-----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, O+y0Hd6+UdUcZe3KnNEn3C7cwBUF6WXLK8cZe1CaQm+hoN+q0tifpniSwIRKd7FL PGBQVEEfnKsgkX8HntaQwQ== 0000930661-97-001655.txt : 19970702 0000930661-97-001655.hdr.sgml : 19970702 ACCESSION NUMBER: 0000930661-97-001655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970531 FILED AS OF DATE: 19970701 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22972 FILM NUMBER: 97634857 BUSINESS ADDRESS: STREET 1: 1730 BRIERCROFT DR CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 2144665000 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ COMMISSION FILE NUMBER 0-22972 CELLSTAR CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2479727 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1730 BRIERCROFT COURT CARROLLTON, TEXAS 75006 TELEPHONE (972) 466-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ --- On June 30, 1997, there were 29,140,345 outstanding shares of Common Stock, $0.01 par value per share. CELLSTAR CORPORATION INDEX TO FORM 10-Q
Page PART I - FINANCIAL INFORMATION Number - ------ --------------------- ------ Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (unaudited) 3 May 31, 1997 and November 30, 1996 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) 4 Three and six months ended May 31, 1997 and 1996 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited) 5 Six months ended May 31, 1997 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 6 Six months ended May 31, 1997 and 1996 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8 CONDITION AND RESULTS OF OPERATIONS PART II - OTHER INFORMATION - ------- ----------------- Item 1. LEGAL PROCEEDINGS 17 Item 2. CHANGES IN SECURITIES 17 Item 3. DEFAULTS UPON SENIOR SECURITIES 17 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 Item 5. OTHER INFORMATION 18 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 18
2 PART 1- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CELLSTAR CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
May 31, November 30, 1997 1996 ------------ ----------- Assets Current assets: Cash and cash equivalents $ 61,524 27,296 Accounts receivable (less allowance for doubtful accounts of $33,632 and $29,023, respectively) 136,929 131,812 Inventories 120,986 94,473 Deferred income taxes 4,380 4,274 Prepaid expenses 4,428 1,513 ----------- ----------- Total current assets 328,247 259,368 Property and equipment, net 19,858 20,134 Goodwill (less accumulated amortization of $1,910 and $1,330, respectively) 18,132 16,597 Other assets 2,571 2,452 ----------- ----------- $ 368,808 298,551 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 141,762 116,091 Notes payable to financial institutions 68,105 56,136 Accrued expenses 14,907 12,250 Income taxes payable 9,948 2,958 Current portion of long-term debt 582 568 ----------- ----------- Total current liabilities 235,304 188,003 Long-term debt, less current portion 5,959 6,285 ----------- ----------- Total liabilities 241,263 194,288 ----------- ----------- Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued - - Common stock, $.01 par value, 45,000,000 shares authorized; 29,136,282 and 19,273,562 shares issued and outstanding, respectively 291 193 Additional paid-in capital 71,442 68,167 Common stock warrants 4 4 Foreign currency translation adjustments (4,802) (4,520) Retained earnings 60,610 40,419 ----------- ----------- Total stockholders' equity 127,545 104,263 ----------- ----------- $ 368,808 298,551 =========== ===========
See accompanying notes to unaudited consolidated financial statements. 3 CELLSTAR CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)
Three months Six months ended May 31, ended May 31, 1997 1996 1997 1996 -------- -------- -------- -------- Revenues: Net product sales $366,927 202,624 612,433 377,489 Activation income 7,871 19,459 15,884 46,332 Residual income 2,764 3,488 5,890 6,725 -------- ------- ------- ------- Total revenues 377,562 225,571 634,207 430,546 Cost of sales 336,916 195,943 561,710 368,913 -------- ------- ------- ------- Gross profit 40,646 29,628 72,497 61,633 Selling, general and administrative expenses 22,003 31,681 43,763 60,587 -------- ------- ------- ------- Operating income (loss) 18,643 (2,053) 28,734 1,046 Other income (expense): Interest expense (1,791) (2,436) (3,505) (4,975) Other, net 988 79 1,077 515 -------- ------- ------- ------- Total other income (expense) (803) (2,357) (2,428) (4,460) -------- ------- ------- ------- Income (loss) before income taxes 17,840 (4,410) 26,306 (3,414) Provision (benefit) for income taxes 3,631 (1,358) 6,115 (1,100) -------- ------- ------- ------- Net income (loss) $ 14,209 (3,052) 20,191 (2,314) ======== ======= ======= ======= Net income (loss) per share $ 0.48 (0.11) 0.69 (0.08) ======== ======= ======= ======= Weighted average number of shares and equivalent shares outstanding $ 29,681 28,911 29,425 28,911 ======== ======= ======= =======
See accompanying notes to unaudited consolidated financial statements. 4 CELLSTAR CORPORATION AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity Six months ended May 31, 1997 (Unaudited) (In thousands)
Foreign Common Stock Additional Common currency ------------ paid-in stock translation Retained Shares Amount capital warrants adjustments earnings Total ------ ------ ---------- -------- ----------- -------- ----- Balance at November 30, 1996 19,274 $ 193 68,167 4 (4,520) 40,419 104,263 Net income - - - - - 20,191 20,191 Shares issued under stock option plans 35 - 624 - - - 624 Shares issued for acquisition of minority interest 115 1 2,748 - - - 2,749 Three-for-two common stock split 9,712 97 (97) - - - - Foreign currency translation adjustment - - - - (282) - (282) ------- ------ ------ ----- ------- ------- ------- Balance at May 31, 1997 29,136 $ 291 71,442 4 (4,802) 60,610 127,545 ======= ====== ====== ===== ======= ======= =======
See accompanying notes to unaudited consolidated financial statements. 5 CELLSTAR CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Six months ended May 31, 1997 and 1996 (Unaudited) (In thousands)
1997 1996 ---------- ---------- Cash flows from operating activities: Net income (loss) $ 20,191 (2,314) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,345 2,725 Deferred income taxes (106) 1,847 Changes in certain operating assets and liabilities: Accounts receivable (5,399) 1,175 Inventories (26,513) 24,953 Prepaid expenses (2,503) 310 Other assets (360) 404 Accounts payable 25,671 (24,080) Accrued expenses 3,986 3,336 Income taxes payable 6,990 (4,987) ---------- ---------- Net cash provided by operating activities 24,302 3,369 ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (1,441) (1,999) Acquisition of minority interest (502) - Equity investments in foreign subsidiary and joint venture (412) - ---------- ---------- Net cash used in investing activities (2,355) (1,999) ---------- ---------- Cash flows from financing activities: Net borrowings (payments) on notes payable to financial institutions 11,969 (9,002) Principal payments on long-term debt (312) (304) Proceeds from issuance of common stock 624 - ---------- ---------- Net cash provided by (used in) financing activities 12,281 (9,306) ---------- ---------- Net increase (decrease) in cash and cash equivalents 34,228 (7,936) Cash and cash equivalents at beginning of period 27,296 31,508 ---------- ---------- Cash and cash equivalents at end of period $ 61,524 23,572 ========== ==========
See accompanying notes to unaudited consolidated financial statements. 6 CELLSTAR CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) Basis of Presentation Although the interim consolidated financial statements of CellStar Corporation (the "Company") are unaudited, it is the opinion of the Company's management that all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the results have been reflected therein. Operating revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year. These statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K for the year ended November 30, 1996. (2) Geographic Area Information The Company operates predominantly within one business segment, wholesale and retail sales of wireless handsets and other wireless communications products. Certain financial information by geographic area as of and for the six months ended May 31, 1997 and 1996 is shown below (in thousands):
United Asia- Latin States Pacific America Europe Corporate Total -------------- -------------- ------------ ----------- ------------ ----------- May 31, 1997 Total revenues, net of intercompany amounts $ 343,463 219,982 50,301 20,461 - 634,207 Intercompany sales (purchases) 21,271 2,627 (24,059) 161 - - Operating income (loss) 12,277 23,751 1,431 (1,572) (7,153) 28,734 Identifiable assets 188,835 122,917 47,882 9,174 - 368,808 May 31, 1996 Total revenues, net of intercompany amounts $ 239,285 129,773 61,488 - - 430,546 Intercompany sales (purchases) 25,006 (824) (24,182) - - - Operating income (loss) 3,678 10,223 (5,688) - (7,167) 1,046 Identifiable assets 140,235 75,194 63,409 - - 278,838
(3) Stock Split On May 20, 1997, the Board of Directors approved a three-for-two common stock split, which split was effected in the form of a stock dividend that was distributed on June 17, 1997 to stockholders of record on June 2, 1997. All weighted average historical share and net income (loss) per share amounts have been retroactively adjusted for the stock split. (4) Acquisition of Minority Interest On May 30, 1997, the Company acquired the remaining 20.0% minority interest of CellStar Pacific, the Company's Singapore subsidiary, which conducts operations in Singapore, the Philippines, and Malaysia, for common stock valued at $2.7 million and $0.5 million in cash. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a global provider of wireless 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 in both U.S. and international sales 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. The Company's international sales of wireless communications products have increased primarily as a result of its entry into the Asia-Pacific and Latin American Regions. The Company expects that with future increases, if any, to its revenues, more funds will be required to support corresponding increases in the Company's inventory and accounts receivable levels. In addition, more funds may be required to fund new ventures. See "Liquidity and Capital Resources" below. This Quarterly Report on Form 10-Q contains forward-looking statements relating to such matters as anticipated financial performance and business prospects. When used in this Quarterly Report, the words "anticipates," "expects," "may," "intend" and similar expressions are intended to be among the statements that identify forward-looking statements. From time to time, the Company may also publish forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors, including foreign currency risks, political instability, changes in foreign laws, regulations, and tariffs, new technologies, competition, customer and vendor relationships, seasonality, inventory obsolescence and availability, "gray market" resales and inflation, 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. 8 RESULTS OF OPERATIONS The following table sets forth certain unaudited consolidated statements of operations data for the Company expressed as a percentage of total revenues for the three and six months ended May 31, 1997 and 1996:
Three months Six months ended May 31, ended May 31, 1997 1996 1997 1996 ------------ ------------- ----------- ------------ Revenues: Net product sales 97.2 % 89.8 % 96.6 % 87.7 % Activation income 2.1 8.6 2.5 10.8 Residual income 0.7 1.6 0.9 1.5 ------------ ------------- ----------- ------------ Total revenues 100.0 100.0 100.0 100.0 Cost of sales 89.2 86.9 88.6 85.7 ------------ ------------- ----------- ------------ Gross profit 10.8 13.1 11.4 14.3 Selling, general and administrative expenses 5.8 14.0 6.9 14.1 ------------ ------------- ----------- ------------ Operating income (loss) 5.0 (0.9) 4.5 0.2 ------------ ------------- ----------- ------------ Other income (expense): Interest expense (0.5) (1.1) (0.6) (1.2) Other, net 0.3 0.1 0.2 0.2 ------------ ------------- ----------- ------------ Total other income (expense) (0.2) (1.0) (0.4) (1.0) ------------ ------------- ----------- ------------ Income (loss) before income taxes 4.8 (1.9) 4.1 (0.8) Provision (benefit) for income taxes 1.0 (0.6) 0.9 (0.3) ------------ ------------- ----------- ------------ Net income (loss) 3.8 % (1.3) % 3.2 % (0.5) % ============ ============= =========== ============
9 The amount of net revenues and the approximate percentages of net revenues attributable to the Company's operations for the three and six months ended May 31, 1997 and 1996 are shown below:
Three months ended May 31, Six months ended May 31, 1997 1996 1997 1996 --------------- -------------- ----------- ------------- (Dollars in thousands) United States: Net product sales $ 182,462 48.3 % 112,752 50.0 % 330,547 52.1 % 195,390 45.4 % Activation income 4,510 1.2 15,170 6.7 8,203 1.3 37,975 8.8 Residual income 2,083 0.6 3,041 1.4 4,713 0.7 5,920 1.4 ---------- ---------- --------- ---------- --------- ------ --------- -------- Total United States 189,055 50.1 130,963 58.1 343,463 54.1 239,285 55.6 ---------- ---------- --------- ---------- --------- ------ --------- -------- Asia-Pacific: Net product sales 152,553 40.4 62,987 27.9 217,892 34.4 129,773 30.1 Activation income 958 0.3 - - 2,090 0.3 - - Residual income - - - - - - - - ---------- ---------- --------- ---------- --------- ------ --------- -------- Total Asia-Pacific 153,511 40.7 62,987 27.9 219,982 34.7 129,773 30.1 ---------- ---------- --------- ---------- --------- ------ --------- -------- Latin America: Net product sales 21,628 5.7 26,885 11.9 43,533 6.9 52,326 12.2 Activation income 2,403 0.6 4,289 1.9 5,591 0.9 8,357 1.9 Residual income 681 0.2 447 0.2 1,177 0.2 805 0.2 ---------- ---------- --------- ---------- --------- ------ --------- -------- Total Latin America 24,712 6.5 31,621 14.0 50,301 8.0 61,488 14.3 ---------- ---------- --------- ---------- --------- ------ --------- -------- Europe: Net product sales 10,284 2.7 - - 20,461 3.2 - - Activation income - - - - - - - - Residual income - - - - - - - - ---------- ---------- --------- ---------- --------- ------ --------- -------- Total Europe 10,284 2.7 - - 20,461 3.2 - - ---------- ---------- --------- ---------- --------- ------ --------- -------- Total $ 377,562 100.0 % 225,571 100.0 % 634,207 100.0 % 430,546 100.0 % ========== ========== ========= ========== ========= ====== ========= ========
10 THREE MONTHS ENDED MAY 31, 1997 COMPARED TO THREE MONTHS ENDED MAY 31, 1996 Revenues. Total revenues increased $152.0 million, or 67.4%, from $225.6 million in the second fiscal quarter of 1996 to $377.6 million in the second fiscal quarter of 1997. U.S. revenues increased by $58.1 million, or 44.3%, primarily from an increase in net product sales of $69.7 million, or 61.8%, from $112.8 million to $182.5 million. The increase in net product sales was largely due to the increase in revenues from distribution and fulfillment contracts for the provision of products and value-added services. In addition, the U.S. operations achieved growth due to the continuation of the strategy to shift 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. U.S. activation income decreased primarily as a result of the sale of substantially all of the Communication Centers on November 26, 1996. Net product sales in the Asia-Pacific Region increased $89.6 million, or 142.2%, from $63.0 million to $152.6 million. The Company's operations in Hong Kong, CellStar Asia, provided $118.8 million in net product sales in the second fiscal quarter of 1997, an increase of $65.1 million compared to $53.7 million for the same period a year earlier. The higher revenue levels resulted from the expansion in overall demand for wireless phones in the region coupled with the improved ability of manufacturers to supply product to meet that demand, particularly in China. Net product sales in the Company's Singapore operations, CellStar Pacific, increased by $19.3 million, or 207.5%, from $9.3 million to $28.6 million. This increase was primarily due to increased demand in the Philippines and Indonesia. CellStar Taiwan, which commenced operations in the third quarter in fiscal 1996, provided $5.2 million of net product sales in the second quarter of 1997. The Asia-Pacific operations are substantially wholesale-related, and as a result, activation income is not significant. Net product sales in Latin America decreased by $5.3 million, or 19.7%, from $26.9 million to $21.6 million. The decline in net product sales was primarily due to the continuation of the strategy to shift 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 in the second fiscal quarter of 1996 to reduce currency, accounts receivable and inventory risks. An additional factor contributing to this decline was a sharp decline in net product sales in Brazil, which decreased from $8.8 million to $1.4 million. The decline in Brazil was due to the continued deterioration in the business climate in Brazil for the cellular phone industry. Net product sales in the Company's European operation in the United Kingdom, which commenced in the second quarter of 1996, were $10.3 million in the second quarter of fiscal 1997. Gross Profit. Gross profit increased by $11.0 million, from $29.6 million to $40.6 million, while, as a percentage of total revenues, gross profit decreased from 13.1% to 10.8%. The increase in gross profit was primarily due to the increase in CellStar Asia's net product sales of high-end products, which increased gross profit as a percentage of revenues as well. This increase in gross profit and gross profit percentage in CellStar Asia was partially offset by a decrease in U.S. retail revenue, which has a higher gross profit margin than wholesale net product sales. The gross margin percentage for the second fiscal quarter decreased primarily due to the sale in November 1996 of substantially all of the Company's Communication Centers and to the increase in revenues from distribution and fulfillment contracts that reflect lower margins and reduced accounts receivable and inventory obsolescence risks. Additionally, the Company experienced a decrease in Latin American foreign currency losses of $1.4 million. 11 Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $9.7 million, or 30.6%, from $31.7 million to $22.0 million. Approximately $5.5 million, or 56.7%, of the decrease was attributable to the reduction of employees related to the sale of the Communication Centers. The sale of the Communication Centers also gave rise to other decreases in selling, general and administrative expenses totaling approximately $2.6 million. Additionally, reductions in other administrative expenses of $2.5 million contributed to the total reduction in selling, general and administrative expenses. These decreases were partially offset by a $1.6 million increase in other employee-related costs. Overall, the Company reduced selling, general and administrative expenses as a percentage of total revenues from 14.0% to 5.8%. Operating Income (Loss). Operating income (loss) increased from a loss of $2.1 million to income of $18.6 million due to the increase in revenues from the Asia-Pacific Region and the decrease in selling, general and administrative expenses. Correspondingly, operating income (loss) as a percentage of total revenues increased from (0.9%) to 5.0%. Interest Expense. Interest expense decreased in the second fiscal quarter of 1997 to $1.8 million from $2.4 million in the second fiscal quarter of 1996. The decrease in interest expense resulted primarily from the maintenance of lower balances under the Company's revolving credit agreements. Income Taxes. Income tax expense increased by $5.0 million in the second fiscal quarter of 1997 compared to the same period a year earlier. This increase was primarily due to higher income before income taxes for the second fiscal quarter of 1997. The effective tax rate was lower for the second fiscal quarter of 1997 compared to the same period a year earlier, primarily due to increased income before income taxes in the Asia-Pacific Region where the tax rate is less than the U.S. statutory tax rate. SIX MONTHS ENDED MAY 31, 1997 COMPARED TO SIX MONTHS ENDED MAY 31, 1996 Revenues. Total revenues increased $203.7 million, or 47.3%, from $430.5 million in the six-month period ended May 31, 1996 to $634.2 million in the six-month period ended May 31, 1997. U.S. revenues increased by $104.2 million, or 43.5%, primarily from an increase in net product sales of $135.1 million, or 69.1%, from $195.4 million to $330.5 million. The increase in net product sales was largely due to the increase in revenues from distribution and fulfillment contracts for the provision of products and value-added services. In addition, the U.S. operations achieved growth due to the continuation of the strategy to shift 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. U.S. activation income decreased primarily as a result of the sale of substantially all of the Communication Centers on November 26, 1996. Net product sales in the Asia-Pacific Region increased $88.1 million, or 67.9%, from $129.8 million to $217.9 million. The Company's operations in Hong Kong, CellStar Asia, provided $170.5 million in net product sales in the first half of fiscal 1997, an increase of $61.1 million compared to $109.4 million for the same period a year earlier. The higher revenue levels resulted from the expansion in overall demand for wireless phones in the region coupled with the improved ability of manufacturers to supply product to meet that demand, particularly in China. Net product sales in the Company's Singapore operations, CellStar Pacific, increased $18.5 million, or 90.7%, from $20.4 million to $38.9 million. This increase was primarily due to increased demand in the Philippines and Indonesia. CellStar 12 Taiwan, which commenced operations in the third quarter in fiscal 1996, provided $8.5 million of net product sales in the first half of fiscal 1997. The Asia- Pacific operations are substantially wholesale-related, and as a result, activation income is not significant. Net product sales in Latin America decreased $8.8 million, or 16.8%, from $52.3 million to $43.5 million. The decline in net product sales was primarily due to the continuation of the strategy to shift 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 in the second fiscal quarter of 1996 to reduce currency, accounts receivable and inventory obsolescence risks. An additional factor contributing to this decline was a sharp decline in net product sales in Brazil, which decreased from $16.3 million to $4.1 million. The decline in Brazil was due to the continued deterioration in the business climate in Brazil for the cellular phone industry. Net product sales in the Company's European operation in the United Kingdom, which commenced in the second quarter of 1996, were $20.5 million for the first six months of fiscal 1997. Gross Profit. Gross profit increased $10.9 million, from $61.6 million to $72.5 million, while, as a percentage of total revenues, gross profit decreased from 14.3% to 11.4%. The increase in gross profit was primarily due to the increase in CellStar Asia's net product sales of high-end products, which increased gross profit as a percentage of revenues as well. This increase in gross profit and gross profit percentage in CellStar Asia was partially offset by a decrease in U.S. retail revenue, which has a higher gross profit margin than wholesale net product sales. The gross margin percentage for the first half of fiscal 1997 decreased primarily due to the sale in November 1996 of substantially all of the Company's Communication Centers and to the increase in revenues from distribution and fulfillment contracts that reflect lower margins and reduced accounts receivable and inventory obsolescence risks. Additionally, the Company experienced a decrease in Latin American foreign currency losses of $2.3 million. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $16.8 million, or 27.7%, from $60.6 million to $43.8 million. Approximately $11.2 million, or 66.7%, of the decrease was attributable to the reduction of employees related to the sale of the Communication Centers. The sale of the Communication Centers also gave rise to other decreases in selling, general and administrative expenses totaling approximately $5.5 million. Additionally, reductions in other administrative expenses of $2.3 million contributed to the total reduction in selling, general and administrative expenses. These decreases were partially offset by a $2.4 million increase in employee-related costs. Overall, the Company reduced selling, general and administrative expenses as a percentage of total revenues from 14.1% to 6.9%. Operating Income (Loss). Operating income increased from $1.0 million to $28.7 million due to the increase in revenues from the Asia-Pacific Region and the decrease in selling, general and administrative expenses. Correspondingly, operating income as a percentage of total revenues increased from 0.2% to 4.5%. Interest Expense. Interest expense declined in the six months ending May 31, 1997 to $3.5 million from $5.0 million in the six months ended May 31, 1996. The decrease in interest expense resulted primarily from the maintenance of lower balances under the Company's revolving credit agreements. 13 Income Taxes. Income tax expense increased $7.2 million in the six-month period ended May 31, 1997 compared to the same period a year earlier. The increase was primarily due to higher income before income taxes for the six- month period ended May 31, 1997. The effective tax rate was lower for the six- month period ended May 31, 1997 compared to the same period a year earlier primarily due to increased income before income taxes in the Asia-Pacific Region where the tax rate is less than the U.S. statutory tax rate. 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. The Company also receives extended credit terms from key suppliers. The Company expects that with future increases, if any, to its revenues, more funds will be required to support corresponding increases in the Company's inventory and accounts receivable levels. In addition, more funds may be required to fund new ventures. As a result, the Company anticipates that its need for liquidity and capital resources will increase in fiscal 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 growth plans for fiscal 1997. The Company is currently evaluating alternative sources of financing. 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. 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 June 25, 1997, the borrowing base limited borrowings to $73.8 million ($70.4 million at May 31, 1997). At June 25, 1997, $68.5 million was outstanding under such facility. The primary revolving credit facility contains, among other provisions, covenants relating to minimum net worth and certain financial provisions, capital expenditures, dividend payments, additional debt, mergers, and acquisitions and dispositions of assets. CellStar Asia has a $15.0 million credit agreement with a bank, which agreement matures on July 31, 1997. Fundings under this credit agreement are limited by a borrowing base computed as a percentage of CellStar Asia's accounts receivable and inventories. At May 31, 1997, the borrowing base limited borrowings to $15.0 million, all of which was available. The Company currently does not intend to renew this facility upon maturity, since CellStar Asia currently generates sufficient cash flow from operations to fund the working capital needs of that operation. The Company's Brazilian subsidiary had borrowings of $2.8 million at May 31, 1997 under a line of credit with a Brazilian bank. On June 16, 1997, the Company retired this line of credit with borrowings from its primary revolving credit facility. Additionally, the Company's subsidiary in Argentina had a $1.0 million short-term credit facility at May 31, 1997. This short-term credit facility was retired on June 11, 1997. At May 31, 1997, the Company had $61.5 million of cash and cash equivalents, an increase of $34.2 million since November 30, 1996. The increase correlates with the Company's cash flows 14 provided by operating activities plus borrowings under its primary revolving credit facility, which borrowings were used for working capital purposes. A majority of the Company's cash resides outside 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 receives 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. Additionally, the Company's inventories and accounts payable have increased in the United States and Asia-Pacific Region since November 30, 1996 as a result of increased net product sales. Cash used in investing activities of $2.3 million related to purchases of various computer and office equipment amounting to $1.4 million, $0.5 million for the acquisition of the remaining 20.0% minority interest in CellStar Pacific, and $0.4 million for equity investments in a foreign subsidiary and joint venture. INTERNATIONAL OPERATIONS The Company's international operations are subject to political and economic risks, including but not limited to political instability, currency devaluations and controls, increased credit risks and changing tax and trade regulations. Although the Company experienced no material foreign currency transactions gains or losses during the second quarter of fiscal 1997, the Company has historically experienced material foreign currency transaction losses related primarily to its operations in the Latin American Region. The currencies in the Company's Asia-Pacific and European regions have historically exhibited a greater degree of stability relative to the U.S. dollar than have the currencies in Latin America. The Company maintains a significant presence in Hong Kong, and with the transfer of Hong Kong from the United Kingdom to the People's Republic of China on July 1, 1997, the Company's operations in the Asia-Pacific Region will be exposed to the possibility of a higher degree of currency volatility and economic instability than has historically been the case. During the second fiscal quarter, the Company continued its strategy of increasing direct sales to South American customers from the Company's Miami, Florida warehouse. During the past several quarters, pursuit of this strategy and other factors have resulted in a reduction in the level of inventory and accounts receivable maintained by the Company's Latin American subsidiaries and a reduction in the Company's fixed costs in the region. While these initiatives have reduced the Company's exposure to certain economic and political risks associated with transacting business in the Latin American Region, the Company continues to maintain a significant presence in the region. As such, the Company will remain subject to the risks created by the volatile political and economic conditions that have historically prevailed in the region. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which is effective for interim or annual periods ending after December 15, 1997. Statement No. 128 will change how the Company calculates its earnings per share. Management 15 believes the adoption of Statement No. 128 will not have a material effect on the Company's earnings per share amounts. 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material developments have occurred in the Company's legal proceedings previously reported in the Company's Annual Report on Form 10-K for its 1996 fiscal year. ITEM 2. CHANGES IN SECURITIES On May 20, 1997, the Company's Board of Directors authorized a three-for- two common stock split payable in the form of a 50.0% stock dividend. The stock dividend was distributed on June 17, 1997, to stockholders of record on June 2, 1997. See Note 3 to Notes to Unaudited Consolidated Financial Statements. On May 30, 1997, the Company issued 114,583 unregistered shares of the Company's common stock to Leap International PTE LTD ("Leap"). Such issuance was made in connection with the purchase from Leap of the remaining 20.0% of the Company's Singapore subsidiary, CellStar Pacific. The Company exchanged the Company's common stock (valued at $2.75 million), along with $0.5 million in cash, for 100,000 shares of CellStar Pacific. The Company's common stock was issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. No underwriters were used by the Company in connection with such issuance. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on April 23, 1997. The stockholders voted on proposals to: 1. Elect two Class II Directors of the Company for a term expiring in 2000; and 2. Approve the amendment and restatement of the CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan. 17 The proposals were approved by the following votes: 1. Election of Class II Directors
Shares Voted Shares Nominee For Withheld ------- --- -------- James L. Johnson 14,867,395 459,368 John T. Stupka 14,865,832 460,931
2. Amendment and restatement of the CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan
Shares Shares Voted Voted Broker For Against Abstentions Nonvotes --- ------- ----------- -------- 12,925,980 2,294,894 28,875 77,014
ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS. 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation. (1) 3.2 Amended and Restated Bylaws of CellStar Corporation. (3) 4.1 The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1 and 3.2 are incorporated into this item by reference. (1)(3) 4.2 Specimen Common Stock Certificate of CellStar Corporation. (2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement"). (4) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation. (4) 4.6 Form of Rights Certificate. (4) 18 4.7 Form of Certificate of Correction to Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation. (5) 10.1 Amendment Number Two to Supply and Service Agreement between MCI Telecommunications Corporation and CellStar, Ltd., entered into as of March 30, 1997. (6) 10.2 Registration Rights Agreement, entered into as of May 30, 1997, between Leap International PTE LTD and CellStar Corporation. (6) 10.3 Exchange Agreement, entered into as of May 30, 1997, between CellStar Corporation and Leap International PTE LTD. (6) 10.4 Purchase Agreement, entered into as of May 30, 1997, between CellStar (Asia) Corporation Ltd. and Leap International PTE LTD. (6) 10.5 1993 Amended and Restated Long-Term Incentive Plan (as amended through April 21, 1997). (6) 27.1 Financial Data Schedule. (6) _________________ (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A (File No. 000-22972). (5) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (6) Filed herewith. (B) REPORTS ON FORM 8-K. None. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CELLSTAR CORPORATION By:/s/ Mark Q. Huggins ------------------- Mark Q. Huggins, Senior Vice President-Administration and Chief Financial Officer (Principal Financial Officer) By:/s/ Evelyn Henry Miller ------------------------ Evelyn Henry Miller Vice President and Corporate Controller Date: July 1, 1997 20 EXHIBIT INDEX ----------------- Exhibit No. Description - ------- ---------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation. (1) 3.2 Amended and Restated Bylaws of CellStar Corporation. (3) 4.1 The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1 and 3.2 are incorporated into this item by reference. (1)(3) 4.2 Specimen Common Stock Certificate of CellStar Corporation. (2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement"). (4) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation. (4) 4.6 Form of Rights Certificate. (4) 4.7 Form of Certificate of Correction to Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation. (5) 10.1 Amendment Number Two to Supply and Service Agreement between MCI Telecommunications Corporation and CellStar, Ltd., entered into as of March 30, 1997. (6) 10.2 Registration Rights Agreement, entered into as of May 30, 1997, between Leap International PTE LTD and CellStar Corporation. (6) 10.3 Exchange Agreement, entered into as of May 30, 1997, between CellStar Corporation and Leap International PTE LTD. (6) 10.4 Purchase Agreement, entered into as of May 30, 1997, between CellStar (Asia) Corporation Ltd. and Leap International PTE LTD. (6) 10.5 1993 Amended and Restated Long-Term Incentive Plan (as amended through April 21, 1997). (6) 27.1 Financial Data Schedule. (6) ___________________________ (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference . (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. 21 (3) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A (File No. 000-22972). (5) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (6) Filed herewith. 22 EX-10.1 2 SERVICE AGREEMENT AMENDMENT NO. 2 EXHIBIT 10.1 AMENDMENT NUMBER TWO THIS AMENDMENT NUMBER TWO to the Supply and Service Agreement between MCI Telecommunications Corporation ("MCI") and CellStar, Ltd. ("CellStar"), is entered into as of this 30th day of March, 1997. WHEREAS, MCI and CellStar (the "Parties") entered into the Supply and Service Agreement as of November 18, 1996 ("the Agreement"); WHEREAS, the Parties amended the Agreement with Amendment Number One dated as of January 4, 1997; WHEREAS, the Parties amended the Agreement with a January 8, 1997 letter agreement; and WHEREAS, MCI and CellStar desire to amend the Agreement further, to change certain terms of the Agreement; NOW, THEREFORE, the Parties hereto agree that the Agreement is amended, effective March 30, 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 Two 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/ R.M. GOZIA ------------------------------ ------------------------------ Printed Printed Name: Victoria Harker Name: Richard M. Gozia --------------------------- --------------------------- Title: Vice President of Finance Title: President --------------------------- --------------------------- Date: 6/4/97 Date: 5-21-97 ---------------------------- ---------------------------- ATTACHMENT A (Revised as of March 30, 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 BUXXA56TTL002 ULTRA TEAL 929.8625 L BUXXA86CIC002 ULTRA CRAN 929.8625 L BUXXA56BBL002 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 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 BUXXA16BLK002 ULTRA BLACK 929.6125 L PART NUMBER DESCRIPTION FREQUENCY COV PTN1F01GRY001 MOTOROLA NPCS/1/ N VOICENOW PAGER BRSXA86CHG000 MOTOROLA 929.8625 L RSVP PAGER BAPXA86BLK000 MOTOROLA 929.8625 L ADVISOR PRO FLEX BAPXA58BLK000 MOTOROLA 929.5825 R/N ADVISOR PRO FLEX BFXXA86BLK000 UNIDEN FX9400 929.8625 L PAGER PREPAID PAGERS PART NUMBER DESCRIPTION FREQ COVERAGE SKYF2PP050 PRONTO FLX 931.4375 L/R/N (50 PREPAID PAGES) SKYF2PP500 PRONTO FLX 931.4375 L/R/N (500 PREPAD PAGES) PREPAID CALLING CARDS Harley 20 Unit Collectors' Independence Day 4 30 Units Collectors' Independence Day 4 30 Units (Promotional Cards) MCI Prepaid Kit - Counter Spinner MCI Prepaid Kit - Double Pocket Acrylic MCI Prepaid Refill Packs - 15 Unit MCI Prepaid Refill Packs - 30 Unit MCI Prepaid Refill Packs - 60 Unit MCI Prepaid Refill Packs - 75 Unit - -------------------- /1/PageNet Narrowband PCS frequency. 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 EX-10.2 3 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.2 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of May --------- 30, 1997, between Leap International PTE LTD ("Leap") and CellStar Corporation ---- (the "CellStar"). -------- RECITALS -------- A. CellStar and Leap are parties to an Exchange Agreement dated as of May 30, 1997, (the "Exchange Agreement"), pursuant to which CellStar has purchased ------------------ shares of capital stock of CellStar Pacific PTE LTD ("CellStar Pacific") ---------------- held by Leap. B. In consideration of the transactions described in the Exchange Agreement, CellStar now wishes to grant to Leap registration rights in 114,583 of the shares of Common Stock, par value $0.01 (the "CellStar Stock"), of CellStar -------------- transferred to Leap under the Exchange Agreement, represented by certificate number C1263. ----- AGREEMENT --------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: Registration of the CellStar Stock ---------------------------------- 1. Incidental Registration. If CellStar proposes to file a registration ----------------------- statement pursuant to the Securities Act of 1933 (the "1933 Act") under Form -------- S-1, S-2, S-3, or any similar form, then CellStar shall use its reasonable best efforts to include under such registration statement all shares of the CellStar Stock that Leap may request, limited to: (i) One registration statement that becomes effective under the Securities Act in which Leap is not subject to reduction in clause (ii) below; and (ii) CellStar Stock not in an amount in excess of an amount that will, in the opinion of the managing underwriter of any offering, adversely affect such offering; 2. Cutback. If Leap is required, pursuant to clause (ii) above, to ------- reduce the number of shares of CellStar Stock registered, then persons requesting registration of shares pursuant to registration rights that are not subject to reduction shall first be permitted to register their shares. Leap shall be permitted to register a fraction of all shares then remaining available for registration, if any, equal to the quotient of the number of shares for which Leap has requested registration, divided by the total of the number of shares for which Leap has requested registration plus all other shares for which other stockholders have requested registration and that are subject to reduction. 1 3. Conditions to Registration. (a) As a condition to Leap's -------------------------- participation in any underwritten offering, Leap shall (i) execute the underwriting agreement reasonably agreed on by CellStar and the underwriter, (ii) pay its pro rata share of offering expenses, all underwriting discounts, selling commissions and transfer taxes applicable to its shares and the fees of its own counsel, if any, and (iii) cooperate with, and provide information to, CellStar in connection with the preparation of the registration statement and the sale of stock contemplated thereby. (b) As a condition to Leap's participation in any registration that is not an underwritten offering, Leap shall (i) pay its pro rata share of offering expenses and transfer taxes applicable to its shares and the fees of its own counsel, if any, and (ii) cooperate with, and provide information necessary to effect such registration to, CellStar in connection with the preparation of the registration statement and the sale of stock contemplated thereby. 4. Governing Law. This Agreement shall be interpreted and the rights of ------------- the parties determined in accordance with the laws of the United States applicable thereto and the laws of the State of Texas without reference to principles of conflict of laws. 5. Successors. The provisions hereof shall inure to the benefit of, and ---------- be binding upon, the successors, heirs, executors and administrators of the parties hereto. This agreement is not assignable. 6. Entire Agreement; Amendment. This Agreement constitutes the full and --------------------------- entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. 7. Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or delivered by hand, messenger, or reputable overnight courier, and shall be deemed given when received at the addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to CellStar: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel If to Leap: Leap International PTE LTD Blk 512, Bukit Batok Street 52 #10-518 Singapore 650512 Attn: Lim Chai Hock 2 8. Counterparts. This Agreement may be executed in any number of ------------ counterparts (including by facsimile transmission), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. Choice of Forum. Any lawsuit, controversy, dispute or other --------------- proceeding in respect to this Agreement shall be adjudicated by any state or federal court of competent jurisdiction sitting in Dallas County in the State of Texas. For such purposes, the parties to this Agreement hereby submit and consent to the jurisdiction of such courts. This Agreement has been executed and delivered as of the date first written above. LEAP INTERNATIONAL PTE LTD By: /s/ Lim Chai Hock ---------------------------- Lim Chai Hock General Manager CELLSTAR CORPORATION By: /s/ Alan H. Goldfield ---------------------------- Alan H. Goldfield Chairman and CEO 3 EX-10.3 4 EXCHANGE AGREEMENT EXHIBIT 10.3 EXCHANGE AGREEMENT EXCHANGE AGREEMENT (the "Agreement") is entered into as of May 30, 1997, --------- between CellStar Corporation, a Delaware corporation ("CellStar"), and Leap -------- International PTE LTD, a company organized and existing under the laws of Singapore ("Leap"). ---- RECITALS -------- A. Leap owns 100,000 ordinary shares, par value S$1.00, of CellStar Pacific PTE LTD (the "CellStar Pacific Stock"). ---------------------- B. CellStar and Leap wish to exchange 114,583 shares of common stock, $0.01 par value (the "CellStar Stock") of CellStar for 84,615 shares of the -------------- CellStar Pacific Stock (the "CellStar Pacific Shares"). ----------------------- AGREEMENT --------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: ARTICLE 1 Exchange -------- Upon the terms and subject to the conditions contained in this Agreement, and on the basis of the representations, warranties, covenants and agreements set forth herein, CellStar hereby sells, conveys, transfers, assigns and delivers the CellStar Stock in exchange for the CellStar Pacific Shares, and Leap hereby sells, conveys, transfers, assigns and delivers the CellStar Pacific Shares in exchange for the CellStar Stock. ARTICLE 2 Closing Deliveries ------------------ 2.1 CellStar's Deliveries. CellStar agrees to deliver to Leap at the --------------------- Closing the following items: (a) Stock Certificates. Certificates representing the CellStar ------------------ Stock, registered in such name or names and in such denominations as Leap shall have notified CellStar prior to the Closing, with any necessary transfer stamps, acquired at CellStar's expense, affixed. The number of shares of CellStar Stock exchanged hereunder was calculated by the parties to equal US$2,750,000, based upon recent market prices of CellStar common stock. 1 2.2 Leap's Deliveries. Leap hereby delivers to CellStar the certificates ----------------- representing the CellStar Pacific Shares accompanied by duly executed share transfers in respect of the CellStar Pacific Shares and duly stamped at Leap's expense. 2.3 Closing Date. The consummation of the transactions contemplated by ------------ this Agreement (the "Closing") shall take place at the offices of Rodyk & Davidson, 9 Raffles Place #55-01, Republic Plaza, Singapore 048619, after close of business on May 30, 1997, such time and date being herein called the "Closing Date". ARTICLE 3 Representations and Warranties of Leap -------------------------------------- Leap hereby represents and warrants to CellStar: 3.1 Ownership and Transfer. Leap has good, valid and marketable title to ---------------------- the CellStar Pacific Shares, free and clear of all security interests, liens (choate or inchoate), encumbrances, mortgages, pledges, equities, charges, assessments, restrictions, reservations, defects in title and other burdens and interests of other persons, whether arising by contract or under law or equity (collectively, "Liens"). Consummation of the transactions contemplated hereby ----- will transfer to CellStar good, valid and marketable title to the CellStar Pacific Shares, free and clear of all Liens. The CellStar Pacific Stock constitutes all of the issued and outstanding shares of capital stock of CellStar Pacific Pte Ltd ever issued to, or beneficially owned, directly or indirectly, by Leap. 3.2 No Conflict. Leap has obtained all consents, qualifications, orders, ----------- approvals, or authorizations of any governmental or regulatory authority or any third party, required in connection with Leap's valid execution, delivery and performance of this Agreement and the consummation by Leap of the transaction contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under the Memorandum and Articles of Association of Leap, any agreement to which Leap is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to Leap and, in each case, would prevent the consummation of the transactions contemplated hereby. Neither the execution, delivery and performance by Leap of this Agreement, nor the consummation of the transactions contemplated hereby will result in the creation of any Lien on the CellStar Pacific Stock. 3.3 Investment Representations. -------------------------- (a) Suitability as an Investor. Leap (i) is an "Accredited -------------------------- ---------- Investor," as that term is defined in Regulation D under the Securities Act of - -------- 1933, as amended (the "1933 Act"), or has such knowledge, skill and experience -------- in business and financial matters that it is capable of evaluating the merits and risks of an investment in the CellStar Stock and the suitability thereof 2 as an investment for it, (ii) understands that an investment in the CellStar Stock involves a risk of financial loss, and (iii) has received such documents and information as it has requested and has had an opportunity to ask questions of officials of CellStar and to receive satisfactory answers concerning the terms and conditions of the investment proposed herein, and based thereon, Leap believes it can make an informed investment decision. (b) Investment. Leap is acquiring the CellStar Stock for investment ---------- for its own account and not with a view to, or for resale in connection with, any distribution thereof in violation of federal and state securities laws. (c) Restricted Securities. Leap understands that the shares of --------------------- CellStar Stock transferred hereunder have not been registered under applicable state or federal securities laws of the United States by reason of certain exemptions from the registration provisions thereof which depend upon, among other things, the bona fide nature of Leap's representations and investment intent as expressed herein. Leap understands that any shares of CellStar Stock transferred hereunder may be offered, resold, pledged or otherwise transferred only (a) to CellStar, (b) pursuant to an exemption from registration in accordance with Rule 144 (if available) or another available exemption under the 1933 Act or (c) pursuant to an effective registration statement under the 1933 Act, in each case in accordance with any applicable securities laws of any state of the United States or any other jurisdiction subject to CellStar's right prior to any resale pursuant to clause (b) above to require delivery of any opinion of counsel, certification or other information satisfactory to CellStar. Leap acknowledges that all shares of CellStar Stock transferred hereunder will bear appropriate legends referencing its investment intent and the restrictions on transfer reflected in this Section. 3.4 Advisors. Leap has had an opportunity to consult with its own -------- advisors, including its legal, accounting and tax advisors and has assumed full responsibility for determining on Leaps's behalf whether the transactions contemplated by this Agreement are satisfactory to Leap. Leap has not relied on any advice or work product of CellStar or any of its affiliated entities, or any of their respective directors, officers, agents, attorneys or accountants in determining whether the transactions contemplated hereby are satisfactory to Leap. ARTICLE 4 Representations and Warranties of CellStar ------------------------------------------ CellStar hereby represents and warrants to Leap: 4.1 Ownership and Transfer. CellStar is a corporation duly organized, ---------------------- validly existing and in good standing under the laws of Delaware and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to so qualify. 3 CellStar possesses all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and to carry out the transactions contemplated by this Agreement. 4.2 Authority. The execution, delivery and performance of this Agreement --------- have been duly authorized by CellStar. This Agreement constitutes a valid and binding obligation of CellStar, enforceable against CellStar in accordance with its terms. 4.3 No Conflict. CellStar has obtained all consents, qualifications, ----------- orders, approvals or authorizations of any governmental or regulatory authority or any third party required in connection with CellStar's valid execution, delivery and performance of this Agreement and the consummation by CellStar of the transactions contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under, any agreement to which CellStar is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to CellStar. Neither the execution, delivery and performance of this Agreement, nor the consummation of the transactions contemplated hereby will result in the creation of any Lien on the CellStar Stock. 4.4 Authorization of Shares. The shares of CellStar Stock transferred ----------------------- hereunder shall have been, on the Closing Date, duly authorized for issuance and delivery to Leap pursuant to this Agreement against delivery of the CellStar Pacific Shares set forth herein, and, on the Closing Date, will be validly issued, fully paid and non-assessable; the issuances of the shares of CellStar Stock transferred hereunder is not subject to the preemptive or other similar rights of any security holder of CellStar. ARTICLE 5 Conditions Precedent to Closing ------------------------------- 5.1 Conditions Precedent to the Obligation of CellStar to Close. The ----------------------------------------------------------- obligation of CellStar to close shall be subject to the following conditions precedent: (a) Fulfillment by Leap of its covenants and agreements as set forth in this Agreement. (b) The representations of Leap contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between CellStar Pacific and Mr. Lim Chai Hock in the form attached hereto as Exhibit A providing for the continued employment of Mr. Lim for a period --------- of time following the Closing. 4 (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar and Leap in the form attached hereto as Exhibit ------- B. - (e) The execution and delivery at the Closing of a Purchase Agreement between CellStar (Asia) Corporation Ltd. ("CellStar Asia") and Leap in the form attached hereto as Exhibit C. --------- 5.2 Conditions Precedent to the Obligation of Leap to Close. The ------------------------------------------------------- obligation of Leap to close shall be subject to the following conditions precedent: (a) Fulfillment by CellStar of its obligations and agreements set forth in this Agreement. (b) The representations and warranties of CellStar contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between CellStar Pacific and Mr. Lim in the form attached hereto as Exhibit ------- A providing for the continued employment of Mr. Lim for a period of time - following the Closing. (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar and Leap in the form attached hereto as Exhibit ------- B. - (e) The execution and delivery at the Closing of a Purchase Agreement between CellStar Asia and Leap in the form attached hereto as Exhibit C. --------- ARTICLE 6 Indemnification --------------- 6.1 Indemnification of CellStar. Subject to the other provisions of this --------------------------- Article, Leap shall defend, indemnify and hold CellStar harmless from and against, and promptly reimburse CellStar for, any and all loss, expense, damage, deficiency, liability and obligation, including investigative costs, costs of defense, settlement costs and attorneys' fees (collectively, "Losses"), arising ------ out of or in connection with any breach or asserted breach of any representation, warranty or agreement of Leap contained in this Agreement. 6.2 Indemnification of Leap. Subject to the other provisions of this ----------------------- Article, CellStar shall defend, indemnify and hold Leap harmless from and against, and promptly reimburse Leap for any and all Losses arising out of or in connection with any breach or asserted breach of any representation, warranty or agreement of CellStar contained in this Agreement. 5 ARTICLE 7 Miscellaneous ------------- 7.1 Governing Law. This Agreement shall be interpreted and the rights of ------------- the parties determined in accordance with the laws of the United States applicable thereto and the laws of the State of Texas without reference to principles of conflict of laws. 7.2 Survival. None of (i) the consummation of the transactions -------- contemplated hereby, (ii) the delay or omission of a party to exercise any of its rights hereunder, nor (iii) any investigation or disclosure that any party makes or any knowledge that any party obtains as a result thereof or otherwise, shall affect the liability of the parties to one another for breaches of, or misrepresentations under, this Agreement or prevent any party from relying on the representations and warranties contained herein. The liability of any party hereto under Article 6 for breaches of its representations, warranties, covenants and agreements made hereunder shall survive the consummation of the transactions described herein. 7.3 Successors. The provisions hereof shall inure to the benefit of, and ---------- be binding upon, the successors, heirs, executors and administrators of the parties hereto. The parties may assign their respective rights under this Agreement. 7.4 Entire Agreement; Amendment. This Agreement constitutes the full and --------------------------- entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. 7.5 Waiver. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there by any estoppel to enforce any provision of this Agreement, except by written instrument of the party charged with such waiver of estoppel. 7.6 Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or delivered by hand, messenger or reputable overnight courier, and shall be deemed given when received at the addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to CellStar: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel 6 If to Leap: Leap International PTE LTD Blk 512, Bukit Batok Street 52 #10-518 Singapore 650512 Attn: Lim Chai Hock 7.7 Delays or Omissions. No delay or omission to exercise any right, ------------------- power or remedy inuring to any party upon any breach or default of any party under this Agreement shall impair any such rights, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach of default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Agreement or by law or otherwise afforded to the parties shall be cumulative or not alternative. 7.8 Severability. In case any provision of this agreement shall be ------------ invalid, illegal or unenforceable, such provision shall be reformed to the extent necessary to permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts (including by facsimile transmission), each of which shall be an original, but all of which together shall constitute one and the same instrument. 7.10 Choice of Forum. Any lawsuit, controversy, dispute or other --------------- proceeding in respect of this Agreement shall be adjudicated by any state or federal court of competent jurisdiction sitting in Dallas County in the State of Texas. For such purposes, the parties to this Agreement hereby submit and consent to the jurisdiction of such courts. 7.11 Cooperation. The parties to this Agreement shall use reasonable ----------- efforts to take, or cause to be taken, all reasonable actions and to do, or cause to be done all things reasonable necessary (including executing additional instruments or agreement), proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.13 Confidential Information. Leap acknowledges that it has received ------------------------ confidential and proprietary information of and concerning CellStar and Leap hereby covenants that, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, it will not disclose to any person such confidential information unless it is previously made public by CellStar, and that it will not use such confidential information in any capacity. 7 This Agreement has been executed and delivered as of the date first written above. CELLSTAR CORPORATION By: /s/ ALAN H. GOLDFIELD ----------------------------------------------- Alan H. Goldfield Chairman and CEO LEAP INTERNATIONAL PTE LTD By: /s/ LIM CHAI HOCK ----------------------------------------------- Lim Chai Hock General Manager 8 EXHIBIT A EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement"), dated as of the 1st day of June, 1997, is by and between CELLSTAR PACIFIC PTE. LTD., a company organized and existing under the laws of Singapore (the "Company"), and LIM CHAI HOCK (the "Employee"). WHEREAS, the Employee has intimate knowledge of the cellular markets in Singapore, Malaysia, Thailand, Indonesia, Philippines and Brunei (hereinafter the "Asean Region") and India, Pakistan, Sri Lanka and Bangladesh (hereinafter the "Indian Sub-Continent") and Vietnam (the Asean Region, Indian Sub-Continent and Vietnam hereinafter 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 May 31, 1998, (the period from the date hereof through May 31, 1998, 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 General Manager with duties consistent therewith and set forth in Exhibit A or such other duties 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 1 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 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 has and 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 express 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 twelve (12) months following the termination of this Agreement 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 One Percent (1%) of the capital stock of a publicly owned corporation) in any business or other entity organized for profit which is engaged in the wholesale distribution of cellular, PCS and paging products in significant competition with the Company in the markets in which the Company conducts business during the term of this Agreement. 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, 2 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 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 at the monthly ------ rate of S$24,000.00 (exclusive of the employer's portion of the required contribution to the Central Provident Fund). The salary due the Employee hereunder shall be payable in monthly installments. The Company and Employee may by mutual written agreement agree to increase or decrease the amount of compensation payable to Employee during any specified period during the term of this Agreement provided that such written Agreement is entered into prior to the period for which any adjustment of compensation is applicable. The Company may, from time to time at the discretion of the Board of Directors, pay a bonus or bonuses to Employee 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 not to exceed S$5,000.00 per month, unless otherwise approved by the Board of Directors, for all 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. 3 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, 1998, (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; (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. 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. 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 Blk 512, Bukit Batok Street 52, #10-518, Singapore 650512; and if to the Company, c/o Rodyk & Davidson, 9 Raffles Place #55-01, Republic Plaza, Singapore 048619, with a copy to CellStar Corporation, 1730 Briercroft Court, Carrollton, Texas 75006, Attn: President. An address may be changed by notice in writing signed by the addressee. 4 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. 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 SINGAPORE. 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 PACIFIC PTE LTD. By: ----------------------------- Name: --------------------------- Title: -------------------------- THE EMPLOYEE --------------------------------- LIM CHAI HOCK 5 EXHIBIT A --------- DUTIES OF GENERAL MANAGER - -- Conduct the day to day business of the Company. - -- Report to the Board of Directors and achieve 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 EXHIBIT B REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of May --------- 30, 1997, between Leap International PTE LTD ("Leap") and CellStar Corporation ---- (the "CellStar"). -------- RECITALS -------- A. CellStar and Leap are parties to an Exchange Agreement dated as of May 30, 1997, (the "Exchange Agreement"), pursuant to which CellStar has purchased ------------------ shares of capital stock of CellStar Pacific PTE LTD ("CellStar Pacific") ---------------- held by Leap. B. In consideration of the transactions described in the Exchange Agreement, CellStar now wishes to grant to Leap registration rights in 114,583 of the shares of Common Stock, par value $0.01 (the "CellStar Stock"), of CellStar -------------- transferred to Leap under the Exchange Agreement, represented by certificate number __________. AGREEMENT --------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: Registration of the CellStar Stock ---------------------------------- 1. Incidental Registration. If CellStar proposes to file a registration ----------------------- statement pursuant to the Securities Act of 1933 (the "1933 Act") under Form S- -------- 1, S-2, S-3, or any similar form, then CellStar shall use its reasonable best efforts to include under such registration statement all shares of the CellStar Stock that Leap may request, limited to: (i) One registration statement that becomes effective under the Securities Act in which Leap is not subject to reduction in clause (ii) below; and (ii) CellStar Stock not in an amount in excess of an amount that will, in the opinion of the managing underwriter of any offering, adversely affect such offering; 2. Cutback. If Leap is required, pursuant to clause (ii) above, to ------- reduce the number of shares of CellStar Stock registered, then persons requesting registration of shares pursuant to registration rights that are not subject to reduction shall first be permitted to register their shares. Leap shall be permitted to register a fraction of all shares then remaining available for registration, if any, equal to the quotient of the number of shares for which Leap has requested registration, divided by the total of the number of shares for which Leap has requested registration plus all other shares for which other stockholders have requested registration and that are subject to reduction. 1 3. Conditions to Registration. (a) As a condition to Leap's -------------------------- participation in any underwritten offering, Leap shall (i) execute the underwriting agreement reasonably agreed on by CellStar and the underwriter, (ii) pay its pro rata share of offering expenses, all underwriting discounts, selling commissions and transfer taxes applicable to its shares and the fees of its own counsel, if any, and (iii) cooperate with, and provide information to, CellStar in connection with the preparation of the registration statement and the sale of stock contemplated thereby. (b) As a condition to Leap's participation in any registration that is not an underwritten offering, Leap shall (i) pay its pro rata share of offering expenses and transfer taxes applicable to its shares and the fees of its own counsel, if any, and (ii) cooperate with, and provide information necessary to effect such registration to, CellStar in connection with the preparation of the registration statement and the sale of stock contemplated thereby. 4. Governing Law. This Agreement shall be interpreted and the rights of ------------- the parties determined in accordance with the laws of the United States applicable thereto and the laws of the State of Texas without reference to principles of conflict of laws. 5. Successors. The provisions hereof shall inure to the benefit of, and ---------- be binding upon, the successors, heirs, executors and administrators of the parties hereto. This agreement is not assignable. 6. Entire Agreement; Amendment. This Agreement constitutes the full and --------------------------- entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. 7. Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or delivered by hand, messenger, or reputable overnight courier, and shall be deemed given when received at the addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to CellStar: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel If to Leap: Leap International PTE LTD Blk 512, Bukit Batok Street 52 #10-518 Singapore 650512 Attn: Lim Chai Hock 2 8. Counterparts. This Agreement may be executed in any number of ------------ counterparts (including by facsimile transmission), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. Choice of Forum. Any lawsuit, controversy, dispute or other --------------- proceeding in respect to this Agreement shall be adjudicated by any state or federal court of competent jurisdiction sitting in Dallas County in the State of Texas. For such purposes, the parties to this Agreement hereby submit and consent to the jurisdiction of such courts. This Agreement has been executed and delivered as of the date first written above. LEAP INTERNATIONAL PTE LTD By: ---------------------------- Lim Chai Hock General Manager CELLSTAR CORPORATION By: ---------------------------- Alan H. Goldfield Chairman and CEO 3 EXHIBIT C PURCHASE AGREEMENT PURCHASE AGREEMENT (the "Agreement") is entered into as of May 30, 1997, --------- between CellStar (Asia) Corporation Ltd., a company organized and existing under the laws of Hong Kong ("CellStar Asia"), and Leap International PTE LTD, a ------------- company organized and existing under the laws of Singapore ("Leap"). ---- RECITALS -------- A. Leap owns 100,000 ordinary shares, par value S$1.00, of CellStar Pacific PTE LTD (the "CellStar Pacific Stock"). ---------------------- B. CellStar Asia wishes to purchase from Leap 15,385 shares of the CellStar Pacific Stock (the "CellStar Pacific Shares") for cash consideration ----------------------- payable at the Closing (as hereinafter defined). AGREEMENT --------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: ARTICLE 1 Sale and Purchase ----------------- Upon the terms and subject to the conditions contained in this Agreement, and on the basis of the representations, warranties, covenants and agreements set forth herein, Leap shall sell, convey, transfer, assign and deliver to CellStar Asia, and CellStar Asia shall purchase from Leap, at the Closing, the CellStar Pacific Shares in consideration for the payment of Five Hundred Thousand Twelve and 50/100's US Dollars (US$500,012.50) (the "Closing Payment"). --------------- ARTICLE 2 Closing Deliveries ------------------ 2.1 CellStar Asia's Deliveries. CellStar Asia agrees to deliver to Leap -------------------------- at the Closing the following items: (a) Closing Payment. The Closing Payment, by wire transfer of next- --------------- day funds to the account previously identified by Leap. 1 2.2 Leap's Deliveries. Leap hereby delivers to CellStar Asia the ----------------- certificates representing the CellStar Pacific Shares, endorsed in blank or accompanied by duly executed share transfers in respect of the CellStar Pacific Shares and duly stamped at Leap's expense. 2.3 Closing Date. The consummation of the transactions contemplated by ------------ this Agreement (the "Closing") shall take place at the offices of Rodyk & Davidson, 9 Raffles Place #55-01, Republic Plaza, Singapore 048619, after close of business on May 30, 1997, such time and date being herein called the "Closing Date". ARTICLE 3 Representations and warranties of Leap -------------------------------------- Leap hereby represents and warrants to CellStar Asia: 3.1 Ownership and Transfer. Leap has good, valid and marketable title to ---------------------- the CellStar Pacific Shares, free and clear of all security interests, liens (choate or inchoate), encumbrances, mortgages, pledges, equities, charges, assessments, restrictions, reservations, defects in title and other burdens and interests of other persons, whether arising by contract or under law or equity (collectively, "Liens"). Consummation of the transactions contemplated hereby ----- will transfer to CellStar Asia good, valid and marketable title to the CellStar Pacific Shares, free and clear of all Liens. The CellStar Pacific Stock constitutes all of the issued and outstanding shares of capital stock of CellStar Pacific Pte Ltd ever issued to, or beneficially owned, directly or indirectly, by Leap. 3.2 No Conflict. Leap has obtained all consents, qualifications, orders, ----------- approvals, or authorizations of any governmental or regulatory authority or any third party, required in connection with Leap's valid execution, delivery and performance of this Agreement and the consummation by Leap of the transaction contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under the Memorandum and Articles of Association of Leap, any agreement to which Leap is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to Leap and, in each case, would prevent the consummation of the transactions contemplated hereby. Neither the execution, delivery and performance of this Agreement by Leap, nor the consummation of the transactions contemplated hereby will result in the creation of any Lien on the CellStar Pacific Stock. 3.3 Advisors. Leap has had an opportunity to consult with its own -------- advisors, including its legal, accounting and tax advisors and has assumed full responsibility for determining on Leaps's behalf whether the transactions contemplated by this Agreement are satisfactory to Leap. 2 Leap has not relied on any advice or work product of CellStar Asia or any of its affiliated entities, or any of their respective directors, officers, agents, attorneys or accountants in determining whether the transactions contemplated hereby are satisfactory to Leap. ARTICLE 4 Representations and Warranties of CellStar Asia ----------------------------------------------- CellStar Asia hereby represents and warrants to Leap: 4.1 Ownership and Transfer. CellStar Asia is a corporation duly ---------------------- organized, validly existing and in good standing under the laws of Hong Kong and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to so qualify. CellStar Asia possesses all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and to carry out the transactions contemplated by this Agreement. 4.2 Authority. The execution, delivery and performance of this Agreement --------- have been duly authorized by CellStar Asia. This Agreement constitutes a valid and binding obligation of CellStar Asia, enforceable against CellStar Asia in accordance with its terms. 4.3 No Conflict. CellStar Asia has obtained all consents, qualifications, ----------- orders, approvals or authorizations of any governmental or regulatory authority or any third party required in connection with CellStar Asia's valid execution, delivery and performance of this Agreement and the consummation by CellStar Asia of the transactions contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under the Memorandum and Articles of Association of CellStar Asia, any agreement to which CellStar Asia is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to CellStar Asia. ARTICLE 5 Conditions Precedent to Closing ------------------------------- 5.1 Conditions Precedent to the Obligation of CellStar Asia to Close. The ---------------------------------------------------------------- obligation of CellStar Asia to close shall be subject to the following conditions precedent: (a) Fulfillment by Leap of its obligations and agreements as set forth in this Agreement. 3 (b) The representations of Leap contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between the CellStar Pacific and Mr. Lim Chai Hock in the form attached hereto as Exhibit A providing for the continued employment of Mr. Lim for a --------- period of time following the Closing. (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar Corporation and Leap in the form attached hereto as Exhibit B. --------- (e) The execution and delivery at the Closing of an Exchange Agreement between CellStar Corporation ("CellStar") and Leap in the form attached hereto as Exhibit C. --------- 5.2 Conditions Precedent to the Obligation of Leap to Close. The ------------------------------------------------------- obligation of Leap to close shall be subject to the following conditions precedent: (a) Fulfillment by CellStar Asia of its obligations and agreements set forth in this Agreement. (b) The representations and warranties of CellStar Asia contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between the CellStar Pacific and Mr. Lim in the form attached hereto as Exhibit A providing for the continued employment of Mr. Lim for a period of --------- time following the Closing. (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar Corporation and Leap in the form attached hereto as Exhibit B. --------- (e) The execution and delivery at the Closing of an Exchange Agreement between CellStar and Leap in the form attached hereto as Exhibit C. --------- ARTICLE 6 Indemnification --------------- 6.1 Indemnification of CellStar Asia. Subject to the other provisions of -------------------------------- this Article, Leap shall defend, indemnify and hold CellStar Asia harmless from and against, and promptly reimburse CellStar Asia for, any and all loss, expense, damage, deficiency, liability and obligation, including investigative costs, costs of defense, settlement costs and attorneys' fees 4 (collectively, "Losses"), arising out of or in connection with any breach or ------ asserted breach of any representation, warranty or agreement of Leap contained in this Agreement. 6.2 Indemnification of Leap. Subject to the other provisions of this ----------------------- Article, CellStar Asia shall defend, indemnify and hold Leap harmless from and against, and promptly reimburse Leap for any and all Losses arising out of or in connection with any breach or asserted breach of any representation, warranty or agreement of CellStar Asia contained in this Agreement. ARTICLE 7 Miscellaneous ------------- 7.1 Governing Law. This Agreement shall be interpreted and the rights of ------------- the parties determined in accordance with the laws of the United States applicable thereto and the laws of the State of Texas without reference to principles of conflict of laws. 7.2 Survival. None of (i) the consummation of the transactions -------- contemplated hereby, (ii) the delay or omission of a party to exercise any of its rights hereunder, nor (iii) any investigation or disclosure that any party makes or any knowledge that any party obtains as a result thereof or otherwise, shall affect the liability of the parties to one another for breaches of, or misrepresentations under, this Agreement or prevent any party from relying on the representations and warranties contained herein. The liability of any party hereto under Article 6 for breaches of its representations, warranties and agreements made hereunder shall survive the consummation of the transactions described herein. 7.3 Successors. The provisions hereof shall inure to the benefit of, and ---------- be binding upon, the successors, heirs, executors and administrators of the parties hereto. The parties may assign their respective rights under this Agreement. 7.4 Entire Agreement; Amendment. This Agreement constitutes the full and --------------------------- entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. 7.5 Waiver. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there by any estoppel to enforce any provision of this Agreement, except by written instrument of the party charged with such waiver of estoppel. 7.6 Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or delivered by hand, messenger or reputable overnight courier, and shall be deemed given when received at the 5 addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to CellStar Asia: CellStar (Asia) Corporation Ltd. 509-510, 5/FL, Block B Sing Tao Bldg., 1, Wang Kwong Road Kowloon Bay, Kowloon, Hong Kong Attn: Mr. A. S. Hong With copy to: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel If to Leap: Leap International PTE LTD Blk 512, Bukit Batok Street 52 #10-518 Singapore 650512 Attn: Lim Chai Hock 7.7 Delays or Omissions. No delay or omission to exercise any right, ------------------- power or remedy inuring to any party upon any breach or default of any party under this Agreement shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Agreement or by law or otherwise afforded to the parties shall be cumulative and not alternative. 7.8 Severability. In case any provision of this agreement shall be ------------ invalid, illegal or unenforceable, such provision shall be reformed to the extent necessary to permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts (including by facsimile transmission), each of which shall be an original, but all of which together shall constitute one and the same instrument. 7.10 Choice of Forum. Any lawsuit, controversy, dispute or other --------------- proceeding in respect of this Agreement shall be adjudicated by any state or federal court of competent jurisdiction sitting in Dallas County in the State of Texas. For such purposes, the parties to this Agreement hereby submit and consent to the jurisdiction of such courts. 6 7.11 Cooperation. The parties to this Agreement shall use reasonable ----------- efforts to take, or cause to be taken, all reasonable actions and to do, or cause to be done all things reasonably necessary (including executing additional instruments or agreement), proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.12 Confidential Information. Leap acknowledges that it has received ------------------------ confidential and proprietary information of and concerning CellStar Asia and Leap hereby covenants that ,unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, it will not disclose to any person such confidential information unless it is previously made public by CellStar Asia, and that Leap will not use such confidential information in any capacity. This Agreement has been executed and delivered as of the date first written above. CELLSTAR (ASIA) CORPORATION LTD. By: -------------------------------- Alan H. Goldfield Director and Chairman LEAP INTERNATIONAL PTE LTD By: -------------------------------- Lim Chai Hock General Manager 7 EX-10.4 5 PURCHASE AGREEMENT EXHIBIT 10.4 PURCHASE AGREEMENT PURCHASE AGREEMENT (the "Agreement") is entered into as of May 30, 1997, --------- between CellStar (Asia) Corporation Ltd., a company organized and existing under the laws of Hong Kong ("CellStar Asia"), and Leap International PTE LTD, a ------------- company organized and existing under the laws of Singapore ("Leap"). ---- RECITALS -------- A. Leap owns 100,000 ordinary shares, par value S$1.00, of CellStar Pacific PTE LTD (the "CellStar Pacific Stock"). ---------------------- B. CellStar Asia wishes to purchase from Leap 15,385 shares of the CellStar Pacific Stock (the "CellStar Pacific Shares") for cash consideration ----------------------- payable at the Closing (as hereinafter defined). AGREEMENT --------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: ARTICLE 1 Sale and Purchase ----------------- Upon the terms and subject to the conditions contained in this Agreement, and on the basis of the representations, warranties, covenants and agreements set forth herein, Leap shall sell, convey, transfer, assign and deliver to CellStar Asia, and CellStar Asia shall purchase from Leap, at the Closing, the CellStar Pacific Shares in consideration for the payment of Five Hundred Thousand Twelve and 50/100's US Dollars (US$500,012.50) (the "Closing Payment"). --------------- ARTICLE 2 Closing Deliveries ------------------ 2.1 CellStar Asia's Deliveries. CellStar Asia agrees to deliver to Leap -------------------------- at the Closing the following items: (a) Closing Payment. The Closing Payment, by wire transfer of next- --------------- day funds to the account previously identified by Leap. 1 2.2 Leap's Deliveries. Leap hereby delivers to CellStar Asia the ----------------- certificates representing the CellStar Pacific Shares, endorsed in blank or accompanied by duly executed share transfers in respect of the CellStar Pacific Shares and duly stamped at Leap's expense. 2.3 Closing Date. The consummation of the transactions contemplated by ------------ this Agreement (the "Closing") shall take place at the offices of Rodyk & Davidson, 9 Raffles Place #55-01, Republic Plaza, Singapore 048619, after close of business on May 30, 1997, such time and date being herein called the "Closing Date". ARTICLE 3 Representations and warranties of Leap -------------------------------------- Leap hereby represents and warrants to CellStar Asia: 3.1 Ownership and Transfer. Leap has good, valid and marketable title to ---------------------- the CellStar Pacific Shares, free and clear of all security interests, liens (choate or inchoate), encumbrances, mortgages, pledges, equities, charges, assessments, restrictions, reservations, defects in title and other burdens and interests of other persons, whether arising by contract or under law or equity (collectively, "Liens"). Consummation of the transactions contemplated hereby ----- will transfer to CellStar Asia good, valid and marketable title to the CellStar Pacific Shares, free and clear of all Liens. The CellStar Pacific Stock constitutes all of the issued and outstanding shares of capital stock of CellStar Pacific Pte Ltd ever issued to, or beneficially owned, directly or indirectly, by Leap. 3.2 No Conflict. Leap has obtained all consents, qualifications, orders, ----------- approvals, or authorizations of any governmental or regulatory authority or any third party, required in connection with Leap's valid execution, delivery and performance of this Agreement and the consummation by Leap of the transaction contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under the Memorandum and Articles of Association of Leap, any agreement to which Leap is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to Leap and, in each case, would prevent the consummation of the transactions contemplated hereby. Neither the execution, delivery and performance of this Agreement by Leap, nor the consummation of the transactions contemplated hereby will result in the creation of any Lien on the CellStar Pacific Stock. 3.3 Advisors. Leap has had an opportunity to consult with its own -------- advisors, including its legal, accounting and tax advisors and has assumed full responsibility for determining on Leaps's behalf whether the transactions contemplated by this Agreement are satisfactory to Leap. 2 Leap has not relied on any advice or work product of CellStar Asia or any of its affiliated entities, or any of their respective directors, officers, agents, attorneys or accountants in determining whether the transactions contemplated hereby are satisfactory to Leap. ARTICLE 4 Representations and Warranties of CellStar Asia ----------------------------------------------- CellStar Asia hereby represents and warrants to Leap: 4.1 Ownership and Transfer. CellStar Asia is a corporation duly ---------------------- organized, validly existing and in good standing under the laws of Hong Kong and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to so qualify. CellStar Asia possesses all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and to carry out the transactions contemplated by this Agreement. 4.2 Authority. The execution, delivery and performance of this Agreement --------- have been duly authorized by CellStar Asia. This Agreement constitutes a valid and binding obligation of CellStar Asia, enforceable against CellStar Asia in accordance with its terms. 4.3 No Conflict. CellStar Asia has obtained all consents, qualifications, ----------- orders, approvals or authorizations of any governmental or regulatory authority or any third party required in connection with CellStar Asia's valid execution, delivery and performance of this Agreement and the consummation by CellStar Asia of the transactions contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under the Memorandum and Articles of Association of CellStar Asia, any agreement to which CellStar Asia is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to CellStar Asia. ARTICLE 5 Conditions Precedent to Closing ------------------------------- 5.1 Conditions Precedent to the Obligation of CellStar Asia to Close. The ---------------------------------------------------------------- obligation of CellStar Asia to close shall be subject to the following conditions precedent: (a) Fulfillment by Leap of its obligations and agreements as set forth in this Agreement. 3 (b) The representations of Leap contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between the CellStar Pacific and Mr. Lim Chai Hock in the form attached hereto as Exhibit A providing for the continued employment of Mr. Lim for a --------- period of time following the Closing. (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar Corporation and Leap in the form attached hereto as Exhibit B. --------- (e) The execution and delivery at the Closing of an Exchange Agreement between CellStar Corporation ("CellStar") and Leap in the form attached hereto as Exhibit C. --------- 5.2 Conditions Precedent to the Obligation of Leap to Close. The ------------------------------------------------------- obligation of Leap to close shall be subject to the following conditions precedent: (a) Fulfillment by CellStar Asia of its obligations and agreements set forth in this Agreement. (b) The representations and warranties of CellStar Asia contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between the CellStar Pacific and Mr. Lim in the form attached hereto as Exhibit A providing for the continued employment of Mr. Lim for a period of --------- time following the Closing. (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar Corporation and Leap in the form attached hereto as Exhibit B. --------- (e) The execution and delivery at the Closing of an Exchange Agreement between CellStar and Leap in the form attached hereto as Exhibit C. --------- ARTICLE 6 Indemnification --------------- 6.1 Indemnification of CellStar Asia. Subject to the other provisions of -------------------------------- this Article, Leap shall defend, indemnify and hold CellStar Asia harmless from and against, and promptly reimburse CellStar Asia for, any and all loss, expense, damage, deficiency, liability and obligation, including investigative costs, costs of defense, settlement costs and attorneys' fees 4 (collectively, "Losses"), arising out of or in connection with any breach or ------- asserted breach of any representation, warranty or agreement of Leap contained in this Agreement. 6.2 Indemnification of Leap. Subject to the other provisions of this ----------------------- Article, CellStar Asia shall defend, indemnify and hold Leap harmless from and against, and promptly reimburse Leap for any and all Losses arising out of or in connection with any breach or asserted breach of any representation, warranty or agreement of CellStar Asia contained in this Agreement. ARTICLE 7 Miscellaneous ------------- 7.1 Governing Law. This Agreement shall be interpreted and the rights of ------------- the parties determined in accordance with the laws of the United States applicable thereto and the laws of the State of Texas without reference to principles of conflict of laws. 7.2 Survival. None of (i) the consummation of the transactions -------- contemplated hereby, (ii) the delay or omission of a party to exercise any of its rights hereunder, nor (iii) any investigation or disclosure that any party makes or any knowledge that any party obtains as a result thereof or otherwise, shall affect the liability of the parties to one another for breaches of, or misrepresentations under, this Agreement or prevent any party from relying on the representations and warranties contained herein. The liability of any party hereto under Article 6 for breaches of its representations, warranties and agreements made hereunder shall survive the consummation of the transactions described herein. 7.3 Successors. The provisions hereof shall inure to the benefit of, and ---------- be binding upon, the successors, heirs, executors and administrators of the parties hereto. The parties may assign their respective rights under this Agreement. 7.4 Entire Agreement; Amendment. This Agreement constitutes the full and --------------------------- entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. 7.5 Waiver. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there by any estoppel to enforce any provision of this Agreement, except by written instrument of the party charged with such waiver of estoppel. 7.6 Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or delivered by hand, messenger or reputable overnight courier, and shall be deemed given when received at the 5 addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to CellStar Asia: CellStar (Asia) Corporation Ltd. 509-510, 5/FL, Block B Sing Tao Bldg., 1, Wang Kwong Road Kowloon Bay, Kowloon, Hong Kong Attn: Mr. A. S. Hong With copy to: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel If to Leap: Leap International PTE LTD Blk 512, Bukit Batok Street 52 #10-518 Singapore 650512 Attn: Lim Chai Hock 7.7 Delays or Omissions. No delay or omission to exercise any right, ------------------- power or remedy inuring to any party upon any breach or default of any party under this Agreement shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Agreement or by law or otherwise afforded to the parties shall be cumulative and not alternative. 7.8 Severability. In case any provision of this agreement shall be ------------ invalid, illegal or unenforceable, such provision shall be reformed to the extent necessary to permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts (including by facsimile transmission), each of which shall be an original, but all of which together shall constitute one and the same instrument. 7.10 Choice of Forum. Any lawsuit, controversy, dispute or other --------------- proceeding in respect of this Agreement shall be adjudicated by any state or federal court of competent jurisdiction sitting in Dallas County in the State of Texas. For such purposes, the parties to this Agreement hereby submit and consent to the jurisdiction of such courts. 6 7.11 Cooperation. The parties to this Agreement shall use reasonable ----------- efforts to take, or cause to be taken, all reasonable actions and to do, or cause to be done all things reasonably necessary (including executing additional instruments or agreement), proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.12 Confidential Information. Leap acknowledges that it has received ------------------------ confidential and proprietary information of and concerning CellStar Asia and Leap hereby covenants that ,unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, it will not disclose to any person such confidential information unless it is previously made public by CellStar Asia, and that Leap will not use such confidential information in any capacity. This Agreement has been executed and delivered as of the date first written above. CELLSTAR (ASIA) CORPORATION LTD. By: /s/ Alan H. Goldfield -------------------------------- Alan H. Goldfield Director and Chairman LEAP INTERNATIONAL PTE LTD By: /s/ Lim Chai Hock -------------------------------- Lim Chai Hock General Manager 7 EXHIBIT A EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement"), dated as of the 1st day of June, 1997, is by and between CELLSTAR PACIFIC PTE. LTD., a company organized and existing under the laws of Singapore (the "Company"), and LIM CHAI HOCK (the "Employee"). WHEREAS, the Employee has intimate knowledge of the cellular markets in Singapore, Malaysia, Thailand, Indonesia, Philippines and Brunei (hereinafter the "Asean Region") and India, Pakistan, Sri Lanka and Bangladesh (hereinafter the "Indian Sub-Continent") and Vietnam (the Asean Region, Indian Sub-Continent and Vietnam hereinafter 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 May 31, 1998, (the period from the date hereof through May 31, 1998, 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 General Manager with duties consistent therewith and set forth in Exhibit A or such other duties 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 1 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 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 has and 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 express 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 twelve (12) months following the termination of this Agreement 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 One Percent (1%) of the capital stock of a publicly owned corporation) in any business or other entity organized for profit which is engaged in the wholesale distribution of cellular, PCS and paging products in significant competition with the Company in the markets in which the Company conducts business during the term of this Agreement. 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, 2 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 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 at the monthly ------ rate of S$24,000.00 (exclusive of the employer's portion of the required contribution to the Central Provident Fund). The salary due the Employee hereunder shall be payable in monthly installments. The Company and Employee may by mutual written agreement agree to increase or decrease the amount of compensation payable to Employee during any specified period during the term of this Agreement provided that such written Agreement is entered into prior to the period for which any adjustment of compensation is applicable. The Company may, from time to time at the discretion of the Board of Directors, pay a bonus or bonuses to Employee 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 not to exceed S$5,000.00 per month, unless otherwise approved by the Board of Directors, for all 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. 3 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, 1998, (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; (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. 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. 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 Blk 512, Bukit Batok Street 52, #10-518, Singapore 650512; and if to the Company, c/o Rodyk & Davidson, 9 Raffles Place #55-01, Republic Plaza, Singapore 048619, with a copy to CellStar Corporation, 1730 Briercroft Court, Carrollton, Texas 75006, Attn: President. An address may be changed by notice in writing signed by the addressee. 4 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. 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 SINGAPORE. 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 PACIFIC PTE LTD. By: ----------------------------- Name: --------------------------- Title: -------------------------- THE EMPLOYEE --------------------------------- LIM CHAI HOCK 5 EXHIBIT A --------- DUTIES OF GENERAL MANAGER - -- Conduct the day to day business of the Company. - -- Report to the Board of Directors and achieve 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 EXHIBIT B REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of May --------- 30, 1997, between Leap International PTE LTD ("Leap") and CellStar Corporation ---- (the "CellStar"). -------- RECITALS -------- A. CellStar and Leap are parties to an Exchange Agreement dated as of May 30, 1997, (the "Exchange Agreement"), pursuant to which CellStar has purchased ------------------ shares of capital stock of CellStar Pacific PTE LTD ("CellStar Pacific") ---------------- held by Leap. B. In consideration of the transactions described in the Exchange Agreement, CellStar now wishes to grant to Leap registration rights in 114,583 of the shares of Common Stock, par value $0.01 (the "CellStar Stock"), of CellStar -------------- transferred to Leap under the Exchange Agreement, represented by certificate number __________. AGREEMENT --------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: Registration of the CellStar Stock ---------------------------------- 1. Incidental Registration. If CellStar proposes to file a registration ----------------------- statement pursuant to the Securities Act of 1933 (the "1933 Act") under Form -------- S-1, S-2, S-3, or any similar form, then CellStar shall use its reasonable best efforts to include under such registration statement all shares of the CellStar Stock that Leap may request, limited to: (i) One registration statement that becomes effective under the Securities Act in which Leap is not subject to reduction in clause (ii) below; and (ii) CellStar Stock not in an amount in excess of an amount that will, in the opinion of the managing underwriter of any offering, adversely affect such offering; 2. Cutback. If Leap is required, pursuant to clause (ii) above, to ------- reduce the number of shares of CellStar Stock registered, then persons requesting registration of shares pursuant to registration rights that are not subject to reduction shall first be permitted to register their shares. Leap shall be permitted to register a fraction of all shares then remaining available for registration, if any, equal to the quotient of the number of shares for which Leap has requested registration, divided by the total of the number of shares for which Leap has requested registration plus all other shares for which other stockholders have requested registration and that are subject to reduction. 1 3. Conditions to Registration. (a) As a condition to Leap's -------------------------- participation in any underwritten offering, Leap shall (i) execute the underwriting agreement reasonably agreed on by CellStar and the underwriter, (ii) pay its pro rata share of offering expenses, all underwriting discounts, selling commissions and transfer taxes applicable to its shares and the fees of its own counsel, if any, and (iii) cooperate with, and provide information to, CellStar in connection with the preparation of the registration statement and the sale of stock contemplated thereby. (b) As a condition to Leap's participation in any registration that is not an underwritten offering, Leap shall (i) pay its pro rata share of offering expenses and transfer taxes applicable to its shares and the fees of its own counsel, if any, and (ii) cooperate with, and provide information necessary to effect such registration to, CellStar in connection with the preparation of the registration statement and the sale of stock contemplated thereby. 4. Governing Law. This Agreement shall be interpreted and the rights of ------------- the parties determined in accordance with the laws of the United States applicable thereto and the laws of the State of Texas without reference to principles of conflict of laws. 5. Successors. The provisions hereof shall inure to the benefit of, and ---------- be binding upon, the successors, heirs, executors and administrators of the parties hereto. This agreement is not assignable. 6. Entire Agreement; Amendment. This Agreement constitutes the full and --------------------------- entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. 7. Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or delivered by hand, messenger, or reputable overnight courier, and shall be deemed given when received at the addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to CellStar: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel If to Leap: Leap International PTE LTD Blk 512, Bukit Batok Street 52 #10-518 Singapore 650512 Attn: Lim Chai Hock 2 8. Counterparts. This Agreement may be executed in any number of ------------ counterparts (including by facsimile transmission), each of which shall be an original, but all of which together shall constitute one and the same instrument. 9. Choice of Forum. Any lawsuit, controversy, dispute or other --------------- proceeding in respect to this Agreement shall be adjudicated by any state or federal court of competent jurisdiction sitting in Dallas County in the State of Texas. For such purposes, the parties to this Agreement hereby submit and consent to the jurisdiction of such courts. This Agreement has been executed and delivered as of the date first written above. LEAP INTERNATIONAL PTE LTD By: ---------------------------- Lim Chai Hock General Manager CELLSTAR CORPORATION By: ---------------------------- Alan H. Goldfield Chairman and CEO 3 EXHIBIT C EXCHANGE AGREEMENT EXCHANGE AGREEMENT (the "Agreement") is entered into as of May 30, 1997, --------- between CellStar Corporation, a Delaware corporation ("CellStar"), and Leap -------- International PTE LTD, a company organized and existing under the laws of Singapore ("Leap"). ---- RECITALS -------- A. Leap owns 100,000 ordinary shares, par value S$1.00, of CellStar Pacific PTE LTD (the "CellStar Pacific Stock"). ---------------------- B. CellStar and Leap wish to exchange 114,583 shares of common stock, $0.01 par value (the "CellStar Stock") of CellStar for 84,615 shares of the -------------- CellStar Pacific Stock (the "CellStar Pacific Shares"). ----------------------- AGREEMENT --------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: ARTICLE 1 Exchange -------- Upon the terms and subject to the conditions contained in this Agreement, and on the basis of the representations, warranties, covenants and agreements set forth herein, CellStar hereby sells, conveys, transfers, assigns and delivers the CellStar Stock in exchange for the CellStar Pacific Shares, and Leap hereby sells, conveys, transfers, assigns and delivers the CellStar Pacific Shares in exchange for the CellStar Stock. ARTICLE 2 Closing Deliveries ------------------ 2.1 CellStar's Deliveries. CellStar agrees to deliver to Leap at the --------------------- Closing the following items: (a) Stock Certificates. Certificates representing the CellStar ------------------ Stock, registered in such name or names and in such denominations as Leap shall have notified CellStar prior to the Closing, with any necessary transfer stamps, acquired at CellStar's expense, affixed. The number of shares of CellStar Stock exchanged hereunder was calculated by the parties to equal US$2,750,000, based upon recent market prices of CellStar common stock. 1 2.2 Leap's Deliveries. Leap hereby delivers to CellStar the certificates ----------------- representing the CellStar Pacific Shares accompanied by duly executed share transfers in respect of the CellStar Pacific Shares and duly stamped at Leap's expense. 2.3 Closing Date. The consummation of the transactions contemplated by ------------ this Agreement (the "Closing") shall take place at the offices of Rodyk & Davidson, 9 Raffles Place #55-01, Republic Plaza, Singapore 048619, after close of business on May 30, 1997, such time and date being herein called the "Closing Date". ARTICLE 3 Representations and Warranties of Leap -------------------------------------- Leap hereby represents and warrants to CellStar: 3.1 Ownership and Transfer. Leap has good, valid and marketable title to ---------------------- the CellStar Pacific Shares, free and clear of all security interests, liens (choate or inchoate), encumbrances, mortgages, pledges, equities, charges, assessments, restrictions, reservations, defects in title and other burdens and interests of other persons, whether arising by contract or under law or equity (collectively, "Liens"). Consummation of the transactions contemplated hereby ----- will transfer to CellStar good, valid and marketable title to the CellStar Pacific Shares, free and clear of all Liens. The CellStar Pacific Stock constitutes all of the issued and outstanding shares of capital stock of CellStar Pacific Pte Ltd ever issued to, or beneficially owned, directly or indirectly, by Leap. 3.2 No Conflict. Leap has obtained all consents, qualifications, orders, ----------- approvals, or authorizations of any governmental or regulatory authority or any third party, required in connection with Leap's valid execution, delivery and performance of this Agreement and the consummation by Leap of the transaction contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under the Memorandum and Articles of Association of Leap, any agreement to which Leap is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to Leap and, in each case, would prevent the consummation of the transactions contemplated hereby. Neither the execution, delivery and performance by Leap of this Agreement, nor the consummation of the transactions contemplated hereby will result in the creation of any Lien on the CellStar Pacific Stock. 3.3 Investment Representations. -------------------------- (a) Suitability as an Investor. Leap (i) is an "Accredited -------------------------- ---------- Investor," as that term is defined in Regulation D under the Securities Act of - -------- 1933, as amended (the "1933 Act"), or has such knowledge, skill and experience -------- in business and financial matters that it is capable of evaluating the merits and risks of an investment in the CellStar Stock and the suitability thereof 2 as an investment for it, (ii) understands that an investment in the CellStar Stock involves a risk of financial loss, and (iii) has received such documents and information as it has requested and has had an opportunity to ask questions of officials of CellStar and to receive satisfactory answers concerning the terms and conditions of the investment proposed herein, and based thereon, Leap believes it can make an informed investment decision. (b) Investment. Leap is acquiring the CellStar Stock for investment ---------- for its own account and not with a view to, or for resale in connection with, any distribution thereof in violation of federal and state securities laws. (c) Restricted Securities. Leap understands that the shares of --------------------- CellStar Stock transferred hereunder have not been registered under applicable state or federal securities laws of the United States by reason of certain exemptions from the registration provisions thereof which depend upon, among other things, the bona fide nature of Leap's representations and investment intent as expressed herein. Leap understands that any shares of CellStar Stock transferred hereunder may be offered, resold, pledged or otherwise transferred only (a) to CellStar, (b) pursuant to an exemption from registration in accordance with Rule 144 (if available) or another available exemption under the 1933 Act or (c) pursuant to an effective registration statement under the 1933 Act, in each case in accordance with any applicable securities laws of any state of the United States or any other jurisdiction subject to CellStar's right prior to any resale pursuant to clause (b) above to require delivery of any opinion of counsel, certification or other information satisfactory to CellStar. Leap acknowledges that all shares of CellStar Stock transferred hereunder will bear appropriate legends referencing its investment intent and the restrictions on transfer reflected in this Section. 3.4 Advisors. Leap has had an opportunity to consult with its own -------- advisors, including its legal, accounting and tax advisors and has assumed full responsibility for determining on Leaps's behalf whether the transactions contemplated by this Agreement are satisfactory to Leap. Leap has not relied on any advice or work product of CellStar or any of its affiliated entities, or any of their respective directors, officers, agents, attorneys or accountants in determining whether the transactions contemplated hereby are satisfactory to Leap. ARTICLE 4 Representations and Warranties of CellStar ------------------------------------------ CellStar hereby represents and warrants to Leap: 4.1 Ownership and Transfer. CellStar is a corporation duly organized, ---------------------- validly existing and in good standing under the laws of Delaware and is qualified to do business in every jurisdiction in which its ownership of property or conduct of business requires it to so qualify. 3 CellStar possesses all requisite corporate power and authority and all material licenses, permits and authorizations necessary to own and operate its properties, to carry on its businesses as now conducted and to carry out the transactions contemplated by this Agreement. 4.2 Authority. The execution, delivery and performance of this Agreement --------- have been duly authorized by CellStar. This Agreement constitutes a valid and binding obligation of CellStar, enforceable against CellStar in accordance with its terms. 4.3 No Conflict. CellStar has obtained all consents, qualifications, ----------- orders, approvals or authorizations of any governmental or regulatory authority or any third party required in connection with CellStar's valid execution, delivery and performance of this Agreement and the consummation by CellStar of the transactions contemplated hereby. Neither the execution, delivery or performance of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any violation of the terms of, (ii) contravene or conflict with or (iii) constitute a default under, any agreement to which CellStar is a party or any judgment, decree, order, law, rule or regulation or other restriction applicable to CellStar. Neither the execution, delivery and performance of this Agreement, nor the consummation of the transactions contemplated hereby will result in the creation of any Lien on the CellStar Stock. 4.4 Authorization of Shares. The shares of CellStar Stock transferred ----------------------- hereunder shall have been, on the Closing Date, duly authorized for issuance and delivery to Leap pursuant to this Agreement against delivery of the CellStar Pacific Shares set forth herein, and, on the Closing Date, will be validly issued, fully paid and non-assessable; the issuances of the shares of CellStar Stock transferred hereunder is not subject to the preemptive or other similar rights of any security holder of CellStar. ARTICLE 5 Conditions Precedent to Closing ------------------------------- 5.1 Conditions Precedent to the Obligation of CellStar to Close. The ----------------------------------------------------------- obligation of CellStar to close shall be subject to the following conditions precedent: (a) Fulfillment by Leap of its covenants and agreements as set forth in this Agreement. (b) The representations of Leap contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between CellStar Pacific and Mr. Lim Chai Hock in the form attached hereto as Exhibit A providing for the continued employment of Mr. Lim for a period --------- of time following the Closing. 4 (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar and Leap in the form attached hereto as Exhibit ------- B. - (e) The execution and delivery at the Closing of a Purchase Agreement between CellStar (Asia) Corporation Ltd. ("CellStar Asia") and Leap in the form attached hereto as Exhibit C. --------- 5.2 Conditions Precedent to the Obligation of Leap to Close. The ------------------------------------------------------- obligation of Leap to close shall be subject to the following conditions precedent: (a) Fulfillment by CellStar of its obligations and agreements set forth in this Agreement. (b) The representations and warranties of CellStar contained in this Agreement shall be accurate in all material respects on the date when made and shall also be accurate on the Closing Date to the same extent as if made on such date. (c) The execution and delivery at Closing of an Employment Agreement between CellStar Pacific and Mr. Lim in the form attached hereto as Exhibit ------- A providing for the continued employment of Mr. Lim for a period of time - following the Closing. (d) The execution and delivery at Closing of a Registration Rights Agreement between CellStar and Leap in the form attached hereto as Exhibit ------- B. - (e) The execution and delivery at the Closing of a Purchase Agreement between CellStar Asia and Leap in the form attached hereto as Exhibit C. --------- ARTICLE 6 Indemnification --------------- 6.1 Indemnification of CellStar. Subject to the other provisions of this --------------------------- Article, Leap shall defend, indemnify and hold CellStar harmless from and against, and promptly reimburse CellStar for, any and all loss, expense, damage, deficiency, liability and obligation, including investigative costs, costs of defense, settlement costs and attorneys' fees (collectively, "Losses"), arising ------ out of or in connection with any breach or asserted breach of any representation, warranty or agreement of Leap contained in this Agreement. 6.2 Indemnification of Leap. Subject to the other provisions of this ----------------------- Article, CellStar shall defend, indemnify and hold Leap harmless from and against, and promptly reimburse Leap for any and all Losses arising out of or in connection with any breach or asserted breach of any representation, warranty or agreement of CellStar contained in this Agreement. 5 ARTICLE 7 Miscellaneous ------------- 7.1 Governing Law. This Agreement shall be interpreted and the rights of ------------- the parties determined in accordance with the laws of the United States applicable thereto and the laws of the State of Texas without reference to principles of conflict of laws. 7.2 Survival. None of (i) the consummation of the transactions -------- contemplated hereby, (ii) the delay or omission of a party to exercise any of its rights hereunder, nor (iii) any investigation or disclosure that any party makes or any knowledge that any party obtains as a result thereof or otherwise, shall affect the liability of the parties to one another for breaches of, or misrepresentations under, this Agreement or prevent any party from relying on the representations and warranties contained herein. The liability of any party hereto under Article 6 for breaches of its representations, warranties, covenants and agreements made hereunder shall survive the consummation of the transactions described herein. 7.3 Successors. The provisions hereof shall inure to the benefit of, and ---------- be binding upon, the successors, heirs, executors and administrators of the parties hereto. The parties may assign their respective rights under this Agreement. 7.4 Entire Agreement; Amendment. This Agreement constitutes the full and --------------------------- entire understanding and agreement between the parties with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. 7.5 Waiver. No term or condition of this Agreement shall be deemed to ------ have been waived, nor shall there by any estoppel to enforce any provision of this Agreement, except by written instrument of the party charged with such waiver of estoppel. 7.6 Notices. All notices and other communications required or permitted ------- hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or delivered by hand, messenger or reputable overnight courier, and shall be deemed given when received at the addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to CellStar: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel 6 If to Leap: Leap International PTE LTD Blk 512, Bukit Batok Street 52 #10-518 Singapore 650512 Attn: Lim Chai Hock 7.7 Delays or Omissions. No delay or omission to exercise any right, ------------------- power or remedy inuring to any party upon any breach or default of any party under this Agreement shall impair any such rights, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach of default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies either under this Agreement or by law or otherwise afforded to the parties shall be cumulative or not alternative. 7.8 Severability. In case any provision of this agreement shall be ------------ invalid, illegal or unenforceable, such provision shall be reformed to the extent necessary to permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.9 Counterparts. This Agreement may be executed in any number of ------------ counterparts (including by facsimile transmission), each of which shall be an original, but all of which together shall constitute one and the same instrument. 7.10 Choice of Forum. Any lawsuit, controversy, dispute or other --------------- proceeding in respect of this Agreement shall be adjudicated by any state or federal court of competent jurisdiction sitting in Dallas County in the State of Texas. For such purposes, the parties to this Agreement hereby submit and consent to the jurisdiction of such courts. 7.11 Cooperation. The parties to this Agreement shall use reasonable ----------- efforts to take, or cause to be taken, all reasonable actions and to do, or cause to be done all things reasonable necessary (including executing additional instruments or agreement), proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. 7.13 Confidential Information. Leap acknowledges that it has received ------------------------ confidential and proprietary information of and concerning CellStar and Leap hereby covenants that, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, it will not disclose to any person such confidential information unless it is previously made public by CellStar, and that it will not use such confidential information in any capacity. 7 This Agreement has been executed and delivered as of the date first written above. CELLSTAR CORPORATION By: ----------------------------------------------- Alan H. Goldfield Chairman and CEO LEAP INTERNATIONAL PTE LTD By: ----------------------------------------------- Lim Chai Hock General Manager 8 EX-10.5 6 1993 AMENDED & RESTATED LONG-TERM INCENTIVE PLAN EXHIBIT 10.5 CELLSTAR CORPORATION 1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN -------------------------------------------------- (as amended and restated through April 21, 1997) This Plan amends and restates the CellStar Corporation 1993 Stock Option Plan, as previously amended and restated, which first became effective on December 3, 1993. Capitalized terms used herein are defined in Article 2 hereof. To the extent permitted under Rule 16b-3, Sections 162(m) and 422 of the Code, and any other applicable law or regulation, the Committee shall have the power, in its sole discretion, to apply any or all of the amendments effected hereby to outstanding Stock Options previously granted under the Plan; provided that, to the extent that the application of any such amendment to an outstanding Stock Option shall have an Adverse Consequence for the Company and/or a Participant, such amendment shall not apply unless it is specifically approved by the Committee and consented to by the Participant. This Plan, as amended and restated, shall be effective as of April 21, 1997, 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 in the welfare of the Company and its Subsidiaries; (b) furnish an incentive to such persons to continue their services for the Company and/or its Subsidiaries; and (c) provide a means through which the Company and its Subsidiaries may attract able persons to enter their employ or serve as Advisors. Unless otherwise specified by the Compensation Committee at the time of grant, with respect to Reporting Participants, the Plan and all transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void ab initio, to the extent permitted by law and deemed advisable by the Committee. ARTICLE 2 DEFINITIONS ----------- For purposes of the Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: 2.1 "Adverse Consequence" means (i) the loss of qualification of a Stock Option for special treatment under Rule 16b-3 or the commencement of a new holding period under such rule; (ii) the disqualification of a Stock Option as an Incentive Stock Option or the repricing of such Stock Option; or (iii) the Company's inability to claim the Section 162(m) Exception with respect to a Stock Option or the repricing of such Stock Option. 2.2 "Advisor" means any person performing advisory or consulting services for the Company or any Subsidiary, with or without compensation, to whom the Company chooses to grant an Award in accordance with the Plan, provided that bona fide services must be rendered by such person and such services shall not be rendered in connection with the offer or sale of securities in a capital raising transaction. 2.3 "Applicable Law" shall have the meaning set forth in Article 3 below. 2.4 "Award" means the grant under the Plan of any Stock Options, Stock Appreciation Rights, shares of Restricted Stock, or Cash Award, whether granted singly, in combination, or in tandem (sometimes individually referred to herein as an "Incentive"). 2.5 "Award Agreement" means a written agreement between a Participant and the Company that sets out the terms of the grant of an Award. 2.6 "Award Period" means the period during which one or more Incentives granted under an Award may be exercised. 2.7 "Board" means the Board of Directors of the Company. 2.8 "Cash Award" means an Award granted pursuant to Article 9 of the Plan. 2.9 "Change of Control" means any of the following: (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of the surviving corporation immediately after the merger; (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; (iii) approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; (iv) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals (the "Continuing Directors") who (x) at the effective date of this Plan were directors or (y) become directors after the effective date of this Plan and whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then in office who were directors at the effective date of this Plan or whose election or nomination for election was previously so approved; (v) in a Title 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7; or (vi) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an aggregate of 15% or more of the voting power of the Company's outstanding voting securities by any person or persons acting as a group (within the meaning of Rule 13d-5 under the Exchange Act) who beneficially owned less than 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan, or the acquisition of beneficial ownership of an additional 5% of the voting power of the Company's outstanding voting securities by any person or group who beneficially owned at least 10% of the voting power of the Company's outstanding voting securities on the effective date of this Plan; provided, -------- however, that, notwithstanding the foregoing, an acquisition shall not ------- constitute a Change of 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) 2 a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company; (y) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act; or (z) any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; and provided further that no Change of Control shall be deemed to have occurred from a transfer of the Company's voting securities by Goldfield to (v) a member of Goldfield's immediate family (within the meaning of Rule 16a-1(e) of the Exchange Act) either during Goldfield's lifetime or by will or the laws of descent and distribution; (w) any trust as to which Goldfield or a member (or members) of his immediate family is the beneficiary; (x) any trust as to which Goldfield is the settlor with sole power to revoke; (y) any entity over which Goldfield has the power, directly or indirectly, to direct or cause the direction of the management and policies of the entity, whether through the ownership of voting securities, by contract or otherwise; or (z) any charitable trust, foundation or corporation under Section 501(c)(3) of the Code that is funded by Goldfield. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Change of Control," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. 2.10 "Code" means the Internal Revenue Code of 1986, as amended. 2.11 "Committee" means the committee(s) appointed or designated by the Board to administer the Plan in accordance with Article 3 of this Plan. 2.12 "Common Stock" means the Common Stock, par value, $.01 per share, of the Company or, in the event that the outstanding shares of such Common Stock are hereafter changed into or exchanged for shares of a different stock or security of the Company or another corporation, such other stock or security. 2.13 "Company" means CellStar Corporation, a Delaware corporation. 2.14 "Date of Grant" means the effective date on which an Award is made to a Participant as set forth in the applicable Award Agreement. 2.15 "Discretionary Amendment" means any amendment to the Plan that does not require stockholder approval. 2.16 "Employee" means any employee (including any employee who is also a director and/or officer) of the Company or its Subsidiaries. 2.17 "Employment Agreement" means an agreement between the Company or any Subsidiary and a Participant, setting forth the terms and conditions of the Participant's employment by the Company or such Subsidiary. For purposes of the Plan, such term shall also be deemed to include any agreement between the Company or any Subsidiary and an Advisor, setting forth the terms and conditions of the Advisor's services for the Company or such Subsidiary. 2.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.20 "Fair Market Value" of a share of Common Stock means such value as is determined by the Committee on the basis of such factors as it deems appropriate; provided that, if the Common Stock is traded on a national securities exchange or transactions in the Common Stock are quoted on the NASDAQ 3 National Market System, such value shall be determined by the Committee on the basis of the last reported sale price for the Common Stock on the date for which such determination is relevant, as reported on the national securities exchange or the NASDAQ National Market System, as the case may be. If the Common Stock is not listed and traded upon a recognized securities exchange or in the NASDAQ National Market System, the Committee shall make a determination of Fair Market Value on the basis of the closing bid and asked quotations for such stock on the date for which such determination is relevant (as reported by a recognized stock quotation service) or, in the event that there are no bid or asked quotations for such stock on the date for which such determination is relevant, then on the basis of the mean between the closing bid and asked quotations on the date nearest preceding the date for which such determination is relevant for which such bid and asked quotations were available. In no event shall "Fair Market Value" be less than the par value of the Common Stock. 2.21 "Incentive" shall have the meaning given it in Section 2.3 above. 2.22 "Incentive Stock Option" or "ISO" means a Stock Option that by its terms is intended to be treated as an "incentive stock option" within the meaning of Section 422 of the Code. 2.23 "Mandated Restrictions" shall have the meaning set forth in Article 3 below. 2.24 "Nonemployee Director" means a member of the Board of Directors of the Company or any Subsidiary who is not an Employee. 2.25 "Non-qualified Stock Option" means any Stock Option that does not qualify as an Incentive Stock Option. 2.26 "Option Exercise Price" means the price that must be paid by a Participant upon exercise of a Stock Option to purchase a share of Common Stock. 2.27 "Option Period" means the period during which a Stock Option may be exercised. 2.28 "Participant" shall mean an Employee, Nonemployee Director or Advisor to whom an Award is granted under this Plan. 2.29 "Plan" means this CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan, as amended from time to time. 2.30 "Reporting Participant" means a Participant who is subject to the reporting requirements of Section 16 of the Exchange Act. 2.31 "Restricted Stock" means shares of Common Stock issued or transferred to a Participant pursuant to this Plan, which shares are subject to the restrictions or limitations set forth in Article 7 of this Plan and in the related Restricted Stock Agreement. 2.32 "Restricted Stock Agreement" means a written agreement between the Company and a Participant with respect to an Award of Restricted Stock. 2.33 "Retirement" means Termination of Service at or after the Company's established retirement age, unless otherwise defined in a particular Award Agreement. To the extent that a Participant's Employment Agreement differs from the Plan with respect to the meaning of "Retirement," if such Employment Agreement has been approved by the Compensation Committee of the Board of Directors, the definition included in such Employment Agreement shall govern. 4 2.34 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time. 2.35 "SAR Price" means the price that must be paid by a Participant upon exercise of an SAR, which shall be at least the Fair Market Value of each share of Common Stock covered by the SAR, determined on the Date of Grant of the SAR. 2.36 "Section 162(m)" means Section 162(m) of the Code and the regulations promulgated thereunder from time to time. 2.37 "Section 162(m) Exception" means the exception under Section 162(m) for "qualified performance-based compensation." 2.38 "Stock Appreciation Right" or "SAR" means the right to receive a payment equal to the excess of the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over the SAR Price for such shares. 2.39 "Stock Appreciation Right Agreement" means an agreement between the Company and a Participant setting forth the terms and conditions of an Award of Stock Appreciation Rights. 2.40 "Stock Option" means a Non-qualified Stock Option or an Incentive Stock Option to purchase Common Stock. 2.41 "Stock Option Agreement" means a written agreement between the Company and a Participant setting forth the terms and conditions of an Award of Stock Options. 2.42 "Subsidiary" means a subsidiary corporation of the Company, within the meaning of Section 424(f) of the Code; provided that, with respect to any Awards under the Plan other than Incentive Stock Options, the term "Subsidiary" shall be deemed to include (i) any limited partnership, if the Company or any subsidiary corporation owns a majority of the general partnership interest and a majority of the limited partnership interests entitled to vote on the removal and replacement of the general partner, and (ii) any partnership, if the partners thereof are composed only of the Company, any subsidiary corporation, or any limited partnership listed in item (i) above. 2.43 "Ten Percent Owner" means a person who owns, or is deemed within the meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or its parent (within the meaning of Section 424(e) of the Code) or Subsidiaries). Whether a person is a Ten Percent Owner shall be determined with respect to a Stock Option based on the facts existing immediately prior to the Date of Grant of such Stock Option. 2.44 "Termination of Service" occurs when a Participant who is an Employee, Nonemployee Director or Advisor shall cease to serve as an Employee, Nonemployee Director or Advisor for any reason; provided that, with respect to Incentive Stock Options, Termination of Service occurs when a Participant ceases to serve as an Employee. 2.45 "Total and Permanent Disability" of a Participant means that the Participant is qualified for long-term disability benefits under the Company's disability plan or insurance policy; or, if no such plan or policy is then in existence, that the Participant, because of ill health, physical or mental disability or any other reason beyond his or her control, is unable to perform his or her duties of employment for a period of six (6) continuous months, as determined in good faith by the Committee; provided that, with respect to any Incentive Stock Option, Total and ------------- Permanent Disability shall have the meaning given it under the rules 5 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 intended to satisfy the requirements of Rule 16b-3, 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 "Non-Employee Director," within the meaning of 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. 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 Mandate Restrictions with respect to outstanding Awards. 6 ARTICLE 4 ELIGIBILITY ----------- Any Employee, Nonemployee Director, or Advisor whose judgment, initiative, and efforts contributed or may be expected to contribute to the successful performance of the Company is eligible to participate in the Plan; provided that only Employees shall be eligible to receive Incentive Stock Options; and provided further that, to the extent required by Applicable Law, no member of the Committee shall be eligible to participate in the Plan. The Committee, upon its own action, may grant, but shall not be required to grant, an Award to any Employee, Nonemployee Director, or Advisor. Awards may be granted by the Committee at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Committee shall determine; provided that no Participant may receive during any fiscal year of the Company Awards in the form of shares of Common Stock, including Stock Options, SARs or Restricted Stock, the aggregate of which shall exceed 250,000 shares of Common Stock. Except as required by this Plan, Awards granted at different times need not contain similar provisions. The Committee's determinations under the Plan (including without limitation determinations of which persons, if any, are to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among Employees, Nonemployee Directors and/or Advisors who receive, or are eligible to receive, Awards under the Plan. ARTICLE 5 SHARES SUBJECT TO PLAN ---------------------- The number of shares of Common Stock that may be issued pursuant to Awards granted under the Plan is 2,000,000 (as may be adjusted in accordance with Articles 12 and 13 hereof). Such shares of Common Stock may be made available from either authorized but unissued Common Stock or Common Stock held by the Company in its treasury. To the extent permitted by the stockholder approval requirements of Rule 16b-3, Sections 162(m) and 422 of the Code, and any other applicable law or regulation, shares of Common Stock previously subject to Awards which are forfeited, terminated, settled in cash in lieu of Common Stock, or exchanged for Awards that do not involve Common Stock, or that are subject to expired and unexercised Stock Options or SARs, shall immediately become available for Awards under the Plan. During the term of this Plan, the Company will at all times reserve and keep available a number of shares of Common Stock sufficient to satisfy the requirements of this Plan. ARTICLE 6 STOCK OPTIONS ------------- 6.1 GRANT OF STOCK OPTIONS. The Committee may, in its sole discretion, grant Stock Options in accordance with the terms and conditions set forth in the Plan. The grant of a Stock Option shall be evidenced by a Stock Option Agreement setting forth the Date of Grant, the total number of shares purchasable pursuant to the Stock Option, the Option Period, the vesting schedule (if any), and such other terms and provisions as are consistent with the Plan. 6.2 OPTION EXERCISE PRICE. The Option Exercise Price for any Stock Option shall be determined by the Committee and shall be no less than One Hundred Percent (100%) of the Fair Market Value per share of Common Stock on the Date of Grant; provided that, with respect to any Incentive Stock Option that is 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. 7 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 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 or other mutually agreed upon location within ten (10) business days after the exercise. 8 If the Participant fails to pay for any of the Common Stock specified in such notice or fails to accept delivery thereof, the Participant's right to purchase such Common Stock may be terminated by the Company. 6.7 LIMITATION ON INCENTIVE STOCK OPTION CHARACTERIZATION. To the extent that any Stock Option fails to qualify as an Incentive Stock Option, such Stock Option will be considered a Non-qualified Stock Option. 6.8 TERMINATION OF SERVICE. Unless otherwise permitted by the Committee, in its sole discretion, in the event of Termination of Service of a Participant, any Stock Options held by such Participant shall be exercisable as follows: (a) Termination Due to Death or Total and Permanent Disability. In the event of a Participant's Termination of Service due to death or Total and Permanent Disability, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of the Participant's death or Total and Permanent Disability (as applicable), for a period of twelve (12) months after the Participant's death or Total and Permanent Disability (as applicable) or until the expiration of the original Option Period (if sooner). (b) Termination Due to Retirement. In the event of a Participant's Termination of Service due to Retirement, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of the Participant's Retirement, for a period of three (3) months after the date of the Participant's Retirement or until the expiration of the original Option Period (if sooner). (c) Termination for Reasons Other than Death, Total and Permanent Disability, or Retirement. In the event of a Participant's Termination of Service for any reason other than death, Total and Permanent Disability, or Retirement, such Participant's Stock Options may be exercised, to the extent such Stock Options could have been exercised by the Participant on the date of such Termination of Service, for a period of thirty (30) days after the date of such Termination of Service or until the expiration of the original Option Period (if sooner). 6.9 TRANSFERABILITY OF STOCK OPTIONS. (a) Incentive Stock Options. Incentive Stock Options may not be transferred or assigned other than by will or the laws of descent and distribution and may be exercised during the lifetime of the Participant only by the Participant or the Participant's legally authorized representative, and each Stock Option Agreement in respect of an Incentive Stock Option shall so provide. The designation by a Participant of a beneficiary will not constitute a transfer of the Stock Option. The Committee may waive or modify any limitation contained in this Section 6.9(a) that is not required for compliance with Section 422 of the Code. (b) Non-qualified Stock Options. (1) Participants Other Than Reporting Participants. With respect to Non-qualified Stock Options granted hereunder to any Participant who is not a Reporting Participant, the Committee may, in its sole discretion, provide in any Stock Option Agreement (or in an amendment to any existing Stock Option Agreement) such provisions regarding transferability of the Non-qualified Stock Options as the Committee, in its sole discretion, deems appropriate. 9 (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 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. 10 (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. (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 11 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: (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 12 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). 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. 13 (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 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 14 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: 15 (a) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under the Plan and in the maximum number of shares of Common Stock then subject to being awarded to a Participant, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock shall continue to be subject to being so awarded; (b) Appropriate adjustments shall be made in the number of shares of Common Stock purchasable under outstanding, unexercised Stock Options and the Option Exercise Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Exercise Price; (c) Appropriate adjustments shall be made in the number of shares of Common Stock subject to outstanding, unexercised SARs and the SAR Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; and (d) Appropriate adjustments shall be made in the number of outstanding shares of Restricted Stock with respect to which restrictions have not yet lapsed prior to any such change. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, (i) the number, or Option Exercise Price, of shares of Common Stock then subject to outstanding Stock Options granted under the Plan, (ii) the number, or SAR Price, of SARs then subject to outstanding SARs granted under the Plan, or (iii) the number of outstanding shares of Restricted Stock. Upon the occurrence of each event requiring an adjustment with respect to Stock Options, SARs, or shares of Restricted Stock, the Company shall mail to each affected Participant its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant. ARTICLE 13 RECAPITALIZATION, MERGER AND CONSOLIDATION ------------------------------------------ (a) The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company's capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of 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 16 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 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. 17 ARTICLE 16 MISCELLANEOUS PROVISIONS ------------------------ 16.1 INVESTMENT INTENT. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution. 16.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive granted under the Plan shall confer upon any Participant any right with respect to continuance of employment by the Company or any Subsidiary. 16.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the Committee, nor any officer or Employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination, or interpretation. 16.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any right to be granted an Award or any other rights except as may be evidenced by an Award Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly set forth therein. 16.5 COMPLIANCE WITH SECURITIES LAWS AND OTHER RULES AND REGULATIONS. The Plan, the grant and exercise of Incentives hereunder, and the obligation of the Company to sell and deliver shares of Common Stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall have no obligation to sell or issue shares of Common Stock under any Incentive if the Committee determines, in its sole discretion, that issuance thereof would constitute a violation by the Participant or the Company of any provisions of any law or regulation of any governmental authority (including Section 16 of the Exchange Act) or any securities exchange or other forum in which shares of Common Stock are traded; and, as a condition of any sale or issuance of shares of Common Stock under an Incentive, the Committee may require 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 18 elapsed between the Date of Grant of such Stock Option and the exercise involving tax withholding) having a Fair Market Value on the Tax Date equal to the amount required to be withheld, or (v) in any other form of valid consideration, as permitted by the Committee in its discretion; provided that a Reporting Participant shall not be permitted to satisfy his or her withholding obligation through Company Withholding unless required to do so by the Committee, in its sole discretion. The Committee may waive or modify any limitation contained in this Section that is not required for compliance with Rule 16b-3. (c) Notice of Disposition of Stock Acquired Pursuant to Incentive Stock Options. If shares of Common Stock acquired upon exercise of an Incentive Stock Option are disposed of by a Participant prior to the expiration of either two (2) years from the Date of Grant of such Stock Option or one (1) year from the transfer of shares of Common Stock to the Participant pursuant to the exercise of such Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other Stock Option granted under the Plan as an Incentive Stock Option within the meaning of Section 422 of the Code. 16.7 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock pursuant to Incentives granted under this Plan shall constitute general funds of the Company. 16.8 LEGEND. Each certificate representing shares of Common Stock issued to a Participant pursuant to the Plan shall bear the following legend, or a similar legend deemed by the Company to constitute an appropriate notice of the provisions hereof and the applicable security laws (any such certificate not having such legend shall be surrendered upon demand by the Company and so endorsed): 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 19 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 April 23, 1997, by its President and Secretary pursuant to prior action taken by the Board. CELLSTAR CORPORATION By: /s/ RICHARD M. GOZIA ------------------------------------ President Attest: /s/ ELAINE FLUD RODRIQUEZ - --------------------------- Secretary 20 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS NOV-30-1997 NOV-30-1997 MAR-01-1997 DEC-01-1996 MAY-31-1997 MAY-31-1997 61,524 61,524 0 0 170,561 170,561 33,632 33,632 120,986 120,986 328,247 328,247 29,165 29,165 9,307 9,307 368,808 368,808 235,304 235,304 0 0 0 0 0 0 291 291 127,254 127,254 368,808 368,808 377,562 634,207 377,562 634,207 336,916 561,710 336,916 561,710 18,465 38,225 2,550 4,461 1,791 3,505 17,840 26,306 3,631 6,115 14,209 20,191 0 0 0 0 0 0 14,209 20,191 .48 .69 0 0
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