operation in Venezuela and retail stores in the Kansas City area. (f) In the fourth quarter of 1999, the Company's operations were affected by the gain on the sale of the remaining debt and equity interest in Topp and a charge to reduce the carrying value of CellStar Poland Sp. zo.o. F-26 CELLSTAR CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended November 30, 2000, 1999 and 1998 (in thousands)
Balance at Charged to Charged to Deductions, Balance at beginning of costs and activation net of end of period expenses income (a) recoveries period ------------------- ------------------ ----------- ----------- -------- Allowance for doubtful accounts: November 30, 2000 $ 33,152 51,533 103 (8,978) 75,810 November 30, 1999 33,361 10,392 1,251 (11,852) 33,152 November 30, 1998 23,857 13,639 481 (4,616) 33,361 Reserve for inventory obsolescence November 30, 2000 $ 14,868 32,255 - (27,811) 19,312 November 30, 1999 12,082 23,012 - (20,226) 14,868 November 30, 1998 2,795 12,434 - (3,147) 12,082
(a) The Company, under agent agreements, earns activation commissions from wireless service providers on engaging subscribers for wireless handset services in connection with the Company's retail operations. The agent agreements also provide for the reduction or elimination of activation commissions if the subscribers deactivate service within a stipulated period. The Company reduces activation income for increases in the allowance for estimated deactivations. S-1 EX-10.26 2 0002.txt CONSENT, RATIFICATION AND CONFIRMATION EXHIBIT 10.26 CONSENT, RATIFICATION AND CONFIRMATION -------------------------------------- This CONSENT, RATIFICATION AND CONFIRMATION (this "Ratification") is made ------------ as of the 2nd day of August, 1999 by each of the undersigned (collectively, the "Companies"; individually, a "Company"), for the benefit of each of the banks or --------- ------- other lending institutions which is or may from time to time become a signatory to the Credit Agreement (as defined herein) or any successor or permitted assignee thereof (each a "Bank" and, collectively, the "Banks"), THE FIRST ---- ----- NATIONAL BANK OF CHICAGO, as syndication agent (the "Syndication Agent"), ----------------- NATIONAL CITY BANK, as documentation agent (the "Documentation Agent"), CHASE ------------------- BANK OF TEXAS, NATIONAL ASSOCIATION (formerly known as Texas Commerce Bank National Association), as administrative agent for the Banks, as issuer of Letters of Credit (as defined in the Credit Agreement) and as the swing line lender (in such capacity, together with its successors in such capacity, the "Administrative Agent"), and The Chase Manhattan Bank, as alternate currency - --------------------- agent (in such capacity, together with its successors in such capacity, the "Alternate Currency Agent"). - ------------------------- R E C I T A L S: --------------- WHEREAS, CellStar Corporation, a Delaware corporation (the "Borrower"), the -------- Banks, The First National Bank of Chicago and National City Bank, as co-agents, and Administrative Agent previously entered into that certain Credit Agreement dated as of October 15, 1997 (as the same has been amended, supplemented or modified from time to time, the "Credit Agreement"); ---------------- WHEREAS, in connection with the Credit Agreement, each Company executed and delivered to the Administrative Agent and the Banks certain agreements, documents and instruments more specifically described on Schedule A attached ---------- hereto (the "Existing Loan Documents"); ----------------------- WHEREAS, the Borrower has requested that the Syndication Agent, the Documentation Agent, the Banks, the Administrative Agent and the Alternate Currency Agent enter into that certain Amended and Restated Credit Agreement dated as of August 2, 1999 (the "New Credit Agreement"), in amendment and -------------------- restatement of the Credit Agreement; and WHEREAS, the Banks, the Syndication Agent, the Documentation Agent, the Administrative Agent and the Alternate Currency Agent have conditioned their acceptance of their respective obligations under the New Credit Agreement and related documents on the execution of this Ratification by each Company; NOW, THEREFORE, for and in consideration of the premises herein contained, and for other good and valuable consideration, the receipt and sufficiently of which are hereby acknowledged and confessed, each Company agrees as follows: A G R E E M E N T S: ------------------- 1. Capitalized times used but not otherwise defined herein shall have the meanings assigned to such terms in the New Credit Agreement. -1- 2. Each Company (a) consents and agrees to the terms of the New Credit Agreement, (b) affirms that nothing contained in the New Credit Agreement shall affect or impair in any respect whatsoever its obligations under the Existing Loan Documents, and (c) agrees that the Existing Loan Documents remain in full force and effect and shall continue to be the legal, valid and binding obligations of the respective Companies, enforceable against the respective Companies in accordance with their respective terms. 3. Each Company hereby acknowledges and agrees, and the Existing Loan Documents are hereby amended as follows: (a) Each reference in the Existing Loan Documents to the Credit Agreement shall mean the New Credit Agreement. (b) Each reference in the Existing Loan Documents to the "Obligations," as defined in the Credit Agreement, shall mean the "Obligations" as defined in the New Credit Agreement. (c) Each reference in the Existing Loan Documents to the "Notes" shall mean the Notes executed pursuant to the New Credit Agreement and all renewals, extensions and modifications thereof. (d) Each reference in the Existing Loan Documents (i) to "The First National Bank of Chicago and National City Bank, as co-agents" shall mean "The First National Bank of Chicago, as Syndication Agent, National City Bank, as Documentation Agent, and The Chase Manhattan Bank, as Alternate Currency Agent," (ii) to "the Co-Agents" shall mean "the Syndication Agent, the Documentation Agent and the Alternate Currency Agent," and (iii) to "any Co-Agent" shall mean "the Syndication Agent, the Documentation Agent, or the Alternate Currency Agent." (e) Each reference in the Existing Loan Documents to "Texas Commerce Bank National Association" shall mean "Chase Bank of Texas, National Association." (f) Each Company acknowledges and agrees that the liens, security interests and assignments created and evidenced by the Existing Loan Documents, as the same have been or may be amended, supplemented, modified or restated, are legal, valid, binding and enforceable liens, security interests and assignments of the respective dignity and priority recited therein and all such liens, security interests and assignments are hereby ratified and shall continue as security for the obligations described therein and secured thereby, including without limitation the indebtedness evidenced by the Notes executed pursuant to the New Credit Agreement. 4. Each Company hereby acknowledges, agrees, and represents that it has no and there are no claims or offsets against, or defenses or counterclaims to, the terms and provisions of any Existing Loan Documents, the obligations secured thereby or the obligations of the Companies thereunder, and to the extent any such claims, offsets, defenses or counterclaims exist, each Company hereby waives, and hereby releases the Administrative Agent, the Syndication Agent, the -2- Documentation Agent, the Alternate Currency 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 such Company of the circumstances and effects of such waiver and release and after having consulted legal counsel with respect thereto. 5. The representations and warranties of each Company contained in the Existing Loan Documents are true and correct representations of such Company on and as of the date hereof as though made on and as the date hereof. 6. Each Company represents to the Administrative Agent, the Syndication Agent, the Documentation Agent, the Alternate Currency Agent and the Banks that such Company is not in default under the terms of any Existing Loan Documents or any other agreement and that no event has occurred which, with the passage of time, giving of notice, or both, would constitute a default under the terms of any Existing Loan Documents. Each Company further represents that it is in compliance in all material respects with all covenants and agreements contained in the Existing Loan Documents. 7. THIS RATIFICATION SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. 8. This Ratification may be executed and delivered in any number of counterparts, and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY BLANK] -3- EXECUTED as of the 2nd day of August, 1999. COMPANIES: --------- CELLSTAR CORPORATION By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ NATIONAL AUTO CENTER, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ CELLSTAR, LTD. By: National Auto Center, Inc., its general partner By: /s/ RICHARD M. GOZIA ------------------------------- Name: Richard M. Gozia -------------------------- Title: President ------------------------- CELLSTAR FULFILLMENT, LTD. By: CellStar Fulfillment, Inc., its general partner By: /s/ RICHARD M. GOZIA ------------------------------- Name: Richard M. Gozia -------------------------- Title: President ------------------------- -4- CELLSTAR WEST, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ CELLSTAR AIR SERVICES, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ A & S AIR SERVICE, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ CELLSTAR INTERNATIONAL CORPORATION/SA By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ AUDIOMEX EXPORT CORP. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ -5- CELLSTAR INTERNATIONAL CORPORATION/ASIA By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ CELLSTAR FULFILLMENT, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ NAC HOLDINGS, INC. By: /s/ ELAINE FLUD RODRIGUEZ ------------------------------------ Name: Elaine Flud Rodriguez ------------------------------- Title: President ------------------------------ ACC-CELLSTAR, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ CELLSTAR FINANCO, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ -6- CELLSTAR TELECOM, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ FLORIDA PROPERTIES, INC. By: /s/ RICHARD M. GOZIA ------------------------------------ Name: Richard M. Gozia ------------------------------- Title: President ------------------------------ CELLSTAR GLOBAL SATELLITE SERVICE, LTD. By: National Auto Center, Inc., its general partner By: /s/ RICHARD M. GOZIA ------------------------------- Name: Richard M. Gozia -------------------------- Title: President ------------------------- -7- SCHEDULE A Existing Loan Documents ----------------------- 1. Guaranty dated as of October 15, 1997, executed by National Auto Center, Inc., CellStar, Ltd., CellStar Fulfillment, Ltd., CellStar West, Inc., ACC- CellStar, Inc., CellStar Financo, Inc., CellStar Fulfillment, Inc., NAC Holdings, Inc., CellStar International Corporation/Asia, Audiomex Export Corporation, CellStar International Corporation/SA, CellStar Air Services, Inc., and A & S Air Service, Inc. (collectively, the "Original -------- Guarantors"). ---------- 2. Borrower Security Agreement dated as of October 15, 1997, executed by the Borrower. 3. Guarantor Security Agreement dated as of October 15, 1997, executed by the Original Guarantors. 4. Pledge Agreement dated as of October 15, 1997, executed by the Borrower. 5. Pledge Agreement dated as of October 15, 1997, executed by National Auto Center, Inc. 6. Pledge Agreement dated as of October 15, 1997, executed by CellStar Air Services, Inc. 7. Pledge Agreement dated as of October 15, 1997, executed by CellStar International Corporation/SA. 8. Pledge Agreement dated as of October 15, 1997, executed by CellStar Fulfillment, Inc. 9. Pledge Agreement dated as of October 15, 1997, executed by NAC Holdings, Inc. 10. Pledge Agreement dated as of October 15, 1997, executed by Audiomex Export Corp. 11. Pledge Agreement dated as of October 15, 1997, executed by CellStar International Corporation/Asia. 12. Security Interest Assignment of Patents dated as of October 15, 1997, executed by CellStar, Ltd., recorded on November 26, 1997 on Reel 8815, Frame 0446 with the United States Patent and Trademark Office. 13. Security Interest Assignment of Copyrights dated as of October 15, 1997, executed by CellStar, Ltd. 14. Security Interest Assignment of Trademarks dated as of October 15, 1997, executed by CellStar, Ltd., recorded on November 26, 1997 on Reel 1659, Frame 0200 with the United States Patent and Trademark Office. 15. Guaranty dated as of July 10, 1998 executed by CellStar Telecom, Inc., Florida Properties, Inc. and CellStar Global Satellite Service, Ltd. (collectively, the "New Guarantors"). -------------- 16. Contribution and Indemnification Agreement dated as of July 10, 1998 by and among the Borrower, the Original Guarantors and the New Guarantors. 17. Guarantor Security Agreement dated as of July 10, 1998, executed by the New Guarantors. 18. Pledge Agreement dated as of July 10, 1998, executed by the Borrower. 19. Pledge Agreement dated as of July 10, 1998, executed by CellStar Telecom, Inc. 20. Pledge Agreement dated as of July 10, 1998, executed by NAC Holdings, Inc. 21. Pledge Agreement dated as of July 10, 1998, executed by National Auto Center, Inc. EX-10.29 3 0003.txt DISTRIBUTION AGREEMENT DATED APRIL 15, 2000 EXHIBIT 10.29 THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]." [MOTOROLA LOGO] [LATIN AMERICAN GROUP LOGO] DISTRIBUTION AGREEMENT ENTERED INTO BY AND BETWEEN MOTOROLA, INC. BY AND THROUGH ITS PERSONAL COMMUNICATIONS SECTOR LATIN AMERICA GROUP AND CELLSTAR, LTD. APRIL 15, 2000 MOTOROLA CONFIDENTIAL PROPRIETARY INDEX OF CLAUSES 1. APPOINTMENT AS EXPORT DISTRIBUTOR.............................. 1 2. TERM OF THIS AGREEMENT......................................... 2 3. PARTY RELATIONSHIP............................................. 2 4. DISTRIBUTOR RESPONSIBILITIES................................... 2 5. PURCHASE OF PRODUCTS........................................... 2 6. PAYMENT AND DELIVERY........................................... 3 7. PRICE PROTECTION............................................... 4 8. NO TRANSSHIPMENT............................................... 4 9. VALUE ADDED SERVICES........................................... 5 10. CATEGORY A. PROGRAMMING AND KITTING SERVICES................... 5 11. CATEGORY B. KEY DISTRIBUTOR SUPPORT SERVICES................... 7 12. CATEGORY C. VIRTUAL WAREHOUSE SERVICES......................... 8 13. CATEGORY D. BONDED WAREHOUSE SERVICES.......................... 8 14. WARRANTY....................................................... 9 15. PATENT AND COPYRIGHT INDEMNIFICATION........................... 9 16. DISCLAIMER OF INTELLECTUAL PROPERTY LICENSE.................... 9 17. TAXES AND FEES................................................. 10 18. LIMITATION OF LIABILITY........................................ 10 19. FORCE MAJEURE.................................................. 10 20. WAIVER......................................................... 10 21. TERMINATION.................................................... 10 22. GOVERNMENT SALES............................................... 11 23. DISPUTE RESOLUTION............................................. 12 24. EXPORT CONTROL................................................. 12 25. COMPLIANCE WITH LAW............................................ 12 26. ETHICAL STANDARDS.............................................. 12 27. CONFIDENTIALITY................................................ 13 28. GENERAL........................................................ 13 ATTACHMENT 1 - AUTHORIZED TERRITORY................................... 16 ATTACHMENT 2 - PRODUCTS............................................... 19 ATTACHMENTS 3. PROGRAMMING AND KITTING SERVICES....................... 20 ATTACHMENT 3A. AMOUNT TO BE CREDITED TO DISTRIBUTORFOR PROGRAMMING AND KITTING SERVICES.................................... 20 ATTACHMENT 3B. LOANED SOFTWARE, EQUIPMENT AND DOCUMENTS............... 22 ATTACHMENT 4. KEY DISTRIBUTORS........................................ 23 ATTACHMENT 5A STATEMENT OF LIMITED WARRANTY FOR CELLULAR TELEPHONES AND ACCOMPANYING ACCESSORIES............................. 25 ATTACHMENT 5B - STATEMENT OF LIMITED WARRANTY FOR ACCESSORIES PROGRAM................................................. 28 MOTOROLA CONFIDENTIAL PROPRIETARY DISTRIBUTION AGREEMENT THIS DISTRIBUTION AGREEMENT (this "Agreement") is entered into between MOTOROLA, INC., a corporation duly organized and existing under the laws of the State of Delaware, by and through its Personal Communications Sector, Latin America Group, having a place of business at 600 North U.S. Highway 45, Libertyville, Illinois 60048-1286, U.S.A. (hereinafter "Motorola"), and CellStar Ltd., a company duly organized and existing under the laws of the State of Texas, having its principal place of business at 2101 N.W. 82nd Avenue, Miami, Florida 33122 (hereinafter "Distributor"), effective as of April 15, 2000 ("Effective Date"). WHEREAS, Motorola manufactures communications equipment including, among others, cellular telephones, two-way radios and messaging products and distributes them directly to its customers and also through independent distributors; WHEREAS, Motorola sells its communications equipment and accessories throughout the world, including the country of Mexico and the regions of Central America, South America and the Caribbean; WHEREAS, Motorola wishes to continue selling its communications equipment and accessories directly and also through independent distributors to customers in Mexico, Central America, South America and the Caribbean, but Motorola also wishes to expand its distribution system in Mexico, Central America, South America and the Caribbean to include Distributor as a distributor; and WHEREAS, Distributor wishes to become a distributor of the Motorola communications equipment and accessories set forth in this Agreement in Mexico, Central America, South America and the Caribbean. NOW THEREFORE, the parties hereto hereby agree as follows: 1. APPOINTMENT AS EXPORT DISTRIBUTOR a. Subject to the terms of this Agreement, Motorola hereby appoints Distributor, and Distributor hereby accepts the appointment, as an authorized non-exclusive distributor of models of the Motorola cellular telephone equipment, Motorola two-way radios, Motorola messaging products and Motorola accessories listed in Attachment 1 hereto (the "Products"). Distributor is authorized to purchase Products directly from Motorola or from whom Motorola designates from time to time pursuant to purchase orders entered into in connection with this Agreement and resell such Products solely within and into the territory of Mexico, Central America, South America and the Caribbean that is described in Attachment 2 hereto (hereafter referred to as the "Territory"). Motorola may, from time to time and at its absolute discretion modify the list of Products or the Territory. From time to time, Motorola will provide price lists to Distributor for the Products which Distributor is authorized to distribute in the Territory. b. Distributor acknowledges and agrees that Motorola reserves the right to limit distribution of certain Motorola cellular telephone product lines to distributors who satisfy Motorola's qualification criteria for distribution of such product lines. Distributor hereby consents to the application of such criteria to its distribution in the Territory of Products purchased in connection with this Agreement. c. Distributor acknowledges and agrees that Motorola reserves the right to appoint other distributors within or for the Territory and that Motorola may, at its sole and unrestricted discretion, chose to use other agents, dealers, distributors, representatives and independent contractors, as well as its regularly employed sales force and that of its subsidiaries or affiliated companies, to promote the sale of Products within the Territory. d. Distributor acknowledges and agrees that Motorola reserves the right to restrict the distribution of specific models of Products to specific areas and/or customers within the Territory and Distributor agrees to limit its distribution of such models accordingly. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 2 - -------------------------------------------------------------------------------- e. In the event that a direct sale between Motorola, as the seller, and a third party located within the Territory as the buyer, takes place as a direct and immediate result of Distributor's efforts to promote such sale, Motorola may elect to compensate Distributor for its efforts by paying a commission calculated in accordance with and subject to terms and conditions of a separate written agreement between the parties. 2. TERM OF THIS AGREEMENT The term of this Agreement shall commence on the Effective Date and shall continue for one year, unless terminated as permitted herein. At the end of the one-year term, this Agreement shall automatically renew for successive periods of one-year unless within thirty (30) days prior to any such scheduled renewal date one party notifies the other party that it will not renew this Agreement. The number of renewals notwithstanding, this Agreement is and shall always be interpreted as a fixed term agreement and not as an indefinite term agreement. 3. PARTY RELATIONSHIP It is agreed that Distributor's relationship to Motorola is that of an independent contractor and no other relationship is intended to be created between the parties hereto. Nothing in this Agreement shall be construed so as to make Distributor or its employees or agents an employee of Motorola or an agent with the power to bind Motorola contractually. Distributor shall have no authority to bind, obligate or incur any liability on behalf of Motorola. This Agreement does not create any agency, joint venture or partnership between Distributor and Motorola. 4. DISTRIBUTOR RESPONSIBILITIES In distributing Products Distributor shall perform the following services: a. Export the Products from the U.S. to the Territory. b. Sell, advertise and promote the sale and use of Products throughout the Territory. c. Maintain a sales organization adequate to effectively promote and market the Products in the Territory. d. Purchase the Products from Motorola in the manner described in Section 5. e. Furnish to Motorola information relating to orders, sales, service and inventory of Products and Product sales budgets and forecasts in such manner as Motorola may require. f. Furnish Motorola, upon Motorola's request, detailed market analyses and reports with respect to the Territory. g. Perform the value added services in the manner described in Section 9. 5. PURCHASE OF PRODUCTS a. Under the terms and conditions of this Agreement, Distributor agrees to purchase at its own risk and for its own account, Products to be resold in the Territory, solely from Motorola's Personal Communications Sector, Latin America Group or any other supplier approved by the Latin America MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 3 - -------------------------------------------------------------------------------- Group. Distributor shall submit to Motorola for its acceptance purchase orders listing the model, quantity, shipment date, and price of the Products requested. Distributor may also include in the purchase order any of the programming specifications Motorola has for Latin America as Distributor may require. All other terms and conditions on Distributor's purchase order form are hereby rendered null, void, and of no effect, by the terms and conditions of this Agreement. b. Prices stated on Distributor's purchase orders shall conform to Motorola's then current price list, copies of which will be made available to Distributor. c. Motorola reserves the right in its sole discretion to accept or reject any order for Products received from Distributor without any further liability, including without limitation for the failure of Distributor to satisfy Motorola's distribution qualification requirements for distribution of the requested Product. No purchase order is binding on Motorola until accepted. A purchase order is accepted by Motorola when Product is shipped or when acceptance is acknowledged in writing by a duly authorized officer or employee of Motorola, whichever occurs first. d. Distributor shall submit firm processable purchase orders no less than thirty (30) days prior to the requested shipment date, unless otherwise agreed to by Motorola. e. Distributor may cancel orders placed in accordance with the terms and conditions of this Agreement upon payment of cancellation charges which shall include all costs incurred or committed for unless such costs are otherwise recoverable through the sale of the Product on a timely basis. Motorola agrees to divert completed material and work-in-process from canceled orders to other requirements wherever possible in order to minimize cancellation charges. f. Distributor shall provide Motorola on a monthly basis, not less than thirty (30) days prior to the start of the next month, a continuous usage forecast for the next six (6) calendar months (the "Forecast") to assist Motorola in maintaining an orderly production flow for the purpose of Distributors delivery requirements. Distributor shall indicate the Product model number and project purchase volume by units for each month of the Forecast. Distributor's failure to provide such information may be considered cause for Motorola's excusable delivery delay. 6. PAYMENT AND DELIVERY a. Unless otherwise approved in writing by Motorola, Distributor must pay for Products at any of the Motorola's bank accounts listed below, in U.S. currency by wire transfer within the thirty (30) days following the date of the invoice, which date shall be the same date of the shipment of the Products, from Motorola's manufacturing facility, corresponding to said invoice. The following is Motorola's banks information: Bank One One First National Plaza Chicago, IL 60670 Motorola Account Number 57-51-551 ABA 071000013 Citibank 399 Park Avenue New York, NY 10022 Motorola Account Number 4057-1086 ABA 021000089 MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 4 - -------------------------------------------------------------------------------- b. All deliveries are FCA the applicable Motorola manufacturing facility in the U.S.A., as defined in INCOTERMS 2000. Title to the Products sold shall pass to Distributor at the FCA point. c. If Distributor should fail to pay any invoice for Products in accordance with its terms, or in the event that Motorola, in its sole discretion deems Distributor's financial condition inadequate or unsatisfactory, then in addition to its other rights herein, Motorola may repossess the unpaid Products, cancel any previously accepted purchase order for Products, or delay any further shipment of Products to Distributor, without incurring any liability for loss or damage of any kind occasioned by reason of any such cancellation or delay. Furthermore, such failure to pay may be deemed, at Motorola's option, a justified cause for termination of this Agreement. 7. PRICE PROTECTION a. During the term of this Agreement, if Motorola reduces the price of a particular model of Product, then Motorola will credit Distributor's account an amount equal to the difference between the old and the new net purchase price (in each case, invoice price less rebate and any promotional amounts) multiplied by the number of such Product units purchased from Motorola which were shipped within thirty five (35) days prior to the new price effective date ("Eligible Products"). Eligible Products shall not include any close out products. Such amount will be credited within fifteen (15) days after the new price effective date, to apply to future orders of Products. 8. NO TRANSSHIPMENT a. Distributor agrees to limit its distribution of the Products purchased hereunder to direct sale by Distributor to customers located in the Territory. Distributor may sell Products only from its address written above or such other location as is expressly authorized by Motorola. b. Distributor may not transship, sell or otherwise transfer Products purchased hereunder outside the Territory. Distributor shall incorporate this limitation into all of its agreements for the resale of Products purchased hereunder and Distributor shall enforce this restriction. c. Sales within the Territory without transshipment is a material condition to Distributor's rights under this Agreement, and it is agreed that any direct or indirect transfer, transshipment and/or sale of Products outside the Territory by Distributor or others purchasing through Distributor shall be a material breach of this Agreement and will result in substantial damage to Motorola which will be difficult to quantify. Accordingly, the parties agree that for every Motorola cellular telephone with electronic serial number traceable to purchases by Distributor from Motorola hereunder that is resold outside the Territory, Distributor will be subject, at Motorola's discretion, to pay Motorola as liquidated damages two times the FCA price per unit. d. In the event of any transshipment Motorola may immediately terminate this Agreement for cause; or Motorola may reject some or all purchase orders from Distributor for any model or models of Product and/or Motorola may cancel some or all purchase orders previously accepted, until Distributor can demonstrate that it has instituted policies and procedures to prevent any such occurrences in the future. The foregoing are in addition to, and not in lieu of, the remedies that Motorola has at law or in equity. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 5 - -------------------------------------------------------------------------------- 9. VALUE ADDED SERVICES a. From time to time, Motorola may request Distributor to render on the Products sold any and/or all services encompassed in any of the four major categories listed below, that are described in the clauses below: Category A. Programming and Kitting Services. Category B. Key Distributor Support Services. Category C. Virtual Warehouse Services. Category D. Bonded Warehouse Services b. Motorola will request the rendering of the services via a Service Order that will contain (i) the category of services requested and (ii) any specifics of the services required, if necessary. c. Payment for each category of services will be made pursuant to the terms established in each case. d. The services shall be rendered on a non-exclusive basis. Motorola may request the services to be rendered by any other service provider Motorola chooses to use. e. Motorola and Distributor shall work together to create a Monthly Key Distributor Forecast. The Monthly Key Distributor Forecast shall be ready 90 (ninety) days prior to the beginning of the corresponding month. f. Distributor shall carry a minimum 30 (thirty)-day inventory of each models of Products as forecasted in the corresponding Monthly Key Distributor Forecast or, 50 units in the event there is no forecast for the corresponding month. Purchase orders for Products included in the forecast shall be placed by Distributor to Motorola 30 (thirty) days prior to the beginning of the corresponding month. In the event that Distributors' sales of Products in a month is lower than the sales forecasted in the Monthly Key Distributor Forecast for that month, the purchase orders placed by Distributor with Motorola for the immediate following month shall be reduced in the same amount, without charge to Distributor. g. Motorola may give Distributor, at the request of Distributor, a written estimate of the percentage each Products model represents of the total sales for Latin America. h. In the event Motorola's manufacturing production is not enough to supply all purchase orders of its customers including those of Distributor, Motorola agrees to at least allocate some of the Products manufacture to Distributor, as long as such allocation does not violate any prior agreements entered into by Motorola or any applicable laws. 10. CATEGORY A. PROGRAMMING AND KITTING SERVICES a. For purposes of this Agreement, Programming and Kitting Services shall mean the services described in Attachment 3 hereto. b. In the event that Programming and Kitting Services need to be rendered for the Products sold to Distributor, Motorola will credit on Distributor's account with Motorola, the amount per unit set forth in Attachment 3-A hereto, within the 30 days following Distributors notice to Motorola that the services have been completed. c. If the Programming and Kitting Services need to be rendered for products other than those sold to Distributor, Distributor shall invoice Motorola the amount per unit set forth in Attachment 3A hereto and Motorola shall pay such invoice within the 30 days following the date of the invoice. d. The amount to be credited to Distributor's account for the services set forth in Attachment 3A may be revised quarterly if requested by either party. The Parties agree that any request for review shall be based in changes to the process, time or costs. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 6 - -------------------------------------------------------------------------------- e. Motorola shall: e.1. Provide Distributor with programming software and customer data necessary to perform the programming. Distributor shall treat these as Motorola Confidential Proprietary Information. e.2. Lend to Distributor the Equipment, Software and Documents set forth in Attachment 313, to enable Distributor to perform the Programming services, which Equipment, Software and Documents are Motorola Confidential Proprietary Information. e.3. Hereby grant to Distributor a revocable, personal, non-exclusive, nontransferable license to use the Software, and to use the Equipment and Documents under any intellectual property rights during the term of this Agreement and only for purposes of programming those Motorola cellular products requested by Motorola to be programmed pursuant to the conditions and limitations of this Agreement. e.4. Provide, at no cost to Distributor, the first two (2) sets of Motorola kits, cables and software commercially available. d.5. Provide, at no cost to Distributor, new product training and technical help desk support to Distributor. e.6. Provide, at no cost to Distributor, customer specific kit materials. f. Distributor shall: f.1. Procure any commercially available equipment, software and cables necessary to perform the Programming services. f.2. Keep the Equipment, Software and Documents set forth in Attachment 3B in its facility in Florida. f.3. Allow Motorola to conduct an audit of any Equipment, Software or Documents loaned to Distributor. f.4. Return the Equipment, Software and Documents to Motorola upon termination of this Agreement. f.5. Acquire and maintain equipment, including a computer, modem and any required software (i.e. internet, electronic mail, etc.), to enable communication with Motorola computers and access to Motorola databases. f.6. Not change any restrictive programming feature, which may prevent a customer from changing service providers in any Motorola product handled by Distributor for programming. f.7. Accept that Motorola shall not be responsible for support or field service under this Agreement. Any provision of such maintenance by Motorola shall be by separate agreement on Motorola's then current terms and conditions therefor, and at Motorola's then current prevailing rates for such maintenance. f.8. ACCEPTS ALL THE EQUIPMENT, SOFTWARE AND DOCUMENTS "AS IS" AND AGREES THAT MOTOROLA EXTENDS NO WARRANTIES EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 7 - -------------------------------------------------------------------------------- FITNESS FOR A PARTICULAR PURPOSE. MOTOROLA WILL PROVIDE NO INDEMNITY FOR INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT. 11. CATEGORY B. KEY DISTRIBUTOR SUPPORT SERVICES a. The Parties agree that Distributor will sell Products to Motorola's Key Distributors pursuant to the terms set forth in this Section. For purposes of this Agreement, Key Distributors shall mean those Motorola customers listed in Attachment 4 hereto. The Parties further agree that Attachment 4 may be revised and amended by Motorola from time to time by giving written notice to Distributor of such amendments. Distributor agrees to support the new Key Distributors within twenty-four (24) hours of receipt of such notice. b. Distributor shall give the priority Motorola indicates to the fulfillment of purchase orders submitted by Key Distributors over any other purchase orders, except for those submitted by Motorola pursuant to this agreement. However, in the event Distributor does not have enough inventory to supply all purchase orders submitted by Key Distributors, Distributor shall consult with Motorola as to the best manner in which to allocate the available inventory among the Key Distributors. c. Distributor agrees to sell the Products to Key Distributors at a price that will be no higher than Distributor's "A" pricing scheme, regardless of the volume purchased by Key Distributors, so long as: (1) the Products have the same or substantially similar (but not necessarily identical) features, functionality, size and weight as Products sold under Distributor's "A" pricing scheme; and (2) the terms and conditions of Distributor's sales of Products to Key Distributors are substantially similar to the terms and conditions of Distributor's sales of Products to its other customers under Distributor's "A" pricing scheme. d. If Key distributors request Programming Services from Distributor, Distributor agrees to give priority to the programming of Key Distributor's products over any other programming services requested from Distributor by other customers, except for those requested by Motorola; provided, however, that Key Distributors accept the terms and conditions of Distributor for the rendering of those services.. e. In rendering Key Distributor Support Services, Distributor agrees to mapped customer territories as coordinated by Motorola's regional general managers. Distributor also agrees to follow Motorola regional suggested Service price ranges for distributors and retailers. f. All information received by distributor with respect to Key Distributor's business information obtained in the course of rendering Key Distributor Support Services shall be treated by Distributor as Motorola Confidential Proprietary Information. g. Distributor agrees to give Key Distributors price protection in the same terms and conditions set forth in Clause 7. hereof. h. Distributor shall maintain a minimum of 30 (thirty) days inventory or 50 pieces, whichever is more for each current Product model. i. Motorola may request Distributor to render the services set forth in attachment 4A for Radiomovil DIPSA, S.A. de C.V.'s Amigo Kit program. Distributor shall render such services directly or through its subsidiary in Mexico Cellular Express, S.A. de C.V. as Distributor may deem most convenient. Motorola shall pay Distributor for these services the amount set forth in Attachment 4A. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 8 - -------------------------------------------------------------------------------- 12. CATEGORY C. VIRTUAL WAREHOUSE SERVICES a. Contingency Inventory for Motorola. Motorola may, from time to time, submit to Distributor purchase orders for products Distributor may have in inventory. In such event, Distributor agrees to give priority to Motorola's purchase. All purchase orders submitted by Motorola shall specify where and how the product will be shipped. All packing materials and packing lists shall omit any reference to Distributor. The Parties agree that the price Motorola shall pay Distributor for the products purchased pursuant to this Section 12.a. shall be the lower of Distributor's "A" price or the net sale price given to Distributor by Motorola plus six percent (6%). Distributor shall invoice Motorola for the products purchase and Motorola shall pay Distributor within 30 days from the date of the invoice by wire transfer or account credit, as instructed by Distributor. b. Service for a Motorola Strategic Account. Motorola may, from time to time, request Distributor to supply product to some of Motorola's Strategic Accounts. In the event the products to be sold to Motorola Strategic Accounts require any Programming or Kitting Services, Motorola will pay for such services pursuant to the terms and conditions set forth in Section 10 hereof. For purposes of this Section 12, Motorola Strategic Account shall mean those accounts to mediation of distributors or resellers. c. Web-based Services. Distributor agrees to help those customers, distributors and/or resellers of Motorola products in Latin America identified from time to time by Motorola, to develop web-based services to support their sales. Distributor's obligations under this Section shall be subject to acceptance by such customers, distributors and re-sellers of Distributor's terms and conditions. 13. CATEGORY D. BONDED WAREHOUSE SERVICES a. The Parties agree that, if requested by Motorola, Distributor shall provide bonded warehouse services for receiving, storing, performing Programming and Kitting and other Services on products manufactured for or by Motorola outside of the United States of America, without those products having to be formally imported into the United States. b. Motorola and Distributor shall agree on a total service fee that Motorola will pay Distributor for Bonded Warehouse Services. In the event no agreement is reached for a total service fee, Motorola will pay Distributor pursuant to the following: b.1. The amount for the fixed cost for the facility (such as rent, utilities, facility capital equipment depreciation) corresponding to the cubic-foot storage volume used by Motorola in such facility; plus b.2. The amount for shipping/receiving and handling variable costs calculated by the number of shipments received/shipped per month by Motorola. b.3. The amounts corresponding to Programming and/or Kitting Services shall be calculated and paid pursuant to Section 11 hereof. b.4. The amounts referred to in Sections b. 1. and b.2. above shall be invoiced by Distributor to Motorola. Motorola shall pay on a monthly basis no later than on the fifth business day of each month. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 9 - -------------------------------------------------------------------------------- 14. WARRANTY If Motorola has sold to Distributor a cellular telephone with its accompanying accessories, then Motorola warrants that Product to the original subscriber buyer of such phone in accordance with the Limited Warranty attached to this Agreement as Attachment 5A. If Motorola has sold to Distributor an accessory (separate from the original cellular telephone), then Motorola warrants that Product to the original subscriber buyer of such accessory in accordance with the Limited Warranty attached to this Agreement as Attachment 5B. Motorola in its sole discretion may revise these warranties, and any such revision shall be applicable to units shipped by Motorola on or after the effective date of the revision. MOTOROLA MAKES NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED. EXCEPT AS OTHERWISE PROVIDED IN THE LIMITED WARRANTIES, MOTOROLA SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 15. PATENT AND COPYRIGHT INDEMNIFICATION a. Motorola agrees to defend, at its expense, any suits against Distributor and third parties purchasing Motorola products from Distributor based upon a claim that any Products furnished hereunder directly infringes a patent or copyright legally recognized and enforceable within the Territory. Subject to the conditions and limitations of liability stated in this Agreement, Motorola shall pay costs and damages finally awarded in any such suit, provided that Motorola is notified promptly in writing of the suit and at Motorola's request and at its expense is given control of said suit and all requested assistance for defense of same. If the use or sale of any Product(s) furnished hereunder is enjoined as a result of such suit, Motorola at its option and at no expense to Distributor, shall obtain for Distributor the right to use or sell said product(s) or shall substitute an equivalent product reasonably acceptable to Distributor and extend this indemnity thereto or shall accept the return of the Product(s) and reimburse Distributor the purchase price therefore, less a reasonable charge for reasonable wear and tear. This indemnity does not extend to any suit based upon any infringement or alleged infringement of any patent or copyright by the alteration of any products furnished by Motorola or by the combination of any Products(s) furnished by Motorola and other elements nor does it extend to any products(s) of Distributor's design or formula. The foregoing states the entire liability of Motorola for patent or copyright infringement. b. IN NO EVENT SHALL MOTOROLA BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS, TRADEMARKS OR COPYRIGHTS. 16. DISCLAIMER OF INTELLECTUAL PROPERTY LICENSE a. Nothing contained herein shall be deemed to grant either directly or by implication, estoppel, or otherwise, any license under any patents, copyrights, trademarks or trade secrets of Motorola. b. In order that Motorola may protect its trademarks, trade names, corporate slogans, corporate logo, goodwill and product designations, Distributor, without the express written consent of Motorola, shall have no right to use any such marks, names, slogans or designations of Motorola in the sales or advertising of any Products or on any Product container, component part, business forms, sales, advertising or promotional materials or other business supplies or material, whether in writing, orally or otherwise. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 10 - -------------------------------------------------------------------------------- 17. TAXES AND FEES Distributor shall pay all applicable fees, custom duties, assessments or taxes which may be assessed or levied by the government of any applicable jurisdiction and any departments and subdivision thereof, as a result of Distributor's performance under this Agreement or against any of the Products ordered hereunder by Distributor, on the Software or its license or use, or on any amount payable or nay services furnished under this Agreement, exclusive of personal property taxes assessed on the Software and taxes based on Motorola net income. 18. LIMITATION OF LIABILITY MOTOROLA'S TOTAL LIABILITY, WHETHER FOR BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY IN TORT OR OTHERWISE, IS LIMITED TO THE PRICE OF THE PARTICULAR PRODUCTS SOLD HEREUNDER WITH RESPECT TO WHICH LOSSES OR DAMAGES ARE CLAIMED. DISTRIBUTOR'S SOLE REMEDY IS TO REQUEST MOTOROLA AT MOTOROLA'S OPTION TO EITHER REFUND THE PURCHASE PRICE, REPAIR OR REPLACE PRODUCT(S) THAT ARE NOT AS WARRANTED. IN NO EVENT WILL MOTOROLA BE LIABLE FOR ANY LOSS OF USE, LOSS OF TIME, INCONVENIENCE, COMMERCIAL LOSS, LOST PROFITS OR SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES TO THE FULL EXTENT SUCH MAY BE DISCLAIMED BY LAW. NO ACTION SHALL BE BROUGHT FOR ANY BREACH OF THIS AGREEMENT MORE THAN ONE (1) YEAR AFTER THE ACCRUAL OF SUCH CAUSE OF ACTION EXCEPT FOR MONEY DUE. 19. FORCE MAJEURE Neither party shall be held liable for any delay or failure to perform due to any cause beyond its reasonable control except the obligation to pay money when due. The delivery schedule shall be considered extended by a period of time equal to the time lost because of any excusable delay. 20. WAIVER The failure of either party to insist in any one or more instances, upon the performance of any of the terms or conditions herein or to exercise any right hereunder shall not be construed as a waiver or relinquishment of the future performance of any such terms or conditions or the future exercise of such right but the obligation of the other party with respect to such future performance shall continue in full force and effect. 21. TERMINATION a. This Agreement may be terminated by either party without cause upon not less than thirty (30) days prior written notice to the other party. b. Motorola may terminate this Agreement immediately upon the occurrence of any of the following events: (i) a breach of Section 8, 22, 24, 25, 26 or 27; (ii) a change in the control or management of Distributor which is unacceptable to Motorola; (iii) Distributor ceasing to function as a going concern, declaring bankruptcy, having a receiver appointed for it, or otherwise taking advantage of any insolvency law; or (iv) Distributor's failure to cure a breach of this Agreement other than a breach of Section 8, 22, 24, 25, 26 or 27, within thirty (30) days after Motorola's notification to Distributor of such breach. The foregoing events shall, without limitation, be deemed to be just cause for termination by Motorola. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 11 - -------------------------------------------------------------------------------- c. Neither termination nor expiration of this Agreement shall relieve or release either party from making payment which may be owing to the other party under the terms of this Agreement. d. Neither Motorola nor Distributor shall be liable by reason of termination, expiration or non-renewal of this Agreement to the other for compensation, reimbursement or damages on account of the loss of prospective profits on anticipated sales or on account of expenditures, investments, leases or commitments in connection with the business or good will of Motorola or Distributor or otherwise. Distributor represents to Motorola that, as of the date of this Agreement, Distributor had on hand a trained staff of personnel, facilities and equipment necessary to effectively distribute the Products in the Territory and that Distributor has incurred no extra expense in respect of the same upon entering into this Agreement. e. Upon termination of this Agreement Distributor shall return to Motorola all Product catalogues, sales literature, samples, demonstration equipment or other promotional materials. Also, within one (1) month after the date of termination of any license granted under this Agreement, Distributor will certify to Motorola that through Distributor's best efforts, and to the best of Distributor's knowledge, the Equipment, Software and Documents received from Motorola have been returned, and that all Software placed in any storage apparatus under Distributor's control has been rendered unusable. f. Upon termination of this Agreement Motorola shall have the option, but not the obligation, to repurchase all or any part of the remaining inventory of the Products remaining in Distributor's possession at the net price paid to Motorola for such inventory, less Motorola's cost or repairing, renewing or reconditioning such repurchased Products. Said option shall be exercisable upon written notice to Distributor within thirty (30) days following notice of termination of this Agreement. Upon exercise of said option to repurchase, Motorola and Distributor shall at Motorola's option take an inventory of all Products remaining in Distributor's possession. Motorola shall pay Distributor for the inventory of repurchased Products within sixty (60) days after receipt thereof by Motorola. Motorola shall have the right to offset against any Moines payable hereunder any Moines that are due and owing from Distributor to Motorola as of the date any such payment is due. 22. GOVERNMENT SALES In the event that Distributor elects to sell Motorola products or services to the U.S. Government or any foreign, state, county, municipal or other governmental entity, or to a prime contractor selling to any such governmental entity within the Territory, Distributor remains solely and exclusively responsible for compliance with all statutes and regulations governing such sales. Motorola makes no representations, certifications or warranties whatsoever with respect to the ability of its goods, services or prices to satisfy any such statutes or regulations. Failure of Distributor to conduct any sales to such a governmental entity or to such a prime contractor in strict accordance with applicable laws and regulations shall constitute a material breach of this Agreement. 23. DISPUTE RESOLUTION The parties agree that any claims or disputes will be submitted to non- binding mediation prior to initiation of any formal legal process. Costs of mediation will be shared equally. Disputes concerning the relationship between Motorola and Distributor shall be resolved in accordance with the laws of the State of Illinois, U.S.A. and any court actions shall be filed in a state or federal court of competent jurisdiction in the State of Illinois. Distributor hereby consents to exclusive jurisdiction by such courts. Distributor waives personal service of any process upon it and consents that all service of process shall be made by registered mail to it at the address set forth in the introductory paragraph of this Agreement. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 12 - -------------------------------------------------------------------------------- 24. EXPORT CONTROL a. Distributor shall be the exporter of record and shall be responsible for obtaining all export licenses that may be required to export the Products from the U.S. to the Territory. b. Distributor agrees to comply with all applicable export laws, regulations and orders. Specifically, but without limitation, Distributor agrees that it will not resell, reexport or ship, directly or indirectly, any Product or technical data in any form without obtaining appropriate export or reexport or ship, directly or indirectly, any Product or technical data in any form without obtaining appropriate export or reexport licenses from the United States Government. Distributor acknowledges that the applicable export laws, regulations and orders may differ from item to item and/or from time to time. 25. COMPLIANCE WITH LAW Distributor shall at all times conduct its efforts hereunder in strict accordance with all applicable laws and regulations and with the highest commercial standards. Distributor shall effect or secure and maintain at its own cost all necessary governmental permits, licenses, approvals and registrations required in connection with the execution or performance of this Agreement and the importation and resale of the Products in the Territory. Specifically, it shall be Distributors responsibility to confirm that the Products comply with the applicable standards in the Territory for the operation of cellular telephones and to obtain any governmental approvals or licenses needed for such operation. Distributor shall indemnify and hold Motorola harmless for any losses, damages or other liabilities resulting from Distributor 's failure to comply with the provisions of this Section. 26. ETHICAL STANDARDS Motorola has historically depended on product quality and superiority, combined with outstanding support capability, to sell its Products in all parts of the world. Motorola believes it can continue to grow and to prosper without succumbing to legally questionable or unethical demands. Motorola will not do business with any dealer, distributor, agent, customer or any other person where Motorola knows or suspects the existence of questionable practices. Distributor agrees with the Motorola policy stated in this Section and agrees that failure of Distributor or any other person under its responsibility to comply in all respects with said policy shall constitute just cause for immediate termination of this Agreement by Motorola without any liability. 27. CONFIDENTIALITY a. All terms of this Agreement, including any Product pricing information delivered hereunder, are confidential. b. Distributor shall treat as confidential all Motorola business or technical information that Distributor learns in its conversations with Motorola concerning Distributor acting as a distributor of the Products or in performance of its responsibilities hereunder. Such information is collectively referred to as "Motorola Confidential Proprietary Information". The foregoing obligation of confidentiality shall commence on the first date that Motorola discloses to Distributor Motorola Confidential Proprietary Information and continue for a period of three years following termination of this Agreement. Distributor shall protect the confidentiality of Motorola Confidential Proprietary Information disclosed to it, using the same degree of care as Distributor uses to protect its own confidential proprietary MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 13 - -------------------------------------------------------------------------------- information of like kind (but in no event less than a reasonable standard of care). Distributor shall not use any Motorola Confidential/Proprietary Information, except as necessary for performance of its responsibilities hereunder. c. Distributor shall limit disclosure of Motorola Confidential Proprietary Information to only those of its employees, agents and representatives with a need to know for the purposes authorized herein, and who have signed written agreements containing provisions of confidentiality similar to those contained in this Section. d. Distributor shall not disclose any Motorola Confidential Proprietary Information to any third party without Motorola's prior written consent. e. Excluded from the obligations of confidentiality in this Section is information known or that becomes known to the general public without breach by Distributor of this Agreement. f. Upon termination of this Agreement, Distributor shall return to Motorola all copies of Motorola Confidential Proprietary Information in its possession or certify to Motorola in writing that all such copies have been destroyed. Notwithstanding the foregoing, Distributor may retain one copy of the Motorola Confidential Proprietary Information but only for purposes of ensuring that Distributor continues to maintain the confidentiality of the information contained therein for the survival period stated above in Section 27(a). g. In the event that prior to or after execution of this Agreement Distributor and Motorola have entered into or do enter into a separate non-disclosure agreement covering the same Motorola Confidential Proprietary Information, then that separate non-disclosure agreement shall continue to apply for the period stated therein and Section 27 of this Agreement shall also apply for the period herein. h. Distributor further agrees to maintain the confidentiality of the personal identification numbers (PINs) associated with the ACE cards required for access to Motorola Computers by allowing only a single employee of Distributor to possess the PIN number for an ACE card. 28. GENERAL a. No alterations or modifications of this Agreement shall be binding upon either Distributor or Motorola unless made in writing and signed by an authorized representative of each party. b. If any term or condition of this Agreement shall to any extent be held by a court or other tribunal to be invalid, void or unenforceable, then that term or condition shall be inoperative and void insofar as it is in conflict with law, but the remaining rights and obligations of the parties shall be construed and enforced as if this Agreement did not contain the particular term or condition held to be invalid, void or unenforceable. c. No assignment of this Agreement or of any right granted herewith shall be made by Distributor without the prior written consent of Motorola. d. This Agreement shall be governed by the laws of the State of Illinois, U.S.A. e. This Agreement and its attachments set forth the entire understanding between the parties hereto and supersedes all prior agreements, including the Memorandum of Understanding dated March 23, 2000, arrangements and communications, whether oral or written, with respect to the subject matter hereof. No other agreements, representations, warranties or other matters, whether oral or written, shall be deemed to bind the parties hereto with respect to the subject matter hereof. Distributor acknowledges MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 14 - -------------------------------------------------------------------------------- that it is entering into this Agreement solely on the basis of the agreements and representations contained herein. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 15 - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be executed by their duly authorized representatives on the dates under their signatures below. "MOTOROLA" "DISTRIBUTOR" MOTOROLA, INQ., CELLSTAR, LTD By and through its Latin America By National Auto Center, Inc. Personal Communications Sector As General Partner By: /s/ Paulino Barros By: /s/ Danny T. Bogar Name: Paulino Barros Name: Danny T. Bogar Title: Corporate Vice President and Title: Senior Vice President General Manager Date: 6/27/00 Date: 6/23/00 MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 16 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENT 1 - AUTHORIZED TERRITORY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject to the terms and conditions of this Agreement, Distributor is authorized to sell certain Products in the following countries: - -------------------------------------------------------------------------------- 1. MEXICO 2. VENEZUELA 3. PERU 4. BRAZIL 5. CHILE 6. ARGENTINA 7. BAHAMAS 8. BERMUDA 9. CURACAO 10. BARBADOS 11. VIRGIN ISLANDS 12. DOMINICAN REPUBLIC 13. SANTA LUCIA 14. GRENADA 15. ANTIGUA 16. URUGUAY 17. TRINIDAD 18. GUYANA 19. SURINAME 20. ECUADOR 21. COLOMBIA 22. HAITI 23. ARUBA 24. JAMAICA 25. FRENCH GUIANA 26. PUERTO RICO (only those retailers specified in writing by Motorola) 27. BELIZE 28. GUATEMALA 29. EL SALVADOR 30. HONDURAS 31. COSTA RICA 32. NICARGUA 33. PANAMA MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 17 - -------------------------------------------------------------------------------- ATTACHMENT 1 - TERRITORY (Con't) Furthermore, subject to the terms and conditions of this Agreement, Distributor is authorized to sell the Products in Latin America (as defined in this Agreement) to customers therein other than those customers of Motorola that are listed below. This restriction shall not apply to discontinued Products. CTI - Argentina Movicom - Argentina BGH - Argentina Telefonica Argentina - Argentina Telecom Argentina - Argentina OHM - Belize Equitel - Brazil Ligare LTD - Brazil Ezcony - Brazil Telefonica Celular - Bolivia Entel - Bolivia Vitelco - Caribbean Cable & Wireless - Caribbean France Telecom - Caribbean BellSouth Cellular - Chile Chile SaT - Chile Entel Telefonica Personal - Chile Telecom - Chile Cocelco - Colombia Telemovil - El Salvador Comcel - Guatemala Celtel - Honduras All Cellular Band A Operators - Mexico Sago Interamericana, S.A. de C.V. - Mexico Telefonica Celular de Nicaragua - Nicaragua Bell South - Panama Cellular S.A. - Paraguay Telecel - Paraguay Masternet - Peru Advanced Cellular Systems - Puerto Rico Abiatar - Uruguay Antel* - Uruguay* Bright Point de Venezuela, C.A. - Venezuela Telcel, S.A. - Venezuela * (Carrier only - Distributor is authorized to sell to dealers and agents) MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 18 - -------------------------------------------------------------------------------- In addition, Distributor is not authorized to solicit or furnish the Products to any A or B band Carrier in Brazil without prior approval from Motorola. As new cellular systems become operational in Latin America after the Effective Date of this Agreement, Motorola reserves the right to add to the list of exclusions listed above from the authorized Territory any of these new system operators or their distributors. Accordingly, Distributor should seek Motorola's express written approval before making any offers of sale or sales to operators or distributors in these new countries. Likewise, subject to the terms and conditions of this Agreement, Distributor is not authorized to solicit or furnish, directly or indirectly the TalkAbout FRS Radios model 250 in Argentina until after July 16, 2000. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 19 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENT 2 - PRODUCTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Subject to the terms and conditions of this Agreement, Distributor is authorized to sell the Following Products in the Territory - -------------------------------------------------------------------------------- Cellular Telephone Equipment and Accessories Spirit and Family Two-Way Radios* Cordless Telephones *Distributor shall only be authorized to sell these Products in the countries of the Territory where the local government of the corresponding country has authorized a frequency for their use. MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 20 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENTS 3. PROGRAMMING AND KITTING SERVICES - -------------------------------------------------------------------------------- ATTACHMENT 3A. AMOUNT TO BE CREDITED TO DISTRIBUTOR FOR PROGRAMMING AND KITTING SERVICES - -------------------------------------------------------------------------------- 1. Programming Only (Units received packed in sales kit boxes) a. Process: (1) Pick bulk boxes with product from storage (2) Remove product from its original sales kit box (3) Program product (see b. programming info, below) (4) Re-pack in its original sales kit box (must match) (5) Mark/Label box to identify Programming SW Revision Used (6) Pack product in bulk box (7) Mark/Label bulk box to identify lot with Program SW Rev. Used (8) Distribute electronic files to customer (incl. ESN, MIN, Sub-lock info) End--Rest of process is equal to normal product shipping b. Programming info: Power-up screen, IRDB/PRL, SOC/SID, MIN, Sub-locks, etc., provided by Motorola or Customer via database, and specified in P.O. Motorola provides programming software. Max. time expected to program one unit per programming station is 5 minutes per unit. c. Maximum Fee: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] per unit 2. Programming & Kitting (Units received packed in bulk product boxes) a. Process: (1) Pick bulk boxes from storage (product and other sales kit items) (2) Remove product from bulk box (3) Program product (see 1b. programming info, above) (4) Pack sales kit box items (typically: insert, battery, wall charger, literature) (5) Pack product in sales kit box (6) Mark/Label box to identify Programming SW Revision Used (7) Pack product in bulk box (8) Mark/Label bulk box to identify lot with Program SW Rev. Used (9) Distribute electronic files to customer (incl. ESN, MIN, Sublock info) (10) Manage other sales kit item inventory for just-in-time re-stocking End--Rest of process is equal to normal product shipping a. Collateral Material: For Motorola orders, Motorola will provide sales kit boxes, inserts, batteries, wall chargers, and literature to match quantities of phones shipped in bulk - making the b. Maximum Fee: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] per unit 3. Kitting Only a. Process: (1) Pick bulk boxes from storage (product and other sales kit items) (2) Assemble sales kit box items (typically: insert, battery, wall charger, literature) (3) Pack product in sales kit box (4) Label sales kit box (5) Pack product in bulk box (6) Label bulk box to identify lot (7) Distribute electronic files to customer (incl. ESN info) (8) Manage kit inventory for just-in-time re-stocking End--Rest of process is equal to normal product shipping MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 21 - -------------------------------------------------------------------------------- b. Collateral Material: Provided by Motorola or Customer. c. Maximum Fee: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] per unit MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 22 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENT 3B. LOANED SOFTWARE, EQUIPMENT AND DOCUMENTS - -------------------------------------------------------------------------------- For purposes of the Agreement and this Attachment, Equipment shall mean all of the equipment checked below: [ ] 1.2.1 SLN6626A MCEL 2000 [ ] 1.2.2 5113802DO7 MCEL Microprocessor Chip S#___________ [ ] 1.2.3 RTL4228A Portable Slide Adaptor [ ] 1.2.4 SLN6473A DPC Test Fixture [ ] 1.2.5 SKN4625 DPC Test Cable [ ] 1.2.6 SLN9588A Mobile Test Cable [ ] 1.2.7 SKN4659A Ultra Classic 11 Adaptor [ ] 1.2.8 SKN4665A Elite Adaptor [ ] 1.2.9 SLN3577B EMM12 [ ] 1.2.10 ????? EMM12 Dongle S#_______________________ [ ] 1.2.11 XA-CHASS2 Crib20 [ ] 1.2.12 MC68HC05C8P Crib20 Microprocessor Chip S#_________ For purposes of the Agreement and this Attachment, Software shall mean all of the software checked below: [ ] 1.3.1 H.P. 8920 Software Card [ ] 1.3.2 ACE Security card S#______________________________ [ ] 1.3.3 Software utilized within the MCEL 2000 Interface box [ ] 1.3.4 Software utilized within the EMM12 [ ] 1.3.5 Software utilized within the Crib20 [ ] 1.3.6 Software utilized within the Gatesystems For purposes of the Agreement and this Attachment, Documents shall mean of the documents checked below: [ ] 1.4.1 ACT training manuals [ ] 1.4.2 Parts lists [ ] 1.4.3 Any other documentation provided MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 23 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENT 4. KEY DISTRIBUTORS - -------------------------------------------------------------------------------- BrightPoint Latin America Holdings, Inc., Miami, U.S.A BrightPoint Solutions de Mexico S.A. do C.V., Mexico, D.F., Mexico BrightPoint de Puerto Rico, Inc., San Juan, Puerto Rico BrightPoint de Venezuela, C.A., Caracas, Venezuela BrightStar Corp., Inc., Miami, Florida, U.S.A. BrightStar de Venezuela, C.A., Caracas, Venezuela BrightStar CHS Colombia Ltda., Bogota, Colombia BrightStar Bolivia, S.A., La Paz, Bolivia BrightStar Puerto Rico Corp., San Juan, Puerto Rico B&B Group, Inc., Miami, Florida, U.S.A. Marketronics Corp., Ft. Lauderdale, Florida, U.S.A. Micel Wireless Corp., Miami, Florida, U.S.A. Soporte Tecnico Global (STG), S.A., San Jose MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENT 4. SERVICES FOR RADIOMOVIL DIPSA, S.A. DE C.V.'S AMIGO KIT - -------------------------------------------------------------------------------- Receive product from Radiomovil DIPSA, S.A. de C.V. Program telephone numbers in the products Assemble sales kit box items Pack product in sales kit box Label sales kit box Pack product in bulk box Label bulk box to identify lot Distribute electronic files to customer (incl. ESN info) Manage kit inventory for just-in-time re-stocking Fee: ST3000: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] per unit ST6500: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] per unit M3097: [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] per unit Fee also includes: . Transportation: from Mexico City to the 9 Radiomovil DIPSA, S.A. de C.V. regions. . Custody: all the time the equipment is transported within the Mexican territory, it has to be in an armored vehicle with guards to repel any possible assault. . Insurance: to cover any loss during transportation/warehousing MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENT 5-A (Translated from Spanish) - -------------------------------------------------------------------------------- STATEMENT OF LIMITED WARRANTY FOR CELLULAR TELEPHONES AND ACCOMPANYING ACCESSORIES - -------------------------------------------------------------------------------- Through its own Service Centers and/or its Authorized Service Centers, Motorola warrantees for a year this cellular phone and all its parts for any manufacturing defect and malfunctioning, provided that same is used in normal use conditions. The term of one year shall commence on the date on which the cellular phone was acquired. CONDITIONS 1. To make this warranty effective against Motorola, present your equipment with this warranty in the place where it was acquired or in any of Motorola's Authorized Service Centers. If you require additional information, please contact the corresponding Service Center: - -------------------------------------------------------------------------------- COUNTRY ADDRESS TELEPHONE FAX - -------------------------------------------------------------------------------- Brasil Jaguariuna 55-19-847-6042 55-19-847-6050 Sao Paulo - -------------------------------------------------------------------------------- Mexico Blvd. Manuel Avila 52-5-387-0500 52-5-257-6727 Camacho #32 Col. Lomas de Chapultepec Miguel Hidalgo Mexico, D.F. - -------------------------------------------------------------------------------- Colombia Diagonal 127 A 571-615-5759 571-216-2429 No 17-63 Santa Fe de Bogota - -------------------------------------------------------------------------------- Venezuela Ave. Francisco Miranda 582-901-4600 582-901-4700 Centro Lido Torre A, Piso 15 El Rosal 1060 Caracas - -------------------------------------------------------------------------------- Puerto Rico Edificio Telemundo #2 787-641-4100 787-641-4085 Charlton Ave. San Juan - -------------------------------------------------------------------------------- Chile Av. Nueva Tajamar 481 562-338-9075 562-338-9090 Oficina 1702 Torre Norte Las Condes Santiago - -------------------------------------------------------------------------------- Argentina Maipu 1210, 54-11-4317-5351 54-11-4317-5311 Piso 6 Buenos Aires - -------------------------------------------------------------------------------- MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 26 - -------------------------------------------------------------------------------- If the Cellular Telephone had been installed in an car, same shall be taken to a Repair shop or Service Agency, since to evaluate certain problem it may be required to analyze the installation made to the car. The installation of the cellular phone to the car is not covered by this warranty. 2. Motorola Inc. through its own Service Centers and/or its Authorized Service Centers agrees to repair or replace the cellular phone, and all defective parts and components without any cost or charge to the customer. This warranty covers the shipping costs, if any, which are required to make this warranty effective. Motorola Inc. through its own Service Centers and/or its Authorized Service Centers, at its sole discretion, may, without any charge to the customer, repair, replace or reimburse the purchase price of the cellular telephone that results defective during the term of this warranty, provided that the equipment is returned in accordance with the conditions of this warranty, to the Service Centers and/or its Authorized Service Centers. All accessories, parts or equipment of the cellular phone which by virtue of being defective are replaced in compliance of this warranty, shall become Motorola's property. 3. To receive the services of this warranty, present your equipment cellular phone or equipment to any of the any of Motorola's own Service Centers and/or its Authorized Service Centers together with the purchase receipt or equivalent that indicates the acquisition date, series number and/or electronic series number. 4. The repair time shall in no event exceed 30 days starting from the date when the equipment was received by any of the sites where this warranty may be made effective. 5. For the acquisition of parts, accessories and services not covered by this warranty, the customer may use any of the service centers indicated above, or to any of the Authorized Service Centers. 6. This warranty will not be valid if: a. The defects or damages are caused by a not normal use of the product. b. The defects or damages are caused by misuse, accident or negligence. c. The defects or damages are caused from inappropriate testings, operation, maintenance, installation and adjustments, o derived from any alteration or modification of any kind. d. Braking and damages caused in the antennas, unless that same are caused by defects of the materials or manufacturing. e. The cellular phone has been dismantled or repaired in such way that its functioning has been affected or that impedes the proper revision or testing of the product to verify any claim relating to this warranty. f. The cellular phones to which the series number has been erased or is illegible. g. The defects or damages are the caused by spilling of liquids or food. h. When the Cables of the Control Unit have been modified or the modular has been broken. i. All parts which have been exposed to the exterior are damaged by normal use. j. For leather covers. k. The rented cellular phones. l. The product has been altered or repaired by any person not authorized by Motorola. m. The product is not used in accordance the instructions manual. The batteries ("Niquel-Cadmio") are warranted only if their capacity is reduced in a 80% below their capacity or if same have energy wastes. This warranty will not apply to any kind of batteries if: a. The batteries are re-charged by any other charger not authorized by MOTOROLA for such purposes. b. The battery seals has been broken or affected. c. The batteries were used or installed in an equipment different from a Motorola cellular phone. Product: MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 27 - -------------------------------------------------------------------------------- Brand: Motorola Modela: Mechanic series number: Electronic series number: Distributor name: Street and number: Town and city area: Municipality or Delegation: Zip code, state and city: Telephone: Delivery or installation date: MOTOROLA INC. Cellular Subscriber Service Department 600 North U.S. Highway 45 68P09388A16-O Libertyville, IL 60048 5/15/96-SGS MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 28 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ATTACHMENT 5B - STATEMENT OF LIMITED WARRANTY FOR ACCESSORIES PROGRAM (Translated from Spanish) - -------------------------------------------------------------------------------- Motorola's Limited Warranty MOTOROLA INC., through its own Service Centers and/or its Authorized Service Centers, warrantees for a year this cellular phone and all its parts for any manufacturing defect and malfunctioning, provided that same is used in normal use conditions. The term of one year shall commence on the date on which the cellular phone was acquired. General Conditions To make this warranty effective against Motorola, present the product with this warranty in the place where it was acquired or in any of MOTOROLA INC.'s Authorized Service Centers. If you require additional information, please contact our listed Service Center. MOTOROLA INC. through its own Service Centers and/or its Authorized Service Centers, at its sole discretion, may, without any charge to the customer, repair, replace or reimburse the purchase price of the cellular telephone that results defective during the term of this warranty, provided that the equipment is returned in accordance with the conditions of this Warranty. All accessories, parts or equipment of the cellular phone which by virtue of being defective are replaced in compliance of this warranty, shall become MOTOROLA INC. property. This warranty will not be valid if: a. The defects or damages are caused by a not normal use of the product, accident or negligence. b. The defects or damages are caused from inappropriate testings, operation, maintenance, installation and adjustments, o derived from any alteration or modification of any kind, by any person not authorized by MOTOROLA. c. Breaking and damages caused in the antennas, unless that same are caused by defects of the materials or manufacturing. d. The cellular phone has been dismantled or repaired in such way that its functioning has been affected or that impedes the proper revision or testing of the product to verify any claim relating to this warranty. e. The cellular phone to which the series number has been erased or is illegible. f. The defects or damages are the caused by spilling of liquids or food. g. All parts which have been exposed to the exterior have been damaged after the product has been acquired. h. The rented cellular phones. i. The product is not used in accordance the instructions manual. Additional conditions for the batteries The batteries ("Niquel-Cadmio") are warranted only if their capacity is reduced in a 80% below their capacity or if same have energy wastes. This warranty will not apply to any kind of batteries if: a. The batteries are re-charged by any other charger not authorized by MOTOROLA for such purposes. b. Any of the battery seals has been broken or affected. c. The batteries were used or installed in an equipment different from a MOTOROLA cellular phone. For the acquisition of parts, accessories and services not covered by this warranty, the customer may use any of its own Service Centers or to any Authorized Service Centers. Information and Help For additional information, please contact our own Service Centers at: MOTOROLA CONFIDENTIAL PROPRIETARY Master Distribution Agreement CellStar, Ltd. April 15, 2000 Page 29 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- COUNTRY ADRRESS TELEPHONE FAX - -------------------------------------------------------------------------------- Brasil Jaguariuna 55-19-847-6042 55-19-847-6050 Sao Paulo - -------------------------------------------------------------------------------- Mexico Blvd. Manuel Avila 52-5-387-0500 52-5-257-6727 Camacho #32 Col. Lomas de Chapultepec Miguel Hidalgo Mexico, D.F. - -------------------------------------------------------------------------------- Colombia Diagonal 127 A 571-615-5759 571-216-2429 No 17-63 Santa Fe de Bogota - -------------------------------------------------------------------------------- Venezuela Ave. Francisco Miranda 582-901-4600 582-9014700 Centro Lido Torre A, Piso 15 El Rosal 1060 Caracas - -------------------------------------------------------------------------------- Puerto Rico Edificio Telemundo #2 787-6414100 787-6414085 Charlon Ave. San Juan - -------------------------------------------------------------------------------- Chile Av. Nueva Tajamar 481 562-338-9075 562-338-9090 Oficina 1702 Torre Norte Las Condes Santiago - -------------------------------------------------------------------------------- Argentina Maipu 1210, 54-11-4317-5351 54-11-4317-5311 Piso 6 Buenos Aires - -------------------------------------------------------------------------------- MOTOROLA CONFIDENTIAL PROPRIETARY EX-10.31 4 0004.txt 3RD AMDT TO AMENDED & RESTATED CREDIT AGREEMENT Exhibit 10.31 THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ----------------------------- This THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of November 10, 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"), - ----- ------------------- THE CHASE MANHATTAN BANK (successor by merger to Chase Bank of Texas, National Association, formerly known as Texas Commerce Bank National Association), a national banking association ("Chase"), 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"), 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, and as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated as of July 12, 2000 (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 Compliance Certificate. Effective as of the date hereof, each ---------------------- reference to the date "November 22, 2000" appearing in subsection (d) of Section -------------- ------- 9.1 of the Agreement is hereby amended to read "December 22, 2000". - --- 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. 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. -2- ARTICLE V Miscellaneous ------------- 5.1 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties made in this Amendment or any other Loan Document shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Bank or any closing shall affect the representations and warranties or the right of the Administrative Agent or any Bank to rely upon them. 5.2 Reference to Agreement. Each of the Loan Documents, including the ---------------------- Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement shall mean a reference to the Agreement as amended hereby. 5.3 Expenses of the Administrative Agent. Borrower agrees to pay on demand ------------------------------------ all costs and expenses incurred by the Administrative Agent in connection with the preparation, negotiation, and execution of this Amendment and any and all amendments, modifications, and supplements thereto, including without limitation the costs and fees of the Administrative Agent's legal counsel, and all costs and expenses incurred by the Administrative Agent in connection with the enforcement or preservation of any rights under the Agreement, as amended hereby, or any other Loan Document, including without limitation the costs and fees of the Administrative Agent's legal counsel. 5.4 Severability. Any provision of this Amendment held by a court of ------------ competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 5.5 APPLICABLE LAW. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN -------------- THE OTHER LOAN DOCUMENTS, THIS AMENDMENT AND ALL OTHER 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 November 30, 2000, and failure to do so by such date shall constitute an Event of Default under the Agreement. -3- 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 defenses, counterclaims, offsets, cross-complaints, claims or demands of any kind or nature whatsoever to or against the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent, any of the Banks or 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 that neither the Borrower nor any of the Guarantors has any right to seek affirmative relief or damages of any kind or nature from the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent or any of the Banks. To the extent any such defenses, counterclaims, offsets, cross-complaints, claims, demands or rights exist, Borrower and the Guarantors each hereby waives, and hereby knowingly and voluntarily releases and forever discharges the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent, each of the Banks and their respective predecessors, officers, directors, agents, attorneys, employees, successors and assigns, from all possible claims, demands, actions, causes of action, defenses, counterclaims, offsets, cross-complaints, damages, costs, expenses and liabilities whatsoever, 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. Executed as of the date first written above. BORROWER: -------- CELLSTAR CORPORATION By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- -4- AGENTS AND BANKS: ---------------- THE CHASE MANHATTAN BANK (successor by merger to 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/ TIMOTHY A. SMITH ------------------------------------------ Name: Timothy A. Smith ------------------------------------- Title: Vice President ------------------------------------ NATIONAL CITY BANK, as Documentation Agent and as a Bank By: /s/ TOM GURBACH ------------------------------------------ Name: Tom Gurbach ------------------------------------- Title: Vice President ------------------------------------ CREDIT LYONNAIS NEW YORK BRANCH By: /s/ ATTILA KOC ------------------------------------------ Name: Attila Koc ------------------------------------- Title: Sr. Vice President ------------------------------------ -5- 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: Sr. Vice President ------------------------------------ CELLSTAR, LTD. By: National Auto Center, Inc., General Partner By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ CELLSTAR FULFILLMENT, LTD. By: CellStar Fulfillment, Inc., General Partner By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ -6- CELLSTAR FINANCO, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ CELLSTAR FULFILLMENT, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ 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: Sr. Vice President ------------------------------------ AUDIOMEX EXPORT CORP. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ -7- CELLSTAR INTERNATIONAL CORPORATION/SA By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ CELLSTAR AIR SERVICES, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ A & S AIR SERVICE, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ CELLSTAR TELECOM, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ FLORIDA PROPERTIES, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ -8- CELLSTAR GLOBAL SATELLITE SERVICE, LTD. By: National Auto Center, Inc., General Partner By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ -9- EX-10.32 5 0005.txt 4TH AMDT TO AMENDED & RESTATED CREDIT AGREEMENT Exhibit 10.32 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ----------------------------- This FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of December 20, 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"), - ----- ------------------- THE CHASE MANHATTAN BANK (successor by merger to Chase Bank of Texas, National Association, formerly known as Texas Commerce Bank National Association), a New York banking corporation ("Chase"), 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 capacities, together with its successors in such capacities, the "Administrative Agent"), and 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, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated as of July 12, 2000, and as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated as of November 10, 2000 (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 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 referred 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 February 5, 2001, 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, or the Obligations have been refinanced on or before such date, Borrower will furnish to the Agent and each Bank on or before February 5, 2001, a Compliance Certificate showing calculation of the financial covenants as of November 30, 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 or refinancing, and none of the Banks or the Agent have made any representation or warranty regarding any such amendment or refinancing to Borrower or any other Person; 2.2 Dominion of Funds. Effective as of the date hereof, Article IX of the ----------------- ---------- Credit Agreement is hereby amended to add Section 9.13 to the end thereof, which Section 9.13 shall read in its entirety as follows: Section 9.13 Dominion of Funds. (a) On or before February 5, 2001, ----------------- the Borrower will cause the Administrative Agent to be given full dominion over the cash of the Borrower and the Domestic Subsidiaries by means of a lockbox arrangement and other appropriate documentation and arrangements which provide for payment of accounts receivable of the Borrower and the Domestic Subsidiaries by the account debtors to the Administrative Agent for daily application to pay down the outstanding Advances. Without in any way limiting the foregoing, appropriate depository accounts, including without limitation one or more accounts subject to withdrawal by the Administrative Agent only ("Dominion Accounts") and one or more controlled ----------------- disbursement accounts, shall be established with the Administrative Agent and appropriate instructions and other agreements shall be executed with regard to the lockbox arrangement and such accounts maintained with the Administrative Agent. Amounts so paid down may be reborrowed under this Agreement subject to the terms and conditions set forth in this Agreement, as amended in accordance with subsection (c) of this Section, and the -------------- Borrowing Base reports delivered hereunder. For purposes of such dominion of funds arrangements, including daily paydowns and reborrowings, Borrower may be required to deliver Borrowing Base reports on a more frequent basis than is currently required. (b) Without in any way limiting the foregoing, on or before February 5, 2001, the Borrower shall, at its own cost and expense, arrange or cause to be arranged for remittances on all Accounts (as defined in the Borrower Security Agreement and each Guarantor Security Agreement) to be made directly to one or more lockboxes designated by the Administrative Agent in such manner as the Administrative Agent may direct. All remittances on all Accounts processed through such lockbox(es) shall be promptly deposited in one or more Dominion Accounts designated by the Administrative Agent. All remittances and payments that are deposited in accordance with the foregoing will be promptly applied by the Administrative Agent to reduce the outstanding balance of the Advances, subject to the continued accrual of interest on the outstanding Advances to which such remittances and payments are applied for one (1) Business Day (or two Business Days in the case of remittances and payments received after 12:00 noon) and in any event subject to final collection in cash of the item deposited. Subject to the terms and conditions of this Agreement, as amended in accordance with subsection (c) of this -------------- -2- Section, Advances may be made for the purpose of crediting one or more controlled disbursement accounts in amounts sufficient to permit payment of checks, drafts, wire transfer requests and other items issued by Borrower or a Domestic Subsidiary, as applicable, and presented for payment against such accounts, and to pay charge backs or other debits affecting the amounts available in the Dominion Accounts. (c) In connection with establishing the foregoing dominion of funds arrangements, the Borrower, the Administrative Agent and the Banks shall execute and deliver and cause to be executed and delivered, on or before February 5, 2001, such additional amendments to this Credit Agreement and to any other Loan Documents as the Administrative Agent may require and shall execute and deliver and cause to be executed and delivered such other documents and agreements as the Administrative Agent may require. Amendments to this Agreement may include such provisions as may be necessary to provide for Advances to credit any controlled disbursement account, subject to the terms and conditions of this Agreement as amended, and to provide for arrangements between the Administrative Agent and the Banks with respect to making Advances and payments, including periodic settlements. The Borrower shall deliver or cause to be delivered to the Administrative Agent such information as the Administrative Agent may require to establish the dominion of funds arrangements in accordance with this Section and shall cooperate in all respects in the establishment of such dominion of funds arrangements and all related documents and arrangements. 2.3 Companies Interest Coverage Ratio. Effective as of the date hereof, --------------------------------- each reference to the date "October 31, 2000" appearing in Section 11.3 of the ------------ Agreement is hereby amended to read "November 30, 2000." ARTICLE III Conditions Precedent -------------------- 3.1 Conditions. The effectiveness of this Amendment is subject to the ---------- satisfaction of the following conditions precedent: (a) Amendment Fee. Borrower shall have paid to the Administrative ------------- Agent, for the account of each Bank that executes and delivers this Amendment, an amendment fee in an amount equal to the Commitment of each such Bank multiplied by 12.5 basis points. (b) 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. (c) No Default. No Default shall have occurred and be continuing. ---------- (d) 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. (e) 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. -3- 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. -4- 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 January 31, 2001, 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 defenses, counterclaims, offsets, cross-complaints, claims or demands of any kind or nature whatsoever to or against the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent, any of the Banks or 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 that neither the Borrower nor any of the Guarantors has any right to seek affirmative relief or damages of any kind or nature from the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent or any of the Banks. To the extent any such defenses, counterclaims, offsets, cross-complaints, claims, demands or rights exist, Borrower and the Guarantors each hereby waives, and hereby knowingly and voluntarily releases and forever discharges the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent, each of the Banks and their respective predecessors, officers, directors, agents, attorneys, employees, successors and assigns, from all possible claims, demands, actions, causes of action, defenses, counterclaims, offsets, cross-complaints, damages, costs, expenses and liabilities whatsoever, 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 -5- 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. Executed as of the date first written above. BORROWER: -------- CELLSTAR CORPORATION By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ AGENTS AND BANKS: ---------------- THE CHASE MANHATTAN BANK (successor by merger to 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/ KATHY TURNER ------------------------------------------ Name: Kathy Turner ------------------------------------- Title: Vice President ------------------------------------ -6- NATIONAL CITY BANK, as Documentation Agent and as a Bank By: /s/ TOM GURBACH ------------------------------------------ Name: Tom Gurbach ------------------------------------- Title: Vice President ------------------------------------ CREDIT LYONNAIS NEW YORK BRANCH By: /s/ ATTILA KOC ------------------------------------------ Name: Attila Koc ------------------------------------- Title: Sr. Vice President ------------------------------------ WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION (formerly known as Wells Fargo Bank (Texas), National Association) By: /s/ SCOTT J. MANOOKIN ------------------------------------------ Name: Scott J. Manookin ------------------------------------- Title: Vice President ------------------------------------ Each of the undersigned Guarantors hereby (a) consents and agrees to this Amendment, and (b) agrees that its Guaranty shall continue to be the legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms. NATIONAL AUTO CENTER, INC. By: /s/ AUSTIN P. YOUNG ------------------------------------------ Name: Austin P. Young ------------------------------------- Title: Sr. Vice President ------------------------------------ -7- CELLSTAR, LTD. By: National Auto Center, Inc., General Partner By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- CELLSTAR FULFILLMENT, LTD. By: CellStar Fulfillment, Inc., General Partner By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- CELLSTAR FINANCO, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- CELLSTAR FULFILLMENT, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- -8- 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: Sr. Vice President ----------------------------------- AUDIOMEX EXPORT CORP. By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- CELLSTAR INTERNATIONAL CORPORATION/SA By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- CELLSTAR AIR SERVICES, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- -9- A & S AIR SERVICE, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- CELLSTAR TELECOM, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- FLORIDA PROPERTIES, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- CELLSTAR GLOBAL SATELLITE SERVICE, LTD. By: National Auto Center, Inc., General Partner By: /s/ AUSTIN P. YOUNG ----------------------------------------- Name: Austin P. Young ------------------------------------ Title: Sr. Vice President ----------------------------------- -10- EX-10.33 6 0006.txt 5TH AMDT TO AMENDED & RESTATED CREDIT AGREEMENT Exhibit 10.33 FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ----------------------------- This FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated as of January 30, 2001, 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"), - ----- ------------------- THE CHASE MANHATTAN BANK (successor by merger to Chase Bank of Texas, National Association, formerly known as Texas Commerce Bank National Association), a New York banking corporation ("Chase"), 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 capacities, together with its successors in such capacities, the "Administrative Agent"), and 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, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated as of July 12, 2000, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated as of November 10, 2000, and as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated as of December 20, 2000 (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 Compliance Certificate. Effective as of the date hereof, each ---------------------- reference to the date "February 5, 2001" appearing in subsection (d) of Section -------------- ------- 9.1 of the Agreement is hereby amended to read "March 2, 2001". - --- 2.2 Dominion of Funds. Effective as of the date hereof, each reference to ----------------- the date "February 5, 2001" appearing in Section 9.13 of the Agreement is hereby amended to read "March 2, 2001". 2.3 Additional Collateral. Effective as of the date hereof, Article IX of --------------------- ---------- the Credit Agreement is hereby amended to add Section 9.14 to the end thereof, which Section 9.14 shall read in its entirety as follows: Section 9.14 Additional Collateral. On or before March 2, 2001, the --------------------- Borrower shall grant or cause to be granted to the Administrative Agent, for the pro rata benefit of the Banks, a first priority Lien on (a) all real and personal property owned by the Borrower or any Guarantor in which a Lien has not been granted previously to the Administrative Agent, including without limitation all real property located in Carrollton, Texas and (b) all stock of each of the Foreign Subsidiaries, provided that in the event Borrower demonstrates to the satisfaction of Agent that the pledge of the stock of any Foreign Subsidiary will result in significant adverse tax consequences to Borrower, the pledge of the voting stock of such Foreign Subsidiary shall be limited to 65% of such voting stock. In connection with the foregoing, on or before March 2, 2001, the Borrower shall execute and deliver or cause to be executed and delivered to the Administrative Agent appropriate security documents and other documents and instruments, all in form and substance satisfactory to the Administrative Agent, as the Administrative Agent in its sole discretion deems necessary or desirable to create, evidence, preserve, and perfect its Liens in such property, and shall deliver or cause to be delivered to the Administrative Agent such information regarding such property as the Administrative Agent in its sole discretion deems necessary or desirable, including without limitation pledge agreements, deeds of trust, mortgages, assignments, Uniform Commercial Code financing statements, original stock certificates, stock transfer powers, legal opinions, corporate and partnership documents and certificates, title commitments, title policies, appraisals, environmental assessments, surveys, flood plain certification, and such other documents and information as the Administrative Agent may require in connection with such property and Liens. 2.4 Financial Covenants. Effective as of the date hereof, each reference ------------------- to the phrase "and as of October 31, 2000" appearing in Article XI of the ---------- Agreement is hereby deleted, and Section 11.4 of the Agreement is hereby amended to read in its entirety as follows: Section 11.4 Minimum Turnover Ratio. The Borrower will maintain or ---------------------- cause to be maintained, as of the end of each fiscal quarter of the Borrower, a ratio of Consolidated Cost of Goods Sold to Consolidated Average Inventory of not less than 6.0 to 1.0. 2.5 Default. Effective as of the date hereof, subsection (c) of Section ------- ------- 12.1 of the Agreement is hereby amended to read in its entirety as follows: - ---- (c) The Borrower or any Obligated Party shall fail to perform, observe, or comply with any of the covenants contained in Article IX ---------- (except Sections 9.1, 9.13 and 9.14) and such failure continues unremedied ------------ ---- ---- for a period of 15 days after the earlier of (i) the giving of notice to -2- the Borrower by the Agent or any Bank of such failure, or (ii) the Borrower's actual knowledge of such failure. 2.6 Advances; Letters of Credit. Except as hereinafter provided, --------------------------- notwithstanding anything to the contrary contained in the Agreement, no Advances will be made and no Letters of Credit will be issued during the period beginning on the date hereof and ending on March 2, 2001, and thereafter Advances and Letters of Credit will be made or issued only if the Compliance Certificate due on March 2, 2001 under Section 9.1(d) of the Agreement and related financial -------------- statements have been delivered to the Agent and each Bank and Borrower is in compliance with all covenants, terms and provisions of this Agreement including without limitation the covenants set forth in Article XI of the Agreement, which ---------- compliance shall be shown in such Compliance Certificate, and otherwise subject to the other terms, conditions and provisions of the Agreement. Notwithstanding the foregoing, if outstanding Advances are paid by Borrower after the date hereof, the amount so paid may be reborrowed and/or one or more Letters of Credit may be issued (subject to the terms, conditions and provisions of the Agreement), provided that the aggregate amount of all Advances and Letters of Credit outstanding during such period shall not at any time exceed the aggregate amount of Advances and Letters of Credit outstanding on the date hereof. ARTICLE III Conditions Precedent -------------------- 3.1 Conditions. The effectiveness of this Amendment is subject to the ---------- satisfaction of the following conditions precedent: (a) Amendment Fee. Borrower shall have paid to the Administrative ------------- Agent, for the account of each Bank that executes and delivers this Amendment, an amendment fee in an amount equal to the Commitment of each such Bank multiplied by 12.5 basis points. (b) 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. (c) No Default. No Default shall have occurred and be continuing. ---------- (d) 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. (e) 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. 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 -3- 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. Borrower acknowledges that the Administrative Agent and the Banks may engage a financial advisor, and Borrower agrees to pay on demand all fees and expenses of such financial advisor. 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 -4- 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 February 15, 2001, 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 defenses, counterclaims, offsets, cross-complaints, claims or demands of any kind or nature whatsoever to or against the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent, any of the Banks or 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 that neither the Borrower nor any of the Guarantors has any right to seek affirmative relief or damages of any kind or nature from the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent or any of the Banks. To the extent any such defenses, counterclaims, offsets, cross-complaints, claims, demands or rights exist, Borrower and the Guarantors each hereby waives, and hereby knowingly and voluntarily releases and forever discharges the Administrative Agent, the Alternate Currency Agent, the Syndication Agent, the Documentation Agent, each of the Banks and their respective predecessors, officers, directors, agents, attorneys, employees, successors and assigns, from all possible claims, demands, actions, causes of action, defenses, counterclaims, offsets, cross-complaints, damages, costs, expenses and liabilities whatsoever, 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. -5- Executed as of the date first written above. BORROWER: -------- CELLSTAR CORPORATION By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- AGENTS AND BANKS: THE CHASE MANHATTAN BANK (successor by merger to Chase Bank of Texas, National Association, formerly known as Texas Commerce Bank National Association), as Administrative Agent and as a Bank By: /s/ R. Alan Green -------------------------------------------- R. Alan Green Vice President BANK ONE, NA (formerly known as The First National Bank of Chicago), as Syndication Agent and as a Bank By: /s/ WILLIAM V. CLIFFORD ----------------------------------------------- Name: William V. Clifford ------------------------------------------ Title: First Vice President ----------------------------------------- NATIONAL CITY BANK, as Documentation Agent and as a Bank By: /s/ TOM GURBACH ----------------------------------------------- Name: Tom Gurbach ------------------------------------------ Title: Vice President ----------------------------------------- -6- CREDIT LYONNAIS NEW YORK BRANCH By: /s/ ATTILA KOC ----------------------------------------------- Name: Attila Koc ------------------------------------------ Title: Sr. Vice President ----------------------------------------- WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION (formerly known as Wells Fargo Bank (Texas), National Association) By: /s/ SCOTT J. MANOOKIN ----------------------------------------------- Name: Scott J. Manookin ------------------------------------------ Title: Vice President ----------------------------------------- Each of the undersigned Guarantors hereby (a) consents and agrees to this Amendment, and (b) agrees that its Guaranty shall continue to be the legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms. NATIONAL AUTO CENTER, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- CELLSTAR, LTD. By: National Auto Center, Inc., General Partner By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- -7- CELLSTAR FULFILLMENT, LTD. By: CellStar Fulfillment, Inc., General Partner By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- CELLSTAR FINANCO, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- CELLSTAR FULFILLMENT, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- 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: Sr. Vice President ----------------------------------------- -8- AUDIOMEX EXPORT CORP. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- CELLSTAR INTERNATIONAL CORPORATION/SA By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- CELLSTAR AIR SERVICES, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- A & S AIR SERVICE, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- CELLSTAR TELECOM, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- -9- FLORIDA PROPERTIES, INC. By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- CELLSTAR GLOBAL SATELLITE SERVICE, LTD. By: National Auto Center, Inc., General Partner By: /s/ AUSTIN P. YOUNG ----------------------------------------------- Name: Austin P. Young ------------------------------------------ Title: Sr. Vice President ----------------------------------------- -10- EX-10.34 7 0007.txt WIRELESS PRODUCTS AGREEMENT EXHIBIT 10.34 [Motorola Logo] THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT WITH "[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]." Personal Communications Sector WIRELESS PRODUCTS AGREEMENT Between: and: Motorola, Inc., Cellular Subscriber CellStar, Ltd. Sector US Markets Division 1730 Briercroft Court 2001 N. Division St. Carrollton, Texas 75006 Harvard, Illinois 60033 Phone: (972) 466-5000 Phone: (815) 884-2288 Fax: (972) 466-5030 Fax: (815) 884-1842 ("Buyer") ("Motorola") EFFECTIVE DATE: November 15, 2000 This Wireless Products Agreement ("Agreement") is entered into between Motorola and Buyer as of the Effective Date shown above. For calendar year 2001 Buyer agrees to purchase and Motorola agrees to sell [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] wireless subscriber units (collectively "Products"), under the terms and conditions set forth in this Agreement, including the following attachments: . Attachment A - Products and Prices . Attachment B - Terms and Conditions . Attachment C - Accessories Terms . Attachment D - Motorola Accounts Buyer also agrees to purchase and Motorola agrees to sell subscriber accessories ("Accessories") during the Initial Term under the terms and conditions set forth in Attachment C. This Agreement constitutes the entire and final expression of agreement between the parties pertaining to the subject matter hereof and supersedes all other communications between the parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives.
MOTOROLA INC. CELLSTAR, Ltd. By National Auto Center, Inc. its General Partner By: /s/ Iain Morris By: /s/ Dale H. Allardyce ------------------------------------- ------------------------------------- Name: Iain Morris Name: Dale H. Allardyce ------------------------------------- ------------------------------------- Title: President and General Manager Title: President and Chief Operating Officer ------------------------------------- ------------------------------------- Date: November 15, 2000 Date: November 15, 2000 ------------------------------------- -------------------------------------
ATTACHMENT A PRODUCTS AND PRICES AS AGREED TO 2 ANALOG PRODUCT
Marketing DP Segment Model List Invoice Name Name Number Pricing RB SP Price 4500 Mobile Attache Mobile 19555GNLS - Ran * * * w/o bat 19552GNLS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Attache Mobile 19554GNAS - Ran * * * w/o bat 19552GNLS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Lunchbox Mobile 19555GNLS - Ran * * * w/o bat 19552GNLS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Lunchbox Mobile 19553GNLS - Ran * * * w/bat 19552GNLS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Soft Pak Mobile 19503GNSB - Ran * * * w/o bat 19563GNLS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Soft Pak Mobile 19562WNSS - Ran * * * w/bat 19552GNLS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Tote Mobile 19502GNMB - Ran * * * Mobile 19550GNMS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Standard Mobile 19551GNMS - Ran * * * Mobile 19550GNMS - Zero - ----------------------------------------------------------------------------- 4900 Mobile Deluxe Mobile 19599GNMD - Ran * * * Mobile - ----------------------------------------------------------------------------- ST#000 3000 80918WNBP - Ran * * (StarTAC) 80919WNBP - Zero - ----------------------------------------------------------------------------- ST3000 3000 81146WNBP - Ran * * * (StarTAC) w/vib 81147WNBP - Zero - ----------------------------------------------------------------------------- ST3000 3000 81140WNBP - Ran * * (StarTAC) 81141WNBP - Zero w/vib & Lilon bat - ------------------------------------------------------------------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 3 TDMA PRODUCT
Marketing DP Segment Model List Invoice Name Name Number Pricing RB SP Price - -------------------------------------------------------------------------------------------- ST7790 HURRICANE 80974STBP - Ran * * * (StarTAC) Standard SB NON- 80977STBP - Zero TARGET / T WEAR 800 - -------------------------------------------------------------------------------------------- ST7790 (StarTAC) HURRICANE 80980STBD - Ran * * Deluxe SB NON- 80981STBD - Zero TARGET / T WEAR 800 - -------------------------------------------------------------------------------------------- ST 7797 (StarTAC) ZEPPO DB 80982STBP - Ran * * * NON- 82144STBP - Zero ST7897 TARGET T WEAR MULTIBAND - -------------------------------------------------------------------------------------------- T8097 (StarTAC) ZEPPO 80508SFBP - Ran * * * KOOL99 80506SFBP - Zero T8197 TALKABOUT - -------------------------------------------------------------------------------------------- P8097 (StarTAC) ZEPPO 80507SFBP - Ran * * * KOOL99 80505SFBP - Zero P8197 TIMEPORT - -------------------------------------------------------------------------------------------- ST7790i (StarTAC) HURRICANE 82153STBP - Ran * * * SB NON- 82159STBP - Zero ST7890 TARGET / 82193STBS - Aux Bat T WEAR 800 - -------------------------------------------------------------------------------------------- T8090 (StarTAC) HURRICANE 80608STBP - Ran * * * KOOL99 80606STBP - Zero T8190 TALKABOUT - -------------------------------------------------------------------------------------------- P8090 (StarTAC) HURRICANE 80607STBP - Ran * * * KOOL99 80605STBP - Zero P8190 TIMEPORT - -------------------------------------------------------------------------------------------- ST7790si HURRICANE 82167STBP - Ran * * * SB NON- 82171STBP - Zero TARGET / - -------------------------------------------------------------------------------------------- T WEAR 800 P8090 SABRE KOOL99 TIMEPORT - -------------------------------------------------------------------------------------------- T8090 SABRE KOOL99 TALKABOUT - -------------------------------------------------------------------------------------------- M3097 TDMA 87993STCE - Ran * * * Multiband Mod 87990STCE - Zero M Series 2.0 - -------------------------------------------------------------------------------------------- M3090 TDMA800 87999STCE - Ran * * * Mod 2.0 87996STCE - Zero M Series - -------------------------------------------------------------------------------------------- T2297 MOD3.0 88213STCE - Ran Blk * * * SHARK 88233STCE - Zero Blk Mod III Series TALKABOUT 88238STCE - Ran Blue 88257STCE - Zero Blue - -------------------------------------------------------------------------------------------- T2290 MOD 3.0 88210STCE - Ran Blk * * * SHARK 88230STCE - Zero Blk Mod III Series TALKABOUT 88236STCE - Ran Blue 88254STCE - Zero Blue - -------------------------------------------------------------------------------------------- V2297 Mod 3.0 88203STCE - Ran Blk * * * SHARK V. 88223STCE - Zero Blk 88228STCE - Ran Putty V2397 Shark 2.0 88247STCE - Zero Putty - --------------------------------------------------------------------------------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 4
Marketing DP Segment Model List Invoice Name Name Number Pricing RB SP Price - -------------------------------------------------------------------------------------------- V2290 Mod 3.0 88200STCE - Ran Blk * * * SHARK V. 88220STCE - Zero Blk V2390 88226STCE - Ran Putty Shark 2.0 88244STCE - Ran Putty - -------------------------------------------------------------------------------------------- Leap II P7397 L Series PANTHER * V8097 V Series PHOENIX 89601GTBE - Ran * 89602GTBE - Zero - -------------------------------------------------------------------------------------------- T3097 MOD4.0 * TARPON Mod IV Series TALKABOUT - -------------------------------------------------------------------------------------------- V3097 MOD4.0 * TARPON V. Mod IV Series - -------------------------------------------------------------------------------------------- T3090 MOD4.0 * TARPON Mod IV Series TALKABOUT - -------------------------------------------------------------------------------------------- P3090 MOD4.0 * TARPON V. Mod IV Series - -------------------------------------------------------------------------------------------- TDMA/GSM Comb. NOT in DP * - -------------------------------------------------------------------------------------------- V., Camelot2 * - -------------------------------------------------------------------------------------------- V., V.SE01 * - -------------------------------------------------------------------------------------------- TP, * Felix Ref (Hobbes) - -------------------------------------------------------------------------------------------- TP, * TPSW01 - -------------------------------------------------------------------------------------------- TA,TA02ht * - --------------------------------------------------------------------------------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 5 CDMA PRODUCT
Marketing DP Segment Model List Invoice Name Name Number Pricing RB SP Price - ------------------------------------------------------------------------------------------- SC3160 Telson 81998GCXB - Gen * * * SC3160 81976GCXB Series - ------------------------------------------------------------------------------------------- ST7860 (StarTAC) Manta/Jaws 80805GJBP - Gen * * * 80816GJBP - ------------------------------------------------------------------------------------------- P8160 (StarTAC) Manta/Jaws 80899GJBP - Gen * * * 80878GJBP - ------------------------------------------------------------------------------------------- T8160 (StarTAC) Manta/Jaws 80898GJBP - Gen * * * 80878GJBP - ------------------------------------------------------------------------------------------- ST7867 (StarTAC) Cwear/Caliber 80701GKBP - Gen * * * 80714GKBP - ------------------------------------------------------------------------------------------- T8167 Caliber 80780GKBP - Gen * * * Kool 99 80774GKBP - ------------------------------------------------------------------------------------------- P8167 Caliber 80790GKBP - Gen * * * Kool 99 80775GKBP - ------------------------------------------------------------------------------------------- V Series KRV - V8160 89844GJBP - Blk * * * V8160 89832GJBP - Blue w/browser 89833GKBP - Ttn 89811GJBP - Blk 89837GJBP - Blue 89835GJBP - Titn 89834GJBP - Gray - ------------------------------------------------------------------------------------------- V Series KRV - V8162 89808GKBP - Gray * * * V8162 89810GKBP - Blue w/browser 89820GKBP - Titn - ------------------------------------------------------------------------------------------- ST7868W Raven 89701GHBP - Gen * * * (StarTAC) DB/TM 89702GHBP - ------------------------------------------------------------------------------------------- ST7868W Reave 89750GHBP- Gen * * * (StarTAC) DB/TM - ------------------------------------------------------------------------------------------- T8367 Raven 89723GHBP - Gen * * * (StarTAC) DB/TM 89724GHBP Kool 99 - ------------------------------------------------------------------------------------------- T8367 Raven 89734GHBP - Gen * * * (StarTAC) DB/TM 89713GHBP Kool 99 - ------------------------------------------------------------------------------------------- P8367 Raven 89734GHBP - Gen * * * (StarTAC) DB/TM 89713GHBP Kool 99 - ------------------------------------------------------------------------------------------- Mod III CDMA 89910GKCP - Blk * * * T2267 Shark 89918GKCP - Blue Multiband - ------------------------------------------------------------------------------------------- Mod III CDMA 89904GKBP - Putty * * * V2267 Shark Multband - ------------------------------------------------------------------------------------------- Mod III CDMA 89907GJCP - Blk * * * T2260 Mod 3 Shark 89913GJCP - Blue 89947GJCP - Blk 89940GJCP - Blue - ------------------------------------------------------------------------------------------- Mod III CDMA 89901GJCP - Blk * * * V2260 Mod 3 Shark 89932GJCP - Putty 89903GJCP - Blk 89933GJCP - Putty - ------------------------------------------------------------------------------------------- Viper CDMA * V Phoenix Multiband - -------------------------------------------------------------------------------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 6
Marketing DP Segment Model List Invoice Name Name Number Pricing RB SP Price - ------------------------------------------------------------------------------------------- Leap II CDMA * P Panther Multiband - ------------------------------------------------------------------------------------------- Mod 4.0 Mod. 4 * V Tarpon V. Multiband - ------------------------------------------------------------------------------------------- Mod 4.0 Mod 4 * T Tarpon Talkabout Multiband - ------------------------------------------------------------------------------------------- V., * Camelot 2 - ------------------------------------------------------------------------------------------- TA, * TA02ht - ------------------------------------------------------------------------------------------- TP, * TPSW01 - ------------------------------------------------------------------------------------------- V., * V.NE01 - ------------------------------------------------------------------------------------------- V., * V.SE01 - -------------------------------------------------------------------------------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 7 ATTACHMENT B TERMS AND CONDITIONS 1. Products and Prices. Products and prices hereunder are listed in ------------------- Attachment A. Motorola may change Attachment A from time to time upon prior written notice to Buyer. This Agreement is for sales of Products only and does not create any obligation on Motorola with respect to any other products or services of Motorola's Personal Communications Sector or any other division, group or sector of Motorola. 2. Annual Volume Commitment. Buyer agrees that its prices are based upon an -------------------------- Annual Volume Commitment stated on the first page of this Agreement, which will be negotiated in good faith on an annual basis thereafter between Buyer and Motorola. Buyer will use its best efforts to take delivery at least the minimum number of units stated in the Annual Volume Commitment. Products may be aggregated to reach the Annual Volume Commitment ("Volume Commitment"). On a quarterly basis Motorola and Buyer will meet to evaluate Buyer's performance with respect to its purchases of Products primarily on the basis of Buyer's attainment of the Volume Commitment. If an evaluation indicates that Buyer purchases will be less than the quantity agreed to in the Volume Commitment, Motorola and Buyer agree to work together to develop a mutually agreeable plan for Buyer to increase sales of the Product. Should a second consecutive evaluation indicate that Buyer is still not able to meet its Volume Commitment, Motorola shall have the right to terminate this Agreement on thirty (30) days written notice. In the event Motorola decreases Buyers Territory or is unable to deliver Product in accordance with Buyer's Purchase Orders as accepted by Motorola and such actions by Motorola substantially impacts Buyer's ability to meet its Annual Volume Commitment, Motorola agrees to negotiate in good faith the subject quantities and deliveries with Buyer and to amend Buyer's Annual Commitment accordingly. In such event, low volume performance will no longer be grounds for termination of this Agreement by Motorola. 3. Forecasts and Purchase Orders. The goal of both parties hereto is to fully ----------------------------- incorporate and implement the Collaboration, Planning, Forecasting and Replenishment Plan ("CPFR"), as hereinafter defined, by April 1, 2001. Until such time as the CPFR is fully implemented, the parties agree to collaborate together on the forecasting and Product ordering requirements to ensure the availability of Product to Buyer. Once the CPFR is implemented and operational, Motorola agrees to sell and Buyer agrees to purchase all Product specified in Purchase Orders tendered by Buyer in accordance with the CPFR as it may be amended from time to time by the mutual agreement of the parties. The CPFR identifies the collaborative planning, forecasting, and replenishment processes that the parties will use, define the requirements and responsibilities of the parties, and is incorporated herein by reference at the times set forth therein. The only effect of any terms and conditions in Buyer's Purchase Orders or elsewhere will be to request the time and place of delivery, identify the Product model, and number of units to be delivered (and once implemented in accordance with the CPFR) and will not change, alter or add to the terms and conditions of this Agreement in any other way. Motorola's invoice also will not change the terms and conditions of this Agreement. 4. Payment Terms. Motorola shall invoice Buyer at the time of delivery and ------------- Payment will be due within thirty (30) days after the date of invoice. 5. Inventory Reporting. Buyer shall furnish Motorola with accurate monthly ------------------- reports of Buyer inventory and Sell Thru (by major product category) of Products. Each such inventory and Sell Thru report shall be 8 received by Motorola no later than the first Thursday following the last Saturday of each calendar month and shall include all inventories maintained by Buyer and its affiliates, including inventories maintained by major agents or at drop ship distribution points. On a monthly basis Motorola and Buyer will meet to review Buyer's Inventory including Products that are overstocked and slow moving, and Buyer's marketing and sales plans. For those Product models that are in inventory for more than 90 days and where appropriate, Motorola agrees to work with Buyer to develop a mutually agreeable plan to sell said Products. 6. Deliveries. All deliveries are FOB Motorola's plant. Title to the Products ---------- and risk of loss will pass to Buyer at the FOB point. Motorola's invoicing and shipment of Buyer's purchase orders will be subject to Motorola's approval of Buyer's credit. Buyer will provide Motorola with such financial information as Motorola reasonably requests to establish and maintain such credit approval. Motorola reserves the right to change Buyer's credit limit or require different credit terms, including but not limited to requiring that Buyer provide a letter of credit acceptable to Motorola or that Buyer pay orders in advance, as a condition of accepting any orders and/or shipping Products. Until such time as the CPFR is implemented, Motorola shall have a fifteen (15) day grace period after Buyer's requested shipment date to ship Product. Should Motorola fail to ship Product within said grace period, Buyer may cancel said Purchase Order. 7. Price Protection. During the Initial Term, if Motorola reduces the price ---------------- of a particular model of Product, then Motorola will credit Buyer's account an amount equal to the difference between the old and the new net purchase price (in each case, invoice price less rebate and any promotional amounts) multiplied by the number of such Product units purchased from Motorola which were shipped within forty five (45) days prior to the new price effective date ("Eligible Products"). Eligible Products shall not include any close out products (except as provided for below) or any Products Buyer purchases on special promotion. If Motorola sells or offers to sell close-out Products in the United States at a price lower than that charged to Buyer for similar quantities of such Products, or upon more favorable terms than provided to Buyer, Motorola shall provide the lower price or the more favorable terms to Buyer for all close-out Products ordered by Buyer within forty-five (45) days of the date such lower prices or more favorable terms were offered or provided to such third party. Such amount or terms will be credited or provided within thirty (30) days after the new price effective date, and shall apply to future orders of close-out Products. 8. Distribution. Buyer shall be a non-exclusive distributor of the Products ------------ in the United States (Buyer's "Territory") and may not distribute Product outside of its Territory under this Agreement. Buyer is free to sell to its customer, however, Motorola reserves the right to continue to sell directly to certain accounts listed in Attachment D ("Motorola Accounts"), as it may be amended from time to time by Motorola at its sole discretion. Motorola shall provide Buyer thirty (30) days' advance notice of such amendment and agrees to meet with Buyer to discuss said additions or deletions to said Attachment D. Buyer agrees that any sales it makes to a Motorola Accounts shall not be considered in the evaluation of Buyer's Annual Commitment. Buyer shall not knowingly transship, sell, or otherwise transfer Products outside its Territory. Buyer agrees to incorporate this limitation into all of its agent and distributor equipment agreements as a condition to the resale of the Products and shall use its best commercial effort to enforce same. Product sales within the Territory, without transshipment, is a material condition to Buyer's rights under this Agreement. It is agreed that any direct or indirect distribution, transshipment and/or sale of the Products outside the Territory by Buyer or others purchasing through Buyer with Buyer having actual knowledge or consent will be a material breach of this Agreement and will result in irreparable injury to Motorola for which money damages will not be adequate. Accordingly, in the event of such breach the parties agree that Motorola, in addition to any other remedies it may have at law and/or in equity, including but not limited to termination of this 9 Agreement in whole or in part, may reject some or all purchase orders from Buyer for any model or models of Product until Buyer can demonstrate that Buyer has instituted policies and procedures to prevent any such occurrences in the future. Buyer agrees to use its best efforts to promote the distribution and sale of the Products purchased hereunder, which efforts will be no less favorable to Motorola than Buyer's efforts to promote the distribution and sale of any other wireless voice subscriber units. 9. Force Majeure. Neither party hereto will be liable to the other party for ------------- any delay or failure to perform due to any cause beyond its reasonable control. Causes include but are not limited to strikes, acts of God, acts of the Buyer, interruptions of transportation or inability to obtain necessary labor, materials or facilities, or default of any supplier, or delays in FCC frequency authorization or license grant. The delivery schedule will be considered extended by a period of time equal to the time lost because of any excusable delay. 10. Warranty. Motorola warrants each Product only to the original subscriber -------- buyers or lessees only in accordance with the Limited Warranty that Motorola ships with such Product, and makes no representation or warranty of any other kind, express or implied. EXCEPT AS OTHERWISE PROVIDED IN THE LIMITED WARRANTY, MOTOROLA SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. If any Product is defective at time of delivery to Buyer, Buyer's sole remedy will be to return the Product to Motorola for replacement or repair, as determined solely by Motorola. 11. Patent and Copyright Indemnification. Motorola agrees to defend, at its ------------------------------------ expense, any suits against Buyer based upon a claim that any Product(s) furnished hereunder by Motorola directly infringes a valid U.S. patent or copyright or misappropriates a trade secret and to pay costs and damages finally awarded based upon such claim in any such suit, provided that Motorola is: (1) promptly notified by Buyer in writing as soon as reasonably practicable after Buyer first became aware of the claim of infringement or misappropriation, but in no event later than within 15 days of the date on which Buyer first received notice of such claim; and (2) at Motorola's request and expense is given sole control of the suit and all reasonably requested assistance for defense of same. Motorola shall not be liable for any settlement made Without its written consent. If the use or sale of any Product(s) furnished under this Agreement is enjoined as a result of such suit, Motorola at its option and at no expense to Buyer, will: (1) obtain for Buyer the right to use or sell such Product(s); (2) substitute an equivalent product reason ably acceptable to Buyer and extend this indemnity thereto, or (3) accept the return of the Product(s) and reimburse Buyer the purchase price therefore, less a reasonable charge for prior use, if any, of the Product(s). If the infringement is alleged prior to completion of delivery of the Product(s), Motorola shall have the right to decline to make further shipments without being in breach of contract; provided, however, that the number of Products subject to the halted shipments shall count towards the fulfillment of Buyer's Volume Commitment. This indemnity does not extend to any suit based upon any infringement or alleged infringement arising from Product(s) furnished by Motorola that are: (1) altered in any way by Buyer or any third party if the alleged infringement would not have occurred but for such alteration; (2) combined with any other products or elements not furnished by Motorola if the alleged infringement would not have occurred but for such combination; or (3) designed and/or manufactured in accordance with Buyer's designs, specifications, or instructions if the alleged infringement would not have occurred but for such designs, specifications, or instructions. In no event shall Motorola indemnify Buyer or be liable in any way for royalties payable based on a per use basis, or subscriber revenues derived by Buyer there from, or any royalty basis other than a reasonable royalty based upon revenue derived by Motorola from Buyer from sales or license of the infringing Product(s). 10 THE INDEMNITY PROVIDED IN THIS SECTION IS THE SOLE, EXCLUSIVE, AND ENTIRE LIABILITY OF MOTOROLA AND THE REMEDIES PROVIDED IN THIS SECTION SHALL BE BUYER'S EXCLUSIVE REMEDIES AGAINST MOTOROLA FOR PATENT, COPYRIGHT INFRINGEMENT OR TRADE SECRET MISAPPROPRIATION, WHETHER DIRECT OR CONTRIBUTORY, AND IS PROVIDED IN LIEU OF ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY IN REGARD THERETO, INCLUDING, WITHOUT LIMITATION, THE WARRANTY AGAINST INFRINGEMENT SPECIFIED IN THE UNIFORM COMMERCIAL CODE. 12. Product Liability Indemnity. Motorola agrees to defend, at its expense, --------------------------- any suits against Buyer based upon a claim by a third party that a material defect in any Product(s) furnished hereunder by Motorola caused death or bodily injury to any person and to pay costs and damages finally awarded based upon such claim in any such suit; provided that Motorola is: (1) notified by Buyer in writing within fifteen (15) days of the date on which Buyer first received notice of the claim; and (2) at Motorola's request and expense is given sole control of the suit and all requested assistance for defense of same. Motorola shall not be liable for any settlement made without its written consent. This indemnity does not extend to any suit based upon death or bodily injury arising from Product(s) furnished by Motorola that are: (1) altered in any way by Buyer or any third party if the alleged death or bodily injury would not have occurred but for such alteration; (2) combined with any other products or elements not furnished by Motorola if the alleged death or bodily injury would not have occurred but for such combination; or (3) designed and/or manufactured in accordance with Buyer's designs, specifications, or instructions if the alleged death or bodily injury would not have occurred but for such designs, specifications or instructions. THE INDEMNITY PROVIDED IN THIS SECTION IS THE SOLE, EXCLUSIVE, AND ENTIRE LIABILITY OF MOTOROLA AND THE REMEDIES PROVIDED IN THIS SECTION SHALL BE BUYER'S EXCLUSIVE REMEDIES AGAINST MOTOROLA FOR CLAIMS BY THIRD PARTIES FOR DEATH OR BODILY INJURY AND IS PROVIDED IN LIEU OF ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY IN REGARD THERETO. 13. Taxes. Except for the amount, if any, of state and local tax stated in the ----- Agreement, the prices set forth herein are exclusive of any amount for Federal, State and/or Local excise, sales, use, property, retailer's, occupation or any other assessment in the nature of taxes however designated, on the products and/or services provided under this Agreement. If any such excluded tax (exclusive of any taxes measured by Motorola's net income or taxes based on Motorola's gross receipts or based on Motorola's franchise) is determined to be applicable to this transaction, or to the extent Motorola is required to pay or bear the burden thereof, such tax will be added to the prices set forth herein and paid by Buyer. Personal property taxes assessable on the products will be the responsibility of Buyer. In the event Buyer claims exemption from sales, use or other such taxes under this Agreement, Buyer will provide Motorola with an exemption certificate or other evidence to establish Buyer's exempt status, and will hold Motorola harmless of any subsequent assessments levied by a proper taxing authority for such taxes, including interest, penalties, and late charges. 14. Motorola Assistance. Motorola's warranty will not be enlarged, and no ------------------- obligation or liability will arise out of Motorola's rendering of support, technical advice, facilities or service in connection with Buyer's purchase of the products furnished. Motorola will assign to Buyer a Marketing Representative to assist Buyer in marketing and sales of the Products. 15. Limitation of Liability. EXCEPT AS PROVIDED FOR OTHERWISE HEREIN, ----------------------- MOTOROLA'S TOTAL LIABILITY FOR ANY AND ALL COSTS, DAMAGES, CLAIMS, INDEMNIFIABLE CLAIMS, 11 OR LOSSES WHATSOEVER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR PRODUCT(S) SUPPLIED UNDER THIS AGREEMENT IS LIMITED TO THE AGGREGATE AMOUNT PAID BY BUYER TO MOTOROLA IN CONNECTION WITH THE PARTICULAR PRODUCTS SOLD HEREUNDER WITH RESPECT TO WHICH LOSSES OR DAMAGES ARE CLAIMED AND IN NO EVENT SHALL MOTOROLA BE LIABLE TO PAY BUYER OR ANYONE CLAIMING ON BEHALF OF BUYER ANY AMOUNTS IN EXCESS OF SUCH AMOUNT. IN NO EVENT WILL MOTOROLA BE LIABLE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, FOR ANY INCIDENTAL, SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING, BUT NOT LIMITED TO, DAMAGES FOR ANY LOSS OF USE, LOSS OF TIME, INCONVENIENCE, COMMERCIAL LOSS, OR LOST PROFITS, SAVINGS, OR REVENUES TO THE FULL EXTENT SUCH MAY BE DISCLAIMED BY LAW. 16. Logos And Trademarks. In order that each party may protect its trademarks, -------------------- trade names, corporate slogans, corporate logo, goodwill and product designations, neither party will have any right to use the marks, names, slogans or designations of the other party hereto in the sales, lease or advertising of any products or on any product container, component part, business forms, sales, advertising and promotional materials or other business supplies or material, whether in writing, orally or otherwise, except upon express prior written consent of such other party. Notwithstanding the foregoing and subject to Motorola's prior approval, Motorola hereby grants to Buyer a non-exclusive, non- transferable, royalty free license to use the Motorola name, logo and Product images on Buyer's web sites in connection with the marketing and sale of the Products in the Territory. 17. Party Relationship. Each party will be deemed to be an independent ------------------ contractor and not an agent, joint venturer, or representative of the other, and neither party may create any obligations or responsibilities on behalf of or in the name of the other. Under no circumstances may Buyer hold itself out to be a partner, employee, franchisee, representative, servant or agent of Motorola. Buyer will not impose or create any obligation or responsibility, express or implied, or make any promises, representations or warranties on behalf of Motorola, other than as expressly provided herein. 18. Waiver. The failure of either party to insist in any one or more ------ instances, upon the performance of any of the terms or conditions herein or to exercise any right hereunder will not be construed as a waiver or relinquishment of the future performance of any such terms or conditions or the future exercise of such right but the obligation of the other party with respect to such future performance will continue in full force and effect. 19. Term and Termination. -------------------- 19.1 Term. The "Initial Term" of this Agreement will be from the Effective Date hereof through December 31, 2002. Thereafter this Agreement will continue in effect beyond the Initial Term until terminated by either party upon sixty (60) days' prior written notice to the other (collectively with the Initial Term, the "Term"). Notwithstanding any number of renewals, this Agreement will be deemed a fixed term agreement and not an agreement of indefinite term. Nothing contained in this Agreement will be deemed to create any express or implied obligation on either party to renew or extend this Agreement or to create any right to continue this Agreement on the same terms and conditions contained herein. Buyer understands that Motorola intends to review its distribution strategy and the terms and conditions of this Agreement on an ongoing basis and may require execution of a mutually agreeable amended form of this Agreement as a condition of renewal. 19.2 Termination for Default. In the event that either party is in breach of any of the terms or conditions of this Agreement and such breach continues for a period of thirty (30) days after the non- 12 breaching party has given the breaching party written notice of such breach, then subject to the other terms and conditions of this Agreement, the non- breaching party, in addition to other rights and remedies it may have in law or equity, will have the right to immediately terminate this Agreement without any liability whatsoever. Additionally, either party may terminate this Agreement immediately if the other party: (i) assigns any of its rights under this Agreement without the prior written consent of the other party; (ii) fails to make any payment when due; (iii) makes an assignment for the benefit of its creditors, or a receiver, trustee in bankruptcy or similar officer is appointed to take charge of its assets; (iv) files for relief under state or federal bankruptcy laws or has an involuntary petition filed against it not dismissed within 30 days; (v) discloses terms of this Agreement in violation of Paragraph 26 below; or (vi) has A change in ownership of a majority of its then outstanding ownership interests. 19.3 Effect of Termination. Upon termination of this Agreement for any reason: (i) Motorola shall be relieved of any obligations to pay any Bonuses or distribute any uncommitted Advertising/Promotional funds and to make any shipments hereunder and may cancel all of Buyer's unshipped orders for Products, regardless of previous acceptance by Motorola of such orders, and Motorola shall have no obligation or liability to Buyer or any other party in connection with such cancellations; (ii) all outstanding invoices to Buyer and other amounts due to Motorola from Buyer shall become immediately due and payable, and each invoice not yet submitted to Buyer for Products shipped prior to termination will be due and payable immediately upon submission of such invoice to Buyer; (iii) Buyer will immediately discontinue any use of all Motorola names and trademarks in association with the Products, as well as any other combination of words, designs, trademarks or trade names that would indicate that Buyer is or was an authorized distributor of the Products; (iv) within five (5) working days after termination, Buyer will deliver to such address as Motorola will specify all Motorola property, including, but not limited to, all equipment, customer data, software items, catalogs, drawings, designs, engineering phot6graphs, samples, literature, sales aids and any confidential business information and trade secrets of Motorola in Buyer's possession along with all copies thereof; and (v) Motorola shall have no liability for any damages or compensation due to termination of this Agreement including, without limitation, possible claims under state franchise law, claims for loss of present or future profits, reimbursement for any investments or expenditures made in connection with this Agreement, or for any goodwill of a business. Motorola's acceptance of any Purchase Order by Buyer for Products after the termination of this Agreement will not be construed as a renewal or extension of this Agreement, nor as a waiver of termination of this Agreement. Any such accepted Purchase Order shall be governed by the terms and conditions of this Agreement. 19.4 Survival of Terms. The terms, provisions, representations and warranties contained in this Agreement that by their sense and context are intended to survive the performance thereof by either or both parties will so survive the completion of performances and termination of this Agreement, including without limitation the making of any and all payments due under this Agreement. 20. U.S. Government Sales. In the event that Buyer elects to sell PCS products --------------------- to a governmental entity, Buyer does so solely at its own option and risk. Except as Motorola PCS expressly accepts specific terms in writing, Motorola PCS makes no representations with respect to the ability of its goods, services or prices to satisfy any statutes, regulations, or provisions relating to such governmental sales. 21. Confidentiality. Both parties hereto recognize the confidentiality this --------------- Agreement and of any pricing information contained therein and agree to not disclose same to third parties during the term of this agreement, unless required by judicial or administrative order and only after providing the other party notice thereof. 22. Dispute Resolution. The parties agree that any claims or disputes will be ------------------ submitted to nonbinding mediation prior to initiation of any formal legal process provided, however, that this provision shall not 13 preclude either party from resorting to judicial proceedings if (i) good faith efforts to resolve the dispute under mediation are unsuccessful; or (ii) the claim or dispute relates to intellectual property rights; or (iii) interim relief from a court is necessary to prevent serious and irreparable injury to the party. 23. Notices. All notices required under this Agreement (other than purchase ------- orders, invoices and notices under Paragraphs 2 or 3 above) will be sent by fax, overnight courier or registered or certified mail to the, appropriate party at its address stated on the first page of this Agreement (or to a new address if the other has been properly notified of the change). If to Motorola, the notice must be addressed to General Manager, Pan American Cellular Subscriber Sector. If to Buyer, the notice must be addressed to General Counsel. A notice will not be effective until the addressee actually receives it. 24. Quarterly Business Meetings. Motorola on a quarterly basis shall meet and --------------------------- confer with Buyer, and Buyer's key customers, to inform them of Motorola's future product planning and development processes. 25. Advertising and Promotional Funds. By January 1, 2001, Motorola shall --------------------------------- establish and make available to Buyer funds for the purpose of supporting (i) marketing programs for specific Products, (ii) sell-through initiatives programs, and (Iii) point-to-point sales material and literature (the "Plan"). The funds shall be distributed pursuant to the terms and conditions of the Plan, as same may be revised from time to time by Motorola. Upon termination of this Agreement for any reason, all distribution of uncommitted funds accrued under the Plan will be canceled. 26. General. Except as otherwise expressly permitted hereunder, no alterations ------- or modifications of this Agreement will be binding upon either Buyer or Motorola unless made in writing and signed by an authorized representative of each party. If any term or condition of this Agreement will to any extent be held by a court or other tribunal to be invalid, void or unenforceable, then that term or condition will be inoperative and void insofar as it is in conflict with law, but the remaining rights and obligations of the parties will be construed and enforced as if this Agreement did not contain the particular term or condition held to be invalid, void or unenforceable. Buyer may not assign any of its rights under this Agreement or appoint any subdealers or other agents or representatives (other than its employees) to distribute and market the Products without Motorola's prior written approval. Except as otherwise required by applicable law, neither party may disclose the terms of this Agreement to any other party without the prior written consent of the other party hereto, provided that a party may make such disclosure upon order of a court of competent jurisdiction subject to first providing the other party hereto with prompt written notice of such court order to allow the other party to seek relief from such order. In the event that a party so discloses without consent of the other party, or notice in the event of court ordered disclosure, the other party may immediately terminate this Agreement. This Agreement will be governed by the laws of the State of Illinois, without regard to conflict of laws rules of such State. 14 ATTACHMENT C Replace with Attach Accessories Terms 15 Draft 111000 Exhibit A to Attachment C Accessories and Price --------------------- 16 Draft 111000 Exhibit B to Attachment C Accessories Limited Warranty ---------------------------- 17 Draft 111000 Exhibit C to Attachment C Platinum Plus Program --------------------- The Program is based on growth of Motorola Original Accessory purchases by Distributor. Motorola will reward Distributors on a Quarterly basis for their commitment to Motorola Original accessory sales and obtaining their assigned goals. The program will be tracked and paid on a quarterly basis following the guidelines below. Each distributor will be assigned goals for each quarter of the calendar year, based initially on a Base Line and thereafter on its previous years Sales. The goals will be assigned by applying a seasonality factor to the previous years Sales. The program will be tracked and credits issued to Distributor on a quarterly basis following the guidelines below.
Accessories Credit 15% to 19% growth * 20% to 24% growth * 25% to 29% growth * 30% and larger * Credit % applied to Total Quarterly Accessory Sales to Calculate Platinum Credit - ----------------------------------------------------------------------------------
The following is an Example of how the Program operates: Step 1: Targets for 2000 are established based on Base Line of [TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED]:
2000 Distributor Goals required for Platinum Dollars Customer Base Line 30% Growth 25% Growth 20% Growth 15% Growth Distributor #1 * * * * * - -------------------------------------------------------------------------------------------------
Step 2: Seasonality is applied to calculate the quarterly targets:
Seasonality Q1 Q2 Q3 Q4 * * * * - -------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 18 Step 3: Quarterly Targets are given to the distributor and tracked quarterly:
Quarter Targets Q1 Q2 Q3 Q4 Total Estimated Payments (year) 30% Growth * * * * * * 25% Growth * * * * * * 0% Growth * * * * * * 15% Growth * * * * * * - ------------------------------------------------------------------------------------------------------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 19 Draft 111000 Exhibit D to Attachment C Platinum Plus Worksheet for 2001 -------------------------------- 1. Credits issued to Distributor on a quarterly basis following the guidelines below:
Accessories Credit 15% to 19% growth * 20% to 24% growth * 25% to 29% growth * 30% and larger * Credit % applied to Total Quarterly Accessory Sales to Calculate Platinum Credit - ----------------------------------------------------------------------------------
2. Target Base Line is [TEXT OMITTED -CONFIDENTIAL TREATMENT REQUESTED] for Calendar Year 2001: 3. Establish targets for next years growth based on growth over Base Line:
Goals required for Platinum Dollars for Year 2001 Customer Base Line 30% Growth 25% Growth 20% Growth 15% Growth * * * * * - ---------------------------------------------------------------------------------
4. Seasonality is applied to calculate the quarterly targets:
Seasonality Q1 Q2 Q3 Q4 * * * * - -------------------
5. Quarterly Targets for 2001 and estimated Total Payments if Targets are achieved:
Quarter Targets Q1 Q2 Q3 Q4 Total Estimated Payments (year) 30% Growth * * * * * * 25% Growth * * * * * * 20% Growth * * * * * * 15% Growth * * * * * * - ----------------------------------------------------------------------------------------------
*[TEXT OMITTED - CONFIDENTIAL TREATMENT REQUESTED] 20 Draft 111000 Although it is up to the customer's ultimate discretion in how the credits are used, it is mutually understood that the Platinum Plus dollars will be used to promote the sale of Motorola phones and accessories. Unclaimed Platinum Plus balances will not roll into the following quarter. Examples uses of Platinum Plus Dollars: Direct Mail WEB Advertising/Sales Special Offers Point of Sale Material Sales Contests Demonstration Equipment Sales Meetings Print/Radio Advertising Training Material/Sessions Event Funding 21 ATTACHMENT D Motorola Accounts Carrier Customers - ----------------- 1. AT&T 2. Voice Stream 3. Sprint 4. ALLTEL 5. Cingular 6. Verizon Retail Customers - ---------------- 1. Radio Shack 2. Circuit City 3. Canada 4. CableVision Elec (Wiz) 5. Best Buy 6. Staples 7. The Good Guys 8. Wireless Retail 9. Grand Wireless 10. Car Toys 11. American TV 12. Ultimate Electronics 13. Cellmania 14. Let's Talk Cellular 15. Office Depot 16. Magnolia Hi Fi 22 Draft 111000 Collaborative Planning, Forecasting and Replenishment Process Between CellStar Ltd. and Motorola, Inc. This Collaborative Planning, Forecasting and Replenishment Process (the "Process") between CellStar and Motorola outlines both parties requirements and intentions to comply with the logistics, customer service, ordering and replenishment processes. This Process is intended to outline the Collaboration, Planning, Forecasting and Replenishment processes that will be used and does not change or alter the terms and conditions of the Wireless Supply Agreement in place between the parties. The Process will act as a roadmap for future enhancements to our service and an outline of both companies' intentions to pursue continuous improvement in supply chain excellence and replenishment methodologies. Therefore it is expected that this Process will be modified from time to time by the parties hereto. I. Scope of the Process 1. Purpose. CellStar and Motorola agree to collaborate in key supply ------- chain processes. The goal being to increase mutual efficiencies through dynamic information sharing, focus on common goals and measures, and commitment to continuous improvement of the process. Both parties recognize that there are many business processes, technological, and organizational changes required by this collaboration, and both parties commit to apply resources to make these changes in order to make our collaboration effective and meet our mutual goals. 2. Confidentiality. Both parties commit here to absolute confidentiality --------------- in the use of information shared. 3. Objective. Through this collaboration, the parties will seek to --------- increase service levels, increase sales, reduce business transaction costs, and improve the use of capital (esp. that involved in inventory), and facilitate trading partner relationships. II. Collaborative Planning, Forecasting and Replenishment Process Overview 1. Purpose. The purpose of the Process is to insure that accurate demand ------- signals are efficiently communicated between parties and that the supply plan is aligned with the demand plan. The Process insures that deviations in demand or supply are quickly understood and adjustments are made to mitigate any negative impact to service levels. 2. Product Roadmap. Motorola will supply a product roadmap on a --------------- quarterly basis to assist CellStar in providing a meaningful forecast within identified constraints. 3. New Product. New Product introductions will not be included in this ----------- Process for the first 90 days. 4. Collaborative Forecast. A Collaborative Order Forecast will be ---------------------- developed and agreed to on a monthly basis from inputs from both party's collaborative planning teams. This forecast reflects CellStar purchase plans from Motorola and Motorola's ability to supply said demand within defined time fences. 5. Frequency. The Collaborative forecast will be generated on a monthly --------- basis by the second Friday of the calendar month. CellStar will provide a forecast by the first Friday of each month. The parties will develop a collaborative agreed upon order plan based on this 23 forecast. This plan will be the basis for matching SSD to CRSD within the order tolerances discussed later in this document. 6. Time Fence. The forecast covers month I through month 18 counting from ---------- the current month and will match the roadmap in product and time fence granularity: . Months 0 - 3; weekly forecast at the SKU/Model level . Months 4 - 5; monthly forecast at the SKU/model level . Months 7 - 12; monthly forecast at the product family/segment level . Months 13 - 18; quarterly forecast at the technology/aggregate level 7. Process Table. Attachment I contains a diagram of the operation of ------------- the Process. III. Supply Reservation, Supply Upside, and Order Lead Time 1. Supply Reservation. The Collaborative forecast will be utilized to ------------------ reserve supply by Product. Motorola and CellStar will optimize the weekly ordering process to support fixed lead times resulting from improvements in collaborative forecast accuracy and planning. 2. Supply Upside. For any increase in Product quantity over the ------------- permitted deviation, Motorola shall have five (5) business days from receipt of notice to review the request and respond to CellStar on the availability of the capacity. 3. Order Lead Time. Lead-time is set at 8 weeks after receipt of --------------- Purchase Order. The parties will strive to reduce this lead-time by improved planning and forecasting. IV. Order Process 1. Purchase Orders will be generated weekly and loaded on cw+8 . Purchase Order CRDD dates should reflect 8 week Lead-Time. CRSD will be set to CRDD less four days (in general based on holidays or other factors, could be greater) . Motorola will match SSD=CRSD, providing 8 weeks Lead-Time is provided and consumption is within 10% of forecast through CW+8. 2. Exceptions will be reviewed on the weekly call and handled on a case- by-case basis based on available capacity and the 8 week Lead-Time. V. Change Tolerance 1. Motorola will support the following changes in quantity that are within the percentage tolerance levels without any changes to agreed upon lead-time: . Current Month (CW+0 through CW+4) -- Orders are firm. . Month 2 (CW+5 through CW+8): Up to 10% increase or decrease will be supported over the amount forecasted the previous forecast period for the same month. . Month 3 - 6 (CW+9 through CW+26): Up to 20% increase or decrease will be supported in months 3 through 6 over the amount forecasted in the previous forecast period for the same month. . Month 7 - 18: Any change outside of the six-month planning horizon should be supported. Any large volume shifts may necessitate inclusion into the Motorola official S&OP process. 2. Increases Over Tolerance. Motorola will respond to any requested ------------------------ quantity increase in excess of the tolerances within five (5) business days of receiving notice. 24 VI. Goals 1. Motorola's goal is to maintain 95% on-time delivery (within five days) to committed ship dates based upon the reserved forecasted quantities developed by the CPFR process. 2. Customer's goal is to consume the forecast through orders within tolerances identified above. In the event that these limits will be short or exceeded, the respective party will notify the other as soon as possible, and together will determine a resolution plan. In recognition of the spirit of this agreement, both parties agree to commit the resources and systems necessary to maintain the "upstream" planning processes, which will in turn allow the timely identification and resolution of potential issues. VII Communications and Review 1. Mutual Commitment. Both parties commit to the process of continuous ----------------- improvement in addressing the transactional relationship and fulfillment process. Based on these commitments, the parties will establish the schedule below for communications and review. 2. Weekly Update and Review. The parties will have a weekly conference ------------------------ to discuss short-term performance issues and improvements. 3. Monthly Forecast Collaboration. The parties will collaborate on an ------------------------------ eighteen (18) month rolling forecast to plan our mutual business together. 4. Monthly Performance Reports. On a monthly basis, the parties will --------------------------- review the past month's performance and year-to-date performance with regard to meeting the goals identified herein. 5. Quarterly Scorecard. Motorola and CellStar will a2ree on a regular ------------------- quarterly meeting with the executive sponsors to review performance and chart resolution and future steps. VII General Information 1. Resolution of Disagreements. In the event of a disagreement, the --------------------------- ultimate process owners will have final say over the sales forecast, order forecast, and order generation if intermediate efforts at resolution are not successful. All other disagreements will be handled by a meeting of the leaders of the affected functional areas, and ultimately the Process agreement owners. 2. Cancellation. The Process can be cancelled -at anytime with proper ------------ notification from Motorola or customer, typically within manufacturer lead-time of products. Reasons for cancellation are, but not limited to, technology changes, or partnering program is not continuing to show improvements, etc. 3. Agreements Review Cycle. This Process will be reviewed each quarter ----------------------- starting in January2001, and the undersigned will reaffirm the effectiveness of the process by renewing the agreement. 25 IN WITNESS WHEREOF, the parties have agreed to enter into the Process and each has caused this document to be executed by their duly authorized representatives. Motorola Inc. CellStar, Ltd. By: By: ------------------------------ ----------------------------- Name: Name: ------------------------------ ----------------------------- Title: Title: ------------------------------ ----------------------------- Date: Date: ------------------------------ ----------------------------- 26 Draft 111000 Attachment 1 -- Process Table -----------------------------
Forecast Format and Parameters Both Parties agree monthly within the format and parameters of the collaborative forecast Current Month CM+1 CM+2 CM+3 CM+4 CM+5 CM+6 CM+7 to CM+13 to (M0) (M1) (M2) (M3) (M4) (M5) (M6) CM+12 CM+18 Both Collaborative As per order book Collaborative Forecast Sales Forecast Forecast - ------------------------------------------------------------------------------------------------------------------------------------ AWS Quantity Order Book = collaborative Collaborative Forecast Sales Forecast Commitment (unconstrained) (unconstrained) - ------------------------------------------------------------------------------------------------------------------------------------ Motorola Delivery Order book Order book = Order book = collaborative Sales Forecast; all SSD=CRSD Commitment = collaborative forecast; SSD=CRSD + 20% collaborative forecast; forecast; SSD=CSRD SSD= +/-1% CRSD - ------------------------------------------------------------------------------------------------------------------------------------ Both Forecast Weekly at SKU/ Monthly at SKU/ Monthly at Quarterly at Details model detail model detail product the TAM/ family/ technology segment level level - ------------------------------------------------------------------------------------------------------------------------------------ Order and Forecast tolerance limits are at the SKU/Model level - ------------------------------------------------------------------------------------------------------------------------------------
27 EX-10.35 8 0008.txt AIRCRAFT AND ASSET PURCHASE AGREEMENT EXHIBIT 10.35 AIRCRAFT AND ASSET PURCHASE AGREEMENT ------------------------------------- This Aircraft and Asset Purchase Agreement, entered into as of January 30, 2001, is by and between A&S Air Service, Inc., a Delaware corporation ("Seller"), and Alan H. Goldfield ("Buyer"). In consideration of the mutual obligations of the parties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Sale of Assets. Seller hereby sells and delivers to Buyer, and Buyer -------------- hereby purchases, all of the assets of Seller as follows: (a) one aircraft more particularly described as follows: Make: Cessna Citation III Model: 650 Serial No.: 650-0055 Registration No.: N16AS Engines: Garrett TFE-731 3B-100 Serial Nos.: P87235 P87220 including the airframe and engines and all installed and other avionics, systems, components, equipment, parts, furnishings, gear, spares, Records (as defined in Section 6(e)), and the auxiliary power unit (all collectively referred to hereinafter as the "Aircraft"); (b) one Compaq laptop computer; (c) one wooden desk; and (d) one metal filing cabinet; (the Aircraft and the other assets listed above are collectively referred to herein as the "Assets"). 2. Purchase Price. The Purchase Price (herein so called) for the Assets -------------- is $2,236,718, which is being paid in cash by wire transfer. 3. Federal Aviation Administration Registration. Buyer shall cause (at -------------------------------------------- its cost and expense) the Aircraft to have a new Federal Aviation Administration ("FAA") registration number as soon as reasonably possible after the date hereof. 4. Additional Documents. The parties have executed (as appropriate) and -------------------- delivered the following items: (a) Bill of Sale in the form attached as Exhibit A; --------- (b) FAA Form 8050 Bill of Sale (or its equivalent) properly describing the Aircraft; and (c) All necessary applications for issuance of a new FAA registration number. 5. Taxes. Buyer shall pay all sales, use, or other taxes (other than ----- in the nature of income taxes assessed against Seller upon the sale) assessed by state or local taxing authorities as a result of the sale of the Assets. 6. Representations and Warranties of Seller. Seller warrants and ---------------------------------------- represents to Buyer: (a) Corporate Authority, Existence, and Power. Seller is a corporation ----------------------------------------- duly incorporated, validly existing, and in good standing under the laws of the State of Delaware. Seller has taken all corporate action necessary to enter into, perform, and consummate this Agreement, and has obtained all necessary consents or approvals of its Board of Directors and sole stockholder. Seller has full corporate power and authority under its Certificate of Incorporation and bylaws to enter into, perform, and consummate this Agreement. This Agreement constitutes the legal, valid, and binding obligation of Seller, enforceable in accordance with its terms. (b) No Default, Conflicts, or Violation of Laws. The execution and ------------------------------------------- performance of this Agreement by Seller will not violate any provisions of Seller's Certificate of Incorporation, bylaws, or any provision of any applicable state, federal, or municipal law, order, rule, regulation, or ordinance, and will not violate or constitute a default under any provision of any mortgage, deed of trust, security, loan, or other agreement to which Seller or the Assets may be subject. (c) Warranty of Title. Seller has, and upon payment of the Purchase Price ----------------- by Buyer Buyer shall receive, good and marketable title to the Assets, free and clear of all security interests, liens, leases, claims, and encumbrances whatsoever, including but not limited to tax liens. (d) Compliance with Regulations. The Aircraft is in compliance with all --------------------------- applicable airworthiness standards, rules, regulations, and orders of the FAA and with all Airworthiness Directives and Mandatory Service Bulletins applicable to the Aircraft. All work required to meet all FAA airworthiness standards and regulations, all Airworthiness Directives and Mandatory Service Bulletins applicable to the Aircraft, and all periodic and progressive maintenance programs of the manufacturer(s) of the Aircraft (or the equivalent thereof approved by the FAA), have been conducted. (e) Records. All records, logs, manuals (including, without limitation, ------- maintenance, flight, and flight crew manuals), technical data, maintenance program information, operational specifications, records concerning airworthiness directives accomplishment, records concerning any modifications, and other records, diagrams, and documents relating to the Aircraft (including engines, avionics, components, and equipment) (collectively, the "Records") are correct and complete, truly reflect the operations, maintenance, hours of operation, and other similar data concerning the Aircraft, and comply with all applicable FAA and other government regulations. (f) No Consents. No consent of any person, entity, or governmental ----------- authority is necessary for the execution or consummation of the transaction contemplated hereby. 2 (g) No Other Assets. Other than the Assets, Seller owns no other assets. --------------- 7. No Assumption of Liabilities. Buyer is acquiring only the Assets from ---------------------------- Seller and is not the successor to Seller. Buyer does not assume any liability or obligation whatsoever relating to or arising in connection with the Assets prior to the transfer of title to the Assets to Buyer. Buyer does not assume or agree to pay or indemnify Seller, any prior owner of the Assets, or any other person or entity against any liability or obligation which in any way relates to the Assets prior to the transfer of title to the Assets. 8. Indemnification. Each party (the "Indemnifying Party") shall --------------- indemnify and hold harmless the other (the "Indemnified Party") from and against and reimburse the Indemnified Party for any and all actions, claims, losses, damages, expenses, costs of settlement (including reasonable attorney's fees), or other liabilities of any nature which the Indemnified Party may suffer due, directly or indirectly, to (i) the breach by the Indemnifying Party of any covenant or the inaccuracy of any warranty or representation made by the Indemnifying Party contained in this Agreement, and (ii) in the case of Seller as the Indemnifying Party, claims and liabilities, including claims by any taxing authority, arising from or related to any occurrence or time period prior to the transfer of title to the Assets; provided, however, the Indemnified Party must notify the Indemnifying Party of any such claim for indemnification within five years from the date hereof. The Indemnified Party shall promptly notify the Indemnifying Party of such claim and the amount thereof in writing; provided, however, that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder, unless (and then solely to the extent) the Indemnifying Party thereby is damaged as a result of such delay. The Indemnifying Party shall have the right to assume the defense of any such claim as follows: (i) the Indemnifying Party shall defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel at his or its sole cost and expense (except that the Indemnifying Party shall be responsible for the fees and expenses of the separate co-counsel to the extent the Indemnified Party concludes reasonably that the counsel the Indemnifying Party has selected has a conflict of interest), and (iii) the Indemnifying Party shall not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all liability with respect thereto, without the consent of the Indemnified Party, which consent will not be withheld unreasonably. If the Indemnifying Party fails to notify the Indemnified Party within 15 days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner he or it reasonably may deem appropriate. 3 9. Miscellaneous. ------------- (a) Notices. Any notices, consents, demands, requests, approvals, and ------- other communications to be given under this Agreement by either party to the other shall be deemed to have been duly given if given in writing and personally delivered, sent by courier, sent by telegram or telecopy, or sent by mail, registered or certified, postage prepaid with return receipt requested, at the address specified beside each party's signature at the end of this Agreement. Notices delivered personally or by courier, telegram, or telecopy shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of 10:00 a.m. on the third business day after mailing. Either party may change his or its address for notice hereunder by giving notice of such change in the manner provided in this Section 9(a). (b) Entire Agreement. This Agreement, together with all other agreements ---------------- and instruments contemplated hereby or executed in connection herewith, supersedes any and all other agreements, either oral or written, between the parties hereto with respect to the subject matter hereof and contains all of the covenants and agreements between the parties with respect thereto. (c) Modification and Waiver. No change or modification of this Agreement ----------------------- shall be valid or binding upon the parties hereto unless such change or modification shall be in writing and signed by both parties hereto. No waiver of any term or condition of this Agreement shall be enforceable unless it shall be in writing signed by the party against which it is sought to charged. The waiver by either party of a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any other or subsequent breach. (d) Further Actions. Each party to this Agreement shall perform any and --------------- all further acts and execute and deliver any and all documents and instruments that may be reasonably necessary to carry out the provisions of this Agreement. (e) Governing Law. This Agreement, and the rights and obligations of the ------------- parties hereto, shall be governed by and construed in accordance with the laws of the State of Texas. (f) Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall constitute an original, but both of which shall constitute one and the same document. (g) Costs. If any action at law or in equity is necessary to enforce or ----- interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which it or he may be entitled. (h) Binding Effect. This Agreement shall be binding upon the parties -------------- hereto, together with their respective heirs, successors, and assigns. (i) Language. Section headings in this Agreement are for convenience of -------- reference only and shall not be considered in construing or interpreting this Agreement. "Hereof," "hereto," 4 "herein," and words of similar import used in this Agreement shall be deemed references to this Agreement as a whole, and not to any particular Section, or other provision of this Agreement. (j) Survival of Representations, Warranties, and Covenants. The ------------------------------------------------------ representations, warranties, and covenants contained in this Agreement shall survive the date hereof and all statements contained in any certificate, exhibit, or other instrument or document delivered by or on behalf of Seller pursuant to this Agreement shall be deemed to have been representations and warranties by Seller and shall survive the date hereof and any investigation made by Buyer. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to be effective as of the date first above written. A&S AIR SERVICE, INC. Address: c/o CellStar Air Services, Inc. By: /s/ DALE H. ALLARDYCE 1730 Briercroft Court --------------------------------- Carrollton, Texas 75006 Dale H. Allardyce Attn: General Counsel President Facsimile: 972-466-5030 /s/ ALAN H. GOLDFIELD Address*: ---------------------------------- 1850 Tuberville Road Alan H. Goldfield Denton, Texas 76205 Facsimile: 940-321-0380 *With a copy (which shall not constitute notice) to: Alan J. Perkins Gardere Wynne Sewell LLP 1601 Elm Street, Suite 3000 Dallas, Texas 75201 Facsimile: 214-999-3683 5 EXHIBIT A --------- BILL OF SALE ------------ This Bill of Sale, dated as of January 30, 2001, is made by A&S Air Service, Inc. ("Seller") for the benefit of Alan H. Goldfield ("Buyer"). In consideration of the sum of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged , and of the covenants and agreements contained herein: 1. Seller hereby sells, transfers, conveys, assigns, and delivers to Buyer and Buyer's heirs, successors, and assigns forever, all of Seller's right and title to, and interest in, free and clear of all security interests, liens, leases, claims, and encumbrances whatsoever, the following: (a) one aircraft more particularly described as follows: Make: Cessna Citation III Model: 650 Serial No.: 650-0055 Registration No.: N16AS Engines: Garrett TFE-731 3B-100 Serial Nos.: P87235 P87220 including the airframe and engines and all installed and other avionics, systems, components, equipment, parts, furnishings, gear, spares, Records (as defined in Section 6(e) of that certain Aircraft and Asset Purchase Agreement, dated of even date herewith (the "Purchase Agreement"), by and between Seller and Buyer), and the auxiliary power unit (all collectively referred to hereinafter as the "Aircraft"); (b) one Compaq laptop computer; (c) one wooden desk; and (d) one metal filing cabinet; (the Aircraft and the other assets listed above are collectively referred to herein as the "Assets"), to have and to hold the same and each and all thereof unto Buyer, his heirs, successors, and assigns forever, to his and their own use and benefit forever. Seller does hereby bind itself, and its successors and assigns, to warrant and forever defend title to the Assets unto Buyer and his heirs, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof. 2. Seller hereby constitutes and appoints Buyer its true and lawful attorney-in-fact, with full power of substitution and resubstitution, in the name of Seller or Buyer, but on behalf and for the benefit of Buyer, to demand, collect, and receive for the account of Buyer all of the Assets 6 hereby sold, transferred, assigned, and conveyed to Buyer or intended so to be; to institute or prosecute, in the name of Seller or otherwise, all proceedings which Buyer may deem necessary or convenient in order to realize upon, affirm, or obtain title or possession of or to collect, assert, or enforce any claim, right, or title of any kind in or to the Assets hereby sold, transferred, assigned, and conveyed to Buyer or intended so to be; to defend and compromise any and all actions, suits, or proceedings with respect of any of the Assets sold, transferred, assigned, and conveyed hereunder or intended so to be; and to do all such legal acts and things in relation thereto as Buyer shall deem desirable. Seller agrees that the foregoing powers are coupled with an interest and are and shall be irrevocable by Seller for any reason. 3. Buyer acknowledges that the Assets are being sold to it by Seller, and Buyer accepts the Assets, AS IS, WHERE IS, with no representation or warranty by Seller as to the condition of the Assets except as expressly provided in the Purchase Agreement. 4. All of the terms and provisions of this Bill of Sale shall be binding upon Seller, its successors and assigns, and shall inure to the benefit of Buyer and his heirs, successors, and assigns. 5. Seller shall duly execute and deliver all such instruments of sale, transfer, assignment, and conveyance and all such notices, releases, acquittances, certificates of title, and other documents as may be necessary more fully to sell, transfer, assign, and convey to and vest in Buyer the Assets hereby sold, transferred, assigned, and conveyed or intended so to be. 6. This Bill of Sale shall be governed by and construed in accordance with Texas law. IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of the date first above written. A&S Air Service, Inc. By: /s/ DALE H. ALLARDYCE ----------------------------------- Dale H. Allardyce President 7 EX-21.1 9 0009.txt SUBSIDIARIES OF THE COMPANY Exhibit 21.1 ------------ List of Subsidiaries and Foreign Affiliates ------------------------------------------- and Percentage of CellStar Corporation's Ownership /1/ -------------------------------------------------- (as of February 23, 2001) Name of Subsidiary Incorporation - ------------------ ------------- National Auto Center, Inc. Delaware CellStar Financo, Inc. Delaware CellStar Air Services, Inc. Delaware A&S Air Service, Inc. Delaware CellStar Telecom, Inc. Delaware CellStar Fulfillment, Inc. Delaware CellStar International Corporation/Asia Delaware CellStar International Corporation/SA Delaware NAC Holdings, Inc. Nevada Florida Properties, Inc. Texas Audiomex Export Corp. Texas CellStar, Ltd. Texas Limited Partnership CellStar Fulfillment, Ltd. Texas Limited Partnership CellStar Global Satellite Services, Ltd. Texas Limited Partnership CellStar, S.A. Argentina CellStar Argentina, S.A. Argentina CellStar Foreign Sales Corporation Barbados Sizemore International B.V. Netherlands Antilles CellStar Celular Chile, S.A. Chile CellStar de Colombia, Ltda. Colombia CellStar Ecuador, S.A. Ecuador CellStar Telecommunications Service Hong Kong (Asia) Limited /2/ CellStar (Asia) Corporation Limited Hong Kong CellStar Ireland United Kingdom CellStar Amtel Sdn Bhd /3/ Malaysia Sunrise Mobil Sdn Bhd /3/ Malaysia Celular Express S.A. de C.V. Mexico CellStar Mexico S.A. de C.V. Mexico Celular Express Management S.A. de C.V. Mexico Shanghai CellStar International Trading Co. Ltd. Peoples Republic of China Shanghai Fengzing CellStar Trading Peoples Republic of China Telecommunications Trading Co. Ltd. Shenzhen CellStar Honbo Telecommunication Peoples Republic of China Co. Ltd. /4/ CellStar del Peru, S.A. Peru CellStar Philippines, Inc. Philippines CellStar Pacific Pte. Ltd. Singapore CellStar Express(S) Pte. Ltd. Singapore CellStar Holding AB Sweden CellStar-Intercall AB Sweden CellStar Telecommunications Taiwan Co. Ltd. Taiwan CellStar (UK) Ltd. United Kingdom CellStar Netherlands Holdings, B.V. The Netherlands CellStar Netherlands, B.V. The Netherlands Celular Express del Peru S.A.C. Peru CellStar Cayman Ltd. Cayman Islands CellStar Japan, Ltd. Japan CellStar Telecom Limited /5/ Korea CellStar Asia Pacific Corporation British Virgin Islands CellStar Asia.com Inc. British Virgin Islands Systar Corporation Ltd. /6/ Taiwan chinadotcom CellStar Ltd. /6/ British Virgin Islands - ----------------------------------------- /1/ 100%, unless otherwise stated. /2/ 60% owned. /3/ 30% directly owned and 19% beneficially owned. /4/ 30.6% owned. /5/ 80% owned. /6/ 40% owned. EX-23.1 10 0010.txt CONSENT OF KPMG LLP Exhibit 23.1 Independent Auditors' Consent The Board of Directors and Stockholders CellStar Corporation: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-87754, 333-23381 and 333-77415) and Form S-3 (No. 333-41753) of CellStar Corporation of our report dated January 12, 2001, except as to note 6, which is as of February 27, 2001, relating to the consolidated balance sheets of CellStar Corporation and subsidiaries as of November 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended November 30, 2000, and the related schedule, which report appears in the November 30, 2000 annual report on Form 10-K of CellStar Corporation. /S/ KPMG LLP KPMG LLP Dallas, Texas February 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----