-----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, EtwdyNxwmKqMviYx0R8N10FUk9NS2OJPBCAywNDQkMmd4tdW+PvWMwbegGEGi03R yLsEz7xvObJbPcQ3o2fiJA== 0000930661-97-000473.txt : 19970303 0000930661-97-000473.hdr.sgml : 19970303 ACCESSION NUMBER: 0000930661-97-000473 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970228 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-22972 FILM NUMBER: 97546376 BUSINESS ADDRESS: STREET 1: 1730 BRIERCROFT DR CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 2144665000 10-K405 1 FORM 10-K405 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 Ended Commission File Number November 30, 1996 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 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. X --- On January 31, 1997, the aggregate market value of the voting stock held by nonaffiliates of the Company was approximately $277,603,415, based on the closing sales price of $23.125 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 January 31, 1997, there were 19,274,812 outstanding shares of Common Stock, $0.01 par value. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held during 1997 are incorporated by reference into Part III of the Form 10-K. CELLSTAR CORPORATION INDEX TO FORM 10-K
Page Number Part I. - ------- Item 1. Business 3 Item 2. Properties 15 Item 3. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 17 Part II. - -------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 18 Item 6. Selected Consolidated Financial Data 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 8. Consolidated Financial Statements and Supplementary Data 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30 Part III. - --------- Item 10. Directors and Executive Officers of the Registrant 31 Item 11. Executive Compensation 31 Item 12. Security Ownership of Certain Beneficial Owners and Management 31 Item 13. Certain Relationships and Related Transactions 31 Part IV. - -------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
2 Part I. Item 1. Business General CellStar Overview CellStar Corporation ("CellStar" or the "Company") is an integrated wholesaler and retailer of cellular phones and other wireless communications products, with operations in the United States, the Asia-Pacific region, Latin America and the United Kingdom. The Company is one of the world's largest non- carrier wholesale distributors of cellular phones for Motorola Inc. ("Motorola"), Nokia Mobile Phones, Inc. ("Nokia") and Ericsson Inc. ("Ericsson"). The Company is also one of the largest non-carrier wholesale distributors of cellular phones for NEC Corporation ("NEC") in the United States. The Company is also a retailer of wireless communications products and services, with 36 retail locations in the United States, 6 retail locations in the Asia-Pacific region and 20 locations in Latin America as of November 30, 1996. The Company was formed as a Delaware corporation in 1981 to distribute and install automotive aftermarket products. In 1984, the Company began offering cellular phone products and services, and in 1989, the Company became an authorized distributor of Motorola cellular phones in certain regions of the United States. The Company entered into a similar arrangement with Motorola in Latin America in 1991 and in the Asia-Pacific region in 1994. In addition to its operations in the United States, as of November 30, 1996, the Company conducted operations in Hong Kong, China, Singapore, Malaysia, Taiwan and the Philippines (collectively, the "Asia-Pacific Region"), Mexico, Colombia, Venezuela, Ecuador, Chile, Argentina, and Brazil (collectively, the "Latin American Region") and the United Kingdom. Industry Overview Wireless communications technology provides a communications link between the public switched phone network and wireless communications devices, such as cellular handheld, mobile and transportable phones, pagers and two-way radios. Since its inception in 1983, the market for commercial cellular phone service has experienced rapid growth worldwide. According to industry estimates, as of December 31, 1995, there were approximately 85 million cellular phone subscribers worldwide, of which approximately 32 million subscribers were in the United States, approximately 7 million subscribers were in the Asia Pacific Region, approximately 3 million subscribers were in the Latin American Region and approximately 5 million subscribers were in the United Kingdom. As the communications industry evolves, new wireless communications technologies, such as personal communications services ("PCS"), enhanced specialized mobile radio ("ESMR") systems, and satellite-based systems, continue to emerge as alternatives to cellular systems. The Company anticipates that the continued growth of communications technologies and services such as PCS, ESMR and satellite-based systems will impact the composition of the wireless communications market. Although these new technologies are expected to compete with cellular technology, the Company believes that the wireless communications equipment industry as a whole will benefit from the emergence of such technologies, as well as from the rapid growth of the worldwide cellular market in general and the expected continuance of upgrades from analog to digital cellular technology. 3 United States Industry In the United States, cellular phone service was developed as an alternative to conventional landline systems and existing mobile phone service and has been one of the fastest growing market segments in the communications industry. The number of U.S. cellular subscribers has grown significantly since the inception of the cellular phone industry in 1983. According to industry estimates, as of December 31, 1995, there were approximately 32 million subscribers in the United States. In 1996, according to industry estimates, the number of cellular subscribers in the United States grew over 10 million. The chart below sets forth certain estimated information regarding U.S. cellular phone shipments and subscriber growth.
Year Ended December 31, ----------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Number of Cellular Phones Shipped 16,619 14,381 12,774 8,565 6,049 Number of Subscribers 42,300 32,187 23,630 16,255 11,428
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market Trends 1996 (December 1996 Estimates) The Company believes that the U.S. market for wireless services will continue to expand due to the increasing affordability and availability of such services and shorter development cycles for new products and enhancements. In addition, many cellular service providers are upgrading their existing cellular systems from analog to digital technology as a result of capacity constraints in many of the larger cellular markets and in order to respond to competition. Digital technology increases system capacity and is expected to offer other advantages, such as improved overall average signal quality, improved call security, potentially lower incremental costs for additional subscribers and the ability to provide data transmission services. If digital technology improves and becomes more affordable, the Company may benefit both from the sale of digital cellular phones as replacements for existing analog cellular phones and from the increased system capacity digital technology offers. Wholesale Operations General. Approximately 87% of the Company's U.S. revenues during fiscal 1996 were derived from wholesale operations. In the United States, manufacturers such as Motorola, Nokia, Ericsson and NEC sell cellular phones directly to large cellular carriers, such as AT&T Wireless Services, Inc., and large mass merchandisers, such as Sears, Roebuck and Co. The Company's wholesale operations complement these manufacturers' distribution channels, in that these manufacturers generally also sell to wholesale distributors such as the Company in order to access smaller volume purchasers. The Company also acts as a wholesale distributor of cellular accessories manufactured by original equipment manufacturers ("OEMs") and other suppliers to cellular carriers and mass merchandisers, as well as to smaller volume purchasers. 4 During fiscal 1996, the Company sold its products to over 3,000 U.S. wholesale customers, the ten largest of which accounted for approximately 24% of the Company's consolidated net product sales in fiscal 1996. The Company offers cellular phones and accessories manufactured by OEMs, such as Motorola, Nokia, NEC and Ericsson, and aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, antennas, batteries, battery packs, battery eliminators and battery chargers. The Company sells these products under private labels to cellular carriers such as Southwestern Bell Mobile Systems, Inc., GTE Mobilnet, AirTouch Cellular, Cellular One and U.S. Cellular. The Company continues to broaden its product mix to include products that are compatible with new systems, such as GSM (Global System for Mobile Communications) and other digital systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. During fiscal 1996, the Company began to take advantage of the growing demand for value-added facilitation and fulfillment services, including aftermarket and OEM product packaging and configuration, inventory management, order processing, return and repair management, marketing and design, credit and collections, and phone sales. The Company has provided some or all of these services to small carriers and, in October 1996, the Company entered into an agreement with Pacific Bell Mobile Services, pursuant to which the Company provides certain of these facilitation services. The Company's primary distribution facility, a 120,000 square foot warehouse facility, is located at its international headquarters in the Dallas/Fort Worth metropolitan area. The Company also operates a wholesale distribution facility in Miami, Florida to serve customers in the Latin American Region. During fiscal 1996, the Company altered its business strategy to sell to customers exporting into Colombia, Venezuela, Ecuador, Chile, Argentina and Brazil ("South America") directly from the Miami location rather than from its operations in South America. The Company also offers facilitation services for its operations in the Latin American Region out of the Miami location. The Company also operates smaller distribution facilities from its Hayward, California location. Sales and Marketing. The Company markets its products nationally to wholesale purchasers through its direct sales force 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. Retail Operations General. Approximately 13% of the Company's U.S. revenues in fiscal 1996 were derived from retail operations. On November 26, 1996, as part of its move to focus on its core wholesale business, the Company sold 334 of its 355 Communication Centers to MCI Telecommunications Corporation ("MCI"). Prior to such sale, the Company was a large activation agent of cellular phones in the United States, activating cellular service for large cellular carriers throughout the United States. During fiscal 1996, the Company had an average of approximately 350 Communication Centers in operation. As of November 30, 1996, the Company conducted its U.S. retail operations through 15 stand-alone retail stores in four states and its 21 remaining Communication Centers. The Company's retail stores generate revenues from three sources: the sale of cellular phones and other products, activation commissions and, in many cases, residual payments. An 5 activation commission is paid by a cellular carrier when a customer initially subscribes for cellular service. The amount of the activation commission paid by a cellular carrier is based on the service plans and promotional marketing programs offered by that particular cellular carrier. Many of the Company's carrier contracts provide for a residual payment, which is a monthly payment made by a cellular carrier to the Company based on the cellular phone usage by a customer activated by the Company. Because standard cellular industry practice among activation agents is to offer certain cellular phones to a cellular subscriber at no charge, as a practical matter, the Company does not believe it can operate at the retail level on a profitable basis without agency agreements with cellular carriers that provide for activation commissions or residual fees. The Company's relationships with its carriers are governed by contracts, pursuant to which the Company is engaged as an agent to solicit and sell cellular phone services in certain geographic areas and may not act as a representative or agent for any other carrier or reseller in those areas. In the Dallas/Fort Worth, Texas, Kansas City, Missouri, and Kansas City and Wichita, Kansas markets, the Company conducts its retail operations under the name National Auto Cellular, and in the Houston and Austin, Texas markets, the Company conducts business under the name PC Cellular. The Company recently closed its retail locations in San Diego, California and Syracuse, New York. Sales and Marketing. The Company promotes its stand-alone retail stores through direct mailings and local media, including billboards, newspapers and radio. Most of the Company's advertising expenditures are spent on print and radio advertising in order to take advantage of cooperative advertising allowances generally provided by manufacturers and cellular phone carriers. To penetrate local markets, the Company has made use of subagent relationships. Subagents solicit customers and activate cellular service on behalf of the Company and receive a majority of the activation commissions, while the Company receives the residual commissions. Asia-Pacific Region Industry According to industry estimates, in 1995, the number of cellular subscribers in the Asia-Pacific Region grew over 3 million. In 1996, according to industry estimates, the number of cellular subscribers in the Asia-Pacific Region grew over 5 million. Whereas demand for wireless service in major industrialized countries has been driven primarily by automobile and business travel, the Company believes that in the Asia-Pacific Region, demand for such services has been and will 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 factors, as well as the large population bases and economic growth in this region, the Company believes that phone users will increasingly utilize wireless systems, despite the fact that wireless service may be more expensive to the consumer than conventional landline communications. 6 The chart below sets forth certain estimated information regarding cellular phone shipments and subscriber growth in the Asia-Pacific Region.
Year Ended December 31, ----------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Number of Cellular Phones Shipped 5,883 3,606 1,685 954 545 Number of Subscribers 11,865 6,753 3,576 2,054 1,195
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market Trends 1996 (December 1996 Estimates) Operations General. The key to the Company's expansion in the Asia-Pacific Region has been its relationships with wireless equipment manufacturers. The Company typically enters a new market with the support of a manufacturer. The Company distributes products in the Asia-Pacific Region primarily for Motorola and Ericsson. Throughout the Asia-Pacific Region, CellStar acts as a wholesale distributor of wireless phones to large and small volume purchasers, including indirect sales to the large cellular carriers. Although the Company's business in the Asia-Pacific Region is predominantly wholesale, operations within a particular country may be either wholesale, retail, or both, and may be owned solely by the Company or jointly with local partners, depending on the market and regulatory environment in the host country. The following table outlines the Company's entry into the Asia-Pacific Region:
Type of Operation Country Year Entered (as of November 30, 1996) - ------- ------------ ------------------------- Hong Kong/China 1993 Wholesale Singapore 1995 Wholesale and Retail The Philippines 1995 Wholesale Malaysia 1995 Wholesale and Retail Taiwan 1995 Wholesale
All of the Company's operations in this region are wholly or majority-owned except for the Company's operations in Malaysia. CellStar (Asia) Corporation, Ltd. ("CellStar Asia"), the oldest of the Company's business units in the region and the Company's most significant operation outside the United States, began as a joint venture in 1993 and became wholly-owned in June 1995. CellStar Asia's revenue is derived principally from wholesale sales of wireless products to Hong Kong-based companies that ship wireless products to China. At November 30, 1996, the Company sold its products to approximately 56 wholesale customers in the Asia-Pacific Region, the ten largest of which accounted for approximately 21% of the Company's consolidated net product sales in fiscal 1996. The Company offers wireless phones and accessories manufactured by OEMs, such as Motorola and Ericsson, and 7 aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, hands-free kits, earphones and plug-in chargers. The Company continues to broaden its product mix in the Asia-Pacific Region to include products that are compatible with new systems, such as ETAC (Enhanced Total Access Communications), GSM and other digital systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company's operations and sales in the Asia-Pacific Region are subject to political and economic risks, including political instability, currency controls, currency devaluations, exchange rate fluctuations, increased credit risks, inflation, foreign tax laws, changes in import/export regulations and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. Sales and Marketing. The Company markets its products to wholesale purchasers through direct sales and advertising. To penetrate local markets in the Philippines, the Company has made use of subagent relationships. Latin American Region Industry According to industry estimates, in 1995, the number of cellular subscribers in the Latin American Region grew over 1 million. In 1996, according to industry estimates, the number of cellular subscribers in the Latin American Region grew by close to 2 million. The Company believes that in the Latin American Region, demand for such services has been and will continue to be driven by an unsatisfied demand for basic phone service due to lack of adequate landline service and limited wireless penetration, as well as expansion of wireless capacity in this region. 8 The chart below sets forth certain estimated information regarding cellular phone shipments and subscriber growth in the Latin American Region.
Year Ended December 31, ------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Number of Cellular Phones Shipped 2,222 1,461 1,010 434 271 Number of Subscribers 5,272 3,305 1,951 962 527
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market Trends 1996 (December 1996 Estimates) Operations General. The key to the Company's expansion in the Latin American Region has been its relationships with wireless equipment manufacturers and wireless service carriers. The Company distributes products in the Latin American Region for Motorola, Ericsson and Nokia. CellStar acts as a wholesale distributor of cellular phones in the Latin American Region to large volume purchasers, such as the large cellular carriers (e.g., Telcel, the cellular subsidiary of Telmex), as well as to smaller volume purchasers. Although the Company's business in the Latin American Region is predominantly wholesale, operations within a particular country may be either wholesale, retail, or both. In fiscal 1996, the Company instituted a program to reduce the overall level of assets maintained in the Latin American Region to reduce its exposure to financial and operating risks in the region and to reduce working capital requirements. Changes to the Company's operating strategy include sales of products from the Miami, Florida warehouse to South American customers exporting into South American countries and a general reduction in the number of employees in the region. The following table outlines the Company's entry into its Latin American Region:
Type of Operation Country Year Entered (as of November 30, 1996) - ------- ------------ ------------------------- Mexico 1991 Wholesale and Retail Venezuela 1993 Wholesale and Retail Brazil 1993 Wholesale and Retail Chile 1993 Wholesale and Retail Colombia 1994 Wholesale and Retail Ecuador 1995 Wholesale and Retail Argentina 1995 Wholesale
The Company acts through wholly-owned subsidiaries in each of the countries in this region. The Company's largest wholesale customers in the region are cellular carriers. As of November 30, 1996, the Company operated 20 full-service retail stores in Latin America -- 13 in Mexico, 3 in Columbia, and 1 in each of Venezuela, Chile, Brazil and Ecuador. As of 9 November 30, 1996, the Company also operated 4 kiosks in Venezuela. The Company receives activation commissions in all Latin American retail markets except Brazil. At November 30, 1996, the Company sold its products to approximately 550 wholesale customers in the Latin American Region, the ten largest of which accounted for approximately 7% of the Company's consolidated net product sales in fiscal 1996. The Company offers cellular phones and accessories manufactured by OEMs, such as Motorola, Nokia and Ericsson, and aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, batteries, battery eliminators, chargers, leather cases, power supplies and antennas. The Company sells these products to mass merchandisers and other retailers. The Company continues to broaden its product mix in the Latin American Region to include products that are compatible with new systems, such as digital. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company's operations and sales in the Latin American Region are subject to political and economic risks, including political instability, currency controls, currency devaluations, exchange rate fluctuations, increased credit risks, inflation, foreign tax laws, changes in import/export regulations and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. Sales and Marketing. The Company markets its products through direct sales and advertising. In the Latin American markets where it conducts retail operations, the Company primarily utilizes direct mailings and newspapers to promote its retail operations. To penetrate local markets, the Company has made use of subagent relationships in Mexico, Venezuela, Colombia and Ecuador. During fiscal 1996, the Company launched prepaid cellular programs in Mexico and Venezuela. The Company expects these prepaid programs to make wireless communications services more accessible to the overall population in these markets because it eliminates the need for established credit and monthly fees. Other Regions During fiscal 1996, the Company formed a majority-owned U.K. subsidiary to distribute cellular phones, pagers, PCS, mobile radio and other wireless communications equipment and related accessory products throughout the United Kingdom. The Company also signed an agreement with Motorola to distribute wireless products throughout the United Kingdom. The Company is also considering entry into other countries where the Company believes the environment is conducive to the growth of the wireless market. The Company will continue to assess evolving market conditions, economic conditions and other factors which may affect its prospects in a particular foreign country. Industry Relationships The Company has established relationships with leading wireless equipment manufacturers and wireless service carriers. These alliances have been key to the Company's market and product expansion. Although the Company purchased its products from more than 20 suppliers in fiscal 1996, substantially all of the Company's purchases were from Motorola, Nokia, Ericsson and 10 NEC. The Company also distributed cellular products that are manufactured by these and other manufacturers under its own trade name, CellStar. The Company has various one-year supply contracts with Motorola, Nokia and Ericsson that specify territories, minimum purchase levels, pricing and payment terms. These contracts typically provide that the Company will receive the benefit of price decreases on products in the Company's inventory if such products were shipped to the Company within a specified period of time prior to the price decrease. The Company's expansion is due to several factors, one of which is its relationship with Motorola, the largest manufacturer of cellular products in the world, according to industry sources, and the Company's largest supplier. For the year ended November 30, 1996, Motorola accounted for approximately 74% of the Company's product purchases, including CellStar branded products. The Company considers its relationships with its suppliers to be satisfactory. The Company believes that its relationship with Motorola will enable it to continue to offer a wide variety of cellular products in the marketplace. In July 1995, Motorola purchased 696,437 shares of the outstanding common stock of the Company. 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 a vendor could have a materially adverse impact on the Company. In addition, if the Company is unable to obtain sufficient amounts of products from its vendors on a timely basis, its operations could be materially and adversely affected. 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 in different markets, product promotions of competitors and suppliers, availability of distribution channels, and product supply and pricing. Seasonality contributed to the increase in the Company's sales during the fourth quarter of 1996. 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 material adverse effect on the Company's operating results. Asset Management Management Information Systems During fiscal 1996, the Company continued to invest in technology to improve financial and information technology control systems. The Company is continuing to focus on materials management and international operations. In addition, the Company has targeted several new short-term and long-term projects to enhance its information systems, including (i) development of data warehousing and decision support technologies, (ii) updates to the network operating system and core network servers to newer technology, (iii) upgrades to allow remote computing, (iv) advancements in inventory planning and control, (v) implementation of electronic commerce utilizing the Internet and (vi) integration and more efficient communication between global sites. Inventory The Company purchases its products from more than 20 suppliers that ship directly to the Company's warehouse or distribution facilities. Inventory purchases are based on quality, 11 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. The manufacturers of products typically provide replacement warranties, which the Company extends to its customers. Currently, the Company has no long-term contracts for the purchase of merchandise. The market for wireless products is characterized by rapidly changing technology and frequent new product introductions. The Company's success depends in large part upon its ability to identify and obtain the right to market products that will meet the changing requirements and demands of the marketplace. Inventory control is important to the Company's ability to maintain margins while offering its customers competitive prices and rapid delivery of a wide variety of products. The Company uses its management information system and an electronic purchase order system to help manage inventory and sales margins. There can be no assurance that the Company will be able to identify, obtain and offer products necessary to remain competitive. The Company has in the past experienced shortages in supply for certain products that have been in high demand, and no assurance can be given that product shortages will not occur in the future. 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 this risk by managing inventory turns and by entering into arrangements with its vendors, including price protection credits and return privileges for slow-moving products. The Company's significant inventory investment in its international operations exposes it to certain political and economic risks. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." During fiscal 1996, the Company embarked upon a program to re-engineer its materials management processes, including reconfiguration of its main warehouse layout to optimize cycle times and reduce inventory handling costs. During fiscal 1997, the Company intends to continue implementation of the re- engineering program and to expand on technologies such as Radio Frequency (to capture outbound serial numbers into the Company's AS/400 system) and integration of the Company's major shipping partner into the AS/400 system. Typically, the Company ships its products within 24 hours from receipt of customer orders. Therefore, the only backlog is on products that the Company is unable to obtain from a supplier. At November 30, 1996, no such orders were considered firm. 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. 12 In addition, potential users of cellular systems may find their communications needs satisfied by other current and developing technologies. For example, ESMR, PCS or satellite-based systems are being developed to compete with cellular systems. 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. wholesale wireless phone and accessory product markets, the Company's primary competitors are cellular carriers and other independent distributors such as Brightpoint, Inc. ("Brightpoint") and Pana-Pacific Corporation. The Company also competes with logistics companies. The Company's major competitors in the United States in the retail cellular phone markets are other agents and resellers and cellular carriers that have retail outlets. Competitors of the Company in the Asia-Pacific and Latin American Regions include national carriers that have retail outlets with direct end-user access, and U.S. and foreign-based exporters and distributors, including Brightpoint. In addition, the Company competes for activation fees and residual fees with agents and subagents for the cellular carriers. Products that reach the market outside of normal distribution channels, such as "gray market" resales (e.g., unauthorized or illegal resales, which may avoid applicable duties and taxes), may also have a negative impact on the Company's operations. Employees As of November 30, 1996, the Company had approximately 1,010 employees. Of these employees, approximately 540 work in U.S. operations, approximately 180 work in the Asia-Pacific operations, approximately 270 work in the Latin American operations and approximately 20 work in the U.K. operations. Of the Company's U.S. employees, approximately 185 are involved in wholesale operations, approximately 260 are involved in retail operations, and approximately 95 are corporate office personnel. None of the Company's U.S. or Asia-Pacific employees are subject to collective bargaining agreements. In Mexico, approximately 115 employees are subject to labor agreements. The Company never has 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 53 Chief Executive Officer and Chairman of the Board of Directors Richard M. Gozia 52 President, Chief Operating Officer and Director Mark Q. Huggins 47 Senior Vice President -- Administration, Chief Financial Officer and Treasurer A.S. Horng 39 General Manager of CellStar Asia Daniel T. Bogar 37 Vice President -- South American Operations and Director Michael S. Hedge 40 Vice President -- Wholesale Sales and Director Timothy L. Maretti 43 Vice President -- Mexican Operations Evelyn Henry Miller 39 Vice President -- Corporate Controller Elaine Flud Rodriguez 40 Vice President, General Counsel and Secretary Richard L. White 37 Vice President & Chief Information Officer
13 Alan H. Goldfield is a founder of the Company and has been the Chairman of the Board of Directors and Chief Executive Officer of the Company since its formation in 1981. Mr. Goldfield served as President of the Company from its formation until March 1995, when Terry S. Parker was appointed President, and from August 1996 until December 1996, when Richard M. Gozia was appointed President. Mr. Goldfield serves as an officer and director of the Company pursuant to his employment agreement. Richard M. Gozia has been the President and Chief Operating Officer of the Company since December 1996. Mr. Gozia joined CellStar as Executive Vice President-Administration and Chief Financial Officer in June 1996. He has been a member of the Board of Directors since June 1996. Mr. Gozia serves as an officer and director of the Company pursuant to his employment agreement. From 1994 to 1996, Mr. Gozia served as Executive Vice President of Spectravision, Inc., a provider of in-room hotel movies. From 1991 to 1994, Mr. Gozia was Chairman and Chief Executive Officer of Wyatt Cafeterias, Inc. A.S. Horng has been General Manager of CellStar Asia since September 1993. He currently has responsibility for all of the Company's operations in the Asia-Pacific Region. From 1991 to 1993, Mr. Horng was President of C-Mart USA Corporation, a distributor and manufacturer of aftermarket cellular phone accessory products. Mr. Horng serves CellStar Asia pursuant to his employment agreement. Mark Q. Huggins joined the Company as Senior Vice President - Administration, Chief Financial Officer and Treasurer in January 1997. From September 1992 until January 1997, Mr. Huggins served as Chief Financial Officer of Van Camp Seafood Company, Inc., a manufacturer of canned seafood products. From May 1991 until September 1992, Mr. Huggins served as Vice President - Finance of Clarke American Checks, Inc., a check printer. Mr. Huggins serves as an officer of the Company pursuant to his employment agreement. Daniel T. Bogar has served as Vice President of South American Operations since October 1993 and has been a director of the Company since July 1994. From August 1991 to November 1992, Mr. Bogar managed the Company's operations in Mexico, and from 1987 to 1991, Mr. Bogar was General Manager of the Company's Houston operations. Mr. Bogar has been responsible for the Company's South American operations since November 1992. Michael S. Hedge has served as Vice President of Wholesale Sales and as a director of the Company since October 1993. From 1990 to 1993, Mr. Hedge was the Company's Wholesale Distribution Sales Manager. From 1987 until 1990, Mr. Hedge was Sales Manager of the Company's Houston operations. Timothy L. Maretti has served as Vice President of Mexican Operations of the Company since October 1993. In January 1995, Mr. Maretti was given the additional responsibility of developing the Company's operations in certain areas of the Asia-Pacific Region, and in January 1996, Mr. Maretti was given the additional responsibility of developing the Company's operations in Brazil. From March 1992 to 1993, Mr. Maretti served as general director of the Company's Mexican operations. From 1987 to 1992, Mr. Maretti served as vice president- regional general manager of Southwestern Bell Mobile Systems, Inc., Dallas. Evelyn Henry Miller has served as Vice President - Corporate Controller of the Company since November 1995. From August 1993 until October 1995, Ms. Miller served as Director, Corporate Accounting of Aviall, Inc. ("Aviall"), the world's largest independent overhauler of turbine engines and distributor of airline parts. From April 1988 until August 1993, Ms. Miller served in various other capacities for Aviall, including Director, Financial Planning and Analysis; Senior Manager, Accounting; and Manager, Inventory Accounting and Control. Prior to joining Aviall, Ms. Miller served as Assistant Controller, Accounting 14 Operations for Dallas Market Center (a Trammell Crow Company) and held several positions with KPMG Peat Marwick. Ms. Miller is a Certified Public Accountant. Elaine Flud Rodriguez joined the Company in September 1993 and has been Vice President, General Counsel and Secretary since 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 of law with Atlas & Hall and Akin, Gump, Strauss, Hauer & Feld. Ms. Rodriguez is licensed to practice law in the states of Texas and Louisiana. Richard L. White has served as Vice President and Chief Information Officer of the Company since November 1996. From October 1995 until joining the Company, Mr. White served as a director with BSG Alliance/IT, a systems integrater. From April 1983 to October 1995, Mr. White held several positions with various units of AMR Corporation, an airline holding company, including Vice President - Technology for Data Management Services, an AMR Services subsidiary specializing in offshore data capture and image processing, Manager of Project Consulting/Risk Assessment for The Sabre Group, and various management positions with The Sabre Group and American Airlines' technology services. Item 2. Properties The Company's corporate headquarters and distribution facility, located at 1730 and 1728 Briercroft Court in Carrollton, Texas, are owned by the Company, subject to a first lien mortgage. The corporate headquarters contains approximately 43,000 square feet and is utilized as the Company's primary corporate offices and as a product return center. The distribution facility contains approximately 120,000 square feet and is used as the Company's primary warehouse and distribution center. The Company leases its Miami, Florida distribution facility which contains approximately 22,500 square feet and is used to serve customers in the Latin American Region. As of November 30, 1996, the Company leased a total of 23 other U.S. operating facilities (not including Communication Centers located in Sam's Clubs) in 5 states and a total of 27 operating facilities in Mexico, Venezuela, Chile, Brazil, Colombia, Argentina, Ecuador, China, Hong Kong, Taiwan, Singapore, the Philippines and Malaysia. These facilities serve as offices, warehouses, distribution centers or retail locations. The Company believes that its existing facilities will be adequate to meet current requirements and that suitable additional space will be available as needed to accommodate future expansion of its operations. Item 3. Legal Proceedings On May 14, 1996, a purported class action lawsuit was filed in the United States Federal District Court for the Northern District of Texas, Dallas Division, styled as follows: Sidney Gluck, John Dolcemaschio, James Miller and Nancy L. Miller v. CellStar Corporation, Alan H. Goldfield, Terry S. Parker, John S. Bain, Kenneth W. Sanders, and KPMG Peat Marwick, L.L.P. (the "Gluck Suit"). The Gluck Suit alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder, as well as certain state laws. The plaintiffs allege that the defendants misrepresented or failed to disclose material facts concerning the business prospects and financial condition of the Company, and that the value of the Company's common stock was artificially inflated as a result of such misrepresentations or 15 failures to correct the alleged misrepresentations. The Gluck Suit seeks compensatory and exemplary damages and reimbursement of attorneys' fees and costs. On May 21, 1996, a purported class action lawsuit was filed in the United States Federal District Court for the Northern District of Texas, Dallas Division, styled as follows: Diane Larson against CellStar Corporation, Alan H. Goldfield, Terry S. Parker and Evelyn M. Henry (the "Larson Suit"). The Larson Suit alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The plaintiffs allege that the defendants misrepresented the actual financial condition of the Company and its current and future business prospects by overstating the Company's revenues and earnings and reflecting a bullish outlook for the Company when it was allegedly experiencing a slowdown in growth. They allege that these actions artificially inflated the price of the Company's common stock. The Larson Suit seeks money damages and reimbursement of attorneys' fees and cost. On June 14, 1996, a purported class action lawsuit was filed in the United States Federal District Court for the Northern District of Texas, Dallas Division, styled as follows: Elvia H. Goggin and R. Heath Larry vs. CellStar Corporation, Alan H. Goldfield and Terry S. Parker (the "Goggin Suit"). The Goggin Suit alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The plaintiffs allege that the defendants made false and misleading statements regarding CellStar's performance and misrepresented or failed to disclose material facts affecting CellStar's expenses and profits, thereby allegedly artificially inflating and maintaining the market price of CellStar common stock and distorting investors' assessment of the Company. The Goggin Suit seeks money damages and reimbursement of attorneys' fees and costs. On July 22, 1996, a purported class action lawsuit was filed in the United States Federal District Court for the Northern District of Texas, Dallas Division, styled as follows: Reed and Lillian Riemer v. Cellstar Corporation, Alan H. Goldfield, Terry S. Parker, John S. Bain, Kenneth W. Sanders and KPMG Peat Marwick, L.L.P. (the "Riemer Suit"). The Riemer Suit alleges violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, as well as certain state laws. The plaintiffs allege that the defendants made untrue statements of material fact and/or omitted to state material facts about the business, financial condition, performance and future prospects of the Company, and that the value of the Company's common stock was artificially inflated as a result of such statements and omissions. The Riemer Suit seeks compensatory and exemplary damages and reimbursement of counsel and expert fees and costs. The Riemer Suit has been consolidated with the Gluck Suit, the Larson Suit, and the Goggin Suit, and the State of Wisconsin Investment Board has been appointed lead plaintiff in the consolidated action. The lead plaintiff, joined by Diane Larson, Martin Katz, Mostafa Aboul-Fetouh, Ahmed Aboul-Fetouh, Enass Aboul-Fetouh and Norma Vittor, filed a Consolidated Amended Complaint that asserts (i) claims against the Company, Alan H. Goldfield, Terry S. Parker, John S. Bain, Kenneth W. Sanders, Evelyn M. Henry and Leonard C. Ratley for violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, Texas Civil Statute section 27.01, common law fraud, and for negligent misrepresentation; (ii) an additional claim against those individual defendants for violations of Section 20(a) of the Exchange Act; and (iii) claims against those individual defendants, Daniel T. Bogar, James L. Johnson, Ronald J. Kramer, Michael S. Hedge and Kenneth E. Kerby for breach of a fiduciary duty of disclosure under Delaware common law. The Consolidated Amended Complaint alleges, among other things, that the defendants misrepresented or failed to disclose material facts regarding the business, financial condition, performance and future prospects of the Company and that, as a result of such statements or omissions, the value of the Company's common stock was artificially inflated. Claims are also asserted against the Company's auditors, KPMG Peat Marwick L.L.P. The plaintiffs seek compensatory damages, exemplary damages and costs and expenses, including attorneys' fees and expert fees. All defendants have filed motions to dismiss all claims asserted in the Consolidated Amended Complaint. The motions are pending. The Company believes it has meritorious defenses to these claims and is vigorously defending this action. The ultimate outcome is not currently predictable. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these other matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. 16 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, 1996. 17 Part II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock began trading on the NASDAQ National Market System under the symbol CLST on December 7, 1993. Prior to the Company's initial public offering in December 1993, there was no established public trading market for the Company's common stock. As of January 31, 1997, there were 205 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 following table sets forth, on a per share basis for the periods indicated and since the Company's initial public offering, the high and low sale prices for the common stock during fiscal 1996 as reported by NASDAQ.
High Low ------- ------- Fiscal Year ended November 30, 1996 Quarter Ended: February 29, 1996...................... $29.250 $17.375 May 31, 1996........................... $18.000 $ 5.750 August 31, 1996........................ $10.375 $ 6.250 November 30, 1996...................... $12.750 $ 6.000 Fiscal Year ended November 30, 1995 Quarter Ended: February 28, 1995...................... $25.500 $16.125 May 31, 1995........................... $25.125 $17.125 August 31, 1995........................ $34.375 $19.500 November 30, 1995...................... $37.125 $22.500
The Company has never declared or paid cash dividends on its common stock. The Company presently intends to retain all earnings to finance the continued growth and development of its business and does not anticipate paying any 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 credit agreements existing from time to time, as well as other factors as the Board of Directors may deem relevant. There can be no assurance that the Company will pay any dividends in the future. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." 18 Item 6. Selected Consolidated Financial Data The selected data presented below was derived from the audited financial statements of the Company for the periods presented. The selected 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, --------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- (In thousands, except per share and operating data) Income Statement Data: Revenues: Net product sales $ 845,569 723,886 447,741 224,845 136,946 Activation income 88,474 75,690 60,153 42,223 39,387 Residual income 13,558 12,339 10,528 8,308 4,626 ----------- ----------- ----------- ----------- ----------- Total revenues 947,601 811,915 518,422 275,376 180,959 Cost of sales 810,000 702,074 448,780 229,796 148,490 ----------- ----------- ----------- ----------- ----------- Gross profit 137,601 109,841 69,642 45,580 32,469 ----------- ----------- ----------- ----------- ----------- Operating expenses: Selling, general and administrative expenses 135,585 76,553 44,598 28,321 19,882 Fees and bonus to stockholders - - - 3,135 9,084 ----------- ----------- ----------- ----------- ----------- Total operating expenses 135,585 76,553 44,598 31,456 28,966 ----------- ----------- ----------- ----------- ----------- Operating income 2,016 33,288 25,044 14,124 3,503 Other income (expense), net (8,882) (2,950) 232 (1,228) (1,635) ----------- ----------- ----------- ----------- ----------- (Loss) income before income taxes (6,866) 30,338 25,276 12,896 1,868 Income taxes (1) (453) 7,442 9,028 5,043 1,880 ----------- ----------- ----------- ----------- ----------- Net (loss) income $ (6,413) 22,896 16,248 7,853 (12) =========== =========== =========== =========== =========== Net (loss) income per share $ (0.33) 1.22 0.88 0.58 - =========== =========== =========== =========== =========== Weighted average number of shares outstanding 19,274 18,822 18,441 13,500 13,500 =========== =========== =========== =========== =========== Balance Sheet Data: Working capital $ 71,365 74,410 63,668 7,052 9,584 Total assets $ 298,551 314,921 186,354 89,894 52,762 Notes payable to financial institutions, current portion of notes payable to stockholders and current portion of long-term debt $ 56,704 99,187 12,735 8,968 4,037 Long-term debt, less current portion $ 6,285 6,880 3,095 - - Notes payable to stockholders, less current portion $ - - - 7,214 13,420 Stockholders' equity (deficit) $ 104,263 111,295 76,642 7,749 (51) Operating Data: International revenues as % of total revenues 39.9% 41.1% (2) 23.3% (2) 22.5% 31.0% Number of U.S. retail locations at year end: Stand-alone stores 15 16 17 12 11 Communication Centers 21 347 76 - -
(1) The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109"), as of December 1, 1991, without restatement of prior years' consolidated financial statements. As a result of applying Statement 109 in 1992, net loss for the year ended November 30, 1992 decreased approximately $776,000 ($.06 per share) due to the recognition of a deferred tax benefit that could not be recognized under the provisions of APB Opinion No. 11. (2) Excludes sales to CellStar Asia, which were included in U.S. sales prior to the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995. If the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995 is given pro forma effect as of December 1, 1993, international revenues as a percent of total revenues would be 51.9% and 34.7% for fiscal 1995 and 1994, respectively. 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company is an integrated wholesaler and retailer of cellular phones and other wireless communications products. From fiscal 1992 to fiscal 1996, the Company's total revenues grew from $181.0 million to $947.6 million. The Company accomplished this growth primarily by focusing its efforts on the cellular phone industry. To date, U.S. sales of cellular phone products have increased primarily as a result of greater market penetration and decreasing unit prices. Higher unit sales have resulted in an increase in total revenues, which have more than offset decreases in unit prices. The Company's international sales of cellular phone products have increased primarily as a result of its entry into the Asia-Pacific and Latin American Regions. The Company reported a net loss for fiscal 1996 of $6.4 million, compared to net income of $22.9 million for fiscal 1995, and a net loss per share of $0.33 for fiscal 1996, compared to net income per share of $1.22 for fiscal 1995. Such results were primarily due to a write-down of receivables in Brazil and unprofitable growth of the Company's Communication Centers located in Sam's Clubs. This Annual Report on Form 10-K comtains forward-looking statements relating to such matters as anticipated financial performance and business prospects. When used in this Annual Report, the words "anticipate," "estimate," "expect," "may," "project," "believes" and similar expressions are intended to be among the statements that identify forward-looking statements. From time to time, the Company may also publish forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward looking statements. The Company's overall operations are also subject to certain risks. See "Business-- Industry Overview--Industry Relationships--Seasonality and Cyclicality--Asset Management--Competition," above, and "--Liquidity and Capital Resources--Impact of Inflation--Seasonality and Cyclicality," below. Foreign operations and sales are further subject to political and economic risks, including political instability, currency controls, currency devaluations, exchange rate fluctuations, credit risks, inflation, foreign tax laws, changes in import/export regulations and tariffs. See "Business--Asia-Pacific Region-- Operations--Latin American Region--Operations--Industry Relationships-- Seasonality and Cyclicality--Asset Management--Competition," above, and "-- Liquidity and Capital Resources--International Operations--Impact of Inflation-- Seasonality and Cyclicality," below. To enable the Company to focus its resources more effectively on its core wholesale operations, in November 1996, the Company completed the sale to MCI of substantially all of its Communication Centers for $16.1 million. The transaction did not result in a material gain. The Company also signed a distribution agreement with MCI to supply MCI with cellular phones and accessories for the Communication Centers. 20 The Company expects that with future increases, if any, to its revenues more funds will be needed to support corresponding increases in the Company's inventory and accounts receivable levels. See "--Liquidity and Capital Resources" below. Results of Operations The Company's historical records do not enable management to provide accurate information with respect to disaggregated wholesale and retail prices, volumes and gross margins. The gross margins realized from its wholesale product revenues are generally lower than the margins realized from its retail product revenues. Therefore, if wholesale revenues increase relative to retail revenues, gross profit as a percentage of total revenues decreases. However, due to the more labor intensive nature of its retail operations, selling, general and administrative expenses are higher with respect to retail sales, which offsets the higher gross margins the Company realizes from retail product sales. The following table sets forth certain statement of operations data for the Company expressed as a percentage of total revenues for the past three fiscal years:
1996 1995 1994 ---------- ---------- ---------- Revenues: Net product sales 89.2 % 89.2 % 86.4 % Activation income 9.3 9.3 11.6 Residual income 1.5 1.5 2.0 ---------- ---------- ---------- Total revenues 100.0 100.0 100.0 Cost of sales 85.5 86.5 86.6 ---------- ---------- ---------- Gross profit 14.5 13.5 13.4 Selling, general and administrative expenses 14.3 9.4 8.6 ---------- ---------- ---------- Operating income 0.2 4.1 4.8 Other income (expense): Interest expense (0.9) (0.8) (0.2) Other income, net - 0.4 0.2 ---------- ---------- ---------- Total other income (expense) (0.9) (0.4) - (Loss) income before income taxes (0.7) 3.7 4.8 Income taxes - (0.9) (1.7) ---------- ---------- ---------- Net (loss) income (0.7) % 2.8 % 3.1 % ========== ========== ==========
21 The Company classifies revenues generated by its majority-owned foreign subsidiaries as revenues attributable to its international operations and classifies export sales to its nonconsolidated ventures as revenues attributable to its U.S. operations. The amount of net revenues and the approximate percentages of net revenues attributable to the Company's operations for the past three fiscal years are shown below:
1996 1995 1994 -------------------- --------------------- -------------------- (Dollars in thousands) U.S.: Net product sales/(1)/ $ 485,788 51.3 % 415,094 51.1 % 354,193 68.3 % Activation income 71,072 7.5 52,704 6.5 35,286 6.8 Residual income 11,884 1.3 10,379 1.3 8,625 1.6 ------------ ------ ------------ ------- ----------- ------- Total U.S. 568,744 60.1 478,177 58.9 398,104 76.7 ------------ ------ ------------ ------- ----------- ------- Asia-Pacific: Net product sales/(2)/ 247,773 26.1 183,274 22.6 - - Activation income 720 0.1 - - - - Residual income - - - - - - ------------ ------ ------------ ------- ----------- ------- Total Asia-Pacific 248,493 26.2 183,274 22.6 - - ------------ ------ ------------ ------- ----------- ------- Latin America: Net product sales 101,440 10.7 125,518 15.5 93,548 18.1 Activation income 16,682 1.8 22,986 2.8 24,867 4.8 Residual income 1,674 0.1 1,960 0.2 1,903 0.4 ------------ ------ ------------ ------- ----------- ------- Total Latin America 119,796 12.6 150,464 18.5 120,318 23.3 ------------ ------ ------------ ------- ----------- ------- Europe: Net product sales 10,568 1.1 - - - - Activation income - - - - - - Residual income - - - - - - ------------ ------ ------------ ------- ----------- ------- Total Europe 10,568 1.1 - - - - ------------ ------ ------------ ------- ----------- ------- Total $ 947,601 100.0 % 811,915 100.0 % 518,422 100.0 % ============ ====== ============ ======= =========== =======
- --------------- (1)Includes export sales of $90.2 million and $59.8 million in 1995 and 1994, respectively, to CellStar Asia prior to June 3, 1995 when CellStar Asia became a wholly-owned subsidiary of the Company. (2)Fiscal year 1995 includes sales of $143.1 million by CellStar Asia after June 2, 1995. 22 Fiscal 1996 Compared to Fiscal 1995 Revenues. Total revenues increased $135.7 million, or 16.7%, from $811.9 million in fiscal 1995 to $947.6 million in fiscal 1996. U.S. revenues increased 18.9%, from $478.2 million in fiscal 1995 to $568.7 million in fiscal 1996. The increase was due to increases in net product sales of $70.7 million, activation income of $18.4 million and residual income of $1.5 million. The increase in net product sales was due primarily to a shift in strategy from in-country product sales by the Company's South American subsidiaries to sales from the Company's Miami, Florida warehouse to customers exporting into South American countries. The Company adopted this strategy to reduce currency, accounts receivable and inventory risks. In addition, the U.S. operations achieved growth in net product sales to wholesale customers in the United States. U.S. activation income increased primarily as a result of an overall increase in sales of cellular phone units at the retail level. The increase in unit sales at the retail level was attributable to the Company's expansion of Communication Centers beginning in the fourth quarter of fiscal 1994. Since the Company sold substantially all of its Communication Centers in November 1996, the Company expects a decline in activation income in fiscal 1997. The increase in residual income primarily corresponded to the Company's growing cellular phone user base where the Company operated stand-alone retail stores, which increase was partially offset by lower average monthly user phone bills. The Company's international revenues, which include direct revenues derived primarily from the operations of its subsidiaries in the Latin American and Asia-Pacific Regions, increased 13.5%, from $333.7 million in fiscal 1995 to $378.8 million in fiscal 1996. The growth in international revenues was due to the acquisition of the remaining 50% interest in CellStar Asia, which resulted in CellStar Asia's sales being classified as international sales beginning in June 1995. Prior to the June 1995 acquisition, CellStar Asia's operations were not consolidated with the operations of the Company, and sales of products to CellStar Asia were considered revenues of the Company's U.S. operations. Net product sales to CellStar Asia for the period prior to the acquisition totaled $90.2 million in fiscal 1995. In the period following the acquisition, CellStar Asia had $143.1 million and $199.7 million in fiscal 1995 and 1996, respectively, of net product sales, which were included in the Company's international revenues. In the aggregate, sales by CellStar Asia decreased from $228.0 million in fiscal 1995 to $199.7 million in fiscal 1996. The decrease was due to several factors including the unavailability of the highly popular PCS phones and increased competition that caused downward pressure on selling prices. The Company's operations in Singapore, CellStar Pacific PTE LTD, provided $40.2 million of net product sales in fiscal 1995 compared to $46.1 million of net product sales in fiscal 1996. CellStar (Taiwan) Company Ltd., which commenced operations in the second quarter in fiscal 1996, provided $2.0 million of net product sales in fiscal 1996. The Asia-Pacific operations are substantially wholesale related, and, as a result, activation income is not significant. The Company's operations in the Latin American Region provided $101.4 million of net product sales in fiscal 1996, compared to $125.5 million in fiscal 1995. The decline was due primarily to a sharp decline in sales in Brazil which decreased from $47.0 million in fiscal 1995 to $30.6 million in fiscal 1996. This decline was due to the continued deterioration in the business climate in Brazil for the cellular phone industry and to a change in the Company's strategy of selling products from its warehouse in Miami, Florida to customers exporting into South American countries. The decline in net product sales was partially offset by a $20.0 million increase in net product sales in Argentina, a market the Company entered in late 1995. Activation income generated by the Company's operations in the Latin American Region decreased from $23.0 million in fiscal 1995 to $16.7 million in fiscal 1996. This decrease was primarily attributable to the decline in activation income in Venezuela, which decreased from $4.8 million in fiscal 1995 to $0.7 million in fiscal 1996 due to weak economic conditions and political turmoil in Venezuela. Gross Profit. Gross profit increased $27.8 million, or 25.3%, from $109.8 million in fiscal 1995 to $137.6 million in fiscal 1996, while gross profit as a percentage of total revenues increased from 13.5% to 23 14.5% in fiscal 1995 and 1996, respectively. This increase in the gross margin percent was primarily due to the consolidation of CellStar Asia's higher gross margin revenues following the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995 and an increase in higher margin U.S. retail sales. Revenues for fiscal 1995 include export sales of $90.2 million, with a gross margin of 4.0%, to CellStar Asia prior to June 1995 when it became a wholly-owned subsidiary. After CellStar Asia became a wholly-owned subsidiary, its revenues were consolidated with the Company's rather than being reported as U.S. net product sales. U.S. retail sales increased from $90.5 million in fiscal 1995 to $127.9 million in fiscal 1996 due to the increase in the number of Communication Centers. These gross profit increases were partially offset by provisions for inventory obsolescence and the effect of economic declines in the Latin American Region. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $59.0 million, or 77.0%, from $76.6 million in fiscal 1995 to $135.6 million in fiscal 1996. Approximately $28.0 million, or 47.5%, of the increase resulted from an increase in trade accounts receivable reserves to reflect a deterioration in the trade accounts receivable portfolio, primarily for Brazil-related receivables. See "--International Operations" below. Bad debt expense as a percentage of total revenues increased from 0.3% in fiscal 1995 to 2.9% in fiscal 1996. An additional $11.7 million, or 19.8%, of the increase in selling, general and administrative expenses was attributable to an increase in salaries and employee benefits for the addition of employees to support the growth of the Company's operations, primarily related to the Communication Centers. The Communication Centers also contributed to other increases in selling, general and administrative expenses as these operations experienced higher operating expenses than wholesale operations. The Company sold 334 of its Communication Centers on November 26, 1996. As a percentage of total revenues, selling, general and administrative expenses increased from 9.4% to 14.3%. Operating Income. Operating income decreased substantially from $33.3 million in fiscal 1995 to $2.0 million in fiscal 1996 due mainly to the significant increase in selling, general and administrative expenses, as discussed above. (Undistributed Loss) Equity in Earnings of Joint Ventures. (Undistributed loss) equity in earnings of joint ventures decreased in fiscal 1996 by $3.4 million from fiscal 1995. The decrease was attributable to the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995. The Company's 50% equity interest in the operations of CellStar Asia prior to the date of the acquisition was classified as equity in earnings of joint ventures. Interest Expense. Interest expense increased in fiscal 1996 to $8.3 million from $6.1 million in fiscal 1995. The increase in interest expense resulted primarily from the maintenance of higher average balances under the Company's revolving credit agreements. See "-Liquidity and Capital Resources" below. (Benefit) Provision for Income Taxes. The Company's income tax expense decreased in fiscal 1996 by $7.9 million, or 106.7%, from fiscal 1995, due to a tax benefit resulting from accumulated losses related to the Company's Brazilian operations and a lower overall effective tax rate. The lower effective tax rate in fiscal 1996 was primarily attributable to foreign and U.S. tax effects from foreign operations. 24 Fiscal 1995 Compared to Fiscal 1994 Revenues. Total revenues increased $293.5 million, or 56.6%, from $518.4 million in fiscal 1994 to $811.9 million in fiscal 1995. The increase in fiscal 1995 revenues was fueled primarily by the Company's international growth. U.S. revenues increased 20.1%, from $398.1 million in fiscal 1994 to $478.2 million in fiscal 1995. The increase was due to increases in net product sales of $60.9 million, activation income of $17.4 million and residual income of $1.8 million. A large portion of the increase in net product sales was attributable to export sales to CellStar Asia prior to it becoming a wholly-owned subsidiary of the Company on June 2, 1995. Prior to the acquisition, CellStar Asia's operations were not consolidated with the operations of the Company and sales to CellStar Asia were considered revenues of the Company's U.S. operations. Export sales to CellStar Asia increased from $59.8 million in fiscal 1994 to $90.2 million through June 2, 1995 for fiscal 1995, reflecting increased demand for cellular phones in the Asia-Pacific Region. Excluding export sales to CellStar Asia, U.S. revenues increased 14.7%, from $338.3 million in fiscal 1994 to $388.0 million in fiscal 1995. The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisition of CellStar Asia had occurred on December 1, 1993, with pro forma adjustments to give effect to the elimination of sales by the Company to CellStar Asia, amortization of goodwill related to the acquisition, interest expense on acquisition debt, and certain other adjustments at November 30 (in thousands, except per share amounts):
1995 1994 ---- ---- Revenues $ 806,648 519,712 Net income 24,913 15,215 Net income per share 1.32 0.83
U.S. activation income increased primarily as a result of an overall increase in sales of cellular phone units at the retail level, which was partially offset by a decrease in the average commission per activation paid by cellular carriers. The increase in unit sales at the retail level was attributable to the Company's expansion of Communication Centers beginning in the fourth quarter of fiscal 1994. The number of Communication Centers increased from 76 at November 30, 1994 to 347 at November 30, 1995. The increase in residual income primarily corresponds to the Company's growing cellular phone user base, which was partially offset by lower average monthly user phone bills. The Company's international revenues, which include direct revenues derived from the operations of its subsidiaries in the Latin American and Asia-Pacific Regions, increased 177.4%, from $120.3 million in fiscal 1994 to $333.7 million in fiscal 1995. The growth in international revenues was due to the acquisition of the remaining 50% interest in CellStar Asia, which resulted in CellStar Asia's sales being classified as international sales beginning in June 1995, as well as subscriber growth in these markets. Prior to the June 1995 acquisition, CellStar Asia's operations were not consolidated with the operations of the Company, and sales of products to CellStar Asia were considered revenues of the Company's U.S. operations. Product sales to CellStar Asia, prior to the acquisition, totaled $90.2 million in fiscal 1995 and $59.8 million in fiscal 1994. After the acquisition, CellStar Asia had $143.1 million of net product sales, which were included in the Company's international revenues. In the aggregate, sales by CellStar Asia increased from $61.1 million in fiscal 1994 to $228.0 million in fiscal 1995. The Company's operations in Singapore, CellStar Pacific, which commenced operations in the first quarter in fiscal 1995, provided $40.2 25 million of net product sales in fiscal 1995. The revenue growth experienced in the Company's Asia-Pacific operations resulted from continued market expansion. The Asia-Pacific operations are substantially wholesale related, and, as a result, activation income is not significant. Net product sales generated by the Company's operations in the Latin American Region increased from $93.5 million in fiscal 1994 to $125.5 million in fiscal 1995, due primarily to the fact that the Company's Brazilian and Colombian subsidiaries began operations during 1994. Activation income generated by the Company's operations in the Latin American Region decreased from $24.9 million in 1994 to $23.0 million in fiscal 1995, as a result of a $6.4 million decline in activation income in Mexico, primarily due to lower carrier commissions received per activation, which was partially offset by a combined increase of $4.5 million in Venezuela, Colombia and Chile. Gross Profit. Gross profit increased $40.2 million, or 57.8%, from $69.6 million in fiscal 1994 to $109.8 million in fiscal 1995, while gross profit as a percentage of total revenues increased from 13.4% to 13.5% in fiscal 1994 and 1995, respectively. This increase was primarily due to the increase in revenues which was in part a result of the acquisition of the remaining 50% interest in CellStar Asia in June 1995. In fiscal 1995, gross profit was negatively impacted by decreases in cellular phone prices, an increase in the proportion of wholesale revenue relative to retail revenue and lower first quarter gross profit margins in Mexico resulting from the peso devaluation in December 1994. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $32.0 million, or 71.7%, from $44.6 million in fiscal 1994 to $76.6 million in fiscal 1995. Approximately $19.8 million, or 61.9%, of the increase was attributable to an increase in salaries and employee benefits due to the continued growth and expansion of the Company, primarily from the expansion of Communication Centers beginning in the fourth quarter of fiscal 1994, as well as the Company's expansion in South America and the Asia- Pacific Region. As a percentage of total revenues, selling, general and administrative expenses increased from 8.6% to 9.4%. Other increases in selling, general and administrative expenses were a result of the increased level of operations from the Company's South American operations and the continued expansion in Communication Centers, which generally require higher operating expenses than wholesale operations. Bad debt expense remained relatively constant at 0.3% of revenues. Operating Income. Operating income increased from $25.0 million in fiscal 1994 to $33.3 million in fiscal 1995, primarily due to an increase in gross profit, which was partially offset by the increase in selling, general and administrative expenses discussed above. Operating income as a percentage of total revenues decreased from 4.8% in fiscal 1994 to 4.1% in fiscal 1995, primarily due to the increase in wholesale revenues relative to retail revenues and an increase in selling, general and administrative expenses relative to total revenues. (Undistributed Loss) Equity in Earnings of Joint Ventures. (Undistributed loss) equity in earnings of joint ventures increased in fiscal 1995 by approximately $2.1 million from fiscal 1994. The increase was primarily attributable to the increase in net income of CellStar Asia, resulting from stronger cellular phone demand in China and other Asia-Pacific markets, prior to it becoming a wholly-owned subsidiary of the Company in June, 1995. Interest Expense. Interest expense increased in fiscal 1995 to $6.1 million from $1.0 million in fiscal 1994. The increase in interest expense resulted primarily from the maintenance of higher average balances under the Company's revolving credit agreement. See "-Liquidity and Capital Resources" below. (Benefit) Provision for Income Taxes. The Company's income tax expense decreased in fiscal 1995 by $1.6 million, or 17.6%, from fiscal 1994, due primarily to a lower effective tax rate in fiscal 1995, which was partially offset by higher income before income taxes in fiscal 1995. The lower effective tax rate in fiscal 1995 was primarily attributable to the increase in income from CellStar Asia and CellStar 26 Pacific, which are taxed at lower rates than other countries in which the Company operates, and the Company's increase in (undistributed loss) equity in earnings of joint ventures net of taxes. Liquidity and Capital Resources The Company primarily relies on cash generated from operations and borrowings under its revolving credit agreements to fund working capital, capital expenditures and expansions. In addition, the Company receives extended credit terms from key suppliers to fund working capital requirements of its operations. Historically, the Company has used long-term debt to fund the acquisition of significant fixed assets. The Company expects to increase inventory and accounts receivable levels and to fund new foreign ventures. As a result, the Company anticipates its need for liquidity and capital resources will increase in 1997. In light of the Company's anticipated working capital and expansion plans for fiscal 1997 and the amount presently available under the Company's revolving credit agreements, the Company will require outside sources of funds in addition to those available from operations and under such revolving credit agreements to provide the resources necessary to continue its growth. If the Company is unable to obtain additional financing in sufficient amounts, it will have to modify its expansion plans for 1997. The Company's primary revolving credit facility is with a group of five banks and currently has a maximum borrowing limit of $90.0 million. This facility was reduced from $135.0 million to $90.0 million on July 31, 1996. Fundings under the line are limited by a borrowing base computed as a percentage of certain U.S. accounts receivable and inventories. Borrowings are secured primarily by U.S. accounts receivable and inventories. At January 27, 1997, the borrowing base limited borrowings to $65.9 million ($85.6 million at November 30, 1996). Effective December 24, 1996, the advance rates of the borrowing base were lowered. The U.S. revolving credit facility contains, among other provisions, covenants relating to minimum net worth and certain financial ratios, capital expenditures, dividend payments, additional debt, mergers, and acquisitions and dispositions of assets. At November 30, 1996, the Company was not in compliance with certain covenants in the U.S. revolving credit facility regarding limitations on capital spending and maintenance by the Company's most significant U.S. subsidiary of a minimum net worth. The Company's lenders have waived non-compliance with those covenants. Covenants are measured on a quarterly basis. There can be no assurance that the Company will not require additional waivers in the future or, if required, that the lenders will grant them. CellStar Asia has a $15.0 million credit agreement with a bank, which agreement matures at July 31, 1997. This facility was reduced from $22.5 million to $15.0 million at March 31, 1996. Fundings under this credit agreement are limited by a borrowing base computed as a percentage of CellStar Asia's accounts receivable and inventories. At January 31, 1997, the borrowing base limited borrowings to $15.0 million ($15.0 million at November 30, 1996), all of which was available at such times. Upon maturity, the Company intends to renew this agreement or negotiate a new facility under similar terms. The Company's Brazilian subsidiary has a $2.9 million line of credit with a Brazilian bank that is secured by a letter of credit issued under the Company's U.S. revolving credit facility. At November 30, 1996, the Company had $27.3 million of cash and cash equivalents, a decrease of $4.2 million since November 30, 1995. The decrease in cash correlates with the decrease in the aggregate of accounts payable and notes payable to financial institutions. A majority of the Company's cash resides outside of the United States, primarily in its Asia-Pacific Region subsidiaries. Because the Company's policy is to indefinitely reinvest earnings of foreign subsidiaries to minimize income taxes on a global basis, cash in those subsidiaries remains in the region to support operations in that region. The Company's U.S. growth and South American operating losses have caused these operations to require working capital from external sources. As a result, the Company received extended credit terms from key suppliers. The Company anticipates that such extended credit terms will continue to be made available to the Company for the near-term. This situation did not materially impact the Company's ability to obtain inventory and thus did not have a significant impact on sales for the fiscal year. There can be no assurance that such extended credit terms will continue to be made available. If such extended credit 27 terms are not made available, the Company will need to seek additional sources to fund working capital requirements. Cash of $6.1 million was used primarily to purchase various computer and office equipment. By comparison, the Company spent $12.3 million during fiscal 1995 for the construction of its distribution warehouse in Carrollton, Texas and office equipment primarily for the expansion of Communication Centers. International Operations The Company's international operations are subject to political and economic risks including political instability, currency devaluations and controls, increased credit risks and changes in tax laws and trade regulations. Such risks, if realized, could have a material adverse effect on the Company. The economic environments in several countries in the Latin American Region have historically been volatile. The Company's operations in the Latin American Region were negatively impacted by several factors during 1996, including a significant deterioration in the trade accounts receivable portfolio and an increase in the provision for inventory obsolescence. In recognition of the deterioration of its trade accounts receivable portfolio in specific markets in the Latin American Region, the Company added $19.9 million to its trade accounts receivable reserves in the region during 1996. Brazil was primarily responsible for a majority of this increase in the allowance. In early 1996, the Company instituted a program to reduce the overall level of assets maintained in the Latin American Region. The intent of this program is to reduce the Company's working capital requirements related to its operations in the Latin American Region and to reduce the Company's exposure to financial and operating risks in the region. This program resulted in a $29.5 million, or 39.9%, reduction in assets in the Latin American Region from $73.9 million at February 29, 1996 to $44.4 million at November 30, 1996. Other changes to the Company's business strategy in the Latin American Region include sales of products from the Miami, Florida warehouse to customers exporting into South American countries and a general reduction in the number of employees in the region. The Company expects to continue pursuit of these strategies in the future; however, their impact on the Company is not expected to be as significant in 1997 as in 1996. The Company has reduced its trade accounts receivable exposure related to this region. However, the Company maintains concentrations of accounts receivable among relatively few customers in the region and there can be no assurance that the Company will not sustain additional credit losses in the future. As a result of economic volatility in the Latin American Region, many currencies in the region have consistently lost value relative to the U.S. dollar over time. This regional history of local currency devaluations relative to the U.S. dollar, along with the Company's largely U.S. dollar-based cost structure for its operations in the Latin American Region, produce the potential for the Company to incur foreign currency transaction losses. Primarily as a result of currency devaluations relative to the U.S. dollar in several countries in the Latin American Region, the Company experienced foreign currency transaction losses of $1.8 million, $1.3 million, and $1.4 million in fiscal years 1996, 1995 and 1994, respectively. Impact of Inflation Historically, inflation has not had a significant impact on the Company's overall operating results. However, the effects of inflation in volatile economies in foreign markets could have an adverse impact on the Company. 28 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 in different markets, product promotions of competitors and suppliers, availability of distribution channels, and product supply and pricing. Seasonality contributed to the increase in the Company's sales during the fourth quarter of 1996. 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 material adverse effect on the Company's operating results. Accounting Pronouncements Not Yet Adopted In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" effective for fiscal years beginning after December 15, 1995. FASB Statement No. 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Management believes that adopting Statement No. 121 will not have a material effect in fiscal 1997 on the Company's consolidated financial position or results of operations. In October 1995, FASB issued Statement No. 123, "Accounting for Stock-Based Compensation." FASB Statement No. 123 contains optional compensation expense recognition provisions and mandatory disclosure provisions. Companies electing to adopt the compensation expense recognition provisions would be required to measure and recognize compensation expense based on a fair value method of accounting. The disclosure provisions apply to all companies regardless of the method used to account for stock compensation arrangements and must be adopted for fiscal years beginning after December 15, 1995. Management believes that adopting Statement No. 123 will not have a material effect in fiscal 1997 on the Company's consolidated financial position or results of operations. Management's Responsibility for the Consolidated Financial Statements The consolidated financial statements of the Company are the responsibility of management. They have been prepared in accordance with generally accepted accounting principles and include estimates and judgments made by management. To meet the responsibility for reliable financial data, management maintains a system of internal accounting controls which is designed to provide reasonable assurance that transactions are executed as authorized and are accurately recorded and that assets are properly safeguarded. Although accounting controls are designed to achieve this objective, it must be recognized that errors or irregularities may occur. In addition, it is necessary to assess and balance the relative cost and the expected benefit of internal accounting controls. 29 Item 8. Consolidated Financial Statements and Supplementary Data See Index to Consolidated Financial Statements on Page F-1 of this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 30 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 1997 Annual Meeting of Stockholders under the heading "Election of Directors," which information is incorporated herein by reference. The name, age and position of each executive officer 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. 31 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 All schedules are omitted because the information is not applicable or is presented in the Consolidated Financial Statements or related Notes. 3. Exhibits -------- 3.1 Amended and Restated Certificate of Incorporation of the Company.(1) 3.2 Amended and Restated Bylaws of the Company.(2) 4.1 The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Company filed in response to items 3.1 and 3.2 are incorporated in this item by reference.(1)(2) 4.2 Specimen Common Stock Certificate of the Company. (3) 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. (12) 10.1 Employment Agreement by and between the Company and Alan H. Goldfield, effective as of December 1, 1994. (3) (14) 10.2 Employment Agreement by and between CellStar, Ltd., the Company and Mark Q. Huggins, effective as of January 15, 1997. (13)(14) 10.3 Authorized Agency Agreement by and between CellStar, Ltd., and Southwestern Bell Mobile Systems, Inc., entered into as of December 17, 1996. (13)(15) 10.4 Authorized Agency Agreement by and between National Auto Center and Southwestern Bell Mobile Systems, Inc., entered into as of February 5, 1993. (4) 10.5 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of South Texas Limited Partnership, dated effective as of February 1, 1993.(4) 10.6 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of Austin Limited Partnership, dated effective as of February 1, 1993. (4) 10.7 Agreement by and between Motorola Inc. by and through its Pan American Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1996 (United States). (5) 10.8 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. (13)(15) 10.9 Agreement by and between CellStar Pacific PTE LTD and Motorola Inc., dated February 9, 1995 (the Philippines) (the "Philippines Agreement"). (7) 10.10 Amendment to the Philippines Agreement, dated July 20, 1995. (3) 32 10.11 Agreement by and between National Auto Center and the Pan American Cellular Subscriber Division of Motorola Inc., dated as of January 1, 1995 (Latin American and Caribbean Territory). (6) 10.12 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (People's Republic of China). (8) 10.13 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (Taiwan). (3) 10.14 Agreement by and between CellStar Pacific PTE LTD and Ericsson Mobile Communications AB, dated as of April 12, 1995 (China, Hong Kong, Taiwan and Korea). (8) 10.15 Distribution Contract by and between Cellular Express and Radiomovil Dipsa, S.A. de C.V., dated as of September 23, 1992 (English translation of executed agreement). (4) 10.16 Agent Agreement by and between CellStar Celular C.A. and Telecomunicaciones Movilnet C.A., dated July 23, 1993. (4) 10.17 Lease by and between Alan H. Goldfield and National Auto Center, Inc. regarding 605 West Airport Freeway, Irving, Texas. (4)(14) 10.18 Exclusive Cellular Subagent Agreement by and between National Auto Center and Alan H. Goldfield d/b/a National Tape. (4)(14) 10.19 Registration Rights Agreement by and between the Company and Audiovox Corporation. (4) 10.20 Form of Warrant for the purchase of shares of common stock to be issued to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc. (4) 10.21 Agency Agreement by and between CellStar de Colombia Ltda. and Occidente y Caribe Celular S.A., dated as of June 24, 1994. (9) 10.22 Joint Venture Agreement by and among CellStar International Corporation\Asia, Leap International Pte Ltd. and Hong An Hsein, dated February 1, 1995. (3) 10.23 National Retail Dealer Agreement by and between National Auto Center, Inc. and McCaw National Accounts, Inc. (6) 10.24 Agreement by and between Express Telecommunication Company, Inc. (Extelcom) and CellStar Philippines, Inc., dated January 16, 1995. (6) 10.25 Stock Purchase Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.26 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.27 Amended and Restated Loan Agreement among National Auto Center, Inc., the Company, each of the banks or other lending institutions signatory thereto and Texas Commerce Bank National Association, dated as of July 20, 1995 (the "Credit Agreement"). (1) 10.28 First Amendment to Credit Agreement, dated as of February 29, 1996. (2) 10.29 Second Amendment to Credit Agreement, as of July 31, 1996. (5) 10.30 Third Amendment to Credit Agreement, dated as of July 31, 1996. (5) 10.31 Deed of Trust among CellStar, Ltd., First Interstate Bank of Texas, N.A. and P. Michael Wells, Jr., dated April 28, 1995. (1) 10.32 First Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A., dated as of August 31, 1995. (1) 10.33 Second Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A. (11) 10.34 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A. dated April 15, 1996. (11) 10.35 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A. , dated August 31, 1995. (1) 33 10.36 Loan Agreement by and between NDB Bank, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Asia Loan Agreement"), dated August 9, 1995. (1) 10.37 Supplement to Debenture, dated November 22, 1995, relating to the Asia Loan Agreement. (3) 10.38 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan. (13)(14) 10.39 CellStar Corporation Amended and Restated Annual Incentive Compensation Plan. (13)(14) 10.40 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan. (7)(14) 10.41 Form of Stock Purchase Agreement by and between Alan H. Goldfield and CellStar International Corporation/Asia, dated as of June 2, 1995. (10) 10.42 Employment Agreement, effective as of May 24, 1996, by and between CellStar, Ltd., the Company and Richard M. Gozia. (11)(14) 10.43 Joint Venture Agreement, dated as of April 1, 1996, between CellStar International Corporation\S.A., Simon Rex Earle and Martin Robert deRooy and CellStar UK Limited (11) 10.44 Supply and Service Agreement by and between CellStar, Ltd., and MCI Telecommunications Corporation, dated as of November 26, 1996 (the "MCI Supply Agreement"). (13)(15) 10.45 Amendment Number One to MCI Supply Agreement, dated as of January 4, 1997. (13) 10.46 Amendment to MCI Supply Agreement, dated January 8, 1997. (13) 10.47 Distributor Supply Agreement between Motorola Ltd., trading as Motorola, Cellular Subscriber Division, UK, and CellStar UK Limited, executed April 3, 1996. (13) 10.48 Accessory Supply Agreement between Motorola Limited, trading as European Cellular Subscriber Group, and CellStar UK Limited, executed October 25, 1996. (13)(15) 10.49 Separation Agreement and Release between Kenneth E. Kerby and CellStar, Ltd., effective December 19, 1996. (13)(14) 10.50 Loan Agreement by and between The First National Bank of Chicago, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Amended Asian Loan Agreement"), dated July 31, 1996. (13) 10.51 Employment Agreement by and between CellStar (Asia) Corporation Limited and Hong An-Hsien, dated as of June 1, 1995. (13)(14) 21.1 Subsidiaries of the Company. (13) 23.1 Consent of KPMG Peat Marwick LLP. (13) 27 Financial Data Schedule 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 Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (3) 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. (4) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and incorporated herein by reference. 34 (6) 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. (7) 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. (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 Quarterly Report on Form 10-Q for the quarter ended August 31, 1994, and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Current Report on Form 8-K, dated June 2, 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, 1996, and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Current Report on Form 8-K, dated December 30, 1996, and incorporated herein by reference. (13) Filed herewith. (14) The exhibit is a management contract or compensatory plan or arrangement. (15) 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 No reports on Form 8-K were filed during the last quarter of the covered by this report on Form 10-K. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CELLSTAR CORPORATION By: /s/ Alan H. Goldfield ------------------------------ Alan H. Goldfield Chairman of the Board and Chief Executive Officer Date: February 27, 1997 36 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Alan H. Goldfield Date: February 27, 1997 ---------------------------------------- Alan H. Goldfield Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Richard M. Gozia Date: February 27, 1997 ---------------------------------------- Richard M. Gozia President, Chief Operating Officer and Director By: /s/ Mark Q. Huggins Date: February 27, 1997 ---------------------------------------- Mark Q. Huggins Senior Vice President - Administration, Chief Financial Officer and Treasurer (Principal Financial Officer) By: /s/ Evelyn Henry Miller Date: February 27, 1997 ---------------------------------------- Evelyn Henry Miller Vice President -- Corporate Controller (Principal Accounting Officer) By: /s/ Michael S. Hedge Date: February 27, 1997 ---------------------------------------- Michael S. Hedge Vice President -- Wholesale Sales and Director By: /s/ Daniel T. Bogar Date: February 27, 1997 ---------------------------------------- Daniel T. Bogar Vice President -- South American Operations and Director By: /s/ James L. Johnson Date: February 27, 1997 ---------------------------------------- James L. Johnson Director By: /s/ Sheldon I. Stein Date: February 27, 1997 ---------------------------------------- Sheldon I. Stein Director By: /s/ John T. Stupka Date: February 27, 1997 ---------------------------------------- John T. Stupka Director By: /s/ Terry S. Parker Date: February 27, 1997 ---------------------------------------- Terry S. Parker Director 37 CellStar Corporation and Subsidiaries Index to Consolidated Financial Statements Independent Auditors' Report........................................... F-2 Consolidated Balance Sheets............................................ F-3 Consolidated Statements of Operations.................................. F-4 Consolidated Statements of Stockholders' Equity ....................... F-5 Consolidated Statements of Cash Flows.................................. F-6 Notes to Consolidated Financial Statements............................. F-7 F-1 Independent Auditors' Report The Board of Directors and Stockholders CellStar Corporation: We have audited the accompanying consolidated balance sheets of CellStar Corporation and subsidiaries as of November 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended November 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CellStar Corporation and subsidiaries as of November 30, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas January 31, 1997 F-2 CellStar Corporation and Subsidiaries Consolidated Balance Sheets November 30, 1996 and 1995 (Dollars in thousands, except per share data)
1996 1995 -------- -------- Assets Current assets: Cash and cash equivalents $ 27,296 31,508 Accounts receivable (less allowance for doubtful accounts of $29,023 and $3,738, respectively) 131,812 125,079 Inventories 94,473 109,287 Deferred income taxes 4,274 3,158 Prepaid expenses 1,513 2,124 --------- --------- Total current assets 259,368 271,156 Property and equipment, net 20,134 23,181 Goodwill (less accumulated amortization of $1,330 and $437, respectively) 16,597 17,047 Other assets 2,452 3,537 --------- --------- $ 298,551 314,921 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 116,091 78,758 Notes payable to financial institutions 56,136 98,603 Accrued expenses 12,250 8,446 Income taxes payable 2,958 10,355 Current portion of long-term debt 568 584 --------- --------- Total current liabilities 188,003 196,746 Long-term debt, less current portion 6,285 6,880 --------- --------- Total liabilities 194,288 203,626 Stockholders' equity: Common stock, $.01 par value, 50,000,000 shares authorized; 19,274,000 shares issued and outstanding 193 193 Additional paid-in capital 68,167 68,167 Common stock warrants 4 4 Foreign currency translation adjustments (4,520) (3,901) Retained earnings 40,419 46,832 --------- --------- Total stockholders' equity 104,263 111,295 --------- --------- $ 298,551 314,921 ========= =========
See accompanying notes to consolidated financial statements. F-3 CellStar Corporation and Subsidiaries Consolidated Statements of Operations Years ended November 30, 1996, 1995 and 1994 (In thousands, except per share data)
1996 1995 1994 ----------- ----------- ----------- Revenues: Net product sales $ 845,569 723,886 447,741 Activation income 88,474 75,690 60,153 Residual income 13,558 12,339 10,528 ----------- ----------- ----------- Total revenues 947,601 811,915 518,422 Cost of sales 810,000 702,074 448,780 ----------- ----------- ----------- Gross profit 137,601 109,841 69,642 Selling, general and administrative expenses 135,585 76,553 44,598 ----------- ----------- ----------- Operating income 2,016 33,288 25,044 Other income (expense): Interest expense (8,350) (6,144) (1,016) (Undistributed loss) equity in earnings of joint ventures (219) 3,222 1,073 Other, net (313) (28) 175 ----------- ----------- ----------- Total other income (expense) (8,882) (2,950) 232 ----------- ----------- ----------- (Loss) income before income taxes (6,866) 30,338 25,276 (Benefit) provision for income taxes (453) 7,442 9,028 ----------- ----------- ----------- Net (loss) income $ (6,413) 22,896 16,248 =========== =========== =========== Net (loss) income per share $ (0.33) 1.22 0.88 =========== =========== =========== Weighted average number of shares outstanding 19,274 18,822 18,441 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 CellStar Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity Years ended November 30, 1996, 1995 and 1994 (In thousands)
Foreign Common Stock Additional Common currency ------------ paid-in stock translation Retained Shares Amount capital warrants adjustments earnings Total ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1993 13,500 $ 135 - - (74) 7,688 7,749 Net income - - - - - 16,248 16,248 Issuance of common stock 5,060 51 52,940 - - - 52,991 Warrants issued in connection with initial public offering - - - 4 - - 4 Foreign currency translation adjustment - - - - (350) - (350) ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1994 18,560 186 52,940 4 (424) 23,936 76,642 Net income - - - - - 22,896 22,896 Issuance of common stock 714 7 15,227 - - - 15,234 Foreign currency translation adjustment - - - - (3,477) - (3,477) ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1995 19,274 193 68,167 4 (3,901) 46,832 111,295 Net loss - - - - - (6,413) (6,413) Foreign currency translation adjustment - - - - (619) - (619) ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1996 19,274 $ 193 68,167 4 (4,520) 40,419 104,263 ====== ====== ========== ======== =========== ======== =======
See accompanying notes to consolidated financial statements. F-5 CellStar Corporation and Subsidiaries Consolidated Statements of Cash Flows Years ended November 30, 1996, 1995 and 1994 (In thousands)
1996 1995 1994 ---------- ---------- ---------- Cash flows from operating activities: Net (loss) income $ (6,413) 22,896 16,248 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Allowance for doubtful accounts, net of chargeoffs 24,538 849 1,103 Provision for inventory obsolescence 8,718 466 338 Depreciation and amortization 5,799 3,372 1,623 Gain on sale of assets (128) - - (Undistributed loss) equity in earnings of joint ventures 219 (3,222) (1,073) Deferred income tax benefit (1,116) (1,823) (1,424) Changes in certain operating assets and liabilities: Accounts receivable (32,637) (71,391) (30,512) Inventories 6,067 (5,971) (51,413) Prepaid expenses 611 (1,480) (518) Other assets 318 (1,708) (741) Accounts payable 36,162 (5,166) 24,682 Accrued expenses 3,361 3,056 1,074 Income taxes payable (7,397) 3,495 1,757 ---------- ---------- ---------- Net cash provided by (used in) operating activities 38,102 (56,627) (38,856) ---------- ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (6,139) (12,284) (4,615) Proceeds from sale of assets 6,903 - - Acquisition, net of cash acquired - - (260) Purchase of equity investments in joint ventures - (750) - ---------- ---------- ---------- Net cash provided by (used in) investing activities 764 (13,034) (4,875) ---------- ---------- ---------- Cash flows from financing activities: Net (payments) borrowings on notes payable to financial institutions (42,467) 86,103 10,000 Proceeds from issuance of note payable to stockholder - 3,728 - Payments on notes payable to stockholders - (22,000) (13,682) Proceeds from issuance of long-term debt - 4,425 - Principal payments on long-term debt (611) (291) (198) Net proceeds from issuance of common stock and common stock warrants - 15,234 54,031 ---------- ---------- ---------- Net cash (used in) provided by financing activities (43,078) 87,199 50,151 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (4,212) 17,538 6,420 Cash and cash equivalents at beginning of year 31,508 13,970 7,550 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 27,296 31,508 13,970 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-6 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (1) Description of Business and Summary of Significant Accounting Policies (a) Description of Business CellStar Corporation and subsidiaries (the "Company") is an integrated wholesaler and retailer of cellular phones and other wireless communications products, with operations in the United States, the Asia-Pacific Region, Latin America and the United Kingdom. The Company is one of the world's largest non-carrier wholesale distributors of cellular phones for Motorola, Nokia and Ericsson. The Company is also one of the largest non-carrier wholesale distributors of cellular phones for NEC in the United States. The Company is also a retailer of wireless communications products and services, with 36 retail locations in the United States, 6 retail locations in the Asia-Pacific Region and 20 retail locations in Latin America as of November 30, 1996. All significant intercompany balances and transactions have been eliminated in consolidation. The fair value of current assets and liabilities approximates carrying value due to their short maturity. The fair value of long-term debt approximates carrying value due to the market rates of interest being charged. Certain prior year amounts have been reclassified to conform to the current year presentation. (b) Inventories Inventories are stated at the lower of cost (primarily on a moving average basis) or market. (c) 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. (d) Preopening Costs Labor and certain other costs related to the opening of new retail locations are expensed as incurred. (e) Revenue Recognition For the Company's wholesale business, revenue is recognized when product is shipped. In accordance with contractual agreements with cellular service providers, the Company receives an initial activation commission for obtaining subscribers for cellular phone services in connection with the Company's retail operations. The agreements contain various provisions for additional commissions ("residual commissions") based upon subscriber usage. The agreements also provide for the reduction or elimination of initial activation commissions if subscribers deactivate service within stipulated periods. The Company recognizes initial activation and residual commission revenue when earned and provides an allowance for estimated cellular service deactivations, which is reflected as a reduction of accounts receivable in the accompanying consolidated balance sheets. (f) Foreign Currency Assets and liabilities of the Company's foreign subsidiaries have been translated at the rates of exchange at the end of each period. Revenues and expenses have been translated at the weighted average rates of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated as a separate component of stockholders' equity, except for subsidiaries F-7 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements located in countries whose economies are considered highly inflationary. In such cases, translation adjustments are included primarily in cost of sales in the accompanying consolidated statements of operations. Transaction gains or losses for the years ended November 30, 1996, 1995 and 1994 were $1.8 million, $1.3 million and $1.4 million, respectively, and are included in the accompanying consolidated statements of operations. The currency exchange rates of the Latin American countries in which the Company conducts operations have historically been volatile. The Company manages the risk of foreign currency devaluation by attempting to increase prices of products sold at or above the anticipated rate of local currency devaluation relative to the U.S. dollar, by indexing certain of its receivables to exchange rates in effect at the time of their payment and by entering into foreign currency exchange contracts in certain instances. (g) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred 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 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 tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) Net (Loss) Income Per Share Net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock and common stock equivalents outstanding during each period. The dilutive effect of common stock options and warrants, treated as common stock equivalents, is calculated using the treasury stock method. Primary and fully diluted earnings per common and common equivalent share are essentially the same. (i) 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 $8.7 million, $6.0 million and $1.0 million of interest expense for the years ended November 30, 1996, 1995 and 1994, respectively. The Company paid approximately $7.8 million, $4.0 million and $8.7 million of income taxes for the years ended November 30, 1996, 1995 and 1994, respectively. The Company wrote-off accounts receivable of approximately $2.8 million, $2.0 million and $1.3 million for the years ended November 30, 1996, 1995 and 1994, respectively. (j) Equity Investments The Company accounts for its investments in common stock of its joint ventures using the equity method. The investments are included in other assets. (k) 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 upon completing ninety 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. To date, the Company has made no contributions to the plan. F-8 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (l) Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized using the straight-line method over 20 years. The Company assesses the net realizable value of this intangible asset by determining the estimated future cash flows related to such assets. In the event that assets are found to be carried at amounts which are in excess of estimated future operating cash flows, then the intangible assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets. (m) 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 financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) Related Party Transactions (a) Transactions with Motorola Motorola is a major supplier of cellular phones and accessories to the Company. Total purchases from Motorola approximated $609.7 million, $420.2 million and $310.4 million for the years ended November 30, 1996, 1995 and 1994, respectively. Included in accounts payable at November 30, 1996 and 1995 was approximately $90.8 million and $54.1 million, respectively, due to Motorola for purchases of inventory. In accordance with a stock purchase agreement dated July 20, 1995, Motorola purchased 696,437 shares of restricted stock from the Company for approximately $15.0 million. The proceeds were used to pay a portion of the $22.0 million note payable to the Chief Executive Officer made in connection with the Company's acquisition of CellStar Asia (note 10). (b) Transactions with Audiovox Corporation In December 1993, the Company entered into a one-year distributor agreement with Audiovox Corporation ("Audiovox") whereby the Company was named an exclusive independent distributor of certain Audiovox products in Texas, Oklahoma, New Mexico and Mexico. Effective in 1995, the Company only served as a sales representative for certain Audiovox automotive products. Total inventory purchases from Audiovox were $0.5 million, $1.2 million and $21.6 million for the years ended November 30, 1996, 1995 and 1994, respectively. Included in accounts payable at November 30, 1996 and 1995 was $0.3 million and $0.4 million, respectively, due to Audiovox for purchases of inventory. (3) Inventories Inventories consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ---------- ---------- Inventories $102,795 $110,091 Reserves (8,322) (804) ---------- ---------- Inventories, net $ 94,473 $109,287 ========== ==========
F-9 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (4) Property and Equipment Property and equipment consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ------------ ------------ Land and building $ 6,837 6,837 Furniture, fixtures and equipment 14,894 12,587 Jet aircraft 4,306 4,306 Leasehold improvements 1,688 2,998 Construction in progress - 998 ------------ ------------ 27,725 27,726 Less accumulated depreciation and amortization (7,591) (4,545) ------------ ------------ $ 20,134 23,181 ============ ============
(5) Debt Notes payable to financial institutions consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ------------ ------------ U.S. revolving credit facility $ 53,233 70,000 Asian revolving credit facility - 21,603 Brazilian note payable - 7,000 Brazilian credit facility 2,903 - ------------ ------------ $ 56,136 98,603 ============ ============
The U.S. revolving credit facility, with Texas Commerce Bank ("TCB") as agent, was reduced from $135.0 million to $90.0 million in July 1996. The facility matures on July 20, 1998 and is secured primarily by certain of the Company's U.S. accounts receivable and inventory. At November 30, 1996, the availability of funds under the U.S. revolving credit facility was governed by a borrowing base of $85.6 million. Effective December 24, 1996, the advance rates of the borrowing base were lowered. Borrowings were limited to $65.9 million at January 27, 1997. The U.S. revolving credit facility contains, among other provisions, covenants relating to minimum net worth, the maintenance of certain financial ratios, capital spending, dividend payments, additional debt, mergers, and acquisitions and dispositions of assets. The Company did not comply with certain covenants at November 30, 1996 and accordingly has received waivers with respect to such covenants from its lenders. Covenants are measured on a quarterly basis. There can be no assurance that the Company will not require additional waivers in the future or, if required, that the lenders will grant them. The Asian revolving credit facility, extended by the First National Bank of Chicago, Hong Kong branch, was reduced from $22.5 million to $15.0 million on March 31, 1996. The facility matures on July 31, 1997 and is secured primarily by CellStar Asia's accounts receivable and inventory and the Company's guarantee. The availability of funds under the Asian revolving credit facility is governed by a F-10 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements borrowing base. The Asian revolving credit facility contains, among other provisions, covenants relating to CellStar Asia's net worth and certain financial ratios. The outstanding balance under the Brazilian note payable was repaid by the Company during 1996. At November 30, 1996, the Company's Brazilian subsidiary had a $2.9 million line of credit with a Brazilian bank that was secured by a letter of credit issued by TCB. The weighted average interest rate on short-term borrowings at November 30, 1996 and 1995 was 9.57% and 7.65%, respectively. Long-term debt consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ---------- ---------- Equipment loan $ 2,723 3,039 Mortgage note payable 4,130 4,425 ---------- ---------- 6,853 7,464 Less current portion (568) (584) ---------- ---------- $ 6,285 6,880 ========== ==========
The equipment loan is a note payable to a finance company which bears interest at the Federal Reserve Bank's one-month Commercial Paper Rate plus 3.12% (8.57% at November 30, 1996). The note is payable in monthly installments of approximately $41,000 through July 2003 and is secured by the Company's jet aircraft. The Company has an option to convert the interest rate to a fixed rate at a comparable U.S. Treasury base rate plus 3.25%. The $4.1 million mortgage note is due to a financial institution in quarterly installments of approximately $74,000 through September 2005; bears interest at the institution's prime rate plus 1.0%, 9.25% at November 30, 1996, and is secured by the Company's headquarters facilities. Required principal payments on long-term debt are as follows (in thousands):
Year ending November 30, Payments - ------------ -------- 1997 $ 568 1998 592 1999 618 2000 647 2001 678 Thereafter 3,750
F-11 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (6) Income Taxes Income tax (benefit) expense for the years ended November 30, 1996, 1995 and 1994 consisted of the following (in thousands):
Current Deferred Total ----------- ------------ ----------- Year ended November 30, 1996: United States: Federal $ (4,682) (1,383) (6,065) State (366) (78) (444) Latin America 1,237 204 1,441 Asia-Pacific 4,474 141 4,615 ----------- ----------- ----------- $ 663 (1,116) (453) =========== =========== =========== Year ended November 30, 1995: United States: Federal $ 4,793 (1,187) 3,606 State 575 (25) 550 Latin America 655 (450) 205 Asia-Pacific 3,242 (161) 3,081 ----------- ----------- ----------- $ 9,265 (1,823) 7,442 =========== =========== =========== Year ended November 30, 1994: United States: Federal $ 6,899 (1,177) 5,722 State 681 (107) 574 Latin America 2,872 (140) 2,732 ----------- ----------- ----------- $ 10,452 (1,424) 9,028 =========== =========== ===========
F-12 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements Income tax (benefit) expense differed from the amounts computed by applying the United States Federal income tax rate of 35% to pretax income as a result of the following (in thousands):
1996 1995 1994 ---------- ---------- --------- Expected tax (benefit) expense $ (2,403) 10,618 8,847 Foreign and U.S. tax effects attributable to foreign operations 2,658 (2,630) 409 State income taxes, net of Federal benefit (289) 358 386 (Undistributed loss) equity in earnings of joint ventures - (1,128) (375) Change in the valuation allowance for deferred tax assets - - (71) Other, net (419) 224 (168) ---------- ---------- --------- Actual tax (benefit) expense $ (453) 7,442 9,028 ========== ========== =========
The tax effect of temporary differences underlying significant portions of deferred tax assets at November 30, 1996 and 1995, is presented below (in thousands):
1996 1995 ---------- ---------- United States: Accounts receivable, principally allowance for doubtful accounts $ 2,734 956 Inventory adjustments for tax purposes 2,265 2,545 Other, net (897) (860) Asia-Pacific: Accounts receivable, principally allowance for doubtful accounts 20 161 Latin America: Other, net 152 356 ---------- ---------- Net deferred tax asset $ 4,274 3,158 ========== ==========
Based on the expectation that the temporary differences will reverse in the next year and the ability to carryback deferred tax benefits, management believes it is more likely than not that the Company will realize the benefit of such deferred tax assets. The Company does not provide for 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, will continue to be reinvested indefinitely. At November 30, 1996, the Company had not provided Federal income taxes on earnings of international subsidiaries of approximately $23.8 million. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes in the various international jurisdictions. F-13 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements Because many types of transactions are susceptible to varying interpretations under foreign and U.S. income tax laws and regulations, the amounts recorded in the accompanying consolidated financial statements may be subject to change upon final determination by the respective taxing authorities. Management believes it has provided an adequate tax provision. (7) Leases The Company leases certain land, retail stores, office facilities and equipment under operating leases which range from two to ninety-nine years and which generally contain renewal options for consecutive five-year terms. Rental expense for operating leases was approximately $4.3 million, $3.1 million and $2.1 million for the years ended November 30, 1996, 1995 and 1994, respectively. Future minimum lease payments under operating leases as of November 30, 1996 are as follows (in thousands):
November 30, Amount ---------- 1997 $ 3,234 1998 2,630 1999 1,574 2000 1,077 2001 157 Thereafter 1,247 ---------- $ 9,919 ==========
(8) Concentration of Credit Risk and Major Customer Information CellStar Asia accounted for 11.5% or $59.8 million of total revenues for the year ended November 30, 1994 and accounted for 11.1% or $90.2 million of total revenues for the year ended November 30, 1995, prior to it becoming a wholly-owned subsidiary of the Company (note 10). No other customer accounted for 10% or more of total revenues in each of the years ended November 30, 1996, 1995 and 1994. F-14 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (9) Geographic Area Information The Company operates predominantly within one business segment, wholesale and retail sales of cellular phones and related equipment. Financial information by geographic area as of and for the years ended November 30, 1996, 1995 and 1994, is as follows (in thousands):
United Latin States Asia-Pacific America Europe Total ---------- -------------- ----------- ---------- ----------- November 30, 1996: Total revenues, net of intercompany amounts $ 568,744 248,493 119,796 10,568 947,601 Intercompany sales (purchases) 38,802 (2,121) (36,676) (5) - (Loss) income before income taxes (3,870) 20,094 (22,877) (213) (6,866) Net income (loss) 2,639 15,479 (24,318) (213) (6,413) Identifiable assets 159,993 82,024 44,382 12,152 298,551 November 30, 1995: Total revenues, net of intercompany amounts $ 478,177 183,274 150,464 - 811,915 Intercompany sales (purchases) 103,332 (32,564) (70,768) - - Income before income taxes 10,213 19,775 350 - 30,338 Net income 6,057 16,694 145 - 22,896 Identifiable assets 149,320 93,441 72,160 - 314,921 November 30, 1994: Total revenues, net of intercompany amounts $ 398,104 - 120,318 - 518,422 Intercompany sales (purchases) 66,199 - (66,199) - - Income before income taxes 19,170 - 6,106 - 25,276 Net income 12,874 - 3,374 - 16,248 Identifiable assets 131,219 - 55,135 - 186,354
(10) Purchase of CellStar Asia In October 1993, the Company purchased a 50% ownership interest in a newly-formed company, CellStar Asia, for approximately $0.2 million. On February 1, 1995, the Company entered into a joint venture agreement with Leap International PTE LTD. ("Leap"), a Singapore company, and Horng An Hsien ("Mr. Horng"), an individual who was also the Company's joint venture partner in CellStar Asia. Under the terms of the joint venture agreement, the parties formed CellStar Pacific PTE LTD ("CellStar Pacific"), a Singapore company which was owned 75% by the Company, 20% by Leap and 5% by Mr. Horng. The Company's initial investment was approximately $0.2 million. An additional 5% of CellStar Pacific was purchased by the Company in fiscal 1995. CellStar Asia and CellStar Pacific distribute cellular phone products in the People's Republic of China and other Asia-Pacific markets. F-15 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements On June 2, 1995, the Company's Chief Executive Officer acquired the remaining 50% interest in CellStar Asia for cash of $1.0 million and 1.0 million shares of restricted common stock with a fair value of $21.0 million. Simultaneously, the Chief Executive Officer then transferred this ownership interest in CellStar Asia to the Company in exchange for a note payable of $22.0 million, giving the Company 100% ownership in CellStar Asia. The acquisition of the remaining 50% interest in CellStar Asia is being accounted for as a purchase and the results of operations of CellStar Asia have been included in the consolidated financial statements from the date of acquisition. The Company's 50% equity interest in the operations of CellStar Asia, prior to the date of acquisition, is included in equity in earnings of joint venture. Goodwill of $17.5 million is being amortized on a straight-line basis over 20 years. The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisition of CellStar Asia had occurred on December 1, 1993, with pro forma adjustments to give effect to the elimination of sales by the Company to CellStar Asia, amortization of goodwill, interest expense on acquisition debt, and certain other adjustments at November 30, 1995 and 1994 (in thousands, except per share amounts):
1995 1994 --------- --------- Revenues $ 806,648 519,712 Net income 24,913 15,215 Net income per share 1.32 0.83
Prior to the acquisition, the Company's sales to CellStar Asia were $90.2 million and $59.8 million in 1995 and 1994, respectively. Gross profit recognized by the Company on these sales was $3.6 million and $1.8 million in 1995 and 1994, respectively. (11) Stockholders' Equity (a) Reorganization and Initial Public Offering On December 1, 1993, a wholly-owned subsidiary of the Company was merged with and into National Auto Center, Inc. ("NAC"), a Texas corporation which was incorporated in 1981. As a result of this transaction, the Company acquired all of the outstanding common stock of NAC. In connection with the reorganization, all of the outstanding stock of Audiomex Export Corp. ("Audiomex"), the parent company of Celular Express, S.A. de C.V. (the Mexican operations), was contributed to NAC. NAC and Audiomex had been jointly owned by Audiovox and the Company's Chief Executive Officer, each of which was issued 6.75 million shares of the Company's common stock in the reorganization. The reorganization was treated in a manner similar to a pooling of interests. In December 1993, the Company issued 5.06 million shares of common stock to the public. The net proceeds of this initial public offering were $53.0 million. The proceeds were used to pay $13.7 million of notes payable to the Company's stockholders, $2.5 million of a note payable to a financial institution, and $2.9 million of accrued fees and bonus to stockholders. The balance of the proceeds was added to the Company's working capital for general corporate purposes. F-16 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (b) Common Stock Options and Warrants In December 1993, the Company issued warrants for 440,000 shares of its common stock. The warrants are exercisable at $13.80 per share for a period of four years commencing in December 1994, subject to adjustment in certain events, and expire in December 1998. In December 1993, the Company adopted the 1993 Stock Option Plan ("the Plan") covering 500,000 shares of common stock of the Company. On March 14, 1995, the number of shares covered by the Plan was increased to 1.5 million. Options under the Plan will be granted as determined by the Company's Board of Directors. The options will expire ten years from the date of grant unless earlier termination due to death, disability, retirement or other termination of employment of the optionee. Options, other than options granted to the Company's Chief Executive Officer, have vesting schedules ranging from immediate vesting on the date of grant to vesting 25% per year commencing on the first anniversary of the date of grant. The exercise price is the quoted market value of the common stock on the date of grant. In March 1994, the Board of Directors also adopted the 1994 Directors' Nonqualified Stock Plan (the "Directors' Option Plan") and subsequently amended it in November 1994. 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 will automatically be granted an option to purchase 2,500 shares of common stock. The purchase price for the shares on the grant date is equal to fair market value of the shares on the grant date. A total of 50,000 shares of common stock is authorized for issuance pursuant to the Directors' Option Plan. Each option granted under the Directors' Option Plan will become exercisable six months after its date of grant and will not be exercisable more than ten years after its date of grant. The options will expire ten years from the date of grant unless earlier termination due to death, disability, retirement or other termination of employment of the optionee. F-17 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements Details of stock options are as follows:
Number of Shares Option Price ------------------- ----------------- 1994 - ------------------------- Granted 120,000 $11.50 - 19.00 Exercised - - Forfeited 27,500 $11.50 Outstanding, end of year 92,500 $11.50 - 19.00 Exercisable, end of year - - 1995 - ------------------------- Granted 598,600 $18.50 - 29.75 Exercised 17,125 $11.50 - 18.62 Forfeited 13,750 $11.50 - 18.50 Outstanding, end of year 660,225 $11.50 - 29.75 Exercisable, end of year 9,750 $11.50 - 19.00 1996 - ------------------------- Granted 471,665 $ 6.50 - 26.25 Exercised - - Forfeited 404,422 $11.50 - 29.75 Outstanding, end of year 727,468 $ 6.50 - 22.75 Exercisable, end of year 180,468 $11.50 - 22.75 Reserved for future grants under the Plan 780,032 Reserved for future grants under the Directors' Option Plan 42,500
(c) Common Stock Ownership and Voting Rights In December 1993, Audiovox granted the Chief Executive Officer a two- year option to purchase, in whole or in part, up to 1.5 million shares of the Company's common stock owned by Audiovox. On June 2, 1995, the Chief Executive Officer exercised this option at $11.50 per share. Additionally, Audiovox granted the Chief Executive Officer an option to purchase up to 250,000 shares of the Company's common stock at $13.80 per share, commencing in December 1993 and expiring in December 1996. These options were subject to certain restrictions and adjustments. The Chief Executive Officer had the right to vote the 1.3 million shares owned by Audiovox until December 3, 1995. Further, the Chief Executive Officer has a revocable proxy to vote the 1.0 million shares transferred for the acquisition of CellStar Asia (note 10). (d) Stockholder Rights Plan On December 30, 1996, the Board of Directors of the Company declared a dividend distribution of one common stock purchase right ("Right") for each share of the Company's common stock outstanding on January 9, 1997. Each Right entitles the holder to buy one one-thousandth of a share of Series A Preferred Stock, par value $10.00 per share, at a purchase price of $80.00 per one one- thousandth of a share, 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 F-18 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements attempting to acquire 15% or more of the outstanding shares of common stock of the Company. The Rights expire on January 9, 2007, unless earlier redeemed by the Company. (12) Commitments and Contingencies (a) Employment Contracts In January 1995, the Board of Directors approved an employment agreement with the Company's Chief Executive Officer ("CEO"). This agreement has no fixed expiration date. Instead, the agreement expires on the fifth anniversary of the date the Board of Directors determines to fix the expiration date. The agreement, among other provisions, provides the CEO with a base salary of $850,000 (subject to adjustment by the Board of Directors), potential annual incentive payments, stock options and life and disability insurance. In 1996 and 1995, the Chief Executive Officer received a base salary of $850,000. In 1994, the Chief Executive Officer received a base salary of $400,000 plus a bonus, based on the Company's operating performance, of an additional $400,000. These amounts are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. In May 1996, the Board of Directors approved an employment agreement with the Company's Chief Financial Officer (current President and Chief Operating Officer). Such agreement will expire on May 24, 2001, and provides for a base salary of $250,000 (subject to adjustment by the Board of Directors), potential for annual incentive payments, stock options and life and disability insurance. In 1996, the Chief Financial Officer received a prorated base salary of $125,000. (b) Litigation 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 have been consolidated, and the State of Wisconsin Investment Board has appointed as lead plaintiff in the consolidated action. A Consolidated Amended Complaint has been filed, which asserts claims for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder, violations of Section 20(a) of the Exchange Act, state statutory fraud, common law fraud, negligent misrepresentation and breach of fiduciary duty. The Consolidated Amended Complaint alleges that the defendants made untrue statements of material fact and/or omitted to state material facts about the business, financial condition, performance and future prospects of the Company and that, as a result of such statements or omissions, the value of the Company's common stock was artificially inflated. Plaintiffs seek compensatory damages, exemplary damages and costs and expenses, including attorneys' fees and expert fees. All defendants have filed motions to dismiss all claims asserted in the Consolidated Amended Complaint. The motions are pending. The Company believes it has meritorious defenses to these claims and is vigorously defending this action. The ultimate outcome is not currently predictable. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these other matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. (c) Financial Guarantee The Company has guaranteed up to RM6.4 million (Malaysian ringgits), $2.5 million as of November 30, 1996, for bank borrowings of its Malaysian joint venture. F-19 CellStar Corporation and Subsidiaries Supplemental Financial Data (Unaudited) (In thousands, except per share data)
First Second Third Fourth Three Months Ended Quarter Quarter Quarter Quarter - ------------------ ------------- ------------ ----------- ---------- 1996 Total revenues $ 204,975 225,571 223,590 293,465 Gross profit 32,005 29,628 30,792 45,176 Net income (loss) 738 (3,052) (12,331) 8,232 Net income (loss) per share 0.04 (0.16) (0.64) 0.43 1995 Total revenues $ 190,876 177,772 198,300 244,967 Gross profit 23,849 23,226 30,746 32,020 Net income 5,143 5,163 6,222 6,368 Net income per share 0.28 0.28 0.33 0.33
F-20 EXHIBIT INDEX 3.1 Amended and Restated Certificate of Incorporation of the Company.(1) 3.2 Amended and Restated Bylaws of the Company.(2) 4.1 The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Company filed in response to items 3.1 and 3.2 are incorporated in this item by reference.(1)(2) 4.2 Specimen Common Stock Certificate of the Company. (3) 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. (12) 10.1 Employment Agreement by and between the Company and Alan H. Goldfield, effective as of December 1, 1994. (3) (14) 10.2 Employment Agreement by and between CellStar, Ltd., the Company and Mark Q. Huggins, effective as of January 15, 1997. (13)(14) 10.3 Authorized Agency Agreement by and between CellStar, Ltd., and Southwestern Bell Mobile Systems, Inc., entered into as of December 17, 1996. (13)(15) 10.4 Authorized Agency Agreement by and between National Auto Center and Southwestern Bell Mobile Systems, Inc., entered into as of February 5, 1993. (4) 10.5 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of South Texas Limited Partnership, dated effective as of February 1, 1993.(4) 10.6 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of Austin Limited Partnership, dated effective as of February 1, 1993. (4) 10.7 Agreement by and between Motorola Inc. by and through its Pan American Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1996 (United States). (5) 10.8 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. (13)(15) 10.9 Agreement by and between CellStar Pacific PTE LTD and Motorola Inc., dated February 9, 1995 (the Philippines) (the "Philippines Agreement"). (7) 10.10 Amendment to the Philippines Agreement, dated July 20, 1995. (3) 10.11 Agreement by and between National Auto Center and the Pan American Cellular Subscriber Division of Motorola Inc., dated as of January 1, 1995 (Latin American and Caribbean Territory). (6) 10.12 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (People's Republic of China). (8) 10.13 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (Taiwan). (3) 10.14 Agreement by and between CellStar Pacific PTE LTD and Ericsson Mobile Communications AB, dated as of April 12, 1995 (China, Hong Kong, Taiwan and Korea). (8) 10.15 Distribution Contract by and between Cellular Express and Radiomovil Dipsa, S.A. de C.V., dated as of September 23, 1992 (English translation of executed agreement). (4) 10.16 Agent Agreement by and between CellStar Celular C.A. and Telecomunicaciones Movilnet C.A., dated July 23, 1993. (4) 10.17 Lease by and between Alan H. Goldfield and National Auto Center, Inc. regarding 605 West Airport Freeway, Irving, Texas. (4)(14) 10.18 Exclusive Cellular Subagent Agreement by and between National Auto Center and Alan H. Goldfield d/b/a National Tape. (4)(14) 10.19 Registration Rights Agreement by and between the Company and Audiovox Corporation. (4) 10.20 Form of Warrant for the purchase of shares of common stock to be issued to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc. (4) 10.21 Agency Agreement by and between CellStar de Colombia Ltda. and Occidente y Caribe Celular S.A., dated as of June 24, 1994. (9) 10.22 Joint Venture Agreement by and among CellStar International Corporation\Asia, Leap International Pte Ltd. and Hong An Hsein, dated February 1, 1995. (3) 10.23 National Retail Dealer Agreement by and between National Auto Center, Inc. and McCaw National Accounts, Inc. (6) 10.24 Agreement by and between Express Telecommunication Company, Inc. (Extelcom) and CellStar Philippines, Inc., dated January 16, 1995. (6) 10.25 Stock Purchase Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.26 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.27 Amended and Restated Loan Agreement among National Auto Center, Inc., the Company, each of the banks or other lending institutions signatory thereto and Texas Commerce Bank National Association, dated as of July 20, 1995 (the "Credit Agreement"). (1) 10.28 First Amendment to Credit Agreement, dated as of February 29, 1996. (2) 10.29 Second Amendment to Credit Agreement, as of July 31, 1996. (5) 10.30 Third Amendment to Credit Agreement, dated as of July 31, 1996. (5) 10.31 Deed of Trust among CellStar, Ltd., First Interstate Bank of Texas, N.A. and P. Michael Wells, Jr., dated April 28, 1995. (1) 10.32 First Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A., dated as of August 31, 1995. (1) 10.33 Second Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A. (11) 10.34 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A. dated April 15, 1996. (11) 10.35 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A. , dated August 31, 1995. (1) 10.36 Loan Agreement by and between NDB Bank, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Asia Loan Agreement"), dated August 9, 1995. (1) 10.37 Supplement to Debenture, dated November 22, 1995, relating to the Asia Loan Agreement. (3) 10.38 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan. (13)(14) 10.39 CellStar Corporation Amended and Restated Annual Incentive Compensation Plan. (13)(14) 10.40 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan. (7)(14) 10.41 Form of Stock Purchase Agreement by and between Alan H. Goldfield and CellStar International Corporation/Asia, dated as of June 2, 1995. (10) 10.42 Employment Agreement, effective as of May 24, 1996, by and between CellStar, Ltd., the Company and Richard M. Gozia. (11)(14) 10.43 Joint Venture Agreement, dated as of April 1, 1996, between CellStar International Corporation\S.A., Simon Rex Earle and Martin Robert deRooy and CellStar UK Limited (11) 10.44 Supply and Service Agreement by and between CellStar, Ltd., and MCI Telecommunications Corporation, dated as of November 26, 1996 (the "MCI Supply Agreement"). (13)(15) 10.45 Amendment Number One to MCI Supply Agreement, dated as of January 4, 1997. (13) 10.46 Amendment to MCI Supply Agreement, dated January 8, 1997. (13) 10.47 Distributor Supply Agreement between Motorola Ltd., trading as Motorola, Cellular Subscriber Division, UK, and CellStar UK Limited, executed April 3, 1996. (13) 10.48 Accessory Supply Agreement between Motorola Limited, trading as European Cellular Subscriber Group, and CellStar UK Limited, executed October 25, 1996. (13)(15) 10.49 Separation Agreement and Release between Kenneth E. Kerby and CellStar, Ltd., effective December 19, 1996. (13)(14) 10.50 Loan Agreement by and between The First National Bank of Chicago, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Amended Asian Loan Agreement"), dated July 31, 1996. (13) 10.51 Employment Agreement by and between CellStar (Asia) Corporation Limited and Hong An-Hsien, dated as of June 1, 1995. (13)(14) 21.1 Subsidiaries of the Company. (13) 23.1 Consent of KPMG Peat Marwick LLP. (13) 27 Financial Data Schedule 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 Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (3) 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. (4) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and incorporated herein by reference. (6) 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. (7) 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. (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 Quarterly Report on Form 10-Q for the quarter ended August 31, 1994, and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Current Report on Form 8-K, dated June 2, 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, 1996, and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Current Report on Form 8-K, dated December 30, 1996, and incorporated herein by reference. (13) Filed herewith. (14) The exhibit is a management contract or compensatory plan or arrangement. (15) Certain provisions of this exhibit are subject to a request for confidential treatment filed with the Securities and Exchange Commission. EX-10.2 2 EMPLOYMENT AGREEMENT CELLSTAR & HUGGINS EXHIBIT 10.2 EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT (this "Agreement") effective as of January 15, 1997, by and between CellStar, Ltd., a Texas limited partnership (the "Employer"), CellStar Corporation, a Delaware corporation and parent company of Employer ("Parent"), and Mark Q. Huggins (the "Employee"). R E C I T A L S --------------- WHEREAS, Employer desires to obtain the benefit of the services of Employee as an employee of Employer and as an officer of Parent for the period of time provided in this Agreement; and WHEREAS, Employee desires to render services to Employer and Parent on the terms and conditions hereinafter provided; A G R E E M E N T ----------------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE I EMPLOYMENT 1.1 Employment. Effective January 15, 1997, the Employer shall employ the ---------- Employee and the Employee shall accept employment by the Employer for the period and upon the terms and conditions contained in this Agreement. 1.2 Term. The term of this Agreement shall commence on January 15, 1997 ---- (the "Effective Date"), and shall end on January 15, 1999 (the "Original Term"), unless earlier terminated as provided herein (the period from January 15, 1997, through January 15, 1999, or the date of such earlier termination, as applicable, is hereinafter referred to as the "Term"). 1.3 Office and Duties. ----------------- (a) Position. During the Term, the Employee shall serve as Senior Vice -------- President-Administration and Chief Financial Officer of Parent, with authority, duties and responsibilities consistent with such offices, and shall perform such other services for Employer, Parent and their affiliated entities consistent with the position of Senior Vice President- Administration and Chief Financial Officer as may be reasonably assigned to him from time to time by senior management of Employer and/or Parent and by the Board of Directors of Parent. During the Term, Employee shall also accept election or appointment, and serve, as an officer and/or director of any affiliated entity of Employer and Parent, and perform the duties appropriate thereto, without additional compensation other than as set forth herein. Employee's actions as Senior Vice President-Administration and Chief Financial Officer shall at all times be subject to the direction of the Board of Directors of Parent. (b) Commitment. During the Term, the Employee shall devote ---------- substantially all of his time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of Employer, Parent and their affiliated entities. Subject to the foregoing, the Employee may serve in any capacity with any civic, educational or charitable organization; provided that such activities and services do not interfere or conflict with the performance of his duties hereunder. Employee shall comply with reasonable policies, standards and regulations established from time to time by senior management of Employer and Parent and/or the Board of Directors of Parent. 1.4 Compensation. ------------ (a) Base Salary. Employer shall pay the Employee as compensation an ----------- aggregate salary ("Base Salary") of $230,000 per year during the Term, or such greater amount as shall be approved by the Compensation Committee of the Parent's Board of Directors. The Base Salary for each year shall be paid by Employer in accordance with the regular payroll practices of Employer. (b) Annual Incentive Payment. Each year during the Term, the Employee ------------------------ shall be eligible to participate in an annual incentive plan approved by the Compensation Committee of Parent's Board of Directors. Pursuant to action of the Compensation Committee of the Board of Directors of Parent, the parties understand that, for the fiscal year ending in November 1997, the Employee will be eligible to earn an annual incentive payment under Parent's Amended and Restated Annual Incentive Compensation Plan of up to 50% of that portion of his base salary earned during such fiscal year; provided that Parent achieves such performance standards as are set forth in such plan and as are established by the Compensation Committee for such fiscal year. (c) Stock Options. Pursuant to action of the Compensation Committee ------------- of the Board of Directors of Parent, effective on the Effective Date, Employee shall be granted a stock option entitling him to purchase 40,000 shares of Parent's common stock at the reported market closing sales price thereof on such date (the "Option"). The Option shall become exercisable by the Employee at the rate of 25% of the shares covered thereby per year during the Term, beginning on the first anniversary of the Effective Date. The Option shall contain such additional terms as are set forth in Parent's 1993 Amended and Restated Long-Term Incentive Plan and as are established by the Compensation Committee of the Board of Directors of Parent. (d) Payment and Reimbursement of Expenses. During the Term, Employer ------------------------------------- shall pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in performing his obligations under this Agreement in accordance with 2 the policies and procedures of Employer for officers, provided that the Employee properly accounts therefor in accordance with the regular policies of Employer. (e) Fringe Benefits and Perquisites. During the Term, the Employee ------------------------------- shall be entitled to participate in or receive benefits under any stock purchase, profit-sharing, pension, retirement, life, medical, dental, disability or other plan or arrangement made available by Employer or Parent to officers of Parent, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Employee under any plan or arrangement made available to the Employee shall be deemed to be in lieu of compensation hereunder. (f) Vacations. During the Term and in accordance with the with --------- the regular policies of Employer, the Employee shall be entitled to the number of paid vacation days in each calendar year determined by Employer from time to time for its officers. (g) Relocation Expenses. Employee shall be entitled to receive ------------------- relocation expenses in accordance with Employer policy, including the following: (i) up to three months reasonable temporary living expenses in the Dallas/Fort Worth, Texas area; and (ii) reasonable expenses (including taxes) associated with relocation of Employee and Employee's family from San Antonio, Texas to the Dallas/Fort Worth, Texas area, including (x) real estate fees associated with the sale of Employee's home in San Antonio, Texas, (y) reasonable moving costs from San Antonio, Texas to the Dallas/Fort Worth, Texas area and (z) normal real estate acquisition costs in the Dallas/Fort Worth area (including normal points and other fees); provided that such relocation occurs within two years of the Effective Date 1.5 Termination. ----------- (a) Disability. Employer may terminate this Agreement for Disability. ---------- "Disability" shall exist if, because of ill health, physical or mental disability, or any other reason beyond his control, and notwithstanding reasonable accommodations made by Employer, the Employee shall have been unable, unwilling or shall have failed to perform his duties under this Agreement, as determined in good faith by Parent's Board of Directors or a committee thereof, for a period of 120 consecutive days, or if, in any 12- month period, the Employee shall have been unable or unwilling or shall have failed to perform his duties for a period of 80 or more business days, irrespective of whether or not such days are consecutive. (b) Cause. Employer may terminate the Employee's employment for ----- Cause. Termination for "Cause" shall mean termination because of the Employee's (i) gross incompetence, (ii) willful gross misconduct that causes or is likely to cause material economic harm to Employer, Parent or their affiliated entities or that brings or is likely to bring substantial discredit to the reputation of Employer, Parent or any of their affiliated entities, as determined by the Board of Directors of Parent in good faith, (iii) failure to follow directions of Parent's Board of Directors that are consistent with his duties under this Agreement, (iv) conviction of, or entry of a pleading of guilty or 3 nolo contendre to, any crime involving moral turpitude or entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting Employee from participating in the conduct of the affairs of Employer, Parent or their affiliated entities, or (v) material breach of any provision of this Agreement that is not remedied within 60 days after receipt of written notice from Employer or Parent specifying such breach. (c) Without Cause. During the Term, Employer may terminate the ------------- Employee's employment Without Cause, subject to the provisions of subsection 1.6(b) (Termination Without Cause or for Company Breach). ------------------------------------------------ Termination "Without Cause" shall mean termination of the Employee's employment by Employer other than termination for Cause or for Disability. (d) Company Breach. The Employee may terminate his employment -------------- hereunder for Company Breach. For purposes of this Agreement a "Company Breach" shall be deemed to occur in the event of a material breach of this Agreement by Employer or Parent, including without limitation any material reduction in the authority, duties and responsibilities that the Employee has on the Effective Date of this Agreement; provided, however, that the -------- ------- foregoing items shall not constitute Company Breach unless the Employee notifies Employer or Parent (as applicable) thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Company Breach, and unless Employer or Parent fails to cure such Company Breach within 60 days after such notice is sent or given under this Agreement. (e) Change in Control. The Employee may terminate his employment ----------------- hereunder within 12 months of a Change in Control (defined below): (i) "Change in Control" shall mean any of the following: (1) any consolidation or merger of Parent in which Parent is not the continuing or surviving corporation or pursuant to which shares of Parent's common stock would be converted into cash, securities or other property, other than a merger of Parent in which the holders of Parent common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Parent; (3) any approval by the stockholders of Parent of any plan or proposal for the liquidation or dissolution of Parent; (4) the cessation of control (by virtue of their not constituting a majority of directors) of Parent's Board of Directors by the individuals 4 (the "Continuing Directors") who (x) at the date of this Agreement were directors or (y) become directors after the date of this Agreement and whose election or nomination for election by Parent's stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the date of this Agreement or whose election or nomination for election was previously so approved); or (5) (A) the acquisition of beneficial ownership ("Beneficial Ownership"), within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of an aggregate of 15% or more of the voting power of Parent's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the Exchange Act) who Beneficially Owned less than 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this Agreement, (B) the acquisition of Beneficial Ownership of an additional 5% of the voting power of Parent's outstanding voting securities by any person or group who Beneficially Owned at least 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this agreement, or (C) the execution by Parent and a stockholder of a contract that by its terms grants such stockholder (in its, hers or his capacity as a stockholder) or such stockholder's Affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933 (an "Affiliate")) including, without limitation, such stockholder's nominee to Parent's Board of Directors (in its, hers or his capacity as an Affiliate of such stockholder), the right to veto or block decisions or actions of Parent's Board of Directors; provided, however, -------- ------- that notwithstanding the foregoing, the events described in items (A), (B) or (C) above shall not constitute a Change in Control hereunder if the acquiror is (aa) Alan H. Goldfield or his Affiliates, (bb) a trustee or other fiduciary holding securities under an employee benefit plan of Employer, Parent or one of their affiliated entities and acting in such capacity, (cc) a corporation owned, directly or indirectly, by the stockholders of Parent in substantially the same proportions as their ownership of voting securities of Parent or (dd) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act or (ee) in the case of an acquisition described in items (A) or (B) above (but not in the case of an acquisition described in item (C) above), any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; provided further, -------- ------- however that none of the following shall constitute a Change ------- in Control: (aa)the right of the holders of any voting securities of Parent to vote as a class on any matter or (bb) any vote required of disinterested or unaffiliated directors or stockholders including, without limitation, pursuant to Section 144 of the Delaware General Corporation Law or Rule 16b-3 promulgated pursuant to the Exchange Act. 5 (6) subject to applicable law, in a Chapter 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving Parent to a case under Chapter 7. (f) Without Good Reason. During the Term, the Employee may terminate ------------------- his employment Without Good Reason. Termination "Without Good Reason" shall mean termination of the Employee's employment by the Employee other than termination for Company Breach. (g) Explanation of Termination of Employment. Any party terminating ---------------------------------------- this Agreement shall give prompt written notice ("Notice of Termination") to the other party hereto advising such other party of the termination of this Agreement stating in reasonable detail the basis for such termination. The Notice of Termination shall indicate whether termination is being made for Cause, Without Cause or for Disability (if Employer has terminated the Agreement) or for Company Breach, upon a Change in Control or Without Good Reason (if the Employee has terminated the Agreement). (h) Date of Termination. "Date of Termination" shall mean the date ------------------- specified in the Notice of Termination. 1.6 Compensation Upon Termination. ----------------------------- (a) Termination for Cause or Disability or Without Good Reason. If ---------------------------------------------------------- Employer shall terminate the Employee's employment for Cause or Disability or if the Employee shall terminate his employment Without Good Reason, then Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall terminate, except that Employer shall pay the ------------ Employee his accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination. ------------ (b) Termination Without Cause or for Company Breach. If Employer shall ----------------------------------------------- terminate the Employee's employment Without Cause or if the Employee shall terminate his employment for Company Breach, then Employer shall pay to the Employee, as severance pay in a lump sum on the 15th day following the Date of Termination, the following amounts: (i) his then-unpaid Base Salary through the Date of Termination at the rate in effect as of the Date of Termination; and (ii) in lieu of any further Base Salary and Annual Incentive Payments for periods subsequent to the Date of Termination, an amount equal to the greater of (i) Employee's Base Salary at the rate in effect as of the Date of Termination divided by 12 and multiplied by six or (ii) Employee's Base Salary at the rate in effect as of the Date of Termination divided by 365 and multiplied by the number of days remaining in the Original Term. 6 In addition, the Employee will be entitled to a prorated portion of any annual incentive payment earned for the fiscal year in which his employment is terminated, if earned in accordance with the terms of its grant. If the Employee terminates his employment for Company Breach based upon a material reduction by Employer of the Employee's Base Salary, then for purposes of this subsection 1.6(b) (Termination Without Cause or for -------------------------------- Company Breach), the Employee's Base Salary as of the Date of Termination -------------- shall be deemed to be the Employee's Base Salary immediately prior to the reduction that the Employee claims as grounds for Company Breach. (c) Termination Upon a Change in Control. If the Employee terminates ------------------------------------ his employment after a Change in Control pursuant to subsection 1.5(e) (Change in Control), then Employer shall pay to the Employee as severance ----------------- pay and as liquidated damages (because actual damages are difficult to ascertain), in a lump sum, in cash, within 15 days after termination, an amount equal to $100 less than two times the Employee's "annualized includable compensation for the base period" (as defined in Section 280G of the Internal Revenue Code of 1986); provided, however, that if such lump -------- ------- sum severance payment, either alone or together with other payments or benefits, either cash or non-cash, that the Employee has the right to receive from Employer, including, but not limited to, accelerated vesting or payment of any deferred compensation, options, stock appreciation rights or any benefits payable to the Employee under any plan for the benefit of employees, would constitute an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986), then such lump sum severance payment or other benefit shall be reduced to the largest amount that will not result in receipt by the Employee of a parachute payment. The determination of the amount of the payment described in this subsection shall be made by Parent's independent auditors. (d) No Mitigation. The Employee shall not be required to mitigate the ------------- amount of any payment provided for in this Section 1.6 (Compensation Upon ----------------- Termination) by seeking other employment or otherwise. ----------- 1.7 Death of Employee. If the Employee dies prior to the expiration of ----------------- this Agreement, the Employee's employment and other obligations under this Agreement shall automatically terminate and all compensation to which the Employee is or would have been entitled hereunder shall terminate as of the end of the month in which the Employee's death occurs. 7 ARTICLE 2 NON-COMPETITION AND CONFIDENTIALITY 2.1 Non-Competition. --------------- (a) Description of Proscribed Actions. During the Term and for a --------------------------------- period of two (2) years thereafter, in consideration for the obligations of Employer and Parent hereunder, including without limitation their disclosure (pursuant to subsection 2.2(b) (Obligation of The Company) ------------------------- below) of Confidential Information, the Employee shall not: (i) directly or indirectly, engage or invest in, own, manage, operate, control or participate in the ownership, management, operation or control of, be employed by, associated or in any manner connected with, or render services or advice to, any Competing Business (defined below); provided, however, that the Employee may invest in the -------- ------- securities of any enterprise (but without otherwise participating in the activities of such enterprise) if (x) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act and (y) the Employee does not beneficially own (as defined Rule 13d-3 promulgated under the Exchange Act) in excess of 5% of the outstanding capital stock of such enterprise; (ii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, solicit, divert or take away any suppliers, customers or clients of the Company or any of its Affiliates; or (iii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, either (i) hire, attempt to hire, contact or solicit with respect to hiring, any employee of Employer or Parent or any Affiliate thereof, (ii) induce or otherwise counsel, advise or encourage any employee of Employer, Parent or any Affiliate thereof to leave the employment of Employer, Parent or any Affiliate thereof, or (iii) induce any representative or agent of Employer, Parent or any Affiliate thereof to terminate or modify its relationship with Employer, Parent or such Affiliate. (b) Judicial Modification. The Employee agrees that if a court of --------------------- competent jurisdiction determines that the length of time or any other restriction, or portion thereof, set forth in this Section 2.1 (Non- ---- Competition) is overly restrictive and unenforceable, the court may reduce ----------- or modify such restrictions to those which it deems reasonable and 8 enforceable under the circumstances, and as so reduced or modified, the parties hereto agree that the restrictions of this Section 2.1 (Non- ---- Competition) shall remain in full force and effect. The Employee further ----------- agrees that if a court of competent jurisdiction determines that any provision of this Section 2.1 (Non-Competition) is invalid or against --------------- public policy, the remaining provisions of this Section 2.1 (Non- ---- Competition) and the remainder of this Agreement shall not be affected ----------- thereby, and shall remain in full force and effect. (c) Nature of Restrictions. The Employee acknowledges that the ---------------------- business of Employer and Parent and their Affiliates is international in scope and that the Restrictions imposed by this Agreement are legitimate, reasonable and necessary to protect Employer's, Parent's and their Affiliates' investment in their businesses and the goodwill thereof. The Employee acknowledges that the scope and duration of the restrictions contained herein are reasonable in light of the time that the Employee has been or will be engaged in the business of Employer, Parent and/or their Affiliates, and the Employee's relationship with the suppliers, customers and clients of Employer, Parent and their Affiliates. The Employee further acknowledges that the restrictions contained herein are not burdensome to the Employee in light of the consideration paid therefor and the other opportunities that remain open to the Employee. Moreover, the Employee acknowledges that he has other means available to him for the pursuit of his livelihood. (d) Competing Business. "Competing Business" shall mean any ------------------ individual, business, firm, company, partnership, joint venture, organization, or other entity engaged in the wholesale distribution or retail sales of wireless communication equipment in any domestic or international market area in which Employer, Parent or any of their Affiliates does business at any time during the Employee's employment with Employer or any of its Affiliates. 2.2 Confidentiality. For the purposes of this Section 2.2 --------------- (Confidentiality), the term "the Company" shall be construed also to include - ---------------- Employer, Parent and any and all Affiliates of Employer and Parent. (a) Confidential Information. "Confidential Information" shall mean ------------------------ information that is used in the Company's business and (i) is proprietary to, about or created by the Company; (ii) gives the Company some competitive advantage, the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company; (iii) is not typically disclosed to non-employees by the Company, or otherwise is treated as confidential by the Company; or 9 (iv) is designated as Confidential Information by the Company or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential to the Company. Confidential Information shall not include information publicly known (other than as a result of a disclosure by the Employee ). The phrase "publicly known" shall mean readily accessible to the public in a written publication and shall not include information that is only available by a substantial searching of the published literature or information the substance of which must be pieced together from a number of different publications and sources, or by focused searches of literature guided by Confidential Information. (b) Obligation of The Company. During the Term, the Company shall ------------------------- provide access to, or furnish to, the Employee Confidential Information of the Company necessary to enable the Employee properly to perform his obligations under this Agreement. (c) Non-Disclosure. The Employee acknowledges, understands and agrees -------------- that all Confidential Information, whether developed by the Company or others or whether developed by the Employee while carrying out the terms and provisions of this Agreement (or previously while serving as an officer of the Company), shall be the exclusive and confidential property of the Company and (i) shall not be disclosed to any person other than employees of the Company and professionals engaged on behalf of the Company, and other than disclosure in the scope of the Company's business in accordance with the Company's policies for disclosing information, (ii) shall be safeguarded and kept from unintentional disclosure and (iii) shall not be used for the Employee's personal benefit. Subject to the terms of the preceding sentence, the Employee shall not use, copy or transfer Confidential Information other than as is necessary in carrying out his duties under this Agreement. 2.3 Injunctive Relief. Because of the Employee's experience and ----------------- reputation in the industries in which Employer, Parent and their Affiliates operate, and because of the unique nature of the Confidential Information, the Employee acknowledges, understands and agrees that Employer and Parent will suffer immediate and irreparable harm if the Employee fails to comply with any of his obligations under Article 2 (Non-Competition and Confidentiality) of this ----------------------------------- Agreement, and that monetary damages will be inadequate to compensate Employer and Parent for such breach. Accordingly, the Employee agrees that Employer and Parent shall, in addition to any other remedies available to them at law or in equity, be entitled to injunctive relief to enforce the terms of Article 2 (Non- ---- Competition and Confidentiality), without the necessity of proving inadequacy of - ------------------------------- legal remedies or irreparable harm. 10 ARTICLE 3 MISCELLANEOUS 3.1 Period of Limitations. No legal action shall be brought and no --------------------- cause of action shall be asserted by or on behalf of Employer or Parent or any of their Affiliates against the Employee, the Employee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of Employer or Parent or any Affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two- year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 3.2 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 3.3 Indulgences, Etc. Neither the failure nor any delay on the part ----------------- of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 3.4 Employee's Sole Remedy. The Employee's sole remedy shall be ---------------------- against Employer or Parent for any claim, liability or obligation of any nature whatsoever arising out of or relating to this Agreement or an alleged breach of this Agreement or for any other claim arising out of the Employee's employment by Employer, his service to Employer or its Affiliates or the termination of the Employee's employment hereunder (collectively, "Employee Claims"). The Employee shall have no claim or right of any nature whatsoever against any of Employer's or its Affiliates' directors, former directors, officers, former officers, employees, former employees, stockholders, former stockholders, agents, former agents or the independent counsel in their individual capacities arising out of or relating to any Employee Claim. The Employee hereby releases and covenants not to sue any person other than Employer or Parent over any Employee Claim. The persons described in this Section 3.4 (other than Employer, Parent and the Employee) shall be third-party beneficiaries of this Agreement for purposes of enforcing the terms of this Section 3.4 (Employee's Sole Remedy) against the ----------------------- Employee. 3.5 Notices. All notices, requests, demands and other ------- communications required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received when sent by telecopy (with a copy sent by mail) or when personally delivered or one business day after it is sent by overnight service, addressed as set forth below: 11 If to the Employee: Mark Q. Huggins ---------------------- ---------------------- If to Employer or Parent: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subsection for the giving of notice, which shall be effective only upon receipt. 3.6 Provisions Separable. The provisions of this Agreement are -------------------- independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 3.7 Entire Agreement. This Agreement contains the entire ---------------- understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained, which shall be deemed terminated effective immediately. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 3.8 Headings; Index. The headings of paragraphs herein are included --------------- solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 3.9 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Texas, without giving effect to principles of conflict of laws. 3.10 Dispute Resolution. Subject to Employer's and Parent's right to ------------------ seek injunctive relief in court as provided in Section 2.3 (Injunctive Relief) ----------------- of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 3.10 (Dispute ------- Resolution), to arbitration. - ---------- 12 (a) Arbitrators. The arbitration shall be heard and determined by one ----------- arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves -------- ------- more than $2,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. If (x) the parties cannot agree on the sole arbitrator, (y) one party refuses to appoint its party-appointed arbitrator within said thirty (30) day period or (z) the party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal, then the appointing authority for the implementation of such procedure shall be the Senior United States District Judge for the Northern District of Texas, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. If the Senior United States District Judge for the Northern District of Texas refuses or fails to act as the appointing authority within ninety (90) days after being requested to do so, then the appointing authority shall be the Chief Executive Officer of the American Arbitration Association, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be made by majority vote. (b) Proceedings. Unless otherwise expressly agreed in writing by the ----------- parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Dallas, Texas, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any 13 claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. 3.11 Survival. The covenants and agreements of the parties set forth -------- in Article 2 (Non-Competition and Confidentiality), and Article 3 ----------------------------------- (Miscellaneous) are of a continuing nature and shall survive the expiration, ------------- termination or cancellation of this Agreement, regardless of the reason therefor. 3.12 Subrogation. In the event of payment under this Agreement, ----------- Employer and Parent shall be subrogated to the extent of such payment to all of the rights of recovery of the Employee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable Employer or Parent effectively to bring suit to enforce such rights. 3.13 No Duplication of Payments. Employer and Parent shall not be -------------------------- liable under this Agreement to make any payment in connection with any claim made against the Employee to the extent the Employee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 3.14 Binding Effect, Etc. This Agreement shall be binding upon and -------------------- inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Employer, Parent, spouses, heirs, and personal and legal representatives. Employer and Parent shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of their business or assets, by written agreement in form and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Employer or Parent would be required to perform if no such succession had taken place. * * * * * * * * 14 IN WITNESS WHEREOF, Employer and Parent have caused this Agreement to be executed by their officer/general partner thereunto duly authorized, and Employee has signed this Agreement, all as of the day and year first above written. CELLSTAR CORPORATION By: /s/ R. M. GOZIA ---------------------------------------------------- Name: /s/ R. M. Gozia ---------------------------------------------- Title: /s/ President ---------------------------------------------- CELLSTAR, LTD. By National Auto Center, Inc., its General Partner By: /s/ R. M. GOZIA ---------------------------------------------------- Name: /s/ R. M. Gozia ---------------------------------------------- Title: /s/ President ---------------------------------------------- /s/ MARK Q. HUGGINS ------------------------------------------------------- Mark Q. Huggins 15 EX-10.3 3 AUTHORIZED AGENCY AGRMNT-CELLSTAR & SWB MOBILE SYS EXHIBIT 10.3 AUTHORIZED AGENCY AGREEMENT BETWEEN SOUTHWESTERN BELL MOBILE SYSTEMS, INC. AND CELLSTAR, LTD. THIS AGREEMENT is made and entered into this 17th day of Dec., 1996, by and between SOUTHWESTERN BELL MOBILE SYSTEMS, INC. ("SBMS"), acting in its capacity as general partner of the Dallas SMSA Limited Partnership, and being a corporation organized and existing under the laws of the States of Delaware and Virginia with its principal place of business at 17330 Preston Road, Suite 100A, Dallas, Texas 75252, and CELLSTAR, LTD., a Texas limited partnershipwith its principal place of business at 1730 Briarcroft Court, Carrollton, Texas 75006 ("AGENT"). W I T N E S S E T H: -------------------- Whereas, SBMS is involved in the development, establishment and resale of cellular radio service ("CRS"), which requires the use by CRS subscribers ("Subscribers") of cellular terminal equipment ("CPE"); Whereas, SBMS and/or its Affiliates is or may become involved in the development and/or sale of other services, including but not limited to long distance/toll service for CRS Subscribers, paging services, other Commercial Mobile Radio Services, and competitive landline local exchange and/or long distance services (collectively referred to as the "Services"); Whereas, SBMS has been granted regulatory authority to provide CRS in the cellular geographic service area(s) within the Dallas - Ft. Worth and Sherman - Denison metropolitan statistical areas ("MSA") and desires to provide CRS in these Areas, as well as other Services in designated areas, through Authorized Agents, Resellers, Distributors, direct sales and other forms of distribution to Subscribers; Whereas, SBMS has adopted and used or intends to adopt and use certain valuable trademarks and service marks, symbols, logos and other identifying indicia ("Marks") in the provision of its Services and CPE; Whereas, AGENT is desirous of selling SBMS' CRS as a nonexclusive, authorized CRS agent of SBMS and is desirous of selling, installing, providing warranty service and/or maintaining CPE necessary for Subscribers to utilize Services; 1 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 BY "[REDACTED]". Whereas, SBMS and AGENT further agree AGENT shall sell, install, and/or maintain and provide warranty service for CPE, and is licensed to use certain identifying trademarks and the like in its business operations, as more specifically detailed hereinafter. Now, therefore, in consideration of the mutual promises herein contained, it is hereby agreed: 1. DEFINITIONS ----------- Activation. The act of initiating an Authorized Service in or to a ---------- Subscriber's CPE by SBMS. Affiliate. A person, association, partnership, corporation or joint-stock --------- company, trust or other business entity however organized ("Person") is an affiliate of that entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Person. Control shall be defined as (i) ownership of a majority of the voting power of all classes of voting stock or (ii) ownership of a majority of the beneficial interests in income and capital of an entity other than a corporation. Authorized Services. Those Services provided by SBMS that AGENT is ------------------- authorized hereunder to sell on behalf of SBMS, including CRS and any other Services set forth on Exhibit "A" hereto, which shall be amended, from time to time, as determined by SBMS in its sole discretion. Area. The Dallas - Ft. Worth and Sherman - Denison metropolitan ---- statistical areas ("MSAs") within which SBMS has applied for and obtained regulatory authority to provide CRS. The counties generally comprising these MSAs and any additional counties that may be added to the areas served through the Dallas SMSA Limited Partnership shall be deemed added to the Area, without the necessity of an amendment to this Agreement with respect to other Authorized Services, Area is defined as those Areas in which SBMS is authorized to and is providing or reselling such Authorized Service, except as may be otherwise defined or limited on Exhibit "A". Cellular Radio Service (CRS). Any and all service (including resale of ---------------------------- said service) authorized by the F.C.C under Part 22 of its rules as amended under the cellular orders set forth in An Inquiry Into the Use of the Bands 825- 845 MHz and 870-890 MHz for Cellular Communications Systems; and Amendments of Parts 2 and 22 of the Commission's Rules Relative to Cellular Communications Systems (CC Docket No. 79-318), 86 F.C.C. 2d 469 (1981), modified as set forth in reconsideration order 89 F.C.C. 2d. 58 (1982), and as further modified as set forth in reconsideration orders, rules or orders from time to time. Commercial Mobile Radio Services (CMRS). Any and all services (including --------------------------------------- resale of said services) that (i) fit the definition of commercial mobile services pursuant to Section 332 of 2 the Communications Act, 47 U.S.C. (S)332, (ii) are subject to regulation as commercial mobile radio services by the FCC under the orders set forth in Implementation of Sections 3(n) and 332 of the Communications Act:, Regulatory Treatment of Mobile Services (CC Docket No. 93-252) or such other orders or rules as may be in effect from time to time, or (iii) are the functional equivalent of a commercial mobile service as defined in 47 U.S.C. (S)332. CMRS shall in any event include CRS, all forms of specialized mobile radio service (SMR and ESMR), and personal communications services (PCS). CPE. The cellular terminal equipment needed for using CRS and other --- Authorized Services. Marks. Any and all trademarks, service marks, trade names, insignia, ----- symbols, logos, decorative designs, or the list SBMS owns or is licensed or sublicensed to use in connection with the Authorized Services or products relating thereto and which SBMS, in its sole discretion, determines from time to time that AGENT is authorized to use. Paging Services. A service provided by a communication common carrier --------------- engaged in rendering one-way communication. Reseller. Any person, association, partnership, corporation, joint stock -------- company, trust, or other entity that purchases bulk quantities of CRS from a cellular carrier for resale distribution, directly or indirectly, to ultimate users of CRS. Subscriber. A customer of an Authorized Service provided by SBMS. Each ---------- CRS telephone number assigned to a customer of SBMS' CRS is deemed to be a separate Subscriber, regardless of how many CRS telephone numbers may be assigned to or used by any one customer. Successor. Any person, association, partnership, corporation, joint stock --------- company, trust or other entity however organized, that succeeds to or acquires the rights, title or interests of another. 2. ACKNOWLEDGMENTS AND REPRESENTATIONS ----------------------------------- SBMS and AGENT acknowledge that they have read this Agreement and understand and accept the terms, conditions and covenants contained herein as being reasonably necessary to maintain SBMS' high standards for CRS and other Services, thereby to protect and preserve the goodwill of SBMS' CRS, Services and its Marks. AGENT has read and understands the obligations imposed by the FCC upon CRS licensees and their duties to SBMS as specified in Section 22.9l2 of the FCC's cellular rules. AGENT acknowledges that SBMS' ability to provide CRS and other Services is conditioned upon the continuing validity of its FCC operating license(s) and any other required 3 licenses, certificates and permits, and may be affected by state and federal court decisions and regulatory approvals. SBMS makes no representation concerning whether said licenses, certificates, and permits will continue to be valid. AGENT agrees that if SBMS is prohibited from, or otherwise ceases selling an Authorized Service in the Area, SBMS may declare this Agreement null and void as to any or all Authorized Services with no penalty. AGENT acknowledges that it has conducted an independent investigation of the business of selling CRS and any other Services that it will conduct pursuant to this Agreement. AGENT recognizes that entry into business as an AGENT of SBMS involves business risks and the AGENT'S success in such business will depend primarily upon its abilities and efforts. SBMS expressly disclaims the making of, and AGENT acknowledges that it has not received or relied upon, any guaranty, express or implied, as to the amount of commissions or other gross revenue that it may earn as a result of its agency relationship with SBMS and acknowledges that it has no knowledge of any representations relating to its agency relationship with SBMS by an officer, employee or agent of SBMS that are contrary to the terms herein. AGENT represents to SBMS, as an inducement to its entry into this Agreement, that AGENT has made no misrepresentations to SBMS in its application for appointment as a nonexclusive, Authorized Agent of SBMS or in any other manner. AGENT and SBMS mutually agree that they shall not have any liability to the other for any lost profits, consequential, or special damages even if advised of the possibility of such damages. 3. RELATIONSHIP OF THE PARTIES --------------------------- SBMS hereby appoints AGENT as a nonexclusive Authorized Agent within the Area to solicit and contract, on behalf of SBMS, with Subscribers for the Authorized Services subject to all of the terms and conditions hereof. During the term of this Agreement or thereafter, SBMS reserves the right without obligation or liability to AGENT, to market the Authorized Services and CPE in the same geographical areas served by AGENT, whether through SBMS' own representatives or through others, including but not limited to, other Authorized Agents, retailers, Resellers and distributors. Upon enrollment of a particular Subscriber, that Subscriber shall become a customer of SBMS, and SBMS shall offer and furnish such customer billing services and other customer services as SBMS deems appropriate. SBMS shall be responsible to collect any charges for Authorized Services from Subscribers. With the sole exception of the Subscribers enrolled by AGENT for the account of SBMS, with respect to which AGENT acts as agent of SBMS and owes SBMS the fiduciary and other obligations of an agent to its principal, SBMS and AGENT acknowledge and agree that their agency relationship arising from this Agreement does not constitute or create a general agency, 4 joint venture, partnership, employment relationship or franchise between them. The parties agree that personnel employed by AGENT to perform services under this Agreement are not SBMS employees and AGENT assumes full responsibility for their acts. Such personnel employed by AGENT shall be informed that they are not entitled to the provisions of any SBMS' employee benefits. With respect to such personnel, AGENT shall have sole responsibility for supervision, daily direction and control. SBMS will not be responsible for worker's compensation, disability benefits, unemployment insurance and withholding income taxes and social security for said personnel. 3A. RELATIONSHIP WITH SUB-AGENTS ---------------------------- AGENT warrants that it entered into or may enter into appropriate agreements with all persons or businesses (other than Agent's own employees) (subject to the conditions stated below) that sell the Authorized Services on behalf of AGENT ("Sub-Agent"), and that such agreements are, or will be sufficient to enable it to comply with all provisions of this Agreement except those that by their nature would not be applicable to a Sub-Agent. Without limiting the generality of the foregoing, AGENT understands, convents and agrees that (i) any Sub-Agent appointed by AGENT must agree to comply with all of the restrictive covenants in Paragraph 18 of this Agreement and the Confidentiality Obligations in Paragraph 31 of this Agreement. AGENT may not delegate its responsibilities under this Authorized Agency Agreement to any Sub-Agent, and shall remain liable to SBMS pursuant to the terms of this Agreement notwithstanding any agreement with a Sub-Agent, (ii) AGENT will inform SBMS within thirty (30) days of the identity of any new Sub-Agent, and SBMS shall have the right to disapprove any new Sub-Agent that in the sole opinion of SBMS, reflects adversely upon SBMS or which is or has been associated in any way with a competitor of SBMS in the Area or, for any reasonable business purpose; and SBMS shall have the right to request the removal of any Sub-Agent who breaches the agreements set forth above or whose actions, in the sole opinion of SBMS, reflect adversely upon SBMS; (iii) AGENT shall inform SBMS prior to any intended relocation of any of its Sub-Agents, which relocation shall then be subject to SBMS' approval; (iv) Prior to AGENT'S appointment of a Sub-Agent, SBMS may request, and AGENT will provide, any further information SBMS deems necessary with respect to any prospective Sub-Agent. A complete list of all current Sub-Agents, along with the names of the owners, managers, principals, officers and directors thereof is attached as Exhibit "D". All existing Sub- Agents of AGENT who are listed in Exhibit " D" are approved by SBMS except to the extent the relationship between AGENT and a Sub-Agent is inconsistent with the agreement; however, any Sub-Agent not listed in Exhibit " D" must be approved in accordance with the procedure in this Paragraph A. AGENT understands and agrees that Sub-Agents of AGENT shall not be permitted to use, in any manner whatsoever, the name, trademarks or service marks of SBMS, unless expressly agreed in a writing signed by AGENT, SBMS and Sub-Agent. Any unauthorized use of SBMS' name, trademarks or service marks shall be grounds for immediate termination of any Sub-Agent agreements. 5 4. AGENT RESPONSIBILITIES ---------------------- a. AGENT agrees to provide materials and advertising to actively promote SBMS' Authorized Services in a quality manner, and appropriate sales facilities to enhance the sale of SBMS' Authorized Service. b. AGENT will sell SBMS' Authorized Services to customers by employing the following techniques (in addition to others): providing demonstrations of SBMS' Service, explaining its benefits, explaining the terms and conditions of purchase of the Service, providing sales literature prepared by SBMS, and training the customer in the use of SBMS' service. AGENT will offer CRS subject to all of the applicable terms of SBMS' form of contract for customers. AGENT will offer Services subject to all terms and conditions established by SBMS for each such service, which form of contract will be attached hereto as an addendum. c. AGENT agrees that it must obtain SBMS' prior written approval to (i) open any locations in addition to those listed in Exhibit "B" and (ii) must notify SBMS sixty (60) days prior to closing any location listed in Exhibit "B". However, an amendment of this Agreement shall not be necessary to subject any new or additional AGENT locations to the terms and conditions of this Agreement; rather, the opening of such locations shall automatically subject them to the terms and conditions of this Agreement. AGENT agrees to establish and maintain installation and maintenance facilities at the locations set forth in Exhibit "B"; provided that AGENT may request the consent of SBMS to close or centralize certain of such facilities, which consent shall not be unreasonably withheld. Agent may, in Agent's discretion, maintain installation and maintenance facilities at such other locations as AGENT may establish from time to time, approval of SBMS shall not be unreasonably withheld, and to furnish high quality and prompt installation, warranty and maintenance service for all CPE sold by it to Subscribers. AGENT, at its own expense, shall obtain from the manufacturer(s) and distributor(s) all required training in the operation, installation, warranty and maintenance service of CPE. AGENT shall be obligated to comply with all of the requirements of the Quality Assurance Program contained in the Certification Training Manual, as amended from time to time, and with the specific requirements described in the remainder of this subparagraph (c). AGENT'S installation, warranty and maintenance service CRS facility shall be required to obtain certification from the manufacturer(s) of CPE AGENT sells and AGENT shall be responsible to secure such certifications. AGENT may only delegate its installation, warranty and maintenance service obligations hereunder to a subcontractor with the express prior written approval of SBMS, which approval will not be unreasonably withheld or withdrawn, and with any approval necessary from each manufacturer and/or distributor of an approved model of CPE to be sold or leased by AGENT. Such delegation shall be by written agreement between AGENT and the service subcontractor. Notwithstanding such agreement with a service subcontractor, 6 AGENT shall remain responsible to SBMS for all installation, warranty and maintenance service obligations hereunder. AGENT shall reimburse SBMS for the reasonable cost of installation, repair or warranty which SBMS, in its sole discretion, deems necessary to have performed at a facility other than AGENT'S for customers as to whom AGENT fails to comply with SBMS' standards applicable thereto. Notwithstanding the foregoing, AGENT's obligations to repair and maintain CPE are subject to any limitations on AGENT's and/or the manufacturers warranty obligation. d. AGENT agrees to maintain sufficient liability insurance to protect SBMS from all claims arising out of the acts, omissions, and/or representations of AGENT. SBMS shall be named as an additional insured party on each policy. Such insurance coverage shall be maintained under one or more policies of insurance from a recognized insurance company qualified to do business within the Area providing in the aggregate minimum liability protection of ONE MILLION DOLLARS ($1,000,000.00) per occurrence for bodily and personal injury and death and ONE MILLION DOLLARS ($1,000,000.00) per occurrence of property damage. Each such insurance policy shall provide for not less than thirty (30) days prior notice to all insured of any modification, cancellation or nonrenewal. SBMS may, at any time and with ninety (90) days prior notice to AGENT, require AGENT to increase its coverage of any type of insurance in reasonable amounts and require different or additional kinds of insurance, to reasonably reflect inflation, identification of special risks, changes in law or standards of liability, higher damage awards or other changes in circumstances. Upon request, AGENT shall furnish SBMS with a copy of the insurance policy or a binder that demonstrates that AGENT maintains insurance required as set forth above, such policy or binder to specifically show SBMS as an additional insured. The furnishing of such proof of insurance is required within fifteen (15) days of the execution of this Agreement by AGENT and AGENT agrees to furnish such proof as soon as prudent after such policies are renewed. e. AGENT agrees to take all necessary steps to ensure compliance with AGENT'S obligations under this Agreement by AGENT and its personnel and any other parties involved in the sale of the Authorized Services by AGENT, including but not limited to Sub-Agents. f. AGENT agrees to maintain operations and follow procedures that are in full compliance with SBMS' requirements as specified in SBMS' Agent Operations Manual, as amended and distributed from time to time, and to allow SBMS reasonable access to AGENT'S facilities for inspection. The SBMS Agent Operations Manual is binding upon AGENT as if fully set forth herein. g. For its own account, AGENT agrees to sell CPE to be used by Subscribers of SBMS' CRS or other end users. AGENT may only offer FCC approved equipment. AGENT agrees to maintain an inventory of CPE sufficient to meet reasonable 7 anticipated demand by Subscribers which AGENT enrolls. AGENT also agrees to maintain a minimum inventory of parts. In particular, but without limitation, AGENT agrees not to use any CPE bearing trademarks similar to or resembling the Marks of SBMS. Except for any SBMS-owned CPE which AGENT handles on behalf of SBMS, all CPE sales and leases shall be made by or on behalf of AGENT for its own account and not as agent for, or for the account of, SBMS. AGENT may establish sale and lease prices, fees and charges for the CPE and SBMS shall have no control over such prices or over AGENT'S CPE. With respect to the sale or lease of AGENT'S CPE, Subscribers shall be customers of AGENT and SBMS shall have no responsibility to AGENT or to Subscribers with respect to the sale or lease of AGENT'S CPE. h. AGENT agrees that AGENT will at all times faithfully, honestly and diligently perform its obligations hereunder, and that AGENT will continuously exert its best efforts to promote and enhance the use of SBMS' Authorized Services. i. In the relevant Area, AGENT agrees that it will not, at any time either during the term of this Agreement, or any extension thereof, (1) induce, influence or suggest to any Subscriber of SBMS' CRS to purchase CRS or any other CMRS from another Reseller or provider of CRS or CMRS or switch to and/or contract with another CRS provider, (2) induce, influence or suggest to any Subscriber of any other Authorized Service to purchase a service competing with a service provided or offered by SBMS from any other provider or Reseller of such competing service, whether or not the competing service is technologically the same as the Authorized Service in question. As more fully described in Paragraph 18, AGENT agrees not to act as a representative or agent of any other reseller or provider of CMRS in the relevant Area. Notwithstanding any language to the contrary, AGENT shall have the right to enter into or continue current provision of Paging Services and other Services that are not SBMS' Authorized Services as of the date of execution of this Agreement ("Additional Authorized Services"), provided, however, that in the event SBMS should enter into the business of providing Paging Services or other Additional Authorized Services, AGENT and SBMS agree to negotiate in good faith with respect to AGENT'S provision of such Paging Services or other Additional Authorized Services. j. AGENT agrees not to take any action inconsistent with the provisions of this Agreement and shall use its best efforts to support SBMS' efforts in providing the Authorized Services to Subscribers. k. AGENT agrees not to take any action inconsistent with, and agrees to support SBMS' efforts before legal or regulatory authorities regarding any modification of rates. 8 l. AGENT agrees that during and after the term of this Agreement, AGENT will not reveal, divulge, make known, sell, exchange, give away, or transfer in any way any part of its list of Subscribers or use such information for any purpose other than (i) AGENT (but no other successor business entity) maintaining such periodic contact with Subscribers as is required for warranty service, installation or maintenance of CPE, (ii) the resolution of disputes between AGENT (but no other corporate entity) and Subscribers relating to CPE charges and (iii) AGENT (but no other corporate entity) business activities unrelated to CRS, CMRS, or any other Authorized Services; provided, however, AGENT shall be under no such limitation to the extent such Subscriber list or information known to AGENT regarding such Subscriber list becomes available to any third party in a manner destroying its nature as a trade secret, other than through the fault of AGENT and, provided further, that AGENT shall be under no restriction regarding the use of such information as long as such use is consistent with the terms of this Agreement. m. AGENT agrees to advertise association with SBMS' Authorized Services as an Authorized Agent of SBMS, pursuant to any written procedures SBMS may publish from time to time. n. AGENT agrees to use its best efforts to install and maintain CPE for Subscribers referred to AGENT by SBMS' direct sales force and sales associates for installation and maintenance on a "first come, first serve basis", in accordance with SBMS standards established from time to time. 5. SBMS' RESPONSIBILITIES ---------------------- SBMS will: a. Upon approval, and subject to compliance with procedures and guidelines established from time to time, SBMS will furnish the Authorized Services to Subscribers. b. Secure any necessary regulatory approvals to conduct the Authorized Services. c. Establish the rates, terms, and conditions of the sale of its Authorized Services to Subscribers. d. Establish the administrative procedures and guidelines for sale of Authorized Services, enrollment of Authorized Services Subscribers, and customer service provided to Subscribers. e. Promote SBMS' Authorized Services and provide promotional literature as 9 SBMS deems necessary and appropriate. SBMS may advertise SBMS' Authorized Services from time to time if it deems necessary and appropriate. f. Provide a reasonable amount of training on sales of SBMS' Authorized Services and administrative procedures associated with the enrollment of Subscribers. g. Bill Subscribers for SBMS' Authorized Services charges and provide customer service and assistance, including collection of Authorized Services charges. 10 6. CPE BEARING SBMS' MARKS ----------------------- AGENT shall not have the right, except after SBMS' approval, to sell CPE bearing SBMS' Marks to any person or entity other than a Subscriber to whom AGENT has sold SBMS' Authorized Service(s) hereunder. This clause is intended to protect SBMS' Marks and to assure that such Marks are used properly. 7. COMMISSIONS ----------- SBMS shall pay commissions to AGENT for Subscribers enrolled by AGENT onto SBMS' Authorized Services. A Subscriber will be deemed to be enrolled only when the Subscriber's CRS telephone number is installed in CPE and activated by SBMS. The current commissions and related Authorized Services are defined and outlined in the attached Exhibit "C." This commission schedule may be revised or restructured by SBMS in its sole discretion, upon thirty (30) days advance written notice to AGENT or by mutual agreement of the parties at any time. AGENT recognizes that SBMS' ability to sell the Authorized Services may be affected by state and federal court decisions and state and federal regulatory approvals. AGENT agrees that if SBMS is prohibited from, or otherwise ceases, selling the Authorized Services in the Area, SBMS may declare this Agreement null and void with no penalty. Commissions shall only continue to accrue as long as this Agreement is in effect, and the expiration or termination of this Agreement shall effectively terminate AGENT'S right to any further commissions that would otherwise accrue after the date of expiration or termination. Subscriber activation commissions shall be debited in the event a Subscriber does not remain continuously active on SBMS' system for at least that period(s) of time indicated in Exhibit "C." SBMS may withhold and offset or apply AGENT compensation against 30 days past due amount owed to SBMS. Whenever AGENT fails to comply with any term hereof or any procedure referenced in this Agreement or AGENT does not provide complete and/or accurate information concerning Subscribers to whom an Authorized Service is sold or, if applicable, the CPE is sold or leased, SBMS shall have the right to withhold all or a portion of any compensation or other amount otherwise payable hereunder to AGENT with respect to such Authorized Service or if applicable, CPE. 8. USE OF MARKS BY AGENT --------------------- Periodically SBMS will publish a list of the Marks AGENT is licensed to use under the Agreement. The right granted hereunder shall be the non- exclusive right of AGENT to use the Marks solely in the Area defined herein. Such list will also be supplemented with rules and regulations pertaining to the Marks. AGENT agrees to comply with all such rules and procedures prescribed by SBMS from time to time during the term of this Agreement. AGENT 11 acknowledges that its right to use the Marks is derived solely from this Agreement and is limited to the identification of AGENT as an agent of SBMS. AGENT recognizes the great value of the goodwill associated with the Marks, and acknowledges that the Marks and all rights therein and goodwill pertaining thereto belong exclusively to SBMS, and that the Marks have a secondary meaning in the mind of the public. AGENT acknowledges and agrees that all usage of the Marks by AGENT and any goodwill established thereby shall inure to the exclusive benefit of SBMS and its Affiliates and that this Agreement does not confer any goodwill or other interests in the Marks upon AGENT. Any unauthorized use of the Marks by AGENT, or any use not in compliance herewith, shall constitute an infringement of the rights of SBMS and its Affiliates in and to the Marks and shall further constitute a material breach of this Agreement. AGENT shall use the Marks with such words qualifying or identifying the agency relationship of SBMS and AGENT as SBMS from time to time shall in its sole discretion prescribe. AGENT shall not use the Marks as part of any corporate or trade name or with any prefix, suffix or other modifying words, terms, designs or symbols, or in any modified form, nor may AGENT use the Marks in connection with the sale or lease of any unauthorized product or service or in any other manner not expressly authorized by this Agreement or separately in writing by SBMS. If AGENT uses SBMS' Marks on any of AGENT'S stationery, other forms or business cards, AGENT agrees to display the Marks on such stationery, other forms, and business cards used in connection with Authorized Services in the manner prescribed by SBMS. AGENT agrees to obtain such fictitious or assumed name certificates or registrations as may be required by applicable law, provided the fictitious or assumed name, if in connection with this Agreement, is approved in writing by SBMS and SBMS is provided a copy of the certificate and/or registration. If any fictitious or assumed name used by AGENT includes anything that identifies SBMS or its Marks, SBMS may at any time require AGENT to cease using such fictitious or assumed name, and to cancel any corresponding certificate and/or registration. If it becomes advisable at any time in SBMS' sole discretion for AGENT to modify or discontinue use of any Mark or substitute one or more additional trade or service marks to identify its relationship with SBMS or, if applicable, any CPE, AGENT agrees to comply therewith within a reasonable time after notice thereof by SBMS and the sole obligation of SBMS in any such event shall be to reimburse AGENT for the out-of-pocket costs, if any, of complying with this obligation. In addition, AGENT shall replace obsolete identification signs or identification material with new signs or identification material should AGENT adopt new Marks replacing one or more Marks identified by SBMS in such list as herein before specified. Upon reasonable notice from SBMS, AGENT shall provide to SBMS written reports containing such statistical and other types of information as SBMS shall reasonably request for the purpose of ascertaining or determining compliance with the licensing provisions of this Agreement. Further, upon SBMS' request, AGENT shall provide SBMS with samples of all 12 advertising and other literature, packages, labels, and labeling prepared by AGENT which use the Marks or the logos. When using the Marks or the logos under this Agreement, AGENT undertakes to comply with all laws pertaining to trademarks in force at any time in the Area defined herein. 9. SBMS' TITLE AND PROTECTION OF SBMS' RIGHTS ------------------------------------------ AGENT agrees that it will not attack the title or any rights of SBMS in and to the Marks either during the term of this Agreement or thereafter. SBMS hereby indemnifies AGENT and undertakes to hold AGENT harmless against any damages and costs from claims or suits arising out of the use by AGENT of the Marks as authorized in this Agreement, provided that prompt notice is given to SBMS of any such claim or suit and provided, further, that SBMS shall have the option to undertake and conduct the defense of any suit so brought and that no settlement of any such claim or suit is to be made by AGENT without the prior written consent of SBMS. AGENT agrees to assist SBMS and SBMS agrees to reimburse AGENT for all associated reasonable costs to the extent necessary in the procurement of any protection or to protect any of SBMS' rights to the Marks, and SBMS, if it so desires, may commence or prosecute any claims or suits in its own name or in the name of AGENT or join AGENT as a party thereto. When known, AGENT shall immediately notify SBMS in writing of any infringements or imitations by others of the Marks that are the same as or similar to those covered by this Agreement. SBMS shall have the sole right to determine whether any action shall be taken on account of any such infringements or imitations. AGENT shall not institute any suit or take any action on account of any such infringements or imitations without first obtaining the written consent of SBMS. 10. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES ------------------------------------------------ AGENT shall secure and maintain in force all licenses and permits required of AGENT and its employees in the enrollment of Subscribers and the sale of CPE, installation and maintenance of CPE, including without limitation, all required FCC permits and certifications, if required, and business and sales tax licenses, and shall conduct its business in full compliance with all state and federal laws, ordinances and regulations applicable to AGENT'S business. SBMS shall sell or resell the Authorized Services in accordance with applicable rules, regulations, statutes and decisions governing such Services. AGENT shall promptly pay, when due, all taxes and assessments against any real or personal property used in connection with AGENT'S business, and all liens or encumbrances of every kind or character created or placed upon or against any such property, and all accounts and other indebtedness of every kind incurred by AGENT in the conduct of its business. AGENT shall comply, at its own expense, with the provisions of all applicable municipal requirements and those state and federal laws, inclusive of Executive Orders applicable to AGENT as an employer. AGENT will fully comply with the provisions of the Federal Occupational Safety and Health Act of 1970 and with any rules and regulations issued pursuant 13 to this Act. AGENT understands that if AGENT operates its CPE business or represents SBMS' Authorized Services in a manner that is inconsistent with or contrary to state or federal law or regulation, such action will reflect adversely upon the name and goodwill of SBMS and its Affiliates. Therefore, AGENT agrees to comply, if applicable, with Part 22 of the FCC rules, and all tariffs, other governmental rules and procedures in existence relating to the sale of the Authorized Services and the sale, lease, warranty service and the conduct of AGENT'S CPE business hereunder as well as any rules and procedures relating to such matters reasonably prescribed from time to time by SBMS. AGENT shall be responsible to familiarize itself with the laws and regulations applicable to the conduct of its business. 11. ADVERTISING AND BUSINESS PRACTICES OF AGENT ------------------------------------------- All advertising and promotion by AGENT shall be completely factual and shall conform to the highest standards of ethical advertising. All advertising and marketing materials that AGENT desires to use in connection with Authorized Services or CPE and that have not been prepared by or previously approved by SBMS must be submitted to SBMS for approval prior to use. AGENT agrees that it will not begin its advertising and promotion without SBMS' prior written consent. AGENT shall notify SBMS in writing within five (5) days of the commencement of any material action, suit or proceeding, and of the issuance of any order, writ, injunction, award or decree of any court, agency of other governmental instrumentality, involving AGENT in connection with any business conducted by AGENT on behalf of SBMS hereunder. 12. AGENT'S BUSINESS RECORDS ------------------------ AGENT agrees to create and to maintain at its principal office and preserve for three years from the date of their preparation, full, complete and accurate records of its business conducted pursuant to this Agreement. Such records shall include, without limitation, records of all Authorized Services enrollments and CPE sales, leases or rentals, and SBMS shall be entitled to inspect the same upon reasonable notice. 13. ASSIGNMENT ---------- This Agreement is fully assignable by SBMS to any affiliated person or entity and shall inure to the benefit of any assignee or other legal successor to the interest of SBMS herein. AGENT acknowledges that SBMS has entered into this Agreement in reliance upon the character, business experience and ability of AGENT and its owner(s), officers and managers and 14 that neither the rights and duties created by this Agreement nor a controlling interest in the ownership of AGENT may be voluntarily, involuntarily, directly or indirectly assigned, or otherwise transferred (including, without limitation, by transfer of capital stock or partnership interests, by merger or consolidation, by issuance of additional securities representing an ownership interest in AGENT or convertible thereto, or in the event of the death of a shareholder or partner of AGENT, by will, in declaration of or transfer in trust or the laws of intestate succession) without the written approval of SBMS, which will not be unreasonably withheld, subject to such conditions as SBMS deems reasonably necessary. Any such assignment or transfer without such approval shall constitute a breach hereof, subject to termination and convey no rights to or interests herein. Any change in management, personnel or identity that materially impairs the ability of AGENT to market the Authorized Services shall also constitute such a breach. "Control" for purposes hereof is defined in Paragraph 1 above. 14. TERM AND EXTENSION OF AGENCY RELATIONSHIP ----------------------------------------- The term of this Agreement shall be three (3) years, commencing upon final execution of this Agreement. AGENT shall provide to SBMS written notice of the date on which AGENT initiates operations under this Agreement in the Area. AGENT agrees that SBMS must provide written consent before AGENT actually initiates business operations. Upon expiration of this Agreement, if SBMS plans to continue to sell Authorized Services in the Area and AGENT has substantially complied with all provisions of this Agreement, then this Agreement shall automatically extend for additional one (1) year renewal periods subject to either party's option to terminate this Agreement upon written notice as outlined below. Upon extension of their agency relationship, SBMS and AGENT shall continue their business relationship on the same terms and conditions set forth in this Agreement, subject to changes required by regulatory authorities or as mutually agreed upon by SBMS and AGENT. AGENT and/or SBMS shall give the other party written notice of exercise of its option to terminate this Agreement not less than sixty (60) nor more than one hundred twenty (120) days prior to the expiration of the original term or the renewal period. 15. LATE PAYMENTS; SECURITY DEPOSIT ------------------------------- In the event any amount payable by AGENT to SBMS is more than thirty (30) days overdue, SBMS may, at its sole option, do one or more of the following: (i) require AGENT to pay its account in full; (ii) apply commissions and any other credits or other amounts payable to AGENT to reduce the AGENT'S account payable balance; (iii) require AGENT to deposit with SBMS an irrevocable commercial letter of credit, cash or other form of security acceptable to SBMS in its sole discretion to secure future delays or defaults in payment; or (iv) thirty days after providing written notice to Agent of the overdue payment, if payment remains overdue, terminate this Agreement. This deposit will secure payment of any amounts due under this Agreement or any other agreement between the parties. 15 AGENT understands that in order to purchase CPE from SBMS (if SBMS determines that it will sell CPE) other than on a cash on delivery basis, AGENT may be required to sign security agreements, financing statements and related documents. 16. TERMINATION OF AGREEMENT ------------------------ A. By Agent -------- If AGENT is in substantial compliance with this Agreement and SBMS materially breaches this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is delivered to SBMS, AGENT may terminate this Agreement effective thirty (30) days after delivery to SBMS of written notice thereof and AGENT shall not be bound by the provisions in Paragraph 18, "Covenants Not to Compete." B. By SBMS ------- SBMS shall have the right to terminate this Agreement effective upon thirty (30) days written notice if (a) the FCC Cellular Radio Decisions are not continued in substantially the same form and such change materially adversely impacts SBMS' (or an Affiliate's) ability to conduct its business in the Area; (b) state and/or federal regulatory approval empowering SBMS or its Affiliate to construct and provide the Authorized Services and/or CPE in the Area is not granted to either SBMS or an Affiliate, is granted subject to terms and conditions unacceptable to SBMS or an Affiliate, or is granted under such terms and conditions that, in SBMS' opinion, materially affect the intended purpose of this Agreement; or (c) regulatory authorization of the commission schedule of this Authorized Agent Agreement is made subject to terms and conditions unacceptable to SBMS or its Affiliates; (d) prior to selling or providing any Authorized Service to AGENT, SBMS decides not to provide the Authorized Services in the particular area set forth in Exhibit "A". Further, SBMS shall have the right to terminate this Agreement effective upon written notice if: (a) AGENT makes an assignment for the benefit of creditors; (b) an Order for Relief under Title 11 of the United States Code is entered by any United States Court against AGENT; (c) a trustee or receiver of any substantial part of the AGENT'S assets is appointed by any Court; (d) AGENT sells all or substantially all of AGENT'S inventory or assets other than any sale in the ordinary course of business. In addition, SBMS shall have the right to terminate this Agreement effective upon delivery of notice of termination of AGENT, if AGENT (or one or more of its owners and affiliates): (i) has made any material misrepresentation or omission in its application to establish an agency relationship with SBMS or is convicted of or pleads no contest to a felony or other crime or offense that, in SBMS' reasonable sole opinion, is likely to adversely affect the reputation of SBMS or its affiliated companies or the goodwill of the Marks; (ii) attempts to make an unauthorized assignment of this Agreement; (iii) receives a notice of violation of the 16 terms or conditions of any license or permit required by AGENT or its employee(s) in the conduct of AGENT'S Authorized Services and fails to correct such violation, or to terminate the employment of such employee(s) within the time period specified in such notice, if any, or within thirty (30) days after receipt of such notice, whichever first expires; (iv) fails to achieve a minimum average of twenty-five (25) gross activations for three (3) consecutive months; or (v) fails to comply with any provision of this Agreement, including any applicable tariff relating to Authorized Services and/or CPE, and AGENT does not correct such failure within ten (10) days as to monetary defaults and within thirty (30) days if non-monetary default after written notice of such failure to comply is delivered to AGENT. 17. OBLIGATIONS OF AGENT UPON TERMINATION OR EXPIRATION --------------------------------------------------- AGENT agrees that upon the expiration or termination of this Agreement, AGENT and its owner(s) and Affiliates will: (i) not thereafter use any actual or similar Marks, or any actual or similar trade name, service mark, trademark, logo, insignia, symbol or decorative design therefore used by AGENT specifically in the sale of the Authorized Services in any manner or for any purpose in the Area except that AGENT and its owner(s) may use or continue to use any trade name, service mark, logo, insignia, symbol or decorative design that AGENT or its owner(s) lawfully used in any business prior to the date of this Agreement; and will not utilize for any purpose any actual or similar trade name, trade or service mark or other commercial symbol that suggests or indicates a connection or association with SBMS or any affiliated company of SBMS, and will not directly or indirectly, at any time or in any manner, identify itself or any other business as being associated with SBMS or any affiliated company of SBMS; (ii) return to SBMS all advertising and marketing materials, forms, and other materials containing any Mark or otherwise identifying or relating to SBMS' Authorized Services in the Area; (iii) take such action as may be required to cancel all fictitious or assumed name or equivalent registrations relating to any Mark; or authorize SBMS, and any officer of SBMS, as AGENT'S attorney in fact, to take such actions as may be required to cancel such fictitious or assumed name or equivalent registration if AGENT fails or refuses to do so, and all governmental agencies administering fictitious or assumed name or equivalent registrations may accept and rely upon appropriate documents executed by SBMS or its officer canceling any such registration; and (iv) provide SBMS with an updated list of names, addresses and all other relevant information AGENT then possesses concerning Subscribers of Authorized Services AGENT has enrolled in the Area. 18. COVENANT NOT TO COMPETE ------------------------ In consideration of SBMS' grant to AGENT of the right to use the Marks, the right to advertise affiliation with SBMS as an Authorized Agent of SBMS and the great value of the goodwill associated with AGENT'S ability to use the Marks, which rights and value are not available to distributors generally, and in recognition of the value of specialized, technical knowledge of the cellular industry and other services imparted by SBMS to AGENT from time to time, AGENT agrees to be bound by the covenants in this Paragraph 18. Such rights and 17 value shall constitute independent consideration for the covenants in this Paragraph 18. Therefore, for value received, as identified above, AGENT agrees that AGENT, its officers, directors, key employees, and principals, any Affiliate or the person or persons owning a controlling interest in AGENT or an Affiliate, shall during the term of this Agreement and except as noted below, and AGENT and the person or persons owning a controlling interest in AGENT for a period of one (1) year following the latter of the expiration or termination of this Agreement; (1) not, directly or indirectly, induce, influence or suggest to any Subscriber of SBMS' CRS to purchase CRS or any other CMRS from another reseller or provider of CRS or CMRS in the Area as existing at the time of execution of this Agreement; (2) not directly or indirectly, influence or suggest to any Subscriber of any other Authorized Service to purchase a competing service from any other provider or reseller of such competing service in the Area as existing at the time of execution of this Agreement, whether or not the competing service is technologically the same as the Authorized Service in question; (3) not, under any circumstances or conditions whatsoever, directly or indirectly, as an individual, partner, stockholder, director, officer, employee, manager or in any other relation or capacity whatsoever engage in the sale or promotion of CRS, CMRS, or any other Authorized Service on behalf of any competing reseller or provider of such service in the Area as existing at the time of execution of this Agreement. (4) not, directly or indirectly, allow any other person, firm or other entity to use the name, trade name, goodwill or any other assets or property of AGENT or SBMS in any manner in connection with such other entity's sale of CRS, CMRS or any other Authorized Service on behalf of a competing reseller or provider of service in the Area, and AGENT specifically agrees not to transfer, assign, authorize or consent to the transfer of an AGENT telephone number to such a competing person, firm or other entity upon the expiration or termination of this Agreement. Notwithstanding any language to the contrary, subject to the obligation to negotiate in good faith as set forth in Section (4) (i), the restrictive covenants contained herein shall not operate so as to restrict AGENT from the business of providing or selling Paging Services or nonexclusive Additional Authorized Services. 19. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS ------------------------------------------------- 18 Except as expressly provided to the contrary herein, each term and condition of this Agreement, and any portion thereof, shall be considered severable and if, for any reason, any such provision hereof is held to be invalid, contrary to, or in conflict with any applicable present or future law, regulation or public policy in a final, unappealable ruling issued by any court, agency or tribunal with competent jurisdiction in a proceeding to which SBMS or its Affiliate is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise enforceable which shall continue to be given full force and effect and bind the parties hereto, although any portion held to be invalid shall be deemed not to be a part of this Agreement from the date the time for appeal expires, if AGENT is a party thereto, otherwise upon AGENT'S receipt of a notice of nonenforcement thereof from SBMS. To the extent that Paragraphs 4 or 18 contain or impose a restriction upon AGENT that is deemed unenforceable by virtue of its scope in terms of area, business activity prohibited and/or length of time, but could be enforceable by reducing any or all thereof, AGENT and SBMS agree that same shall be enforced to the fullest extent permissible under the laws and public policies applied in the jurisdiction in which enforcement is sought. SBMS and AGENT shall mutually agree to a modification of any invalid or unenforceable term or condition hereof to the extent required to be valid and enforceable. Such modifications to this Agreement shall be required only in the Area directly affected by any such ruling. 20. WAIVER OF OBLIGATIONS --------------------- SBMS and AGENT may by written instrument unilaterally waive or reduce any obligation of or restriction upon the other under this Agreement, effective upon delivery of written notice thereof to the other or such other effective date stated in the notice of waiver. Whenever this Agreement requires the consent of a party, such request shall be in writing and no consent may be unreasonably withheld. All consents or withholding of consent with reasons therefore shall be in writing. SBMS and AGENT shall not be deemed to have waived or impaired any right, power or option reserved by this Agreement (including, without limitation, the right to demand exact compliance with every term, condition and covenant herein, or to declare any breach hereof to be a default and to terminate this Agreement prior to the expiration of its term), by virtue of any custom or practice of the parties at variance with the terms hereof or any failure, refusal or neglect of SBMS or AGENT to exercise any right under this Agreement or to insist upon exact compliance by the other with its obligations hereunder, including without limitation any rule or procedure, or any waiver, forbearance, delay, failure or omission by SBMS to exercise any right, power or option, whether of the same, similar or different nature, with respect to one or more other Authorized Agents or other forms of distribution. 21. RIGHTS OF PARTIES ARE CUMULATIVE -------------------------------- 19 The rights of SBMS and AGENT hereunder are cumulative and no exercise or enforcement by SBMS or AGENT of any right or remedy hereunder shall preclude the exercise or enforcement by SBMS or AGENT of any other right or remedy hereunder or that SBMS or AGENT is entitled by law to enforce. 20 22. GOVERNING LAW AND LIMITATION OF ACTIONS --------------------------------------- Except to the extent governed by United States law that preempts state law, this Agreement shall be interpreted under and governed by the laws of the State of Texas. Any lawsuit or other claim arising out of or in connection with this Agreement or the relationship of the parties must be brought, if at all, within twenty-five (25) months after the cause of action accrues, regardless of when it is discovered. If any suit or action shall be brought to enforce or declare any of the terms of this Agreement, to terminate this Agreement or to recover any damages sustained as a result of a default in the performance of any obligations under this Agreement, or a breach of any of the representations and warranties herein contained or otherwise pursuant to this Agreement, then the party not prevailing in such suit or action shall be liable to the prevailing party for the prevailing party's cost and expenses, including, without limitation, court costs and reasonable attorney's fees and expert witness' fees (including without limitations, the value of time spent by in-house personnel), the amount of which shall be fixed by the court and shall be made a part of any judgment rendered. The parties agree that such suit or action must be brought, if at all, within one (1) year after the underlying cause of action accrues. 23. TESTIMONY --------- Matters relating to this Agreement may be an issue before various regulatory bodies. Upon reasonable notice AGENT agrees to fully cooperate with SBMS regarding any such matters including willingly providing employees of AGENT to testify at appropriate times regarding any aspect of this Agreement or other related issues. SBMS agrees to reimburse AGENT for reasonable costs expended in supplying such testimony. 24. BINDING EFFECT -------------- This Agreement is binding upon the parties hereto, their respective executors, administrators, heirs, assigns and successors in interest. All obligations by either party that expressly or by their nature survive the expiration or termination of this Agreement shall continue in full force and effect subsequent to and notwithstanding its expiration or termination and until they are satisfied in full or by their nature. 25. IMPOSSIBILITY OF PERFORMANCE ---------------------------- Neither SBMS nor AGENT shall be liable for loss or damage or deemed to be in breach of this Agreement if its failure to perform its obligations results from: (i) compliance with any law, ruling, order, regulation, requirement or instruction of any federal, state or municipal government or any department or agency thereof or court of competent jurisdiction; (ii) acts of 21 God; (iii) acts or omissions of the other party; (iv) fires, strikes, embargoes, war, insurrection or riot. Any delay resulting from any of said causes shall extend performance accordingly or excuse performance, in whole or in part, as may be reasonable. 26. INTERPRETATION -------------- The preambles and exhibits to this Agreement are a part of this Agreement, which constitute the entire agreement of the parties, and there are no other oral or written understandings or agreements between SBMS and AGENT relating to the subject matter hereof. Nothing in this Agreement is intended, nor shall be deemed, to confer any rights or remedies upon any person or legal entity not a party hereto, except for those affiliates of SBMS as may be involved in the provision of one or more of the Authorized Services, provided that SBMS shall remain liable to Agent pursuant to the terms of this Agreement. The headings of the several paragraphs hereof are for convenience only and do not define, limit or construe the contents of such paragraphs. The term "AGENT" as used herein is applicable to one or more persons, a corporation or a partnership. If two or more persons are at any time AGENT hereunder, whether or not as partners or joint ventures, their obligations and liabilities to SBMS shall be joint and several. This Agreement shall be interpreted and governed without regard as to which party hereto drafted the Agreement. This Agreement shall be executed in multiple copies, each of which shall be deemed an original. 27. INDEMNITY --------- Subject to the provisions of Paragraph 3 and the insurance requirements set forth in Paragraph 4, each party hereto agrees to defend, indemnify and save harmless the other party and its successors and assigns and its employees and agents and their heirs, legal representatives and assigns from any and all claims or demands whatsoever, including the costs, expenses and reasonable attorneys' fees incurred on account thereof, that may be made (i) by the indemnifying party's employees or any other persons for bodily injury or damage to property occasioned by the acts or omissions of the indemnifying party or its subcontractor, or the employees or agents of any of them, and (ii) by the party's employees under workers compensation or similar acts. 22 28. SURVIVAL -------- 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 hereunder shall so survive the completion of performances and termination of this Agreement, including the making of any and all payments due hereunder. 29. LICENSES -------- No licenses, express or implied, under any patents are granted by SBMS or its Affiliates to AGENT. 30. NOTICES AND PAYMENTS -------------------- All payments due AGENT shall be made to such address or bank as AGENT from time to time designates. All notices and reports required to be delivered by the provisions of the Agreement shall be deemed so delivered three (3) business days after placement in the United States Certified or Registered Mail, postage prepaid and addressed to the party to be notified at its most current principal business address of which the notifying party has been notified. All reports and other information required by this Agreement shall be directed to SBMS at the data processing center or the address provided to AGENT from time to time, or to such other persons and places as SBMS may direct from time to time. Any required report not actually received or postmarked by SBMS or AGENT during regular business hours on the date due, shall be deemed delinquent. 31. CONFIDENTIAL INFORMATION ------------------------ Any specifications, drawings, sketches, models, samples, data, computer programs or documentation, or technical or business information ("Information") furnished or disclosed by SBMS to AGENT hereunder shall be deemed the exclusive property of SBMS, including title to copyright in all copyrightable material, and, when in tangible form, shall be returned to SBMS upon completion or termination of authorized work. Unless such Information is required to be disclosed by law, was previously known to AGENT free of any obligation to keep it confidential, or has been or is subsequently made public by SBMS or a third party, it shall be held in confidence by AGENT, shall be used only for the purposes hereunder, and may be used for other purposes only upon such terms and conditions as may be mutually agreed upon in writing. In addition, the parties hereby agree that Subscriber lists and related information or data are the exclusive property of SBMS and are to be used by AGENT solely in the performance of its obligations and duties as described herein and are to be returned to SBMS upon the termination of this Agreement. So long as this Agreement is in effect, AGENT shall not publicly disclose any of the terms of this Agreement without the prior written consent of SBMS, except as may be required 23 by law or otherwise authorized by the terms of this Agreement. AGENT is served with process to obtain Information, AGENT shall immediately notify SBMS, which shall have the right to seek to quash such process regardless of any such efforts by Agent. Unless marked "proprietary," any Information furnished or disclosed by AGENT to SBMS shall not obligate SBMS to hold such Information in confidence. 32. COVENANT NOT TO SOLICIT EMPLOYMENT ---------------------------------- Agent and SBMS recognize and agree that each party hereto takes a great deal of time to hire and train employees for its respective business. Agent and SBMS fully understand the time and expense each party incurs to obtain qualified personnel, and Agent and SBMS agree not to offer employment to or employ any of the other party's employees without written consent by a Vice President or the President of the other party. 33. AUTHORITY --------- Each of the parties represents, warrants and agrees that it is a corporation or partnership duly organized, validly existing and in good standing under the laws of the state of its formation, and has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; that the execution and delivery of this Agreement and the performance hereof have been duly and validly authorized by all necessary corporate or partnership action; and that the execution and delivery by it of this Agreement and the performance of this Agreement by it will not conflict with or result in a breach of or constitute or result in a default under any of the terms, conditions or provisions of the Articles or Certificates of Incorporation, By-Laws, or other of its governing instruments or any judgment, order, decree, law, regulation or ruling of any court or governmental authority or any agreement, contract, commitment or other instrument to which it is a party or by which it is bound. Specifically, AGENT represents and warrants that (i) AGENT is not a party to any agreement to distribute, promote or otherwise sell CRS, CMRS or any other Authorized Service ( except Paging Services or Additional Authorized Services) on behalf of any competing provider, reseller or agent in the Area; (ii) the execution and delivery by it of this Agreement and the performance of this Agreement by it will not conflict with or result in a breach or constitute or result in a default under any of the terms, conditions or provisions of any agreement between AGENT and any other carrier, reseller or agent of CRS, CMRS or any other Authorized Service. 34. RIGHT OF FIRST REFUSAL TO SUBLET OR ASSIGN STORE LOCATION(S) ------------------------------------------------------------ A. Preapproval of SBMS as Subtenant or Assignee 24 In connection with negotiating the lease(s) for store location(s) (the "Lease Premises"), Agent will use its reasonable best efforts to obtain a clause in each such lease allowing for the free transferability of AGENT'S interest in the lease(s) in the form of any unrestricted right on the part of Agent to sublet, assign or otherwise transfer the Leased Premises to SBMS or any Affiliate thereof. B. Terms of Sublease or Agreement The assignment or sublease shall specifically state that rental payments shall be made directly to the landlord under the lease(s), and Agent shall indemnify SBMS for any and all defaults under the lease(s) or any other damage claims, etc. which arose during AGENT'S possession of the Lease Premises. C. Right of First Refusal If, during the term of this Agreement, Agent shall elect to close or relocate one or more of the sales locations located in any one or more of the Leased Premises, Agent shall give written notice (the "Relocation Notice") to SBMS of its desire to close or relocate one or more of its sales locations on or before sixty (60) days prior to anticipated closure or relocation of such sales location. The Relocation Notice shall include a copy of the lease(s) for the particular Leased Premise(s) which are the subject of the Relocation Notice, together with any and all amendments, letter agreements, correspondence, etc. with respect to that particular lease(s). Within thirty (30) days after the receipt by SBMS of the Relocation Notice and lease(s), SBMS shall advise Agent in writing whether it intends to become AGENT'S subleasee or assignee under the lease(s). If the consent of the landlord is required, Agent shall use its best efforts to obtain such consent and shall generally cooperate fully with SBMS in connection with the assignment or subletting of the Leased Premises to SBMS. The terms and conditions of the sublease or assignment shall be identical to those set forth in the lease(s). If SBMS does not advise Agent of its intentions with respect to the lease(s) within such thirty (30) day period, Agent shall be free to attempt to sublet or assign the lease(s) to a third party under any terms and conditions. If Agent should attempt to sublet or assign the Leased Premises under different terms and conditions than those set forth in the lease(s). Agent shall first offer in writing the Leased Premises under the new terms and conditions to SBMS who shall have fifteen (15) days in which to determine if it will enter a sublease or assignment with Agent under such different terms or conditions. 35. RIGHT OF FIRST REFUSAL TO PURCHASE STORE LOCATION(S) ---------------------------------------------------- If at any time during the term of this Agreement or upon termination of this Agreement, 25 Agent receives a bona fide offer to purchase any or all of Agent's store location(s), from a third party, and Agent desires to accept such offer, Agent shall cause such offer to be reduced to writing and shall notify SBMS in writing of such offer. Agent shall provide SBMS thirty (30) business days to exercise a right of first refusal with respect to AGENT'S store location(s) by delivering to Agent a written notice indicating SBMS' desire to make the same purchase under terms and conditions identical in all material respects to the terms and conditions of the third party's offer. Notwithstanding the foregoing, if a term of the third party's offer specifies consideration other than cash, SBMS may exercise its right of first refusal by agreeing to pay an amount in cash reasonably equivalent to the value of such noncash consideration. IN WITNESS WHEREOF the parties hereto have executed and delivered this Agreement in two counterparts on the day and year first above written, AND HEREBY DECLARE THAT THEY HAVE READ AND DO UNDERSTAND EACH AND EVERY TERM, ----------------------------------------------------- CONDITION, AND COVENANT CONTAINED IN THIS AGREEMENT OR IN ANY DOCUMENT - ---------------------------------------------------------------------- INCORPORATED BY REFERENCE. - -------------------------- CELLSTAR, LTD. By: /s/ Alan H. Goldfield ---------------------------------------- Title: Chairman and Chief Executive Officer ------------------------------------- Name: Alan H. Goldfield -------------------------------------- (Print/Type) Date: 12/16/96 -------------------------------------- SOUTHWESTERN BELL MOBILE SYSTEMS, INC., AS GENERAL PARTNER FOR: - ------------------------------------------- By: /s/ Lowell Whitlock ---------------------------------------- Title: VP / GM - DFW ------------------------------------ Name: Lowell Whitlock ------------------------------------- (Print/Type) Date: 12/17/96 -------------------------------------- Approved as to Form: /s/ illegible 26 EXHIBIT A --------- AUTHORIZED SERVICES - ------------------- 1. Commercial Mobile Radio Services (CMRS) 2. CMRS Long Distance 27 EXHIBIT B --------- AUTHORIZED AGENT LOCATIONS - -------------------------- This Exhibit "B" sets forth the initial locations at which AGENT is authorized to operate as described in this Agreement. It is agreed by AGENT and SBMS that if the initial business location(s) and/or the date upon which Authorized Services operations of AGENT will commence are not known at the date of execution of this Agreement, the same may be added from time to time as such information becomes known but no later than the effective date of AGENT operations. AGENT shall not change or add business locations without SBMS' prior written approval. AGENT shall consult with SBMS before initiating any action to change or supplement any of its business locations. Any business locations that AGENT opens and operates in the Area shall be subject to all of the terms of the Agreement, whether or not an amendment is signed by the parties adding the addresses of any new or different locations. COUNTIES IN WHICH AGENT IS AUTHORIZED: Dallas and Tarrant BUSINESS LOCATIONS: 1. 605 W. Airport Freeway, Irving, Texas 75062 2. 512 N. Central Expressway, Richardson, Texas 75080 3. 4146 S. Cooper, Arlington, Texas 76015 4. 4216 LBJ Freeway, Dallas, Texas 75244 5. 5937 Donnelly, Ft. Worth, Texas 76107 EFFECTIVE DATE OF AGENT OPERATIONS: (under this Agreement) - ----------------------------------- 28 EXHIBIT C ---------- COMMISSION SCHEDULE (DALLAS-FT. WORTH) TO AUTHORIZED AGENCY AGREEMENT (THIS EXHIBIT C SHALL BE EFFECTIVE AS OF AUGUST 1, 1996) CELL STAR, LTD. COMMISSIONS - ----------- Commissions will be paid by SBMS to AGENT in the following manner:
RATE PLAN COMMISSION --------- ---------- Bell 15 I, Basic [REDACTED] Weekender III, Bell 250 I, III and Corporate [REDACTED] Bell 400 I, III, Bell 700 I, III, and Bell 950 I, III [REDACTED]
SPECIAL PLAN COMMISSION ------------ ---------- Bell 15 III [REDACTED] Weekender I [REDACTED]
Commissions will be paid within thirty (30) days of the bill close date on paperwork properly completed and received by SBMS by the second business day of the following month. Incomplete or incorrect paperwork will be returned to the Agent and will not be paid during the current cycle unless it is received back by SBMS by the second business day of the following month. Agent inquiries must be submitted within six (6) months of the activation date to be eligible for payment. Subscriber activation commissions shall be debited in full in the event Subscriber does not remain on SBMS system in the Area for at least [REDACTED] subsequent to activation. In addition, if Subscriber switches rate plans during the initial [REDACTED], then the Agent's commission will be debited or credited by the difference in the two commission rates. Commissions will not be paid on paperwork SBMS deems to be fraudulent. This includes, but is not limited to, forged signatures or forged initials. If it is determined that the Agent, its sales personnel or Sub-Agent committed the fraudulent activation, then the Agent will be held responsible for any subsequent charge-offs involved with such activation. RESIDUALS - --------- Residuals will be paid in the following manner: ACTIVATIONS RESIDUALS [REDACTED] [REDACTED] Residuals will be paid by calculating [REDACTED] will not be included in the calculation of residual payments. Any customer account in a suspend or final status will not be eligible in the calculation for residuals. MSA/NW OCTOBER 30, 1996 1 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. Example: [REDACTED] Agent's right to payment of residuals shall terminate following expiration of this Agreement, including any renewal period, or as otherwise provided herein. SBMS, in its sole discretion, may terminate or suspend payment of Agents' entire residual base if the current month's gross activations [REDACTED] drop below [REDACTED]. TRADE-IN - -------- Agent may be eligible to receive payment pursuant to the Trade-in Program to be established by SBMS. Failure to comply with all current Trade-in Program guidelines may result in Agent's loss of eligibility to participate in the Trade-in Program. The Trade-in Program may be revised or restructured at any time by SBMS, in its sole discretion, upon fifteen (15) days advance written notice to Agent. VERTICAL SERVICES - ----------------- Vertical Services will be paid in the following manner: Commissions will be paid on vertical services equal to [REDACTED] CO-OP - ----- Co-op will be paid in the following manner: Advertising Co-op will be accrued [REDACTED] Co-op guidelines must be followed in order to receive co-op payments. Co-op payments shall be due and payable to Agent 30 days following submission of invoices approved by the SBMS Marketing Department, provided however, no Co-op invoices will be paid until such amounts have been earned and accrued in Agent's Co-op account. MSA/NW OCTOBER 30, 1996 2 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. SPIFFS - ------ [REDACTED]
NET ACTIVATIONS SPIFF --------------- ----- [REDACTED] [REDACTED]
GENERAL - ------- In order to receive compensation as set forth in this Exhibit C, SBMS must be notified and in agreement with any transfer of ownership of store locations. SBMS reserves the right to withhold or apply commissions and residuals against overdue receivables owed to SBMS by Agent, or against write-offs assessed by SBMS resulting from fraudulent paperwork deemed to be caused by the Agent, its sales personnel, or its Sub-Agent. Agent must submit customer deposit checks that have been returned to them by a financial institution (e.g. NSF check, closed account, etc.) to SBMS Dallas Treasury whose address is 15660 Dallas Parkway, Suite 1300, Dallas, TX 75248, within two months from the date of the check in order to receive reimbursement. This Exhibit C may be revised or restructured at any time by SBMS, in its sole discretion, upon thirty (30) days advance written notice to Agent. Agent will be compensated for the services and rate plans as set forth in this Exhibit C. SBMS reserves the right to compensate Agent for all other services and rate plans not set forth herein in amounts to be determined solely by SBMS. DEFINITIONS - ----------- Net activations are equal to [REDACTED] ** Non-vested deactivations are [REDACTED]. SOUTHWESTERN BELL MOBILE SYSTEMS ACKNOWLEDGMENT: - -------------------------------- -------------- AGENT: Cellstar, Ltd. BY: /s/ Lowell D. Whitlock BY: /s/ Alan H. Goldfield ----------------------------- ----------------------------------- NAME: LOWELL D. WHITLOCK NAME: ALAN H. GOLDFIELD --------------------------- --------------------------------- TITLE: VICE PRESIDENT & TITLE: CHAIRMAN AND CHIEF GENERAL MANAGER EXECUTIVE OFFICER -------------------------- -------------------------------- DATE: 12/17/96 DATE: 12/16/96 --------------------------- --------------------------------- MSA/NW OCTOBER 30, 1996 3 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT D --------- Subagents Ratel Communications John Boling 3001 D. Airport Freeway Bedford, Texas 76021 817-267-1770 Cellular International Fima Kuperburg 10434 Ryker #C Dallas, Texas 75238 214-341-2610 Beepers Etc. Leo Prather/Cleveland Armstead 13455 Noel Road, Suite 1000 Dallas, Texas 75240 214-774-4537 Advanced Cellular Technology Mike Jeffus 1420 Schukar Court Irving, Texas 75061 972-986-2213 Cellular Paging Chris Adeime 3317 West Illinois Dallas, Texas 75211 214-339-5283 Cellular Paging Chris Adeime 2431 A South Collins Arlington, Texas 76014 817-265-4117 EXHIBIT D --------- Subagents Callnet Communication Felix Osimiri 2302 Gus Thomason Dallas, Texas 75228 214-327-9308 Radio Shack Larry Criner 1601 B West Ennis Avenue Ennis, Texas 75119 214-875-5770 Beepers Unlimited Bobby & Debbie Harris 1147 East Industrial Sulphur Springs, Texas 75482 903-439-6049 Universal Paging Marvis Oa 3068 Forest Lane, Suite 209B Dallas, Texas 75234 214-357-6565 Prime Time Communications Keith Stenson 4607 Village Fair Drive, #327 Dallas, Texas 75234 214-374-7534 Protech Electronics Scott Grant 3884 Shiloh Road, Suite 100 Garland, Texas 75041 972-864-4720 EXHIBIT D --------- Subagents Larry Haag 1802 Guildford Street Garland, Texas 75044 972-414-8430 Mobile Advantage Eric Jobe 503 A West Henderson Cleburne, Texas 76031 817-558-0610 Mobile Electronics Eric Jobe 726 East Highway 377 Grandbury, Texas 76048 817-279-7243 Moeller Cellular David Pitre 3805 B Camp Bowie Cleburne, Texas 76107 817-731-1011 Mobile Communications Jay Montgomery 903 South Main Weatherford, Texas 76086 817-596-0099 Texoma Prime Connie Ferguson Route 6, Box 569A Gainesville, Texas 76240 888-453-3229 EXHIBIT D --------- Subagents Golden Key Leasing Darrell Wright P.O. Box 541 Arlington, Texas 76004-0541 817-226-4477 Telemart Ben Tobar 546 Harwood Road Hurst, Texas 76054 817-498-7831 National Tape dba National Auto Accessories Alan Goldfield, Sole Proprietor 2608 South Buckner Dallas, Texas 75127 214-285-2188 Cellular on the Go Curt Miller 3512 Sweetwood Bedford, Texas 76021 817-364-2878 K.A. Marketing Sandy Monroe 1 Stone Briar Way Frisco, Texas 75034 972-957-7547 972-993-3993 EXHIBIT D --------- Subagents Bengo Networks Ben Udechukwu 9492 Webb Chapel Dallas, Texas 75220 972-654-0721 Advanced Voice Systems Hazel Altheia 11551 Forest Central, Suite 105 Dallas, Texas 75243 214-340-1976 EX-10.8 4 MASTER AGREEMENT FOR PURCHASE OF PRODUCTS EXHIBIT 10.8 MASTER AGREEMENT NO. P/PS-960163 MASTER AGREEMENT FOR THE PURCHASE OF PRODUCTS AND INVENTORY MAINTENANCE, ASSEMBLY AND FULFILLMENT (IAF) SERVICES BETWEEN PACIFIC BELL MOBILE SERVICES AND CELLSTAR, LTD. PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement 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 BY "[REDACTED]". MASTER AGREEMENT NO. P/PS-960163 TABLE OF CONTENTS ----------------- 1. DEFINITIONS 1 2. TERM OF AGREEMENT 3 3. MASTER AGREEMENT 3 4. SCOPE OF WORK 4 4.1 CUSTOMER PARTNER TEAM 4 4.2 EXTERNAL RELATIONSHIPS 4 4.2.1 Sourcing 4 4.2.2 Vendors and Product Suppliers 5 4.2.3 Retailers and Other Resellers 6 4.2.4 Direct Sales Accounts (Subscriber and Business Customers) 6 4.3 WORKING RELATIONSHIP 6 4.3.1 Dedicated Product Inventory Ownership and Management 6 4.3.2 Open Stock Forecast and Supply 7 4.3.3 Product Assembly 7 4.3.4 Credit Line Administration, Order Processing and Fulfillment 7 4.3.5 Accounts Receivable, Invoicing and Collections 8 4.3.6 Inventory Accounting and Control 9 4.3.7 Maintenance of Books and Records 9 4.3.8 Inventory/Warehousing 9 4.3.9 Returns Processing 9 4.3.10 Use of Fictitious Business Name 9 4.4 COMPENSATION 10 4.4.1 Start-up Costs 10 4.4.2 Inventory Carrying Costs 10 4.4.3 Standard Product Cost 10 4.4.4 Credit for Customer Receivable 11 4.4.5 Fulfillment Services Costs 11 4.4.6 Monthly Recurring Service Fees 11 4.4.7 Returns 11 4.4.8 Purchase Price Variances 11 4.5 PBMS/SUPPLIER AGREEMENTS 12 5. ORDERS 13 6. PRICES 14 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 7. INVOICING AND PAYMENT 14 8. SHIPPING AND PACKING 15 9. TAXES 15 10. RECORDS AND AUDITS 16 11. INDEPENDENT CONTRACTOR 16 12. NONEXCLUSIVE AGREEMENT 16 13. INDEMNIFICATION 16 14. INSURANCE 17 15. ACCESS 18 16. INFORMATION 19 17. QUALITY 20 18. REGISTRATION 21 19. INSIGNIA 22 20. HAZARDOUS MATERIALS 22 21. CODES, LAWS OR REGULATIONS 22 22. NOTICE OF DELAYS 22 23. CHANGES AND SUSPENSIONS 22 24. TERMINATION AND CANCELLATION 23 25. PARTIAL TERMINATION OR CANCELLATION 23 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 26. NONASSIGNMENT 24 27. NOTICES 24 28. PUBLICITY 24 29. COMPLIANCE WITH LAWS 24 30. TITLE 25 31. NO THIRD PARTY BENEFICIARIES 25 32. AMENDMENTS AND WAIVERS 25 33. EXECUTIVE ORDERS 25 34. HEADINGS 25 35. GOVERNING LAW 25 36. REMEDIES CUMULATIVE 25 37. SEVERABILITY 25 38. SURVIVAL 26 39. PATENTS 26 40. FORCE MAJEURE 26 41. SUBCONTRACTING PLAN 26 42. MBE/WBE/DVBE CANCELLATION CLAUSE 26 43. DELIVERY OF PRODUCTS AND PERFORMANCE OF SERVICES 27 44. USE OF CELLSTAR'S PUBLISHED SPECIFICATIONS 28 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 45. DOCUMENTATION 28 46. RISK OF LOSS 28 47. WARRANTIES 28 48. TERMINATION OF ORDERS 29 49. ALTERNATE DISPUTE RESOLUTION 29 50. PRECEDENCE 30 51. LIMITATION OF LIABILITY 30 52. CORPORATE AUTHORIZATION 30 53. ENTIRE AGREEMENT 31 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 EXHIBITS -------- EXHIBIT A: Executive Orders and Associated Regulations EXHIBIT A-1: Job Specific Subcontracting Plan EXHIBIT A-2: MBE/WBE/DVBE Summary Subcontracting Report (Job Specific Results) EXHIBIT A-3: Commodity Product Subcontracting Plan EXHIBIT A-4: MBE/WBE/DVBE Summary Subcontracting Report (Commodity Results) EXHIBIT B: Description of Products, Services & Prices EXHIBIT C: PBMS' Credit and Collection Costs EXHIBIT D: PCS Price List EXHIBIT E: Sample Order EXHIBIT F: Assembly Cost Model APPENDIX 1: Procedures Manual PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 THIS MASTER AGREEMENT ("AGREEMENT"), EFFECTIVE SEPTEMBER 20, 1996, IS BETWEEN CELLSTAR, LTD., A TEXAS LIMITED PARTNERSHIP ("CELLSTAR"), AND PACIFIC BELL MOBILE SERVICES, A CALIFORNIA CORPORATION ("PBMS"). THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS: 1. DEFINITIONS For purposes of this Agreement, the following terms and all other terms defined in this Agreement shall have the meanings so defined unless the context clearly indicates otherwise. A term defined in the singular shall include the plural and vice versa when the context so indicates. "AFFILIATE" - means with respect to PBMS (a) any corporation or other entity owning, either directly or indirectly, a majority of the outstanding stock of PBMS ("Parent"), or (b) any corporation or other entity in which a majority of the ownership interest is held, either directly or indirectly, by Parent or PBMS. "CELLSTAR ORDER" - means an order executed by CellStar under a product supplier/PBMS agreement. "COMPONENT INVENTORY" - means items carried in inventory at the component level for resale to subscribers as repair or replacement items. These components are usually but not always "B Stock" items which have been received as returns without apparent defect or reconditioned merchandise which cannot be sold as new equipment. "CUSTOMERS" - means either Retailers, resellers, business and/or end users. "DEDICATED PRODUCTS" - means Products purchased by CellStar at PBMS" direction under terms negotiated by PBMS with the Product manufacturers. Subject to Section 4.3.1.c, Dedicated Products shall be reserved exclusively for PBMS' use. "FULFILLMENT SERVICES" - means picking, assembling of Products, packaging, preparation of shipping documents, shipping to Customers, processing of Customer returns and tracking of shipments and all associated Services associated with providing Products to Customers and receiving Products back from Customers. "INFORMATION" - means all ideas, discoveries, concepts, know-how, techniques, designs, specifications, drawings, sketches, models, manuals, samples, tools, pricing, Customer lists, competitor, manufacturer, or manufacturing information, computer programs, technical information, and other confidential business, Customer or personnel information or data, whether written, oral or otherwise owned or controlled by the disclosing party. "INSIGNIA" - means PBMS' and as applicable, the manufacturers' trademarks, trade names, symbols, decorative designs or evidence of PBMS' inspection. 1 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 "MATERIAL ADVERSE CHANGE" - means a material adverse change in (a) the business assets, operations, prospects or financial condition of either party, or (b) the ability of either party to perform its obligations under this Agreement. "OPEN STOCK" - means Products purchased at CellStar's discretion and in CellStar's inventory available to the general market. "OPEN STOCK INVENTORY" - means original equipment manufacturer accessories carried in inventory by CellStar for sale to PBMS and other CellStar customers. These items may be packaged as PBMS branded items in unique PBMS retail packages. When so packaged at the request of PBMS, these items are converted to "Dedicated Products". "ORDERS" - means purchase orders, in written (e.g. mailed or faxed), or electronic form (e.g. EDI, flat file) as may be delivered to CellStar for the purpose of ordering Products and/or Services hereunder. A purchase order shall be substantially in the form of Exhibit E (Sample Order) attached hereto and made a part hereof. Each such purchase order, in written or electronic form shall be deemed to be a separate and independent agreement between the parties thereto with respect to the subject matter thereof and shall incorporate (a) all of the provisions of this Agreement (including any appendices, exhibits, specifications and other documents attached hereto) as it may from time to time be amended, and (b) any specifications attached thereto. "PCS" - means Personal Communication Services. "PROCEDURES MANUAL" - means a multi-paged document, (the initial version of which is attached hereto and incorporated by reference hereto as Appendix 1), which details processes and deliverables which will be routinely performed in the relationship between CellStar and PBMS, and which shall be periodically revised, from time to time, upon written agreement by both parties. "PRODUCTS" - means the equipment and materials, including but not limited to: PCS handsets, accessories, and collateral material, as may be furnished to PBMS' Customers by CellStar hereunder. "PURCHASE PRICE VARIANCE" - means the difference between the actual delivered cost of Products or components and the standard cost contained in CellStar's accounting systems. "RETAILER" - means any vendor of products, whether through traditional retail outlet or through membership or discount or wholesale establishments selling to the end user consumer. "SERVICES" - means all services furnished by CellStar hereunder to PBMS and/or to PBMS' Customers. "SPECIFICATIONS" - means CellStar's commercial and technical specifications (including drawings) for the Products and Services provided hereunder and such other specifications, e.g. (Procedures Manual), as are listed in the exhibits or appendices, attached hereto and made a part hereof, or as are attached to and made a part of the applicable Order. 2 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 "WARRANTY" - means the warranties for CellStar's Services or the Products covered by CellStar's and/or the Product manufacturer's warranties under this Agreement. 2. TERM OF AGREEMENT a. This Agreement shall become effective as of the date stated above (the "Effective Date"), and unless sooner terminated or canceled as provided herein, shall continue through September 20, 2001. b. Either CellStar or PBMS may terminate this Agreement upon one hundred and eighty (180) calendar days' prior written notice to the other setting forth the effective date of such termination. The termination, cancellation or expiration of this Agreement shall not affect the obligations of the parties under any Order previously executed hereunder, and the terms and conditions of this Agreement shall continue to apply to such Order as if this Agreement had not expired, or been terminated or canceled. Upon the termination, cancellation or expiration of this Agreement, PBMS agrees to purchase any Dedicated Products remaining in CellStar's inventory, including any Open Stock inventory which has been converted to Dedicated Product inventory. 3. MASTER AGREEMENT a This Agreement anticipates the future issuance of Orders by Pacific Bell Mobile Services and any PBMS Affiliate as may be designated by Pacific Bell Mobile Services in writing. Each such entity executing an Order shall be deemed to be a party to that Order and shall be subject to the terms and conditions of this Agreement for purposes of that Order; provided that no PBMS Affiliate shall be permitted to issue an Order hereunder until (i) such Affiliate has satisfied CellStar's credit standards, and (ii) an authorized representative of such Affiliate has executed appropriate documentation pursuant to which it agrees to be bound by the terms and conditions of this Agreement for the obligations incurred under such Order. For the purposes of any Order executed hereunder by any PBMS Affiliate, the term "PBMS" in this Agreement shall be deemed to also refer to such Affiliate where the context so indicates. Prior to any Affiliate's execution of an Order hereunder, PBMS shall obtain that Affiliate's written agreement to be bound by all the terms and conditions of this Agreement. b. The provisions of this Agreement shall apply to all contracts entered into between CellStar and PBMS during the term of this Agreement with respect to the Products and Services which are the subject of this Agreement unless the parties expressly agree otherwise by a written modification to this Agreement, signed by the persons who executed this Agreement or any other authorized representative of the parties, or unless an Affiliate of PBMS enters into a separate written agreement with CellStar, signed by CellStar and the persons authorized to execute agreements for the PBMS Affiliate. Any such separate agreement signed between CellStar and a PBMS Affiliate shall apply only to CellStar and such Affiliate and have no effect 3 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 whatsoever on PBMS. In the absence of such a modification to this Agreement or such separate agreement, any terms in any other contract respecting the subject matter of this Agreement which are additional to, different from or inconsistent with the provisions of this Agreement shall be deemed to be void and of no effect whatsoever. 4. SCOPE OF WORK This Agreement describes the principles of the relationship between PBMS and CellStar and describes CellStar's provision of Products and value added Services, including but not limited to, sourcing, inventory, assembly, credit, collections and fulfillment Services to support Product distribution to PBMS' Customers. 4.1 CUSTOMER PARTNER TEAM The parties will jointly commit resources to support the following business processes and structures to accomplish PBMS' and CellStar's objectives under this Agreement. The Customer Partner Team ("CPT") shall set direction, priorities, expectations and boundaries and act to resolve business issues which arise. The CPT will particularly focus on emphasizing collaborative work between the parties and to preserve and promote partnering between the parties. CPT members shall consist of three (3) representatives each from CellStar and PBMS. At least one representative from each party will be at the vice president level or higher. Those representatives, together with the other CPT members shall be responsible for: 1. Maintaining and reviewing the Services cost structure; 2. Reviewing current processes and additional issues as the parties may identify for process improvements; 3. At least once each calendar quarter, reviewing pricing, and recommending price adjustments to the CPT, if necessary; 4. Reviewing forecasting, supply management, and delivery processes in an effort to streamline processes and to reduce costs associated with these processes for the benefit of both parties; and 5. Facilitating the Alternate Dispute Resolution ("ADR") process as defined in this Agreement. 4.2 EXTERNAL RELATIONSHIPS 4.2.1 SOURCING PCS Equipment. PBMS has entered into, or may enter into, ------------- agreements ("PBMS/supplier agreements") with certain manufacturers or suppliers (hereinafter individually and collectively "product suppliers") for the purchase of Products. CellStar agrees that, except with respect to Open Stock, it shall, upon receipt of an Order by PBMS, place a CellStar 4 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 Order under the PBMS/supplier agreement specified by PBMS for the quantity of Dedicated Products identified by PBMS in such Order. Notwithstanding the above, CellStar shall not be obligated to purchase Products on behalf of PBMS which will bring anticipated inventory above a level of expected 60 day sales. PBMS shall provide CellStar the applicable PBMS/supplier agreement (or all pertinent portions thereof) in order for CellStar to place a CellStar Order. If CellStar cannot abide by any term(s) set out in the PBMS/supplier agreement (or portions thereof) provided by PBMS, CellStar shall immediately notify PBMS and shall not proceed with placing a CellStar Order under such agreement until PBMS and CellStar expressly agree otherwise in writing. Further terms around CellStar's use of PBMS/supplier agreements are set forth in Section 4.2.2 below and the section entitled "PBMS/Supplier Agreements" of this Agreement. 4.2.2 VENDORS AND PRODUCT SUPPLIERS a. Generally, in this Agreement where the term "vendor" or "manufacturer" is used, it means the supplier providing Open Stock to CellStar. Where the term "product supplier" is used, it means the supplier providing Dedicated Products to CellStar under a CellStar Order issued pursuant to the PBMS/supplier agreement. b. With respect to Dedicated Products, PBMS will be responsible for product supplier selection and certification, product selection, pricing and contract negotiations for Dedicated Products. As to each CellStar Order for Dedicated Products, PBMS shall pass through to CellStar the rights of PBMS under the product supplier agreement, including but not limited to, product supplier indemnity and warranties applicable to CellStar's use of the Dedicated Products, to the extent allowed by the product supplier. Nothing in this Agreement shall diminish any pass-through warranties, indemnity or other rights extended to CellStar through PBMS, by the product suppliers. c. If PBMS directs CellStar to issue a CellStar Order for the purchase of Dedicated Products under a PBMS/supplier agreement, PBMS will ensure that the product supplier has granted CellStar all necessary rights to place that Order. d. CellStar will procure, receive, inventory, pack for shipping, ship, and disburse Dedicated Products received from the vendors and product suppliers. e. CellStar will be solely responsible for entering into any necessary vendor agreements for the purchase of Open Stock Products. CellStar shall pass through to PBMS the rights of CellStar under the vendor agreement, including but not limited to, vendor indemnity and warranties applicable to PBMS' and its Customers' use of the Open Stock Products, to the extent allowed by the vendor. Nothing in this Agreement shall diminish any 5 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 pass-through warranties, indemnity or other rights extended to PBMS through CellStar, by the vendor. 4.2.3 RETAILERS AND OTHER RESELLERS a. Generally all Customer contact will be through PBMS. b. Generally, issues related to Customer payment, credit and collections will be handled through CellStar. c. CellStar will provide Products to Customers as specified in Exhibit D and invoice Customers at PBMS' direction as stated in the applicable Order or if not stated in the Order, as specified in the Procedures Manual. d. CellStar will process Customer returns in accordance with PBMS' sales policy as specified in the Procedures Manual. 4.2.4 DIRECT SALES ACCOUNTS (SUBSCRIBER AND BUSINESS CUSTOMERS) PBMS will handle all billing and accounts receivable transactions with direct sales account Customers. CellStar's primary responsibility in connection with Direct Sales Accounts ("Direct Sales Accounts") will be to provide fulfillment Services and to process Customer returns in accordance with the Procedures Manual. 4.3 WORKING RELATIONSHIP The following processes will be contained and further described in the Procedures Manual: 4.3.1 DEDICATED PRODUCT INVENTORY OWNERSHIP AND MANAGEMENT a. CellStar will maintain inventories in its facilities and will be responsible for risk of physical loss or damage, and any requested insurance as is consistent with prepaid and add conventions. b. CellStar will determine inventory and safety stock levels necessary to support PBMS' business pursuant to a rolling 90 calendar day forecast which PBMS shall provide and update monthly. c. PBMS and CellStar recognize that product suppliers may prohibit sale of handsets outside PBMS' services territory. In light of that recognition, PBMS and CellStar shall work cooperatively with the product suppliers to dispose of slow- moving stock. If CellStar wishes to sell Dedicated Products to third parties in addition to PBMS' Customers, CellStar shall 1) gain the written consent of PBMS Director of Procurement prior to the sale, and 2) if requested by PBMS and at a charge to be agreed upon, remove the Insignia from the Product. d. CellStar will provide space for PBMS to perform quality control inspections on inbound Dedicated Products as reasonably required by PBMS, as specified in the Procedures Manual. 6 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 4.3.2 OPEN STOCK FORECAST AND SUPPLY a. PBMS will provide a forecast of PBMS' requirements for Open Stock Products on a rolling 90 calendar day forecast. Such forecast shall be updated by PBMS. b. CellStar will advise PBMS promptly, within 2 business days, of any Open Stock vendor supply constraints. c. CellStar will make reasonable best efforts to provide Open Stock Product availability to fill all PBMS Orders. 4.3.3 PRODUCT ASSEMBLY a. CellStar will assemble and package components to PBMS' specifications. b. CellStar will control the security and data collection processes for SIM cards. c. CellStar will provide PBMS with sales forecasting and DRP/MRP assistance to facilitate efficient inventory management accessible manually initially, by 11-1-1996. d. PBMS will provide input to sales forecasting modules and DRP/MRP system parameters to (i) facilitate efficient inventory management and (ii) ensure product availability as necessary. e. PBMS and CellStar will work together to develop cost effective production/assembly processes. 4.3.4 CREDIT LINE ADMINISTRATION, ORDER PROCESSING AND FULFILLMENT a. PBMS' Customer Care and Order Processing systems shall be capable of accepting orders from Retailers and other resellers, individual subscribers, and business Customers. b. PBMS will determine and administer all Order processing procedures, specific Customer Order packaging requirements, pricing, sales and marketing relationships with its Customers. c. PBMS will pass Customer shipping instructions (including without limitation, Order packaging and labeling specifications), and billing information to CellStar electronically through the PBMS Order Processing system, as specified in the Procedures Manual, or in such other manner used by PBMS to communicate the information. d. CellStar shall generate a packing list for each Order. e. CellStar will provide Retailer and other reseller credit line administration for Orders received from PBMS. Exceptions to credit lines may be approved by PBMS' Chief Financial Officer or designate and PBMS assumes responsibility for Customer credit risk with respect to such approved exceptions. CellStar assumes responsibility for all other credit risk associated with the financial strength of Retailers and other resellers invoiced by CellStar. PBMS shall be responsible for collection or repayment to CellStar for customer deductions for allowances, fines, 7 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 penalties and other debits unrelated to traditional credit risk. Notwithstanding the foregoing sentence, if PBMS in good faith believes that any Customer deduction for allowances, fines, etc. are the result of a CellStar error in fulfilling CellStar's obligations under the applicable Order and further believes that CellStar should assume the burden of that deduction, then PBMS may present the issue to the CPT for resolution. f. CellStar shall provide all Fulfillment Services with respect to Customer Orders. g. CellStar will provide electronic confirmation to PBMS of all shipments completed on behalf of PBMS including carrier tracking codes by January 31, 1997. 4.3.5 ACCOUNTS RECEIVABLE, INVOICING AND COLLECTIONS a. PBMS will bill individual subscribers and business Customers for its Direct Sales Accounts through PBMS' Customer Care and Billing systems (CCBS). Accordingly, PBMS will not provide this type of billing information to CellStar. b. CellStar will invoice Retailers and other resellers upon Product shipment in accordance with PBMS' instructions regarding the Customer's billing information as stated in the applicable Order or, if not stated in the applicable Order, as specified in the Procedures Manual. c. CellStar will collect payments from Retailers and other resellers. d. CellStar will perform payment reconciliation with Retailers and other resellers to assist PBMS in properly classifying deductions and resolving disputes for unauthorized Customer deductions from invoices. PBMS will reimburse CellStar for all Customer deductions (not associated with traditional risk of creditworthiness), whether authorized or otherwise, in accordance with PBMS' Deductions Policy. PBMS shall reimburse CellStar for any unresolved Customer deduction that is outstanding for more than 180 days without regard of the status of collection efforts. Notwithstanding the foregoing sentence, if PBMS in good faith believes that any such Customer deduction arose from a CellStar error which was in CellStar's control, in fulfilling CellStar's obligations under the applicable Order, PBMS shall present the issue to the CPT for resolution. If PBMS reimburses CellStar for a Customer deduction and CellStar subsequently collects the deduction from the Customer, CellStar shall immediately credit PBMS that amount. e. CellStar will invoice PBMS for Products shipped to the Customer immediately following Product shipment to the Customer. f. Upon PBMS' request, CellStar will promptly provide information to PBMS on each Customer's sales and credit status. 8 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 4.3.6 INVENTORY ACCOUNTING AND CONTROL CellStar covenants and agrees to employ methods of inventory accounting and control that are in accordance with generally accepted accounting principles. 4.3.7 MAINTENANCE OF BOOKS AND RECORDS CellStar covenants and agrees to maintain books and records covering all transactions under this Agreement and shall make such books and records available for PBMS' inspection at any time, including CPA auditors from a major accounting firm hired by or engaged by PBMS, by and through CellStar's representatives and agents, during regular business hours on any business day. 4.3.8 INVENTORY/WAREHOUSING CellStar shall separately inventory and warehouse Dedicated Products from Open Stock. CellStar shall designate an area for Dedicated Products in a separate secure area and in accordance with PBMS' instructions. 4.3.9 RETURNS PROCESSING a. CellStar will process Customer returns from Retailers and other resellers, individual subscribers, and business Customers through its J.D. Edwards system and PBMS' Customer Care and Order Processing systems. b. PBMS will be responsible for setting the appropriate standard cost value of the A and B and discard stock items in the inventory master file. CellStar will determine the value of the returned products based on the returns procedures set forth in the Procedures Manual. CellStar will bill PBMS for any inventory writedown from A to B or discard stock value. c. All Customer returns and vendor and product supplier warranty procedures for the Products shall be in accordance with the Procedures Manual. 4.3.10 USE OF FICTITIOUS BUSINESS NAME a. The parties understand and agree that CellStar will, for certain purposes, need to use the name "Pacific Bell Mobile Services Fulfillment" or such other substantially similar name as CellStar is able to register as an assumed name in the State of Texas and Dallas County, Texas (the "Name"). PBMS hereby authorizes CellStar to use the name for the following purposes: (i) receipt and acceptance of payment from Customers (including, without limitation, via lock-box wire transfer or check), (ii) inclusion in shipping collateral provided to Customers, (iii) invoicing of Customers and provision of Customer statements, (iv) written and oral correspondence with Customers, (v) such other purposes 9 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 as are authorized in writing by PBMS and (vi) collection activities; provided that any use of the Name by CellStar shall be in accordance with the guidelines provided by PBMS entitled "Four Basic Rules", incorporated by reference into this Agreement. PBMS further authorizes CellStar to register the Name with the Secretary of State of the State of Texas and in Dallas County, Texas. CellStar's right to use the Name is a nonexclusive right and PBMS shall retain all ownership and intellectual property rights in the Name. Except as provided herein, CellStar shall not use the Name in any advertising or publicity matter without PBMS' prior written consent. b. Upon expiration, termination or cancellation of this Agreement, CellStar may continue to use the Name only during the period the Services are transitioned to PBMS or its authorized contractor and for the purpose of receiving or collecting remaining payments, if any, due CellStar from Customers in connection with the Agreement (collectively, the "Transition Period"). Upon the conclusion of the Transition Period, and upon PBMS' request, CellStar shall confirm in writing that it has ceased all use of the Name. 4.4 COMPENSATION As detailed in Exhibits B and C, PBMS shall compensate CellStar for each of the following Service components: 4.4.1 START-UP COSTS Upon execution of this Agreement, CellStar will invoice PBMS for the start-up costs set forth in Exhibit B. 4.4.2 INVENTORY CARRYING COSTS A recurring charge, calculated and billed monthly as a "cost of capital" charged on [REDACTED] 4.4.3 STANDARD PRODUCT COST CellStar shall invoice PBMS standard Product cost at the time of shipment as set forth in Section 7.a. This cost represents the sum of all Product components and assembly costs including assembly charges, packaging and collateral materials and standard loss allowances as shown on the Product bill of materials. 10 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 4.4.4 CREDIT FOR CUSTOMER RECEIVABLE Following each shipment, CellStar will record a payable to PBMS for the value of the invoice to the Retailer or other reseller as set forth in Section 7.b. 4.4.5 FULFILLMENT SERVICES COSTS A warehouse picking charge of [REDACTED] per carton shipped. An additional charge of [REDACTED] per Order picked from Component Inventory. Actual transportation charges as billed by the carrier (the discounted amount) for delivery to the Customer. Actual insurance charges covering loss or damage in transit. 4.4.6 MONTHLY RECURRING SERVICE FEES The monthly service fees shall be comprised of the following components: a. A monthly "cost of capital" charge predicated on [REDACTED] b. A monthly Service fee for invoice processing and collection Services predicated on the cost of such Services plus margins as set forth in Exhibit C. c. Non-recoverable returns and freight. d. Such other items as set forth in Exhibit C. 4.4.7 RETURNS See Procedures Manual. See also Exhibit B for the fees to be billed to PBMS for skid storage fees and Products returned by Customers ("return fees"). 4.4.8 PURCHASE PRICE VARIANCES CellStar shall operate on the basis of a "standard cost" accounting system and shall invoice all Product cost at "standard cost" as noted in Section 4.4.3. All purchase price variances for the account of PBMS shall be invoiced or credited to PBMS as of the close of each month. Periodic changes in standard cost will generate a change in inventory valuation and corresponding debit or credit to Purchase Price Variances accounts. These debits and credits to the Purchase Price Variances 11 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 accounts for the account of PBMS shall be invoiced or credited by CellStar as of the close of each month. 4.5 PBMS/SUPPLIER AGREEMENTS a. PBMS has included in certain third party manufacturer or supplier agreements (hereinafter "PBMS/supplier agreements") with its PCS product suppliers (the "product suppliers") the right for a third party distributor, such as CellStar, to execute orders under the PBMS/supplier agreements for the purchase of PCS products. As necessary and as permitted by nondisclosure agreements between PBMS and its suppliers, PBMS agrees to provide CellStar a copy of the PBMS/supplier agreements (or pertinent extracts) in order for CellStar to order Dedicated Products only as PBMS may direct, and not for the purpose of ordering products for any of CellStar's other customers. CellStar agrees to keep the terms of the supplier agreements strictly confidential and not to disclose the terms of the PBMS/supplier agreements, including pricing, to any third party, without PBMS' prior written consent, unless that third party has a legitimate need to know in the performance of services to CellStar, and is covered by an appropriate confidentiality agreement prior to accessing the Information. "Third parties" shall include without limitation, any potential competitors of the product suppliers, including competitors that are partners or third parties holding any form of equity interest in CellStar. b. In addition to the above and subject to CellStar's rights under Section 4.2.1. above (regarding instances, if any, in which CellStar has notified PBMS that it cannot comply with a product supplier agreement prior to executing a CellStar Order), CellStar agrees to abide by all applicable terms and conditions of the PBMS/supplier agreements, including payment and confidentiality terms. CellStar may not add any supplementary or conflicting terms to any CellStar Order under a PBMS/supplier agreement without PBMS' prior written consent. The right to receive any liquidated damages, promotional monies or other such payments under a PBMS/supplier agreement shall belong exclusively to PBMS whether or not CellStar executed a CellStar Order for Dedicated Products in connection with the product supplier's payment of liquidated damages, promotional monies or other such payments. In the event the product supplier pays any such liquidated damages, promotional monies or other such payments to CellStar in connection with Dedicated Products, CellStar shall immediately transfer those funds to PBMS without set-off, administrative charge or deduction of any kind. c. In connection with a CellStar Order for Dedicated Products under a PBMS/supplier agreement, if CellStar does not or, believes it cannot, make full payment to any product supplier within 30 days following product delivery by the product supplier under the applicable CellStar 12 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 Order, CellStar shall notify PBMS immediately and provide information concerning the reason for the nonpayment. Notwithstanding the foregoing, CellStar agrees to make best efforts to make payment to the product suppliers when due and CellStar expressly acknowledges that failure to do so shall result in a material breach by CellStar of the terms of this Agreement, unless PBMS expressly waives CellStar's breach in writing. PBMS agrees that it shall not cure a breach of CellStar's payment obligations under a PBMS/supplier agreement unless and until such time that CellStar's 15 calendar day cure period (as described in Section 24 of this Agreement) has elapsed. d. In the event that PBMS cures CellStar's default on any payment obligation to a product supplier under a CellStar Order issued pursuant to a PBMS/supplier agreement, CellStar shall with respect to that default: i) TO THE EXTENT THAT CELLSTAR HAS PREVIOUSLY SHIPPED THE PRODUCTS TO THE CUSTOMER: CellStar shall immediately credit PBMS' account in full for the money PBMS paid to the product supplier (the "default amount"). ii) IN THE EVENT THAT THE PRODUCTS HAVE NOT YET BEEN SHIPPED TO THE CUSTOMER: CellStar shall automatically be deemed to have sold the Products to PBMS upon the date, and in consideration of, PBMS' payment to the product supplier. Any subsequent shipment of such Products to Customers shall be considered consignment inventory and Product costs shall not be billed to PBMS, unless CellStar buys back the Products from PBMS. e. In the event that this Agreement expires or is terminated or canceled, any credits, including default amounts remaining in PBMS' account, shall be paid to PBMS in cash within thirty (30) days of such expiration, termination or cancellation date. Additionally, at any time, PBMS may set-off any PBMS payment due CellStar, by the amount of credits due PBMS. 5. ORDERS CellStar's commencement of performance of any Order shall be deemed to be acceptance of such Order upon the terms and provisions of this Agreement. Any additional or different terms in any CellStar quotation, acknowledgment, invoice or other communication to PBMS, whether or not such terms materially alter an Order, shall be deemed objected to by PBMS without need of further notice of objection and shall be of no effect and not in any circumstance be binding upon PBMS unless expressly accepted by PBMS in writing. Subject to CellStar's rights set forth in the preceding paragraph, the parties expressly agree that all Orders electronically transmitted by PBMS to CellStar shall be deemed to constitute a "writing sufficient to indicate that a contract for sale has been made between 13 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker" for purposes of section 2201 of the California Uniform Commercial Code. The parties further agree that data mechanically or electronically stored by PBMS or CellStar in the course of business shall constitute acceptable documentation of the contents of any Order or invoice electronically transmitted by either party to the other. 6. PRICES Prices are set forth in Exhibit B and D. [REDACTED] Prices changes and prices for any new Products or Services set forth in Exhibit B shall be implemented only when agreed to by the CPT. Additionally, the following shall apply: (i) Any price changes for assembly costs as set forth in Section 1.c. of Exhibit B, shall be determined on the basis of the assembly cost model set forth in Exhibit F. (ii) Assembly prices for all new Products set forth in Exhibit B, including price changes for those Products, shall be determined on the basis of assembly cost model set forth in Exhibit F. (iii) Any price changes for credit and collection Services as set forth in Section 3.c. of Exhibit B shall be determined on the basis of the component cost analysis set forth in Exhibit C. (iv) Prices for any new administrative Services set forth in Exhibit B, including any price changes for those Services, shall be determined on the basis of component cost analysis similar to that set forth in Exhibit C. 7. INVOICING AND PAYMENT a. Promptly after shipment of Products to the Customer, CellStar shall render an invoice to PBMS for each such shipment. The invoice shall identify and separately show quantities and prices for each item shipped and for Services provided any shipping charges to be borne by PBMS, applicable sales or use taxes, any discounts and total amount due. PBMS shall promptly pay CellStar the amount due within one (1) business day after receipt of the invoice. Both parties are currently working to develop EFT capabilities. Until such time that EFT is implemented, PBMS will remit payment by wire transfer each Monday, for the prior week. b. Promptly after the shipment of Products to the Customer, CellStar shall remit payment to PBMS in an amount that equals the invoiced amount generated by CellStar to the Retailer or other reseller. Both parties are currently working to develop EFT capabilities. Until such time that EFT is implemented, CellStar will remit payment by wire transfer each Monday, for the prior week. c. Promptly after the performance of Services rendered, CellStar shall render an invoice electronically for such Services. The invoice shall identify and separately show prices for the Services, including Cost of Capital. PBMS shall promptly pay CellStar the amount due via electronic funds transfer ("EFT') within one (1) business day after receipt of the invoice. Both parties are currently working to develop EFT capabilities. Until such time that EFT is 14 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement - ------------ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 implemented, PBMS will remit payment by wire transfer each Monday, for the prior week. d. If PBMS disputes any invoice rendered or amount paid, PBMS shall so notify CellStar after payment, and the parties, through the CPT, shall use their best efforts to resolve such dispute expeditiously. The CPT shall provide all pertinent information to PBMS and CellStar upon request to enable and cooperate with PBMS in investigating the amount in dispute. e. With respect to Section 7.a. and b. above, upon agreement by both parties, amounts due for transactions under such Sections may be consolidated for the purpose of the single transfer of funds. Nothing in this paragraph e. however, limits PBMS' right to set-off payments due CellStar as set forth in Section 4.5.e. of this Agreement. 8. SHIPPING AND PACKING a. CellStar shall ship all Orders to PBMS' Retailers and other resellers according to the specific shipping instructions for that Customer when set forth in the Procedures Manual, unless PBMS specifies other instructions in the applicable Order, provided that CellStar shall have had a reasonable opportunity to (i) review the applicable Customer's standard shipping instructions prior to receipt of such Order, and (ii) make arrangements to accommodate any special instructions of such Customer. PBMS agrees to reimburse CellStar for additional freight charges, if any, required to satisfy such special instructions. Whenever possible however, CellStar shall use the lowest priced shipping carrier (and where possible use a contract carrier) capable of shipping the Products on time. In the event the Order contains other shipping instructions, then notwithstanding the section entitled "Order of Precedence" in this Agreement, the Order shall take precedence over the shipping instructions set forth in the Procedures Manual. b. CellStar shall ship Products as specified in PBMS' Order to meet PBMS' specified shipment or arrival date. c. Unless expressly stated to the contrary, CellStar's charges for transportation Services including, but not limited to, routing, transporting, hauling, hoisting, storage and detention, are not included in any prices furnished for Products. d. Marking and labeling ("Marking") of packages may vary depending on Product and Order type. Standard Markings shall include, but not be limited to, Markings which are or shall be required by applicable laws and regulations governing the environment and hazardous materials/wastes, Order number, container number, ship-to address, return address, Product identification, quantity, date packed and gross weight, where applicable. 9. TAXES a. PBMS shall reimburse CellStar the cost of all sales and use taxes and import and export duties, and other governmental fees to the extent related to PBMS' Orders not otherwise included in the invoice for the original shipment to PBMS Customers. b. CellStar agrees to pay, and to hold PBMS harmless from and against, any penalty, interest, additional tax or other charge that may be levied or assessed as 15 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 a result of the delay or failure of CellStar for any reason to pay any tax or file any return or information required by law, rule or regulation or by this Agreement to be paid or filed by CellStar. c. If PBMS is exempt from payment of any applicable sales and/or use tax upon notifying CellStar of the basis for claiming such exemption CellStar agrees to take all legal and proper steps to sell the Products free of sales and/or use tax or to act as PBMS' agent in applying for any applicable rebate of tax. PBMS will, upon request furnish CellStar with any applicable tax exemption number. 10. RECORDS AND AUDITS CellStar shall maintain accurate records of all matters which relate to CellStar's obligations hereunder in accordance with generally accepted accounting principles and practices, uniformly and consistently applied in a format that will permit audit. Unless otherwise provided in this Agreement, CellStar shall retain such records for a period of four (4) years from the date of final payment under the Order to which such records relate. To the extent that such records may be relevant in determining if CellStar is complying with its obligations under the applicable Order, PBMS and its authorized representatives shall, at any time, upon reasonable advance notice, have access to such records for inspection and audit during normal business hours. 11. INDEPENDENT CONTRACTOR CellStar hereby declares and represents that CellStar is engaged in an independent business and will perform its obligations under this Agreement as an independent contractor and not as the agent or employee of PBMS; that the persons performing services hereunder are not agents or employees of PBMS; that CellStar has and hereby retains the right to exercise full control of and supervision over the performance of CellStar's obligations hereunder and full control over the employment, direction, compensation and discharge of all employees assisting in the performance of such obligations; that CellStar shall be solely responsible for all matters relating to payment of such employees, including compliance with workers' compensation, unemployment, disability insurance, social security, withholding and all other federal, state and local laws, rules and regulations governing such matters; and that CellStar shall be responsible for CellStar's own acts and omissions and those of CellStar's agents, employees and contractors during the performance of CellStar's obligations under this Agreement. 12. NONEXCLUSIVE AGREEMENT This Agreement is a nonexclusive agreement. PBMS expressly reserves the right to contract with others for any of the products or services it may require. PBMS also reserves the right, at any time, to 1) bring any of the Services described under this Agreement in-house or 2) enter into an arrangement whereby a PBMS Affiliate provides the types of Services described hereunder. 13. INDEMNIFICATION CellStar shall indemnify, defend and hold harmless PBMS and its Affiliates, and the directors, shareholders, agents and employees of any of them ("Indemnitees"), from and against any fine, penalty, loss, cost, damage, injury, claim, expense or liability, including 16 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 attorney's fees and court costs (individually and collectively "Liabilities"), as a result of (i) injury to or death of any person; (ii) damage to, loss or destruction of any property; (iii) failure to comply with the section entitled "Compliance with Laws", or (iv) breach of a PBMS/supplier agreement where such Liabilities arise out of CellStar's performance of this Agreement except for that portion of Liabilities which are caused by PBMS' negligence or willful misconduct. CellStar shall (1) keep PBMS and any PBMS Indemnitees subject to such Liabilities fully informed as to the progress of the defense and/or settlement and (2) afford PBMS or any Indemnitee, each at its own expense, an opportunity to participate on an equal basis with CellStar in the defense or settlement of any such Liabilities. With respect to any claim of infringement of any patent, copyright, trade secret or other intellectual property right of any third party in connection with Open Stock, CellStar shall pass through to PBMS the manufacturer's and/or vendor's indemnity in connection with such infringement claim to the extent allowed by that manufacturer or vendor. With respect to any claim of infringement of any patent, copyright, trade secret or other intellectual, proprietary right of any third party in connection with Dedicated Products, PBMS shall pass through to CellStar the product supplier's indemnity in connection with such infringement claim, to the extent allowed by that product supplier. While PBMS is on CellStar's premises, PBMS agrees to indemnify CellStar under the same terms as set forth in paragraph a. above, for Liabilities as a result of any injury to or death of any person or damage, loss or destruction of any property which arises from PBMS' negligence or willful misconduct except for that portion of Liabilities which are caused by CellStar's negligence or willful misconduct. In addition, PBMS agrees to indemnify CellStar under the same terms as set forth in paragraph a. above for Liabilities as a result of failure to comply with the Section entitled "Compliance With Laws" which arise out of PBMS' performance of this Agreement. PBMS agrees to indemnify, defend and hold harmless CellStar and its affiliates, and the directors, stockholders, agents and employees of any of them, from and against any Liabilities that arise in connection with CellStar's use of the Name, except to the extent such Liabilities are due to CellStar's negligence or misconduct. 14. INSURANCE Any and all insurance, including Worker's Compensation Insurance, that may be required under the laws, ordinances, and regulations of any governmental authority, with respect to CellStar's performance under this Agreement, is and shall be the sole responsibility of CellStar. a. Without in any way limiting CellStar's indemnification obligations hereunder, CellStar shall maintain the following insurance: i) Commercial General Liability (Bodily Injury and Property Damage) Insurance including the following supplementary coverages: 1. Contractual Liability to cover liability assumed under this Agreement; 2. Personal Injury Liability; 17 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 3. Product and Completed Operations Liability Insurance; 4. Property Damage Liability Insurance; ii) Business Automobile Liability Insurance if any of CellStar's employee owned, leased, hired or borrowed automobiles are used in the performance of this Agreement. Coverage shall be in force for all owned, non-owned and hired automobiles used by CellStar. iii) The limit of the liability for insurance required above shall not be less than two million dollars ($2,000,000) combined single limit per occurrence. b. The insurance specified above shall: i) Name PBMS, its Affiliates, directors, agents and employees as additional insureds in matters covered by this Agreement, at CellStar's sole expense; ii) Provide that such insurance is primary coverage with respect to all insureds; iii) Contain a Standard Cross Liability Endorsement which provides that the liability insurance applies separately to each insured and that the policies cover claims or suits by one insured against the other; iv) Contain a waiver of subrogation and an assignment of statutory lien against PBMS for purposes of Worker's Compensation Insurance; v) Include a requirement that the insurer provide PBMS with thirty (30) days written notice to PBMS prior to the effective date of any cancellation or material change of the policy or policies of insurance; vi) have insurance issued by insurance companies that hold a current rating of not less than A/XV, according to Best's Key Rating Guide. c. If requested by PBMS, CellStar shall provide PBMS with a Certificate of Insurance executed by a duly authorized representative of the insurer evidencing the coverages, limits, and provisions specified above. d. If CellStar's insurance is on "claims-made" forms, CellStar's obligations to maintain the insurance and to provide policy endorsements required herein shall survive the termination of this Agreement for a period of five (5) years. 15. ACCESS a. PBMS' Premises CellStar shall when appropriate have reasonable access to PBMS' premises during normal business hours and at such other times as may be agreed upon by the parties in order to enable CellStar to perform its obligations under this Agreement. CellStar shall coordinate such access with PBMS' designated representative prior to visiting such premises. If PBMS for any lawful reason requests CellStar to discontinue furnishing any person provided by CellStar for performing work on PBMS' premises, CellStar shall immediately comply with such request. Such person shall leave PBMS' premises promptly and CellStar 18 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 shall not furnish such person again to perform work on PBMS' premises without PBMS' prior consent. b. CellStar's Premises PBMS shall, upon reasonable prior notice to CellStar and at no additional charge, have reasonable access to CellStar's premises during normal business hours in order to observe CellStar's work with respect to the Products and Services or to take possession of any Dedicated Products paid for by PBMS. If CellStar for any lawful reason requests PBMS to discontinue furnishing any person provided by PBMS for performing work on CellStarOs premises, PBMS shall immediately comply with such request. Such person shall leave CellStarOs premises promptly and PBMS shall not furnish such person again to perform work on CellStarOs premises without CellStarOs prior consent. c. Rules and Regulations The employees and agents of CellStar and PBMS shall, while on the premises of the other, comply with all site rules and regulations, including, where required by government regulations, submission of satisfactory clearance from the U.S. Department of Defense and other governmental authorities concerned. d. Releases Void Neither party shall require waivers or releases of any personal rights from representatives of the other in connection with visits to its premises, and no such releases or waivers shall be pleaded by either party in any action or proceeding. 16. INFORMATION a. In the performance of its obligations under this Agreement, either party may receive or access (the Oreceiving partyO) Information from the other party (the Odisclosing partyO). Such Information may contain material which is proprietary or confidential, disclosures of patentable inventions with respect to which patents may not have been issued or for which patent applications may not have been filed, or material which is subject to applicable laws regarding secrecy of communications or trade secrets. Accordingly, the receiving party agrees: i) that all such Information so acquired by it or its employees, contractors or agents (individually and collectively "personnel") hereunder shall be and shall remain the disclosing party's exclusive property; ii) to inform all of its personnel engaged in handling such Information of the proprietary or confidential character of such Information and of the existence of applicable laws regarding secrecy of communications; iii) to limit access to such Information to its personnel having a need to know; iv) to keep, and have its personnel who receive or access such Information keep, such Information confidential; v) to return promptly or certify that it has destroyed, any copies of such Information in written, graphic or other tangible form upon the disclosing partyOs request; and vi) to use such Information only for purposes of this Agreement and for other purposes only upon such terms as may be agreed upon between the parties in writing. 19 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 b. Notwithstanding the foregoing, nothing contained in this Section 16 shall restrict either party in the use or disclosure of any Information from the other party which: i) is already in such party's possession without accompanying use or disclosure restrictions prior to its receipt from the other party; or ii) is or subsequently becomes publicly available through no fault of such party; or iii) is rightfully received by such party from a third party without accompanying use or disclosure restrictions; or iv) is independently developed by such party or a third party without the aid, application or use of any Information received pursuant to this Agreement; or v) is approved in writing for release by the other party. c. Each party hereto acknowledges and agrees that in the event of the violation of this Section 16, irreparable damage may occur, and therefore the aggrieved party shall be entitled to seek court ordered injunctive relief to halt the violation of this Agreement which such remedy shall be in addition to any other remedies available to the aggrieved party at law or in equity. d. If either party is required by law or by governmental regulation or rule or receives a request to disclose all or any part of the disclosing party's Information by applicable law or, under the terms of a subpoena or other order issued by a court of competent jurisdiction or by a government agency, the receiving party shall: (i) promptly notify the disclosing party of the existence, terms and circumstances surrounding any such requirement or request; (ii) consult with the disclosing party regarding the advisability of taking steps to resist or narrow such requirement or request; (iii) if disclosure of such Information is required, furnish only such portion of the Information as the receiving party is advised by counsel is legally required to be disclosed; and (iv) cooperate with the disclosing party, at the disclosing party's expense, in its efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to that portion of the Information that is required to be disclosed. 17. QUALITY a. PBMS and CellStar believe that benefits accrue to both parties when they cooperate to improve quality and to control costs. b. CellStar shall be engaged in on-going quality improvement efforts and practices which are consistent with the latest standards and practices in the industry. c. CellStar shall maintain a quality assurance system designed to identify, correct and prevent deficiencies. d. i) CellStar agrees to perform all quality control functions in conformance with the "Warranties" section of the Agreement, the Specifications and applicable Order; and, in the absence of Specifications, to good commercial practice. Detailed inspection records, documentation and 20 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 other data relating to CellStar's standards in effect at CellStar's premises shall be maintained by and made available to PBMS upon request. ii) At PBMS' option, PBMS may at all reasonable times and places, either perform or observe CellStar performance of inspections and tests of any Products pertaining to the Agreement. CellStar shall designate, at each of CellStar's applicable distribution facilities, one (1) or more responsible employees with whom PBMS may discuss any matters relating to Product quality and reliability. CellStar shall also make available to PBMS at no additional charge, such facilities, data, Specifications and information regarding CellStar procedures and any other documents, information and assistance as may be deemed reasonably necessary by PBMS to perform inspections and tests related to CellStar's Product handling and as mutually agreed by the CPT in writing. iii) PBMS may inspect and test Products, in whole or in part, prior to or subsequent to final assembly and/or completion of Product manufacturing or repair processes. Whenever Products are made available to PBMS for inspection and testing, CellStar shall also make available to PBMS copies of any Order(s) applicable to such Products. Whenever CellStar establishes a stock of Products to be shipped to PBMS or its Customers pursuant to Orders to be issued by PBMS in the future, such Products shall be available for inspections by PBMS prior to delivery by CellStar. iv) PBMS' exercise of, or failure to exercise, the rights provided in this Section shall not relieve CellStar of its obligation to furnish all Products in conformance to this Agreement and the applicable Order. 18. REGISTRATION To the extent that PBMS purchases Open Stock, CellStar represents that, from the date of this Agreement on a going forward basis, it will use its best reasonable efforts to include in its contracts with each manufacturer that provides Open Stock to CellStar, the manufacturer's commitment and obligation to comply with all Federal Communications Commission's Rules and Regulations as may be amended from time to time, including, but not limited to, all labeling and Customer instruction requirements with respect to that Open Stock. CellStar agrees to indemnify PBMS for any Liabilities pursuant to the Section entitled "Indemnification" of this Agreement for CellStar's breach of this Section entitled "Registration". PBMS agrees that it will use its best reasonable efforts to include in its contracts with each product supplier that provides Dedicated Products to CellStar the product supplier's commitment and obligation to comply with all Federal Communication Commission's rules and regulations as may be amended from time to time, including but not limited to all labeling and Customer instruction requirements with respect to that Dedicated Product. PBMS agrees to indemnify CellStar for any Liabilities pursuant to the Section entitled "Indemnification" of this Agreement for PBMS' breach of this Section entitled "Registration". 21 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 19. INSIGNIA Upon PBMS' written request, Insignia shall be properly affixed by CellStar to the Products furnished. Such Insignia shall not be affixed, used or otherwise displayed on the Products furnished or in connection therewith without PBMS' written approval. The manner in which such Insignia will be affixed must be approved in writing by PBMS. If PBMS directs CellStar to remove Insignia from any Products rejected or not purchased by PBMS, CellStar shall do so at a price to be negotiated by the CPT for such removal. 20. HAZARDOUS MATERIALS a. CellStar shall notify PBMS in writing at least thirty (30) days prior to shipment when any Open Stock Product or Services or processes consists of or contains a "hazardous chemical substance or mixture" or a "hazardous and/or radioactive material", as these terms are defined in all applicable federal, state and local laws, regulations and orders ("Regulations"). b. Any hazardous materials in Products or Services provided hereunder by CellStar shall be transported or handled in accordance with the requirements of the applicable Regulations including, but not limited to, those of the Department of Transportation governing transportation of such hazardous materials. 21. CODES, LAWS OR REGULATIONS CellStar shall make any changes to its Services and will use its best efforts to cause the manufacturers of Open Stock to change the Open Stock and PBMS will use its best efforts to cause the product suppliers of Dedicated Products to change the Dedicated Products, in order to meet codes, laws or regulations which are in effect. 22. NOTICE OF DELAYS Whenever any actual or potential cause delays or threatens to delay CellStar's performance, CellStar shall immediately so notify PBMS in writing. Such notice shall include all relevant information concerning the actual or potential cause of the delay and its background. During the period such actual or potential cause exists, CellStar shall keep PBMS advised of its effect on CellStar's performance and of the measures being taken to remove it. 23. CHANGES AND SUSPENSIONS a. Subject to Section 48 below, PBMS may, by notice to CellStar, suspend, in whole or in part, the delivery of Products and the performance of Services or any Order. If PBMS directs any such change or suspension, the parties shall agree to any adjustments in prices or dates necessitated thereby and shall execute a revised Order reflecting such adjustments. b. Subject to Section 40 below, CellStar may not, without PBMS' prior written consent, make any changes whatsoever with respect to the Products or Services specified in any Order hereunder. 22 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 24. TERMINATION AND CANCELLATION a. Default If either party is in material default of any of its obligations under this Agreement and such default continues for fifteen (15) calendar days after written notice thereof is given by the party not in default, such nondefaulting party may cancel this Agreement and/or any Orders which may be affected by such default. The parties acknowledge that the first 180 calendar days of this Agreement will involve prototype development and process refinement and that breaches which are immaterial in nature with respect to such efforts shall not constitute a default which shall allow the other party to cancel this Agreement, unless however the default is ongoing and the defaulting party does not take reasonable steps within 60 calendar days following notice of the breach, to eliminate the default. Default may include any of the following Events of Default which would allow the nondefaulting party to cancel this Agreement and/or any Orders immediately: i) Termination of Business, Bankruptcy, Etc. Either party shall ----------------------------------------- cease its operations or sell or otherwise dispose of all or substantially all of its assets or there shall be change in ownership of either party's business, an assignment for the benefit of creditors, insolvency, appointment of a receiver or the filing of any petition under bankruptcy or debtor's relief laws of, or against either party. ii) Material Adverse Change Either party shall have reasonably ----------------------- determined that since the Effective Date, a Material Adverse Change has occurred with respect to the other party. iii) Representations and Warranties Any warranty, representation or ------------------------------ certification made by either party or any officer of either party in this Agreement or in any document executed and delivered by either party in connection therewith shall be untrue in any material respect, in any case, on any date as of which the facts set forth are stated or certified. b. Termination Provisions for termination of Orders hereunder are set forth in Section 48 of this Agreement. 25. PARTIAL TERMINATION OR CANCELLATION Subject to Section 48, where a provision of this Agreement or applicable law permits PBMS to terminate or cancel an Order, such termination or cancellation may, at PBMS' option, be either complete or partial. Subject to Section 48, in the case of a partial termination or cancellation PBMS may, at its option, accept a portion of the Products or Services covered by an Order and pay CellStar for such Products or Services at the prices set forth in such Order and the parties shall execute a revised Order to reflect such partial termination or cancellation. The right to cancel an Order shall also include the right to cancel any other affected Order. 23 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 26. NONASSIGNMENT Except as otherwise provided by law, neither party shall assign its rights or delegate its duties ("Assignment") under this Agreement, without the prior written consent of the other party, which consent shall not be unreasonably withheld. Any attempted Assignment or delegation of duties in contravention of this section shall be void and of no effect. This Agreement shall inure to the benefit of and be binding upon the respective successors and assigns, if any, of CellStar and PBMS. The assigning party shall provide thirty (30) days prior written notice to the other party of any proposed Assignment. 27. NOTICES Except as otherwise provided in this Agreement, or applicable Order, all notices or other communications hereunder shall be deemed to have been duly given when made in writing and either 1) delivered in person, 2) delivered to an agent, such as an overnight or similar delivery service, or 3) deposited in the United States Mail, postage prepaid, and addressed as follows: To: CELLSTAR, LTD. 1730 Briercroft Court Carrollton, TX 75006 Attn.: General Counsel To: PACIFIC BELL MOBILE SERVICES 4410 Rosewood Dr. Bldg. 1, 4th Floor Pleasanton, CA 94588 Attn.: Director - Procurement The address to which notices or communications may be given by either party may be changed by written notice given by such party to the other pursuant to this paragraph entitled "Notices". 28. PUBLICITY CellStar shall not use PBMS' or PBMS' Customers' or manufacturers' names or any language, pictures or symbols which could, in PBMS' judgment, imply their identity in any a) written or oral advertising or presentation or b) brochure, newsletter, book, or other written advertising material of whatever nature, without PBMS' prior written consent. PBMS shall not use Open Stock manufacturers' names or any language, pictures, or symbols which could, in CellStar's judgment, imply their identity in any a) written or oral advertising or presentation or b) brochure, newsletter, book or other written advertising material of whatever nature, without CellStar's prior written consent. 29. COMPLIANCE WITH LAWS Each party shall comply with all applicable federal, state and local laws, regulations and codes, including, but not limited to, the procurement of permits, certificates and licenses when needed in the performance of this Agreement. PROPRIETARY AND CONFIDENTIAL 24 Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 30. TITLE Unless otherwise provided in this Agreement, title to Dedicated Products shall vest in CellStar when the Products have been delivered by the product suppliers or manufacturers to CellStar's destination. 31. NO THIRD PARTY BENEFICIARIES This Agreement is for the benefit of PBMS and CellStar and not for any other person. 32. AMENDMENTS AND WAIVERS This Agreement may be amended or modified only by a written document signed by authorized representatives of both parties. No course of dealing or failure of either party to strictly enforce any term, right or condition of this Agreement shall be construed as a general waiver or relinquishment of such term, right or condition. Waiver by either party of any default shall not be deemed a waiver of any other default. 33. EXECUTIVE ORDERS Exhibit A entitled "Exhibit A - Executive Orders and Associated Regulations" is attached hereto and made a part hereof. As used in Exhibit A "Contractor" shall mean CellStar. 34. HEADINGS Article, section, or paragraph headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 35. GOVERNING LAW This Agreement and each Order shall be construed in accordance with the domestic laws (including the Uniform Commercial Code) but not the rules governing conflicts of law, of the State of California. To the extent that an Order involves the performance of Services, such Services shall be deemed to be "goods" within the meaning of the California Uniform Commercial Code. 36. REMEDIES CUMULATIVE Except to the extent of any conflict with the section entitled "Limitation of Liability", any rights of cancellation, termination, or other remedies prescribed in this Agreement are cumulative and are not intended to be exclusive of any other remedies to which the injured party may be entitled, including but not limited to, the remedies of specific performance and cover, however, neither party shall retain the benefit of inconsistent remedies. Notwithstanding the foregoing, the remedy of specific performance shall apply only in the event of breach of 1) Section 16.c, 2) CellStar's obligation to sell Dedicated Products only to PBMS' Customers (unless otherwise permitted by PBMS), and 3) Section 52. 37. SEVERABILITY If any provision or any part of a provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render unenforceable any other portion of this Agreement. 25 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 38. SURVIVAL Provisions contained in this Agreement that by their sense and context are intended to survive completion of performance, termination or cancellation of this Agreement shall so survive. 39. PATENTS No licenses, express or implied, under any patents are granted by either party to the other party hereunder. 40. FORCE MAJEURE a. Neither party shall be deemed in default of this Agreement or any Order hereunder to the extent that any delay or failure in the performance of its obligations results from any cause beyond its reasonable control and without its fault or negligence, due to acts of God, disruption of telecommunications links, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions or strikes. b. If any force majeure condition occurs, the affected party shall give immediate notice to the other party and the other party may elect to: (1) terminate the affected Order(s) or any part thereof, (2) suspend the affected Order(s) or any part thereof for the duration of the force majeure condition, with the option to obtain elsewhere products and services to be furnished under such Order(s) and deduct from any commitment under such Order(s) the products and services obtained or for which commitments have been made elsewhere or (3) resume performance under such Order(s) once the force majeure condition ceases with an option in the notified party to extend any affected delivery or performance date up to the length of time the force majeure condition endured. Unless the notified party gives written notice within thirty (30) days after being notified of the force majeure condition, (2) shall be deemed selected. 41. SUBCONTRACTING PLAN CellStar shall adopt and comply with the Exhibit(s) entitled Prime Contractor MBE/WBE/DVBE Job Specific Subcontracting Plan and/or Prime Contractor MBE/WBE/DVBE Commodity Product Subcontracting Plan, attached hereto and made a part hereof. 42. MBE/WBE/DVBE CANCELLATION CLAUSE a. If CellStar has represented itself or one of its subcontractors as a minority- or women-owned business or disabled veteran business enterprise: CellStar agrees that falsification or misrepresentation of, or failure to report a disqualifying change in, the MBE/WBE/DVBE status of CellStar or any subcontractor utilized by CellStar; or CellStar's failure to comply in good faith with any MBE/WBE/DVBE utilization goals established by CellStar's Subcontracting Plan; or CellStar's failure to cooperate in any investigation conducted by PBMS, or by PBMS' agent, to determine CellStar's compliance with this section, will constitute a material breach of this Agreement. In the event of any such breach, 26 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 PBMS may, at its option, cancel this Agreement; and CellStar waives all claims related to such cancellation. b. As used in this Agreement, Minority and Women Business Enterprises (MBEs/WBEs) are defined as businesses which are certified by the California Public Utilities Commission Clearinghouse to be 51% owned and operated by a minority individual or group or by one or more women; for publicly-held businesses, at least 51% of the stock must be owned by one or more minorities or women who are U.S. citizens or legal aliens with permanent residence status. In each case, the management and daily operations must be controlled by one or more of those individuals. Foreign-owned firms operating in the United States are not included in these definitions. For the purposes of this definition, minority group members include male or female Asian Americans, Black Americans, Filipino Americans, Hispanic Americans, Native Americans (i.e., American Indians, Eskimos, Aleuts and Native Hawaiians), Polynesian Americans, and multi-ethnic (i.e., any combination of MBEs and WBEs where no one specific group has a 51% ownership and control of the business, but when aggregated, the ownership and control combination meets or exceeds the 51% rule). "Control" in this context means exercising the power to make policy decisions. "Operate" in this context means actively involved in the day-to-day management of the business. Disabled Veteran Business Enterprises (DVBEs) are defined as business concerns certified as DVBEs by the California State Office of Small and Minority Business (OSMB). The DVBE must be: (1) a sole proprietorship at least 51% owned by one or more disabled veterans; or (2) a publicly-owned business in which at least 51% of the stock is owned by one or more disabled veterans; or (3) a subsidiary which is wholly owned by a parent corporation, but only if at least 51% of the voting stock of the parent corporation is owned by one or more disabled veterans; or (4) a joint venture in which at least 51% of the joint venture's management and control and earnings are held by one or more disabled veterans. In each case the management and control of the daily business operations are by one or more disabled veterans. For the purpose of this definition, a disabled veteran is a veteran of the military, naval or air service of the United States with a service-connected disability who is a resident of the State of California. 43. DELIVERY OF PRODUCTS AND PERFORMANCE OF SERVICES a. All dates for shipment or delivery of Products and performance of Services are firm and time is of the essence. Shipment or delivery dates shall be specified in each Order. (i) In the event CellStar fails to meet the scheduled delivery date set forth in the applicable Order and the Customer cancels the Order, CellStar agrees to assume return shipping costs for the canceled Products if the late delivery was due to CellStar's error. (ii) In the event CellStar fails to meet the scheduled delivery date set forth in the applicable Order but the Customer nonetheless accepts the late shipment, CellStar shall, if the CPT 27 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 agrees, assume liability for any deductions taken by that Customer in connection with the late shipment if the late shipment was due to CellStar's error and within CellStar's reasonable control. b. Notwithstanding anything to the contrary herein, PBMS understands and agrees that CellStar shall not be responsible for same day shipping unless CellStar receives the applicable Order by 3:00 pm, Central Standard Time on the shipment date. 44. USE OF CELLSTAR'S PUBLISHED SPECIFICATIONS CellStar shall, at no charge, provide PBMS with copies of CellStar's published Specifications, user instructions, manuals and other training materials pertaining to the Products and Services purchased hereunder. PBMS shall have the right to reproduce any and all of such materials as necessary for PBMS' use of such Products. 45. DOCUMENTATION Each party shall furnish to the other at no charge, mutually agreeable documentation, and any succeeding changes thereto, as described herein. PBMS may reproduce such documentation for use hereunder. 46. RISK OF LOSS Subject to the following sentence, CellStar will be responsible for risk of physical loss of or damage to all inventories in their facilities and during shipment to the destination specified in the applicable Order, until such time that PBMS' Customer signs the carrier's receipt for the delivery. CellStar shall secure and prepay cartage insurance on behalf of the Customer and bill the Customer for such cartage insurance. 47. WARRANTIES Services a. CellStar warrants to PBMS that the Services provided hereunder shall be performed in a fully workmanlike manner to PBMS' reasonable satisfaction and in accordance with the Specifications set forth in this Agreement and the applicable Order. CellStar further warrants that such Services shall be free from material defects in workmanship. This warranty shall survive inspection, acceptance and payment for a period of one (1) year. b. If during the term hereof, PBMS believes that there is a breach of warranty as described herein, PBMS shall notify CellStar, setting forth in writing the nature of such claimed breach. CellStar shall promptly investigate such breach and advise PBMS of CellStar's planned corrective action. Thereafter, CellStar shall either repair or replace the affected Product, in CellStar's sole discretion. If such breach of warranty has not been corrected within a reasonable time (not to exceed five (5) business days from PBMS' notice to CellStar of the breach) or if two (2) or more such breaches of warranty occur within any thirty (30) day period, PBMS may, in addition to all other rights and remedies provided by law or this Agreement, cancel the Order for the Services affected by such breach. 28 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 48. TERMINATION OF ORDERS Services PBMS may terminate any Order covering the Services as described in Exhibit C and this Agreement, upon 90 calendar days written notice to CellStar. PBMS may terminate any other Order for other types of Services upon immediate notice. In the event of such termination, PBMS shall pay to CellStar the reasonable cost for such Services as set forth in Exhibit B and C, incurred by CellStar up to the date of said termination. PBMS shall not be responsible for the cost of any work performed by CellStar after such termination, nor for any costs incurred by CellStar's subcontractors which CellStar could have reasonably avoided. In no case shall termination costs exceed the amount, if any, agreed upon in the applicable Order for such Services. CellStar shall credit or reimburse PBMS for payments made by PBMS prior to termination to the extent such payments exceed the cost of work performed by CellStar, up to CellStar's receipt of the notice of termination. 49. ALTERNATE DISPUTE RESOLUTION a. If a controversy or claim should arise, a PBMS project representative and a project representative of CellStar, or their respective successors in the positions they now hold (herein called the "project representatives"), will meet in a mutually convenient location, at least once, and will attempt to, and are empowered to resolve the matter. Either project representative may request the other to meet within fourteen (14) days, at a mutually agreed time. b. If the matter has not been resolved within twenty-one (21) days of their first meeting, the project representatives shall refer the matter to a PBMS senior executive, who shall have full authority to settle the dispute with a senior executive of CellStar. Thereupon, the project representatives shall promptly prepare and exchange memoranda stating the issues in dispute and their positions, summarizing the negotiations which have taken place, and attaching relevant documents. The senior executives will meet for negotiations within fourteen (14) days of the end of the twenty-one (21) day period referred to above, at a mutually agreed time. c. The first meeting shall be held at the offices of the project representative receiving the request to meet. If more than one meeting is held, the meetings shall be held in rotation at the offices of CellStar and PBMS. d. If the matter has not been resolved within thirty (30) days of the meeting of the senior executives (which period may be extended by mutual agreement), the parties will attempt in good faith to resolve the controversy or claim under the commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration, litigation, or some other dispute resolution procedure. e. If the parties cannot resolve the dispute by mediation, the controversy or claim arising out of or relating to this Agreement, shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision of the Arbitrator(s) is/are considered self-execution and failure of either party to abide by the decision may be considered to be a breach of contract. Judgment upon the award rendered by the arbitrator(s) may also be entered in any court having jurisdiction thereof. for the 29 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 purpose of determining federal diversity jurisdiction the parties are considered residents and domicilliaries of different states. f. Nothing in this provision shall prevent the parties from mutually agreeing to use an alternative means to resolve the dispute, such as a "mini-trial" or other procedure, whether or not it is sponsored by the American Arbitration Association. Additionally, nothing in this Section 49 shall restrict either party from seeking injunctive relief under Section 16.c. of this Agreement and with respect to CellStar's obligation to sell Dedicated Products only to PBMS' Customer, unless otherwise permitted by PBMS. 50. PRECEDENCE In the event of any conflict or inconsistency contained within this Agreement and for purposes of resolving disputes between the parties regarding the interpretation of this Agreement, resolution thereof shall be made by giving precedence to the following portions of this Agreement in the order listed: 1. Exhibits 2. Main Body 3. Orders 4. Procedures Manual (Appendix 1) Notwithstanding the above, if PBMS includes any specific payment or delivery instructions in the applicable Order which conflict with the Exhibits, Main Body, or Procedures Manual, those instructions shall take precedence over the Exhibits, Main Body and Procedures Manual but only with respect to those specific instructions. 51. LIMITATION OF LIABILITY In no event will either party be liable to the other under this Agreement for any indirect, special, or consequential damages, such as frustration of economic or business expectations, or lost profits or revenues, whether or not the other party has been informed of the possibility of such damages. [REDACTED] Nothing in this Section 51 shall limit either party's liability in connection with payments or credits which are due or thereafter due and owing from one party to the other or for any payment or credits due or thereafter due and owing any product supplier in connection with Products ordered from that product supplier. 52. CORPORATE AUTHORIZATION The parties shall take any and all steps necessary or appropriate, including without limitation, the taking of appropriate corporate action, to implement and to give effect to the provisions of this Agreement. Each party acknowledges and agrees that the other has entered into this Agreement in reliance of the foregoing. Accordingly, each party agrees that the other party may enforce this provision by obtaining specific performance or injunctive relief. CellStar, Ltd. is a subsidiary of CellStar Corporation which guarantees all 30 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 of the obligations of and performance of CellStar, Ltd. under this Agreement. By signing this Agreement as a duly authorized officer of CellStar Corporation the undersigned waives individual notice to CellStar Corporation and commits to indemnify and hold PBMS harmless from any and all financial or performance obligations of CellStar, Ltd. which are not carried out fully in accordance with the terms of this Agreement. 53. ENTIRE AGREEMENT This Agreement, including all Orders, exhibits and subordinate documents attached to or referenced in this Agreement or any Orders and all proposals, descriptions, drawings, Specifications, marketing materials and other literature published by CellStar in connection with or in contemplation of any Order or of this Agreement shall constitute the entire agreement between PBMS and CellStar with respect to the subject matter. (Signature Page Follows) 31 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. PACIFIC BELL MOBILE SERVICES By: /s/ KEN ELMER ---------------------------------- (Signature) Print Name: Ken Elmer -------------------------- Title: Chief Financial Officer ------------------------------- Date Signed: 10/5/96 ------------------------- CELLSTAR, LTD. By National Auto Center, Inc., its General Partner By: /s/ R.M. GOZIA ---------------------------------- (Signature) Print Name: Richard M. Gozia -------------------------- Title: Executive Vice President ------------------------------- Date Signed: 10/7/96 ------------------------- BY SIGNING THIS AGREEMENT, CELLSTAR CORPORATION FULLY ACCEPTS AND GUARANTEES THE PERFORMANCE AND FINANCIAL OBLIGATIONS OF CELLSTAR, LTD. CELLSTAR CORPORATION CELLSTAR CORPORATION By: /s/ R.M. GOZIA By: /s/ ELAINE F. RODRIGUEZ --------------------------------- ---------------------------------- (Signature) (Signature) Print Name: Richard M. Gozia Print Name: Elaine Flud Rodriguez ------------------------- -------------------------- Title: Executive Vice President Title: Vice President ------------------------------ ------------------------------- Date Signed: 10/7/96 Date Signed: 10/7/96 ------------------------ ------------------------- PROPRIETARY AND CONFIDENTIAL 32 Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement EXHIBIT A EXECUTIVE ORDERS AND ASSOCIATED REGULATIONS PBMS as a common carrier of telecommunications services, engage in work as contractors for various departments and agencies of the United States Government. Also, certain facilities may be constructed pursuant to federally assisted construction programs. Because of the foregoing, work under this contract may be subject to the provisions of certain Executive Orders, federal laws and associated regulations. To the extent that such Executive Orders, federal laws and associated regulations apply to the work under this contract, and only to that extent, Contractor agrees to comply with the provisions of all such Executive Orders, federal laws and associated regulations, as now in force or as may be amended in the future, including, but not limited to the following: 1. EQUAL EMPLOYMENT OPPORTUNITY PROVISIONS In accordance with Executive Order 11246, dated September 24, 1965, and 41 C.F.R.(S)60-1.4, the parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of nonexempt contracts and subcontracts. 2. CERTIFICATION OF NON SEGREGATED FACILITIES In accordance with Executive order 11246, dated September 24, 1965, and 41 C.F.R.(S)60-1.8, Contractor certifies that is does not and will not maintain or provide for its employees any facilities segregated on the basis of race, color, religion, sex, or national origin at any of its establishments, and that it does and will not permit its employees to perform their services at any location, under its control, where such segregated facilities are maintained. The term "facilities" as used herein means waiting rooms, work areas, restaurants and other eating areas, time clocks, restrooms, wash rooms, locker rooms and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation and housing facilities provided for employees, provided that separate or single- user toilet and necessary changing facilities shall be provided to assure privacy between the sexes. Contractor will obtain similar certifications from proposed subcontractors prior to the award of any nonexempt subcontract. 3. CERTIFICATION OF AFFIRMATIVE ACTION PROGRAM Contractor certifies that it has developed and is maintaining an Affirmative Action Plan as required by 41 C.F.R.(S)60-1.40. 4. CERTIFICATION OF FILING Contractor certifies that it will file annually, on or before the 31st day of March, complete and accurate reports on Standard Form 100 (EEO-1) or such forms as may be promulgated in its place as required by 41 C.F.R.(S)60-1.7. 5. AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA In accordance with Executive Order 11701, dated January 15, 1974, and 41 C.F.R.(S)60-250.20, the parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of Government contracts and subcontracts. 6. AFFIRMATIVE ACTION FOR HANDICAPPED PERSONS In accordance with Executive Order 11758, dated January 15, 1974, and 41 C.F.R.(S)60-741.20, the parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of Government contracts and subcontracts. 7. UTILIZATION OF SMALL BUSINESS CONCERNS AND SMALL DISADVANTAGED BUSINESS CONCERNS 48 C.F.R., Ch. 1, (S)19.704(4) and 19.708(a) require that the following clause is included: Utilization of Small Business Concerns and Small Disadvantaged Business Concerns (June, 1985) (a) It is the policy of the United States that small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals shall have the maximum practicable opportunity to participate in performing contracts let by any Federal agency, including contracts and subcontracts for subsystems, assemblies, components, and related services for major systems. It is further the policy of the United States that its prime contractors establish procedures to ensure the timely payment of amounts due pursuant to the terms of their subcontracts with small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals. (b) The Contractor hereby agrees to carry out this policy in the awarding of subcontracts to the fullest extent consistent with efficient contract performance. The Contractor further agrees to cooperate in any studies or surveys as may be conducted by the United States Small Business Administration or the awarding agency of the United States as may be necessary to determine the extent of the Contractor's compliance with this clause. (c) As used in this contract, the term "small business concern" shall mean a small business as defined pursuant to section 3 of the Small Business Act and relevant regulations promulgated pursuant thereto. The term "small business concern owned and controlled by socially and economically disadvantaged individuals" shall mean a small business concern: (1) Which is at least 51 percent owned by one or more socially and economically disadvantaged individuals; or, in the case or any publicly owned business, at least 51 percent of the stock of which is owned by one or more socially and economically disadvantaged individuals; and (2) Whose management and daily business operations are controlled by one or more of such individuals. The Contractor shall presume that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Asian-Indian Americans and other minorities, or any other individual found to be disadvantaged by the Administration pursuant to section 8(a) of the Small Business Act. 1 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement (d) Contractors acting in good faith may rely on written representations by their subcontractors regarding their status as either a small business concern or a small business concern owned and controlled by socially and economically disadvantaged individuals. Small Business and Small Disadvantaged Business Subcontracting Plan Contractor, unless it is a small business concern, as defined in section 3 of the Small Business Act, agrees to adopt and comply with a small business and small disadvantaged business subcontracting plan, which shall be included in and made a part of this contract. The parties incorporate herein by this reference the regulations and contract clauses required by 48 C.F.R., Ch. 1, (S)19-704(4) and 19.708(b) to be made a part of Government contracts and subcontracts. 8. WOMEN-OWNED SMALL BUSINESSES As prescribed in 48 C.F.R., Ch. 1, (S)19.902, the following clause is included in solicitations and contracts when the contract amount is expected to be over the small purchase threshold, unless (a) the contract is to be performed entirely outside the United States, its possessions, Puerto Rico, and the Trust Territory of the Pacific Islands, or (b) a personal services contract is contemplated: (a) "Women-owned small businesses", as used in this clause, means businesses that are at least 51 percent owned by women who are United States Citizens and who also control and operate the business. "Control", as used in this clause, means exercising the power to make policy decisions. "Operate", as used in this clause, means being actively involved in the day-to-day management of the business (b) It is the policy of the United States that women-owned small businesses shall have the maximum practicable opportunity to participate in performing contracts awarded by any Federal agency. (c) The Contractor agrees to use its best efforts to give women-owned small businesses the maximum practicable opportunity to participate in the subcontracts it awards to the fullest extent consistent with the efficient performance of its contract. 9. LABOR SURPLUS AREA CONCERNS As prescribed in 48 C.F.R., Ch. 1, (S)20.302(a)(b), the following clauses are included: (a) Applicability. This clause is applicable if this contract exceeds the appropriate small purchase limitation in Part 13 of the Federal Acquisition Regulation. (b) Policy. It is the policy of the Government to award contracts to concerns that agree to perform substantially in labor surplus areas (LSA's) when this can be done consistent with the efficient performance of the contract and at prices no higher than are obtainable elsewhere. The Contractor agrees to use its best efforts to place subcontracts in accordance with this policy. (c) Order of Preference. In complying with paragraph (b) above and with paragraph (c) of the clause of this contract entitled Utilization of Small Business Concerns and Small Disadvantaged Business Concerns, the Contractor shall observe the following order of preference in awarding subcontracts: (1) small business concerns that are LSA concerns, (2) other small business concerns, and (3) other LSA concerns. (d) Definitions. "Labor Surplus Area", as used in this clause, means a geographical area identified by the Department of Labor in accordance with 20 C.F.R.(S)654, Subpart A, as an area of concentrated unemployment or underemployment or an area of labor surplus. "Labor surplus area concern", as used in this clause, means a concern that together with its first-tier subcontractors will perform substantially in labor surplus areas. Performance is substantially in labor surplus areas if the costs incurred under the contract on account of manufacturing, production, or performance of appropriate services in labor surplus areas exceed 50 percent of the contract price. Labor Surplus Area Subcontracting Program (a) See the Utilization of Labor Surplus Area Concerns clause of this contract for applicable definitions. (b) The Contractor agrees to establish and conduct a program to encourage labor surplus area (LSA) concerns to compete for subcontracts within their capabilities when the subcontracts are consistent with the efficient performance of the contract at prices no higher than obtainable elsewhere. The Contractor shall: (1) Designate a liaison officer who will (I) maintain liaison with authorized representatives of the Government on LSA matters, (ii) supervise compliance with the Utilization of Labor Surplus Area Concerns clause, and (iii) administer the Contractor's labor surplus are subcontracting program; (2) Provide adequate and timely consideration of the potentialities of LSA concerns in all make-or-buy decisions; (3) Ensure that LSA concerns have an equitable opportunity to compete for subcontracts, particularly by arranging solicitations, time for the preparation of offers, quantities, specifications and delivery schedules so as to facilitate the participation of LSA concerns; (4) Include the Utilization of Labor Surplus Area Concerns clause in subcontracts that offer substantial LSA subcontracting opportunities; and (5) Maintain records showing (I) the procedures adopted and (ii) the Contractor's performance, to comply with this clause. The records will be kept available for review by the Government until the expiration of 1 year after the award of this contract, or for such longer period as may be required by any other clause of this contract, or by applicable law or regulations. (c) The Contractor further agrees to insert in any related subcontract that may exceed $500,000 and that contains the Utilization of Labor Surplus Area Concerns clause, terms that conform substantially to the language of this clause, including this paragraph (c), and to notify the Contracting Officer of the names of subcontractors. 2 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement EXHIBIT A-1 PRIME CONTRACTOR MBE/WBE/DVBE JOB SPECIFIC SUBCONTRACTING PLAN Prime Contractor Name: ---------------------------------------------------------- Address: ------------------------------------------------------------------------- Telephone Number: --------------------------------------------------------------- Description Of Goods Or Services: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following, together with any attachments is submitted as an MBE/WBE/DVBE subcontracting plan. 1. Do you plan to subcontract any portion of the goods or services being quoted, bid or proposed? YES NO -------- -------- 2. If answer to item 1 is Yes, A. What is your overall company MBE/WBE/DVBE program goal? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- B. What is your projected MBE/WBE/DVBE purchases? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- *SEE MBE/WBE/DVBE SUBCONTRACTING PLAN CLAUSE IN AGREEMENT FOR DEFINITION OF MBE, WBE AND DVBE 3 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement 3. If answer to item 1 is No, or if no MBE/WBE/DVBE subcontractors will be utilized where subcontracting has been identified, please explain in detail (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 4. List the principal goods and/or services to be subcontracted to MBE/WBE/DVBEs, should your quotation, bid or proposal be accepted (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 5. Describe what good faith efforts you plan to undertake to ensure that MBE/WBE/DVBEs will have an equitable opportunity to compete for subcontracts to be awarded (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 6. Contractor agrees that it will maintain, if awarded the resulting contract/purchase or work order, all necessary documents and records to support its efforts to achieve its estimated MBE/WBE/DVBE subcontracting goal(s). Contractor also agrees that it will be responsible for identifying, soliciting and qualifying MBE/WBE/DVBE subcontractors. ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 7. The following individual, acting in the capacity of MBE/WBE/DVBE coordinator for contractor, will: *administer the MBE/WBE/DVBE subcontracting plan and *cooperate in any studies or surveys as may be required by PBMS in order to determine the extent of compliance by contractor with the subcontracting plan. NAME: ------------------------------------------------------ TITLE: ----------------------------------------------------- TELEPHONE NUMBER: ------------------------------------------ AUTHORIZED SIGNATURE: -------------------------------------- DATE: --------------------------- 4 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL MOBILE SERVICES MBE/WBE/DVBE SUMMARY SUBCONTRACTING REPORT (Job Specific Results) 1. Reporting Corporation | 2. Contract/Purchase or | 3. This report reflects the or Company (Name, | Work Order Number | utilization of Minority address, city, zip | | Business Enterprise/ and telephone number) | | Women Business Enter- | | prise/Disabled Veterans | | Enterprise (MBE/WBE/ | | DVBE) subcontractors | | for period | | | | ________________ through | | | | ________________________ | | (Please indicate dates) 4. SUBCONTRACT DOLLAR AND PERCENTAGE Ethnicity Actual Cumulative for Period $ | % $ | % Polynesian Female | | Polynesian Male | | Filipino Female | | Filipino Male | | Hispanic Female | | Hispanic Male | | Black Female | | Black Male | | Asian Female | | Asian Male | | Native American Female | | Native American Male | | Multi-Ethnic Female | | Multi-Ethnic Male | | Non-Minority Female | | Disabled Veteran | | *See Attached Definitions Percent of MBE/WBE/DVBE Purchase/Total Purchase 5 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 5. SUBCONTRACT ACHIEVEMENT
Subcontracting Plan Estimate Actual for Period Cumulative MBE WBE DVBE MBE WBE DVBE MBE WBE DVBE Subcontracted Dollars $ $ $ $ $ $ $ $ $ ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Contract/Purchase or Work Order Dollars $ $ --------------------- ----------------------- Subcontracted Percent to Total Dollars % % % % % % % % % ----- ----- ----- ----- ----- ----- ----- ----- -----
6 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 6. MBE/WBE/DVBE Subcontractor(s) (Name, address, city, zip, telephone number), description of goods or service(s) supplied during this reporting and total dollars paid. (Attach additional sheets if necessary) Name_____________________ | _________________________ | _______________________ Address__________________ | _________________________ | _______________________ City, State, Zip_________ | _________________________ | _______________________ Telephone Number___________________ | _________________________ | _______________________ Goods/Service(s)_________ | _________________________ | _______________________ Ethnicity________________ | _________________________ | _______________________ Total Dollars____________ | _________________________ | _______________________ 7. Remarks (Explain if the actual results as identified in items 4 and 5 are below estimated MBE/WBE/DVBE utilization goal submitted as part of this contract/purchase or work order). - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 8. MBE/WBE/DVBE | I hereby certify that | Date Coordinator | the above information | (Name & Title) | is true and correct | (Print or Type) | | | | _______________________ | | _______________________ | _____________________________ | ____________________ | Signature | ________________________|_______________________________|_____________________ | | 9. Approving Officer | I hereby certify that | Date (Name & Title) | the above information | (Print or Type) | is true and correct | _______________________ | | 7 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 _______________________ | | _______________________ | _____________________________ | ____________________ | (Signature) | ________________________|_______________________________|_____________________ 10. This summary report should be mailed promptly to: Pacific Bell Mobile Services Note: Questions and/or MBE/WBE/DVBE Operations Staff requests for assistance Results and Analysis Administrator may be referenced to the 2600 Camino Ramon, Room 1E400 MBE/WBE/DVBE San Ramon, California 94583 Subcontracting Administrator at (510) 823-7048 8 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 EXHIBIT A-3 PRIME CONTRACTOR MBE/WBE/DVBE COMMODITY PRODUCT SUBCONTRACTING PLAN Prime Contractor Name: ---------------------------------------------------------- Address: ------------------------------------------------------------------------ Telephone Number: --------------------------------------------------------------- RFQ/RFB/RFP/RFI Number (if applicable) ------------------------------------------------------------------- Description Of Goods Or Services: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Definition: A commodity (or commercial) product is defined as a unit in regular - ---------- production that is sold in substantial quantities to the general public and/or industry at regular prices. If a company is offering a commodity product, then the subcontracting plan may relate to the company's general production of both commercial and noncommercial products, rather than just specific items being procured under the contract. The following, together with any attachments is submitted as an MBE/WBE/DVBE subcontracting plan. 1. Do you plan to subcontract any portion of the goods or services being quoted, bid or proposed? YES NO -------------- --------------- 2. If answer to item 1 is Yes, A. What is your overall company MBE/WBE/DVBE program goal? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- B. What is your projected MBE/WBE/DVBE purchases? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- *SEE MBE/WBE/DVBE SUBCONTRACTING PLAN CLAUSE IN AGREEMENT FOR DEFINITION OF MBE, WBE AND DVBE 9 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 3. If answer to item 1 is No, or if no MBE/WBE/DVBE subcontractors will be utilized where subcontracting has been identified, please explain in detail (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 4. List the principal goods and/or services to be subcontracted to MBE/WBE/DVBEs, should your quotation, bid or proposal be accepted (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 5. Describe what good faith efforts you plan to undertake to ensure that MBE/WBE/DVBEs will have an equitable opportunity to compete for subcontracts to be awarded (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 6. Contractor agrees that is will maintain, if awarded the resulting contract/purchase or work order, all necessary documents and records to support its efforts to achieve its estimated MBE/WBE/DVBE subcontracting goal(s). Contractor also agrees that it will be responsible for identifying, soliciting and qualifying MBE/WBE/DVBE subcontractors. ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 7. The following individual, acting in the capacity of MBE/WBE/DVBE coordinator for contractor, will: *administer the MBE/WBE/DVBE subcontracting plan *submit summary reports (in the form Exhibit A-4), and *cooperate in any studies or surveys as may be required by PBMS in order to determine the extent of compliance by contractor with the subcontracting plan. NAME: ------------------------------------------------------ TITLE: ----------------------------------------------------- TELEPHONE NUMBER: ------------------------------------------ AUTHORIZED SIGNATURE: -------------------------------------- TYPED/PRINTED NAME: ---------------------------------------- TITLE: DATE: ------------------ ------------------------------ 10 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL MOBILE SERVICES MBE/WBE/DVBE SUMMARY SUBCONTRACTING REPORT (Commodity Results) 1. Reporting Corporation | 2. Contract/Purchase or | 3. This report reflects the or Company (Name, | Work Order Number | utilization of Minority address, city, zip | | Business Enterprise/ and telephone number) | | Women Business Enter- | | prise/Disabled Veterans | | Enterprise (MBE/WBE/ | | DVBE) subcontractors | | for period | | | | ________________ through | | | | ________________________ | | (Please indicate dates) 4. SUBCONTRACT DOLLAR AND PERCENTAGE
Ethnicity Actual Cumulative Ethnicity Actual Cumulative for for Period Period $ | % $ | % $ | % $ | % Polynesian Female | | Asian Female | | Polynesian Male | | Asian Male | | Filipino Female | | Native American Female | | Filipino Male | | Native American Male | | Hispanic Female | | Multi-Ethnic Female | | Hispanic Male | | Multi-Ethnic Male | | Black Female | | Non-Minority Female | | Black Male | | Disabled Veteran | |
*See Attached Definitions Percent of MBE/WBE/DVBE Purchase/Total Purchase 11 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 5. SUBCONTRACT ACHIEVEMENT
Subcontracting Plan Estimate Actual for Period Cumulative MBE WBE DVBE MBE WBE DVBE MBE WBE DVBE MBE/WBE/DVBE Purchases to Sales % % % % % % % % % ----- ----- ----- ----- ----- ----- ----- ----- -----
12 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 6. MBE/WBE/DVBE Subcontractor(s) (Name, address, city, zip, telephone number), description of goods or service(s) supplied during this reporting and total dollars paid. (Attach additional sheets if necessary) Name_____________________ | _________________________ | _______________________ Address__________________ | _________________________ | _______________________ City, State, Zip_________ | _________________________ | _______________________ Telephone Number___________________ | _________________________ | _______________________ Goods/Service(s)_________ | _________________________ | _______________________ Ethnicity________________ | _________________________ | _______________________ Total Dollars____________ | _________________________ | _______________________ 7. Remarks (Explain if the actual results as identified in items 4 and 5 are below estimated MBE/WBE/DVBE utilization goal submitted as part of this contract/purchase or work order). - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 8. MBE/WBE/DVBE | I hereby certify that | Date Coordinator | the above information | (Name & Title) | is true and correct | (Print or Type) | | | | _______________________ | | _______________________ | _____________________________ | ____________________ | Signature | ________________________|_______________________________|_____________________ | | 9. Approving Officer | I hereby certify that | Date (Name & Title) | the above information | (Print or Type) | is true and correct | _______________________ | | 13 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 _______________________ | | _______________________ | _____________________________ | ____________________ | (Signature) | ________________________|_______________________________|_____________________ 10. This summary report should be mailed promptly to: Pacific Bell Mobile Services Note: Questions and/or MBE/WBE/DVBE Operations Staff requests for assistance Results and Analysis Administrator may be referenced to the 2600 Camino Ramon, Room 1E400 MBE/WBE/DVBE San Ramon, California 94583 Subcontracting Administrator at (510) 823-7048 14 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 EXHIBIT B CELLSTAR DESCRIPTION OF PRODUCTS AND SERVICES
- -------------------------------------------------------------------------------- DESCRIPTION ONE TIME MONTHLY PRICE FEE FEE [REDACTED] - -------------------------------------------------------------------------------- 1 LOGISTICS - -------------------------------------------------------------------------------- A Hardware Costs [REDACTED] - -------------------------------------------------------------------------------- B Personnel Costs [REDACTED] - -------------------------------------------------------------------------------- C Assembly Costs [REDACTED] [REDACTED] - -------------------------------------------------------------------------------- D Advance Return and Pick to Ship [REDACTED] - -------------------------------------------------------------------------------- E Fulfillment Costs [REDACTED] - -------------------------------------------------------------------------------- F Returns Processing * . Receiving and Sort [REDACTED] . Triage and return to vendor . Triage and repair/refurb . Restocking Fee - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INVENTORY CARRYING COSTS - -------------------------------------------------------------------------------- A recurring charge, calculated [REDACTED] and billed monthly as a "cost of capital" charged on [REDACTED] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 CREDIT AND COLLECTIONS - -------------------------------------------------------------------------------- A Receivable Maintenance [REDACTED] Costs (calculated on [REDACTED] - -------------------------------------------------------------------------------- B Skid Storage Fee (after [REDACTED] days) [REDACTED] - -------------------------------------------------------------------------------- C Credit and Collection Services [REDACTED] - --------------------------------------------------------------------------------
* In addition, PBMS will be billed for the difference when A stock is written down and for return freight of non PBMS items 1 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 EXHIBIT C PBMS Credit & Collection Costs
- -------------------------------------------------------------- Item Annual Monthly Comment - -------------------------------------------------------------- Collection Analyst [REDACTED] [REDACTED] [REDACTED] A/R Posting Rep Lock Box PBMS DID Line Long Distance D&B Investigation Postage Invoices Credit Applications EDI Transactions AS 400 Business Analyst Sr. Programmer Programmer EDI Specialist EBE @ 20% - -------------------------------------------------------------- Sub-Total - -------------------------------------------------------------- Contingency - -------------------------------------------------------------- TOTAL - -------------------------------------------------------------- Margin - -------------------------------------------------------------- Grand Total - --------------------------------------------------------------
__________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT D MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL PCS PRICE LIST OEM ACCESSORIES FOR MOTOROLA FLARE BATTERIES - -------------------------------------------------------------------------------- SNN4512PB TALK PACK NICD BATTERY - BLACK [REDACTED] SNN4516PB TALK PACK NIMH BATTERY - BLACK SNN4582PB XT TALK PACK NICD BATTERY - BLACK SNN4585PB XT TALK PACK NIMH BATTERY - BLACK SNN4588PB STANDARD NICD BATTERY - BLACK SNN4591PB STANDARD NIMH BATTERY - BLACK SNN4594PB XT SLIM NICD BATTERY - BLACK SNN4597PB XT SLIM NIMH BATTERY - BLACK POWER PLUS TALK AND CHARGE - -------------------------------------------------------------------------------- SLN9933PB ULTRA SAVER/CHARGER LEATHER CASE - -------------------------------------------------------------------------------- LCSXPB LEATHER CASE OEM ACCESSORIES FOR NOKIA 2190 BATTERIES - -------------------------------------------------------------------------------- BBH2SPB 400 MAH NICD SLIM BATTERY BBH1SPB 500 MAH NIMH SLIM BATTERY BBH2HPB 1100 MAH NICD HICAP BATTERY BBH1HPB 1500 MAH NIMH HICAP BATTERY POWER PLUS TALK AND CHARGE - -------------------------------------------------------------------------------- LCH2PB RAPID IN-CAR CHARGER LEATHER CASE - -------------------------------------------------------------------------------- LCSXPB LEATHER CASE OEM ACCESSORIES FOR ERICSSON CH337 BATTERIES - -------------------------------------------------------------------------------- BKB1931001PB 550MAH SLIMLINE NIMH BATTERY BKB1931009PB 950 MAH MIDCAP NIMH BATTERY BKB1931015PB 700 MAH BASIC NICD BATTERY ** BKB193025PB 1000 MAH HICAP NICD BATTERY ** *BKB1931021PB 1200 MAH NIMH BATTERY *BKB193085PB 500 MAH NIMH BATTERY POWER PLUS TALK AND CHARGE - -------------------------------------------------------------------------------- BML1631001PB VEHICLE POWER ADAPTER PLUS ** LEATHER CASE KRY1041032PB FLIP LEATHER POUCH ** NOTE: "*" REPRESENTS NEW SKU "**" REPRESENTS NEW PRICING "PB" SUFFIX ON ABOVE PART NUMBERS REPRESENT PACIFIC BELL CUSTOM PACKAGING. __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT E MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL --------------------------------------- MOBILE SERVICES Purchase Order 4410 Rosewood Drive, Suite 400 --------------------------------------- Pleasanton, CA 94588 PURCHASE ORDER NO. REVISION PAGE Phone (510) 227-2200 Fax (510) 227-2223 --------------------------------------- THIS PURCHASE ORDER NO. MUST APPEAR ON ALL INVOICES, PACKING LISTS, CARTONS AND CORRESPONDENCE RELATED TO THIS ORDER. --------------------------------------- SHIP TO: --------------------------------------- VENDOR: BILL TO: - -------------------------------------------------------------------------------- CUSTOMER ACCT. NO. VENDOR NO. DATE OF ORDER/BUYER REVISED DATE/BUYER - -------------------------------------------------------------------------------- PAYMENT TERMS SHIP VIA F.O.B. - -------------------------------------------------------------------------------- FREIGHT TERMS REQUESTOR/DELIVER TO CONFIRM TO/TELEPHONE - -------------------------------------------------------------------------------- ITEM PART NUMBER/ DELIVERY DATE QUANTITY UNIT UNIT PRICE EXTENSION TAX DESCRIPTION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- APPROVAL: TOTAL ------------------------------ AUTHORIZATION - ------------------------------ ------------------ ------------------------------ Requested By Phone Name ------------------------------ Signature - ------------------------------ ------------------ ------------------------------ Prepared By Phone ------------------------------ Date - -------------------------------------------------------------------------------- 45 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement EXHIBIT F MASTER AGREEMENT NO. P/PS-960163 Assembly Cost Model [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EX-10.38 5 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN EXHIBIT 10.38 CELLSTAR CORPORATION 1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN -------------------------------------------------- (as amended and restated through March 22, 1996) This Plan amends and restates the CellStar Corporation 1993 Stock Option Plan, as previously amended and restated, which first became effective on December 3, 1993. Capitalized terms used herein are defined in Article 2 hereof. To the extent permitted under Rule 16b-3, Sections 162(m) and 422 of the Code, and any other applicable law or regulation, the Committee shall have the power, in its sole discretion, to apply any or all of the amendments effected hereby to outstanding Stock Options previously granted under the Plan; provided that, to the extent that the application of any such amendment to an outstanding Stock Option shall have an Adverse Consequence for the Company and/or a Participant, such amendment shall not apply unless it is specifically approved by the Committee and consented to by the Participant. This Plan shall be effective as of March 22, 1996, subject to stockholder approval of the amendments effected hereby; provided that any Discretionary Amendment shall not be subject to stockholder approval. ARTICLE 1 PURPOSE ------- The purpose of the Plan is to attract and retain key Employees, Nonemployee Directors and Advisors of the Company and its Subsidiaries and to provide such persons with a proprietary interest in the Company through the granting of Stock Options, Stock Appreciation Rights, Restricted Stock, and/or Cash Awards, whether granted singly, in combination, or in tandem. The Plan is designed to (a) increase the interest of such persons inthe welfare of the Company and its Subsidiaries; (b) furnish an incentive to such persons to continue their services for the Company and/or its Subsidiaries; and (c) provide a means through which the Company and its Subsidiaries may attract able persons to enter their employ or serve as Advisors. With respect to Reporting Participants, the Plan and all transactions under the Plan (other than transactions specifically permitted by the Committee pursuant to Sections 6.9 and 8.8 of the Plan) are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee. ARTICLE 2 DEFINITIONS ----------- For purposes of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: 2.1 "Adverse Consequence" means (i) the loss of qualification of a Stock Option for special treatment under Rule 16b-3 or the commencement of a new holding period under such rule; (ii) the disqualification of a Stock Option as an Incentive Stock Option or the repricing of such Stock Option; or (iii) the Company's inability to claim the Section 162(m) Exception with respect to a Stock Option or the repricing of such Stock Option. 2.2 "Advisor" means any person performing advisory or consulting services for the Company or any Subsidiary, with or without compensation, to whom the Company chooses to grant an Award in accordance with the Plan, provided that bona fide services must be rendered by such person and such services shall not be rendered in connection with the offer or sale of securities in a capital raising transaction. 2.3 "Award" means the grant under the Plan of any Stock Options, Stock Appreciation Rights, shares of Restricted Stock, or Cash Award, whether granted singly, in combination, or in tandem (sometimes individually referred to herein as an "Incentive"). 2.4 "Award Agreement" means a written agreement between a Participant and the Company that sets out the terms of the grant of an Award. 2.5 "Award Period" means the period during which one or more Incentives granted under an Award may be exercised. 2.6 "Board" means the Board of Directors of the Company. 2.7 "Cash Award" means an Award granted pursuant to Article 9 of the Plan. 2.8 "Change of Control" means any of the following: (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of the surviving corporation immediately after the merger; (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (iii) approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iv) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals (the "Continuing Directors") who (x) at the effective date of this Plan were directors or (y) become directors after the effective date of this Plan and whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who were directors at the effective date of this Plan or whose election or nomination for election was previously so approved; (v) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7; or (vi) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an aggregate of 15% or more of the voting power of the Company's outstanding voting securities by any person or persons acting as a group (within the meaning of Rule 13d-5 under the Exchange Act) who beneficially owned less than 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan, or the acquisition of beneficial ownership of an additional 5% of the voting power of the Company's outstanding voting securities by any person or group who beneficially owned at least 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan; provided, however, that, -------- ------- notwithstanding the foregoing, an acquisition shall not constitute a Change of Control hereunder if the acquiror is (v) Alan H. Goldfield ("Goldfield"), (w) a trustee or other fiduciary holding securities under an employee benefit plan of the Company and acting in such capacity, (x) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company; (y) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d- 1(b)(1) under the Exchange Act; or (z) any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; and provided further that no Change of Control shall be deemed to have occurred from a transfer of the Company's voting securities by Goldfield to (v) a member of Goldfield's immediate family (within the meaning of Rule 16a-1(e) of the Exchange Act) either during Goldfield's lifetime or by will or the laws of descent and distribution; (w) any trust as to which Goldfield or a member (or members) of his immediate family is the beneficiary; (x) any trust as to which Goldfield is the settlor with sole power to revoke; (y) any entity over which Goldfield has the power, directly or indirectly, to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities, by contract or 2 otherwise; or (z) any charitable trust, foundation or corporation under Section 501(c)(3) of the Code that is funded by Goldfield. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Change of Control," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. 2.9 "Code" means the Internal Revenue Code of 1986, as amended. 2.10 "Committee" means the committee(s) appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan. 2.11 "Common Stock" means the Common Stock, par value, $.01 per share, of the Company or, in the event that the outstanding shares of such Common Stock are hereafter changed into or exchanged for shares of a different stock or security of the Company or another corporation, such other stock or security. 2.12 "Company" means CellStar Corporation, a Delaware corporation. 2.13 "Date of Grant" means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement. 2.14 "Discretionary Amendment" means any amendment to the Plan that does not require stockholder approval. 2.15 "Employee" means any employee (including any employee who is also a director and/or officer) of the Company or its Subsidiaries. 2.16 "Employment Agreement" means an agreement between the Company or any Subsidiary and a Participant, setting forth the terms and conditions of the Participant's employment by the Company or such Subsidiary. For purposes of the Plan, such term shall also be deemed to include any agreement between the Company or any Subsidiary and an Advisor, setting forth the terms and conditions of the Advisor's services for the Company or such Subsidiary. 2.17 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.19 "Fair Market Value" of a share of Common Stock means such value as is determined by the Committee on the basis of such factors as it deems appropriate; provided that, if the Common Stock is traded on a national securities exchange or transactions in the Common Stock are quoted on the NASDAQ National Market System, such value shall be determined by the Committee on the basis of the last reported sale price for the Common Stock on the date for which such determination is relevant, as reported on the national securities exchange or the NASDAQ National Market System, as the case may be. If the Common Stock is not listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, the Committee shall make a determination of Fair Market Value on the basis of the closing bid and asked quotations for such stock on the date for which such determination is relevant (as reported by a recognized stock quotation service) or, in the event that there are no bid or asked quotations for such stock on the date for which such determination is relevant, then on the basis of the mean between the closing bid and asked quotations on the date nearest preceding the date for which such determination is relevant for which such bid and asked quotations were available. In no event shall "Fair Market Value" be less than the par value of the Common Stock. 2.20 "Incentive" shall have the meaning given it in Section 2.3 above. 3 2.21 "Incentive Stock Option" or "ISO" means a Stock Option that by its terms is intended to be treated as an "incentive stock option" within the meaning of Section 422 of the Code. 2.22 "Nonemployee Director" means a member of the Board of Directors of the Company or any Subsidiary who is not an Employee. 2.23 "Non-qualified Stock Option" means any Stock Option that does not qualify as an Incentive Stock Option. 2.24 "Option Exercise Price" means the price that must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock. 2.25 "Option Period" means the period during which a Stock Option may be exercised. 2.26 "Participant" shall mean an Employee, Nonemployee Director or Advisor to whom an Award is granted under this Plan. 2.27 "Plan" means this CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan, as amended from time to time. 2.28 "Reporting Participant" means a Participant who is subject to the reporting requirements of Section 16 of the Exchange Act. 2.29 "Restricted Stock" means shares of Common Stock issued or transferred to a Participant pursuant to this Plan, which shares are subject to the restrictions or limitations set forth in Article 7 of this Plan and in the related Restricted Stock Agreement. 2.30 "Restricted Stock Agreement" means a written agreement between the Company and a Participant with respect to an Award of Restricted Stock. 2.31 "Retirement" means Termination of Service at or after the Company's established retirement age, unless otherwise defined in a particular Award Agreement. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Retirement," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. 2.32 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time. 2.33 "SAR Price" means the price that must be paid by a Participant upon exercise of an SAR, which shall be at least the Fair Market Value of each share of Common Stock covered by the SAR, determined on the Date of Grant of the SAR. 2.34 "Section 162(m)" means Section 162(m) of the Code and the regulations promulgated thereunder from time to time. 2.35 "Section 162(m) Exception" means the exception under Section 162(m) for "qualified performance-based compensation." 2.36 "Stock Appreciation Right" or "SAR" means the right to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares. 4 2.37 "Stock Appreciation Right Agreement" means an agreement between the Company and a Participant setting forth the terms and conditions of an Award of Stock Appreciation Rights. 2.38 "Stock Option" means a Non-qualified Stock Option or an Incentive Stock Option to purchase Common Stock. 2.39 "Stock Option Agreement" means a written agreement between the Company and a Participant setting forth the terms and conditions of an Award of Stock Options. 2.40 "Subsidiary" means a subsidiary corporation of the Company, within the meaning of Section 424(f) of the Code; provided that, with respect to any Awards under the Plan other than Incentive Stock Options, the term "Subsidiary" shall be deemed to include (i) any limited partnership, if the Company or any subsidiary corporation owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (ii) any partnership, if the partners thereof are composed only of the Company, any subsidiary corporation, or any limited partnership listed in item (i) above. 2.41 "Ten Percent Owner" means a person who owns, or is deemed within the meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or its parent (within the meaning of Section 424(e) of the Code) or Subsidiaries). Whether a person is a Ten Percent Owner shall be determined with respect to a Stock Option based on the facts existing immediately prior to the Date of Grant of such Stock Option. 2.42 "Termination of Service" occurs when a Participant who is an Employee, Nonemployee Director or Advisor shall cease to serve in any such capacity for any reason. 2.43 "Total and Permanent Disability" of a Participant means that the Participant is qualified for long-term disability benefits under the Company's disability plan or insurance policy; or, if no such plan or policy is then in existence, that the Participant, because of ill health, physical or mental disability or any other reason beyond his or her control, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee; provided that, with respect ------------- to any Incentive Stock Option, Total and Permanent Disability shall have the meaning given it under the rules governing Incentive Stock Options under the Code. With respect to any Award other than an Incentive Stock Option, to the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Total and Permanent Disability," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. ARTICLE 3 ADMINISTRATION -------------- The Plan shall be administered by a committee appointed by the Board, consisting of at least two members of the Board; provided that, (i) with respect to any Award that is granted to a Reporting Participant, such committee shall consist of at least such number of directors as are required from time to time by Rule 16b-3, and each such committee member shall qualify as a "disinterested person" under Rule 16b-3, if so required; and (ii) with respect to any Award that is also intended to satisfy the requirements of the Section 162(m) Exception, such committee shall consist of at least such number of directors as are required from time to time to satisfy the Section 162(m) Exception, and each such committee member shall qualify as an "outside director" within the meaning of Section 162(m). Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. 5 The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. Subject to the provisions of the Plan, the Committee shall have the sole discretion and authority to determine and designate from time to time the eligible persons to whom Awards will be granted and to determine and interpret the terms and provisions of each Award Agreement, including without limitation the Award Period, the Date of Grant, and such other terms, provisions, limitations, and performance requirements, as are approved by the Committee. The Committee shall determine whether an Award shall include one type of Incentive, two or more Incentives granted in combination, or two or more Incentives granted in tandem (that is, a joint grant where exercise of one Incentive results in cancellation of all or a portion of the other Incentive). Subject to the provisions of the Plan, the Committee shall also have sole discretion and authority to (i) interpret the Plan; (ii) prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan; (iii) modify or amend any Award Agreement or waive any conditions or restrictions applicable to any Stock Option or SAR (or the exercise thereof) or to any shares of Restricted Stock; and (iv) make such other determinations and take such other action as it deems necessary or advisable in the administration of the Plan. Any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties. With respect to restrictions ("mandated restrictions") in the Plan that are based on the requirements of Rule 16b-3, Section 422 of the Code, the Section 162(m) Exception, the rules of any exchange upon which the Company's securities are listed, or any other applicable law, rule or restriction (collectively, "applicable law"), to the extent that any such mandated restrictions are no longer required by applicable law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards. ARTICLE 4 ELIGIBILITY ----------- Any Employee, Nonemployee Director, or Advisor whose judgment, initiative, and efforts contributed or may be expected to contribute to the successful performance of the Company is eligible to participate in the Plan; provided that only Employees shall be eligible to receive Incentive Stock Options; and provided further that no member of the Committee shall be eligible to participate in the Plan. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee, Nonemployee Director, or Advisor. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine; provided that no Participant may receive during any fiscal year of the Company Awards in the form of shares of Common Stock, including Stock Options, SARs or Restricted Stock, the aggregate of which shall exceed 250,000 shares of Common Stock. Except as required by this Plan, Awards granted at different times need not contain similar provisions. The Committee's determinations under the Plan (including without limitation determinations of which persons, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Employees, Nonemployee Directors and/or Advisors who receive, or are eligible to receive, Awards under the Plan. ARTICLE 5 SHARES SUBJECT TO PLAN ---------------------- The number of shares of Common Stock that may be issued pursuant to Awards granted under the Plan is 1,500,000 (as may be adjusted in accordance with Articles 12 and 13 hereof). Such shares of Common Stock may be made available from either authorized but unissued Common Stock or Common Stock held by the Company in its 6 treasury. To the extent permitted by the stockholder approval requirements of Rule 16b-3, Sections 162(m) and 422 of the Code, and any other applicable law or regulation, shares of Common Stock previously subject to Awards which are forfeited, terminated, settled in cash in lieu of Common Stock, or exchanged for Awards that do not involve Common Stock, or that are subject to expired and unexercised Stock Options or SARs, shall immediately become available for Awards under the Plan. During the term of this Plan, the Company will at all times reserve and keep available a number of shares of Common Stock sufficient to satisfy the requirements of this Plan. ARTICLE 6 STOCK OPTIONS ------------- 6.1 GRANT OF STOCK OPTIONS. The Committee may, in its sole discretion, grant Stock Options in accordance with the terms and conditions set forth in the Plan. The grant of a Stock Option shall be evidenced by a Stock Option Agreement setting forth the Date of Grant, the total number of shares purchasable pursuant to the Stock Option, the Option Period, the vesting schedule (if any), and such other terms and provisions as are consistent with the Plan. 6.2 OPTION EXERCISE PRICE. The Option Exercise Price for any Stock Option shall be determined by the Committee and shall be no less than One Hundred Percent (100%) of the Fair Market Value per share of Common Stock on the Date of Grant; provided that, with respect to any Incentive Stock Option that is granted to a Ten Percent Owner, the Option Exercise Price shall be at least 110% of the Fair Market Value of the Common Stock on the Date of Grant. 6.3 OPTION PERIOD. The Option Period for any Stock Option shall be determined by the Committee; provided that no portion of any Stock Option may be exercised after the expiration of ten (10) years from its Date of Grant; and provided further that, with respect to any Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the Date of Grant. 6.4 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock Options under the Plan to any Employee which would permit the aggregate Fair Market Value (determined on the Date of Grant) of the Common Stock with respect to which Incentive Stock Options (under this and any other plan of the Company and its Subsidiaries or parent) are exercisable for the first time by such Employee during any calendar year to exceed $100,000. To the extent that any Stock Option is granted under the Plan that is first exercisable in excess of the foregoing limitations, such Stock Option shall be deemed to be a Non-qualified Stock Option. 6.5 EXERCISE OF STOCK OPTIONS. Subject to the terms, conditions, and restrictions of the Plan, each Stock Option may be exercised in accordance with the terms of the Stock Option Agreement pursuant to which the Stock Option is granted. If the Committee imposes conditions upon exercise of any Stock Option, the Committee may, in its sole discretion, accelerate the date on which all or any portion of the Stock Option may be exercised; provided that, the Committee shall not, without the Participant's consent, accelerate any Incentive Stock Option if such acceleration would disqualify such Stock Option as an Incentive Stock Option. Notwithstanding anything in the Plan to the contrary, to the extent required by Rule 16b-3, a Reporting Participant may not exercise a Stock Option or Stock Appreciation Right until at least six month have expired from the "date of grant" (within the meaning of Rule 16b-3). Subject to such administrative regulations as the Committee may from time to time adopt, a Stock Option will be deemed exercised for purposes of the Plan when (i) written notice of exercise has been received by the Company at its principal office (which notice shall set forth the number of shares of Common Stock with respect to which the Stock Option is to be exercised and the date of exercise thereof, which shall be at least three (3) days after giving such notice, unless an earlier time shall have been mutually agreed upon) and (ii) payment of the Option Exercise Price is received by the Company in accordance with Section 6.6 below; provided that, with respect to a cashless exercise of any Stock Option (in accordance with clause (c) of Section 6.6 below), such Stock Option will 7 be deemed exercised for purposes of the Plan on the date of sale of the shares of Common Stock received upon exercise. No Stock Option may be exercised for a fractional share of Common Stock. 6.6 PAYMENT OF OPTION EXERCISE PRICE. The Option Exercise Price may be paid as follows: (a) in cash or by certified check, bank draft, or money order payable to the order of the Company, (b) with Common Stock (including Restricted Stock), valued at its Fair Market Value on the date of exercise, (c) by delivery (including by FAX) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan proceeds necessary to pay such purchase price, and/or (d) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted Stock are tendered as consideration for the exercise of a Stock Option, a number of shares of Common Stock issued upon the exercise of the Stock Option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted. Upon payment of all amounts due from the Participant, the Company shall cause certificates for the Common Stock then being purchased to be delivered to the Participant (or the person exercising the Participant's Stock Option in the event of his death) at its principal business office within ten (10) business days after the exercise. If the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, the Participant's right to purchase such Common Stock may be terminated by the Company. 6.7 LIMITATION ON INCENTIVE STOCK OPTION CHARACTERIZATION. To the extent that any Stock Option fails to qualify as an Incentive Stock Option, such Stock Option will be considered a Non-qualified Stock Option. 6.8 TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise permitted by the Committee, in its sole discretion, in the event of Termination of Service of a Participant, any Stock Options held by such Participant shall be exercisable as follows: (a) Termination Due to Death or Total and Permanent Disability. In the event of a Participant's Termination of Service due to death or Total and Permanent Disability, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of the Participant's death or Total and Permanent Disability (as applicable), for a period of twelve (12) months after the Participant's death or Total and Permanent Disability (as applicable) or until the expiration of the original Option Period (if sooner). (b) Termination Due to Retirement. In the event of a Participant's Termination of Service due to Retirement, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of the Participant's Retirement, for a period of three (3) months after the date of the Participant's Retirement or until the expiration of the original Option Period (if sooner). (c) Termination for Reasons Other than Death, Total and Permanent Disability, or Retirement. In the event of a Participant's Termination of Service for any reason other than death, Total and Permanent Disability, or Retirement, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of such Termination of Service, for a period of thirty (30) days after the date of such Termination of Service or until the expiration of the original Option Period (if sooner). 6.9 TRANSFERABILITY OF STOCK OPTIONS. 8 (a) Incentive Stock Options. Incentive Stock Options may not be transferred or assigned other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant's legally authorized representative, and each Stock Option Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in this Section 6.9(a) that is not required for compliance with Section 422 of the Code. (b) Non-qualified Stock Options. (1) Participants Other Than Reporting Participants. With respect to Non-qualified Stock Options granted hereunder to any Participant who is not a Reporting Participant, the Committee may, in its sole discretion, provide in any Stock Option Agreement (or in an amendment to any existing Stock Option Agreement) such provisions regarding transferability of the Non- qualified Stock Options as the Committee, in its sole discretion, deems appropriate. (2) Reporting Participants. Except as may be specified by the Committee in accordance with the following paragraph, a Non- qualified Stock Option granted to a Reporting Participant may not be transferred or assigned other than by will or the laws of descent and distribution or pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of ERISA, or the rules thereunder. The designation by a Reporting Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may, in its sole discretion, provide in any Stock Option Agreement (or in an amendment to any existing Stock Option Agreement) that Non-qualified Stock Options granted hereunder to a Reporting Participant may be transferred to members of the Reporting Participant's immediate family, trusts for the benefit of such immediate family members and partnerships in which such immediate family members are the only partners, provided that there cannot be any consideration for the transfer. The Committee may waive or modify any limitation contained in this Section 6.9(b)(2) that is not required from compliance with Rule 16b-3. ARTICLE 7 RESTRICTED STOCK ---------------- 7.1 GRANT OF RESTRICTED STOCK. The Committee may, in its sole discretion, grant Restricted Stock Awards in accordance with the terms and conditions set forth in the Plan. The grant of an Award of Restricted Stock shall be evidenced by a Restricted Stock Agreement setting forth (i) the Date of Grant, (ii) the number of shares of Restricted Stock awarded, (iii) the price, if any, to be paid by the Participant for such Restricted Stock, (iv) the time or times within which such Award may be subject to forfeiture, (v) specified performance goals, or other criteria, if any, that the Committee determines must be met in order to remove any restrictions (including vesting) on such Award, and (vi) such other terms and provisions as are consistent with the Plan. The provisions of Restricted Stock Awards need not be the same with respect to each Participant. 7.2 RESTRICTIONS AND CONDITIONS. Each Restricted Stock Award shall confer upon the recipient thereof the right to receive a specified number of shares of Common Stock in accordance with the terms and conditions of each Participant's Restricted Stock Agreement and the restrictions and conditions set forth below: (a) The shares of Common Stock awarded hereunder to a Participant shall be restricted for a period of time (the "Restriction Period") to be determined by the Committee for each Participant at the time of the Award. The restrictions shall prohibit the sale, transfer, pledge, assignment or other encumbrance 9 of such shares and shall provide for possible reversion thereof to the Company in accordance with subparagraph (f) during the Restriction Period. The Restriction Period shall commence on the Date of Grant and, unless otherwise established by the Committee in the Restricted Stock Agreement, shall expire upon satisfaction of the conditions set forth in the Award Agreement, which conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) any other factor, as determined by the Committee in its sole discretion. The Committee may, in its sole discretion, remove any or all of the restrictions on such Restricted Stock whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Award, such action is appropriate. (b) From the Date of Grant of a Restricted Stock Award, the Participant shall have, with respect to his or her shares of Restricted Stock, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon, subject to forfeiture of such rights, as provided in subparagraph (f) below. (c) Each Participant who is awarded Restricted Stock shall be issued a stock certificate or certificates in respect of such shares of Common Stock, which shall be registered in the name of the Participant, but shall be delivered by the Participant to the Company together with a stock power endorsed in blank. Each such certificate shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, substantially in the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS AND CONDITIONS SET FORTH IN THE CELLSTAR CORPORATION 1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN AND IN A RELATED AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND CELLSTAR CORPORATION. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE AT THE PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF, AND WILL BE FURNISHED WITHOUT CHARGE UPON WRITTEN REQUEST BY THE RECORD HOLDER, TO CELLSTAR CORPORATION, 1730 BRIERCROFT COURT, CARROLLTON, TEXAS 75006. Each Restricted Stock Agreement shall require that (i) each Participant, by his or her acceptance of Restricted Stock, shall irrevocably grant to the Company a power of attorney to transfer any shares so forfeited to the Company and agrees to execute any documents requested by the Company in connection with such forfeiture and transfer, and (ii) such provisions regarding returns and transfers of stock certificates with respect to forfeited shares of Common Stock shall be specifically performable by the Company in a court of equity or law. (d) Upon the lapse of a Restriction Period, the Company will return the stock certificates representing shares of Common Stock with respect to which the restrictions have lapsed to the Participant or his or her legal representative, and pursuant to the instruction of the Participant or his or her legal representative will issue a certificate for such shares that does not bear the legend set forth in subparagraph (c) above. (e) Any other securities or assets (other than ordinary cash dividends) that are received by a Participant with respect to shares of Restricted Stock awarded to such Participant, which shares are still subject to restrictions established in accordance with subparagraph (a) above, will be subject to the same restrictions and will be delivered by the Participant to the Company as provided in subparagraph (c) above. 10 (f) Subject to the provisions of the particular Award Agreement, and unless otherwise permitted by the Committee in its sole discretion, upon Termination of Service for any reason during the Restriction Period, any nonvested shares of Restricted Stock held by such Participant shall be forfeited by the Participant. In the event a Participant has paid any consideration to the Company for forfeited Restricted Stock, the Company shall, as soon as practicable after the event causing forfeiture (but in any event within 5 business days), pay to the Participant, in cash, an amount equal to the total consideration paid by the Participant for such forfeited shares. Upon any forfeiture, all rights of a Participant with respect to the forfeited shares of Restricted Stock shall cease and terminate, without any further obligation on the part of the Company. 7.3 NOTICE TO COMPANY OF SECTION 83(B) ELECTION. Any Participant who exercises an election under Section 83(b) of the Code to have his or her receipt of shares of Restricted Stock taxed currently, without regard to restrictions, must give notice to the Company of such election immediately upon making such election. Any such election must be made within 30 days after the effective date of issuance and cannot be revoked except with the consent of the Internal Revenue Service. ARTICLE 8 STOCK APPRECIATION RIGHTS ------------------------- 8.1 GRANTS OF SARS. The Committee may, in its sole discretion, grant Stock Appreciation Rights in accordance with the terms and conditions set forth in the Plan. Each SAR Agreement may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as are determined by the Committee in its sole discretion. An SAR may be granted in combination with, in addition to, or completely independent of, a Stock Option or any other Award. An SAR shall entitle a Participant to surrender to the Company all or a portion of the SAR in exchange for an amount equal to the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the SAR Price, multiplied by the total number of shares of Common Stock with respect to which the SAR shall have been exercised. 8.2 SAR PRICE. The SAR Price for any share of Common Stock subject to an SAR shall be no less than One Hundred Percent (100%) of the Fair Market Value of the share on the Date of Grant. 8.3 AWARD PERIOD. Subject to Section 8.9 below, the Award Period for any Stock Appreciation Right shall be determined by the Committee; provided that no portion of any Stock Appreciation Right may be exercised after the expiration of ten (10) years from its Date of Grant 8.4 FORM OF PAYMENT. In the discretion of the Committee, the Company may satisfy its payment obligation upon a Participant's exercise of an SAR (i) in cash, (b) in shares of Common Stock valued at their Fair Market Value on the date of exercise, or (c) in part with cash and in part with shares of Common Stock. 8.5 EXERCISE OF SARS. Subject to the following paragraph, each Stock Appreciation Right shall be exercisable in accordance with the terms of the Stock Appreciation Rights Agreement pursuant to which the Stock Appreciation Right is granted. Subject to the conditions of this Section 8.5 and such administrative regulations as the Committee may from time to time adopt, an SAR may be exercised by the delivery of written notice to the Committee setting forth the number of shares of Common Stock with respect to which the SAR is to be exercised and the date of exercise thereof, which shall be at least three (3) days after giving such notice unless an earlier time shall have been mutually agreed upon. On the date of exercise, the Participant shall receive from the Company in exchange therefor payment in an amount equal to the excess (if any) of the Fair Market Value (as of the date of the exercise of the SAR) of one share of Common Stock over the SAR Price per share specified in such SAR, multiplied by the total number of shares of Common Stock of the SAR being surrendered. A transaction under the Plan involving the exercise of an SAR and the receipt of cash in complete or partial settlement of the SAR by a Reporting Participant shall be subject to the satisfaction of all of the following conditions: 11 (a) the Company shall have been subject to and complied with the reporting requirements of Section 13(a) of the Exchange Act for at least one year prior to the exercise of the SAR; (b) the Company regularly releases for publication quarterly and annual summary statements of sales and earnings; (c) any election by the Reporting Participant to receive cash in full or partial settlement of the SAR, as well as the exercise by the insider of the SAR for cash, shall have been made during the period beginning on the third business day following the date of release of the financial data specified in clause (ii) of this sentence and ending on the twelfth day following such date, unless the exercise by the participant of the SAR is for cash and the date of exercise is automatic or fixed in advance under the Plan and is outside the control of the participant, in which case the condition in this subparagraph (c) shall not be applicable; and (d) The SAR must be held for six months from the date of acquisition to the date of cash settlement. If the conditions to the exercise of an SAR by a Reporting Participant contained in Rule 16b-3 are subsequently modified, the foregoing conditions shall automatically be deemed amended to incorporate such modifications. Furthermore, the Committee may waive any limitation contained in this Section that is not required for compliance with Rule 16b-3. 8.6 EFFECT ON STOCK OPTIONS AND VICE-VERSA. Whenever a Stock Appreciation Right is granted in relation to a Stock Option and the exercise of one affects the right to exercise the other, the number of shares of Stock available under the Stock Option to which the Stock Appreciation Right relates will decrease by a number equal to the number of shares of Common Stock for which the Stock Appreciation Right is exercised. Upon the exercise of a Stock Option, any related SAR will terminate as to any number of shares of Common Stock subject to such Stock Appreciation Right that exceeds the total number of shares of Common Stock for which the Stock Option remains unexercised. 8.7 TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise permitted by the Committee, in its sole discretion, in the event of Termination of Service of a Participant, any Stock Appreciation Rights held by such Participant shall be exercisable as set forth below; provided that, whenever a Stock Appreciation Right is granted in relation to a Stock Option and the exercise of one affects the right to exercise the other, the Stock Appreciation Right may be exercised only during the period, if any, within which the Stock Option to which it relates may be exercised. (a) Termination Due to Death or Total and Permanent Disability. In the event of a Participant's Termination of Service due to death or Total and Permanent Disability, such Participant's Stock Appreciation Rights may be exercised, to the extent such Stock Appreciation Rights could have been exercised by the Participant on the date of the Participant's death or Total and Permanent Disability (as applicable), for a period of twelve (12) months after the Participant's death or Total and Permanent Disability (as applicable) or until the expiration of the original Award Period (if sooner). (b) Termination Due to Retirement. In the event of a Participant's Termination of Service due to Retirement, such Participant's Stock Appreciation Rights may be exercised, to the extent such Stock Appreciation Rights could have been exercised by the Participant on the date of the Participant's Retirement, for a period of three (3) months after the date of the Participant's Retirement or until the expiration of the original Award Period (if sooner). (c) Termination for Reasons Other than Death, Total and Permanent Disability, or Retirement. In the event of a Participant's Termination of Service for any reason other than death, Total and Permanent Disability, or Retirement, such Participant's Stock Appreciation Rights may be exercised, to the extent such Stock Appreciation Rights could have been exercised on the date of such Termination of Service, for a period of thirty (30) days after the date of such Termination of Service or until the expiration of the original Award Period (if sooner). 12 8.8 TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. (a) Participants Other Than Reporting Participants. Subject to Section 8.9 below, with respect to SARs granted hereunder to any Participant who is not a Reporting Participant, the Committee may, in its sole discretion, provide in any Stock Appreciation Rights Agreement (or in an amendment to any existing Stock Appreciation Rights Agreement) such provisions regarding transferability of the SARs as the Committee, in its sole discretion, deems appropriate. (b) Reporting Participants. Subject to Section 8.9 below, and except as may be specified by the Committee in accordance with the following paragraph, a Stock Appreciation Right granted to a Reporting Participant may not be transferred or assigned other than by will or the laws of descent and distribution or pursuant to the terms of a qualified domestic relations order, as defined by the Code or Title I of ERISA, or the rules thereunder. The designation by a Reporting Participant of a beneficiary will not constitute a transfer of the SAR. Subject to Section 8.9 below, the Committee may, in its sole discretion, provide in any Stock Appreciation Rights Agreement (or in an amendment to any existing Stock Appreciation Rights Agreement) that Stock Appreciation Rights granted hereunder to a Reporting Participant may be transferred to members of the Reporting Participant's immediate family, trusts for the benefit of such immediate family members and partnerships in which such immediate family members are the only partners, provided that there cannot be any consideration for the transfer. The Committee may waive or modify any limitation contained in this Section 8.8(b) that is not required from compliance with Rule 16b-3. 8.9 TANDEM INCENTIVE STOCK OPTION - STOCK APPRECIATION RIGHT. Whenever an Incentive Stock Option and a Stock Appreciation Right are granted together and the exercise of one affects the right to exercise the other, the following requirements shall apply: (a) The Stock Appreciation Right shall expire no later than the expiration of the underlying Incentive Stock Option; (b) The Stock Appreciation Right may be for no more than the difference between the Stock Option Exercise Price of the underlying Incentive Stock Option and the Fair Market Value of the Common Stock subject to the underlying Incentive Stock Option at the time the SAR is exercised; (c) The Stock Appreciation Right is transferable only when the underlying Incentive Stock Option is transferable, and under the same conditions; (d) The Stock Appreciation Right may be exercised only when the underlying Incentive Stock Option is eligible to be exercised; and (e) The Stock Appreciation Right may be exercised only when the Fair Market Value of the Common Stock subject to the underlying Incentive Stock Option exceeds the Option Exercise Price of the underlying Incentive Stock Option. ARTICLE 9 CASH AWARDS ----------- 9.1 GRANT OF CASH AWARDS. The Committee may, in its sole discretion, grant Cash Awards in accordance with the terms and conditions set forth in the Plan. Each related Award Agreement shall set forth (i) the amount of the Cash Award, (ii) the time or times within which such Award may be subject to forfeiture, if any, (iii) specified performance goals, or other criteria, if any, as the Committee may determine must be met in order to 13 remove any restrictions (including vesting) on such Award, and (iv) any other terms, limitations, restrictions, and conditions of the Incentive that are consistent with this Plan. The Award Agreement shall also set forth the vesting period for the Cash Award, if any, which shall commence on the Date of Grant and, unless otherwise established by the Committee in the Award Agreement, shall expire upon satisfaction of the conditions set forth in the Award Agreement; such conditions may provide for vesting based on (i) length of continuous service, (ii) achievement of specific business objectives, (iii) increases in specified indices, (iv) attainment of specified growth rates, or (v) other comparable measurements of Company performance, as may be determined by the Committee in its sole discretion. 9.2 TERMINATION OF SERVICE. Subject to the provisions of the particular Award Agreement, and unless otherwise permitted by the Committee, in its sole discretion, upon Termination of Service for any reason during a vesting period (if any), the nonvested portion of a Cash Award shall be forfeited by the Participant. Upon any forfeiture, all rights of a Participant with respect to the forfeited Cash Award shall cease and terminate, without any further obligation on the part of the Company. 9.3 FORM OF PAYMENT. In the sole discretion of the Committee, the Company may satisfy its obligation under a Cash Award by the distribution of that number of shares of Common Stock, Stock Options, or Restricted Stock, or any combination thereof, having an aggregate Fair Market Value (as of the date of payment) equal to the amount of cash otherwise payable to the Participant, with a cash settlement to be made for any fractional share interests, or the Company may settle such obligation in part with shares of Common Stock and in part with cash. If required by Rule 16b-3 at the time of distribution, any shares of Common Stock distributed to a Reporting Participant must be held by such Participant for at least six months from the date of distribution. ARTICLE 10 AMENDMENT OR DISCONTINUANCE --------------------------- The Plan may be amended or discontinued by the Board, or, if the Board has specifically delegated this authority to the Committee, by the Committee, without the approval of the stockholders; provided that no amendment shall be made without approval of the stockholders of the Company if such approval is required under the Code, Rule 16b-3, the requirements of any exchange upon which the Company's securities are listed, or any other applicable law or regulation. In addition, no termination or amendment of the Plan may, without the consent of the Participant to whom any Award has theretofore been granted, adversely affect the rights of such Participant with respect to such Award. ARTICLE 11 TERM ---- Unless sooner terminated by action of the Board, the Plan will terminate on December 3, 2003. ARTICLE 12 CAPITAL ADJUSTMENTS ------------------- If at any time while the Plan is in effect, or while unexercised Stock Options or SARs or unvested shares of Restricted Stock are outstanding, there shall be any increase or decrease in the number of issued and outstanding shares of Common Stock resulting from (1) the declaration or payment of a stock dividend, (2) any recapitalization resulting in a stock split-up, combination, or exchange of shares of Common Stock, or (3) other increase or decrease in such shares effected without receipt of consideration by the Company, then and in such event: (a) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under the Plan and in the maximum number of shares of Common Stock 14 then subject to being awarded to a Participant, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock shall continue to be subject to being so awarded; (b) Appropriate adjustments shall be made in the number of shares of Common Stock purchasable under outstanding, unexercised Stock Options and the Option Exercise Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Exercise Price; (c) Appropriate adjustments shall be made in the number of shares of Common Stock subject to outstanding, unexercised SARs and the SAR Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; and (d) Appropriate adjustments shall be made in the number of outstanding shares of Restricted Stock with respect to which restrictions have not yet lapsed prior to any such change. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, (i) the number, or Option Exercise Price, of shares of Common Stock then subject to outstanding Stock Options granted under the Plan, (ii) the number, or SAR Price, of SARs then subject to outstanding SARs granted under the Plan, or (iii) the number of outstanding shares of Restricted Stock. Upon the occurrence of each event requiring an adjustment with respect to Stock Options, SARs, or shares of Restricted Stock, the Company shall mail to each affected Participant its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant. ARTICLE 13 RECAPITALIZATION, MERGER AND CONSOLIDATION ------------------------------------------ (a) The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company's capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) to which a holder of the number of shares of Common Stock subject to the Incentive would have been entitled. (c) In the event of any merger or consolidation pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised or unvested portions of outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving or consolidated company that were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives be thereafter pertain to such stock, securities, cash, or property in accordance with their terms (subject to subparagraph (d) below). Notwithstanding the foregoing, however, all such Incentives may be cancelled by the Board as of the effective date of any such 15 reorganization, merger, or consolidation, by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the exercise during the thirty (30) day period next preceding such effective date of any outstanding Stock Options or SARs, whether or not vested in accordance with their original terms, and by waiving all restrictions on outstanding shares of Restricted Stock. (d) In the event of a Change of Control, then, notwithstanding any other provision in this Plan to the contrary, all unmatured installments of Incentives outstanding shall thereupon automatically be accelerated and exercisable in full, and all restrictions and/or performance goals with respect to any Incentive shall be deemed satisfied. The determination of the Committee that any of the foregoing conditions has been met shall be binding and conclusive on all parties. ARTICLE 14 LIQUIDATION OR DISSOLUTION -------------------------- In case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant may thereafter receive upon exercise of any Option or SAR (in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive) the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such), then in such event the exercise prices then in effect with respect to any outstanding Stock Options or SARs shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company's Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution. ARTICLE 15 INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS ---------------------------------------- Stock Options, SARs and shares of Restricted Stock may be granted under the Plan from time to time in substitution for options, stock appreciation rights or shares of restricted stock held by employees of a corporation who become or are about to become Employees of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of stock of the employing corporation. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options, stock appreciation rights or shares of restricted stock in substitution for which they are granted. ARTICLE 16 MISCELLANEOUS PROVISIONS ------------------------ 16.1 INVESTMENT INTENT. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution. 16.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary. 16 16.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation. 16.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein. 16.5 COMPLIANCE WITH SECURITIES LAWS AND OTHER RULES AND REGULATIONS. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall have no obligation to sell or issue shares of Common Stock under any Incentive if the Committee determines, in its sole discretion, that issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority (including Section 16 of the Exchange Act) or any securities exchange or other forum in which shares of Common Stock are traded; and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation. 16.6 WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF ISO HOLDING PERIOD. (a) Condition Precedent. Whenever shares of Common Stock are to be issued pursuant an Award, the Company shall have the right to require the Participant to remit to the Company an amount sufficient to satisfy federal, state, local or other withholding tax requirements prior to the delivery of any certificate or certificates for such shares of Common Stock. (b) Manner of Satisfying Withholding Obligation. When a Participant is required to pay to the Company an amount required to be withheld under applicable tax laws in connection with an Award, such payment may be made (i) in cash, (ii) by check, (iii) if permitted by the Committee, by delivery to the Company of shares of Common Stock already owned by the Participant having a Fair Market Value on the date the amount of tax to be withheld is to be determined (the "Tax Date") equal to the amount required to be withheld, (iv) with respect to Stock Options, through the withholding by the Company ("Company Withholding") of a portion of the shares of Common Stock acquired upon the exercise of the Stock Options (provided that, with respect to any Stock Option held by a Reporting Participant, at least six months has elapsed between the Date of Grant of such Stock Option and the exercise involving tax withholding) having a Fair Market Value on the Tax Date equal to the amount required to be withheld, or (v) in any other form of valid consideration, as permitted by the Committee in its discretion; provided that a Reporting Participant shall not be permitted to satisfy his or her withholding obligation through Company Withholding unless required to do so by the Committee, in its sole discretion. The Committee may waive or modify any limitation contained in this Section that is not required for compliance with Rule 16b-3. (c) Notice of Disposition of Stock Acquired Pursuant to Incentive Stock Options. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code. 17 16.7 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company. 16.8 LEGEND. Each certificate representing shares of Common Stock issued to a Participant pursuant to the Plan shall bear the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof and the applicable security laws (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed): On the face of the certificate: "Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate." On the reverse: "The shares of stock evidenced by this certificate are subject to and transferrable only in accordance with that certain CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan, as amended from time to time, a copy of which is on file at the principal office of the Company in Carrollton, Texas. No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan. By acceptance of this certificate, any holder, transferee or pledge hereof agrees to be bound by all of the provisions of said Plan." Insert the following legend on the certificate if the shares were not issued in a transaction registered under the applicable federal and state securities laws: "Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company." A copy of this Plan shall be kept on file in the principal office of the Company in Dallas, Texas. IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of March 22, 1996, by its President and Secretary pursuant to prior action taken by the Board. CELLSTAR CORPORATION By: /s/ Terry S. Parker ----------------------------- President Attest: /s/ Elaine Flud Rodriguez - ------------------------- Secretary 18 EX-10.39 6 AMENDED AND RESTATED ANNUAL INCENTIVE COMPENSATION EXHIBIT 10.39 CELLSTAR CORPORATION AMENDED AND RESTATED ANNUAL INCENTIVE COMPENSATION PLAN This Plan amends and restates the CellStar Corporation Annual Incentive Compensation Plan, which first became effective on December 1, 1994. Capitalized terms used herein are defined in Article II hereof. To the extent permitted under Rule 16b-3, Section 162(m), and any other applicable law or regulation, the Committee shall have the power, in its sole discretion, to apply any or all of the amendments effected hereby to outstanding Awards previously granted under the Plan; provided that, to the extent that the application of any such amendment to an outstanding Award shall have an Adverse Consequence for the Company and/or a Participant, such amendment shall not apply unless it is specifically approved by the Committee and consented to by the Participant. The Plan shall be effective as of March 22, 1996, subject to stockholder approval of the amendments effected hereby; provided that any Discretionary Amendment shall not be subject to stockholder approval. ARTICLE I PURPOSE ------- The purpose of the Plan is to recognize the contributions to the growth, success, and profitability of the Company and its Subsidiaries provided by key employees of the Company through the awarding of incentive compensation. The Plan is designed to (a) increase the interest of the key employees in the welfare of the Company and its Subsidiaries; (b) furnish an incentive to such employees to continue their services for the Company and/or its Subsidiaries; and (c) provide a means by which the Company and its Subsidiaries may attract able persons to enter their employ. The Plan provides for incentive payments to certain key employees of the Company and its Subsidiaries based on the achievement of preestablished Performance Goals. Incentive Compensation payable pursuant to certain Awards under the Plan is intended to be deductible by the Company pursuant to the Section 162(m) Exception. With respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3, to the extent such Rule is applicable. To the extent that any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee. ARTICLE II DEFINITIONS ----------- For purposes of this Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: "Adverse Consequence" means (i) the loss of qualification of an Award for special treatment under Rule 16b-3 or the commencement of a new holding period under such rule; or (ii) the Company's inability to claim the Section 162(m) Exception with respect to an Award. "Annual Incentive Pool" means, with respect to any Fiscal Year, the amount, if any, equal to the percentage of Earnings for the Fiscal Year in excess of the Corporate Threshold for the Fiscal Year, as specified in accordance with Section 5.1 below. "Award" means the grant by the Committee to an employee of the Company or its Subsidiaries of the right to receive Incentive Compensation under the Plan. "Award Agreement" means a written agreement between a Participant and the Company that sets out the terms of the grant of an Award. "Board" means the Board of Directors of the Company. "Cause" includes (a) any act of dishonesty or moral turpitude (including, without limitation, any act involving a felony or fraud or that ceases or reasonably may be expected to cause substantial injury to the Company); or (b) the failure of a Participant to perform his or her duties of employment. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Cause," if such Employment Agreement has been approved by the Compensation Committee of the Board, the definition included in such Employment Agreement shall govern. "Change of Control" means any of the following: (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger; (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (iii) approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iv) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals (the "Continuing Directors") who (x) at the effective date of this Plan were directors or (y) become directors after the effective date of this Plan and whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who were directors at the effective date of this Plan or whose election or nomination for election was previously so approved); (v) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7; or (vi) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an aggregate of 15% or more of the voting power of the Company's outstanding voting securities by any person or persons acting as a group (within the meaning of Rule 13d-5 under the Exchange Act) who beneficially owned less than 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan, or the acquisition of beneficial ownership of an additional 5% of the voting power of the Company's outstanding voting securities by any person or group who beneficially owned at least 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan; provided, however, that, notwithstanding the foregoing, an acquisition shall not - -------- ------- constitute a Change of Control hereunder if the acquiror is (v) Alan H. Goldfield ("Goldfield"), (w) a trustee or other fiduciary holding securities under an employee benefit plan of the Company and acting in such capacity, (x) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company; (y) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act; or (z) any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; and provided further that no change of control shall be deemed to have occurred from a transfer of the Company's voting securities by Goldfield to (v) a member of Goldfield's immediate family (within the meaning of Rule 16a-1(e) of the Exchange Act) either during Goldfield's lifetime or by will or the laws of descent and distribution; (w) any trust as to which Goldfield or a member (or members) of his immediate family is the beneficiary; (x) any trust as to which Goldfield is the settlor with sole power to revoke; (y) any entity over which Goldfield has the power, directly or indirectly, to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities, by contract or otherwise; or (z) any charitable trust, foundation or corporation under Section 501(c)(3) of the Code that is funded by Goldfield. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Change of Control," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee(s) appointed or designated by the Board to administer the Plan in accordance with Article III. 2 "Common Stock" means the Common Stock, par value, $.01 per share, of the Company or, in the event that the outstanding shares of such Common Stock are hereafter changed into or exchanged for shares of a different stock or security of the Company or another corporation, such other stock or security. "Company" means CellStar Corporation, a Delaware corporation. "Corporate Threshold" means, for any Fiscal Year, the minimum level of Earnings that must be realized by the Company for the Fiscal Year in order to establish an Annual Incentive Pool for that Fiscal Year, as determined by the Committee in accordance with Section 5.2 below. "Disability" or "Disabled" means that the Participant is qualified for long-term disability benefits under the Company's disability plan or insurance policy; or, if no such plan or policy is then in existence, that the Participant, because of ill health, physical or mental disability or any other reason beyond his or her control, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Disability" or "Disabled," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. "Discretionary Amendment" means any amendment to the Plan that does not require stockholder approval. "Earnings" means the earnings of the Company before income taxes and extraordinary items, but after accrual for the expense of Awards under the Plan. "Employment Agreement" means an agreement, if any, between the Company or any Subsidiary and a Participant, setting forth the terms and conditions of the Participant's employment by the Company or such Subsidiary. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" of a share of Common Stock means such value as is determined by the Committee on the basis of such factors as it deems appropriate; provided that, if the Common Stock is traded on a national securities exchange or transactions in the Common Stock are quoted on the NASDAQ National Market System, such value shall be determined by the Committee on the basis of the last reported sale price for the Common Stock on the date for which such determination is relevant as reported on the national securities exchange or the NASDAQ National Market System, as the case may be. If the Common Stock is not listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, the Committee shall make a determination of Fair Market Value on the basis of the closing bid and asked quotations for such stock on the date for which such determination is relevant (as reported by a recognized stock quotation service) or, in the event that there are no bid or asked quotations for such stock on the date for which such determination is relevant, then on the basis of the mean between the closing bid and asked quotations on the date nearest preceding the date for which such determination is relevant for which such bid and asked quotations were available. In no event shall "Fair Market Value" be less than the par value of the Common Stock. "Fiscal Year" means the fiscal year of the Company, which is the 12-month period beginning on each December 1, and ending on the next November 30. "Good Reason" means that, without a Participant's written consent, the Company (a) assigns the Participant duties for which the Participant is not reasonably equipped by his or her skills and experience, (b) reduces the base salary of the Participant, (c) requires the Participant to be based anywhere other than the Company's offices located in the greater Dallas-Fort Worth area, or (d) terminates benefit or compensation plans or reduces or limits the Participant's participation therein relative to the participation level of other employees of similar positions and titles. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Good Reason," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. 3 "Incentive Compensation" means the amount of performance-based compensation payable under the Plan for a Fiscal Year to a Participant equal to the Participant's Allocation for such Participant multiplied by the Annual Incentive Pool for such Fiscal Year; provided, however, that in no event shall a Participant's Incentive Compensation for any Fiscal Year exceed $1,000,000. "Participant" shall mean a key employee of the Company or a Subsidiary selected by the Committee to participate in the Plan. "Participant's Allocation" means a Participant's allocable percentage of the Annual Incentive Pool for any Fiscal Year, as determined by the Committee in accordance with Section 5.6 below. "Performance Goals" means the performance measures established by the Committee for each Participant for any Performance Period in accordance with Sections 5.2 - 5.4 of the Plan. "Plan" means this CellStar Corporation Amended and Restated Annual Incentive Compensation Plan, as amended from time to time. "Reporting Participant" means a Participant who is subject to the reporting requirements of Section 16 of the Exchange Act. "Retirement" means termination of a Participant's employment at or after the Company's established retirement age, unless otherwise defined in a particular Award Agreement. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Retirement," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time. "Section 162(m)" means Section 162(m) of the Code and the regulations promulgated thereunder from time to time. "Section 162(m) Exception" means the exception under Section 162(m) for "qualified performance-based compensation." "Stock-Based Compensation" means any Options or shares of Common Stock or Restricted Stock received by a Participant in lieu of cash compensation pursuant to the terms of the Company's 1993 Amended and Restated Long-Term Compensation Plan. "Subsidiary" means (i) any corporation in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing a majority of the total combined voting power of all classes of stock in one of the other corporations in the chain, (ii) any limited partnership, if the Company or any corporation described in item (i) above owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (iii) any partnership, if the partners thereof are composed only of the Company, any corporation listed in item (i) above or any limited partnership listed in item (ii) above. "Subsidiaries" means more than one of any such corporations, limited partnerships or partnerships. "Target Allocation" means, for a Participant for any Fiscal Year, his or her maximum percentage share of the Annual Incentive Pool for achievement of his or her Performance Goals for the Fiscal Year, determined by the Committee in accordance with Section 5.5 below. 4 ARTICLE III ADMINISTRATION -------------- 3.1 Committee's Authority. The Plan shall be administered by a committee --------------------- appointed by the Board, consisting of at least two members of the Board; provided that (i) with respect to any Award that is granted to a Reporting Participant, such committee shall consist of at least such number of directors as are required from time to time by Rule 16b-3, and each such committee member shall qualify as a "disinterested person" under Rule 16b-3; and (ii) with respect to any Award that is also intended to satisfy the requirements of the Section 162(m) Exception, such committee shall consist of at least such number of directors as are required from time to time to satisfy the Section 162(m) Exception, and each such committee member shall qualify as an "outside director" within the meaning of Section 162(m). Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board, and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. The Committee shall have exclusive authority to (i) designate the key employees of the Company and its Subsidiaries who shall participate in the Plan; (ii) establish Performance Goals for each Participant and certify the extent of their achievement; (iii) establish and certify the achievement of the Corporate Threshold; (iv) determine each Participant's Target Allocation; and (v) determine all other terms and conditions of Awards and Award Agreements under the Plan. With respect to restrictions ("mandated restrictions") in the Plan that are based on the requirements of Rule 16b-3, the Section 162(m) Exception, the rules of any exchange upon which the Company's securities are listed, or any other applicable law, rule or restriction (collectively, "applicable law"), to the extent that any such mandated restrictions are no longer required by applicable law, the Committee shall have the sole discretion and authority to grant Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Awards. 3.2 Committee Action. A majority of the Committee shall constitute a ---------------- quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. 3.3 Committee's Powers. The Committee shall have the power, in its ------------------ discretion, to take such actions as may be necessary to carry out the provisions and purposes of the Plan and shall have the authority to control and manage the operation and administration of the Plan. In order to effectuate the purposes of the Plan, the Committee shall have the discretionary power and authority to construe and interpret the Plan, to supply any omissions therein, to reconcile and correct any errors or inconsistencies, to decide any questions in the administration and application of the Plan, and to make equitable adjustments for any mistakes or errors made in the administration of the Plan. All such actions or determinations made by the Committee, and the application of rules and regulations to a particular case or issue by the Committee, in good faith, shall not be subject to review by anyone, but shall be final, binding and conclusive on all persons ever interested hereunder. In construing the Plan and in exercising its power under provisions requiring the Committee's approval, the Committee shall attempt to ascertain the purpose of the provisions in question and when the purpose is known or reasonably ascertainable, the purpose shall be given effect to the extent feasible. Likewise, the Committee is authorized to determine all questions with respect to the individual rights of all Participants under this Plan, including, but not limited to, all issues with respect to eligibility. The Committee shall have all powers necessary or appropriate to accomplish its duties under this Plan including, but not limited to, the power and duty to: (a) maintain complete and accurate records of all plan transactions, contributions, and distributions. The Committee shall maintain the books of accounts, records, and other data in the manner necessary for proper administration of the Plan; (b) adopt rules of procedure and regulations necessary for the proper and efficient administration of the Plan, provided the rules and regulations are not inconsistent with the terms of the Plan as set out herein. All rules and decisions of the Committee shall be uniformly and consistently applied to all Participants in similar circumstances; (c) enforce the terms of the Plan and the rules and regulations it adopts; 5 (d) review claims and render decisions on claims for benefits under the Plan; (e) furnish the Company or the Participants, upon request, with information that the Company or the Participants may require for tax or other purposes; (f) employ agents, attorneys, accountants or other persons (who also may be employed by or represent the Company) for such purposes as the Committee considers necessary or desirable in connection with its duties hereunder; and (g) perform any and all other acts necessary or appropriate for the proper management and administration of the Plan. ARTICLE IV ELIGIBILITY ----------- Any key employee of the Company or any of its Subsidiaries whose judgment, initiative and efforts contribute, or may be expected to contribute, in the opinion of the Committee, to the successful performance of the Company is eligible to be selected as a Participant. ARTICLE V DETERMINATION OF GOALS AND INCENTIVE COMPENSATION ------------------------------------------------- 5.1 Designation of Annual Incentive Pool. No later than the 90th day of ------------------------------------ each Fiscal Year, the Committee shall set forth in writing the Committee's determinations regarding the establishment of an Annual Incentive Pool for such Fiscal Year. 5.2 Establishment of Performance Goals. At any time before the 90th day of ---------------------------------- each Fiscal Year, the Chairman of the Board may deliver to the Committee his recommendations for that Fiscal Year regarding designation of Participants and establishment of Performance Goals for individual Participants. No later than the 90th day of the Fiscal Year, the Committee shall set forth in writing (i) the key employees designated as Participants for the Fiscal Year, (ii) the Corporate Threshold for the Fiscal Year, (iii) the individual Performance Goals established for each Participant, (iv) the Target Allocation for each Participant, and (v) the Committee's recommendation for the Annual Incentive Pool. The Corporate Threshold with respect to any Fiscal Year shall not be less than 105% of the Earnings for the immediately preceding Fiscal Year. 5.3 Categories of Performance Goals. The individual Performance Goals ------------------------------- established by the Committee for any Fiscal Year may differ among Participants. For each Participant, his or her individual Performance Goals shall be based on criteria in one or more of the following categories: (a) performance of the Company as a whole, performance of a segment of the Company's business, and (c) individual performance. In establishing Performance Goals for a Participant, the Committee shall determine, in its sole discretion, the categories and criteria to be used in measuring his or her actual performance and the percentage allocation for each of the criteria (the sum of which shall equal 100%). 5.4 Performance Criteria for any Fiscal Year. Performance criteria for ---------------------------------------- the Company shall relate to the achievement of predetermined financial objectives for the Company and its Subsidiaries on a consolidated basis. Performance criteria for a segment of the Company's business shall relate to the achievement of financial and operating objectives of the segment for which the Participant is accountable. Individual performance criteria shall relate to the Participant's overall performance, taking into account, among other measures of performance, the attainment of individual goals and objectives. 6 5.5 Target Allocation. No later than the 90th day of the Fiscal Year, the ----------------- Committee shall determine each Participant's Target Allocation for the Fiscal Year, which shall be his or her base salary for the Fiscal Year as a percent of the sum of the base salaries of all Participants for the Fiscal Year. 5.6 Certification. As soon as practicable after the end of each Fiscal ------------- Year, the Chairman shall report to the Committee regarding the extent to which each Participant achieved his or her Performance Goals for the Fiscal Year. As soon as practicable following verification by the Company's independent public accountants of the Company's financial results for any Fiscal Year and receipt of the report of the Chairman of the Board regarding the Participants' actual performance against the Performance Goal(s) for the Fiscal Year, the Committee shall certify: (i) whether or not the Company's Earnings exceeded the Corporate Threshold, (ii) the extent to which each Participant achieved his or her Performance Goal(s) for the Fiscal Year, and (iii) the calculation of the Annual Incentive Pool, (iv) the determination by the Committee of the Participant's Allocation for each Participant and (v) the amount of Incentive Compensation payable to each Participant under the Plan for the Fiscal Year. The Committee shall determine each Participant's Allocation by multiplying his or her Target Allocation by the percent determined by the Committee to represent the extent to which such Participant achieved his or her individual Performance Goals for the Fiscal Year. The Committee shall then determine each Participant's Incentive Compensation by multiplying his or her Participant's Allocation by the amount in the Annual Incentive Pool; provided that, in no event shall a Participant's Incentive Compensation during any Fiscal Year exceed $1,000,000. Further, after the Committee has determined a Participant's Allocation, the Committee, in its discretion, may reduce any such Participant's Allocation pursuant to Section 5.7 below. 5.7 Committee Discretion. The Committee may, in its discretion, reduce or -------------------- eliminate a Participant's Target Allocation based upon such objective or subjective criteria as it deems appropriate or to take into account circumstances that could not have been anticipated when it established the Performance Goals. The Committee shall have the sole discretion and authority to change any Participant's Performance Goals or criteria for any Fiscal Year to the extent it deems such changes advisable in light of extraordinary circumstances not foreseen at the time of grant of an Award; provided that, the Committee may not retroactively change Performance Goal(s) or criteria relating to any Award intended to satisfy the Section 162(m) Exception, except (i) in the event of changes in accounting practices or, (ii) to the extent consistent with Code Section 162(m) and its regulations, circumstances that could not have been anticipated when it established such Performance Goals and criteria. 5.8 Nonallocation. The Committee shall not be obligated to apply the ------------- entire Annual Incentive Pool for any Fiscal Year to Participants' Incentive Compensation. Any amount not so applied for a Fiscal Year shall lapse and remain part of the general assets of the Company; no portion of any such amount shall be carried over to an Annual Incentive Pool for any subsequent Fiscal Year. ARTICLE VI PAYMENT OF INCENTIVE COMPENSATION --------------------------------- 6.1 Form and Time of Payment. Subject to any forfeiture provisions set ------------------------ forth in the Plan or in any Award Agreement, a Participant's Incentive Compensation for each Fiscal Year shall be paid in a cash lump sum as soon as practicable following certification by the Committee in accordance with Section 5.4 above, unless the Participant has elected to defer receipt of all or a portion of the Participant's Incentive Compensation in accordance with Section 6.2 below; provided that, in the sole discretion of the Committee, such payment may be made in the form of Common Stock, nonqualified stock options, or restricted stock granted under, and in accordance with, the terms of the Company's 1993 Amended and Restated Long-Term Incentive Compensation Plan. Any Stock-Based Compensation that is payed in lieu of cash shall be of an equivalent value to the foregone cash compensation (taking into account, among other factors, the term of an option and its exercise price, any vesting requirements with respect to options or shares of Restricted Stock, transferability rights and all other relevant factors), as verified by the Company's independent public accountants (and in accordance with the Black Scholes method of valuation when applicable). The exercise price for any options granted in lieu of cash Incentive Compensati on awarded hereunder shall be no less than 7 the Fair Market Value per share of the Company's Common Stock on the date of certification by the Compensation Committee of such Incentive Compensation. 6.2 Participant Deferrals. --------------------- (a) General. For each Fiscal Year, a Participant may elect, prior to the first day of such Fiscal Year (in accordance with procedures and rules established by the Committee), to defer receipt of, and contribute to his or her Deferred Account (herein so called) established under this Plan, any part or all of his Incentive Compensation. Each election made under this Section 6.2(a) shall be made in writing on a form prescribed by and filed with the Committee, and shall be irrevocable for the Fiscal Year for which it is made. (b) Deferred Accounts. The Company shall establish and maintain on its books a Deferred Account for each Participant who elects to defer the receipt of any amount pursuant to this Section 6.2(b). Such Deferred Account shall be designated by the name of the Participant for whom it is established and the Fiscal Year to which it relates. The amount attributable to any Incentive Compensation elected to be deferred shall be credited to such Deferred Account. A Participant shall have a separate Deferred Account for each Fiscal Year for which he makes such an election. Each Deferred Account shall reflect the credits and charges allocable thereto in accordance with the Plan. The Committee shall maintain, or cause to be maintained, records which will adequately disclose at all times the state of each separate Deferred Account hereunder. The books, forms and methods of accounting shall be entirely subject to the supervision of the Committee. (c) Investment of Deferred Accounts. Each Deferred Account shall accrue interest from the date the Deferred Account is established until the date it is paid under Section 6.2(e) below, at a rate which is equal to the Company's cost of funds on the date the Incentive Compensation is certified by the Committee. (d) Time of Payment. A Participant shall be entitled to receive the entire amount in his or her Deferred Account upon the earliest to occur of (i) the January 2 designated by the Participant on his or her deferral election, which shall be at least two (2) years but no more than ten (10) years after the end of the Fiscal Year to which such Deferred Account relates, (ii) termination of employment for any reason, including death, or (iii) termination of the Plan. Such payment shall begin within 60 days after the date which causes payment to become due. (e) Form of Payment. A Participant's Deferred Account shall be paid in one cash payment. The Committee shall value such Deferred Account as of the date which causes payment to become due. (f) Amounts Nonforfeitable. When payment of all or a portion of a Participant's Incentive Compensation is deferred, the amount deferred is nonforfeitable. Deferred Accounts are unfunded and constitute general obligations of the Company. ARTICLE VII TERMINATION OF EMPLOYMENT PRIOR TO CERTIFICATION ------------------------------------------------ 7.1 Pro Rata Payment for Certain Terminations. Unless otherwise permitted ----------------------------------------- by the Committee in its sole discretion, if a Participant's employment with the Company and all of its Subsidiaries terminates before the end of a Fiscal Year for one of the reasons set forth in this Section 7.1, the Committee shall calculate such Participant's Incentive Compensation as if he or she remained employed for the entire Fiscal Year, and such Participant shall be entitled to receive a pro rate portion of such Incentive Compensation based on the portion of the Fiscal Year such Participant was employed by the Company or a Subsidiary. The reasons for termination subject to this Section 7.1 are (i) within one year following a Change of Control, the Company terminates a Participant's employment for any reason (or for nor reason), (ii) the Company terminates a Participant's employment other than for Cause, (iii) a 8 Participant voluntarily terminates employment with Good Reason, (iv) the Retirement of the Participant, (v) the Participant dies, or (vi) the Participant becomes Disabled. 7.2 Forfeiture Upon Other Terminations. If, prior to the end of a Fiscal ---------------------------------- Year, a Participant's employment with the Company and all of its Subsidiaries terminates for any reason other than those described in Section 7.1 above, the Participant will immediately forfeit any right to receive any Incentive Compensation hereunder for such Fiscal Year. ARTICLE VIII DEATH OR DISABILITY ------------------- 8.1 Payment to Beneficiary. Each Participant shall designate, in a manner ---------------------- prescribed by the Committee, a beneficiary to receive payments due under the Plan in the event of his or her death. If a Participant dies prior to the date of payment of his or her Incentive Compensation for a Fiscal Year, such Incentive Compensation shall be paid to the Participant's named beneficiary, or if no properly designated beneficiary survives the Participant, such Participant's Incentive Compensation shall be paid to the Participant's estate or personal representative. 8.2 Disability. If a guardian or conservator has been appointed for a ---------- Disabled Participant, the Committee shall pay the Participant's Incentive Compensation to such guardian or conservator. ARTICLE XIII MISCELLANEOUS PROVISIONS ------------------------ 9.1 Effect of the Plan. Neither the adoption of this Plan nor any action ------------------ of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein. 9.2 Non-Assignability. A Participant may not alienate, assign, pledge, ----------------- encumber, transfer, sell or otherwise dispose of any rights or benefits awarded hereunder prior to the actual receipt thereof; and any attempt to alienate, assign, pledge, sell, transfer or assign prior to such receipt, or any levy, attachment, execution or similar process upon any such rights or benefits shall be null and void. 9.3 No Right Continue in Employment. Nothing in the Plan confers upon any ------------------------------- employee the right to continue in the employ of the Company or any Subsidiary, or interferes with or restricts in any way the right of the Company and its Subsidiaries to discharge any employee at any time (subject to any contract rights of such employee). 9.4 Indemnification of Committee. No member of the Committee, nor any ---------------------------- officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Committee, and each officer or employee of the Company acting on its behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation. 9.5 No Plan Funding. The Plan shall at all times be entirely unfunded and --------------- no provision shall at any time be made with respect to segregating assets of the Company for payment of any amounts hereunder. No Participant, beneficiary, or other person shall have any interest in any particular assets of the Company by reason of the right to receive incentive compensation under the Plan. Participants and beneficiaries shall have only the rights of a general unsecured creditor of the Company. 9.6 Governing Law. This Plan shall be construed in accordance with the ------------- laws of the State of Texas and the rights and obligations created hereby shall be governed by the laws of the State of Texas. 9 9.7 Amendment or Discontinuance. The Plan may be amended or discontinued --------------------------- by the Committee, without the approval of the stockholders; provided that no amendment shall be made without approval of the stockholders of the Company if such approval is required under the Code, Rule 16b-3, the requirements of any exchange upon which the Company's securities are listed, or any other applicable law. In addition, no termination or amendment of the Plan may, without the consent of the Participant to whom any Award has theretofore been granted, adversely affect the rights of such Participant with respect to such Award. 9.8 Binding Effect. This Plan shall be binding upon and inure to the -------------- benefit of the Company, its successors and assigns, and the Participants, and their heirs assigns and personal representatives. 9.9 Construction of Plan. The captions used in this Plan are for the -------------------- convenience only and shall not be construed in interpreting the Plan. Whenever the context so requires, the masculine shall include the feminine and neuter, and the singular shall also include the plural, and conversely. 9.12 Integrated Plan. This Plan constitutes the final and complete --------------- expression of agreement among the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of March 22, 1996, by its President and Secretary pursuant to prior action taken by the Board. CELLSTAR CORPORATION By: /s/ Terry S. Parker -------------------- President Attest: /s/ Elaine Flud Rodriguez - ------------------------- Secretary 10 EX-10.44 7 SUPPLY AND SERVICE AGR. BETWEEN CELLSTAR AND MCI EXHIBIT 10.44 SUPPLY AND SERVICE AGREEMENT This Supply and Service Agreement (this "Agreement") is entered into, as of this 26 day of November, 1996 and effective as of the closing of the below- ---- defined Asset Purchase Agreement ("Effective Date") by and between CellStar, Ltd., a Texas limited partnership, ("CellStar") and MCI Telecommunications Corporation, a Delaware corporation, ("MCI"). WHEREAS, MCI has simultaneously herewith purchased certain assets used by CellStar in connection with the operation of its retail business involving the sale and activation of wireless communications equipment at kiosks located inside Sam's Club locations throughout the United States. (Such kiosks located inside Sam's Clubs throughout the United States which may hereafter be owned or operated by MCI are hereinafter referred to as the "Communication Centers"); and WHEREAS, MCI has simultaneously herewith entered into an Interim Services Agreement pursuant to which CellStar will be providing to MCI certain operational and inventory management services ("Interim Services Agreement"); and WHEREAS, CellStar is willing to provide to MCI the benefits of its supply arrangements with manufacturers of the products sold in the Communication Centers, as well as CellStar's distribution process for the supply of such products to the Communication Centers; and WHEREAS, MCI wishes to obtain a source of supply for accessory products for Wireless Handsets (as defined below) listed in Exhibit A (the "Accessory --------- Products") and cellular telephones ("Cellular Telephones"), Personal Communications Services ("PCS") handsets and two-way radios listed in Exhibit B --------- (collectively referred to herein as the "Wireless Handsets") for the Communication Centers and contemplates repetitive purchases of such products from CellStar (the Accessory Products and Wireless Handsets purchased by MCI from CellStar hereunder being collectively referred to herein as the "Products"); and WHEREAS, MCI wishes to retain the services of CellStar for the receiving, warehousing, assembly (if requested), fulfillment and distribution to the Communication Centers on behalf of MCI of products sourced by MCI from vendors other than CellStar (including, but not limited to wireless handsets, pagers, pre-paid calling cards and movie discount passes) as well as promotional literature, packaging materials and such other items as may be requested by MCI from time to time (such products, promotional literature, packaging materials and other items not purchased by MCI from CellStar hereunder hereinafter collectively referred to as the "Inventory Items"); and WHEREAS, MCI wishes to obtain the services of CellStar for packaging (if requested), programming (if requested), returns processing and other customized fulfillment services; and NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions herein contained, and other good and valuable consideration, the receipt and sufficiency of which 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 BY "[REDACTED]". is hereby acknowledged, MCI and CellStar agree as follows: 1. SALE AND PURCHASE OF ACCESSORY PRODUCTS. (a) MCI agrees to purchase and CellStar agrees to sell Accessory Products under the terms and conditions set forth in this Agreement. Subject to (b) and (c) below, MCI agrees that, during the term of this Agreement, it shall purchase exclusively from CellStar all of its requirements for Accessory Products for sale in the Communication Centers. CellStar shall not substitute any Accessory Product without the express written consent of MCI. Additional accessory products which are not listed on Exhibit A as of the date hereof may --------- be added to this Agreement and the list set forth on Exhibit A upon written --------- agreement of the parties. In such an event, the parties will amend this Agreement accordingly and include a revised Exhibit A. --------- (b) In the event that CellStar materially breaches the Interim Services Agreement between the parties as such material breaches are defined in the Interim Services Agreement, MCI may, at its option, either terminate (i) this Agreement in its entirety; or (ii) MCI's exclusive obligation hereunder to purchase all Accessory Products and associated distribution services associated with such Accessory Products from CellStar. (c) In addition, the requirement of MCI to purchase a specific Accessory Product hereunder shall terminate if (i) MCI has failed to approve such non-OEM Accessory Product after the technical and quality evaluation set forth herein in Section 16; and (ii) CellStar has been unable to supply an alternative product that is acceptable to MCI within the time period set forth in Section 16. In accordance with the provisions of Section 16 hereof, the obligation of MCI to purchase all of its requirements of such particular non-OEM Accessory Product hereunder will be reinstated automatically when CellStar has available and can provide such a non-OEM Accessory Product that conforms to MCI's commercially reasonable technical and quality specifications. In such case, MCI will be permitted to satisfy any outstanding purchase commitments that it has made to any other vendors who have agreed to provide such a non-OEM Accessory Product that conforms to MCI's technical and quality specifications, which commitments shall not exceed one hundred and twenty (120) days from the date MCI's requirement to purchase such Accessory Products from CellStar pursuant to this subsection 1(c) terminates. (d) For purposes of this Agreement, the term "OEM Accessory Products" shall refer to Wireless Handset accessory products manufactured for, by, or on behalf of, the original equipment manufacturer. 2. SALE AND PURCHASE OF WIRELESS HANDSETS. MCI agrees to purchase and CellStar agrees to sell the Wireless Handsets listed on Exhibit B attached --------- hereto under the terms and conditions set forth in this Agreement. It is understood that MCI has the right but not the obligation to purchase all or a portion of its requirements for Wireless Handsets for sale in the Communication Centers from CellStar. CellStar shall not substitute any Wireless Handset without the express written consent of MCI. Additional wireless handsets which are not listed on Exhibit B as of the --------- 2 date hereof may be added to this Agreement and the list set forth on Exhibit B --------- upon written agreement of the parties. In such an event, the parties will amend this Agreement accordingly and include a revised Exhibit B. --------- 3. WAREHOUSE, DISTRIBUTION AND FULFILLMENT SERVICES. (a) CellStar will provide to MCI all warehouse, distribution and fulfillment services required by MCI in connection with MCI's sale in the Communication Centers of (i) all Products (except for Accessory Products and associated distribution services which are deleted from the list of Accessory Products and Services pursuant to Section 1(b) above); and (ii) all wireless handsets purchased by MCI from third parties. (b) CellStar will provide to MCI warehouse, distribution and fulfillment services required by MCI in connection with the sale by MCI in the Communication Centers of certain Inventory Items, including all wireless handsets purchased by MCI from third parties. (c) The services described in (a) and (b) above shall include but are not limited to warehousing, assembly (if requested), programming (if requested), packaging (if requested), shipping, insuring (as agreed below), reporting, and returns processing (if requested) of such Products, Inventory Items, and wireless handsets purchased by MCI from third parties, to the Communication Centers as described in Exhibit C (the "Services") . --------- (d) Additional services which are not listed on Exhibit C as of the --------- date hereof may be added to this Agreement and the list set forth in Exhibit C --------- by written agreement of the parties and only if CellStar is able to provide such additional services at a Competitive Market Price (as such term is defined in Section 4(j) hereof). In such an event, the parties will amend this Agreement accordingly and include a revised Exhibit C. --------- 4. PRICING AND PAYMENT TERMS, AND RIGHT OF OFFSET. (a) CellStar's prices to MCI for OEM Accessory Products purchased hereunder shall initially be as set forth on Exhibit A. Those stated prices are --------- and such Product Prices for OEM Accessory Products thereafter shall be in an amount equal to the manufacturer's invoice price less any pro-rata manufacturer discounts, special incentives and similar rebates to which MCI would otherwise be entitled if MCI were purchasing such products directly from the manufacturer (but specifically excluding Co-op and MDF, as defined in Sections 9 and 10 respectively, allowances or credits for which shall be handled in accordance with Sections 9 and 10 hereof respectively). CellStar shall provide standard private label packaging of such OEM Accessory Products in accordance with reasonable instructions from MCI and agreed upon by CellStar and the manufacturer at no additional cost. Should MCI choose not to have CellStar perform private label packaging of OEM Accessory Products, prices of such OEM Accessory Products shall be determined using the formula set forth in subsection 4(b) below. 3 (b) CellStar's prices to MCI for non-OEM Accessory Products purchased hereunder shall initially be as set forth on Exhibit A. Those stated prices are --------- and such Product prices for non-OEM Accessory Products thereafter shall be an amount equal to [REDACTED]. CellStar shall provide standard private label packaging of such non-OEM Accessory Products in accordance with reasonable instructions from MCI and agreed upon by CellStar at no additional cost. (c) Prices for Wireless Handsets purchased hereunder shall initially be as set forth on Exhibit B. Those stated prices are and such Product prices --------- for Wireless Handsets thereafter shall be an amount equal to [REDACTED]. (d) Unless otherwise stated herein, actual freight and insurance associated with each shipment from CellStar's warehouse to the Communication Centers shall be billed to and payable by MCI as separate line items on each invoice. CellStar shall make commercially reasonable efforts to insure that all such freight and insurance charges paid for by MCI under this Agreement are the lowest in the market. CellStar and MCI shall work together to obtain such favorable rates. (e) Prices for Accessory Products and Wireless Handsets calculated as set forth in subsections (a), (b) and (c) above are hereinafter collectively referred to as the "Product Prices." (f) [REDACTED] (g) [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. 4 (h) MCI shall pay CellStar for the Services at the rates established on Exhibit C (the "Service Fees"). Such Service Fees (including the --------- $0.88 set forth below) shall remain fixed until July 1, 1997 following which date CellStar may adjust its Service Fees upon thirty (30) days prior written notice to MCI subject to the procedures and limitations set forth in Section 4(j) below. Prior to July 1, 1997, CellStar reserves the right to change such Service Fees if MCI (i) requests that CellStar distribute wireless handsets purchased by MCI from third parties; or (ii) sources its accessories product program in its entirety to another vendor in accordance with the terms of Sections 1(b) or 4(j) herein and requests CellStar to distribute such accessories; provided that any such change in Service Fees requested by CellStar as a result of (i) above shall be determined by adding $0.88 for each wireless handset purchased by MCI from such third parties and any change as a result of (ii) above shall be subject to the procedures and limitations set forth in Section 4(j) below. (i) Each delivery of Products and Inventory Items to the Communication Centers will be separately invoiced, along with related Service Fees for assembly and order processing. All Product Prices and freight and insurance, including any expediting fees, shall be included as separate line items on each invoice and payable by MCI unless otherwise stated herein. Such invoices shall include, but not be limited to: (i) purchase order number; (ii) SKU or item numbers shipped; (iii) 5 quantity shipped and billed; (iv) "ship to" address; (v) Service Fees incurred; (vi) Services performed; (vii) net invoice amount; and (viii) any other information or special instructions reasonably requested by MCI. CellStar shall provide reasonable supporting documentation for each invoice as MCI may reasonably request including, but not limited to packing slips. CellStar will also issue invoices from time to time for returns processing credits and/or fees, credits for penalties, credits for MDF, credits for MCI's twenty percent (20%) share of 800# orders as described in Exhibit C hereof, and other Service --------- Fees for Services rendered which are not otherwise invoiced with each delivery. Co-op reimbursements will be handled in accordance with Section 9 hereof. Such invoices or credit statements shall include information reasonably requested by MCI. MCI shall pay all invoiced amounts within thirty (30) days after the date of invoice. (j) [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. 6 (k) CellStar shall provide to MCI a credit against payments owed under this Agreement for any amounts finally determined to be owed by National Auto or CellStar under Sections 3.6 and 3.7 of the Asset Purchase Agreement. 5. PERFORMANCE STANDARDS. (a) CellStar warrants that the Services provided hereunder shall be performed in a professional and workmanlike manner in accordance with the deadlines and specifications set forth herein or as reasonably requested by MCI from time to time. (b) Notwithstanding whether or not CellStar has had an opportunity to inspect the Inventory Items, CellStar shall be responsible for all security and safety of the premises used to perform activities under this Agreement, and shall be responsible for any loss or damage to Inventory Items while in CellStar's possession or on CellStar's premises in accordance with Section 11. CellStar shall make best efforts to identify and eliminate any pattern of shrinkage of Inventory Items. In addition, CellStar shall immediately correct any deficiencies it identifies in its processes that are contributing to such shrinkage. CellStar shall maintain a log for all significant problem resolutions and shall provide problem trending reporting. (c) CellStar shall be responsible for establishing a comprehensive problem escalation, coordination and response procedure to respond to systems failures, or any developments or problems that impact the order processing and fulfillment activities described in this Agreement. CellStar shall establish eight (8) hour per day, five (5) day per week notification procedures to ensure that appropriate MCI personnel are notified promptly following CellStar's determination of a significant problem or possible problem. In addition, CellStar will provide an after hours contact person for MCI who will be available to MCI twenty-four (24) hours a day, seven (7) days a week. Such person shall be capable of implementing problem resolution plans that are mutually agreed upon by MCI and CellStar. 6. FORECASTS. (a) MCI's Inventory Manager shall provide CellStar on a monthly basis, within ten (10) days prior to the end of each calendar month, a continuous usage forecast for the next three 7 (3) calendar months to assist CellStar in maintaining an orderly production flow for the purpose of MCI's delivery requirements for both Products and Services. MCI shall indicate the Product model number or SKU, projected purchase volume by units, and specific Services requested for each calendar month included in the forecast. The first calendar month of the three month forecast shall constitute a firm purchase commitment by MCI for the Products and Services set forth therein. If there is a shortage of such forecasted Products caused solely by the manufacturer, CellStar shall allocate products received from the manufacturer among its customers who have firm purchase commitments on a prorata basis in accordance with the volume of their respective commitments. MCI shall draw down on such firm purchase commitment by placing weekly or bi-weekly Purchase Orders (as defined in Section 7(a) below) against such forecast. MCI shall have three (3) months to make up any shortfall. If after such three (3) month period MCI has not satisfied such shortfall, then MCI shall pay to CellStar the forecasted price of the Products not yet purchased by MCI and CellStar shall ship such Products to MCI in accordance with MCI's instructions. (b) If the total of Products included in Purchase Orders for shipment submitted by MCI in any calendar month exceeds the forecasted amount (such orders hereinafter referred to as "Out of Forecast Orders"), CellStar agrees that it shall utilize a "first order in-first shipment out" method for allocating inventory among customers. CellStar shall make commercially reasonable efforts to ship such materials by MCI's requested deadline and shall not be assessed any penalty for failure to meet such deadline. MCI shall approve any rush charges before they are incurred. 7. PURCHASE ORDERS. (a) MCI shall submit purchase orders for Products ("Purchase Orders") to CellStar at 1730 Briercroft Court, Carrollton, Texas 75006 via facsimile or other mutually agreed upon methods. Each Purchase Order shall be submitted by MCI and received by CellStar before 1 p.m. (Dallas time) on Monday of each week (Tuesday when Monday is a holiday) (the "Order Deadline"). Any Purchase Order received by the Order Deadline shall be shipped by CellStar in order to be delivered to the Sam's Club address where the particular Communication Center is located no later than Friday of the same week in which the Purchase Order was received. In the event CellStar shall fail to timely deliver any order which was received by CellStar by the Order Deadline, CellStar shall credit to MCI on future purchases an amount equal to the lesser of ten percent (10%) of the insured value of Products and Inventory Items ordered for that shipment or fifty percent (50%) of the insured value of any missing or damaged materials; provided, however, that CellStar shall not be required to issue such credit to MCI in the event CellStar's failure to timely and accurately deliver was due to (i) a Force Majeure event as defined in Section 24 hereof; (ii) the Purchase Order was changed after the order entry process has been performed; (iii) the order was an Out of Forecast Order described in Section 6(b) above; (iv) the damage to or discrepancy in an order was caused by the shipping carrier; (v) the Inventory Items to be delivered were not available to CellStar in a timely manner for any reason beyond CellStar's control; (vi) such failure is due solely to the default of any carrier or supplier; or (vii) such failure is due solely to the acts or omissions of Sam's Club, MCI or their agents or employees. CellStar agrees to use commercially reasonable efforts to notify MCI of any Purchase Orders it receives which request shipment to locations other than the Sam's Club 8 locations at which MCI owns kiosks or which are unusual orders due to size or product mix. CellStar agrees to cooperate with MCI in immediately halting the shipment of any such orders upon notice from MCI. (b) All Purchase Orders shall be only upon the terms and conditions of this Agreement. The only effect of any terms and conditions in MCI's Purchase Orders shall be to request the time and place of delivery or the number and type of units to be delivered, but they shall not change, alter or add to the terms and conditions of this Agreement in any other way. CellStar's invoice shall also not change the terms and conditions of this Agreement. (c) In order the facilitate transactions under this Agreement, the parties may electronically transmit and receive data in agreed formats in substitution for conventional paper based documents as provided in an Electronic Data Interchange Trading Partner Agreement to be mutually agreed upon by the parties. 8. Stock Balancing. [REDACTED] MCI shall be responsible for the cost of freight and insurance for such returned Accessory Products. MCI will include a return authorization received from CellStar with any such returned shipment. [REDACTED] 9. [REDACTED] 10. [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. 9 11. DELIVERY, RISK OF LOSS AND TITLE. (a) Unless otherwise mutually agreed upon in writing by the parties, all deliveries of Products and Inventory Items hereunder are FOB the Sam's Club location designated on the . Unless otherwise agreed to herein, actual freight and insurance associated with each shipment shall be billed to and payable by MCI as separate line items on each invoice. CellStar reserves the right to make deliveries of any per kiosk shipment in installments; provided, however, that any additional costs incurred by CellStar as a result of such installment shipments shall be borne by CellStar. (b) Title to Products and risk of loss or damage to the Products shall pass to MCI upon CellStar's delivery to and MCI's acceptance at the Sam's Club location. Such acceptance by MCI shall be deemed to have occurred when the receipt of such goods is acknowledged by MCI or by Sam's Club acting on behalf of MCI. MCI hereby grants to CellStar a purchase money security interest in Products delivered to MCI and the proceeds thereof now existing or hereafter arising out of MCI's sale or other disposition of the Products. MCI agrees to cooperate in whatever manner necessary to assist CellStar in perfecting and recording such purchase money security interest upon CellStar's request. (c) Title to Inventory Items shall at all times remain with MCI; provided, however, that CellStar shall be responsible for any loss or damage to Inventory Items upon delivery and acceptance by CellStar at CellStar's warehouse; and provided, further, however, that CellStar shall not be responsible for loss or damage to fulfillment, collateral and promotional materials included in the list of Inventory Items in an amount up to five percent (5%) of the total value of such fulfillment, collateral and promotional materials received by CellStar during the calendar quarter in which such shrinkage occurred. Such acceptance by CellStar shall be deemed to have occurred when the receipt of such goods is acknowledged by CellStar. CellStar shall use best efforts for the safekeeping and safe handling of all Inventory Items provided to CellStar pursuant to this Agreement and shall insure the full replacement value of the Inventory Items located in its warehouse at any time. 10 12. INSPECTION. (a) MCI must notify CellStar, in writing, within seventy-two (72) hours of receipt of shipment of Products or Inventory Items of (i) any shortages, discrepancies or freight damage claims existing between the items charged to MCI on any packing slip and the goods actually received by MCI in the corresponding shipment; or (ii) any damages to the corresponding goods. CellStar shall promptly correct such shortage, discrepancy, or damage at no charge to MCI within one (1) business day following notice from MCI if CellStar has goods in stock in its warehouse. If CellStar does not have such goods in stock in its warehouse, CellStar shall make best reasonable efforts to correct such shortage, discrepancy, or damage promptly at no charge to MCI. If written notice of such shortage, discrepancy, damage, or other objection is not received by CellStar within that time, MCI shall be deemed to have accepted the missing or damaged goods, and MCI agrees to pay the total amounts agreed to herein for such missing or damaged goods. Freight damage claims shall be filed by CellStar directly with the carrier within seven (7) days of receipt of the notification of damage. (b) CellStar must notify MCI, in writing, within twenty-four (24) hours of receipt of shipment of Inventory Items of (i) any shortages, discrepancies or freight damage claims existing between the items charged to MCI on any packing slip from MCI or a third party vendor for Inventory Items and the Inventory Items actually received by CellStar in the corresponding shipment; or (ii) any damages to the corresponding Inventory Items. MCI shall promptly intervene with such third party vendors on behalf of CellStar to correct such shortage, discrepancy, or damage at no charge to CellStar. If after such intervention by MCI, such third party vendors refuse to correct any such shortage, discrepancy, or damage, then MCI shall not hold CellStar responsible for such missing or damaged goods; provided that CellStar has exercised commercially reasonable care regarding the protection and security of such goods. If written notice of such shortage, discrepancy, damage, or other objection is not received by MCI within that time, CellStar shall be deemed to have accepted the missing or damaged goods, and CellStar agrees to be responsible to MCI for such missing or damaged goods. Freight damage claims shall be filed by MCI or its third party vendors directly with the carrier within seven (7) days of receipt of the notification of damage from CellStar. CellStar will assist MCI or its third party vendors in the filing of such freight damage claims and shall retain all packaging and shipping materials from such damaged shipments until the claim is settled and unless otherwise directed by MCI. 13. RETURNS. (a) Return Authorization. A return authorization must be obtained in accordance with CellStar's standard procedures prior to any Products or Inventory Items being shipped back to CellStar. Except as specifically set forth in subsection (d) below, all freight and insurance charges for returned goods must be paid by MCI. (b) Warranty Returns for Products. 11 (i) Accessory Products. Accessory Products shall be accepted for ------------------ return in accordance with the warranty provisions set forth in Section 18 hereof. Upon receipt, CellStar shall inspect such Accessory Products and the accompanying documentation, if any, to determine whether such returned Accessory Products qualify for warranty protection under the terms of the applicable warranty. If such Accessory Products are found to be defective under the terms of the applicable warranty, CellStar shall, at its option exchange or credit MCI for such defective Accessory Products and shall report to MCI accordingly pursuant to the Interim Services Agreement or Section 17, as appropriate. If CellStar exchanges such products, CellStar shall ship such exchanged product, at CellStar's cost (including freight and insurance), to the Communication Center from which the defective product was received. If such Accessory Product is found not to qualify for warranty protection under the terms of the applicable warranty, CellStar shall, at MCI's option, return such non-qualifying product at MCI's cost to the Communication Center from which the product was received or dispose of such Accessory Products at no cost to MCI. (ii) Cellular Telephones. Cellular Telephones shall be accepted ------------------- for return in accordance with the manufacturers' warranty set forth in Section 18 hereof. Upon receipt, CellStar shall inspect such Cellular Telephones and the accompanying documentation, if any, to determine whether such returned Cellular Telephones qualify for warranty protection under the terms of the applicable warranty. If such Cellular Telephones are found to be defective under the terms of the applicable warranty, CellStar shall, at MCI's option, repair or return to the manufacturer for repair or replacement such defective Cellular Telephones at no cost to MCI. Any repaired or replaced product shall be returned, at CellStar's cost (including freight and insurance), to the Communication Center from which the defective product was received. If such Cellular Telephones are found not to qualify for warranty protection under the terms of the applicable warranty, CellStar shall return such non- qualifying product, at MCI's cost (including freight and insurance), to the Communication Center from which the product was received. (iii) Two-Way Radios. Two-Way Radios shall be accepted for return -------------- in accordance with the manufacturers' warranty set forth in Section 18 hereof. Upon receipt, CellStar shall, at its own expense, coordinate the return of such products to the manufacturer, for repair or replacement in accordance with the terms of the applicable warranty. 12 Any repaired or replaced product shall be returned, at CellStar's cost (including freight and insurance), to the Communication Center from which the defective product was received. If such Two-Way Radios are found not to qualify for warranty protection under the terms of the applicable warranty, CellStar shall return such non-qualifying product, at MCI's cost (including freight and insurance), to the Communication Center from which the product was received. (iv) Technical Support for Products. CellStar shall make ------------------------------ available to MCI telephone technical support and assistance in the diagnosis and resolution of problems with Products eight hours a day, five (5) days a week during CellStar's normal business hours. There shall be no charge for such technical support. (c) Returns for Inventory Items. CellStar shall accept returns of Pagers from Communication Centers for processing in accordance with Exhibit C --------- attached hereto. Pagers accepted for return shall be subject to the returns processing fees set forth in Exhibit C hereto. The parties may agree to add --------- returns services for other Inventory Items by mutual written agreement and shall amend this Agreement accordingly. (d) Transition Period. Regardless of whether the Products are under warranty, for a period of forty five (45) days following the Effective Date hereof, CellStar shall credit to MCI the refund value of such items, including all freight, insurance, and any taxes related to the return of such Products returned to CellStar from the Communication Centers. Thereafter, MCI shall be responsible for all freight and insurance for the return of all Products returned to CellStar from the Communication Centers. 14. CANCELLATION OR CHANGE OF PURCHASE ORDERS. MCI may cancel, change or reschedule Products or Inventory Items on any Purchase Order subject to MCI's payment to CellStar of a cancellation, change or rescheduling fee equal to [REDACTED] for each Purchase Order that has advanced to order entry/print status and [REDACTED] for each Purchase Order that has advanced to pick confirm status. MCI shall not be charged cancellation or change fee for orders having a pre- order entry status. If any such change or rescheduling results in additional shipments within the same calendar week to the same "ship to" address, such shipment shall be made at a cost of [REDACTED] per shipment per "ship to" address. 15. TAXES. The prices set forth herein are exclusive of any amount for Federal, State and/or Local excise or sales taxes on the Products and/or Services provided under this Agreement. If any such excluded tax, exclusive however, of any taxes measured by CellStar's net income or taxes based on CellStar's gross receipts or based on CellStar's franchise, is determined to be applicable to the Products and Services provided under this Agreement or to the extent CellStar is required to pay or bear burden thereof, one hundred percent (100%) thereof shall be added to the prices set forth 13 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. herein and paid by MCI. In the event MCI claims exemption from sales or other such taxes under this Agreement, MCI shall hold CellStar harmless for any subsequent assessments levied by a proper taxing authority for such taxes, including interests, penalties and late charges. 16. PRODUCT CHANGES. (a) MCI shall make best efforts within ten (10) business days from the Effective Date hereof to (i) perform a commercially reasonable technical and quality evaluation of Accessory Products provided to MCI as of the date of closing in accordance with 16(b) and approve or reject Accessory Products in accordance with the procedures set forth in Section 16(b) herein; and (ii) provide to CellStar its minimum commercially reasonable technical and quality specifications for each Accessory Product. If the technical and quality evaluation required in (i) above results in MCI's rejection of the Accessory Products, CellStar shall immediately initiate efforts to provide a conforming Accessory Product. In any case, however, MCI may not source or give notice of an intent to source such an Accessory Product from another vendor until January 1, 1997. (b) In the event CellStar wishes to (i) make available to MCI any new non-OEM Accessory Product, or (ii) change any style or manufacturer for any non- OEM Accessory Product, CellStar shall, at least twenty (20) business days prior to offering such Accessory Product for sale or effecting such change, provide to MCI at least three (3) random samples for a ten (10) business day technical and quality evaluation in accordance with MCI's minimum technical and quality specifications described in subsection 16(a) above or MCI's revised commercially reasonable technical and quality specifications that are provided to CellStar from time to time. In the event such Accessory Product is approved by MCI, such Accessory Product shall be added to the list set forth on Exhibit A upon --------- execution of an amendment hereto. (c) In the event MCI wishes to buy a new non-OEM Accessory Product or change any style or specification for any non-OEM Accessory Product, MCI shall provide to CellStar in writing commercially reasonable technical and quality specifications for any such new product or changes. CellStar shall stock in its warehouse such new or changed product within thirty (30) days in accordance with the following procedure. Within five (5) business days following receipt by CellStar of MCI's technical and quality specifications, CellStar shall provide at least three (3) random samples of such new or changed product for a ten (10) business day technical and quality evaluation in accordance with those minimum technical and quality specifications. If MCI approves such accessory product, it shall be added to the list of Accessory Products and this Agreement shall be amended accordingly. If CellStar is unable to provide three (3) random samples of such accessory product within five (5) business days or MCI rejects the accessory products due to failure to satisfy such technical and quality evaluation, MCI may source such accessory product from another party until CellStar is able to source such accessory product for MCI. Alternatively, CellStar and MCI may agree in writing on the substitution of an alternative accessory product that conforms to MCI's commercially reasonable technical and quality specifications. (d) All samples to be provided hereunder shall be sent to Steven Molyneaux, 14 National Service Manager, MCI Wireless, 2000 York Road, Oakbrook, Illinois 60521, Suite 126, or such other person or address as MCI may designate in writing to CellStar from time to time. Within 72 hours following the completion of any such evaluations or tests, MCI shall provide to CellStar copies of any test results or other evaluations which it conducts on non-OEM Accessory Products, including a detailed written explanation of any perceived failure to meet specifications previously provided to CellStar. 17. RECORDS AND REPORTS. (a) CellStar shall maintain complete and accurate records of all invoices, shipping, inventory, insurance, returns, penalties, MDF, Co-op, MCI's twenty percent (20%) share of #800 items, all amounts billable to and payments made by MCI, the information listed in subsection (d) below, and any other matters which relate to CellStar's obligations hereunder, in accordance with generally accepted accounting practices. CellStar shall retain and make available upon request such records for a period of three (3) years from the date of shipment of Products, Inventory Items, or rendering of Services covered by this Agreement. (b) CellStar shall provide to MCI by 11 a.m. (EST) each Monday, an ASCII file (in similar fashion as file transmissions described in the Interim Services Agreement) containing all of the information contained in each of the individual invoices issued during the prior calendar week, consolidating such information by "ship-to" address (which corresponds to a Communication Center or an area manager's address) and as soon as reasonably available by SKU or item number. Such file shall also contain all fees invoiced during such calendar week and such other sales order information as MCI may reasonably request. CellStar shall provide a paper printout of such ASCII file promptly thereafter. (c) CellStar shall provide to MCI a consolidated monthly statement. The monthly statement shall include the information listed in subsection 17(b) above for outstanding invoices. (d) Upon the reasonable request of MCI, CellStar agrees to provide weekly inventory reports on Inventory Items located in its warehouse and cycle counts within one (1) business day. (e) CellStar has agreed as part of the Interim Services Agreement to provide to MCI certain information for inventory information reporting. During the term of the Interim Services Agreement, all such information will be provided under the terms and conditions of the Interim Services Agreement. Thereafter, CellStar shall continue to provide the following information under the terms of this Agreement to MCI five (5) business days a week (except as otherwise noted in subsection 17(e)(v)) with Monday information including Friday, Saturday and Sunday data, no later than noon, CST (except for Mondays when Friday, Saturday and Sunday data get transmitted at approximately 6:00 p.m. CST). If any of the following information is not made available within one (1) business day of the time that MCI notifies CellStar that the information has not been received in accordance with the deadlines above, then MCI shall be entitled to a credit 15 against the Services Fee equal to[REDACTED] per day for each day that the information is not made available starting on the day of MCI's notice. (i) MCI Purchase Orders (ii) Receipts of Inventory Items against MCI Purchase Orders (iii) Replenishment orders from the Communication Centers (iv) All orders of items shipped from CellStar's warehouse to the Communication Centers (v) Warehouse inventory quantities for all Inventory Items on a weekly basis (vi) Adjustments/returns that were sent back to CellStar's warehouse from the Communication Centers (vii) Credits/returns related to Inventory Items (viii) Credits/returns of Inventory Items that do not require shipment (damaged goods that are non-returnable to the vendor, shrinkage, miscounted inventory, receiving discrepancies, etc.) (ix) Any other inventory management and tracking information reasonably requested by MCI and agreed to by CellStar. (f) Upon five (5) business days advance notice, MCI or its representatives shall have the right to conduct an audit and review, at reasonable hours and on CellStar premises (no more often than quarterly), of the books and records of CellStar as they pertain to amounts owed under this Agreement, Inventory Items, Co-op, MDF, special incentives and similar rebates, and the net actual cost of Products purchased under this Agreement (in order to verify the cost plus a factor pricing set forth in Section 4 hereof). MCI shall bear the costs of such audits unless the auditors find a variance of two percent (2%) or greater in the amounts invoiced to MCI whereupon such overcharges shall be refunded to MCI with interest at the prime rate. In the event of such an overcharge, CellStar shall pay the reasonable costs associated with the audit. Any undercharges shall be paid by MCI. 18. LIMITED WARRANTIES AND REMEDIES. (a) CellStar warrants its title to the Products sold by it and warrants to MCI that its Products are free of defects of workmanship or material and are in conformity with applicable specifications and descriptions set out in the printed publications of CellStar or the manufacturer. 16 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. The limited warranty provided by the manufacturers of Wireless Handsets and OEM Accessory Products shall accompany such Products. A copy of the limited warranty which will accompany each non-OEM Accessory Product and which will be extended by CellStar to ultimate purchasers for use is attached hereto as Exhibit D. CellStar extends to MCI the same such warranties it extends to - --------- ultimate purchasers for use, subject to the conditions stated hereinafter in this Section 18. No claim shall be maintained hereunder unless the facts giving rise to it are discovered within the warranty period of the Product and written notice thereof given to CellStar within thirty (30) days of discovery. The sole and exclusive liability of CellStar for breach of warranty shall be to refund the purchase price of, or at its option, to replace or repair the Product or part concerned FOB its service facility or such other places as CellStar may designate. (b) The warranty period for the Products shall be as follows: (i) All non-OEM batteries: Two (2) year warranty (subject to requirement for proof of purchase after one year). (ii) All other non-OEM accessories: Lifetime warranty (subject to requirement for proof of purchase after one year). (iii) All OEM accessories: Manufacturers' warranty passes through to MCI. CellStar provides no additional warranty. (iv) All Wireless Handsets: Manufacturers' warranty passes through to MCI. CellStar provides no additional warranty. (c) The foregoing sets forth the sole and exclusive remedy of MCI for claims (except as to title) based on defect in or failure of Products, whether the claim is in contract, tort (including negligence), strict liability or otherwise, and however instituted. Upon expiration of the warranty period, all such liability shall terminate. Except as set forth in Section 23, the foregoing warranties are exclusive and in lieu of all other warranties, whether written, oral, implied or statutory. NO IMPLIED OR STATUTORY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE SHALL APPLY. 19. TRADEMARK LICENSE. CellStar grants to MCI the nonexclusive right to use CellStar's trade names and trademarks set forth on Exhibit E in marketing --------- CellStar's Products during the term hereof. MCI agrees to designate the Product properly and depict marks accurately. 20. TERM. This Agreement shall be for an initial term of two (2) years, commencing on the date hereof unless otherwise terminated pursuant to the terms hereof. 21. TERMINATION. (a) Either party my terminate this Agreement immediately upon written notice to the other party if (i) the other party is in default of any material obligations hereunder, and, if curable, such party has failed to cure such default within thirty (30) days after receipt of such written notice; (ii) the other party violates any international, federal, state, provincial or local law relating 17 to or affecting this Agreement; or (iii) the other party becomes insolvent, makes a general assignment for the benefit of its creditors, files or does not object to the filing of any petition in bankruptcy or insolvency in any federal or state proceeding, has a receiver or trustee appointed over all or any substantial part of its property or undertakes or is subject to similar actions. (b) During the initial term hereof, MCI shall additionally have the right to terminate this Agreement at any time following eighteen (18) months from the effective date hereof in the event CellStar breaches any of the terms of the Non-Competition Agreement of even date herewith between the parties, notwithstanding the fact that such Non-Competition Agreement will have already terminated according to its own terms. (c) In the event of a material breach of the Interim Services Agreement and expiration of any applicable cure period, as such material breaches and cure periods are defined in the Interim Services Agreement, MCI shall have the right to terminate this Agreement immediately. (d) MCI shall have the right to terminate this Agreement upon thirty (30) days prior written notice if: (i) shrinkage of Inventory Items exceeds eight percent (8%) of total Inventory Items under the control of CellStar in any given month (other than fulfillment, collateral, and promotional materials for which CellStar already has a five percent (5%) shrinkage allowance); or (ii) shrinkage of Inventory Items exceeds five percent (5%) of total Inventory Items under the control of CellStar in a second month (other than fulfillment, collateral, and promotional materials for which CellStar already has a five percent (5%) shrinkage allowance) provided that MCI has given CellStar a written warning that shrinkage of Inventory Items exceeded five percent (5%) of total Inventory Items under the control of CellStar in one previous month during the term of the Agreement. 22. CONFIDENTIALITY OF INFORMATION. (a) CellStar agrees that all information related to the Services, whether received orally, in print, or electronically, including but not limited to MCI data and business information inputted, received, reported or generated by CellStar, or stored in any CellStar computer system under the terms of this Agreement, shall be received by CellStar in strict confidence. MCI agrees that all information related to all amounts due and payable under the terms of this Agreement, including but not limited to Product Prices and Service Fees and such other information that CellStar may, from time to time designate as confidential, whether received orally, in print, or electronically, shall be received by MCI in strict confidence. All such information shall be deemed to be "Confidential Information". (b) Each party agrees that it shall use such Confidential Information for the purposes of and only in the performance of this Agreement, and that it shall not make copies of any such Confidential Information or any part thereof except to the extent otherwise expressly permitted by this Agreement or by the owner of the information ("Owner"). The party receiving the Confidential Information ("Recipient") shall not disclose any Confidential Information to any third party without the express written consent of the Owner other than to its employees, consultants and 18 agents, and its Affiliates' employees, consultants and agents, who have a need to know to perform under this Agreement, and who are bound to protect the received Confidential Information from unauthorized use and disclosure under the terms of a written agreement or corporate policy, provided that in any case, the Recipient shall be liable for any breaches of confidentiality by any of them. The Recipient shall protect the Confidential Information using the same degree of care used to protect Recipient's own confidential or proprietary information of like importance, but in any case using no less than a reasonable degree of care. The Recipient shall return Confidential Information and any copies thereof to the Owner at the completion or termination of this Agreement, or at such earlier date as the Owner may desire. (c) If the Recipient is required by law, regulation or court order to disclose any Confidential Information, the Recipient will promptly notify the Owner in writing prior to making any such disclosure in order to facilitate the Owner seeking a protective order or other appropriate remedy from the proper authority. The Recipient agrees to cooperate with the Owner in seeking such order or other remedy. The Recipient further agrees that if the Owner is not successful in precluding the requesting legal body from requiring the disclosure of the Confidential Information, it will furnish only that portion of the Confidential Information which is legally required and will exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded the Confidential Information. (d) The Recipient acknowledges that the Confidential Information constitutes unique, valuable and special trade secret and business information of the Owner, and that disclosure may cause irreparable injury to the Owner. Accordingly, the parties acknowledge and agree that the remedy at law for any breach of the covenants contained in this Agreement may be inadequate, and in recognition, agrees that the Owner, shall, in addition, be entitled to seek injunctive relief without bond including reasonable attorneys' fees and other court costs and expenses, in the event of a breach or threatened breach of any of the provisions of this Agreement, which relief shall be in addition to and not in derogation of any other remedies which may be available to the Owner as a result of such breach. (e) Notwithstanding the foregoing, the restrictions set forth in this Section on use and disclosure of Confidential Information shall not apply to information that: (a) was publicly known at the time of Owner's communication thereof to Recipient; (b) becomes publicly known through no fault of Recipient subsequent to the time of Owner's communication thereof to Recipient; (c) is received from a third party free to disclose it to Recipient; (d) was in Recipient's possession free of any obligation of confidence at the time of Owner's communication thereof to Recipient; (e) is developed by Recipient independently of and without reference to any of Owner's Confidential Information or other information that Owner disclosed in confidence to any third party ; (f) is rightfully obtained by Recipient from third parties authorized to make such disclosure without restriction; (g) is identified by Owner as no longer proprietary or confidential; or (h) is lawfully required to be disclosed to any governmental agency or judicial body or is otherwise required to be disclosed by law. 19 23. INDEMNIFICATION AND INSURANCE. (a) Patent and Copyright Indemnification. CellStar agrees to defend, at its expense, any claims or suits against MCI based upon a claim that any Products furnished hereunder directly infringes a U.S. patent or copyright and to pay costs and damages finally awarded in any such suit, provided that CellStar is notified promptly in writing of the suit and at CellStar's request and at its expense is given control of said claim and all requested assistance for defense of same. If the use or sale of any Products furnished hereunder is enjoined as a result of such suit, CellStar at its option and at no expense to MCI, shall obtain for MCI the right to use or sell said Products or shall substitute an equivalent Product reasonably acceptable to MCI, and extend this indemnity thereto or shall accept the return of the Products and reimburse MCI the purchase price therefor, 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 CellStar or by the combination of any Products furnished by CellStar and other elements, nor does it extend to any products of MCI's design or formula. The foregoing states the entire liability of CellStar for patent or copyright infringement. IN NO EVENT SHALL CELLSTAR BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS EXCEPT AS OTHERWISE SET FORTH HEREIN. (b) Other CellStar Indemnification. CellStar shall indemnify and hold MCI, its officers, directors, employees, affiliates (including their officers, directors and employees), and agents (the "MCI Indemnified Parties") harmless from any liabilities, claims, losses and expenses, including without limitation, interest, penalties, consequential damages and all reasonable attorneys' fees including in-house counsel fees, accountants, and other experts, that may be incurred by MCI as a result of or arising out of claims made: (i) by any third party for injury to persons, including death, and damage to property, including theft, resulting from CellStar's negligent acts or omissions; (ii) by any third party for injury to persons, including death, and damage to property, resulting from any material supplied or used by CellStar in a defective and unreasonably dangerous condition; (iii) under Worker's Compensation, or similar employer- employee liability acts, against MCI by persons provided by CellStar; and (iv) any claim for infringement of any U.S. trademark or copyright by reason of use of CellStar's trademarks in connection with the Products. If any MCI Indemnified Party makes an indemnification request to CellStar, the MCI Indemnified Party shall permit CellStar to defend or settle at its own expense, any action or claim against the MCI Indemnified Party for which CellStar is responsible under this provision; provided that (i) any such settlement or disposition shall impose no obligation whatsoever on the MCI Indemnified Party that is not wholly discharged or dischargeable by CellStar, and imposes no conditions or obligations on the MCI Indemnified Party other than the payment of monies that are readily measurable for purposes of determining the monetary indemnification or reimbursement obligations of CellStar and (ii) CellStar will be capable of fully performing its obligations pursuant to such settlement or disposition, including the financial capacity to pay when due all sums it is obligated to pay pursuant to such settlement or disposition. The MCI Indemnified Party shall notify CellStar promptly of any claim 20 for which CellStar is responsible and shall cooperate with CellStar in every commercially reasonable way to facilitate defense of any such claim; provided that the MCI Indemnified Party's failure to notify CellStar shall not diminish CellStar's obligations under this Section unless CellStar is materially prejudiced as a result of such failure. (c) MCI Indemnification. MCI shall indemnify and hold CellStar, its officers, directors, employees, affiliates (including their officers, directors and employees), and agents (the "CellStar Indemnified Parties") harmless from any liabilities, claims, losses and expenses, including without limitation, interest, penalties, consequential damages and all reasonable attorneys' fees including in-house counsel fees, accountants, and other experts, that may be incurred by CellStar as a result of or arising out of claims made: (i) by any third party for injury to persons, including death, and damage to property, including theft, resulting from MCI's negligent acts or omissions; (ii) by any third party for injury to persons, including death, and damage to property, resulting from any material supplied by MCI in a defective and unreasonably dangerous condition; and (iii) under Worker's Compensation, or similar employer- employee liability acts, against CellStar by persons provided by MCI. If any CellStar Indemnified Party makes an indemnification request to MCI, the CellStar Indemnified Party shall permit MCI to defend or settle at its own expense, any action or claim against the CellStar Indemnified Party for which MCI is responsible under this provision; provided that (i) any such settlement or disposition shall impose no obligation whatsoever on the CellStar Indemnified Party that is not wholly discharged or dischargeable by MCI, and imposes no conditions or obligations on the CellStar Indemnified Party other than the payment of monies that are readily measurable for purposes of determining the monetary indemnification or reimbursement obligations of MCI and (ii) MCI will be capable of fully performing its obligations pursuant to such settlement or disposition, including the financial capacity to pay when due all sums it is obligated to pay pursuant to such settlement or disposition. The CellStar Indemnified Party shall notify MCI promptly of any claim for which MCI is responsible and shall cooperate with MCI in every commercially reasonable way to facilitate defense of any such claim; provided that the CellStar Indemnified Party's failure to notify MCI shall not diminish MCI's obligations under this Section 23 unless MCI is materially prejudiced as a result of such failure. (d) Insurance Requirements. During the term of this Agreement, CellStar shall maintain insurance of the kinds and in the amounts specified below with insurers of recognized responsibility, licensed to do business in the State(s) where the work is being performed, and having either: an A.M. Best's rating of A8, a Standard & Poor's (S&P) rating of AA, or a Moody's rating of Aa2. (i) In accordance with the above, CellStar shall maintain the following insurance coverages: (1) Workers' Compensation insurance as required by the State(s) in which the contract is to be performed; (2) Employer's Liability insurance with limits of not less 21 than [CONFIDENTIAL MATERIAL REDACTED] per occurrence; (3) Comprehensive or Commercial General Liability Insurance, on an Occurrence Basis, including but not limited to (premises-operations, broad form property damage in addition to that covered by Section 23(d)(5) below, contractual liability, independent contractors, personal injury) with limits of no less than $10,000,000 combined single limit for each occurrence; and (4) Automobile Liability, Comprehensive Form, with limits of at lease $1,000,000 combined single limit for each occurrence. (5) Bailee Liability Insurance, with limits of at least the full replacement value of all Inventory Items physically located at CellStar's warehouse at any given time. (ii) THE REQUIRED MINIMUM LIMITS OF COVERAGE SHOWN ABOVE, HOWEVER, WILL NOT IN ANY WAY RESTRICT OR DIMINISH CELLSTAR'S LIABILITY UNDER THIS AGREEMENT. (iii) CellStar's insurers shall waive all rights of recovery against MCI for any injuries to persons or damage to property in the execution of work performed under this Agreement. (iv) CellStar's insurance shall be considered primary and not excess or contributing with any other applicable insurance. (v) All policies (excluding Workers' Compensation) shall name MCI, its subsidiaries and affiliates, as additional insureds as respects work performed under this Agreement and all coverage shall include MCI property. CellStar will submit to MCI a standard "Accord" insurance certificate (or comparable form acceptable to MCI) signed by an authorized representative of such insurance company(ies), certifying that the insurance coverage(s) required hereunder are in effect for the purposes of this Agreement. Said insurance certificate shall certify that no material alteration, modification or termination of such coverage(s) shall be effective without at least 30 days advance written notice to MCI. 24. FORCE MAJEURE. If the performance of this Agreement, or of any obligation hereunder, is prevented, restricted or interfered with by reason of acts of God, wars, revolution, civil commotion, acts of public enemies, blockage or embargo, strikes, acts of the Government in its sovereign capacity, interruptions of transportation, material default of any carrier or supplier, or any other extraordinary and unexpected circumstance beyond the control and without the fault or 22 negligence of the performing party, upon giving prompt notice to the other, but in no event to exceed more than ten (10) days after the performing party's learning of such event or after the date when the performing party reasonably should have known of event, the performing party shall be excused from such performance on a day-to-day basis to the extent of such prevention, restriction or interference with (and the other party shall likewise be excused from payment for all services not performed); provided, however, that the performing party shall use its best efforts to avoid or remove such causes of non-performance and both parties shall proceed whenever such causes are removed or cease. 25. COMPLIANCE WITH LAWS. Each of the parties shall comply with the provisions of all applicable federal, state, county and local laws, ordinances, regulations and codes including but not limited to compliance with the Federal Communications Commission's Rules and Regulations, and, irrespective of whether a specification is furnished, if equipment, services or containers furnished hereunder by CellStar are required to be constructed, packaged, labeled or registered in a prescribed manner, CellStar shall comply with applicable federal, state or local law. If MCI exports Products outside the United States, MCI shall be responsible for complying with all U.S. export laws and regulations and with all laws and regulations, including, but not limited to, permission to connect, packaging and instruction, in the countries to which Products have been exported. Each party shall indemnify and hold harmless the other from and against all liabilities, claims, costs, losses, damages (including, without limitation, any indirect, special, consequential, incidental or punitive damages), and expenses (including attorneys' fees and allocated in-house legal expenses) arising out of breach of this Section. 26. ASSIGNMENT. The rights and obligations under this Agreement may not be assigned without, in each instance, the prior written consent of the non- assigning party. 27. GOVERNING LAW. This Agreement, including all matters relating to the validity, construction, performance and enforcement thereof, shall be governed by the laws of the State of New York without giving effect to its principles of conflicts of law. 28. RELATIONSHIP OF PARTIES. (a) The relationship of the parties under this Agreement shall be, and shall at all times remain, one of independent contractors and not that of franchisor and franchisee, joint venturers, partners , principal and agent, employees, or any other relationship, and neither party shall have the rights to bind or obligate the other. (b) All persons furnished by the parties in performance of the Services hereunder shall be considered solely that party's employees or agents; and that party shall be responsible for compliance with all laws, rules, and regulations involving, but not limited to, employment of labor, hours of labor, working conditions, payment of wages and payment of taxes, such as unemployment, social security and other payroll taxes, including applicable contributions from such persons when required by law. In addition, CellStar shall not improperly influence any MCI employee in any manner that would cause such MCI employee to violate MCI's Code of Employee Conduct involving 23 conflicts of interest regarding acceptance of vendor gifts and gratuities (as such MCI's Code of Employee Conduct is updated from time to time and provided to CellStar by MCI). (c) Each party shall be solely responsible for all reporting and payment obligations relating to FICA, income tax, unemployment compensation and workers compensation withholdings, and other employer related obligations of a similar nature with respect to their own employees. (d) Each party shall be solely responsible to the other for all acts and omissions of its employees and agents assigned by such party for the performance of its obligations hereunder. 29. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, together with the Interim Services Agreement and the Asset Purchase Agreement, constitutes the entire Agreement between the parties and supersede any prior or contemporaneous oral or written representations with regard to the subject matter hereof. This Agreement may not be modified or amended except by a writing signed by both parties. No waiver of any provision hereof shall be effective unless in writing signed by the party alleged to have waived such provision. Any single waiver shall not operate to waive subsequent or other defaults. 30. SEVERABILITY. If any provision of this Agreement is contrary to, prohibited by or held invalid by any law, rule, order or regulation of any government or by the final determination of any state or Federal court, such invalidity shall not effect the enforceability of any of the provisions not held to be invalid. 31. NOTICES. All notices, requests, demands or other communications required or permitted hereunder shall be in writing, shall be deemed delivered (i) on the date of delivery when delivered by hand, (ii) on the date of transmission when sent by telex, electronic mail or facsimile transmission during normal business hours with telephone confirmation of receipt, (iii) one (1) day after dispatch when sent by overnight courier maintaining records of receipt, or (iv) three (3) days after dispatch when sent by registered mail, postage prepaid, return receipt requested, all addressed as follows (or at such other addresses as shall be given in writing by either Party to the other): If to MCI: MCI Telecommunications Corporation 1200 South Hayes Street Arlington, VA 22202 Attention: Terry Macko Segment Marketing Vice President Fax: (703) 415-6789 With a copy to: 24 MCI Telecommunications Corporation 1200 South Hayes Street Arlington, VA 22202 Attention: Lanese Jorgensen, Esq. Senior Attorney Law & Public Policy Fax: (703) 415-7102 If to CellStar: CellStar, Ltd. 1730 Briercroft Court Carrollton, TX 75006 Attention: Alan H. Goldfield Chairman and CEO Fax: (972) 323-1589 With a copy to: CellStar, Ltd. 1730 Briercroft Court Carrollton, TX 75006 Attention: General Counsel Fax: (972) 466-5030 With an additional copy to : CellStar, Ltd. 1730 Briercroft Court Carrollton, TX 75006 Attention: Chief Financial Officer Fax: (972) 466-0288 32. DISPUTE RESOLUTION PROCEDURES. (a) Other than a dispute under Section 4(j) herein, for which the provisions thereof shall govern, in the event of any disagreement regarding performance under or interpretation of this Agreement, the parties shall attempt to reach a negotiated resolution. If such a dispute remains unresolved for a period of thirty (30) days after one party has provided written notice of the dispute to the other, then each party shall designate an officer of appropriate authority to resolve the dispute, in accordance with Section 32(b) below. (b) Any dispute arising out of or related to this Agreement (including any dispute 25 arising under Section 4(j) herein), which cannot be resolved by negotiation under Section 32(a) above, shall be settled by binding arbitration in accordance with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures ("Endispute Rules"), as amended by this Agreement. The costs of arbitration, including the fees and expenses of the arbitrator, shall be shared equally by the parties unless the arbitration award provides otherwise. Each party shall bear the cost of preparing and presenting its case. The parties agree that this provision and the Arbitrator's authority to grant relief shall be subject to the United States Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes. The parties agree that the arbitrator shall have no power or authority to make awards or issue orders of any kind except as expressly permitted by this Agreement, and in no event shall the arbitrator have the authority to make any award that provides for punitive or exemplary damages. The Arbitrator's decision shall follow the plain meaning of the relevant documents, and shall be final and binding. The award may be confirmed and enforced in any court of competent jurisdiction. All post-award proceedings shall be governed by the USAA. 33. WAIVER OF CERTAIN REMEDIES. Notwithstanding any provision of this Agreement, neither party shall be liable for any indirect, special, consequential, incidental or punitive damages arising out of this Agreement, even if advised of the possibility of such damages; provided, that this shall not limit the liability of the indemnifying party to indemnify the indemnified party with respect to claims brought by third parties against the indemnified party as provided for in this Agreement. 34. SURVIVAL. The respective obligations of the parties under this Agreement that by their nature would continue beyond the termination, cancellation or expiration, shall survive any termination, cancellation or expiration, including, but not limited to, obligations to insure and indemnify, insure and maintain confidentiality, deliver and have the opportunity to inspect and accept goods under existing Purchase Orders, and provide continued availability of warranty support and services. 35. PARAGRAPH HEADINGS. The headings of the paragraphs are inserted for convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. 36. ORDER OF PRECEDENCE. This Agreement and all Exhibits are intended to be read consistently and as a whole. Nonetheless, in the event of any ambiguity, inconsistency or conflict between the terms of the Agreement and an Exhibit hereto, the terms and conditions of the Agreement shall control. 37. COUNTERPARTS. This Agreement may be signed in one or more counterparts each of which shall be deemed to be an original but together shall constitute one instrument. 26 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their duly authorized representatives. CELLSTAR, LTD. MCI TELECOMMUNICATIONS By NATIONAL AUTO CENTER, INC. CORPORATION General Partner By: /s/ Richard M. Gozia By: /s/ Victoria Harker -------------------------------- -------------------------------- Name: Name: ------------------------------ ------------------------------ Its: Executive Vice President Its: Vice President of Finance ------------------------------- ------------------------------- 27 EXHIBIT A ACCESSORY PRODUCTS AND PRICES ----------------------------- [REDACTED] Motorola Application -------- W033020 All W051019 All W061020 Flip W061019 TT250 E26-1-120 650 E8R-1-020 All W8K3020 Flip E8S-3-019 TT250 E8S-3-120 650 HFK-5-020 All above SNN4589P Slim Nickle Metal Batt. Nokia ----- E03-3-213 636/638 E03-3-042 232 W051213 636/638 W051027 232 E26-1-213 636/638 E06-1-042 232 E8R-1-042 232 E8S-1-213 636/638 E8S-3-042 232 E8S-3213 636 BBT6LP 636/Slim Nickle Metal Batt. BTH8SMP 232/Slim Nickle Metal Batt. E061043 2120 NEC --- W031025 810 W051025 810 W061025 810 E8R-1-025 810 W8K1025 810 Misc. Accessories ----------------- E8M-1-079 All handheld E8B-1-110 All Trans. 28 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. [REDACTED] E01-1-050 Any 3 Watt E01-1-055 Any 3 Watt B01-1-070 Any 3 Watt HLN9033 Leather Case (Two-Way Radio) B016063 Connector (Mot. Attache Phone) 29 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT B WIRELESS HANDSETS AND PRICES ---------------------------- [REDACTED] Motorola -------- TT250 550 ProPak 650 Lite II ProPak Lite II Standard Attache with battery Lunch Box with battery Nokia ----- 636/638 232 (includes all colors) NEC --- 810 TWO WAY RADIOS -------------- Motorola Sprint CS10 Accessory --------- HLN9034 Cs.w/Loop HLN8240 Belt Clip HLN8371 Desk Chgr HLN3987 Int. Elim. HNN9044 Battery Pack HTN9026 3h Desk Chgr HTN8232 10h Desk Ch HAD9742 Stub Ant. 30 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT C SERVICES AND FEES ----------------- 1. WAREHOUSE, DISTRIBUTION AND FULFILLMENT SERVICES. (a) Services Regarding Inventory Items. The services to be performed hereunder by CellStar regarding Inventory Items shall include the receiving, handling, storage, assembly (if requested), shipping, and reporting as described herein of the Inventory Items listed on Attachment A of various vendors (the ------------ "MCI Vendors"). CellStar shall warehouse the Inventory Items at its warehouse facility located at 1728 Briercroft Court, Carrollton, Texas 75006, or such other warehouse facilities as shall be approved in writing by MCI from time to time (the "Warehouse"). (b) Fulfillment Services. The services to be performed hereunder by CellStar include the assembly (if requested), packaging (if requested), programming (if requested), shipping, returns processing and other fulfillment services relating to the Products and the Inventory Items. (c) Availability. The Services provided by CellStar hereunder shall be available eight (8) hours per day during normal business hours, five days per week, fifty-two weeks per year unless otherwise mutually agreed upon by the parties (excluding New Years Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, the day after Thanksgiving, and Christmas). (d) Maintenance. CellStar agrees to maintain its warehouse in a clean, orderly, and safe condition; to maintain all equipment used by it in the performance of its services hereunder in a clean, proper, and safe operating condition; and to maintain the grounds around the warehouse in a safe, neat and presentable manner. (e) Record keeping. CellStar shall maintain, in accordance with generally accepted accounting principles and practices, such records as may be necessary to adequately reflect the accuracy of CellStar's charges and invoices for reimbursement under the Agreement. 2. COMPENSATION. In consideration for the Services to be performed hereunder, MCI shall pay CellStar Service Fees as set forth on Attachment B, as ------------ invoiced by CellStar in accordance with Section 4 of the Agreement. 3. SAFEKEEPING/TITLE. CellStar shall exercise all commercially reasonable care for the safekeeping and safe handling of all Inventory Items provided to CellStar by MCI pursuant to this Agreement, including, but not limited to placing pagers, prepaid calling cards, movie tickets and other valuable items in a segregated, locked area. Title to the Inventory Items shall at all times remain with MCI. 31 4. OPERATIONS METHODS AND PROCEDURES. (a) Receiving of Shipments. CellStar shall scan or otherwise enter Inventory Items into CellStar's inventory management and order processing system within one full business day of actual receipt of shipment. Product receipt shall follow the procedures outlined in Attachment C. ------------ (b) Performance of Services. CellStar shall perform the Services in accordance with its standard and operating procedures as such may be changed from time to time, including those procedures outlined in Attachment C. ------------ 5. IN-BOUND FREIGHT CHARGES. CellStar and MCI understand that MCI Vendors will be providing in-bound freight shipments of Inventory Items to CellStar at no charge to CellStar. 6. DAMAGED ITEMS. (a) In-bound Freight Damage. CellStar shall not be liable for shipments of Inventory Items until they have been received and accepted at the Warehouse. CellStar will assist MCI in filing and resolving any freight claims for these shipments and shall retain all packaging and shipping materials until the claim is settled unless otherwise directed by MCI. (b) Out-bound Freight Damage and Warehouse Damage. Subject to the allowance for shrinkage contained in Section 11(c) of this Agreement, the risk of loss, damage, or destruction of the Products and Inventory Items shall be borne by CellStar from the time the shipments are received and accepted at the Warehouse until the goods are delivered to and accepted by MCI at the Sam's Club location. (c) Definition of Damaged Products. Unless otherwise stated in Section 12, Products and Inventory Items shall be considered damaged when the actual unit has been marred in any manner, including, but not limited to, scratched, dented, water stained or stained by any other substance, crushed, punctured, and/or when the item has obvious damage detected by rattling sound. Any Inventory Items that is not resalable as a new product, due to any visual defects or obvious internal damage, shall be considered damaged. 7. INSURANCE. (a) In-bound Shipment. CellStar shall not be responsible for insuring in-bound shipments of Inventory Items, nor shall it be responsible for any loss or damage incurred during such shipment. However, CellStar will assist MCI in filing and resolving any freight claims. (b) Warehouse Inventory. CellStar shall insure, and provide proof of insurance to MCI, naming MCI as beneficiary, the full replacement value of the Inventory Items stored in the Warehouse at any time. CellStar shall also maintain property and liability insurance as set forth 32 in Section 23 of this Agreement. In addition, CellStar will promptly notify MCI in writing of any claims filed that relate in whole or in part to any Inventory Items. With respect to any such claims disputed in whole or in part by the insurance carrier, CellStar will notify MCI of the dispute, provide MCI with such information as may be requested by MCI in writing and shall not settle such claims (insofar as they relate to the Inventory Items) for less than the full value thereof without the written approval of MCI. (c) Out-bound Shipment. Unless otherwise stated in the Agreement, CellStar shall insure at MCI's cost all out-bound freight shipments for the full replacement value of the Products and Inventory Items being transported to any Communication Center. 8. WAREHOUSE ACCESS. MCI shall have access to the warehouse during CellStar's normal working hours, upon two (2) hours prior notice to CellStar, for the purpose of inspecting Inventory Items, evaluating damaged Inventory Items, performing Inventory Item counts and other reasonable requirements. 33 ATTACHMENT A INVENTORY ITEMS MCI PAGERS PART NUMBER DESCRIPTION FREQUENCY COV BPNXA86BLK002 PRONTO BLACK 929.8625 L BBFXA86BLK002 BRAVO BLACK 929.8625 L BBFXA58BLK002 BRAVO BLACK 929.5875 R/N BUXXA86BLK002 ULTRA BLACK 929.8625 L BUXXA86TTL002 ULTRA TEAL 929.8625 L BUXXA86CIC002 ULTRA CRAN 929.8625 L BUXXA86BBL002 ULTRA BLUE 929.8625 L BUXXA58BLK002 ULTRA BLACK 929.5875 R/N BAGXA86BLK002 ADVISOR BLACK 929.8625 L BAGXA58BLK002 ADVISOR BLACK 929.5875 R/N BAGXA86BLK002S ADVISOR BLACK 929.8625 L SPORTS BAGXA58BLK002S ADVISOR BLACK 929.5875 R/N SPORTS BUXRE70BLK002 ULTRA BLACK 158.7000 L BUXRE10BLK002 ULTRA BLACK 158.1000 L BUXRD84BLK002 ULTRA BLACK 152.8400 L BPNXA96BLK002 PRONTO BLACK 929.9625 L BPNXA73BLK002 PRONTO BLACK 929.7375 L BBFXA96BLK002 BRAVO BLACK 929.9625 L BBFXA96TTL002 BRAVO TEAL 929.9625 L BBFXA96CIC002 BRAVO CRAN 929.9625 L BBFXA96BBL002 BRAVO BLUE 929.9625 L 34 PART NUMBER DESCRIPTION FREQUENCY COV BBFXA86TTL002 BRAVO TEAL 929.8625 L BBFXA86CIC02 BRAVO CRAN 929.8625 L BBFXA86BBL002 BRAVO BLUE 929.8625 L BBFXA73BLK002 BRAVO BLACK 929.7375 L BBFXA73TTL002 BRAVO TEAL 929.7375 L BBFXA73CIC002 BRAVO CRAN 929.7375 L BBFXA73BBL002 BRAVO BLUE 929.7375 L BUXXA96BLK002 ULTRA BLACK 929.9625 L BUXXA96TTL002 ULTRA TEAL 929.9625 L BUXXA96CIC002 ULTRA CRAN 929.9625 L BUXXA96BBL002 ULTRA BLUE 929.9625 L BUXXA73BLK002 ULTRA BLACK 929.7375 L BUXXA73TTL002 ULTRA TEAL 929.7375 L BUXXA73CIC002 ULTRA CRAN 929.7375 L BUXXA73BBL002 ULTRA BLUE 929.7375 L BAGXA96BLK002 ADVISOR BLACK 929.9625 L BAGXA73BLK002 ADVISOR BLACK 929.7375 L BAGXA96BLK002S ADVISOR BLACK 929.9625 L SPORTS BAGXA73BLK002S ADVISOR BLACK 929.7375 L SPORTS BUXRD45BIL002 ULTRA BLACK 454.4500 L BUXXA63BLK002 ULTRA BLACK 929.6375 L BUXRE78BLK002 ULTRA BLACK 929.7875 L BUXXA61BLK002 ULTRA BLACK 929.6125 L 35 PREPAID CALLING CARDS Holiday Card 30 Unit Holiday Card 15 Unit Collectors' Independence Day 4 30 Units Collectors' Independence Day 4 30 Units (Promotional Cards) UNITED ARTIST THEATERS PROMOTIONAL MOVIE TICKETS FULFILLMENT, COLLATERAL AND PROMOTIONAL MATERIALS Including, but not limited to: User Guide and Terms & Conditions Warranty Cards Box Sleeves Alpha Paging Software Sweepstakes Cards Paging Correspondence Maps Sports Paging Brochures Other Brochures Other Promotional Materials Sales Aids Long Distance Welcome Letters Buckslips Greeter Flyers Other Collateral Materials 36 ATTACHMENT B SERVICE FEES Service Price Per Unit/Product ------- ---------------------- Assembly: Private Label Packaging of Pagers [REDACTED] (Individual packaging of pagers approved and requested by MCI) Order Fulfillment: A negotiated flat fee per order processed [REDACTED] and shipped to each "ship to" address, including but not limited to the following aspects of Inventory Item handling and management: *Receiving *Scanning in ESN's *Storage *Picking, Packing and Prepping for Shipping *Freight Processing *Scanning Out ESN's *Reporting Returns Processing (For Inventory Items Only): MCI Pager Returns Handling Fee [REDACTED] 1-800-Number Fulfillment (OEM Accessories available through a transparent phone catalog sales system, based on credit card purchases only.) The Service Fee shall be in the form of a margin split with MCI: [REDACTED] to CellStar and [REDACTED] to MCI. CellStar shall receive the first [REDACTED] of margin on the total purchase prior to MCI receiving its [REDACTED] share. If CellStar's [REDACTED] share constitutes less than [REDACTED], CellStar is entitled to collect that total amount only and 37 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MCI shall not owe CellStar the difference between that amount and [REDACTED]. (For example, on a [REDACTED] item the split would be [REDACTED] CellStar/[REDACTED] MCI, on an [REDACTED] item the split would be [REDACTED] CellStar/[REDACTED] MCI, and on a [REDACTED] item the split would be [REDACTED] CellStar/[REDACTED] MCI.) All such credits owed to MCI shall be issued in accordance with the provisions of Section 4(i) of the Agreement. 38 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. ATTACHMENT C I. INVENTORY ITEM RECEIVING PROCEDURES 1. Vendors and MCI shall create notification procedures reasonably acceptable to CellStar regarding shipments of Inventory Items into the Warehouse. 2. MCI and/or MCI vendors shall provide CellStar the following information: (a) MCI Purchase Order number (b) Vendor shipping reference number (c) Number of pieces and weight and dimensions of shipment (d) Loading address (e) Name and telephone number of contact person (f) Hours of operation (g) Description of item (including SKU number) (h) Cost of good 3. CellStar shall accept Inventory Items and verify bills of lading for correct address, pallet and box/piece counts. Any discrepancies such as shortages, overages or any damage to the Inventory Items shall be notated on the bill of lading and signed by the receiving personnel. 4. CellStar shall verify Inventory Items against the MCI vendor's pack list and note any discrepancies. A receiving exception report shall be completed describing any discrepancies, including missing and/or damaged Inventory Items and forward to MCI within two (2) business days of CellStar's receipt of shipment. 5. CellStar agrees to return any damaged Inventory Items to the MCI vendor in accordance with instructions to be provided by MCI. 6. Within one (1) business day following receipt at CellStar's warehouse, CellStar shall enter the serial numbers for all incoming pagers into CellStar's inventory management system and generate the reports required pursuant to the terms of this Agreement. 39 ATTACHMENT C (CONTINUED) II. MCI PAGER RETURN PROGRAM MCI Kiosk Policy - 30 day returns/exchange policy is in effect at the kiosk level. - MCI will establish a policy for the kiosks to return pagers. - The kiosks will call CellStar for a return authorization ("RA") for return of the pagers. MCI Agreement with PageNet - PageNet will take all pagers back. PageNet and MCI have agreed to appropriate crediting terms and charges for such returns. MCI Return to CellStar - Pagers will be returned to CellStar twice a month or as otherwise determined by MCI. CellStar Responsibilities - CellStar will verify the pagers received against the RA issued to the kiosks. - CellStar is responsible for sorting MCI pagers contained in each return shipment from other returned items in the same shipment (including CellStar pagers sold to customers by CellStar prior to the closing of the Asset Purchase Agreement). No triage will be performed. - CellStar will sort pagers by SKU or serial number. - CellStar will post credit by SKU or serial number through the system to the kiosk and within the system to the MCI Inventory Item Inventory Return Branch Plant (as defined in the Interim Services Agreement). - CellStar will return pagers to PageNet twice a month or as otherwise determined by MCI. - CellStar will provide PageNet with advance notice of such returns and cooperate with PageNet's return procedures. - CellStar will issue a return to PageNet which will relieve MCI's Inventory and establish a receivable in MCI's records against PageNet for the return credit. - CellStar will track such returns in accordance with other procedures that are mutually agreed upon in writing by the parties. - Within two (2) business days of shipment to PageNet, CellStar will provide closed loop reporting which includes MCI pagers to be received by SKU, MCI pagers actually received by SKU, MCI pagers waiting to be shipped to PageNet by SKU, and MCI pagers shipped to PageNet by SKU. CellStar Charges - CellStar will charge MCI a $0.25 handling fee for each MCI pager that is returned 40 to CellStar. - CellStar will charge MCI for the actual freight costs (including insurance) incurred to return the MCI pagers to PageNet. 41 EXHIBIT D LIMITED WARRANTY FOR NON-OEM ACCESSORY PRODUCTS ----------------------------------------------- - -------------------------------------------------------------------------------- LIMITED WARRANTY CellStar extends this limited warranty directly to you, the original end-user purchaser of its products, provided your purchase was made in Canada, the United States or Latin America. If you sell or otherwise transfer the product, warranty coverage automatically terminates. If any part of your CellStar product (except for batteries) was defective in material or workmanship on the date of purchase, return it with proof of purchase to the place of purchase (in the U.S. only) and CellStar will, at its option, either repair or replace it with a new or rebuilt part at no charge to you for parts or labor. If any part of your CellStar battery was defective in material or workmanship on the date of purchase, return it with proof of purchase within 2 years of the date of purchase to the place of purchase (in the U.S. only) and CellStar will, at its option, either repair or replace it with a new or rebuilt part at no charge to you for parts or labor. LIMITATIONS. This limited warranty does not cover products which have been improperly installed, repaired or maintained or which have been subjected to misuse, abuse, accident, physical damage, abnormal operation or handling, neglect, exposure to fire, water or excessive changes in climate or temperature; or operation outside of published maximum ratings and/or acts of God; cosmetic items; products on which warranty stickers or product serial numbers have been removed, altered or rendered illegible; inadequate signal reception by the antenna; or the cost of installation, removal or reinstallation. THIS LIMITED WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND EXCLUDES ALL LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR ANY CAUSE WHATSOEVER. Some states and countries do not allow limitations on implied warranty durations, or the exclusion or limitation of incidental or consequential damages, so that the above limitation or exclusion may not apply to you. This warranty gives you specific legal rights, and you may also have other rights which vary from state to state and from country to country. EXCLUSION AND DISCLAIMER OF ANY AND ALL EXPRESS AND IMPLIED WARRANTIES BY MCI. This accessory is not manufactured by MCI but is supplied to MCI by CellStar. Therefore, MCI MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THIS ACCESSORY. However, this accessory is covered by CellStar's limited warranty. - -------------------------------------------------------------------------------- 42 - -------------------------------------------------------------------------------- Please fill out and return this postage paid card to put your accessory product limited warranty in effect. (See package insert for specific warranty information.) Name: ------------------------------------------------------------ Street Address: -------------------------------------------------- City: State: Zip: -------------------------- -------------- ------ Location of Purchase: -------------------------------------------- Part Number: Date of Purchase: ------------------- --------------- MCI - -------------------------------------------------------------------------------- 43 EXHIBIT E TRADEMARKS ---------- Essentials/TM/ CellStar/R/ 44 EX-10.45 8 AMENDMENT NUMBER ONE TO MCI SUPPLY AGREEMENT EXHIBIT 10.45 AMENDMENT NUMBER ONE THIS AMENDMENT NUMBER ONE to the Supply and Service Agreement between MCI Telecommunications Corporation ("MCI") and CellStar, Ltd. ("CellStar"), is entered into as of this 4th day of January, 1997. WHEREAS, MCI and CellStar (the "Parties") entered into the Supply and Service Agreement as of November 18, 1996 ("the Agreement"); and WHEREAS, MCI and CellStar desire to amend the Agreement to change certain terms of the Agreement; NOW, THEREFORE, the Parties hereto agree that the Agreement is amended, effective January 4th, 1997, as follows: 1. Attachment A to Exhibit C shall be hereby deleted and replaced by the attached Attachment A to Exhibit C. Unless otherwise deleted or changed herein, all other terms and conditions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned have caused this Amendment Number One to be duly executed as of the date hereof. MCI TELECOMMUNICATIONS CELLSTAR, LTD. CORPORATION BY NATIONAL AUTO CENTER, INC. GENERAL PARTNER By: /s/ Victoria Harker By: /s/ Elaine Flud Rodriguez ----------------------------- ----------------------------------- Printed Printed Name: Victoria Harker Name: Elaine Flud Rodriguez --------------------------- --------------------------------- Title: Vice President Title: Vice President -------------------------- -------------------------------- Date: 2/2/97 Date: 1-30-97 -------------------------- -------------------------------- 45 ATTACHMENT A (Revised as of January 4, 1997) INVENTORY ITEMS MCI PAGERS PART NUMBER DESCRIPTION FREQUENCY COV BPNXA86BLK002 PRONTO BLACK 929.8625 L BBFXA86BLK002 BRAVO BLACK 929.8625 L BBFXA58BLK002 BRAVO BLACK 929.5875 R/N BUXXA86BLK002 ULTRA BLACK 929.8625 L BUXXA86TTL002 ULTRA TEAL 929.8625 L BUXXA86CIC002 ULTRA CRAN 929.8625 L BUXXA86BBL002 ULTRA BLUE 929.8625 L BUXXA58BLK002 ULTRA BLACK 929.5875 R/N BAGXA86BLK002 ADVISOR BLACK 929.8625 L BAGXA58BLK002 ADVISOR BLACK 929.5875 R/N BAGXA86BLK002S ADVISOR BLACK 929.8625 L SPORTS BAGXA58BLK002S ADVISOR BLACK 929.5875 R/N SPORTS BUXRE70BLK002 ULTRA BLACK 158.7000 L BUXRE10BLK002 ULTRA BLACK 158.1000 L BUXRD84BLK002 ULTRA BLACK 152.8400 L BPNXA96BLK002 PRONTO BLACK 929.9625 L BPNXA73BLK002 PRONTO BLACK 929.7375 L BBFXA96BLK002 BRAVO BLACK 929.9625 L BBFXA96TTL002 BRAVO TEAL 929.9625 L BBFXA96CIC002 BRAVO CRAN 929.9625 L BBFXA96BBL002 BRAVO BLUE 929.9625 L BBFXA86TTL002 BRAVO TEAL 929.8625 L 46 PART NUMBER DESCRIPTION FREQUENCY COV BBFXA86CIC02 BRAVO CRAN 929.8625 L BBFXA86BBL002 BRAVO BLUE 929.8625 L BBFXA73BLK002 BRAVO BLACK 929.7375 L BBFXA73TTL002 BRAVO TEAL 929.7375 L BBFXA73CIC002 BRAVO CRAN 929.7375 L BBFXA73BBL002 BRAVO BLUE 929.7375 L BUXXA96BLK002 ULTRA BLACK 929.9625 L BUXXA96TTL002 ULTRA TEAL 929.9625 L BUXXA96CIC002 ULTRA CRAN 929.9625 L BUXXA96BBL002 ULTRA BLUE 929.9625 L BUXXA73BLK002 ULTRA BLACK 929.7375 L BUXXA73TTL002 ULTRA TEAL 929.7375 L BUXXA73CIC002 ULTRA CRAN 929.7375 L BUXXA73BBL002 ULTRA BLUE 929.7375 L BAGXA96BLK002 ADVISOR BLACK 929.9625 L BAGXA73BLK002 ADVISOR BLACK 929.7375 L BAGXA96BLK002S ADVISOR BLACK 929.9625 L SPORTS BAGXA73BLK002S ADVISOR BLACK 929.7375 L SPORTS BUXRD45BIL002 ULTRA BLACK 454.4500 L BUXXA63BLK002 ULTRA BLACK 929.6375 L BUXRE78BLK002 ULTRA BLACK 929.7875 L BUXXA61BLK002 ULTRA BLACK 929.6125 L 47 PREPAID CALLING CARDS Harley 20 Unit Collectors' Independence Day 4 30 Units Collectors' Independence Day 4 30 Units (Promotional Cards) UNITED ARTIST THEATERS PROMOTIONAL MOVIE TICKETS FULFILLMENT, COLLATERAL AND PROMOTIONAL MATERIALS Including, but not limited to: User Guide and Terms & Conditions Warranty Cards Box Sleeves Alpha Paging Software Sweepstakes Cards Paging Correspondence Maps Sports Paging Brochures Other Brochures Other Promotional Materials Sales Aids Long Distance Welcome Letters Buckslips Greeter Flyers Other Collateral Materials STAND-ALONE INTERNET SOFTWARE SKU DESCRIPTION NETDISKS MCI INTERNET SOFTWARE - DISKS NETCDROM MCI INTERNET SOFTWARE - CDROM PAGER ACCESSORIES Straight Pager Bungee Curly Pager Bungee Pager Replacement Clip Pager Safety Chain 48 EX-10.46 9 AMENDMENT TO MCI SUPPLY AGREEMENT EXHIBIT 10.46 January 8, 1997 VIA FACSIMILE (972/323-1589) CellStar, Ltd. 1730 Briercroft Court Carrollton, TX 75006 Attn: Elaine Rodriguez, Vice President Re: Amendment to Section 13(d) of the Supply and Service Agreement entered into between CellStar and MCI (the "Distribution Agreement") ------------------------------------------------------------- Dear Elaine: This letter shall serve to amend Section 13(d) of the Distribution Agreement and all defined terms used in this letter shall be the same as the defined terms used in the Distribution Agreement. The parties agree that the requirement of Section 13(d) to return such Products within forty-five (45) days of the Effective Date is hereby amended to require that the Products be shipped within forty-five (45) days of the Effective Date. CellStar and MCI also hereby agree that (i) all such remaining return Products will be shipped on Friday, January 10, 1997 via ground transportation regardless of whether or not return authorizations for those Products have been processed by CellStar as of that date; and (ii) MCI will be entitled to receive a credit for such Products in accordance with Section 13 (d) of the Distribution Agreement as amended by this letter. Please sign and date a copy of this letter indicating your agreement and send to MCI/Law and Public Policy via facsimile (703/415-7102) by no later than Thursday, January 9, 1997 at 12 noon EST. Thank you. Sincerely, /s/ Victoria Harker Victoria Harker Vice President Mass Markets Finance AGREED: /s/ Elaine Flud Rodriguez - --------------------------------- Elaine Rodriguez cc: Lanese Jorgensen, Esq. Michael Chase Claire Shields Michael McCarthy, Esq. EX-10.47 10 DISTRIBUTOR SUPPLY AGREEMENT EXHIBIT 10.47 CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT This Agreement is made between: Motorola Ltd., trading as Motorola, Cellular Subscriber Division, UK, Midpoint, Alencon Link, Basingstoke, Hampshire, RG21 7PL, United Kingdom (Registered Office: Jays Close, Viables Industrial Estate, Basingstoke, Hampshire, RG22 4PD, Registration No. 912182, England) (hereinafter called "Motorola") and Cellstar UK Limited, Bushbury House, 435 Wilmslow Road, Withington, Manchester M20 9AF (hereinafter called the "Distributor"). Recitals 1. Appointment and Acceptance 2. Prices, Payment and Marketing 3. Order and Delivery 4. Distributor Responsibilities 5. Warranty, Customer Service and Type Approval 6. Duration and Termination 7. Remedies 8. Proprietary Rights 9. Confidentiality 10. Sales to the US Government 11. General Schedules Page 1 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT RECITALS - -------- A. Whereas Motorola is a producer of cellular subscriber products of international repute and wishes to appoint the distributor as a distributor of these products; B. Whereas the distributor is interested to obtain these products from Motorola for marketing and sale; Now it is agreed as follows: 1. APPOINTMENT AND ACCEPTANCE -------------------------- 1.1 Motorola appoints the Distributor as distributor of the cellular telephone products listed in the Schedule A, (hereinafter referred to as the "Products") and agrees to deliver the Products to the Distributor in accordance with the terms of this Agreement. 1.2 The Agreement is non-exclusive. Motorola may appoint additional distributors, retailers, dealers or make direct sales itself or through an affiliate in the Area of Prime Marketing Responsibility (as defined below). As used in this Agreement the term an "affiliate" of Motorola shall mean any corporation or entity ultimately owned or controlled, directly or indirectly, by Motorola Inc., USA. 1.3 The Distributor's area of prime marketing responsibility is the UK ("the Area of Prime Marketing Responsibility"). Without prejudice to the Distributors' right to unrestricted sales distribution the Distributor recognises that his expertise in and knowledge of the Area of Prime Marketing Responsibility is a key factor to its appointment and as such performance in the Area of Prime Marketing Responsibility to Motorola's satisfaction is a condition of this Agreement. Specifically, the Distributor shall maintain, for a period of 6 months from the commencement of this Agreement, a supply of Products to those Service Providers not trading directly with Motorola at any time during this Agreement term. 1.4 Motorola may revise the list of Products from time to time without any liability to the Distributor. At its sole discretion Motorola may also at any time discontinue the production or sale, or modify the design or material specifications of any Products or parts thereof, without any liability or obligation to the Distributor or its customers, including, without limitation, any obligation to modify any Products previously ordered by the Distributor. 2. PRICES, PAYMENT AND MARKETING ----------------------------- 2.1 The Product prices are listed in Schedule B. Motorola will inform the Distributor of any change in Motorola prices without delay and, notwithstanding the terms of Schedule B. Motorola will apply any change to the prices for Products accordingly. The change in price for Products shall apply for all orders received prior to the price change and not yet despatched by Motorola as well as orders received after the price change. Any reduction in price will further apply to Products delivered within 30 days prior to the date of introduction of the new Motorola prices to the market and still in the Distributor's inventory, unless 30 days notice of the price change has been given by Motorola. 2.2 The Distributor shall pay Motorola in accordance with Schedule C. If the Distributor fails to pay any invoice when due or if Motorola, in its reasonable discretion, deems the Distributor's financial condition inadequate, Motorola may, in addition and without prejudice to its other rights, suspend shipments of the Products. Without limiting the generality of the foregoing, Motorola is entitled to terminate the Agreement immediately by written notice should payments by the Distributor to Motorola be more than two months overdue. 2.3 Motorola reserves the right at any time to decrease, eliminate, or otherwise limit the amount or duration of any credit which may be extended to the Distributor in general and/or with respect to any single purchase order. Page 2 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT 2.4 Motorola may provide marketing support as it deems necessary to assist in promoting sales of the Products. This marketing support will be at 1% of the net sales value on a 50/50 split basis given similar expenditure from the Distributor. Motorola's "Options" programme shall apply. 3. ORDER AND DELIVERY ------------------ 3.1 Commencing 1st April 1996 and subsequently by the 15th day of each month the Distributor shall advise Motorola of its requirements for Products based on a rolling 12 month programme. The first three months of this programme is a fixed order for Products which shall bind the Distributor. The next three months can be modified by plus or minus 20% (by volume) from the prior order and the remaining 6 months of this programme shall be used only as a forecast. 3.2 The Distributor shall submit written Purchase Orders to Motorola in respect of the binding element of clause 3.1 above. The receipt of such orders will be acknowledged by Motorola but no order will be binding on Motorola unless a further written acceptance is submitted by Motorola, or Products are delivered (whichever occurs first). 3.3 The delivery terms are as specified in Schedule B. Motorola will endeavor to deliver the Products by the date(s) confirmed by Motorola. However, Motorola shall in no event by liable for any losses resulting from delays in the delivery of Products. Motorola does not warrant to the Distributor the continued availability of any of the Products, and the Distributor hereby expressly releases Motorola from liability for any loss or damage to the Distributor arising out of, or by virtue of, the failure of Motorola to accept or fulfil any orders due to particular shortages or general product unavailability howsoever caused. In the event of such shortages the Distributor consents to any apportionment of shipments that Motorola, at its sole discretion, may determine to be appropriate. 3.4 All Products shall remain the property of Motorola until full payment is made by the Distributor. 3.5 This Distributor agrees to comply with all applicable laws and regulations regarding the exportation or re-exportation (direct or indirect) of the Products or technical data supplied by Motorola. 4. DISTRIBUTOR RESPONSIBILITIES ---------------------------- Without prejudice to any other obligations contained in this Agreement the Distributor shall: 4.1 Use its best efforts to sell, advertise and promote the sale and use of all of the Products throughout the Area of Prime Marketing Responsibility. 4.2 In order to satisfy clause 4.1 above, purchase at least the minimum annual volumes of the Products referred to in Schedule A. 4.3 Conform to Motorola's service and engineering instructions when providing services for Products in order to fully satisfy customers. 4.4 Order and maintain at least the minimum stock of inventory of the Products, parts, test equipment and installation equipment which the parties determine necessary to support the Distributor's sales effort in the Area of Prime Marketing Responsibility. 4.5 Maintain a suitable place of business in a suitable location or locations, as the market may require and co-operate with Motorola to establish and maintain the standards and reputation of the Products. 4.6 Appoint such sub-distributors, dealers, retailers in the Area of Prime Marketing Responsibility for the term of this Agreement as are necessary in order to provide adequate sales and service Page 3 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT coverage; instruct such sub-distributors as necessary in the sale and servicing of Products and ensure they comply with Motorola's rules and policies concerning trademarks and trade names. The Distributor shall be liable to Motorola for the activities or omissions of sub-distributors, dealers, retailers appointed by the Distributor. 4.7 Furnish to Motorola information relating to orders, sales, service, and inventory of Products and Product sales budgets and forecasts, in such a manner as Motorola may from time to time reasonably request and specifically sell through data on a weekly basis, with respect to the Area of Prime Marketing Responsibility. 4.8 Comply with all relevant legal requirements including but not limited to all appropriate safety, environmental, type approval and other requirements. 4.9 Provide a warranty for the Products to its customers which complies with applicable warranty requirements under the laws and competitive conditions of the country of resale. 5. WARRANTY, CUSTOMER SERVICE AND TYPE APPROVAL -------------------------------------------- 5.1 Motorola will provide the Distributor with warranty, customer service and support as specified in Schedule D. The obligations of the parties in respect of Type Approval are also specified in Schedule D. 6. DURATION AND TERMINATION ------------------------ 6.1 This Agreement shall commence on 1st April 1996 and will continue in force for a period of one year, subject to the provisions of this clause 6. 6.2 The duration of this Agreement is specified in clause 6.1 above and it shall continue thereafter subject to Motorola terminating it by a written three month notice to the other party, such notice expiring at the end of the term in clause 6.1 above and being served in accordance with clause 11.14. 6.3 Notwithstanding 6.2 above, either party may terminate this Agreement upon 30 days written notice to the other party in the case of a material breach by the other party of any obligation specified in this Agreement. 6.4 Without prejudice to clause 2.2 above, the Agreement may be terminated forthwith by either party on giving notice in writing to the other if the other party, being a company, shall pass a resolution for winding up (otherwise than for the purpose of a solvent amalgamation or reconstruction where the resulting entity assumes all of the obligations of the relevant party under this Agreement), or a court shall make an order to that effect, or being a partnership shall be dissolved, or if the other party shall cease to carry on its business or substantially the whole of its business, or becomes or is declared insolvent or commits any act of bankruptcy or proposes to make any arrangement or composition with its creditors, or if a liquidator, administrator, receiver, or similar officer is appointed of any of the assets of the other or any analogous step is taken in connection with the others insolvency, bankruptcy or dissolution. 6.5 On the expiration or termination of the Agreement, the Distributor shall promptly return to Motorola: 6.5.1 all documents placed at its disposal by Motorola. 6.5.2 any type approvals held by the Distributor relating to Products. Further, the Distributor agrees to render all necessary assistance free of charge including but not limited to the signing of the appropriate forms required by the local type approval authorities, in connection with the assignment of or re-application for type approvals for Products. Page 4 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT 6.6 No claims for compensation can be lodged by reason of the termination or expiry of the Agreement, unless these claims are based on the breach of contractual provisions by one of the parties. 6.7 In the case of any change in the ownership or structure of the Distributor, the Distributor shall inform Motorola immediately. If Motorola deems the change will materially affect its position then Motorola reserves the right to terminate the Agreement with immediate effect without liability on the part of Motorola. 6.8 Subject to clause 6.2 above, nothing contained in this Agreement shall 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 in it. 6.9 All sums owed by either party to the other shall become due and payable immediately upon the termination of this Agreement. 7. REMEDIES -------- This clause defines the limits of Motorola's liability to the Distributor in respect of this Agreement whether in contract or tort including negligence and the Distributor's sole remedies in respect of any act or default of Motorola. 7.1 Motorola will accept liability for death or personal injury resulting from its negligence. 7.2 Motorola will accept liability for direct physical damage to the tangible property of the Distributor to the extent that it is caused by the negligence of Motorola subject to the exclusions set out in clause 7.4 below and up to a maximum limit of (pound sterling) 1 million sterling in the aggregate. 7.3 Except as provided in clause 7.1 and 7.2 above, Motorola's total liability in respect of any one default shall not exceed 125% of the total purchase price of all the Products in respect of which Motorola is in default. If a number of defaults give rise to substantially the same loss or are attributable to the same or similar cause, then they shall be regarded as giving rise to only one claim hereunder. Motorola will be afforded a reasonable opportunity to remedy any such default. 7.4 Except as provided in clause 7.1 above, Motorola shall not be liable for loss of profits, business, revenue, goodwill, anticipated savings, special, indirect or consequential losses even if foreseeable by or in the contemplation of Motorola or any claim made against the Distributor by any other person. 7.5 Except as expressly stated herein, all conditions and warranties implied, statutory or otherwise, are hereby excluded to the maximum extent permitted by law. 8. PROPRIETARY RIGHTS ------------------ 8.1 The Distributor will not impair Motorola's right, title or interest in its corporate name(s) or logo(s), or any part thereof, or to trademarks or trade names used on or in connection with Motorola's Products. Nothing herein shall grant to the Distributor any such right title or interest. The Distributor shall not encourage any practice which might be detrimental to the goodwill of Motorola or Motorola's Products. 8.2 For the purposes of advertising and selling the Products, the Distributor may, during the term hereof, indicate that it is an authorised Distributor of Motorola for the Products in which case the Distributor will submit to Motorola specimens of its letterhead, business cards, telephone directory listings, truck markings and business establishment signs for approval of the format by Motorola, and the Distributor shall follow Motorola's specification with respect thereto. The Page 5 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT Distributor shall have no rights to use the trademarks of Motorola without prior written permission. 8.3 The Distributor agrees, upon expiration or termination of this Agreement to immediately discontinue (i) using or making reference to Motorola's corporate name or to trade names and trademarks of Motorola, and (ii) representing directly or implicitly, that it is or was a Distributor of Motorola. 8.4 Motorola agrees to defend at its expense any suit brought against the Distributor based upon a claim that any Products furnished hereunder directly infringe a third party patent, copyright or trademark and to 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 defence of same. If the use or sale of any Products furnished hereunder is prevented by injunction as a result of suit. Motorola at its option and at its expense, shall obtain for the Distributor the right to use or sell said Products or shall substitute an equivalent Product reasonably acceptable to the Distributor and extend this indemnity thereto or shall advise the Distributor to return Products and discontinue further sales and Motorola shall reimburse the Distributor the purchase price thereof. This indemnity does not extend to any suit based upon any infringement or alleged infringement of any patent, copyright or trademark by the combination of any Products furnished by Motorola and other elements nor does it extend to any products of the Distributor's design or formula. The foregoing states the entire liability of Motorola for patent, copyright or trademark infringement. 8.5 Motorola has certain rights in Motorola software, firmware or other computer programs or data residing in the Products (hereinafter referred to collectively as "Software"), including without limitation the right to prepare works derived from same in copies and distribute copies of same. The Distributor shall not prepare works derived from, reproduce in copies or distribute copies of, any Motorola Software except for demonstration purposes. 8.6 Whenever the term "Motorola" is used in this clause it also covers affiliates of Motorola as defined in clause 1.2. 9. CONFIDENTIALITY --------------- 9.1 Confidential information is defined as information which relates to the business activities of either party in particular, but not limited to, all information relating to the details of this Agreement and the prices at which the Distributor purchases the Products from Motorola, as well as information which it may receive in connection with this Agreement concerning names of the business concerns using the Products, and the organisation, business dealings or affairs of Motorola, which is disclosed in oral, written, graphic, and/or sample form, being clearly designated, labelled or marked as confidential at the time of its disclosure. 9.2 The Distributor undertakes not to reproduce or distribute such Confidential information, and to take all reasonable means to prevent the dissemination of such information to anyone except the Distributor's employees who may need it for the performance of their duties, except as may be authorised by Motorola in writing. The obligations of confidentiality provided for herein shall survive the expiration or termination of this Agreement for whatever reason, for a period of 5 years from the date of such termination. 10. SALES TO THE US GOVERNMENT -------------------------- 10.1 If the Distributor sells Motorola's Products or services to the US Government or to a prime contractor selling to the US Government, the Distributor does so solely at its own option and risk. The Distributor remains solely and exclusively responsible for compliance with all statutes and regulations governing sales to the US Government. Motorola makes no representations. Page 6 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT certifications or warranties whatsoever with respect to the ability of its goods, services or prices to satisfy any such statutes or regulations. 11. GENERAL ------- 11.1 Any obligations and responsibilities which by their nature extend beyond the expiration or termination of this Agreement, including but not limited to clauses 6.5, 7, 8 and 9, shall survive and remain in effect. 11.2 The headings used in this Agreement are for convenience only and shall not be used in order to construe the terms of this Agreement. 11.3 No waiver by either party of any of its rights hereunder shall prejudice its ability to enforce such rights. 11.4 If any provision of this Agreement is found by any court or competent authority to be void or unenforceable, such provision shall be deemed to be deleted from this Agreement and the remaining provisions shall be given effect so far as is possible. Notwithstanding the foregoing the parties shall thereupon negotiate in good faith in order to agree the terms of a mutually satisfactory provision to be substituted for the provision so found to be void or unenforceable. 11.5 Neither party shall be under any liability whatsoever in respect of any breach of this Agreement to the extent that this is due directly or indirectly to a cause beyond its reasonable control. 11.6 Unless expressly provided for elsewhere in this Agreement, any revisions to this Agreement must be agreed upon in writing by both the Distributor and Motorola and must be signed by authorised representatives of both companies. 11.7 The Agreement and any amendments will be prepared in the English language. If translated the English version shall be the only legally binding version and the only version used for interpretation. 11.8 No assignment of this Agreement by the Distributor or any right or obligation hereunder shall be made by the Distributor without the prior written consent of Motorola. 11.9 Motorola may from time to time assign the benefit and/or the burden of this Agreement in whole or in part to its affiliate without the consent of the Distributor and may from time to time authorise its affiliates to have the benefit of any of its rights and/or to carry out any of its obligations without the consent of the Distributor. 11.10 Motorola and the Distributor are independent contractors. Neither party shall act or represent itself, as agent, partner, employee, joint venture or representative of the other party or any of its affiliates; nor shall either party assume or create any obligation or liability on behalf of the other party or any of its affiliates or hold itself out as entitled to do so. 11.11 The Distributor will refrain from any activities which are illegal, unethical or which might bring Motorola into disrepute or which constitute or could be made to be a serious conflict of interest or which might give the appearance of impropriety. The Distributor will co-operate fully in any investigation or evaluation of such matters. Breach of this clause by the Distributor will entitle Motorola to terminate this Agreement without notice. 11.12 All disputes between Motorola and the Distributor arising out of or relating to this Agreement shall be referred first to senior executives appointed by the parties who have the authority to settle the same. If the dispute cannot be resolved through negotiation within a maximum period of 14 days, or such other period as agreed in writing by the parties, it may be referred to the exclusive jurisdiction of the English courts. Page 7 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT 11.13 This Agreement and the rights and duties of the parties shall be governed and interpreted according to the laws of England. All disputes shall be submitted to the exclusive jurisdiction of the English courts. 11.14 All notices hereunder must be made in writing and sent to the following address either by fax or first class or registered mail: 1. Motorola Ltd., trading as Cellular Subscriber Division, UK Midpoint, Alencon Link, Basingstoke, Hampshire, RG21 7PL, England Tel No: 01256 817474 Fax No: 01256 27092 For the Attention of: Ian Hicks 2. Cellstar UK Limited, Bushbury House, 435 Wilmslow Road, Withington, Manchester M20 9AF Tel No: TBA Fax No: TBA For the Attention of: TBA Notices shall be deemed to be received on the next business day after transmission to the correct fax number in the case of faxes and five business days after despatch in the case of messages sent by post. All faxed notices shall be followed up by post. 11.15 This Agreement and its Schedules are the complete and exclusive statement of the agreement of the parties relating to the subject matter hereof and supersedes all proposals or prior agreements oral or written and all other communications between the parties relating thereto. 11.16 The Schedules outlined below, are an integral part of this Agreement and may, where necessary, be modified by Motorola upon written notice to the Distributor. In the event of any conflict between the Agreement text and the Schedules, the Agreement shall take precedence: Schedule A - Products and Volume Schedule B - Pricing Schedule C - Payment and Credit Terms Schedule D - Warranty, Customer Service and Type Approvals Page 8 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT THE SIGNATORIES TO THIS AGREEMENT ARE FULLY AUTHORISED BY THEIR COMPANY TO SIGN ON ITS BEHALF. SIGNATURES TO THE AGREEMENT - --------------------------- CELLSTAR UK LIMITED MOTOROLA LTD Signature: /s/ Alan H. Goldfield Signature: /s/ Ralph Pin ------------------------ ------------------------ Name: Alan H. Goldfield Name: Ralph Pin ------------------------ ------------------------ Title: Director Title: Corp. V.P. ------------------------ ------------------------ Date: April 3rd 1996 Date: 4/3/96 ------------------------ ------------------------ Page 9 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT SCHEDULE A PRODUCTS AND VOLUME 1. Motorola Product Description ---------------------------- ETACS and GSM Products, and accessories, as agreed in writing between the parties from time to time. It is the intention of both parties to explore the UK distribution opportunities for PCN products and accessories. This will be done by agreement with the relevant UK PCN Operators to ensure commercial viability to all three parties of the product distribution channels to market. 2. Volume ------ Subject to favourable market conditions the minimum purchase commitment for the Agreement year is 200,000 units of those Products (excluding accessories) detailed in this Schedule. Page 10 CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT SCHEDULE B PRICING 1. All prices for Products are Ex-Works Motorola Distribution Centres, as defined in Incoterms 1990 (and are exclusive of Tax, Import Duties). 2. Prices for Products and accessories are in Pounds Sterling and as advised in writing by Motorola from time to time. Page 11 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT SCHEDULE C PAYMENT AND CREDIT TERMS 1. All payments will be made in UK Pounds Sterling as defined on the relevant invoice 2. The due date for payment will be 30 days from the end of the month in which the invoice is rendered. 3. The Distributor will not withhold payment for shipments which satisfy part of an order. 4. Motorola reserves the right to claim interest in case of late payments. The interest shall be compounded at 2% per month and will be charged monthly to the account. 5. Motorola will give early settlement discount of 2% of the gross invoiced amount for cash with order, and 1% for payment received by the end of the fourteenth day following the invoice date. 6. Notwithstanding the above, Motorola may agree in writing alternative methods of payment and credit terms. Motorola at all times reserves the right to amend from time to time and without prior notice such payment/credit terms. Page 12 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT SCHEDULE D WARRANTY, CUSTOMER SERVICE AND TYPE APPROVAL 1 WARRANTY -------- 1.1 Subject as herein provided Motorola warrants to the Distributor that all Products supplied hereunder will comply with the applicable Motorola published specifications at the date of purchase for 12 months from the date of purchase by the end-user. 1.2 In the event of any proven breach of Motorola's warranty set out in clause 1.1 of this Schedule D (whether by reason of defective materials, production faults or otherwise) Motorola's liability shall be limited to the repair or replacement, at Motorola's option, of module/assemblies only (where a module is defined as a product's transceiver or handset and an assembly is defined as transceiver/handset printed circuit boards). 1.3 This warranty provision is subject to the following exclusions and the warranty shall not apply to products which Motorola determines have: i) been subjected to testing for other than specified electrical characteristics; ii) been operated in abnormal working conditions or environmental conditions in excess of the recommendations stipulated in the relevant specifications; iii) been mishandled, misused, wilfully damaged, neglected, improperly tested, repaired, altered or defaced; iv) been subjected to assembly or processing which alters physical or electrical properties; v) arisen as a result of the Distributor's own design, formula, drawing or specification; vi) arisen as a result of the Distributor failing to follow Motorola's instructions. 1.4 Motorola cannot be responsible in any way for defects in any Products arising as a result of non-Motorola accessories or ancillary equipment attached to or being used in connection with the Products. 1.5 All faulty modules/assemblies shall be returned as complete modules/ assemblies to Motorola by the Distributor at no cost to Motorola to "the designated Motorola Repair Centre". Motorola shall at its absolute discretion repair failed modules/assemblies or provide replacement module/assemblies as per clause 1.2 of this Schedule D within the warranty period. Motorola shall pay the shipping cost for returning repaired and or replacement modules/assemblies to the Distributor. The Distributor shall forward the modudles/assemblies for repair to the Motorola designated Repair Centre from a central point of despatch. 1.5.1 The Distributor shall notify Motorola on a monthly basis in writing, of any faulty accessories. Motorola shall at its absolute discretion repair / replace faulty accessories or refund the value of the same at the current Distributor purchase price. 1.5.2 The Mechanical Serial Number (MSN) of the Transceiver / Handset is used as a criterion for warranty tracking. Proof of purchase by the end user shall be utilised. 1.5.3 All units being returned for repair shall have undergone a local test on an appropriate test set and shall be returned to Motorola together with the test set printout detailing the failure mode. Page 13 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT 1.6 Motorola shall use its reasonable endeavours to provide a maximum turn around time of modules/assemblies sent to Motorola for repair, of fifteen working days from the date of receipt at the designated Motorola Repair Centre. 1.7 Warranty Failure Reporting - The Distributor will supply Motorola the following information on a monthly basis: 1. Product Type 5. Repair Code 2. M.S.N. 6. Repair Description 3. Fault Code 7. Parts Used 4. Fault Description 2. SERVICE AND SUPPORT ------------------- Service Procedures are available from the Customer Services Manager. 2.1 TRAINING 2.1.1 Motorola shall provide free of charge to the Distributor technical training for repairs. The Distributor shall have the option to nominate up to a maximum of 6 persons to attend. For the duration of the Agreement Motorola undertakes to provide this level of training for each new product family introduced. Motorola shall at its sole discretion nominate the course content and duration. The training shall take place at Motorola's premises or if deemed necessary at the Distributor's premises. The Distributor shall bear the travel, accommodation and subsistence cost of the Distributor's personnel. The Distributor shall also bear the costs of Motorola's personnel including travel, accommodation and subsistence in the case that the location is other than Motorola's designated premises. The Distributor shall have the option to nominate more than 6 trainees. In this event Motorola shall charge the Distributor a daily fee of xxxxx per trainee. The Distributor shall bear the cost of travel, accommodation and subsistence of their own personnel. 2.1.2 Once the training requirements in clause 2.1.1 of this Schedule D have been met the Distributor shall be free to request further training as it deems necessary. Motorola shall be free to charge the Distributor full commercial rates for the requested training as stated in clause 2.1.1 of this Schedule above. 2.1.3 The training courses shall be based on the "Train The Trainer" concept. Documentation will be provided to each of the attendees. 2.2 TECHNICAL DOCUMENTATION 2.2.1 Such technical documentation shall be supplied by Motorola to the Distributor's personnel during the training sessions as Motorola deems appropriate. 2.2.2 The Distributor shall be entitled to use, duplicate and/or edit Motorola's training documentation exclusively for its own internal use. The Distributor must reproduce the relevant Motorola copyright notice to accompany any such documentation. 2.3 SPARE PARTS 2.3.1 The recommended spares holding per product as advised by Motorola shall apply. 2.3.2 Motorola's then current Spare Parts Price List, as may be amended from time to time by the Service Department, shall apply. 2.3.3 The Distributor shall be responsible for forecasting and ordering the spare parts from Motorola. Page 14 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT 2.3.4 The order point for spare parts orders shall be Customer Support. 2.3.5 The contact point for spare parts forecasts shall be Logistics. Forecasts shall be submitted monthly to Motorola on a three month rolling basis. 2.3.6 Motorola shall provide the Distributor with five years support for all Products from the date of the last delivery of the Product to the Distributor. When Motorola intends to terminate manufacture of a Product, Motorola shall inform the Distributor and give them the opportunity to order and receive a "last time buy" for spare parts as may be available and required by the Distributor. In addition to a "last time buy" Motorola may provide spare parts for the Product for a maximum period of three years from the date of Product termination. In the event such spare parts may be unavailable for any reason then Motorola shall offer a refurbishment or replacement service (at its sole discretion) for a maximum period of five years from the date of Product termination. Such refurbishment/replacement shall be charged to the Distributor at the then current equivalent repair rate for that Product. 2.4 REPAIRS 2.4.1 Motorola shall supply the Distributor with a detailed listing of Faults and Repair Codes as per this Schedule to be used when sending product for repairs/repaired product. 2.4.2 At Motorola's sole discretion the Distributor may be allowed to carry out repairs. In this event the Distributor shall comply with Motorola's service guide lines as a M.A.S.C. (Motorola Approved Service Centre) as may from time to time be amended/advised. 2.5 OUT OF WARRANTY REPAIRS 2.5.1 Out of warranty repairs carried out by Motorola shall be governed by Motorola's price list at the time and as may be amended from time to time. Motorola shall notify the Distributor, with 90 days notice, of any changes in prices for out of warranty repairs. The Distributor shall bear the transportation cost when returning faulty module/assemblies for repair, and Motorola shall bear the transportation costs when returning repaired module/assemblies to the Distributor. 2.6 EXPRESS EXCHANGE At Motorola's sole discretion the Distributor may be permitted to participate in Motorola's Express Exchange Programme. 2.6.1 Motorola shall provide to the Distributor such assistance as is reasonably necessary in setting up an Express Exchange Programme, or similar, to support the Distributor's own customers and end users. The Distributor shall be responsible for establishing the Express Exchange Centres and for implementing the programme. 2.6.2 Motorola shall provide free of charge to the Distributor a "to be determined" quantity of product transceivers on a loan basis to support the warranty base, as well as a master copy of promotional material and relevant documentation. 2.6.3 The Express Exchange pool of transceivers shall remain the property of Motorola. Page 15 MOTOROLA CONFIDENTIAL PROPRIETARY CELLSTAR DISTRIBUTOR SUPPLY AGREEMENT GSM 2.6.4 In the event that across-border visitor using a Motorola branded transceiver experiences a warranty failure, service assistance will be provided via the Express Exchange programme providing the transceiver is in warranty. The Distributor shall submit a warranty claim to Motorola to cover such assistance giving details of the transceiver model and MSN - Customer Name and Country of Origin - Customer's Telephone Number. Motorola will reimburse the Distributor accordingly. 3. TYPE APPROVAL ------------- 3.1 All Products supplied under the terms of this Agreement shall have type approval from the relevent competent authority which shall be the responsibility of Motorola. The Distributor shall provide reasonable assistance to Motorola in order to fulfil this responsibility; such assistance shall not be unreasonably withheld. 3.2 Motorola warrants that the products meet the essential requirements of NET 10 in effect as of the date of declaration (GSM11.10 vg 3.8.0). Page 16 MOTOROLA CONFIDENTIAL PROPRIETARY EX-10.48 11 ACCESSORY SUPPLY AGREEMENT EXHIBIT 10.48 --------------------------------------------------------------- CELLSTAR UK LTD - MOTOROLA Ltd ACCESSORY SUPPLY AGREEMENT --------------------------------------------------------------- MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 1 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 BY "[REDACTED]". ACCESSORY SUPPLY AGREEMENT -------------------------- CONTENTS 1. Parties of the Contract 2. Accessories 3. Territory 4. Prices 5. Duration 6. Order and Delivery 7. Marketing 8. Independent Contractors 9. Payment Terms 10. Warranty 11. Resale Conditions 12. Proprietary Rights 13. Governing Law and Language 14. Assignability 15. Survival of Terms 16. Headings 17. Waiver 18. Void Terms 19. Entire Agreement 20. Modifications to this Contract 21. Termination 22. MOTOROLA liability 23. Force Majeure 24. Export Control Regulations 25. Sales to the US Government 26. Ethical Standards 27. Previous Agreement 28. Schedule - Schedule A : MOTOROLA Branded Accessories/Pricing 29. Appendices 30. Signatures to the Agreement MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 2 1. PARTIES OF THE CONTRACT ----------------------- MOTOROLA Limited Trading As European Cellular Subscriber Group, Registered Offices Jays Close Viables Industrial Estate Basingstoke Hampshire, RG22 4PD ENGLAND represented by Don BURNS Corporate Vice President and General Manager Europe - -hereinafter called MOTOROLA- and CELLSTAR UK Limited Bushbury House 435 Wilmslow Road Withington, Manchester, M20 9AF ENGLAND represented by Alan GOLDFIELD Chairman and CEO - -hereinafter called CELLSTAR 2. ACCESSORIES ----------- 2.1 MOTOROLA shall manufacture and deliver accessories for Cellular Subscriber equipment and associated items (hereinafter collectively known as "Accessories") to CELLSTAR Ltd in accordance with the terms of this Agreement. 2.2 CELLSTAR will use its best endeavour to market and sell as a non exclusive distributor the MOTOROLA original accessories, selected in MOTOROLA product range, to be used with MOTOROLA cellular phones. As a principle, CELLSTAR commits to promote in priority the MOTOROLA Original accessories whenever possible. CELLSTAR will avoid misunderstanding from the market concerning manufacturing origin of MOTOROLA accessory and will focuse on growing the sales of MOTOROLA original accessories in its current channels. 2.3 The Accessories shall be manufactured and supplied in accordance with MOTOROLA proprietary specifications and shall bear the part numbers listed in schedule A to this agreement and as amended in writing from time to time by mutual agreement between MOTOROLA and CELLSTAR. The branding of the accessories in schedule A shall include the MOTOROLA name and logo. The Accessories will be supplied in bulk (i.e. non packaged). 2.4 MOTOROLA may revise the list of Accessories from time to time upon prior written notice to CELLSTAR. At its sole discretion MOTOROLA may also without any notice modify the design or material specifications of any Accessories or parts thereof in order to improve the reliability, quality, safety or cost effectiveness of the Accessories. 3. TERRITORY --------- 3.1 The area of marketing responsibilities for CELLSTAR is Europe. MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 3 CELLSTAR shall have a prime focus on France, Germany and United Kingdom which are hereinafter known as the "Territory". 4. PRICES ------ 4.1 The prices to be paid by CELLSTAR and general buying terms for the Accessories are as set out in schedule A to this agreement. 4.2 MOTOROLA shall inform CELLSTAR of any change in price in writing without delay. The reduction of the price for Accessories shall apply for all orders on hand with MOTOROLA as well as new orders and shall further apply to Accessories delivered 30 days prior to the date of introduction of the new MOTOROLA Net Price and still in CELLSTAR's inventory. In order to claim, CELLSTAR shall submit each month in writing to MOTOROLA a statement of their inventory. 5. DURATION -------- 5.1 The effective start date of this agreement is June 1st, 1996 and shall terminate on December 31st, 1997. 5.2 This agreement shall be extended for a successive one year period upon written agreement between parties at least 30 days prior to the end of current terms, if not terminated under clause 18. 5.3 Both parties will hold quarterly review meetings to address the performance of the agreement. MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 4 6. ORDER AND DELIVERY ------------------ 6.1 Commencing with the start of the contract and subsequently before the start of each month, CELLSTAR shall advise MOTOROLA of its requirements based on a 12 month rolling forecast. During the first three (3) months following execution of this Agreement, such forecast shall be used only as a forecasting tool. Beginning with months four and five, the forecasted purchases shall represent a fixed order for Accessories to be delivered. Individually each of the next two months can be modified by + ou - 20% from the prior delivery program. The remaining 8 months of this program shall be used only as a forecast. 6.2 Any orders for the Accessories shall be placed by means of written communications from CELLSTAR. Such orders shall be acknowledged in writing by MOTOROLA within 5 days upon receipt of such order. 6.3 MOTOROLA agrees that CELLSTAR may submit orders on CELLSTAR's purchase order form. The terms of this Agreement, as amended from time to time, shall solely govern the sale of the Accessories to CELLSTAR, and any terms in CELLSTAR's purchase order or otherwise which vary from the provisions and conditions of this Agreement shall be null and void. 6.4 All orders shall be addressed to the MOTOROLA Cellular subsidiary office in the country in which CELLSTAR will settle its operation to the attention of CELLSTAR Account Manager. No order is binding on MOTOROLA until it is accepted by MOTOROLA. 6.5 Shipment of accessories will be delivered Freight and Duty Paid to a single CELLSTAR warehouse in Europe (which may change in time) as designated by CELLSTAR. 6.6 MOTOROLA will endeavour to accept orders from CELLSTAR which are in compliance with this Agreement and to deliver Accessories ordered by CELLSTAR by the date(s) confirmed by MOTOROLA. MOTOROLA shall, however, in no event be liable or indemnify CELLSTAR losses, damages, penalties, etc. resulting from delays in the delivery or failure to deliver the accessories. 6.7 By the 10th business day of every month, CELLSTAR will provide MOTOROLA with details of its month-end MOTOROLA sourced inventory. MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 5 6.8 By the 10th business day of every month, CELLSTAR will provide MOTOROLA with the numbers of units of each product sold to third parties in each country in the territory and in addition will supply : - - weekly sell through data by country, and on a monthly basis : - - market share data, - - competitive product lines, end user sell out pricing, - - market promotional/advertising details of competitors, - - introduction/assessment of new product lines, - - other data may be determined from time to time. 7. MARKETING --------- 7.1 CELLSTAR shall use the MOTOROLA Original Accessory Logo on their packages and documentation strictly in accordance with MOTOROLA requirements. 8. INDEPENDENT CONTRACTORS ----------------------- 8.1 MOTOROLA and CELLSTAR are independent contractors. The relationship between MOTOROLA and CELLSTAR is intended to be and shall be that of seller and buyer, neither party nor its employees, agents and representatives shall under any circumstances be considered agents, partners, joint venturers, employees or representatives of the other party. Neither party shall act or attempt to act, or represent itself, directly or by implication, as agent, partner, employee, joint venturer, or representative of the other party or any of its affiliates; nor shall either party in any manner assume or attempt to assume or create any obligation or liability of any kind, nature or sort, express, or implied, on behalf of or in the name of the other party or any of its affiliates. 9. PAYMENT TERMS ------------- 9.1 CELLSTAR shall pay each MOTOROLA invoice according to the terms stated below : - - Prices are in U.S $ and may be converted in local currrency at time of billing upon a local agreement, - - Payment terms are standard 30 days net from date of invoice, early settlement discount is available at 2 % for cash with order or 1 % for settlement within 14 days of the date of invoice, - - MOTOROLA reserves the right to amend the payment or settlement terms at their sole discretion. 9.2 If CELLSTAR shall fail to pay any invoice which is due or in the event that MOTOROLA, in its reasonable discretion, deems CELLSTAR's financial condition inadequate, MOTOROLA shall have the right, in addition to its other rights hereunder, to suspend shipments of Accessories. 10. WARRANTY AND SERVICE SUPPORT ---------------------------- 10.1 The cellular accessories are warranted by MOTOROLA to be of satisfactory quality and comply with the applicable MOTOROLA specifications for a period of (15) fifteen months from the date of delivery to CELLSTAR. This warranty does not apply Page 6 - - if the accessory has been mishandled, misused, wilfully damaged, neglected, improperly tested, repaired, altered or defaced in any way, - - if the accessory has a defect arising as a result of any failure to follow instructions either in the manual or product specification, - - if the accessory has a defect which has arisen from the use of non-MOTOROLA approved telephone or ancilliary items attached to or in connection with the accessory. 11. RESALE CONDITIONS ----------------- 11.1 CELLSTAR has to use its best endeavour to sell, store, transport, advertise any Product supplied by MOTOROLA in accordance with local law. 11.2 The Accessories supplied by MOTOROLA shall be resold and delivered by CELLSTAR on a first-in first-out basis. 12. PROPRIETARY RIGHTS ------------------ 12.1 CELLSTAR agrees that it will not impair MOTOROLA's right, title, or interest in its corporate name(s) or logo(s), or any parts thereof, or to trademarks or tradenames used on or in connection with MOTOROLA's Accessories and agrees that nothing herein shall grant to CELLSTAR any such right, title or interest. CELLSTAR shall not encourage any practice which might be detrimental to the goodwill of MOTOROLA or MOTOROLA's accessories. 12.2 MOTOROLA agrees to defend at its expense, any claims or suits against CELLSTAR based upon a claim that any accessories furnished hereunder directly infringes a third party patent, copyright or trademark and to 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 a Product(s) furnished hereunder is enjoined as a result of suit, MOTOROLA at its option and at no expense to CELLSTAR, shall obtain for CELLSTAR the right to use or sell said Product(s) or shall substitute an equivalent Product reasonably acceptable to CELLSTAR to return Product(s) and discontinue further sales and MOTOROLA shall reimburse CELLSTAR the purchase price thereof. 12.3 This indemnity does not extend to any suit based upon any infringement or alleged infringement of any patent, copyright or trademark by the combination of any Product(s) furnished by MOTOROLA and other elements nor does it extend to any product(s) of CELLSTAR's design or formula. The foregoing states the entire liability of MOTOROLA for patent, copyright or trademark infringement. 12.4 In no event shall MOTOROLA be liable for incidental or consequential damages arising from infringement or infringement of patents, copyrights or trademarks. 12.5 MOTOROLA has certain rights in MOTOROLA software, firmware or computer programs or data residing in the Accessories (hereinafter referred to collectively as Software), including without limitation the right to prepare works derived from same in copies and distribute copies of same. CELLSTAR shall not prepare works derived from reproduced copies or distributed copies of any MOTOROLA Software except for demonstration purposes. 13. GOVERNING LAW AND LANGUAGE -------------------------- MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 7 13.1 This Agreement and the rights and duties of the Parties shall be governed and interpreted according to Laws of England and any dispute shall be subject to the exclusive jurisdiction of the English Courts. 13.2 The Agreement and any amendments will be prepared in the English language. Translations may be made from the English original, but in interpretation the English version will always take precedence. 14. ASSIGNABILITY ------------- 14.1 No assignment of the Agreement by CELLSTAR or any right or obligation hereunder shall be made by CELLSTAR without the prior written consent of MOTOROLA. 15. SURVIVAL OF TERMS ----------------- 15.1 Any obligation and responsibilities which by their nature extend beyond the expiration or termination of this Agreement shall survive and remain in effect. 16. HEADINGS -------- 16.1 The headings used in this Agreement are for convenience only and shall not used in order to construe the terms of this Agreement. 17. WAIVER ------ 17.1 No waiver by either party of any of its rights hereunder shall prejudice its ability to enforce such rights. 18. VOID TERMS ---------- 18.1 Any provision of this Agreement is found by any court or competent authority to be void or unenforceable, such provision shall be deemed to be deleted from this Agreement and the remaining provisions shall be given effect so far as is possible. Notwithstanding the foregoing the parties shall negotiate in good faith in order to agree the terms of a mutually satisfactory provision to be substituted for the provision so found to be void or unenforceable. 19. ENTIRE AGREEMENT ---------------- 19.1 This Agreement, its schedule and the NDA are the complete and exclusive statement of the Agreement between the parties which supersedes all proposals or prior Agreement oral and written and all communications between the relating to subject matter of this Agreement. 20. MODIFICATIONS TO THIS CONTRACT ------------------------------ 20.1 Any revisions to this Agreement must be agreed upon in writing by both CELLSTAR and MOTOROLA and must be signed by authorized representatives of both companies. Such revisions shall at all times be governed by the terms of this Agreement. 21. TERMINATION ----------- MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 8 21.1 Notwithstanding the terms of clause 5, either party may terminate this Agreement prematurely upon 7 days written notice to the other party of a fundamental breach by the other party of its obligations, provided that if any breach is capable of being remedied, the other party shall not terminate the Agreement unless and until the breaching party shall have failed to make good such breach within 30 days after such party has been serviced with a notice requiring the breach to be made good stating that the notifying party intends to terminate the Agreement as the end of such 30 days if the notice is not complied with. Furthermore, MOTOROLA is entitled to terminate the Contract without advance notice, should payments by CELLSTAR, despite request, be more than two months overdue. Notice of termination must be given by written letter. 21.2 On the expiration or termination of the Contract, CELLSTAR has to return to MOTOROLA all information in his possession as well as the documents placed at his disposal by MOTOROLA. 21.3 No claims for compensation can be lodged by reason of the Contract, save where these claims are based on the breach of contractual provisions by one of the Parties or the default of one of the Parties. 22. MOTOROLA LIABILITY ------------------ 22.1 MOTOROLA's entire liability whether in contract or tort including negligence and CELLSTAR sole remedies in respect of any default are as set out in this clause 22. 22.2 MOTOROLA will accept liability without limitation for death or personal injury resulting from the negligence of MOTOROLA. 22.3 MOTOROLA will accept liability for direct physical damage to tangible property of CELLSTAR to the extent it is caused by the negligence of MOTOROLA, up to a maximum of 1 million Pound Sterlings, subject to the exclusions set out in 22.4 below. 22.4 Except as provided in 22.2, above, MOTOROLA shall not be liable for loss of profits, business, revenue, goodwill anticipated saving special indirect or consequential losses even if foreseeable by or in the contemplation of MOTOROLA or for any claim made against CELLSTAR by any other person. In no event shall MOTOROLA be liable for incidental or consequential damages arising from infringement or alleged infringement of patents or copyrights. 22.5 Except in the case of any liability on the part of MOTOROLA, MOTOROLA's total liability in respect of any default shall not exceed a 110 % of the value of the accessories which are the subject of the default in respect of any one occurrence. A number of defaults which together result in or contribute to the same loss or damage shall be treated as one occurrence in assessing MOTOROLA's liability. MOTOROLA shall always be afforded a reasonable opportunity to correct any default before being in breach of its obligations. MOTOROLA CELLSTAR Contact CONFIDENTIAL Page 9 22.6 Except in respect of liability referred to in 22.2 no action arising out of or in connection with this Agreement shall be brought by either party more than two years after the party concerned becomes aware or should reasonably have become aware of the facts constituting the cause of action. 22.7 Except as expressly stated in this Agreement, all conditions, warranties, and undertakings express or implied statutory or otherwise are hereby excluded to the maximum extend permitted by the law. 23. FORCE MAJEURE ------------- 23.1 Neither party shall be under any liability whatsoever in respect of any breach of this Agreement to the extent that it is due directly or indirectly to any cause of any nature howsoever arising not within the control of the party who is affected including (without limitation to the generality of the foregoing) hostilities, government action, labour disputes, fire, flood or Act of God. 24. EXPORT CONTROL REGULATIONS -------------------------- 24.1 CELLSTAR agrees to comply with any export control regulation due to US and the local laws under which the two parties are incorporated. MOTOROLA shall provide all valid documentation material according to US Law referring to accessories. 25. SALES TO THE US GOVERNMENT -------------------------- 25.1 In the event that CELLSTAR elects to sell MOTOROLA's accessories or services to the US government, CELLSTAR does so solely at its own option and risk. CELLSTAR remains solely and exclusively responsible for compliance with all statutes and regulations governing sales to the US Government. 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. 26. ETHICAL STANDARDS ----------------- 26.1 MOTOROLA has historically depended on product quality and superiority combined with outstanding support capability, to sell its accessories 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 distributor, agent, customer or any other person where MOTOROLA knows or suspects the existence of questionable practices. CELLSTAR agrees with the MOTOROLA policy stated in this paragraph and agrees that failure of CELLSTAR to comply in all respects with said policy shall constitute a just cause for immediate termination of this agreement in addition to terms of clause 18. 27. PREVIOUS AGREEMENT ------------------ This Agreement replaces any previous agreement covering the Product specified herein. 28. SCHEDULES --------- 28.1 The schedule outlined below, is an integral part of this Agreement : MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 10 Schedule A - MOTOROLA Branded Accessories/Pricing 29. APPENDICES ---------- Appendix 1: Mutual Non-Disclosure Agreement. Appendix 2: Financial backup from CELLSTAR Corporation (USA) 30. SIGNATURES TO THE AGREEMENT --------------------------- CELLSTAR LIMITED MOTOROLA LIMITED EUROPEAN CELLULAR SUBSCRIBER DIVISION Alan GOLDFIELD Don BURNS /s/ Alan H. Goldfield /s/ Don Burns SIGNATURE SIGNATURE 10-21-96 25/10/96 DATE DATE MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 11 -------------------------- ACCESSORY SUPPLY AGREEMENT SCHEDULE A -------------------------- 1. Turnover commitment ------------------- The prices defined in Schedule A are defined for a yearly running rate of 10 M$ after a ramp up of 6 months following the signature of the contract. A quarterly meeting will take place to review achievements and pricing accordingly. 2. Pricing ------- The pricelist consists in the attached documents: . List A : 2 pages . List B : 2 pages The pricelist may be amended from time to time. Prices are valid for a single shipping location in Europe. MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 12 APPENDIX 1 ---------- MUTUAL NON-DISCLOSURE AGREEMENT ------------------------------- AGREEMENT, made this day of October 1996, between Motorola Limited having ----- offices at Midpoint, Alencon Link, Basingstoke, Hampshire RG21 7PL, UK (hereinafter MOTOROLA) and CELLSTAR Corporation, World Headquarters, 1730 Briercroft Court Carrollton, TX 75006 USA (hereinafter THE COMPANY). Whereas THE COMPANY desires to market and sell MOTOROLA Original accessories for cellular subscriber equipment and MOTOROLA desires to manufacture and deliver accessories for cellular subscriber equipment. In consideration of the mutual covenants and conditions set forth herein and other good and valuable consideration THE COMPANY and MOTOROLA in respect of CONFIDENTIAL INFORMATION hereby agree : By this AGREEMENT, CONFIDENTIAL INFORMATION is defined as meaning information identified as or relating to MOTOROLA's cellular subscriber products, future products, accessories therefor, product plans, business plans, marketing plans, manufacturing techniques, as well as COMPANY's business plans, products plans, and cellular subscriber accessories (hereinafter THE PRODUCT) which is disclosed in oral, written, graphic, machine recognisable, sample form and/or any other tangible form, by one party to the other party, and which is clearly designated, labelled or marked as confidential or its equivalent at the time of disclosure. In order for information disclosed orally to be considered confidential it shall be confirmed in writing within thirty (30) days after such oral disclosure. The parties hereby agree that for a period of three (3) years (the CONFIDENTIAL PERIOD) following the date of sending of an item of CONFIDENTIAL INFORMATION, each shall (1) restrict dissemination of the item of CONFIDENTIAL INFORMATION of the other party to only those employees (and the employees of Motorola, Inc. and any subsidiary companies of Motorola, Inc., where necessary) who must be directly involved with THE PRODUCT and (2) use the same degree of care as for its own information of like importance, but at least use reasonable care, in safeguarding against disclosure of the item of CONFIDENTIAL INFORMATION of the other party. The party receiving the CONFIDENTIAL INFORMATION from the disclosing party agrees that this CONFIDENTIAL INFORMATION is and shall at all times remain the property of the disclosing party. No grant under any of the disclosing party's intellectual property rights is hereby given or intended, including any license implied or otherwise. During the term of this AGREEMENT and not withstanding the other provisions of this AGREEMENT, nothing received by either party shall be construed as CONFIDENTIAL INFORMATION which is now available or becomes available to the public without breach of this AGREEMENT, is released in writing by the disclosing party, is lawfully obtained from a third party not obligated under this AGREEMENT and without confidential limitation, is known to the receiving party prior to such disclosure or is at any time developed by the receiving party independently of any such disclosure or disclosures from the disclosing party. Any property including but no limited to equipment, components and product samples, furnished by MOTOROLA to THE COMPANY shall be returned to MOTOROLA upon its request. In the course of its relationship with the COMPANY, MOTOROLA may provide THE COMPANY with access to electronic media or computer systems to retrieve MOTOROLA DATA therefrom for use by THE COMPANY in providing products or services to MOTOROLA. THE COMPANY agrees that such MOTOROLA DATA shall be deemed to be CONFIDENTIAL INFORMATION subject to the terms and conditions of this AGREEMENT, and therefore agrees MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 13 to maintain the confidentiality of such MOTOROLA DATA and not disclose the same to any third party, except as authorised by MOTOROLA in writing. THE COMPANY agrees to destroy all such MOTOROLA DATA and copies thereof upon the request of MOTOROLA. This AGREEMENT shall expire three (3) years from the date of final signature below, unless terminated in writing by either party. Notwithstanding the foregoing, the duty of confidentiality for CONFIDENTIAL INFORMATION disclosed the expiry of this AGREEMENT shall be for the CONFIDENTIAL PERIOD. THE COMPANY shall not export, directly or indirectly, any technical data acquired from MOTOROLA under this AGREEMENT or any products utilising any such data to any country for which the U.S. Government or any agency thereof at the time of export requires an export license or other Government approval without first obtaining such licence or approval. This AGREEMENT shall be governed by and construed in accordance with the Laws of England and the Jurisdiction of the English Courts. IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be executed by their duly authorised representatives and to become effective from the date of final signature below. AGREED: /s/Alan H. Goldfield AGREED: /s/Don Burns ----------------------------- --------------------------------- (Authorised Signature) (Authorised Signature) by: Alan H. Goldfield by: Don Burns ------------------------------ --------------------------------- (Name - please print) (Name - please print) Title: Chairman, CEO Title: Snr. V.P. G.M., ECSD. ------------------------------ --------------------------------- (please print) (please print) Date: 10-21-96 Date: 25/10/96 ------------------------------ --------------------------------- MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 14 APPENDIX 2 ---------- Accessory Supply Agreement -------------------------- Review 2 - 24/09/96 ------------------- CELLSTAR Corporation located at 1730 Briercroft Ct, Carrolton, TX 75006, USA and represented by its Chairman Alan H. GOLFIELD commits to guarantee any oustanding indebtedness of its UK subsidiary, CELLSTAR UK Limited, to MOTOROLA under the terms of the above referenced Accessory Supply Agreement. /s/Alan H. Goldfield - ------------------------------------ Alan H. GOLDFIELD Chairman and Chief Executive Officer MOTOROLA CELLSTAR Contract CONFIDENTIAL Page 15
- ------------------------------------------------------------------------------------------------------------------------- LIST A ALL PRICES EXCLUDE LOCAL TAXES 9/10/96 Cellstar - ------------------------------------------------------------------------------------------------------------------------- P / N DESCRIPTION CONTENTS AVAIL USD $ - ------------------------------------------------------------------------------------------------------------------------- CHARGERS / CLA [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SPN4222 EP Euro adaptor SPN4222 Now - ------------------------------------------------------------------------------------------------------------------------- SPN4221 EP UK adaptor SPN4221 Now - ------------------------------------------------------------------------------------------------------------------------- SPN4216 EP charger base SPN4216 Now - ------------------------------------------------------------------------------------------------------------------------- SKN4292 Battery saver SKN4292 Now - ------------------------------------------------------------------------------------------------------------------------- SLN9933 Ultra saver (no RF connection) SLN9933 Now - ------------------------------------------------------------------------------------------------------------------------- Intelli XT charger w/Euro SLN9347 + SPN4112 Now - ------------------------------------------------------------------------------------------------------------------------- Intelli Xt charger w/UK SLN9347 + SPN4111 Now - ------------------------------------------------------------------------------------------------------------------------- S4160 Univ. Trvl chgr w/Euro S4160 3Q96 - ------------------------------------------------------------------------------------------------------------------------- S4259 Univ. Trvl chgr w/UK S4259 3Q96 ========================================================================================================================= LEATHER CASE [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SLN8500 Leather Carry Case SLN8500 Now - ------------------------------------------------------------------------------------------------------------------------- CAR KITS - ------------------------------------------------------------------------------------------------------------------------- S3060 Professional Charger Car Kit S3060 Now - ------------------------------------------------------------------------------------------------------------------------- S3062 Professional ETACS Car Kit S3062 Now - ------------------------------------------------------------------------------------------------------------------------- S3285 Professional GSM HF Car Kit 7000 S3285 Now - ------------------------------------------------------------------------------------------------------------------------- S4386 8000/Flare Car Kit Straight Cord S4386 w/SKN4720 Now - ------------------------------------------------------------------------------------------------------------------------- S5311 8000/Flare Car Kit 4 Turns Cord S5311 w/SKN4719 Now - ------------------------------------------------------------------------------------------------------------------------- S5559 8000/Flare Car Kit Full Cord S5559 w/SKN4632 Now - ------------------------------------------------------------------------------------------------------------------------- S4387 Professional Elite HF Car Kit S4387 Now - ------------------------------------------------------------------------------------------------------------------------- S4418 Professional Car Kit - Coupled S4418 Now ========================================================================================================================= ELITE HEADSET [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SLN6660 Elite Handsfree headset SLN6660 Now - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- List A StarTAC & ALL PRICES EXCLUDE LOCAL TAXES 9/10/96 Cellstar Modulus - ------------------------------------------------------------------------------------------------------------------------- P / N DESCRIPTION CONTAINED P/N AVAIL USD $ - ------------------------------------------------------------------------------------------------------------------------- Chargers and adaptors StarTAC [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SYN4656 UK AC Plug SYN4656 - ------------------------------------------------------------------------------------------------------------------------- SYN4655 Euro AC Plug SYN4655 - ------------------------------------------------------------------------------------------------------------------------- SPN2083 Travel charger with Euro plug SPN4278, SYN4655 - ------------------------------------------------------------------------------------------------------------------------- SPN2084 Travel charger with UK plug SPN4278, SYN4656 - ------------------------------------------------------------------------------------------------------------------------- SPN4278 Power Supply SPN4278 - ------------------------------------------------------------------------------------------------------------------------- SPN4279 Charger Base SPN4279 - ------------------------------------------------------------------------------------------------------------------------- SPN2086 Charger base with Euro Plug SPN4279, SPN4278, SYN4655 - ------------------------------------------------------------------------------------------------------------------------- SPN2087 Charger base with UK Plug SPN4279, SPN4278, SYN4656 - ------------------------------------------------------------------------------------------------------------------------- SYN4241 Ultra saver - CLA SYN4241 Sept. - ------------------------------------------------------------------------------------------------------------------------- Batteries StarTAC (ETACS) [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SNN4809 500 mA Slim Main Black - Li.Ion SNN4809 Sept. - ------------------------------------------------------------------------------------------------------------------------- SNN4810 500 mA Slim Main Charcoal - Li.Io SNN4810 - ------------------------------------------------------------------------------------------------------------------------- SNN4814 900 mA XCap Main Black - Li. Ion SNN4814 Sept. - ------------------------------------------------------------------------------------------------------------------------- SNN4815 900 mA XCap Main Charcoal - Li SNN4815 - ------------------------------------------------------------------------------------------------------------------------- SNN4819 900 mA Slim Aux. Black - Li.Ion SNN4819 Sept. - ------------------------------------------------------------------------------------------------------------------------- SNN4820 900 mA Slim Aux. Charcoal - Li.Io SNN4820 - ------------------------------------------------------------------------------------------------------------------------- Carry Cases StarTAC [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SHN5799 Holster SHN5799 Sept. - ------------------------------------------------------------------------------------------------------------------------- SYN4898 Leather Pouch SYN4898 - ------------------------------------------------------------------------------------------------------------------------- SYN4899 Purse PAK Brown SYN4899 - ------------------------------------------------------------------------------------------------------------------------- SYN4900 Purse PAK Black SYN4900 - ------------------------------------------------------------------------------------------------------------------------- Hands Free Car Kit StarTAC [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SYN4937 H/F Headset Black SYN4937 Sept.
"[REDACTED]" indicates confidential portions omitted and filed separately with the Commission.
- ------------------------------------------------------------------------------------------------------------------------- List A StarTAC ALL PRICES EXCLUDE LOCAL TAXES 9/10/96 Cellstar Modulus - ------------------------------------------------------------------------------------------------------------------------- P / N DESCRIPTION CONTENTS AVAIL USD $ - ------------------------------------------------------------------------------------------------------------------------- S5529 H/F Car Kit SLN3500, SKN4762, SKN4781, [REDACTED] SJN6392, SMN4083, SSN4002, SYN4999 - ------------------------------------------------------------------------------------------------------------------------- Chargers and adaptors Modulus [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SYN4656 UK AC Plug SYN4656 - ------------------------------------------------------------------------------------------------------------------------- SYN4655 Euro AC Plug SYN4655 - ------------------------------------------------------------------------------------------------------------------------- SPN4364 Standard charger with UK plug SPN4364 - ------------------------------------------------------------------------------------------------------------------------- SPN4365 Standard base with Euro Plug SPN4365 - ------------------------------------------------------------------------------------------------------------------------- SPN4366 Rapid charger SPN4366 - ------------------------------------------------------------------------------------------------------------------------- SYN5383 CLA SYN5383 Sept. - ------------------------------------------------------------------------------------------------------------------------- Batteries Modulus (ETACS) [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SNN4802 NiCd Battery SNN4802 - ------------------------------------------------------------------------------------------------------------------------- SNN4803 NiMH Battery SNN4803 - ------------------------------------------------------------------------------------------------------------------------- Hands Free Car Kit Modulus [REDACTED] - ------------------------------------------------------------------------------------------------------------------------- SYN5623 HUC SYN5623 - ------------------------------------------------------------------------------------------------------------------------- SYN5532 Headset Adaptor SYN5532 - ------------------------------------------------------------------------------------------------------------------------- DHFA SLN3716 + SYN5383 - -------------------------------------------------------------------------------------------------------------------------
"[REDACTED]" indicates confidential portions omitted and filed separately with the Commission.
- -------------------------------------------------------------------------------------- 10/09/1996 LIST B ALL PRICES EXCLUDE LOCAL TAXES Cellstar - -------------------------------------------------------------------------------------- Ref P / N DESCRIPTION USD $ - -------------------------------------------------------------------------------------- Cigarette Lighter Adapters ("Battery savers") [REDACTED] - -------------------------------------------------------------------------------------- SLN9934 CLA with RF connection for GSM 8000/Flare - -------------------------------------------------------------------------------------- Car kits [REDACTED] - -------------------------------------------------------------------------------------- S1744 UK Deluxe CVC - -------------------------------------------------------------------------------------- S2093 UK Super Deluxe CVC - -------------------------------------------------------------------------------------- S2088 Austria Deluxe CVC - -------------------------------------------------------------------------------------- S2095 Austria Super Deluxe CVC - -------------------------------------------------------------------------------------- S2089 Spain Deluxe CVC - -------------------------------------------------------------------------------------- S2096 Spain Super Deluxe CVC - -------------------------------------------------------------------------------------- S2087 Italy Deluxe CVC - -------------------------------------------------------------------------------------- S2094 Italy Super Deluxe CVC - -------------------------------------------------------------------------------------- S2409 NMT Deluxe CVC - -------------------------------------------------------------------------------------- S2426 NMT Super Deluxe CVC - -------------------------------------------------------------------------------------- S2336 Second Car Kit W/HFA - -------------------------------------------------------------------------------------- S3071 Second Car Kit W/HFA - -------------------------------------------------------------------------------------- S2348 Second Car Kit W/HFA - -------------------------------------------------------------------------------------- S3233 GSM International 2500 Car Kit - -------------------------------------------------------------------------------------- Mobile Installation [REDACTED] - -------------------------------------------------------------------------------------- SLN7293 Mobile XCVR Mounting Bracket - -------------------------------------------------------------------------------------- SLN3194 Hang-Up Cup with Card Reader - -------------------------------------------------------------------------------------- SSN4256 HFA External Speaker - -------------------------------------------------------------------------------------- Transportable kits [REDACTED] - -------------------------------------------------------------------------------------- S2204 Spain Transportable Kit XCVR Series II - -------------------------------------------------------------------------------------- S2205 Italy Transportable Kit XCVR Series II - -------------------------------------------------------------------------------------- S3593 GSM International 2500 Transportable Car Kit - -------------------------------------------------------------------------------------- S2167 UK Transportable Kit - -------------------------------------------------------------------------------------- S2376 NMT Transportable Kit - -------------------------------------------------------------------------------------- CCLN4134NMT450 Transportable Module - -------------------------------------------------------------------------------------- Transformers and chargers [REDACTED] - -------------------------------------------------------------------------------------- SPN4341 Overnight Charger (Transformer) - -------------------------------------------------------------------------------------- SPN4321 Overnight Charger (Base) - -------------------------------------------------------------------------------------- SPN4084 Euro. Overnight Internal Charger - -------------------------------------------------------------------------------------- SPN4079 UK Overnight Internal Charger - -------------------------------------------------------------------------------------- SPN4260 Euro. Rapid Internal Charger - -------------------------------------------------------------------------------------- SPN4261 UK Rapid Internal Charger - -------------------------------------------------------------------------------------- SPN4257 Euro. Slow Internal Charger - -------------------------------------------------------------------------------------- SPN4258 UK Slow Internal Charger - -------------------------------------------------------------------------------------- SPN2035 Euro. Single Station Overnght Charger Base & Transformer - -------------------------------------------------------------------------------------- SPN4063 UK Rapid Lead Battery Charger - -------------------------------------------------------------------------------------- SPN4064 Euro. Rapid Lead Battery Charger - -------------------------------------------------------------------------------------- BATTERIES [REDACTED] - -------------------------------------------------------------------------------------- NICD - -------------------------------------------------------------------------------------- GP4 SNN4131 Slim 400mAh - Grey - -------------------------------------------------------------------------------------- GP4 SNN4132 Slim 400mAh - Black - -------------------------------------------------------------------------------------- GP6 SNN4102 Slim Extra Capacity 550mAh - Black - -------------------------------------------------------------------------------------- GP6 SNN4104 Slim Extra Capacity 550mAh - Grey - --------------------------------------------------------------------------------------
"[REDACTED]" indicates confidential portions omitted and filed separately with the Commission.
- -------------------------------------------------------------------------------------- 10/09/1996 LIST B ALL PRICES EXCLUDE LOCAL TAXES Cellstar - -------------------------------------------------------------------------------------- Ref P / N DESCRIPTION USD $ - -------------------------------------------------------------------------------------- 4/5 AF SNN4057 Extra Capacity 700 mAh - Black [REDACTED] - -------------------------------------------------------------------------------------- 4/5 AF SNN4058 Extra Capacity 1100 mAh - Black - -------------------------------------------------------------------------------------- SNN4040 Standard 1500mAh - Black - -------------------------------------------------------------------------------------- SNN4010 Standard 1500mAh - Grey - -------------------------------------------------------------------------------------- SNN4025 Extra Capacity 3000mAh - Black - -------------------------------------------------------------------------------------- SNN4024 Extra Capacity 3000mAh - Grey - -------------------------------------------------------------------------------------- SNN4250 Slim 700mAh - Black - -------------------------------------------------------------------------------------- SNN4251 Slim 700mAh - Grey - -------------------------------------------------------------------------------------- SNN4324 NiCd battery - Black - -------------------------------------------------------------------------------------- SNN4263 NiCd battery - Grey - -------------------------------------------------------------------------------------- NIMH [REDACTED] - -------------------------------------------------------------------------------------- SNN4836 AAA 500mAh - Black - -------------------------------------------------------------------------------------- GP6 SNN4310 Slim Extra Capacity 750mAh - Black - -------------------------------------------------------------------------------------- 4/5 A/F SNN4258 Extra Capacity 1300mAh - Grey - -------------------------------------------------------------------------------------- 4/5 A/F SNN4259 Extra Capacity 1300mAh - Black - -------------------------------------------------------------------------------------- LO5 SNN4612 Slim 600mAh - Black - -------------------------------------------------------------------------------------- LO5 SNN4615 Slim 600mAh - Grey - -------------------------------------------------------------------------------------- LI- ION [REDACTED] - -------------------------------------------------------------------------------------- LP4 SNN4383 Slim 350mAh - Black - -------------------------------------------------------------------------------------- 18 x 65 SNN4458 Extra Capacity 1200mAh - Black - -------------------------------------------------------------------------------------- SNN4459 Extra Capacity 1200mAh - Grey - -------------------------------------------------------------------------------------- 2xLSQ8 SNN4697 AAA Style Lithium - -------------------------------------------------------------------------------------- Lead Acid [REDACTED] - -------------------------------------------------------------------------------------- SNN4139 Lead Acid - -------------------------------------------------------------------------------------- Handy Pak SNN4242 Handy Pak - --------------------------------------------------------------------------------------
"[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EX-10.49 12 SEPARATION AGREEMENT AND RELEASE EXHIBIT 10.49 SEPARATION AGREEMENT AND RELEASE -------------------------------- This Separation Agreement and Release (hereinafter the "Agreement") contains all terms and compromises reached between Kenneth E. Kerby ("Mr. Kerby") and CellStar Ltd. ("Employer"), in connection with Mr. Kerby's separation from employment with the Employer. It is the intent of the parties, by entering into this Agreement, to resolve any and all disputes, claims or causes of action which might now exist or arise in the future between them. IT IS THEREFORE AGREED THAT: 1. Effective October 25, 1996, Mr. Kerby voluntarily resigns his employment with the Employer and shall no longer be considered an employee of Employer. Furthermore, effective October 25, 1996, Mr. Kerby voluntarily resigned from all of his positions as an officer of CellStar Corporation and its affiliated entities. Furthermore, effective upon execution of this Agreement, Mr. Kerby also resigns from all of his positions as director of CellStar Corporation and its affiliated entities. 2. In consideration for Mr. Kerby's promises and covenants in this Agreement, the Employer agrees: a. to pay Mr. Kerby's salary through October 25, 1996; b. to continue to pay Mr. Kerby an amount as severance pay equal to his monthly salary of $16,666.66 (less required withholding), payable in accordance with Employer's standard procedures, from October 26, 1996, until November 1, 1997; c. to pay Mr. Kerby's cost for continued insurance coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") from October 26, 1996 through November 1, 1997; d. that it will provide out placement services for Mr. Kerby for a period of six (6) full calendar months; e. that it will reimburse Mr. Kerby for legal fees incurred in connection with the negotiation and execution of this Agreement, not to exceed One Thousand Dollars ($1000.00); and f. that it will provide a neutral reference to all third parties who request a reference for Mr. Kerby by informing such parties that it is company policy to only provide neutral references. 3. In consideration for the promises, payments and benefits provided herein by Employer, and in order to fully compromise and settle any and all claims and causes of action of any kind whatsoever relating to or arising out of Mr. Kerby's employment with Employer, including any claim arising under common law, contractual claim, or any other federal, state or local statute or ordinance, Mr. Kerby agrees: a. that Mr. Kerby will and hereby does unconditionally release, acquit and forever discharge Employer, all of its parent, subsidiary or affiliate companies, and all of their officers, directors, representatives, employees or agents from any and all charges, complaints, claims, causes of action, suits and expenses (including attorney fees and costs actually incurred) of any nature whatsoever, known or unknown, regarding any matter existing on or prior to the date hereof, including those matters relating to or arising out of Mr. 1 Kerby's employment or separation thereof from Employer, except as contained in this instrument. THIS RELEASE INCLUDES, BUT IS NOT LIMITED TO, TO ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF MR. KERBY'S EMPLOYMENT WITH EMPLOYER, SEPARATION THEREOF, OR ANY BENEFITS ASSOCIATED WITH SUCH EMPLOYMENT, INCLUDING ANY CLAIM UNDER TITLE VII OF THE CIVIL RIGHTS ACTS OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, OR ANY OTHER COMMON LAW, CONTRACTUAL OR STATUTORY CLAIM; b. that Mr. Kerby will not file any charges or complaints against Employer with the Equal Employment Opportunity Commission, the Texas Commission on Human Rights, or any other local, state or federal agency or court, and that if Mr. Kerby filed or has filed any such complaint or charge, and/or if any such agency or court assumes jurisdiction of any complaint or charge against Employer on behalf of Mr. Kerby, Mr. Kerby will request such agency or court to withdraw from the matter and dismiss said action. 4. Notwithstanding anything herein contained to the contrary, Mr. Kerby shall have full rights of indemnification, to the same extent as other officers and directors of the Employer have such rights, with respect to actions taken or omitted by him on behalf of the Employer during his employment and also with respect to any third-party claims. 5. Except as required by law, all parties agree that they will keep the terms and amount of this Agreement completely confidential and that neither party hereto will make any disparaging statements or allegations about the other to any person or governmental agency, including comments about Employer's employees, officers, directors or agents or about the reputations of Employer or any such person. It is recognized that the Employer's parent company may be required to file a copy of this Agreement with the Securities and Exchange Commission, issue a press release relating to Mr. Kerby's separation, and make other disclosures required of a public company pursuant to applicable law, and any such filing, press release or disclosure shall not be deemed to violate the provisions of this Agreement. The Employer shall not issue any press release regarding Mr. Kerby without his prior written or telefaxed approval of the text. 6. With respect to any information or data, whatever its nature and form and whether obtained orally, by observation, from written material or otherwise obtained by Mr. Kerby during or as the result of Mr. Kerby's employment by the Employer and relating to any business plans, customer lists, financial information, financing arrangements or plans of the Employer or any of its affiliated entities, Mr. Kerby agrees: a. To hold all such information in strict confidence, and not publish or otherwise disclose any thereof except to or with the prior consent of any authorized representative of the Employer. b. To use all reasonable precautions to assure that all such information is properly protected and kept from unauthorized persons. c. To make no use of any such information. d. To deliver to the Employer all written materials containing or relating to such information, all of which written materials and other things shall be and remain the sole property of the Employer. For this purpose, "written materials" shall be deemed to mean 2 and include letters, memoranda, reports, notes, notebooks, books of account, data and all other documents or writings, and all copies thereof. Mr. Kerby's agreement not to disclose information concerning this Agreement, the Employer or any person connected with the Employer shall not apply to compulsory disclosure pursuant to subpoena, deposition or other legal process. Mr. Kerby shall promptly notify the Employer of the service of any subpoena or demand for compulsory disclosure and shall refrain from making such disclosure for the maximum period of time permitted by law, to permit the Employer to take such actions as it may deem appropriate to have such service or demand set aside or to protect the confidential nature of the information being sought. 8. In the event that Mr. Kerby breaches any provision of this Agreement except for compulsory process, all future obligations of Employer under Section 2.b. of this Agreement shall cease. As a further material inducement to enter into this Agreement, any party who breaches this Agreement must reimburse the non-breaching party for any and all loss, cost, damage or expense, including, without limitation, attorneys fees incurred as a result of any effort, action or lawsuit to enforce this Agreement. In addition, any breach of the Agreement will entitle the non-breaching party to seek injunctive relief to enforce this Agreement and to recover any actual damages incurred as a result of said breach. In the event of litigation, the losing party must pay the attorneys fees of the prevailing party. 9. Mr. Kerby represents and acknowledges that in executing the Agreement he does not rely and has not relied upon any representation made by Employer or its agents, representatives or attorneys with regard to the subject matter, basis or fact of said Agreement, except on those contained in this Agreement. The parties agree that this Agreement represents a resolution of various matters and shall not be construed to be an admission of any liability or obligation by either party to the other party. 10. This Agreement shall be binding upon and inure to the benefit of Mr. Kerby and upon Mr. Kerby's heirs, administrators, representatives, executors, successors and assigns. This Agreement shall be binding upon and inure to the benefit of the Employer, all of its parent, subsidiary and affiliated companies, and any corporation or other entity into which or with which any thereof shall be liquidated, merged or consolidated. 11. This Agreement is made within the State of Texas and shall in all respects be interpreted, enforced and governed under the laws thereof, and shall in all cases be construed as a whole (according to its fair meaning and not strictly for or against any of the parties). 12. Should any provision of this Agreement be declared or be determined illegal and invalid, the validity of the remaining parts will not be affected. 13. The parties, by their signatures below, represent and agree that (a) each has read this Agreement carefully and completely, and understands all provisions contained therein; (b) Mr. Kerby has been given a period of at least twenty-one (21) days to consider and review this Agreement; and (c) Mr. 3 Kerby is aware of his right to consult with legal counsel and has ample opportunity to do so if he so desires. 14. No change or modification of this Agreement shall be valid unless in writing and signed by all parties hereto. 15. Mr. Kerby will cooperate with Employer in response to requests for information or assistance by Employer in connection with all matters relating to or arising out of his employment with Employer. 16. Mr. Kerby agrees that he will not disclose material non-public information about Employer or any of its parent, subsidiary or affiliate companies to anyone other than Employer's officers, directors, attorneys and accountants except to the extent compelled by compulsory process.. 17. MY SIGNATURE BELOW INDICATES THAT I HAVE READ THE ABOVE AGREEMENT AND VOLUNTARILY AGREE AND CONSENT TO THE TERMS AND CONDITIONS THEREIN. /s/ Kenneth E. Kerby - ------------------------------------ Signed in Carrollton, Texas KENNETH E. KERBY on December 19, 1996 SUBSCRIBED AND SWORN to before me, the undersigned Notary Public on this the 19th day of December, 1996. /s/ Karen Taylor Jacks ---------------------------- Notary Public in and for the State of Texas [NOTARY SEAL APPEARS HERE] Karen Taylor Jacks My Commision Expires February 20, 2000 FOR THE EMPLOYER: CELLSTAR LTD. By: National Auto Center, Inc. By: /s/ Alan H. Goldfield Signed in Carrollton, Texas ---------------------------- on December 12, 1996. Alan H. Goldfield Chairman and CEO SUBSCRIBED AND SWORN to before me, the undersigned Notary Public on this the 12th day of December, 1996. /s/ Mollyn Marie Shew ---------------------------- Notary Public in and for the State of Texas [NOTARY SEAL APPEARS HERE] My Commission Expires April 8, 2000 4 EX-10.50 13 LOAN AGREEMENT BETWEEN BANK OF CHICAGO, HONG KONG EXHIBIT 10.50 LOAN AGREEMENT -------------- The First National Bank of Chicago, Hong Kong Branch (the "Bank"), whose address is 13/F Jardine House, 1 Connaught Place, Central, Hong Kong, agrees to extend the credit facility described below to CellStar (Asia) Corporation Limited (the "Borrower"), whose address is Rooms 509-510, 5/F, Block B, Sing Tao Building, 1 Wang Kwong Road, Kowloon bay, Kowloon, Hong Kong, under the terms and conditions set forth in this agreement (the "Agreement"). 1. CREDIT FACILITY --------------- The Bank agrees to extend the following credit facility to the Borrower, CellStar (Asia) Corporation Limited: A United States Dollar Fifteen Million (US$15,000,000) revolving credit (the "Credit Facility") maturing July 31, 1997, the proceeds of which will be used for general working capital purposes and to negotiate export commercial letters of credit which may contain discrepancies whereby the Bank maintains full recourse to the Borrower. 2. CONDITIONS PRECEDENT -------------------- The Borrower shall provide the Bank the following documents prior to the extension of the Credit Facility: (a) A copy of a Board Resolution of the Borrower authorizing the Borrower to enter into this Agreement and appointing authorized persons to sign all applications, notices and documents to be delivered hereunder. (b) Specimen signatures of the authorized persons under the Board resolution referred to in section 2(b) above. (c) A copy of this Agreement duly executed by the Borrower. (d) Corporate guarantees of CellStar Corporation, and National Auto Center, Inc. (the "Guarantors"). (e) Board resolutions authorizing CellStar Corporation and National Auto Center, Inc. to guarantee the Credit Facility. (f) Copy of hazard and theft insurance policy covering inventory maintained by Borrower. (g) Such other documents as the Bank may reasonably require. 3. INTEREST RATES -------------- Interest rates charged to the Borrower under the Credit Facility are based on the interest rate pricing grids as defined in the National Auto Center, Inc. credit facility ("Domestic Facility") which is attached as Exhibit A. The Borrower agrees to pay the Bank interest calculated on a daily basis and at the rates specified below on all amounts outstanding under the Credit Facility. Interest will be calculated on the basis of actual days elapsed in a year of 360 days. All payments will be applied first to accrued interest, then to principal. /s/JAS /s/AHG ------------ ------------ INITIAL INITIAL (Bank) (Borrower) 2 (a) At Borrowers Option: ------------------- 1. Texas Commerce Bank's (Agent) Base Rate (greater of Agent's "Prime Rate" or Fed Funds Rate plus 1/2%) plus applicable margin as defined in the Domestic Facility. 2. Eurodollar rate (1, 2 or 3 month) plus applicable margin as defined in the Domestic Facility. (b) Default Interest Rate: --------------------- In addition to the interest specified above, default interest shall be chargeable to the Borrower from the date of any default at an additional two percent (2%) per annum on all amounts outstanding. 4. COMMITMENT FEE -------------- The Borrower agrees to pay the Bank a fee of 0.5 percent (50 basis points) per annum on the unused portion of the Credit Facility. The commitment fee will be calculated on a daily basis and will be payable quarterly in arrears. 5. UPFRONT FEE ----------- 0.35 percent (35 basis points) on the amount of the Credit Facility or US$52,500. 6. COLLATERAL ---------- The Bank will file with the Registrar of Companies in Hong Kong a floating charge on the Borrower's trade accounts receivable and inventory contained in a debenture to be executed by the Borrower in favor of the Bank. 7. BORROWING BASE -------------- Notwithstanding any other provisions of this Agreement, the aggregate principal amount outstanding at any one time under the Credit Facility shall not exceed the lesser of the Borrowing Base or US$15,000,000. Borrowing Base means: Eighty percent* of the Borrower's trade accounts receivable in which the Bank has a perfected, first priority security interest, excluding accounts more than ninety days past due from the date of invoice, accounts subject to offset or defense, bonded, affiliate accounts and accounts otherwise reasonably unacceptable to the Bank plus: Ninety percent of bills receivable under commercial letters of credit issued by banks for which the Bank has approved credit limits, and not exceeding ninety days plus: Fifty percent of the Borrower's inventory in which the Bank has a perfected, first priority security interest, net of any obsolescence reserve, slow moving or inventory in transit. * Advance rate against trade accounts receivable is reduced to seventy percent on any individual account which has a month end balance greater than twenty-five percent of the sum of the acceptable account balances at that same month end. /s/JAS /s/AHG ------------ ------------ INITIAL INITIAL (Bank) (Borrower) 3 8. GUARANTY -------- Payment of the Borrower under this Credit Facility shall be guaranteed by CellStar Corporation and National Auto Center, Inc. (the "Guarantors") by execution of the Bank's form of guaranty agreement. 9. AFFIRMATIVE COVENANTS --------------------- So long as there is any outstanding under the Credit Facility, the Borrower shall: (a) maintain insurance with financially sound and reputable insurers covering its properties and business against those casualties and contingencies and in the types and amounts as shall be in accordance with sound business and industry practices. (b) maintain its existence and business operations presently in effect in accordance with all applicable laws and regulations, pay its debts and obligations when due under normal terms (which, for the avoidance of doubt shall not limit or restrict the Borrower in accepting trade credit from its suppliers on normal commercial terms), and pay on or before their due date, all taxes, assessments, fees and other governmental monetary obligations, except as they may be contested in good faith if they have been properly reflected on its books and, at the Bank's request, adequate funds or security has been pledged to insure payment. (c) maintain proper books and records of account, in accordance with generally accepted accounting principles where applicable, and consistent with financial statements previously submitted to the Bank. (d) furnish to the bank whatever information, books and records the Bank may reasonably request, including at a minimum: (i) annual audited financial statements of the Borrower and the Guarantors, and (ii) monthly internally prepared financial statements of the Borrower. (iii) monthly computer generated account receivable aging/report. (iv) monthly computer generated inventory report. (v) monthly borrowing base report. (vi) quarterly covenant compliance certificate. 10. NEGATIVE COVENANTS ------------------ (a) Definitions: As used in this Agreement, the following terms shall have the following respective meanings: (i) "Tangible Net Worth" shall mean total assets less intangible assets and total liabilities. Intangible assets include goodwill, patents, copyrights, mailing lists, catalogs, trademarks, bond discounts and underwriting expenses, organization expenses, and all other intangibles. /s/JAS /s/AHG ------------ ------------ INITIAL INITIAL (Bank) (Borrower) 4 (ii) Unless otherwise noted, the financial requirements set forth in this Section 10 shall be computed in accordance with generally accepted accounting principles applied on a basis consistent with financial statements previously submitted by the Borrower to the Bank. (b) Without the written consent of the Bank, and so long as any outstanding remains under the Credit Facility, the Borrower shall not: (i) Permit the ratio of its current assets to its current liabilities to be less than 1.5:1.0. (ii) Permit its Tangible Net Worth to be less than US$25,000,000 and increasing to US$27,000,000 at 8-31-96; and increasing by 50% of quarterly net income thereafter. (iii) Permit its total liabilities divided by Tangible Net Worth to exceed 2.0:1.0. (iv) Permit the ratio of its earnings before deducting interest expense and taxes to its interest expense to be less than 1.5:1.0. (v) Advance any funds and/or dividends in an aggregate amount greater than US$3,000,000 to affiliated companies through July 31, 1997. (vi) Create or assume or permit to exist or arise any mortgage, debenture, charge, or any other encumbrance or security whatsoever over any of its assets or property, except for liens in the ordinary course of business and liens for taxes, assessments or other governmental charges which are not delinquent and are part of the ordinary course of business, or which are being contested in good faith and for which adequate reserves have been established in agreement with the Bank. (vii) Allow the legal or beneficial ownership of the Borrower to be changed. (viii) Guarantee the liabilities of any other legal entity, affiliated or unaffiliated. 11. ACCELERATION OF PAYMENT ----------------------- Upon the occurrence of any one of the following events, the Borrower's indebtedness to the Bank hereunder shall immediately become due and payable without any notice or demand from the Bank: (a) The Borrower or the Guarantors fail to pay (i) any installment of interest on any amount payable hereunder within 5 days after the due date thereof, or (ii) any installment of principal hereunder when due. (b) The Borrower or the Guarantors fail to observe or perform any other term of the Agreement and such failure continues unremedied for a period of 15 days after the earlier of (i) the giving of notice to Borrower or Guarantors by the Bank of such failure, or (ii) the Borrower's or the Guarantors' actual knowledge of such failure; or the Borrower or the Guarantors make any materially incorrect or misleading representation, warranty, or certificate to the Bank which was materially incorrect or misleading when made; or make any materially incorrect or misleading representation in any financial statement or other information delivered to the Bank; or default under the terms of any agreement or instrument relating to any debt for borrowed money such that the creditor declares the debt due before its maturity. (c) A default under the Domestic Facility. /s/JAS /s/AHG ------------ ------------ INITIAL INITIAL (Bank) (Borrower) 5 (d) The Borrower or the Guarantors default under the terms of any loan agreement, mortgage, security agreement or any other document executed in connection with this Agreement and such default continues unremedied for a period of fifteen days after the earlier of (i) the giving of notice to Borrower or Guarantors by the Bank of such failure, or (ii) the Borrower's or the Guarantors' actual knowledge of such failure; or if any guaranty of this Credit Facility becomes unenforceable in whole or in part, or the Guarantors fail to promptly perform under such a guaranty. (e) The Borrower or the Guarantors become insolvent or unable to pay their debts as they become due. (f) The Borrower or the Guarantors make an assignment for the benefit of creditors; consent to the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or commence any proceeding under any bankruptcy, reorganization, liquidation or similar laws of any jurisdiction. (g) A custodian, receiver or trustee is appointed for the Borrower or the Guarantors or for a substantial part of its assets without the consent of the party against which the appointment is made. (h) Proceedings are commenced against the Borrower or the Guarantors under any bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction and not dismissed within 30 days from the commencement thereof, or the Borrower or the Guarantors consent to the commencement of such proceedings. (i) Any final judgment for the payment of money in excess of US$500,000 is entered against the Borrower or the Guarantors, or any attachment, levy or garnishment is issued against any property of the Borrower or the Guarantors and the same shall not be discharged or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof. (j) The Borrower or the Guarantors, without the Bank's written consent, is dissolved, merges or consolidates with any third party; leases, sells or otherwise conveys a material part of its assets or business outside the ordinary course of business; or agrees to do any of the foregoing. (k) There is a substantial change in the existing or prospective financial condition of the Borrower or the Guarantors which the Bank in good faith determines to be materially adverse taken as a whole. 12. PAYMENTS WITHOUT DEDUCTION -------------------------- All payments by the Borrower hereunder shall be made without set-off or counterclaim and free and clear of and without deducting or withholding for or on account of all present and future taxes, levies, imposts, duties, fees or other restrictions or conditions whatsoever. 13. LIEN AND SET-OFF ---------------- To secure payment of any indebtedness of the Borrower under this Agreement and all the Borrower's other liabilities to the Bank, the Borrower grants to the Bank a continuing security interest in all securities and other property of the Borrower in the custody, possession or control of the Bank and all balances of deposit accounts of the Borrower with the Bank. The Bank shall have the right upon occurrence of an event described in Section 11 hereof to apply its own debt or liability to the Borrower, or to any other party liable for payment under this Agreement, in whole or partial payment of the Borrower's indebtedness or its other present or future liabilities to the Bank, without any requirement of mutual maturity. /s/JAS /s/AHG ------------ ------------ INITIAL INITIAL (Bank) (Borrower) 6 14. EXPENSES -------- The Borrower shall pay or procure the payment of all stamp and other duties and taxes and all registration and other like fees to which this Agreement or other document referred to herein may be subject and shall reimburse the Bank on demand for all expenses (including reasonable legal fees, translation and other out-of-pocket expenses) incurred by the Bank in connection with the negotiation, preparation, execution and enforcement of this Agreement. 15. NOTICE ------ Notice from one party to another relating to this Agreement shall be deemed effective if made in writing (including telecommunications) and delivered to the recipient's address, telex number or facsimile number set forth under its name below by any of the following means: hand delivery, registered or certified mail, postage prepaid, with return receipt requested, mail, postage prepaid, overnight courier service or facsimile, telex or other wire transmission with request for assurance of receipt in a manner typical with respect to communication of that type. Notice made in accordance with this section shall be deemed delivered upon receipt if delivered by hand or wire transmission, three business days in the place of receipt after mailing if mailed by registered or certified mail or one business day in the place of receipt after mailing or deposit with an overnight courier service if delivered by express mail or overnight courier. 16. WAIVER ------ No delay on the part of the Bank in the exercise of any right or remedy shall operate as a waiver. No single or partial exercise by the Bank of any right or remedy shall preclude any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by the Bank of any default shall be effective unless in writing and signed by the Bank, nor shall a waiver on one occasion be construed as a bar to or waiver of that right on any future occasion. 17. GOVERNING LAW ------------- This agreement shall be governed by and construed in all respects in accordance with the laws of Hong Kong and the Borrower hereby irrevocable submits to the non-exclusive jurisdiction of the Hong Kong courts. This Agreement is binding on the Borrower and its successors, and shall inure to the benefit of the Bank, its successors and assigns. 18. MISCELLANEOUS ------------- (a) This agreement and any related loan documents embody the entire agreement and understanding between the Borrower and the Bank and supersede all prior agreements and understandings relating to their subject matter. If any one or more of the obligations of the Borrower under this agreement or the Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Borrower shall not in any way be affected or impaired, and such validity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the obligations of the Borrower under this Agreement or the Note in any other jurisdiction. /s/JAS /s/AHG ------------ ------------ INITIAL INITIAL (Bank) (Borrower) 7 (b) Section headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Executed by the parties on July 31, 1996. For and on behalf of For and on behalf of First National Bank of Chicago CellStar (Asia) Corporation Limited Hong Kong Branch /s/ James A. Schmelter /s/ Alan H. Goldfield - ----------------------------------- --------------------------------------- Name: James A. Schmelter Name: Alan H. Goldfield Address for Notices: Address for Notices: 13/F Jardine House Rooms 509-510,5/F, Block B - ----------------------------------- --------------------------------------- 1 Connaught Place, Central Sing Tao Building - ----------------------------------- --------------------------------------- Hong Kong 1 Wang Kwong Road, Kowloon Bay - ----------------------------------- --------------------------------------- Kowloon, Hong Kong - ----------------------------------- --------------------------------------- Telephone No: (852) 2844-9222 Telephone No: (852) 2757-0998 --------------------- ------------------------- Facsimile No: (852) 2844-9318 Facsimile No: (852) 2759-5255 --------------------- ------------------------- Telex No : 83536 FCHOP HX Telex No : / --------------------- ------------------------- EX-10.51 14 EMPLOYMENT AGREEMENT EXHIBIT 10.51 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement"), dated as of the 1st day of June, 1995, is by and between CELLSTAR (ASIA) CORPORATION LIMITED, a company organized and existing under the laws of Hong Kong (the "Company"), and HONG AN-HSIEN (the "Employee"). WHEREAS, the Employee has intimate knowledge of the cellular markets in Hong Kong, the People's Republic of China, Taiwan and other Asian countries (collectively referred to as the "Territory"); and WHEREAS, the Employee has played a crucial role in the organization and development of the Company and the Company's business in the Territory; and WHEREAS, the Board of Directors of the Company desires to assure the Company of the Employee's continued employment in an executive capacity and to compensate him therefore; and WHEREAS, the Employee desires to commit himself to serve the Company on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Employee, and the ---------- Employee hereby agrees to serve the Company, on the terms and conditions set forth herein for the period commencing on the date hereof and expiring on May 31, 2000, (the period from the date hereof through May 31, 2000, or the date of such termination, as the case may be, being herein called the "Employment Period"). 2. DUTIES. ------ 2.1 General Duties. During the Employment Period, the Employee shall -------------- serve the Company in the capacity of President with duties consistent therewith and set forth in Exhibit A and shall perform such other services for the Company consistent with the position of a President as may be reasonably assigned to him from time to time by the Board of Directors of the Company. 2.2 Primary Activity. During the Employment Period, the Employee shall ---------------- devote all of his working time and energy to the interests and business of the Company and its subsidiaries; provided, however, that the Employee shall be excused from performing any services for the Company hereunder during the periods of temporary illness or incapacity and during reasonable vacations. While it is acknowledged that the duties of an Employee may require from time to time attention to business at times other than normal business hours, it is intended by the parties hereto that the Employee shall 1 perform his duties hereunder during normal business hours. During the Employment Period, the Employee shall, to the best of his skill and ability, use his best efforts and endeavors to the extension and promotion of the business of the Company, to the proper servicing of such business, and to the protection of the good will of such business, both as now enjoyed and hereafter acquired. 2.3 Non-Competition. The Employee recognizes and understands that in --------------- performing the duties and responsibilities of his employment as outlined in this Agreement, the Employee will occupy a position of trust and confidence, pursuant to which the Employee will develop and acquire experience and knowledge with respect to various aspects of the business of the Company and the manner in which that business is conducted. It is the expressed intent and agreement of the Employee and Company that this knowledge and experience shall be used in the furtherance of the business interests of the Company and not in any manner which would be detrimental to the business interests of the Company. The Employee therefore agrees that, so long as the Employee is employed pursuant to this Agreement and for a period of two (2) years following the termination hereof for any reason, the Employee will not invest, engage or participate in any manner whatsoever, either personally or in any status or capacity (other than as a shareholder of less than Five Percent (5%) of the capital stock of a publicly owned corporation) in any business or other entity organized for profit which is engaged in significant competition with the Company in the conduct of its operations in any market in which the Company conducts business during the term of this Agreement and for a period of two (2) years following the termination hereof for any reason. 2.4 Covenant and Agreement to Protect Trade Secrets. The Employee ----------------------------------------------- covenants and agrees that, for the protection of the business and goodwill of the Company, he will not at any time, other than in the regular course of business of the Company, in any fashion, form or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm, corporation, association or entity in any manner whatsoever any information of any kind, nature or description concerning the Company's manner of operation, its plans or other data of any kind, nature or description, including, without limitation, all files, records, programs, supporting documents, general documents, sales and marketing programs, sales tactics, price information, cost information, customer lists, supplier lists, employee lists, financial and accounting data, business plans, bank accounts and similar items related to the business of the Company without regard to whether any or all of the foregoing matters would be deemed confidential, material or important. Upon termination of this Agreement for any reason, the Employee shall not retain originals or copies of any records or information with respect to the 2 Company or any activity of the Company or with respect to any of the Company's affiliates or their activities. 3. COMPENSATION. As full compensation to the Employee for performance of his ------------ services herein, the Company agrees to pay the Employee and the Employee agrees to accept the following salary and other benefits during the Employment Period: 3.1 Salary. The Company shall pay the Employee a salary payable in local ------ currency at a monthly rate equivalent to $25,000.00 U.S. The salary due the Employee hereunder shall be payable in monthly installments. The Company may, from time to time at the discretion of the Board of Directors, pay a bonus or bonuses to Employee in an amount equal to up to 50% of Employee's annual base salary based upon the performance of the Company and the Employee. Any and all amounts paid to Employee hereunder as salary or bonuses shall be paid less any amounts required to be withheld by the Company from time to time from such amount under any applicable Federal, State or local income tax laws or similar laws then in effect. 3.2 Expense Accounts. The Employee shall be entitled to a business ---------------- expense account for all reasonable expenses properly incurred by the Employee in performance of his duties. 3.3 Further Benefits. The Employee shall be entitled to participate in ---------------- any health, accident or similar employee benefit plans provided by the Company generally to its employees to the extent commensurate with the participation therein of executives of the Company. The Employee shall also be entitled to such vacation time (not less than two weeks) during each year of his employment hereunder as the Board of Directors of the Company may permit, to be taken at such times and in such period as the Employee shall determine upon giving reasonable notice to the Company. 4. TERMINATION OF AGREEMENT. ------------------------ 4.1 Events of Termination. The Employment Period shall cease and --------------------- terminate upon the earliest to occur of (i) the close of business on May 31, 2000, (ii) death of the Employee, (iii) the mutual agreement of the Board of Directors, or (iv) in the event that the Board of Directors elects to terminate this Agreement for one of the following causes: (a) should Employee, for reasons other than illness, injury or permitted vacations, be absent from the Company for more than 14 consecutive days without the consent of the Board of Directors of the Company; (b) should the Employee fail to comply with reasonable policies, standards and regulations established by the Board of Directors of the Company from time to time; 3 (c) should the Employee breach the terms of this Agreement; or (d) should Employee be convicted of a crime punishable by imprisonment or otherwise involving dishonesty, fraud or breach of trust. This Agreement may also be terminated by Employee at any time following May 31, 1998 upon thirty (30) days' written notice to Company; provided, however, that the Employee's obligations set forth in Sections 2.3 and 2.4 of this Agreement shall remain in effect for two (2) years following the termination hereof. 4.2 Effect of Termination. This Agreement and all liabilities and --------------------- obligations of the parties hereto hereunder shall cease and terminate effective upon the termination of the Employment Period; provided, however, that the Company shall pay the Employee that portion of the Employee's salary which has accrued but remains unpaid prior to the date of termination and provided further that the obligations set forth in Section 2.3 and 2.4 hereof shall survive termination hereof for any reason.. Any such unpaid salary shall be paid to the Employee within ten (10) days of the date of termination. Upon termination of this Agreement, any and all expense accounts and memberships granted to the Employee shall be forfeited. Pursuant to such termination, the Employee shall immediately return to the Company any and all credit cards relevant to the above stated benefits. 4.3 Remedies. Nothing herein contained shall be construed as prohibiting -------- any party hereto from pursuing any remedy available to it for any breach of any provision hereof. 5. NOTICE. All notices, requests, demands and other communications hereunder ------ shall be in writing and shall be deemed to have been given if delivered by hand or mailed by first class, registered mail, return receipt requested, postage and registry fees prepaid and addressed, if to Employee at 81, Ching Chian Road, Rei Tou, Taipei, Taiwan; and if to the Company, 509-510, 5/Fl., Block B, Sing Tao Building, 1, Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong; with a copy to CellStar Corporation, 1730 Briercroft Court, Carrollton, Texas 75006, Attn: Chief Executive Officer. An address may be changed by notice in writing signed by the addressee. 6. MISCELLANEOUS. ------------- 6.1 Nonassignment. Neither party hereto may assign this Agreement or any ------------- rights or obligations hereunder without the prior written consent of the other party hereto. The provisions of this Agreement shall be binding upon the estate or beneficiaries of the Employee, and upon the permitted successors and assigns of the parties hereto. 4 6.2 Entire Agreement. This Agreement along with the attached Exhibit sets ---------------- forth the entire understanding of the parties, and supersedes all prior agreements, arrangements and communications, whether oral or written, pertaining to the subject matter hereof; and this Agreement shall not be modified or amended except by written agreement of the Employee and the Company. 6.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ------------- ACCORDANCE WITH THE LAWS OF THE HONG KONG. 6.4 Partial Invalidity. The invalidity or unenforceability in a particular ------------------ circumstance of any portion of this Agreement shall not extend beyond such provision or such circumstance, and no other provision hereof shall be affected thereby. 6.5 Headings. Descriptive headings are for convenience only and shall not -------- control or affect the meaning or construction of any provision of this Agreement. 6.6 Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. THE COMPANY CELLSTAR (ASIA) CORPORATION LIMITED By: /s/ Alan H. Goldfield ------------------------------------ Name: Alan H. Goldfield ----------------------------------- Title: Chairman ---------------------------------- THE EMPLOYEE /s/ Hong An-Hsien ---------------------------------------- HONG AN-HSIEN 5 EXHIBIT A --------- DUTIES OF PRESIDENT -- Conduct the day to day business of the Company. -- Report to the Board of Directors and acheive the goals and objectives as determined by the Board. -- Ensure continuous growth in revenue and profitability of Company throughout the region as directed by the Board. -- At all times represent and position Company as a professional, responsible and ethical company. -- Put in place programs to ensure total customer satisfaction. -- Develop a core team of professionals that will ensure continuous and steady growth of Company. 6 EX-21.1 15 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 LIST OF SUBSIDIARIES OF CELLSTAR CORPORATION --------------------------------------------
NAME OF SUBSIDIARY INCORPORATION TRADENAMES USED - ------------------ ------------- --------------- National Auto Center, Inc. Texas National Auto Cellular PC Cellular TelStar Communication Center CellStar Cellular Accessories CMart CellStar Air Services, Inc. Delaware None NAC Holdings, Inc. Nevada None CellStar Fulfillment, Inc. Delaware None CellStar International Corporation/Asia Delaware None CellStar International Corporation/S.A. Delaware None Audiomex Export Corporation Delaware None CellStar Ltd. Texas Limited Partnership National Auto Cellular PC Cellular Communication Center CellStar CellStar Fulfillment, Ltd. Texas Limited Partnership None A & S Air Service, Inc. Delaware None CellStar West, Inc./(1)/ Delaware None CellStar (Asia) Corporation LTD Hong Kong None CellStar Pacific PTE LTD/(2)/ Singapore None
- --------------------------------- /(1)/ 80% owned joint venture /(2)/ 80% owned joint venture
JURISDICTION OF NAME OF SUBSIDIARY INCORPORATION TRADENAMES USED - ------------------ ------------- --------------- CellStar Singapore PTE LTD Singapore None CellStar S.A. Argentina Servicell CellStar International Telefonia Celular, Ltda. Brazil Cellular Express CellStar Celular Chile S.A. Chile Servicell CellStar Celular S.A. Venezuela None CellStar Industria da Telefonia da Amazonia LTD Brazil None CellStar de Colombia, Ltda. Colombia Cellular Express Servicell CellStar Ecuador S.A. Ecuador None Celular Express S.A. de C.V. Mexico None Celular Express Management S.A. de C.V. Mexico None CellStar Philippines, Inc./(3)/ Philippines None CellStar Amtel Sdn Bhd/(4)/ Malaysia None CellStar (Taiwan) Co., Ltd. Taiwan None CellStar Telecommunication Service Company/(5)/ Hong Kong None Shanghai CellStar International Trading Company, LTD China None
- ---------------------------- /(3)/ 100% owned by CellStar Pacific PTE LTD /(4)/ 40% owned by CellStar Pacific PTE LTD /(5)/ 60% owned by CellStar (Asia) Corporation LTD EX-23.1 16 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors and Stockholders CellStar Corporation: We consent to incorporation by reference in the registration statement (No. 33-87754) on Form S-8 of CellStar Corporation of our report dated January 31, 1997, relating to the consolidated balance sheets of CellStar Corporation and subsidiaries as of November 30, 1996, and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended November 30, 1996, which report appears in the November 30, 1996 annual report on Form 10-K of CellStar Corporation. /s/ KPMG PEAT MARWICK LLP Dallas, Texas February 27, 1997 EX-27 17 ARTICLE 5 - FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 11/30/96 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR NOV-30-1996 DEC-01-1995 NOV-30-1996 27,296 0 160,835 29,023 94,473 259,368 27,725 7,591 298,551 188,003 0 0 0 193 104,070 0 947,601 947,601 810,000 810,000 136,117 0 8,350 (6,866) (453) (6,413) 0 0 0 (6,413) (.33) (.33)
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