-----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, NEqzd2VhLaAdATZowHrYnaMB0aMX6jhuIZGAI5kLf777LQ0v3KggdRGN3NgUWP7T aocI33gx9J32TqYlMw/Y2A== 0000930661-98-000431.txt : 19980302 0000930661-98-000431.hdr.sgml : 19980302 ACCESSION NUMBER: 0000930661-98-000431 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980227 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-K SEC ACT: SEC FILE NUMBER: 000-22972 FILM NUMBER: 98552890 BUSINESS ADDRESS: STREET 1: 1730 BRIERCROFT DR CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 2144665000 MAIL ADDRESS: STREET 1: 1730 BRIERCROFT DRIVE CITY: CARROLLTON STATE: TX ZIP: 75006 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number November 30, 1997 0-22972 CELLSTAR CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2479727 (State of Incorporation) (I.R.S. Employer Identification No.) 1730 Briercroft Court Carrollton, Texas 75006 Telephone (972) 466-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.01 PER SHARE (Title of Class) RIGHTS TO PURCHASE SERIES A PREFERRED STOCK (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] On February 25, 1998, the aggregate market value of the voting stock held by nonaffiliates of the Company was approximately $581,115,900, based on the closing sale price of $30.00 as reported by the NASDAQ/NMS. (For purposes of determination of the above stated amount, only directors, executive officers and 10% or greater stockholders have been deemed affiliates). On February 25, 1998, there were 29,377,009 outstanding shares of Common Stock, $0.01 par value per share. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held during 1998 are incorporated by reference into Part III of this Form 10-K. CELLSTAR CORPORATION INDEX TO FORM 10-K
PAGE NUMBER Part I. Item 1. Business 3 Item 2. Properties 14 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 15 Part II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16 Item 6. Selected Consolidated Financial Data 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26 Item 8. Consolidated Financial Statements and Supplementary Data 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26 Part III. Item 10. Directors and Executive Officers of the Registrant 27 Item 11. Executive Compensation 27 Item 12. Security Ownership of Certain Beneficial Owners and Management 27 Item 13. Certain Relationships and Related Transactions 27 Part IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
2 PART I. ITEM 1. BUSINESS GENERAL CellStar Overview CellStar Corporation ("CellStar" or the "Company") is a leading global provider of wireless communications products, primarily handsets, with operations in the United States, the Asia-Pacific Region, the Latin American Region and the European Region. The "Asia-Pacific Region" consists of the People's Republic of China, including Hong Kong ("PRC"), Singapore, Malaysia, Taiwan and The Philippines. The "Latin American Region" consists of Mexico, Colombia, Venezuela, Ecuador, Chile, Argentina and Brazil. The "European Region" consists of the United Kingdom and Sweden. The Company is one of the world's largest non-carrier wholesale distributors of wireless phones for Motorola, Inc. ("Motorola") and Ericsson Inc. ("Ericsson") and also distributes wireless phones for manufacturers such as Nokia Mobile Phones, Inc. ("Nokia"), QUALCOMM Incorporated ("QUALCOMM"), Sony Electronics Inc. ("Sony") and NEC Corporation ("NEC"). The Company's distribution services include purchasing, marketing, selling, warehousing, picking, packing, shipping and "just-in-time" delivery of wireless handsets and accessories. In addition, in the United States and certain other markets the Company offers its customers value-added facilitation services, including inventory management, product fulfillment, kitting and customized packaging, private labeling, light assembly, accounts receivable management and end-user support services, including customized "1-800" fulfillment. The Company is also a retailer of wireless communications products. The Company's revenues grew at a 52.3% compound annual rate during the five fiscal years ended November 30, 1997, and increased 56.5% for the year ended November 30, 1997, compared to the year ended November 30, 1996. Net income for fiscal 1997 was $53.6 million, compared to a net loss of $6.4 million for fiscal 1996. The Company, a Delaware corporation, was formed in 1993 to hold the stock of a company that is now an operating subsidiary. The operating subsidiary was originally formed in 1981 to distribute and install automotive aftermarket products. In 1984, the Company began offering wireless communications products and services, and in 1989, the Company became an authorized distributor of Motorola cellular phones in certain regions of the United States. The Company entered into similar arrangements with Motorola in the Latin American Region in 1991, the Asia-Pacific Region in 1994 and the United Kingdom in 1996. Industry Overview Wireless communications technology encompasses wireless communications devices such as handheld, mobile and transportable phones, pagers and two-way radios. Since its inception in 1983, the wireless phone service market has grown rapidly. An industry source, Dataquest, estimates that from 1992 through 1996, worldwide wireless phone subscribers grew at a compound annual rate of approximately 54.5%. According to Dataquest estimates, as of December 31, 1997, there were approximately 193.9 million wireless phone subscribers worldwide, of which approximately 52.2 million subscribers were in the United States, approximately 22.0 million subscribers were in the Asia-Pacific Region, approximately 8.9 million subscribers were in the Latin American Region and approximately 8.0 million subscribers were in the United Kingdom. The Company believes that growth in its industry will continue for a number of reasons. Economic growth, increased service availability and the lower cost of wireless service compared to conventional landline telephone systems in emerging markets will, the Company believes, continue to create demand for wireless communications products. The Company also believes that the change from analog to digital technology will increase overall market growth and encourage consumers to purchase the next generation of products. In addition, advanced digital technologies have led to increases in the number of network operators and resellers, 3 which have promoted greater competition for subscribers and, the Company believes, have resulted in increased demand for wireless communications products. Finally, the proliferation of new manufacturers is expected to lower prices, increase product selection and expand sales channels. The Company's rapid growth has placed a significant strain on its management, employees, systems and financial resources. The Company's continued growth will depend upon, among other things, the Company's ability to maintain its operating margins, continue to secure an adequate supply of competitive products on a timely basis and on commercially reasonable terms, continually turn its inventories and accounts receivable, successfully manage growth (including monitoring operations, controlling costs and maintaining effective inventory and credit controls), manage operations that are geographically dispersed, achieve significant penetration in existing and new geographic markets and hire, train and retain qualified employees who can effectively manage and operate its business. The Company's rapid growth has also placed significant strains on its information technology systems, including those used to manage inventory, accounts receivable, and accounts payable. Although the Company has hired additional employees and is investing in refinements to its systems, the Company's growth may continue to place strains upon its systems and its human, financial and other resources and may negatively affect its ability to manage and control its operations. UNITED STATES Industry In the United States, wireless phone service was developed as an alternative to conventional landline systems and existing mobile phone service and has been one of the fastest growing market segments in the communications industry. The number of U.S. wireless subscribers has grown significantly since the inception of the wireless phone industry in 1983. According to Dataquest estimates, as of December 31, 1996, there were approximately 42.2 million subscribers in the United States. Dataquest estimates that the number of wireless subscribers in the United States grew by close to ten million in 1997. The chart below sets forth certain estimated information regarding U.S. wireless phone shipments and subscriber growth.
Year Ended December 31, ---------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ (In thousands) Number of Wireless Phones Shipped............ 20,956 16,457 14,381 12,774 8,565 Number of Subscribers........................ 52,180 42,188 32,187 23,630 16,255
- -------- Source: Dataquest, Mobile Telephones Worldwide, 1992-2001--Market Trends 1997 (September 1997 Estimates) The Company believes that the U.S. market for wireless services will continue to expand due to the increasing affordability and availability of such services and shorter development cycles for new products and enhancements. In addition, many wireless service providers are upgrading their existing systems from analog to digital technology as a result of capacity constraints in many of the larger wireless markets and in order to respond to competition. Digital technology increases system capacity and is expected to offer other advantages, such as improved overall average signal quality, improved call security, potentially lower incremental costs for additional subscribers and the ability to provide data transmission services. If digital technology improves and becomes more affordable, the Company may benefit both from the sale of digital wireless phones as replacements for existing analog wireless phones and from the increased system capacity digital technology offers. Wholesale Operations General. Approximately 96% of the Company's U.S. revenues during fiscal 1997 were derived from wholesale operations, compared to 78% for fiscal 1996. In the United States, manufacturers such as Motorola, 4 Ericsson and NEC sell wireless phones directly to large wireless carriers, such as AT&T Wireless Services, Inc., and large mass merchandisers, such as Sears, Roebuck and Co. The Company's wholesale operations complement these manufacturers' distribution channels, in that these manufacturers generally also sell to wholesale distributors such as the Company in order to access smaller volume purchasers. The Company also acts as a wholesale distributor of wireless accessories manufactured by original equipment manufacturers ("OEMs") and other suppliers to large wireless carriers and mass merchandisers, as well as to smaller volume purchasers. During fiscal 1997, the Company sold its products to over 2,500 U.S. wholesale customers, the ten largest of which accounted for approximately 29% of the Company's consolidated net product sales in fiscal 1997. The Company offers wireless phones and accessories manufactured by OEMs, such as Motorola, Ericsson, Nokia, QUALCOMM, Sony and NEC, and aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, boosters, hands-free kits, handheld accessories, antennas, batteries, battery packs, battery eliminators, leather cases and battery chargers. The Company sells these products under private labels to wireless carriers such as Southwestern Bell Mobile Systems, Inc. ("SBMS"), GTE Mobilnet, AirTouch Cellular, Pacific Bell Mobile Services ("PBMS") and U.S. Cellular. The Company offers a broad product mix in the United States, including products that are compatible with digital systems, such as TDMA and CDMA, as well as analog systems, such as AMPs. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. In addition to its distribution services, the Company provides various value- added facilitation and fulfillment services, including aftermarket and OEM product packaging and configuration, inventory management, order processing, return and repair management, marketing and design, credit and collections and phone sales. The Company believes that opportunities continue to exist for it to assist wireless communications carriers in meeting their supply and distribution needs by providing complete order-fulfillment services. The Company anticipates an increased demand for such services as new and existing wireless carriers and manufacturers desire to outsource these activities in order to reduce costs and focus on their own core businesses. The Company's primary distribution facility, a 120,000 square foot warehouse facility, is located at its international headquarters in the Dallas/Fort Worth metropolitan area. The Company also operates a wholesale distribution facility in Miami, Florida to serve customers in the Latin American Region. The Company also offers facilitation services for its operations in the Latin American Region out of the Miami, Florida location. In addition, the Company has recently entered into a lease for a new 58,900 square foot distribution facility in Chino, California to support the Company's west coast customers. Sales and Marketing. The Company markets its products nationally to wholesale purchasers, using, among other methods, direct sales strategies, the Internet, strategic account management, trade shows and trade journal advertising. The Company offers advertising allowances, ready-to-use advertising materials and displays, easy access to hard-to-find products, credit terms, a variety of name brand products and highly-responsive customer service. Retail Operations General. Approximately 4% of the Company's U.S. revenues in fiscal 1997 were derived from retail operations compared to 22% for fiscal 1996. As of November 30, 1997, the Company conducted its U.S. retail operations through 13 stand- alone retail stores in three states. The Company's retail stores generate revenues from three sources: the sale of wireless phones and other products, activation commissions and, in most cases, residual payments. An activation commission is paid by a wireless carrier when a customer initially subscribes for wireless service. The amount of the activation commission paid by a wireless carrier is based on the service plans and promotional marketing programs 5 offered by that particular wireless carrier. Most of the Company's carrier contracts provide for a residual payment, which is a monthly payment made by a wireless carrier to the Company based on the wireless phone usage by a customer activated by the Company. Because standard wireless industry practice among activation agents is to offer certain wireless phones to a wireless subscriber at no charge, as a practical matter, the Company does not believe it can operate at the retail level on a profitable basis without agency agreements with wireless carriers that provide for activation commissions or residual fees. The Company's relationships with its carriers are governed by contracts, pursuant to which the Company is engaged as an agent to solicit and sell wireless phone services in certain geographic areas and may not act as a representative or agent for any other carrier or reseller in those areas. Sales and Marketing. The Company promotes its stand-alone retail stores through direct mailings and local media, including newspapers. ASIA-PACIFIC REGION Industry According to Dataquest estimates, as of December 31, 1996, there were approximately 12.3 million subscribers in the Asia-Pacific Region. Dataquest estimates that the number of wireless subscribers in the Asia-Pacific Region grew by close to ten million in 1997. Whereas demand for wireless service in major industrialized countries has been driven primarily by automobile and business travel, the Company believes that in the Asia-Pacific Region, demand for such services has been and will continue to be driven by an unsatisfied demand for basic phone service due to the lack of adequate landline service and to limited wireless penetration. The Company believes that wireless systems in this region offer a more attractive alternative to landline systems because wireless systems do not require the substantial amount of time and investment in infrastructure (in the form of buried or overhead cables) associated with landline systems. Based on these factors, as well as the large population bases and economic growth in this region, the Company believes that phone users will increasingly utilize wireless systems, despite the fact that wireless service may be more expensive to the consumer than conventional landline communications. The chart below sets forth certain estimated information regarding wireless phone shipments and subscriber growth in the Asia-Pacific Region.
Year Ended December 31, ------------------------------- 1997 1996 1995 1994 1993 ------ ------ ----- ----- ----- (In thousands) Number of Wireless Phones Shipped............... 11,252 6,456 3,606 1,685 954 Number of Subscribers........................... 22,023 12,319 6,753 3,576 2,054
- -------- Source: Dataquest, Mobile Telephones Worldwide, 1992-2001--Market Trends 1997 (September 1997 Estimates) Operations General. The key to the Company's expansion in the Asia-Pacific Region has been its relationships with wireless equipment manufacturers. The Company historically has entered a new market with the support of a manufacturer. The Company distributes products in the Asia-Pacific Region primarily for Motorola and Ericsson. In February 1998, the Company entered into agreements for the distribution of cellular mobile telephones and accessories for Nokia in the PRC. Throughout the Asia-Pacific Region, CellStar acts as a wholesale distributor of wireless phones to large and small volume purchasers, including indirect sales to the large wireless carriers. All of the Company's operations in this region are wholly or majority-owned except for the Company's operations in Malaysia. CellStar (Asia) Corporation Limited ("CellStar Asia"), the oldest of the Company's business units in the region and the Company's most significant operation outside the United States, began as a 6 joint venture in 1993 and became wholly-owned in June 1995. CellStar Asia's revenue is derived principally from wholesale sales of wireless products to Hong Kong-based companies that ship wireless products to the remainder of the PRC. Shanghai CellStar International Trading Company, Ltd. ("CellStar Shanghai"), a wholly-owned, limited liability foreign trade company established in Shanghai, PRC, commenced domestic wholesale operations in the PRC in 1997 using a local commodities exchange market as an intermediary, pursuant to an experimental initiative in market access authorized by the Shanghai municipal government. CellStar Shanghai purchases wireless handsets locally manufactured by Motorola and, beginning in February 1998, Nokia and wholesales those products to distributors and retailers located throughout the PRC. CellStar Shanghai has also entered into cooperative arrangements with certain local distributors that allow them to establish wholesale and retail operations utilizing CellStar's trademarks. Under the terms of such arrangements, CellStar Shanghai further provides services, sales support, training and access to promotional materials for use in their operations. In exchange, those distributors agree to purchase all of their requirements of wireless handsets from CellStar Shanghai and further agree to allow CellStar Shanghai to purchase up to 50% of their operation if and when foreign ownership of domestic retail operations is allowed by the PRC government. CellStar Shanghai currently deals with local distributors in approximately ten major metropolitan areas throughout the PRC. CellStar Shanghai, in cooperation with one of its local distributors, uses space in a three-story building in the Pudong district of Shanghai, including a showroom for its products. Although the Company's business in the Asia-Pacific Region is predominantly wholesale, operations within a particular country may be either wholesale, retail, or both, and may be owned solely by the Company or jointly with local partners, depending on the market and regulatory environment in the host country. The following table outlines the Company's entry into the Asia-Pacific Region:
Year Type of Operation Country Entered (as of November 30, 1997) - ------- ------- ------------------------ Hong Kong/China 1993 Wholesale Singapore 1995 Wholesale and Retail The Philippines 1995 Wholesale and Retail Malaysia 1995 Wholesale and Retail Taiwan 1995 Wholesale
At November 30, 1997, the Company sold its products to over 450 wholesale customers in the Asia-Pacific Region (excluding customers of the Company's Malaysian joint venture), the ten largest of which accounted for approximately 21% of the Company's consolidated net product sales in fiscal 1997. The Company offers wireless phones and accessories manufactured by OEMs, such as Motorola, Ericsson and, beginning in February 1998 in the PRC, Nokia, and aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, batteries, hands-free kits, chargers, carkits, battery eliminators and leather cases. The Company offers a broad product mix in the Asia-Pacific Region, including products that are compatible with digital systems, such as GSM, DCS-1800MHz and D-AMPS, as well as analog systems, such as AMPS and ETACs. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company's operations and sales in the Asia-Pacific Region are subject to political and economic risks, including the following: political instability; currency controls; currency devaluations; exchange rate fluctuations; potentially unstable channels of distribution; increased credit risks; export control laws that might limit the markets the Company can enter; inflation; changes in laws related to foreign ownership of businesses abroad; foreign tax laws; changes in import/export regulations, including enforcement policies; and tariff and 7 freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. Sales and Marketing. The Company markets its products to a variety of wholesale purchasers, including retailers, exporters and wireless carriers, through its direct sales force and through tradeshows and television advertising. To penetrate local markets in The Philippines and Indonesia, the Company has made use of subagent and license relationships. LATIN AMERICAN REGION Industry According to Dataquest estimates, as of December 31, 1996, there were approximately 5.5 million subscribers in the Latin American Region. Dataquest estimates that the number of wireless subscribers in the Latin American Region grew over three million in 1997. The Company believes that in the Latin American Region, demand for such services has been and will continue to be driven by an unsatisfied demand for basic phone service due to lack of adequate landline service and limited wireless penetration, as well as expansion of wireless capacity in this region. The chart below sets forth certain estimated information regarding wireless phone shipments and subscriber growth in the Latin American Region.
Year Ended December 31, ---------------------------- 1997 1996 1995 1994 1993 ----- ----- ----- ----- ---- (In thousands) Number of Wireless Phones Shipped.................. 4,005 2,452 1,442 1,010 434 Number of Subscribers ............................. 8,889 5,469 3,287 1,951 962
- -------- Source: Dataquest, Mobile Telephones Worldwide, 1992-2001--Market Trends 1997 (September 1997 Estimates) Operations General. The key to the Company's expansion in the Latin American Region has been its relationships with wireless equipment manufacturers and wireless service carriers. The Company distributes products in the Latin American Region for manufacturers such as Motorola, Ericsson and Nokia. CellStar acts as a wholesale distributor of wireless communications products in the Latin American Region to large volume purchasers, such as the large wireless carriers (e.g., Telcel, the wireless subsidiary of Telmex), as well as to smaller volume purchasers. Although the Company's business in the Latin American Region is predominantly wholesale, operations within a particular country may be either wholesale, retail or both. The Company has historically acted through wholly-owned subsidiaries in each of the countries in this region. The Company's largest wholesale customers in the region are wireless carriers. As of November 30, 1997, the Company operated 30 retail locations (including kiosks) in Latin America -- 25 in Mexico, three in Colombia and one in each of Venezuela and Ecuador. The Company receives activation commissions in all Latin American retail markets. The following table outlines the Company's entry into the Latin American Region:
Year Type of Operation Country Entered (as of November 30, 1997) - ------- ------- ------------------------ Mexico 1991 Wholesale and Retail Venezuela 1993 Wholesale and Retail Brazil 1993 Wholesale Chile 1993 Wholesale Colombia 1994 Wholesale and Retail Ecuador 1995 Wholesale and Retail Argentina 1995 Wholesale
8 At November 30, 1997, the Company sold its products to over 1,000 wholesale customers in the Latin American Region, the ten largest of which accounted for approximately 6% of the Company's consolidated net product sales in fiscal 1997. The Company offers wireless communications products manufactured by OEMs, such as Motorola, Nokia and Ericsson, and aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, batteries, hands- free kits, chargers, leather cases, power supplies and antennas. The Company sells these products to mass merchandisers and other retailers. The Company offers a broad product mix in the Latin American Region, including products that are compatible with digital systems, primarily TDMA, as well as analog systems, such as AMPS and NAMPS. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company's operations and sales in the Latin American Region are subject to political and economic risks, including the following: political instability; currency controls; currency devaluations; exchange rate fluctuations; potentially unstable channels of distribution; increased credit risks; export control laws that might limit the markets the Company can enter; inflation; changes in laws related to foreign ownership of businesses abroad; foreign tax laws; changes in import/export regulations, including enforcement policies; and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. Sales and Marketing. The Company markets its products through direct sales and advertising. In the Latin American markets where it conducts retail operations, the Company primarily utilizes direct mailings and newspapers to promote its retail operations. To penetrate local markets, the Company has made use of subagent relationships in Mexico, Venezuela, Colombia and Ecuador and license relationships in Uruguay and Peru. In addition, the Company offers prepaid wireless programs in Venezuela. The Company expects these prepaid programs to make wireless communications services more accessible to the overall population in these markets because it eliminates the need for established credit and monthly fees. EUROPEAN REGION The Company's U.K. subsidiary distributes wireless phones, pagers, mobile radio and other wireless communications equipment and related accessory products throughout the United Kingdom. In February 1998, the Company completed its acquisition of TA Intercall AB, a wholesale distributor of wireless communications products in Sweden. The new company, CellStar-Intercall AB distributes products in Sweden and other European markets for several manufacturers, including Ericcson, Nokia and Motorola. The Company's operations and sales in the European Region are subject to certain of the political and economic risks to which the Company is subject in its other regions. OTHER REGIONS The Company is also considering entry into other countries where the Company believes the business environment is conducive to the growth of the wireless market. The Company will continue to assess evolving market conditions, economic conditions and other factors that may affect its prospects in a particular foreign country. INDUSTRY RELATIONSHIPS The Company has established relationships with leading wireless equipment manufacturers and wireless service carriers. These alliances have been key to the Company's market and product expansion. Although the Company purchased its products from more than 20 primary suppliers in fiscal 1997, substantially all of the Company's purchases were from Motorola, Nokia, Ericsson and NEC. For the year ended November 30, 1997, Motorola accounted for approximately 74% of the Company's product purchases, 9 including CellStar branded products. In addition, revenues attributable to the Company's fulfillment agreement with PBMS accounted for approximately 12% of total revenues for fiscal 1997. This level of revenues resulted from the rollout of PCS product into certain west coast markets and is not necessarily indicative of future results. The Company has various supply contracts with terms of approximately one year with Motorola, Nokia, Ericsson, QUALCOMM and Sony that specify territories, minimum purchase levels, pricing and payment terms. These contracts typically provide that the Company will receive the benefit of price decreases on products in the Company's inventory if such products were shipped to the Company within a specified period of time prior to the price decrease. The Company's expansion has been due to several factors, one of which is its relationship with Motorola, historically the largest manufacturer of wireless products in the world, according to Dataquest, and the Company's largest supplier. The Company considers its relationships with its suppliers to be satisfactory. The Company believes that its relationship with Motorola will enable it to continue to offer a wide variety of wireless communications products in the marketplace. In July 1995, Motorola purchased 1,044,656 shares of the outstanding common stock of the Company. While the Company believes that its relationship with Motorola and other significant vendors is satisfactory, there can be no assurance that these relationships will continue. The Company experiences, from time to time, shortages in supply for certain products that are in high demand, and no assurance can be given that product shortages will not occur in the future. The loss of Motorola or any other significant vendor or a substantial price increase imposed by any vendor or a shortage of product available from its vendors could have a materially adverse impact on the Company. SEASONALITY AND CYCLICALITY The effects of seasonal fluctuations have not historically been apparent in the Company's operating results due to the Company's rapid growth in revenues. However, the Company's sales are influenced by a number of seasonal factors in the different countries and markets in which it operates, including the purchasing patterns of customers in different markets, product promotions of competitors and suppliers, availability of distribution channels and product supply and pricing. Seasonality did, however, contribute to the increase in the Company's sales during the fourth quarter of 1996. The Company's sales are also influenced by cyclical economic conditions in the different countries and markets in which it operates. An economic downturn in one of the Company's principal markets could have a materially adverse effect on the Company's operating results. ASSET MANAGEMENT Information Technology The Company continues to invest in and focus on technology to improve financial and information technology control systems. The Company is also continuing to focus on materials management and international operations. In addition, the Company has undertaken several short-term and long-term projects to enhance its information technology systems, including (i) development of data warehousing and decision support technologies, (ii) updates to the network operating system and core network servers to newer technology, (iii) upgrades to allow remote computing, (iv) advancements in inventory planning and control, (v) implementation of electronic commerce utilizing the Internet and (vi) integration and more efficient communication between global sites. Many existing computer systems use only two digits to identify a year in the date field and thus are not equipped to handle the change in the century. In June 1997, the Company initiated a Year 2000 readiness project. The Company believes that the costs of addressing, and the effects of, the Year 2000 issue will not be material to the Company's business, operations or financial condition. 10 Inventory The Company purchases its products from more than 20 primary suppliers that ship directly to the Company's warehouse or distribution facilities. Inventory purchases are based on quality, price, service, market demand, product availability and brand recognition. Certain of the Company's major vendors provide favorable purchasing terms to the Company, including price protection credits, stock balancing, increased product availability and cooperative advertising and marketing allowances. The Company provides stock balancing to certain of its customers. Inventory control is important to the Company's ability to maintain margins while offering its customers competitive prices and rapid delivery of a wide variety of products. The Company uses its integrated management information technology systems, specifically its inventory management, electronic purchase order and sales modules, to help manage inventory and sales margins. During fiscal 1997, the Company continued implementation of its program to reengineer its materials management processes, including configuration of its main warehouse layout to optimize cycle times and reduce inventory handling costs. The Company has also continued to expand on technologies such as Radio Frequency (to capture outbound serial numbers into the Company's AS/400 system) and integration of the Company's major shipping partner into the AS/400 system. Typically, the Company ships its products within 24 hours from receipt of customer orders and, therefore, backlog is not considered material to the Company's business. The market for wireless products is characterized by rapidly changing technology and frequent new product introductions, often resulting in product obsolescence or short product life cycles. The Company's success depends in large part upon its ability to anticipate and adapt its business to such technological changes. There can be no assurance that the Company will be able to identify, obtain and offer products necessary to remain competitive or that competitors or manufacturers of wireless communications products will not market products that have perceived advantages over the Company's products or that render the products sold by the Company obsolete or less marketable. The Company maintains a significant investment in its product inventory and, therefore, is subject to the risks of inventory obsolescence and excessive inventory levels. The Company attempts to limit these risks by managing inventory turns and by entering into arrangements with its vendors, including price protection credits and return privileges for slow-moving products. The Company's significant inventory investment in its international operations exposes it to certain political and economic risks. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." SIGNIFICANT TRADEMARKS The Company markets certain of its products under the trade name CellStar. The Company has registered its trade name on the Principal Register of the United States Patent and Trademark Office and has registered or applied for registration of its trade name in certain foreign jurisdictions. The Company also has filed for registrations of its other trade names in the United States and other jurisdictions where it does business. COMPETITION The Company operates in a highly competitive environment and believes that such competition will intensify in the future. The Company competes primarily on the basis of inventory availability and selection, delivery time, service and price. Many of the Company's competitors are larger and have greater capital and management resources than the Company. In addition, potential users of wireless systems may find their communications needs satisfied by other current and developing technologies. For example, advanced digital systems are being developed to compete with analog systems. The Company's ability to remain competitive will therefore depend upon its ability to anticipate and adapt its business to such technological changes. There can be no assurance that the Company will be successful in anticipating and adapting to such technological changes. 11 In the current U.S. wholesale wireless communications products markets, the Company's primary competitors are wireless carriers and other independent distributors such as Brightpoint, Inc. ("Brightpoint") and Pana-Pacific Corporation. The Company also competes with logistics companies. The Company's major competitors in the United States in the retail wireless communications products markets are other agents and resellers and wireless carriers that have retail outlets. Competitors of the Company in the Asia-Pacific and Latin American Regions include national carriers that have retail outlets with direct end-user access, and U.S. and foreign-based exporters and distributors, including Brightpoint. The Company is also subject to competition from gray market activities by third parties that are legal, but are not authorized by manufacturers, or that are illegal (e.g., activities that avoid applicable duties or taxes). In addition, the Company competes for activation fees and residual fees with agents and subagents for the wireless carriers. EMPLOYEES As of November 30, 1997, the Company had approximately 1,100 employees worldwide. In Mexico, approximately 120 employees are subject to labor agreements. The Company has never experienced any material labor disruption and is unaware of any efforts or plans to organize additional employees. Management believes that its labor relations are satisfactory. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning the executive officers of the Company: Alan H. Goldfield 54 Chief Executive Officer and Chairman of the Board Richard M. Gozia 53 President, Chief Operating Officer and Director A.S. Horng 40 Chairman, Chief Executive Officer and General Manager of CellStar (Asia) Corporation Limited Mark Q. Huggins 48 Senior Vice President--Administration, Chief Financial Officer and Treasurer Daniel T. Bogar 38 Senior Vice President--Latin American Region and Director Timothy L. Maretti 44 Senior Vice President--U.S. Region Evelyn Henry Miller 40 Vice President--Corporate Controller Elaine Flud Rodriguez 41 Vice President, General Counsel and Secretary
Alan H. Goldfield is a founder of the Company and has been the Chairman of the Board and Chief Executive Officer of the Company since its formation. Mr. Goldfield served as President of the Company from its formation until March 1995, when Terry S. Parker was appointed President, and from August 1996 until December 1996, when Richard M. Gozia was appointed President. Mr. Goldfield serves as an officer and director of the Company pursuant to his employment agreement. Richard M. Gozia has been the President and Chief Operating Officer of the Company since December 1996. Mr. Gozia joined CellStar as Executive Vice President--Administration and Chief Financial Officer in June 1996. He has been a member of the Board of Directors since June 1996. Mr. Gozia serves as an officer and director of the Company pursuant to his employment agreement. From 1994 to 1996, Mr. Gozia served as Executive Vice President of SpectraVision, Inc. ("SpectraVision"), a provider of in-room hotel movies. In June 1995, SpectraVision filed for protection under the federal bankruptcy laws. From 1991 to 1994, Mr. Gozia was Chairman and Chief Executive Officer of Wyatt Cafeterias, Inc. In June 1995, Triangle FoodService Corporation, formerly Wyatt Cafeterias, Inc., filed for protection under the federal bankruptcy laws. A.S. Horng has served as Chairman of CellStar Asia since January 1998 and has also served as Chief Executive Officer of such company since April 1997 and General Manager since 1993. From April 1997 until January 1998, Mr. Horng served as Vice Chairman of CellStar Asia, and from April 1997 until October 1997, 12 Mr. Horng served as President of CellStar Asia. From 1991 to 1993, Mr. Horng was President of C-Mart USA Corporation, a distributor and manufacturer of aftermarket cellular phone accessory products. Mr. Horng serves the Company pursuant to an employment agreement. Mark Q. Huggins joined the Company as Senior Vice President--Administration, Chief Financial Officer and Treasurer in January 1997. From September 1992 until January 1997, Mr. Huggins served as Chief Financial Officer of Van Camp Seafood Company, Inc. ("Van Camp"), a manufacturer of canned seafood products. In April 1997, Van Camp filed for protection under the federal bankruptcy laws. Mr. Huggins is a certified public accountant. Mr. Huggins serves as an officer of the Company pursuant to his employment agreement. Daniel T. Bogar has served as Senior Vice President--Latin American Region since January 1998 and as a director of the Company since July 1994. Mr. Bogar served as Vice President of Latin American Operations from April 1997 to February 1998. From 1993 to 1997, Mr. Bogar served as Vice President of South American Operations. From 1991 to 1992, Mr. Bogar managed the Company's operations in Mexico, and from 1987 to 1991, Mr. Bogar was General Manager of the Company's Houston operations. Mr. Bogar has been responsible for the Company's South American operations since 1992. Timothy L. Maretti has served as Senior Vice President--U.S. Region of the Company since January 1998 and has been a Vice President of the Company since October 1993. From March 1992 to 1993, Mr. Maretti served as general director of the Company's Mexican operations. From 1987 to 1992, Mr. Maretti served as Vice President--Regional General Manager of SBMS, Dallas. Evelyn Henry Miller has served as Vice President--Corporate Controller of the Company since November 1995. From August 1993 until October 1995, Ms. Miller served as Director, Corporate Accounting of Aviall, Inc. ("Aviall"), the world's largest independent overhauler of turbine engines and distributor of airplane parts. From April 1988 until August 1993, Ms. Miller served in various other capacities for Aviall. Prior to joining Aviall, Ms. Miller served as Assistant Controller, Accounting Operations for Dallas Market Center (a Trammell Crow Company) and held several positions with KPMG Peat Marwick. Ms. Miller is a certified public accountant. Elaine Flud Rodriguez joined the Company in September 1993 and has been Vice President, General Counsel and Secretary since October 1993. From October 1991 to August 1993, she was General Counsel and Secretary of Zoecon Corporation, a pesticide manufacturer and distributor owned by Sandoz Ltd. Prior thereto she was engaged in the private practice of law with Atlas & Hall and Akin, Gump, Strauss, Hauer & Feld. Ms. Rodriguez is licensed to practice in the states of Texas and Louisiana. The Company's success is substantially dependent on the efforts of Alan H. Goldfield, its Chief Executive Officer, and certain other of the Company's executive officers and key employees. The loss or interruption of the continued full-time service of Mr. Goldfield or other of the Company's executive officers and key employees could materially and adversely affect the Company's business. Although the Company has entered into employment agreements with Mr. Goldfield and several other officers and employees, there can be no assurance that the Company will be able to retain their services. The Company does not maintain key man insurance on the life of Mr. Goldfield or any other officer of the Company. In addition, the Company would be in default under the terms of its Multicurrency Revolving Credit Facility if both Mr. Goldfield and the Company's President, Richard M. Gozia, cease to be involved in the Company's management. To support its continued growth, the Company will be required to effectively recruit, develop and retain additional qualified management. The inability of the Company to attract and retain such necessary personnel could also have a materially adverse effect on the Company. 13 ITEM 2. PROPERTIES As of November 30, 1997, the Company had a total of 19 U.S. operating facilities in five states of which 16 were leased. As of November 30, 1997, the Company had a total of 29 operating facilities in the Asia-Pacific Region (including kiosks, but not including facilities of the Company's Malaysian joint venture), 28 of which were leased, and a total of 37 operating facilities in the Latin American Region (including kiosks), 36 of which were leased. These facilities serve as offices, warehouses, distribution centers or retail locations. The Company leases one of its U.S. stand-alone retail stores from its Chief Executive Officer, Alan H. Goldfield. The Company's corporate headquarters and distribution facility, located at 1730 and 1728 Briercroft Court in Carrollton, Texas, are owned by the Company. The corporate headquarters contains approximately 43,000 square feet and is utilized as the Company's primary corporate offices and as a product return center. The distribution facility contains approximately 120,000 square feet and is used as the Company's primary warehouse and distribution center, as well as for corporate offices. The Company leases its Miami, Florida distribution facility, which contains approximately 22,500 square feet and is used to serve customers in the Latin American Region. In addition, the Company has recently entered into a lease for a new 58,900 square foot distribution facility located in Chino, California. The Company believes that suitable additional space will be available, if necessary, to accommodate future expansion of its operations. ITEM 3. LEGAL PROCEEDINGS During the period from May 1996 through July 1996, four purported class action lawsuits were filed in the United States District Court for the Northern District of Texas, Dallas Division, styled as follows: (1) Sidney Gluck, John Dolcemaschio, James Miller and Nancy L. Miller v. CellStar Corporation, Alan H. Goldfield, Terry S. Parker, John S. Bain, Kenneth W. Sanders, and KPMG Peat Marwick, L.L.P.; (2) Diane Larson against CellStar Corporation, Alan H. Goldfield, Terry S. Parker and Evelyn M. Henry; (3) Elvia H. Goggin and R. Heath Larry vs. CellStar Corporation, Alan H. Goldfield and Terry S. Parker; and (4) Reed and Lillian Riemer v. CellStar Corporation, Alan H. Goldfield, Terry S. Parker, John S. Bain, Kenneth W. Sanders and KPMG Peat Marwick, L.L.P. These four lawsuits have since been consolidated into the case styled State of Wisconsin Investment Board, Diane Larson, Martin Katz, Mostafa Aboul-Fetouh, Ahmed Aboul-Fetouh and Enass Aboul-Fetouh on behalf of themselves and others similarly situated v. Alan H. Goldfield, Terry S. Parker, Kenneth W. Sanders, John S. Bain, Evelyn M. Henry, Michael S. Hedge, Kenneth E. Kerby, Daniel T. Bogar, Leonard C. Ratley, James L. Johnson, Ronald J. Kramer, CellStar Corporation and KPMG Peat Marwick LLP, Civil Action No. 3:96-CV-1353-R. The State of Wisconsin Investment Board has been appointed lead plaintiff in the consolidated action and has filed a Consolidated Amended Complaint asserting claims against the Company and certain of its present and former officers and directors for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder, Section 27.01 of the Texas Civil Statutes, common law fraud, negligent misrepresentation, and breach of fiduciary duty to disclose under Delaware common law. The Consolidated Amended Complaint alleges, among other things, that the defendants misrepresented or failed to disclose material facts regarding the business, financial condition, performance and future prospects of the Company and that, as a result of such statements or omissions, the value of the Company's Common Stock was artificially inflated. Claims are also asserted against the Company's auditors, KPMG Peat Marwick LLP. The plaintiffs seek compensatory damages, exemplary damages and costs and expenses, including attorneys' fees and expert fees. Although the plaintiffs have not specified the amount of damages sought, they have argued that the alleged class has sustained in excess of $50 million in damages. In December 1996, defendants filed motions to dismiss all claims asserted in the Consolidated Amended Complaint. The motions are pending. 14 The Company believes it has meritorious defenses to these claims and is vigorously defending this action. No discovery has been taken at this time, and the ultimate outcome is not currently predictable. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these other matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the Company's security holders during the fiscal quarter ended November 30, 1997. 15 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on the NASDAQ Stock Market under the symbol "CLST." The following table sets forth, on a per share basis for the periods indicated, the high and low sale prices for the common stock as reported by the NASDAQ Stock Market. Sales prices prior to June 18, 1997, have been adjusted to give effect to a three-for-two stock split, which was made in the form of a stock dividend distributed on June 17, 1997.
HIGH LOW ------- ------- Fiscal Year ended November 30, 1997 Quarter Ended: February 28, 1997...................................... $17.666 $ 7.417 May 31, 1997........................................... $24.250 $13.250 August 31, 1997........................................ $34.750 $22.167 November 30, 1997...................................... $49.875 $25.875 Fiscal Year ended November 30, 1996 Quarter Ended: February 29, 1996...................................... $19.500 $11.583 May 31, 1996........................................... $12.000 $ 3.833 August 31, 1996........................................ $ 6.917 $ 4.167 November 30, 1996...................................... $ 8.500 $ 4.000
As of February 25, 1998, there were 155 stockholders of record, although the Company believes that the number of beneficial owners is significantly greater than that number because a large number of shares are held of record by CEDE & Co. The Company has never declared or paid cash dividends on its common stock. The Company currently intends to retain all earnings to finance the continued growth and development of its business and does not anticipate paying cash dividends on the common stock in the foreseeable future. Any future determination as to the payment of cash dividends will depend on a number of factors, including future earnings, capital requirements, the financial condition and prospects of the Company and any restrictions under the Company's credit agreements existing from time to time, as well as other factors the Board of Directors may deem relevant. The Company's current revolving credit facility restricts the payment of dividends by the Company to its stockholders. There can be no assurance that the Company will pay any dividends in the future. On October 14, 1997, the Company issued $150.0 million of 5% Convertible Subordinated Notes Due 2002 (the "Notes"). Bear, Stearns & Co. Inc. and Chase Securities Inc. initially purchased the Notes from the Company in a private offering pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and sold the Notes in reliance on Rule 144A and Regulation S under the Securities Act to qualified institutional investors. The Notes were sold for an aggregate offering price of $150.0 million less discounts and commissions of $4,237,500. The Notes are unsecured obligations and are convertible into the Company's common stock at a price of $55.335 per share, subject to adjustment. 16 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The financial data presented below, as of and for each of the years in the five-year period ended November 30, 1997, were derived from the Company's audited financial statements. The selected consolidated financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's Consolidated Financial Statements and Notes thereto, included elsewhere herein.
YEAR ENDED NOVEMBER 30, -------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) STATEMENTS OF OPERATIONS DATA: Revenues: Net product sales $1,442,875 845,569 723,886 447,741 224,845 Activation income 28,561 88,474 75,690 60,153 42,223 Residual income 11,378 13,558 12,339 10,528 8,308 ---------- ------- ------- ------- ------- Total revenues 1,482,814 947,601 811,915 518,422 275,376 Cost of sales 1,325,488 810,000 702,074 448,780 229,796 ---------- ------- ------- ------- ------- Gross profit 157,326 137,601 109,841 69,642 45,580 ---------- ------- ------- ------- ------- Operating expenses: Selling, general and administrative expenses 81,319 135,585 76,553 44,598 28,321 Fees and bonus to stockholders - - - - 3,135 ---------- ------- ------- ------- ------- Total operating expenses 81,319 135,585 76,553 44,598 31,456 ---------- ------- ------- ------- ------- Operating income 76,007 2,016 33,288 25,044 14,124 Other income (expense), net (5,051) (8,882) (2,950) 232 (1,228) ---------- ------- ------- ------- ------- Income (loss) before income taxes 70,956 (6,866) 30,338 25,276 12,896 Income taxes 17,323 (453) 7,442 9,028 5,043 ---------- ------- ------- ------- ------- Net income (loss) $ 53,633 (6,413) 22,896 16,248 7,853 ========== ======= ======= ======= ======= Net income (loss) per share $ 1.78 (0.22) 0.81 0.59 0.39 ========== ======= ======= ======= ======= Weighted average number of shares and equivalent shares outstanding(/1/) 30,084 28,910 28,233 27,662 20,250 ========== ======= ======= ======= ======= OPERATING DATA: International revenues as a percentage of total revenues 41.5% 39.9% 41.1%(/2/) 23.3%(/2/) 22.5% AT NOVEMBER 30, -------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ------- ------- ------- ------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital $ 259,954 71,365 74,410 63,668 7,052 Total assets $ 497,111 298,551 314,921 186,354 89,894 Short-term debt $ - 56,704 99,187 12,735 8,968 Long-term debt, less current portion $ 150,000 6,285 6,880 3,095 - Notes payable to stockholders, less current portion $ - - - - 7,214 Stockholders' equity $ 160,865 104,263 111,295 76,642 7,749
- -------- (/1/) Common stock amounts have been retroactively adjusted to give effect to a three-for-two stock split, which was made in the form of a stock dividend distributed on June 17, 1997. (/2/) Excludes sales to CellStar Asia, which were included in U.S. sales prior to the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995. If the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995 is given pro forma effect as of December 1, 1993, international revenues as a percentage of total revenues would be 51.9% and 34.7% for fiscal 1995 and 1994, respectively. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a leading global provider of wireless communications products, primarily handsets. From fiscal 1993 to fiscal 1997, the Company's total revenues grew from $275.4 million to $1,482.8 million. The Company accomplished this growth in both U.S. and international sales by focusing its efforts on the cellular phone industry. To date, U.S. sales of wireless communications products have increased primarily as a result of greater market penetration due in part to 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 Region and the Latin American Region. The Company's earnings per share increased from $0.39 to $1.78 between its fiscal years ended November 30, 1993 and 1997. The Company's revenues are grouped into three categories: net product sales, activation income and residual income. Net product sales include sales of handsets and other wireless communications products and revenues from fulfillment and other value-added services. Activation income includes commissions paid by a cellular carrier when a customer initially subscribes for cellular service through the Company. Residual income includes payments received from carriers based on the cellular phone usage by a customer activated by the Company. The Company's historical records do not enable management to provide accurate information with respect to disaggregated wholesale and retail prices, volumes and gross margins. The gross margins realized from the Company's wholesale product revenues have generally been lower than the margins realized from its retail product revenues. However, due to the more labor intensive nature of the Company's retail operations, selling, general and administrative expenses have generally been higher with respect to retail sales, which partially offsets the higher gross margins the Company realizes from retail product sales. SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS Certain of the matters discussed under the captions "Business," "Properties," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report may constitute "forward-looking" statements for purposes of the Securities Act and the Exchange Act and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, the words "anticipates," "estimates," "believes," "will," "continues," "expects," "projections," "forecasts," "intends," "may," "might," "could" and similar expressions are intended to be among the statements that identify forward-looking statements. Various factors that could cause the actual results, performance or achievements of the Company to differ materially from the Company's expectations are disclosed in this report ("Cautionary Statements"), including, without limitation, those statements made in conjunction with the forward-looking statements included under the captions identified above and otherwise herein. All written and oral forward-looking statements attributable to the Company are expressly qualified in their entirety by the Cautionary Statements. 18 RESULTS OF OPERATIONS The following table sets forth certain consolidated statements of operations data for the Company expressed as a percentage of total revenues for the past three fiscal years:
1997 1996 1995 ----- ----- ----- Revenues: Net product sales 97.3% 89.2% 89.2% Activation income 1.9 9.3 9.3 Residual income 0.8 1.5 1.5 ----- ----- ----- Total revenues 100.0 100.0 100.0 Cost of sales 89.4 85.5 86.5 ----- ----- ----- Gross profit 10.6 14.5 13.5 Selling, general and administrative expenses 5.5 14.3 9.4 ----- ----- ----- Operating income 5.1 0.2 4.1 Other income (expense): Interest expense (0.5) (0.9) (0.8) Other, net 0.2 - 0.4 ----- ----- ----- Total other income (expense) (0.3) (0.9) (0.4) ----- ----- ----- Income (loss) before income taxes 4.8 (0.7) 3.7 Income taxes 1.2 - 0.9 ----- ----- ----- Net income (loss) 3.6% (0.7)% 2.8% ===== ===== =====
The amount of net revenues and the approximate percentages of net revenues attributable to the Company's operations for the past three fiscal years are shown below:
1997 1996 1995 ---------------- ------------- ------------- (DOLLARS IN THOUSANDS) U.S.: Net product sales(/1/) $ 845,354 57.0% 485,788 51.3% 415,094 51.1% Activation income 12,962 0.9 71,072 7.5 52,704 6.5 Residual income 8,550 0.6 11,884 1.3 10,379 1.3 ---------- ----- ------- ----- ------- ----- Total U.S. 866,866 58.5 568,744 60.1 478,177 58.9 ---------- ----- ------- ----- ------- ----- Asia-Pacific: Net product sales(/2/) 419,008 28.3 247,773 26.1 183,274 22.6 Activation income 3,743 0.2 720 0.1 - - Residual income - - - - - - ---------- ----- ------- ----- ------- ----- Total Asia-Pacific 422,751 28.5 248,493 26.2 183,274 22.6 ---------- ----- ------- ----- ------- ----- Latin America: Net product sales 109,371 7.4 101,440 10.7 125,518 15.5 Activation income 11,856 0.8 16,682 1.8 22,986 2.8 Residual income 2,828 0.2 1,674 0.1 1,960 0.2 ---------- ----- ------- ----- ------- ----- Total Latin America 124,055 8.4 119,796 12.6 150,464 18.5 ---------- ----- ------- ----- ------- ----- Europe: Net product sales 69,142 4.6 10,568 1.1 - - Activation income - - - - - - Residual income - - - - - - ---------- ----- ------- ----- ------- ----- Total Europe 69,142 4.6 10,568 1.1 - - ---------- ----- ------- ----- ------- ----- Total $1,482,814 100.0% 947,601 100.0% 811,915 100.0% ========== ===== ======= ===== ======= =====
- -------- (/1/) Includes export sales of $90.2 million in 1995 to CellStar Asia prior to June 3, 1995 when CellStar Asia became a wholly-owned subsidiary of the Company. (/2/) Fiscal year 1995 includes sales of $143.1 million by CellStar Asia after June 2, 1995. 19 FISCAL 1997 COMPARED TO FISCAL 1996 Revenues. Total revenues increased $535.2 million, or 56.5%, from $947.6 million in fiscal 1996 to $1,482.8 million in fiscal 1997. U.S. revenues increased $298.2 million, or 52.4%, from $568.7 million in fiscal 1996 to $866.9 million in fiscal 1997. The increase was due to an increase in net product sales of $359.6 million, which was partially offset by decreases in activation and residual income. 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 and sales from the Company's Miami, Florida warehouse to customers exporting into South American countries. As expected for fiscal 1997, U.S. activation and residual income decreased, primarily as a result of the sale of substantially all of the Company's Communication Centers on November 26, 1996. Net product sales in the Asia-Pacific Region increased $171.2 million, or 69.1%, from $247.8 million in fiscal 1996 to $419.0 million in fiscal 1997. The Company's operations in the PRC, primarily Hong Kong, provided $319.7 million in net product sales in fiscal 1997, an increase of $120.0 million compared to $199.7 million in fiscal 1996. The higher revenue levels resulted from the expansion in overall demand for wireless handsets in the region, particularly in the PRC, coupled with the increased availability of product during the year. Net product sales by the Company's Singapore operations increased $37.2 million, from $46.1 million in fiscal 1996 to $83.2 million in fiscal 1997. This increase was primarily due to increased demand in The Philippines and Indonesia. The Company's operations in Taiwan, which commenced in the second quarter of fiscal 1996, provided $16.1 million of net product sales in fiscal 1997, an increase of $14.1 million compared to $2.0 million in fiscal 1996. The Asia-Pacific operations are substantially wholesale related, and, as a result, activation income is not significant. The Company's operations in the Latin American Region provided $109.4 million of net product sales in fiscal 1997, compared to $101.4 million in fiscal 1996, an $8.0 million, or 7.9%, increase. Net product sales in Mexico, Argentina and Venezuela increased $27.0 million, $7.8 million and $6.4 million, respectively. Net product sales in Brazil and the remainder of the region decreased $23.1 million and $10.1 million, respectively. The increase in Mexico was the result of a change in promotional strategy by the principal cellular carrier, which began subsidizing cellular phone units. The increase in Argentina was due to improved market penetration and a new pricing strategy by the local carrier whereby the calling party pays for the call. The increase in Venezuela was fueled by the Company's prepaid cellular business. The sharp decline in Brazil was principally due to actions of the Brazilian government, which limited the authorization of additional wireless phone lines. Activation and residual income generated by the Company's operations in the Latin American Region decreased from $18.4 million in fiscal 1996 to $14.7 million in fiscal 1997. The decrease in activation income was principally attributable to Mexico, which experienced a decrease of $3.8 million as a result of a reduction in commissions from its principal cellular carrier. The reduction was slightly offset by an increase in activation income in Venezuela from the Company's prepaid cellular business. Net product sales from the Company's European operation in the United Kingdom, which commenced in the second quarter of fiscal 1996, were $69.1 million in fiscal 1997, an increase of $58.5 million compared to $10.6 million in fiscal 1996. Gross Profit. Gross profit increased $19.7 million, or 14.3%, from $137.6 million in fiscal 1996 to $157.3 million in fiscal 1997, while gross profit as a percentage of total revenues decreased from 14.5% in fiscal 1996 to 10.6% in fiscal 1997. The increase in gross profit was primarily due to the increase in CellStar Asia's net product sales of high-end products and due to the increase in sales from the Company's Miami, Florida, warehouse to customers exporting into South American countries. A reduction in the provision for inventory obsolescence of $3.9 million, from $8.7 million in fiscal 1996 to $4.8 million in fiscal 1997, also contributed to the increase in gross profit. These increases were partially offset by a significant decrease in U.S. retail revenues of $92.0 million, from $127.9 million in fiscal 1996 to $35.9 million in fiscal 1997. Retail revenues have a higher gross profit as a percentage of total revenues than wholesale net product sales. Gross profit as a percentage of total revenues decreased primarily due to the sale 20 of substantially all of the Company's Communication Centers in November 1996 and due to the higher percentage of revenues from distribution and fulfillment contracts, which have lower gross profit margins than the Company's traditional wholesale business. Net foreign currency transaction losses in fiscal 1997 were $1.4 million, compared to $1.8 million in fiscal 1996. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $54.3 million, or 40.0%, from $135.6 million in fiscal 1996 to $81.3 million in fiscal 1997. Approximately $22.6 million, or 41.6%, 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 $8.9 million. A reduction in bad debt expense of $24.8 million, or 45.7% of the total decrease, was primarily attributable to the continuing strategy of increasing sales from the Company's Miami, Florida warehouse to customers exporting into South American countries, which has resulted in the Company's ability to enhance its controls over the extension of credit. Bad debt expense as a percentage of total revenues decreased from 2.9% in fiscal 1996 to 0.2% in fiscal 1997. These decreases were partially offset by an increase of $7.5 million in fiscal 1997 in employee-related costs incurred in connection with the increase in net product sales. Overall, the company reduced selling, general and administrative expenses as a percentage of total revenues from 14.3% in fiscal 1996 to 5.5% in fiscal 1997. Operating Income. Operating income increased $74.0 million, from $2.0 million in fiscal 1996 to $76.0 million in fiscal 1997, due to the increase in revenues and the decrease in selling, general and administrative expenses. Correspondingly, operating income as a percentage of total revenues increased from 0.2% in fiscal 1996 to 5.1% in fiscal 1997. Interest Expense. Interest expense declined in fiscal 1997 to $7.8 million from $8.4 million in fiscal 1996. The decrease in interest expense resulted primarily from the maintenance of lower balances under the Company's revolving credit agreement. Other, Net. Other, net increased $2.6 million, from an expense of $0.3 million in fiscal 1996 to income of $2.3 million in fiscal 1997, primarily as a result of an increase in interest income of $1.2 million, from $0.9 million to $2.1 million, and a decrease in minority interest of $0.7 million due to the acquisition of the remaining 20.0% interest of the Company's Singapore subsidiary on May 30, 1997. Income Taxes. The Company's income tax expense increased $17.8 million in fiscal 1997. The increase was primarily due to higher income before income taxes for the year ended November 30, 1997. The effective tax rate is higher for the year ended November 30, 1997 compared to the same period a year earlier, primarily due to higher proportional taxable income in both the United States and the Latin American Regions, which have statutory tax rates of approximately 35%. FISCAL 1996 COMPARED TO FISCAL 1995 Revenues. Total revenues increased $135.7 million, or 16.7%, from $811.9 million in fiscal 1995 to $947.6 million in fiscal 1996. U.S. revenues increased 18.9%, from $478.2 million in fiscal 1995 to $568.7 million in fiscal 1996. The increase was due to increases in net product sales of $70.7 million, activation income of $18.4 million and residual income of $1.5 million. The increase in net product sales was due primarily to a shift in strategy from in-country product sales by the Company's South American subsidiaries to sales by the Company's Miami, Florida warehouse to customers exporting into South American countries. The Company adopted this strategy to reduce currency, accounts receivable and inventory risks. In addition, the U.S. operations achieved growth in net product sales from sales to wholesale customers in the United States. U.S. activation income increased primarily as a result of an overall increase in sales of cellular phone units at the retail level. The increase in unit sales at the retail level was attributable to the Company's expansion of Communication Centers in Sam's Clubs beginning in the fourth quarter of fiscal 1994. Since the Company sold 21 substantially all of its Communication Centers in November 1996, the Company expected a decline in activation income in fiscal 1997. The increase in residual income primarily corresponded to the Company's growing cellular phone user base where the Company operated stand-alone retail stores, which increase was partially offset by lower average monthly user phone bills. The Company's international revenues, which include direct revenues derived primarily from the operations of its subsidiaries in the Asia-Pacific and Latin American Regions, increased 13.5%, from $333.7 million in fiscal 1995 to $378.8 million in fiscal 1996. The growth in international revenues was due to the acquisition of the remaining 50% interest in CellStar Asia, which resulted in CellStar Asia's sales being classified as international sales beginning in June 1995. Prior to the June 1995 acquisition, CellStar Asia's operations were not consolidated with the operations of the Company, and sales of products to CellStar Asia were considered revenues of the Company's U.S. operations. Net product sales to CellStar Asia prior to the acquisition totaled $90.2 million in fiscal 1995. After the acquisition, CellStar Asia had $143.1 million and $199.7 million in fiscal 1995 and 1996, respectively, of net product sales, which were included in the Company's international revenues. In the aggregate, sales by CellStar Asia decreased from $228.0 million in fiscal 1995 to $199.7 million in fiscal 1996. The decrease was due to several factors including the unavailability of the highly popular PCS phones and increased competition that caused downward pressure on selling prices. The Company's Singapore operations provided $40.2 million of net product sales in fiscal 1995 compared to $46.1 million of net product sales of fiscal 1996. The Company's operations in Taiwan, which commenced operations in the second quarter in fiscal 1996, provided $2.0 million of net product sales in fiscal 1996. The Asia-Pacific operations are substantially wholesale related, and, as a result, activation income is not significant. The Company's operations in the Latin American Region provided $101.4 million of net product sales in fiscal 1996, compared to $125.5 million in fiscal 1995. The decline was due primarily to a sharp decline in sales in Brazil, which decreased from $47.0 million in fiscal 1995 to $30.6 million in fiscal 1996. This decline was due to the continued deterioration in the business climate in Brazil for the cellular phone industry and to a change in the Company's strategy of selling products from its warehouse in Miami, Florida, to customers exporting into South American countries. The decline in net product sales was partially offset by a $20.0 million increase in net product sales in Argentina, a market the Company entered in late 1995. Activation income generated by the Company's operations in the Latin American Region decreased from $23.0 million in fiscal 1995 to $16.7 million in fiscal 1996. The decrease in activation income was primarily attributable to the decline in activation income in Venezuela, which decreased from $4.8 million in fiscal 1995 to $0.7 million in fiscal 1996 due to weak economic conditions and political turmoil. Gross Profit. Gross profit increased $27.8 million, or 25.3%, from $109.8 million in fiscal 1995 to $137.6 million in fiscal 1996, while gross profit as a percentage of total revenues increased from 13.5% to 14.5% in fiscal 1995 and 1996, respectively. This increase in the gross margin percent was primarily due to the consolidation of CellStar Asia's higher gross margin revenues following the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995, and an increase in higher margin U.S. retail sales. Revenues for fiscal 1995 include export sales of $90.2 million, with a gross margin of 4.0%, to CellStar Asia prior to June 1995 when it became a wholly-owned subsidiary. After CellStar Asia became a wholly-owned subsidiary, its revenues were consolidated with the Company's rather than being reported as U.S. net product sales. U.S. retail sales increased from $90.5 million in fiscal 1995 to $127.9 million in fiscal 1996 due to the increase in the number of Communication Centers. These gross profit increases were partially offset by provisions for inventory obsolescence and the effect of general economic declines in the Latin American Region. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $59.0 million, or 77.0%, from $76.6 million in fiscal 1995 to $135.6 million in fiscal 1996. Approximately $28.0 million, or 47.5%, of the increase resulted from an increase in trade accounts receivable reserves to reflect a further deterioration in the trade accounts receivable portfolio, primarily for Brazil-related receivables. Substantially all of the Company's customers in Brazil were significantly and adversely impacted by actions 22 taken by Telebras, the government owned cellular telephone company, which unexpectedly limited the number of cellular telephone lines available for activation in Brazil during 1995 and 1996. Beginning in late 1995 and continuing through 1996, Telebras announced plans to activate significant numbers of cellular lines on a monthly basis to meet the large demand for cellular service in the major metropolitan areas. In response to these announcements, many of the Company's retail customers began to rapidly expand their operations, in many cases opening multiple retail locations specializing in cellular telephones and related products and incurring corresponding increases in inventory and overhead. However, the government failed to release the number of lines promised, leaving many of the Company's retail customers with insufficient sales revenues to support the increased overhead and ultimately insufficient cash flows to repay the Company. Bad debt expense as a percentage of total revenues increased from 0.3% in fiscal 1995 to 2.9% in fiscal 1996. An additional $11.7 million, or 19.8%, of the increase in selling, general and administrative expenses was attributable to an increase in salaries and employee benefits for the addition of employees to support the growth of the Company's operations, primarily related to the Communication Centers. The Communication Centers also contributed to other increases in selling, general and administrative expenses as these operations experienced higher operating expenses than wholesale operations. The Company sold 334 of its Communication Centers on November 26, 1996. As a percentage of total revenues, selling, general and administrative expenses increased from 9.4% to 14.3%. Operating Income. Operating income decreased substantially from $33.3 million in fiscal 1995 to $2.0 million in fiscal 1996 due mainly to the significant increase in selling, general and administrative expenses, as discussed above. (Undistributed Loss) Equity in Earnings of Joint Ventures. (Undistributed loss) equity in earnings of joint ventures decreased in fiscal 1996 by $3.4 million from fiscal 1995. The decrease was attributable to the Company's acquisition of the remaining 50% interest in CellStar Asia in June 1995. The Company's 50% equity interest in the operations of CellStar Asia prior to the date of the acquisition was classified as equity in earnings of joint ventures. Interest Expense. Interest expense increased in fiscal 1996 to $8.3 million from $6.1 million in fiscal 1995. The increase in interest expense resulted primarily from the maintenance of higher average balances under the Company's revolving credit agreements. Income Taxes. The Company's income tax expense decreased in fiscal 1996 by $7.9 million, or 106.7%, from fiscal 1995, due to a tax benefit resulting from accumulated losses related to the Company's Brazilian operations and a lower overall effective tax rate. The lower effective tax rate in fiscal 1996 was primarily attributable to foreign and U.S. tax effects from foreign operations. LIQUIDITY AND CAPITAL RESOURCES Prior to the Company's issuance of $150.0 million of 5% Convertible Subordinated Notes Due 2002 (the "Notes"), as described below, the Company relied primarily on cash generated from operations and borrowings under its revolving credit facility in the United States to fund working capital, capital expenditures and expansions. The Company also received extended credit terms from certain suppliers. On October 14, 1997, the Company issued the Notes in reliance on registration exemptions under the Securities Act. The Notes are unsecured obligations, are convertible into the Company's common stock at a price of $55.335 per share, are not callable for three years and mature on October 15, 2002. The proceeds from the Notes were used to pay off the revolving credit facility in the United States, to retire long-term debt obligations, to fund working capital requirements and for other general corporate purposes. Commencing April 15, 1998, the Company will be required to make interest payments on the Notes semi- annually on April 15 and October 15 of each year. On October 15, 1997, the Company entered into a new $135.0 million Multicurrency Revolving Credit Facility (the "Facility") with a syndicate of banks. The Facility has a term of approximately five years, 23 replaces the Company's previous $90.0 million revolving credit facility and provides the ability to borrow up to $25.0 million in certain currencies that are customarily offered to banks in the London interbank market and are convertible into dollars in the international bank market. Fundings under the Facility are limited by an asset coverage test, which is measured quarterly. The Facility contains, among other provisions, covenants relating to the maintenance of minimum net worth and certain financial ratios, dividend payments, additional debt, mergers and acquisitions and dispositions of assets. At February 27, 1998, $21.9 million was outstanding under the Facility. At November 30, 1997, the Company had $74.6 million of cash and cash equivalents, an increase of $47.4 million since November 30, 1996. The increase resulted primarily from cash generated from operating activities outside the United States and by the proceeds from the Notes. Approximately two-thirds of the Company's cash resides outside the United States, primarily in its Asia- Pacific Region subsidiaries. While the Company has historically retained cash in that region to support the subsidiaries in that region, the Company currently expects to utilize its recently-established global agency treasury center in Dublin, Ireland, to pool certain of its global resources. This approach should allow the Company to better utilize its cash worldwide, while minimizing income taxes. Additionally, the Company's accounts receivable, inventories and accounts payable have increased in the United States and the Asia-Pacific Region since November 30, 1996, as a result of increased net product sales. The Company anticipates that proceeds from the Notes, amounts available under the Facility and funds from operations will be sufficient to satisfy its capital requirements and current expansion plans for fiscal 1998. Cash used in investing activities of $6.2 million in fiscal 1997 included the purchase of additional prepaid cellular hardware and software in Venezuela for $1.4 million, acquisition of office space in Shanghai, PRC for $1.2 million and purchases of various computer and office equipment for $3.6 million. The Company believes that the fiscal 1997 level of capital expenditures is representative of ongoing annual maintenance capital expenditures. INTERNATIONAL OPERATIONS The Company's international operations are subject to political and economic risks, including but not limited to political instability, increased credit risks, changing tax and trade regulations and currency devaluations and controls; however, the Company has not experienced any material foreign currency transaction gains or losses during the last three fiscal years. The Company maintains a significant presence in Hong Kong, and with the transfer of Hong Kong from the United Kingdom to the PRC on July 1, 1997, the Company's operations in the Asia-Pacific Region may be exposed to a higher degree of currency volatility and economic instability than has historically been the case. As a result of recent economic volatility in the Asia-Pacific region, many currencies in the region have lost value relative to the U.S. dollar. Although the Company has experienced no material foreign currency transaction losses since the beginning of this currency crisis, the Company's operations in its Asia-Pacific Region have been subject to a higher degree of economic instability, especially in the southern portion of such region, which includes the Company's operations in Singapore, The Philippines and Malaysia. In early 1996, the Company instituted a strategy to reduce the overall level of assets maintained in the Latin American Region. The intent of this strategy was to reduce the Company's working capital requirements related to its Latin American operations and to reduce the Company's exposure to financial and operating risks in the Latin American Region. Other changes to the Company's business strategy in the Latin American Region include sales of products from the Miami, Florida warehouse to customers exporting into South American countries. 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. 24 IMPACT OF INFLATION Historically, inflation has not had a significant impact on the Company's overall operating results. However, the effects of inflation in volatile economies in foreign markets could have an adverse impact on the Company. SEASONALITY AND CYCLICALITY The effects of seasonal fluctuations have not historically been apparent in the Company's operating results due to the Company's rapid growth in revenues. However, the Company's sales are influenced by a number of seasonal factors in the different countries and markets in which it operates, including the purchasing patterns of customers in different markets, product promotions of competitors and suppliers, availability of distribution channels, and product supply and pricing. Seasonality did, however, contribute to the increase in the Company's sales during the fourth quarter of 1996. The Company's sales are also influenced by cyclical economic conditions in the different countries and markets in which it operates. An economic downturn in one of the Company's principal markets could have a materially adverse effect on the Company's operating results. ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("Statement 128"), which is effective for interim or annual periods ending after December 15, 1997. Statement 128 will change how the Company calculates its earnings per share and will require earnings per share amounts for all prior periods to be restated to conform with the new presentation. Management does not believe that the adoption of Statement 128 will have a material effect on the Company's earnings per share amounts. MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements of the Company are the responsibility of management. They have been prepared in accordance with generally accepted accounting principles and include estimates and judgments made by management. To meet the responsibility for reliable financial data, management maintains a system of internal accounting controls which is designed to provide reasonable assurance that transactions are executed as authorized and are accurately recorded and that assets are properly safeguarded. Although accounting controls are designed to achieve this objective, it must be recognized that errors or irregularities may occur. In addition, it is necessary to assess and balance the relative cost and the expected benefit of the internal accounting controls. 25 ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements on Page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 26 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item regarding Directors of the Company is set forth in the Proxy Statement (the "Proxy Statement") to be delivered to the Company's stockholders in connection with the Company's 1998 Annual Meeting of Stockholders under the heading "Election of Directors," which information is incorporated herein by reference. The information required by this item regarding executive officers of the Company is set forth under the heading "Executive Officers of the Registrant" in Part I of this Form 10-K, which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Proxy Statement under the heading "Executive Compensation," which information is incorporated herein by reference. Information contained in the Proxy Statement under the captions "Executive Compensation--Report of the Compensation Committee of the Board of Directors on Executive Compensation" and "Comparative Performance Graph" is not incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth in the Proxy Statement under the heading "Security Ownership of Certain Beneficial Owners and Management," which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in the Proxy Statement under the caption "Certain Transactions," which information is incorporated herein by reference. 27 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 1. CONSOLIDATED FINANCIAL STATEMENTS See Index to Consolidated Financial Statements on page F-1 of this Form 10-K. 2. FINANCIAL STATEMENT SCHEDULES See Index to Consolidated Financial Statements on page F-1. 3. EXHIBITS 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation.(1) 3.2 Amended and Restated Bylaws of CellStar Corporation.(14) 4.1 The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed in response to items 3.1 and 3.2 are incorporated in this item by reference.(1)(14) 4.2 Specimen Common Stock Certificate of CellStar Corporation.(2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement").(3) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997.(4) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation")(3) 4.6 Form of Rights Certificate.(3) 4.7 Certificate of Correction of Certificate of Designation.(4) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and The Bank of New York, as Trustee(13) 10.1 Employment Agreement, effective as of December 1, 1994, by and between CellStar Corporation and Alan H. Goldfield.(2)(15) 10.2 Employment Agreement, effective as of May 24, 1996, by and between CellStar, Ltd., CellStar Corporation and Richard M. Gozia.(5)(15) 10.3 Employment Agreement by and between CellStar, Ltd., CellStar Corporation and Mark Q. Huggins, effective as of January 15, 1997.(6)(15) 10.4 Employment Agreement, effective January 22, 1998, by and between CellStar (Asia) Corporation Limited, CellStar Corporation and Hong An- Hsien.(14)(15) 10.5 Agreement by and between Motorola Inc., by and through its Pan American Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1997 (United States).(7)(16) 10.6 Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd., effective September 20, 1996.(6)(16) 10.7 Agreement by and between National Auto Center, Inc. and the Pan American Cellular Subscriber Division of Motorola Inc., dated as of January 1, 1995 (Latin American and Caribbean Territory).(8) 10.8 Lease by and between Alan H. Goldfield and National Auto Center, Inc. regarding 605 West Airport Freeway, Irving, Texas.(10)(15) 10.9 Exclusive Cellular Subagent Agreement by and between National Auto Center and Alan H. Goldfield d/b/a National Tape.(10)(15) 10.10 Registration Rights Agreement by and between the Company and Audiovox Corporation.(10) 10.11 Form of Warrant for the purchase of shares of common stock to be issued to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc.(10) 10.12 Stock Purchase Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995.(1) 10.13 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995.(1)
28 10.14 Credit Agreement, dated as of October 15, 1997, among CellStar Corporation, each of the banks or other lending institutions signatory thereto, The First National Bank of Chicago and National City Bank, as co-agents, and Texas Commerce Bank National Association, as agent.(14) 10.15 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan. (14)(15) 10.16 CellStar Corporation Amended and Restated Annual Incentive Compensation Plan. (6)(15) 10.17 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan. (11) 10.18 Registration Rights Agreement, dated as of June 2, 1995, between Hong An Hsien and CellStar Corporation. (14)(15) 10.19 Registration Rights Agreement, entered into as of May 30, 1997, between Leap International PTE LTD and CellStar Corporation(12) 10.20 Purchase Agreement, dated October 7, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc. (13) 10.21 Registration Rights Agreement, dated as of October 14, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc. (13) 10.22 Agreement, dated as of April 28, 1995, by and between CellStar, Ltd. and Motorola, Inc., Greater China Cellular Subscriber Division (People's Republic of China). (9) 21.1 Subsidiaries of the Company. (14) 23.1 Consent of KPMG Peat Marwick LLP. (14) 27 Financial Data Schedule (14) 99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated as of July 20, 1995. (1)
- -------- (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1996, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1997, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1994, and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1 and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997, and incorporated herein by reference. (13) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (14) Filed herewith. (15) The exhibit is a management contract or compensatory plan or arrangement. (16) Certain provisions of this exhibit are subject to a request for confidential treatment filed with the Securities and Exchange Commission. 29 4. REPORTS ON FORM 8-K On September 26, 1997, the Company filed a Current Report on Form 8-K dated September 25, 1997, to report, under Item 5 therein, (i) the Company's planned private offering of $100.0 million aggregate principal amount of Convertible Subordinated Notes Due 2002 (the "Notes"); and (ii) the Company's negotiations for a new $125.0 million multicurrency revolving credit facility. On October 24, 1997, the Company filed a Current Report on Form 8-K dated October 8, 1997, to report, under Item 5 therein, (i) pricing of $130.0 million of the Notes, the grant of an over-allotment option to purchase up to an additional $20.0 million of the Notes and consummation of the offering of $150.0 million of the Notes and (ii) completion of a new $135.0 million multicurrency revolving credit facility. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CELLSTAR CORPORATION /s/ Alan H. Goldfield By: _________________________________ Alan H. Goldfield Chairman of the Board and Chief Executive Officer Date: February 27, 1998 31 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Alan H. Goldfield Date: February 27, 1998 ---------------------------------------- Alan H. Goldfield Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Richard M. Gozia Date: February 27, 1998 ---------------------------------------- Richard M. Gozia President, Chief Operating Officer and Director By: /s/ Mark Q. Huggins Date: February 27, 1998 ---------------------------------------- Mark Q. Huggins Senior Vice President--Administration, Chief Financial Officer and Treasurer (Principal Financial Officer) By: /s/ Evelyn Henry Miller Date: February 27, 1998 ---------------------------------------- Evelyn Henry Miller Vice President--Corporate Controller (Principal Accounting Officer) By: /s/ Daniel T. Bogar Date: February 27, 1998 ---------------------------------------- Daniel T. Bogar Senior Vice President--Latin American Region and Director By: /s/ James L. Johnson Date: February 27, 1998 ---------------------------------------- James L. Johnson Director By: /s/ Sheldon I. Stein Date: February 27, 1998 ---------------------------------------- Sheldon I. Stein Director By: /s/ John T. Stupka Date: February 27, 1998 ---------------------------------------- John T. Stupka Director By: /s/ Terry S. Parker Date: February 27, 1998 ---------------------------------------- Terry S. Parker Director
32 CELLSTAR CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report............................................... F-2 Consolidated Balance Sheets as of November 30, 1997 and 1996............... F-3 Consolidated Statements of Operations for the years ended November 30, 1997, 1996 and 1995....................................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended November 30, 1997, 1996 and 1995.......................................... F-5 Consolidated Statements of Cash Flows for the years ended November 30, 1997, 1996 and 1995....................................................... F-6 Notes to Consolidated Financial Statements................................. F-7 Schedule II--Valuation and Qualifying Accounts for the years ended November 30, 1997, 1996 and 1995................................................... S-1
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders CellStar Corporation: We have audited the consolidated financial statements of CellStar Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CellStar Corporation and subsidiaries as of November 30, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three- year period ended November 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Dallas, Texas January 13, 1998 F-2 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS November 30, 1997 and 1996 (Dollars in thousands, except per share data)
1997 1996 -------- ------- ASSETS Current assets: Cash and cash equivalents $ 74,646 27,296 Accounts receivable (less allowance for doubtful accounts of $23,857 and $29,023, respectively) 176,032 131,812 Inventories 190,404 94,473 Deferred income tax assets 2,457 4,274 Prepaid expenses 2,661 1,513 -------- ------- Total current assets 446,200 259,368 Property and equipment, net 22,877 20,134 Goodwill (less accumulated amortization of $2,378 and $1,330, respectively) 17,616 16,597 Other assets 10,418 2,452 -------- ------- $497,111 298,551 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $160,614 116,091 Notes payable to financial institutions - 56,136 Accrued expenses 13,545 12,250 Income taxes payable 11,044 1,852 Deferred income tax liabilities 1,043 1,106 Current portion of long-term debt - 568 -------- ------- Total current liabilities 186,246 188,003 Long-term debt, less current portion 150,000 6,285 -------- ------- Total liabilities 336,246 194,288 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued - - Common stock, $.01 par value, 45,000,000 shares authorized; 29,249,420 and 28,910,343 shares issued and outstanding, respectively 293 193 Additional paid-in capital 72,985 68,167 Common stock warrants 4 4 Foreign currency translation adjustments (6,469) (4,520) Retained earnings 94,052 40,419 -------- ------- Total stockholders' equity 160,865 104,263 -------- ------- $497,111 298,551 ======== =======
See accompanying notes to consolidated financial statements. F-3 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended November 30, 1997, 1996 and 1995 (In thousands, except per share data)
1997 1996 1995 ---------- ------- ------- Revenues: Net product sales $1,442,875 845,569 723,886 Activation income 28,561 88,474 75,690 Residual income 11,378 13,558 12,339 ---------- ------- ------- Total revenues 1,482,814 947,601 811,915 Cost of sales 1,325,488 810,000 702,074 ---------- ------- ------- Gross profit 157,326 137,601 109,841 Selling, general and administrative expenses 81,319 135,585 76,553 ---------- ------- ------- Operating income 76,007 2,016 33,288 Other income (expense): Interest expense (7,776) (8,350) (6,144) Equity in earnings (undistributed loss) of joint ventures 465 (219) 3,222 Other, net 2,260 (313) (28) ---------- ------- ------- Total other income (expense) (5,051) (8,882) (2,950) ---------- ------- ------- Income (loss) before income taxes 70,956 (6,866) 30,338 Provision (benefit) for income taxes 17,323 (453) 7,442 ---------- ------- ------- Net income (loss) $ 53,633 (6,413) 22,896 ========== ======= ======= Net income (loss) per share $ 1.78 (0.22) 0.81 ========== ======= ======= Weighted average number of shares and equivalent shares outstanding 30,084 28,910 28,233 ========== ======= =======
See accompanying notes to consolidated financial statements. F-4 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended November 30, 1997, 1996 and 1995 (In thousands)
FOREIGN COMMON STOCK ADDITIONAL COMMON CURRENCY ------------- PAID-IN STOCK TRANSLATION RETAINED SHARES AMOUNT CAPITAL WARRANTS ADJUSTMENTS EARNINGS TOTAL ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1994 27,840 $186 52,940 4 (424) 23,936 76,642 Net income - - - - - 22,896 22,896 Issuance of common stock 1,070 7 15,227 - - - 15,234 Foreign currency translation adjustment - - - - (3,477) - (3,477) ------ ---- ------ --- ------ ------ ------- Balance at November 30, 1995 28,910 193 68,167 4 (3,901) 46,832 111,295 Net loss - - - - - (6,413) (6,413) Foreign currency translation adjustment - - - - (619) - (619) ------ ---- ------ --- ------ ------ ------- Balance at November 30, 1996 28,910 193 68,167 4 (4,520) 40,419 104,263 Net income - - - - - 53,633 53,633 Common stock issued under stock option plans 166 2 2,167 - - - 2,169 Common stock issued for acquisition of minority interest 173 1 2,748 - - - 2,749 Three-for-two common stock split - 97 (97) - - - - Foreign currency translation adjustment - - - - (1,949) - (1,949) ------ ---- ------ --- ------ ------ ------- Balance at November 30, 1997 29,249 $293 72,985 4 (6,469) 94,052 160,865 ====== ==== ====== === ====== ====== =======
See accompanying notes to consolidated financial statements. F-5 CELLSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended November 30, 1997, 1996 and 1995 (In thousands)
1997 1996 1995 -------- ------- ------- Cash flows from operating activities: Net income (loss) $ 53,633 (6,413) 22,896 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Provision for doubtful accounts 4,239 32,561 5,954 Provision for inventory obsolescence 4,830 8,718 466 Depreciation and amortization 5,063 5,799 3,372 Gain on sale of assets - (128) - (Equity in earnings) undistributed loss of joint ventures (465) 219 (3,222) Deferred income taxes 1,754 (1,116) (1,823) Changes in operating assets and liabilities: Accounts receivable (50,408) (40,660) (76,496) Inventories (100,761) 6,067 (5,971) Prepaid expenses (1,148) 611 (1,480) Other assets 241 318 (1,708) Accounts payable 44,523 36,162 (5,166) Accrued expenses 2,624 3,361 3,056 Income taxes payable 9,192 (7,397) 3,495 -------- ------- ------- Net cash (used in) provided by operating activities (26,683) 38,102 (56,627) -------- ------- ------- Cash flows from investing activities: Purchases of property and equipment (6,212) (6,139) (12,284) Proceeds from sale of assets - 6,903 - Acquisition of minority interest (502) - - Purchases of equity investments in affiliated companies (3,412) - (750) -------- ------- ------- Net cash (used in) provided by investing activities (10,126) 764 (13,034) -------- ------- ------- Cash flows from financing activities: Net (payments) borrowings on notes payable to financial institutions (56,136) (42,467) 86,103 Proceeds from issuance of note payable to stockholder - - 3,728 Payments on notes payable to stockholders - - (22,000) Net proceeds from issuance of long-term debt 144,979 - 4,425 Principal payments on long-term debt (6,853) (611) (291) Net proceeds from issuance of common stock 2,169 - 15,234 -------- ------- ------- Net cash provided by (used in) financing activities 84,159 (43,078) 87,199 -------- ------- ------- Net increase (decrease) in cash and cash equivalents 47,350 (4,212) 17,538 Cash and cash equivalents at beginning of year 27,296 31,508 13,970 -------- ------- ------- Cash and cash equivalents at end of year $ 74,646 27,296 31,508 ======== ======= =======
See accompanying notes to consolidated financial statements. F-6 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business CellStar Corporation and subsidiaries (the "Company") is a leading global provider of wireless communications products, primarily handsets, with operations in the United States, the Asia-Pacific Region, the Latin American Region and the European Region. The Company is one of the world's largest non- carrier wholesale distributors of wireless phones for Motorola and Ericsson, and also distributes wireless phones for manufacturers such as Nokia, QUALCOMM, Sony and NEC. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation. (b) Inventories Inventories are stated at the lower of cost (primarily on a moving average basis) or market. (c) Property and Equipment Property and equipment are recorded at cost. Depreciation of equipment is provided over the estimated useful lives of the respective assets, which range from three to thirty years, on a straight-line basis. Leasehold improvements are amortized over the shorter of their useful lives or the related lease term. Major renewals are capitalized, while maintenance, repairs and minor renewals are expensed as incurred. (d) Preopening Costs Labor and certain other costs related to the opening of new retail locations are expensed as incurred. (e) Revenue Recognition For the Company's wholesale business, revenue is recognized when product is shipped. In accordance with contractual agreements with cellular service providers, the Company receives an activation commission for obtaining subscribers for cellular phone services in connection with the Company's retail operations. The agreements contain various provisions for additional commissions ("residual commissions") based upon subscriber usage. The agreements also provide for the reduction or elimination of activation commissions if subscribers deactivate service within stipulated periods. The Company recognizes revenue for activation commissions upon the cellular service providers' acceptance of subscriber contracts and residual commissions when earned and provides an allowance for estimated cellular service deactivations, which is reflected as a reduction of accounts receivable and activation income in the accompanying consolidated financial statements. (f) Foreign Currency Assets and liabilities of the Company's foreign subsidiaries have been translated at the rate of exchange at the end of each period. Revenues and expenses have been translated at the weighted average rate of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated as a separate component of stockholders' equity, except for subsidiaries located in countries whose economies are considered highly inflationary. In such cases, translation adjustments are included primarily in cost of sales in the accompanying consolidated statements of operations. Net transaction losses for the years ended November 30, 1997, 1996 and 1995 were $1.4 million, $1.8 million and $1.3 million, respectively. The currency exchange rates of the Latin American countries in which the Company conducts operations have historically been F-7 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) volatile. The Company manages the risk of foreign currency devaluation by attempting to increase prices of products sold at or above the anticipated rate of local currency devaluation relative to the U.S. dollar and by indexing certain of its receivables to exchange rates in effect at the time of their payment. (g) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) Net Income (Loss) Per Share Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Primary and fully diluted earnings per common and common equivalent share are essentially the same. (i) Statements of Cash Flows Information For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. The Company paid approximately $7.1 million, $8.7 million and $6.0 million of interest for the years ended November 30, 1997, 1996 and 1995, respectively. The Company paid approximately $6.4 million, $7.8 million and $4.0 million of income taxes for the years ended November 30, 1997, 1996 and 1995, respectively. (j) Equity Investments in Affiliated Companies The Company accounts for its investments in common stock of affiliated companies using the equity method. The investments are included in other assets in the accompanying consolidated balance sheets. (k) 401(k) Savings Plan The Company established a savings plan for employees in 1994. Employees are eligible to participate if they were full-time employees as of July 1, 1994 or upon completing ninety days of service. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. Under provisions of the plan, eligible employees are allowed to contribute as much as 15% of their compensation, up to the annual maximum allowed by the Internal Revenue Service. The Company may make a discretionary matching contribution based on the Company's profitability. In 1997, the Company made contributions of approximately $0.3 million to the plan. The Company did not make contributions to the plan in 1996 or 1995. (l) Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized using the straight-line method over 20 years. The Company assesses the net realizable value of these intangible assets by determining the estimated future cash flows related to such assets. In the event that these assets are found to be carried at amounts which are in excess of estimated future operating cash flows, then the intangible assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets. F-8 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (m) Use of Estimates Management of the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities in preparation of these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (n) Impairment of Long-Lived Assets On December 1, 1996, the Company adopted Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"). This statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Statement 121 also requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Adoption of this statement did not have a material impact on the Company's consolidated financial position, results of operations, or liquidity. (o) Stock Option Plans Prior to December 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25"), and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On December 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, Statement 123 also allows entities to continue to apply the provisions of Opinion 25 and provide pro forma net income and pro forma income per share disclosures for employee stock option grants made in 1996 and future years as if the fair-value-based method defined in Statement 123 had been applied. The Company has elected to continue to apply the provisions of Opinion 25 and provide the pro forma disclosure provisions of Statement 123. (2) RELATED PARTY TRANSACTIONS Motorola is a major supplier of cellular phones and accessories. Total purchases from Motorola approximated $1,057.2 million, $609.7 million and $420.2 million for the years ended November 30, 1997, 1996 and 1995, respectively. Included in accounts payable at November 30, 1997 and 1996 was approximately $109.2 million and $90.8 million, respectively, due to Motorola for purchases of inventory. In accordance with a stock purchase agreement dated July 20, 1995, Motorola purchased 1.0 million shares of restricted stock from the Company for $15.0 million. The proceeds were used to pay a portion of the $22.0 million note payable to the Chief Executive Officer issued in connection with the Company's acquisition of CellStar Asia (note 10). (3) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of current assets and liabilities as of November 30, 1997 and 1996, approximate fair value due to the short maturity of these instruments. The fair value of the Company's long-term debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities or from quoted market prices. F-9 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth the estimated fair values of the Company's long-term debt as of November 30, 1997 and 1996 (in thousands):
1997 1996 ---------------- -------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- ----- Long-term debt $150,000 122,250 6,285 6,285 ======== ======= ===== =====
(4) PROPERTY AND EQUIPMENT Property and equipment consisted of the following at November 30, 1997 and 1996 (in thousands):
1997 1996 -------- ------ Land and building $ 8,559 6,837 Furniture, fixtures and equipment 18,208 14,894 Jet aircraft 4,306 4,306 Leasehold improvements 2,936 1,688 -------- ------ 34,009 27,725 Less accumulated depreciation and amortization (11,132) (7,591) -------- ------ $ 22,877 20,134 ======== ====== (5) DEBT Notes payable to financial institutions consisted of the following at November 30, 1997 and 1996 (in thousands): 1997 1996 -------- ------ Multicurrency revolving credit facility $ - - U.S. revolving credit facility - 53,233 Brazilian credit facility - 2,903 -------- ------ $ - 56,136 ======== ======
On October 15, 1997, the Company entered into a new $135.0 million Multicurrency Revolving Credit Facility (the "Facility") with a syndicate of banks. The Facility has a term of approximately five years, replaces the Company's previous $90.0 million revolving credit facility and provides the ability to borrow up to $25.0 million in certain currencies that are customarily offered to banks in the London interbank market and are convertible into dollars in the international bank market. Fundings under the Facility are limited by an asset coverage test, which is measured quarterly. The Facility contains, among other provisions, covenants relating to the maintenance of minimum net worth and certain financial ratios, dividend payments, additional debt, mergers and acquisitions and dispositions of assets. At November 30, 1997, the Company had available all of the $135.0 million borrowing capacity. In October 1997, the U.S. Revolving Credit Facility was replaced by the Facility as the Company's primary working capital line of credit. The U.S. Revolving Credit Facility was retired with proceeds from the Company's 5% Convertible Subordinated Notes. The weighted average interest rate on short-term borrowings at November 30, 1996 was 9.57%. F-10 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Long-term debt consisted of the following at November 30, 1997 and 1996 (in thousands):
1997 1996 -------- ----- 5% Convertible Subordinated Notes $150,000 - Equipment loan - 2,723 Mortgage note payable - 4,130 -------- ----- 150,000 6,853 Less current portion - (568) -------- ----- $150,000 6,285 ======== =====
The Company's 5% Convertible Subordinated Notes Due October 15, 2002 (the "Notes") are convertible into 2.7 million shares of common stock at $55.335 per share at any time prior to maturity. Subsequent to October 18, 2000, the Notes are redeemable at the option of the Company, in whole or in part, initially at 102.0% and thereafter at prices declining to 100% at maturity, together with accrued interest. The Notes were initially issued pursuant to an exempt offering and were subsequently registered under the Securities Act, along with the common stock into which the Notes are convertible. The equipment loan and mortgage note payable were retired with proceeds from the Notes. (6) INCOME TAXES Provision (benefit) for income taxes for the years ended November 30, 1997, 1996 and 1995 consisted of the following (in thousands):
CURRENT DEFERRED TOTAL ------- -------- ------ Year ended November 30, 1997: United States: Federal $ 4,408 1,736 6,144 State 1,134 89 1,223 Latin America 2,570 (63) 2,507 Asia-Pacific 7,457 (8) 7,449 ------- ------ ------ $15,569 1,754 17,323 ======= ====== ====== Year ended November 30, 1996: United States: Federal $(4,682) (1,383) (6,065) State (366) (78) (444) Latin America 1,237 204 1,441 Asia-Pacific 4,474 141 4,615 ------- ------ ------ $ 663 (1,116) (453) ======= ====== ====== Year ended November 30, 1995: United States: Federal $ 4,793 (1,187) 3,606 State 575 (25) 550 Latin America 655 (450) 205 Asia-Pacific 3,242 (161) 3,081 ------- ------ ------ $ 9,265 (1,823) 7,442 ======= ====== ======
F-11 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Provision (benefit) for income taxes differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to pretax income as a result of the following (in thousands):
1997 1996 1995 ------- ------ ------ Expected tax expense (benefit) $24,835 (2,403) 10,618 Foreign and U.S. tax effects attributable to foreign operations (7,022) 2,658 (2,630) State income taxes, net of Federal benefit 795 (289) 358 Equity in earnings (undistributed loss) of joint ventures (163) 77 (1,128) Other, net (1,122) (496) 224 ------- ------ ------ Actual tax expense (benefit) $17,323 (453) 7,442 ======= ====== ======
The tax effect of temporary differences underlying significant portions of deferred income tax assets at November 30, 1997 and 1996, is presented below (in thousands):
1997 1996 ------- ------ Deferred income tax assets: United States: Allowance for doubtful accounts $ 2,845 2,734 Inventory adjustments for tax purposes 755 2,265 Other, net (1,323) (897) Asia-Pacific: Allowance for doubtful accounts 28 20 Latin America: Other, net 152 152 ------- ------ $ 2,457 4,274 ======= ====== Deferred income tax liabilities: Latin America: Other, net $(1,043) (1,106) ======= ======
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred income tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. F-12 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company does not provide for Federal income taxes or tax benefits on the undistributed earnings and/or losses of its international subsidiaries because earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely. At November 30, 1997, the Company had not provided Federal income taxes on earnings of international subsidiaries of approximately $62.1 million. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and certain withholding taxes in the various international jurisdictions. Determination of the related amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with this hypothetical calculation. Because many types of transactions are susceptible to varying interpretations under foreign and domestic income tax laws and regulations, the amounts recorded in the accompanying consolidated financial statements may be subject to change upon final determination by the respective taxing authorities. Management believes it has provided an adequate tax provision. (7) LEASES The Company leases certain retail stores, office facilities and equipment under operating leases which range from two to ninety-nine years and which generally contain renewal options. Rental expense for operating leases was approximately $4.3 million, $4.3 million and $3.1 million for the years ended November 30, 1997, 1996 and 1995, respectively. Future minimum lease payments under operating leases as of November 30, 1997 are as follows (in thousands):
YEAR ENDING NOVEMBER AMOUNT 30, ------- 1998 $ 3,786 1999 2,990 2000 2,074 2001 609 2002 404 Thereafter 1,415 ------- $11,278 =======
(8) CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMER INFORMATION Pacific Bell Mobile Services accounted for 12.0%, or $178.2 million, of total revenues for the year ended November 30, 1997. CellStar Asia accounted for 11.1%, or $90.2 million, of total revenues for the year ended November 30, 1995, prior to it becoming a wholly-owned subsidiary of the Company. No other customer accounted for 10% or more of total revenues in any of the years ended November 30, 1997, 1996 or 1995. F-13 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (9) GEOGRAPHIC AREA INFORMATION The Company operates predominantly within one business segment, wholesale and retail sales of wireless communications products. Financial information by geographic area as of and for the years ended November 30, 1997, 1996 and 1995, is as follows (in thousands):
UNITED ASIA- LATIN STATES PACIFIC AMERICA EUROPE CORPORATE TOTAL -------- ------- ------- ------ --------- --------- November 30, 1997: Total revenues, net of intercompany amounts $866,866 422,751 124,055 69,142 - 1,482,814 Intercompany sales (purchases) 64,032 4,937 (69,340) 371 - - Operating income (loss) 43,796 44,535 2,627 (145) (14,806) 76,007 Identifiable assets 309,701 120,728 51,244 15,438 - 497,111 November 30, 1996: Total revenues, net of intercompany amounts $568,744 248,493 119,796 10,568 - 947,601 Intercompany sales (purchases) 38,802 (2,121) (36,676) (5) - - Operating income (loss) 537 20,808 (4,305) (379) (14,645) 2,016 Identifiable assets 159,993 82,024 44,382 12,152 - 298,551 November 30, 1995: Total revenues, net of intercompany amounts $478,177 183,274 150,464 - - 811,915 Intercompany sales (purchases) 103,332 (32,564) (70,768) - - - Operating income (loss) 23,176 16,995 4,291 - (11,174) 33,288 Identifiable assets 149,320 93,441 72,160 - - 314,921
(10) ACQUISITIONS (a) Purchase of CellStar Asia In October 1993, the Company purchased a 50% ownership interest in a newly- formed company, CellStar Asia, for approximately $0.2 million. On June 2, 1995, the Company's Chief Executive Officer acquired the remaining 50% interest in CellStar Asia for cash of $1.0 million and 1.5 million shares of restricted common stock with a fair value of $21.0 million. Simultaneously, the Chief Executive Officer then transferred this ownership interest in CellStar Asia to the Company in exchange for a note payable of $22.0 million, giving the Company 100% ownership in CellStar Asia. The acquisition of the remaining 50% interest in CellStar Asia was accounted for as a purchase and the results of operations of CellStar Asia have been included in the consolidated financial statements from the date of acquisition. The Company's 50% equity interest in the operations of CellStar Asia, prior to the date of acquisition, is included in equity in earnings of joint ventures. Goodwill of $17.5 million is being amortized on a straight-line basis over 20 years. The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisition of CellStar Asia had occurred on December 1, 1994, with pro forma adjustments to give effect to the elimination of sales by the Company to CellStar Asia, amortization of goodwill, interest expense on acquisition debt, and certain other adjustments at November 30, 1995 (in thousands, except per share amounts):
1995 -------- Revenues $806,648 Net income 24,913 Net income per share 1.32
F-14 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Prior to the acquisition, the Company's sales to CellStar Asia were $90.2 million in 1995. Gross profit recognized by the Company on these sales was $3.6 million in 1995. (b) Acquisition of Minority Interest in CellStar Pacific On February 1, 1995, the Company entered into a joint venture agreement with Leap International PTE LTD. ("Leap"), a Singapore company, and A. S. Horng ("Mr. Horng"), an individual who was also the Company's joint venture partner in CellStar Asia. Under the terms of the joint venture agreement, the parties formed CellStar Pacific PTE LTD ("CellStar Pacific"), a Singapore company, which was owned 75% by the Company, 20% by Leap and 5% by Mr. Horng. The Company's initial investment was $0.2 million. An additional 5% of CellStar Pacific was purchased by the Company in fiscal 1995. On May 30, 1997, the Company acquired the remaining 20% minority interest of CellStar Pacific, which conducts operations in Singapore, The Philippines, and Malaysia, for common stock valued at $2.7 million and $0.5 million in cash. (11) STOCKHOLDERS' EQUITY (a) Common Stock Warrants and Options In December 1993, the Company issued warrants for 660,000 shares of its common stock. The warrants are exercisable at $9.20 per share, subject to adjustment in certain events, and expire in December 1998. The Company has a stock option plan ("the Plan") covering 3.1 million shares of common stock of the Company. Options under the Plan expire ten years from the date of grant unless earlier terminated due to the death, disability, retirement or other termination of service of the optionee. Options, other than options granted to the Company's Chief Executive Officer, have vesting schedules ranging from 100% on the first anniversary of the date of grant to vesting 25% per year commencing on the first anniversary of the date of grant. The exercise price is equal to the fair market value of the common stock on the date of grant. The Company also has a stock option plan for non-employee directors (the "Directors' Option Plan"). The Directors' Option Plan provides that each non- employee director of the Company as of the date the Directors' Option Plan was adopted and each person who thereafter becomes a non-employee director will automatically be granted an option to purchase 2,500 shares of common stock. The exercise price is equal to the fair market value of the common stock on the date of grant. A total of 75,000 shares of common stock is authorized for issuance pursuant to the Directors' Option Plan. Each option granted under the Directors' Option Plan will become exercisable six months after its date of grant and will expire ten years from the date of grant unless earlier terminated due to the death, disability, retirement or other termination of service of the optionee. The per share weighted-average fair value of stock options granted during 1997 and 1996 was $14.498 and $6.861, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:
1997 1996 ---- ---- Dividend yield 0.0% 0.0% Volatility 77.0% 77.0% Risk-free interest rate 6.0% 5.2% Expected term of options (in years) 3.7 2.6
F-15 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company applies Opinion 25 in accounting for its plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement 123, the Company's net income (loss) would have been the pro forma amounts indicated below (in thousands):
1997 1996 ------- ------ Net income (loss) As reported $53,633 (6,413) Pro forma 51,380 (8,068)
Pro forma net income (loss) reflects only options granted after November 30, 1995. Therefore, the full impact of calculating compensation cost for stock options under Statement 123 is not reflected in the pro forma net income (loss) amounts presented above because compensation cost is reflected over the options' vesting period of four years and compensation cost for options granted prior to December 1, 1995 is not considered. Stock option activity during the periods indicated is as follows:
1997 1996 1995 ------------------- ------------------- ------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF SHARES PRICES OF SHARES PRICES OF SHARES PRICES --------- --------- --------- --------- --------- --------- Granted 1,224,250 $24.999 707,501 $13.888 897,900 $12.378 Exercised 167,203 $12.968 - - 25,687 $8.360 Forfeited 81,250 $13.977 606,636 $12.698 20,625 $11.061 Outstanding, end of year 2,067,005 $19.930 1,091,208 $12.733 990,343 $11.887 Exercisable, end of year 596,438 $12.749 270,704 $13.981 14,625 $8.950 Reserved for future grants under the Plan 833,855 Reserved for future grants under the Directors' Option Plan 56,250
For options outstanding and exercisable as of November 30, 1997, the exercise prices and remaining lives were:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICES EXERCISABLE PRICES - --------------- ----------- --------------- --------- ----------- --------- $4.333-7.667 110,628 8.1 $ 6.814 30,937 $ 6.434 $11.250-17.709 1,483,877 7.8 $13.191 565,501 $13.095 $29.938-39.750 72,500 9.8 $34.733 - - $45.875 400,000 9.9 $45.875 - - --------- --- ------- ------- ------- 2,067,005 8.2 $19.930 596,438 $12.749 ========= === ======= ======= =======
(b) Stockholder Rights Plan The Company adopted a Stockholder Rights Plan, which provides that the holders of the Company's common stock receive two-thirds of a right ("Right") for each share of the Company's common stock they F-16 CELLSTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) own. Each Right entitles the holder to buy one one-thousandth of a share of Series A Preferred Stock, par value $.01 per share, at a purchase price of $80.00 per one one-thousandth of a share, subject to adjustment. The Rights are not currently exercisable, but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 15% or more of the outstanding shares of common stock of the Company. Under those circumstances, the holders of Rights would be entitled to buy shares of the Company's common stock or stock of an acquiror of the Company at a 50% discount. The Rights expire on January 9, 2007, unless earlier redeemed by the Company. (c) 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, net income (loss) per share and common stock amounts have been retroactively adjusted for the stock split. (12) COMMITMENTS AND CONTINGENCIES (a) Litigation During the period from May 14, 1996 through July 22, 1996, four separate purported class action lawsuits were filed in the United States District Court, Northern District of Texas, Dallas Division against the Company; certain of the Company's current and former officers, directors and employees; and the Company's independent auditors. The four lawsuits have been consolidated, and the State of Wisconsin Investment Board has been appointed as lead plaintiff in the consolidated action. A Consolidated Amended Complaint has been filed, which asserts claims for violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder, violations of Section 20(a) of the Exchange Act, state statutory fraud, common law fraud, negligent misrepresentation and breach of fiduciary duty. The Consolidated Amended Complaint alleges that the defendants made untrue statements of material fact and/or omitted to state material facts about the business, financial condition, performance and future prospects of the Company and that, as a result of such statements or omissions, the value of the Company's common stock was artificially inflated. Plaintiffs seek compensatory damages, exemplary damages and costs and expenses, including attorneys' fees and expert fees. All defendants have filed motions to dismiss all claims asserted in the Consolidated Amended Complaint. The motions are pending. The Company believes it has meritorious defenses to these claims and is vigorously defending this action. The ultimate outcome is not currently predictable. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. (b) Financial Guarantee The Company has guaranteed up to RM6.37 million (Malaysian ringgits), $1.8 million as of November 30, 1997, for bank borrowings of its Malaysian joint venture. F-17 CELLSTAR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA (UNAUDITED) (In thousands, except per share data)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- ------- ------- ------- 1997 Total revenues $256,645 377,562 442,106 406,501 Gross profit 31,851 40,646 43,916 40,913 Net income 5,982 14,209 16,170 17,272 Net income per share 0.20 0.48 0.53 0.57 1996 Total revenues $204,975 225,571 223,590 293,465 Gross profit 32,005 29,628 30,792 45,176 Net income (loss) 738 (3,052) (12,331) 8,232 Net income (loss) per share 0.03 (0.11) (0.43) 0.29
F-18 SCHEDULE II CELLSTAR CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In thousands)
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS, BALANCE AT BEGINNING COSTS AND ACTIVATION NET OF END OF OF PERIOD EXPENSES INCOME(A) RECOVERIES PERIOD ---------- ---------- ---------- ----------- ---------- Allowance for doubtful accounts: November 30, 1997 $29,023 3,131 1,108 (9,405) 23,857 November 30, 1996 3,738 27,951 4,610 (7,276) 29,023 November 30, 1995 2,889 1,839 4,115 (5,105) 3,738 Reserve for inventory obsolescence: November 30, 1997 $ 8,322 4,830 - (10,357) 2,795 November 30, 1996 804 8,718 - (1,200) 8,322 November 30, 1995 2,741 466 - (2,403) 804
(a) The Company, under agent agreements in connection with its retail operations, earns activation commissions from cellular service providers upon engaging subscribers for cellular phone services. The agent agreements also provide for the reduction or elimination of activation commissions if the subscribers deactivate service within a stipulated period. The Company provides an allowance for estimated cellular deactivations to activation income. S-1 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.(14) 4.1 The Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed in response to items 3.1 and 3.2 are incorporated in this item by reference.(1)(14) 4.2 Specimen Common Stock Certificate of CellStar Corporation.(2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement").(3) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997.(4) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation")(3) 4.6 Form of Rights Certificate.(3) 4.7 Certificate of Correction of Certificate of Designation.(4) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and The Bank of New York, as Trustee(13) 10.1 Employment Agreement, effective as of December 1, 1994, by and between CellStar Corporation and Alan H. Goldfield.(2)(15) 10.2 Employment Agreement, effective as of May 24, 1996, by and between CellStar, Ltd., CellStar Corporation and Richard M. Gozia.(5)(15) 10.3 Employment Agreement by and between CellStar, Ltd., CellStar Corporation and Mark Q. Huggins, effective as of January 15, 1997.(6)(15) 10.4 Employment Agreement, effective January 22, 1998, by and between CellStar (Asia) Corporation Limited, CellStar Corporation and Hong An- Hsien.(14)(15) 10.5 Agreement by and between Motorola Inc., by and through its Pan American Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1997 (United States).(7)(16) 10.6 Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd., effective September 20, 1996.(6)(16) 10.7 Agreement by and between National Auto Center, Inc. and the Pan American Cellular Subscriber Division of Motorola Inc., dated as of January 1, 1995 (Latin American and Caribbean Territory).(8) 10.8 Lease by and between Alan H. Goldfield and National Auto Center, Inc. regarding 605 West Airport Freeway, Irving, Texas.(10)(15) 10.9 Exclusive Cellular Subagent Agreement by and between National Auto Center and Alan H. Goldfield d/b/a National Tape.(10)(15) 10.10 Registration Rights Agreement by and between the Company and Audiovox Corporation.(10) 10.11 Form of Warrant for the purchase of shares of common stock to be issued to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc.(10) 10.12 Stock Purchase Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995.(1) 10.13 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995.(1) 10.14 Credit Agreement, dated as of October 15, 1997, among CellStar Corporation, each of the banks or other lending institutions signatory thereto, The First National Bank of Chicago and National City Bank, as co-agents, and Texas Commerce Bank National Association, as agent.(14) 10.15 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan. (14)(15) 10.16 CellStar Corporation Amended and Restated Annual Incentive Compensation Plan. (6)(15) 10.17 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan. (11) 10.18 Registration Rights Agreement, dated as of June 2, 1995, between Hong An Hsien and CellStar Corporation. (14)(15)
EXHIBIT NO. DESCRIPTION ------- ----------- 10.19 Registration Rights Agreement, entered into as of May 30, 1997, between Leap International PTE LTD and CellStar Corporation(12) 10.20 Purchase Agreement, dated October 7, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc. (13) 10.21 Registration Rights Agreement, dated as of October 14, 1997, by and among CellStar Corporation and Bear, Stearns & Co. Inc. and Chase Securities Inc. (13) 10.22 Agreement, dated as of April 28, 1995, by and between CellStar, Ltd. and Motorola, Inc., Greater China Cellular Subscriber Division (People's Republic of China). (9) 21.1 Subsidiaries of the Company. (14) 23.1 Consent of KPMG Peat Marwick LLP. (14) 27 Financial Data Schedule (14) 99.1 Shareholders Agreement by Alan H. Goldfield to Motorola Inc., dated as of July 20, 1995. (1)
- -------- (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1996, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1997, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1994, and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1 and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997, and incorporated herein by reference. (13) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (14) Filed herewith. (15) The exhibit is a management contract or compensatory plan or arrangement. (16) Certain provisions of this exhibit are subject to a request for confidential treatment filed with the Securities and Exchange Commission. EX-3.2 2 BYLAWS OF CELLSTAR Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF CELLSTAR CORPORATION (as effective September 22, 1997) ARTICLE I - OFFICES ------------------- SECTION ONE. REGISTERED OFFICE. The registered office of the corporation ----------- ----------------- shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the registered agent in charge thereof is The Corporation Trust Company. SECTION TWO. OTHER OFFICES. In addition to its registered office in the ----------- ------------- State of Delaware, the corporation may have an office or offices both within and without the State of Delaware at such places as shall be determined from time to time by the Board of Directors or as the business of the corporation may require. ARTICLE II - MEETINGS OF STOCKHOLDERS ------------------------------------- SECTION ONE. PLACE OF MEETINGS. All meetings of the stockholders for the ----------- ----------------- election of Directors shall be held in the City of Carrollton, County of Dallas, State of Texas, at such place as may be fixed from time to time by the Board of Directors, or at such other place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of the stockholders for any other purpose may be held at such time and place, either within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION TWO. ANNUAL MEETINGS. The annual meeting of the stockholders of the ----------- --------------- corporation for the purpose of electing directors and transacting such other business as properly may be brought before the meeting shall be held on such date and at such time and place, either within or without the State of Delaware, as shall be designated by the Board of Directors and stated in the notice of the meeting. SECTION THREE. SPECIAL MEETINGS. Special meetings of the stockholders, for ------------- ---------------- any purpose or purposes, unless otherwise prescribed by statute, shall be called as provided in the Amended and Restated Certificate of Incorporation. SECTION FOUR. NOTICE OF MEETINGS. Notice of the date, hour, place and ------------ ------------------ purposes of every meeting of the stockholders shall be delivered personally or mailed not less than ten (10) days nor more than sixty (60) days previous thereto, to each stockholder of record then entitled to vote who shall have furnished a written address to the Secretary of the corporation for that purpose. Such further notice shall be given as may be required by law or the Amended and Restated Certificate of Incorporation. Business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice. Meetings may be held without notice if all stockholders then entitled to vote are present or represented thereat, or if notice is waived by those not present or represented. SECTION FIVE. QUORUM AND ADJOURNMENT OF MEETINGS. ------------ ---------------------------------- (A) The holders of record of a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of the business except as otherwise provided by law, by the Amended and Restated Certificate of Incorporation or by these Amended and Restated Bylaws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person, or represented by proxy, shall have power to adjourn the meeting, from time to time, by majority vote of those present, without notice other than announcement at the meeting, until the requisite number of shares of stock then entitled to vote shall be present. At such adjourned meeting at which such requisite number of shares of stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. (B) The number of shares required to constitute a quorum, as set forth above, may not be reduced to less than a majority of the shares issued and outstanding without approval of the stockholders. SECTION SIX. VOTING; PROXY. Each outstanding share of the corporation's ----------- ------------- capital stock will be entitled to one vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of the shares of any class or series are increased, limited or denied by the Amended and Restated Certificate of Incorporation. At each meeting of the stockholders, every stockholder then having the right to vote at such meeting shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three (3) years prior to such meeting, unless said instrument provides for a longer period. No shares of stock of the corporation may be voted by proxy at any stockholder meeting by any person unless, prior to or at the time of the commencing of the meeting or reconvening of any adjournment thereof, such proxy shall have been filed with the Secretary of the corporation. A duly executed proxy shall be irrevocable if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot, except as otherwise provided in the Amended and Restated Certificate of Incorporation or as may be required by law. When a quorum is present at any meeting, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall decide any questions brought before such meeting, unless the question is one upon which, by express provision of statute or of the Amended and Restated Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decisions of such questions. There shall be no cumulative voting. SECTION SEVEN. ELECTION OF DIRECTORS. Directors shall be nominated and ------------- --------------------- elected as provided in the Amended and Restated Certificate of Incorporation and shall be elected by a 2 plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. SECTION EIGHT. STOCKHOLDERS LIST. It shall be the duty of the officer who ------------- ----------------- shall have charge of the stock ledger to prepare or make, at least ten (10) days before every election, a complete list of stockholders entitled to vote, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open for said ten (10) days to the examination of any stockholder during the usual hours for business and shall be produced and kept either at a place within the city where the meeting is to be held that is specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list of stockholders shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION NINE. INSPECTORS OF ELECTION. The corporation, in advance of each ------------ ---------------------- meeting of stockholders, shall appoint one (1) or more inspectors of election to assist the Secretary of the corporation in the conduct of elections at such meeting. If any inspector of election shall for any reason fail to attend and to act at such meeting, an inspector of election may be appointed by the chairman of the meeting. SECTION TEN. ORDER OF BUSINESS. At each meeting of the stockholders, one of ----------- ----------------- the following persons, in the order in which they are listed (and in the absence of the first, the next, and so on), shall serve as chairman of the meeting: Chairman of the Board, President, Vice Presidents (in the order of their seniority if more than one) and Secretary. The order of business at each such meeting shall be as determined by the chairman of the meeting. Except as may be limited by law or the Amended and Restated Certificate of Incorporation, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls. ARTICLE III - BOARD OF DIRECTORS -------------------------------- SECTION ONE. BOARD OF DIRECTORS. The business and affairs of the ----------- ------------------ corporation shall be managed by a Board of Directors. The Board of Directors may exercise all such powers of the corporation and do all such lawful acts and things on its behalf as are not by statute or by the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws directed or required to be exercised or done by stockholders. The Board of Directors may adopt such rules and regulations not inconsistent with the provisions of law, the Amended and Restated Certificate of Incorporation of the corporation, or these Amended and Restated Bylaws for the 3 conduct of its meetings and management of the affairs of the corporation as the Board may deem proper. SECTION TWO. NUMBER; ELECTION; TENURE AND CLASSIFICATION. The number of ----------- ------------------------------------------- directors constituting the Board shall be as determined pursuant to the Amended and Restated Certificate of Incorporation. Directors need not be stockholders. They shall be elected as provided in the Amended and Restated Certificate of Incorporation, and shall serve until their respective successors shall be elected and qualified or until their earlier resignation or removal. SECTION THREE. MEETINGS. Meetings of the Board of Directors shall be held ------------- -------- at such place, within or without the State of Delaware, as may from time to time be fixed by resolution of the Board of Directors or may be specified in the call of any meeting. Regular meetings of the Board of Directors shall be held at such times and at such places as may from time to time be fixed by resolution of the Board of Directors, and no notice of such regular meetings need be given. Special meetings may be held at any time upon the call of the Chairman of the Board, the Presi dent or of three (3) directors, by oral, telegraphic or written notice, duly delivered, sent or mailed to each director not less than three (3) days before such meeting. A meeting of the Board of Directors may be held, without notice, immediately after the annual meeting of the stockholders, at the same place at which such meeting was held. Meetings may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in writing. SECTION FOUR. QUORUM; VOTING. A quorum for the transaction of business at ------------ -------------- all meetings of the Board of Directors shall consist of a majority of the directors then in office. If, however, such quorum shall not be present, the directors present shall have power to adjourn the meeting, from time to time, by majority vote, without notice other than announcement at the meeting, until the requisite number of directors shall be present. The act of the majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws. SECTION FIVE. VACANCIES. Vacancies on the Board of Directors shall be ------------ --------- filled in accordance with the provisions of the Amended and Restated Certificate of Incorporation. SECTION SIX. RESIGNATION AND REMOVAL. A director may resign at any time by ----------- ----------------------- giving written notice to the Board of Directors or to the President of the corporation. Such resignation shall take effect upon receipt thereof by the Board of Directors or by the President, unless otherwise specified therein. Removal of directors shall be governed by the provisions of the Amended and Restated Certificate of Incorporation. SECTION SEVEN. COMPENSATION. Each director shall receive for services ------------- ------------ rendered as a director of the corporation such compensation and reimbursements as may be fixed by the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 4 SECTION EIGHT. TELEPHONIC MEETINGS OF BOARD OF DIRECTORS. The Board of ------------- ----------------------------------------- Directors may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at such meeting. SECTION NINE. ACTION WITHOUT MEETING. Unless otherwise restricted by the ------------ ---------------------- Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or committee. ARTICLE IV - COMMITTEES ----------------------- SECTION ONE. COMPENSATION COMMITTEE. ----------- ---------------------- (A) There may be a Compensation Committee of the Board of Directors consisting of two (2) or more directors of the corporation designated by resolution passed by a majority of the entire Board of Directors. Members of the Compensation Committee shall have such powers as shall be conferred or authorized by the resolution establishing such Committee and shall hold office during their terms as directors; provided that the Board of Directors shall have the power at any time to remove any of the members thereof and to appoint other directors in lieu of the persons so removed. The Board of Directors shall also designate the Chairman of the Compensation Committee. (B) All action of the Compensation Committee shall be reported to the Board of Directors at its meeting next succeeding such action. Regular minutes of the proceedings of the Compensation Committee shall be kept in a book provided for that purpose. Vacancies in the Compensation Committee shall be filled by the Board of Directors. (C) A majority of the Compensation Committee shall be necessary to constitute a quorum, and, in every case, an affirmative vote of a majority of the members shall be necessary for the passage of any resolution. It shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board of Directors, and it shall also meet at the call of the chairman or of any two (2) members of the Compensation Committee. If the Compensation Committee fails to fix its own rules, the provisions in these Amended and Restated Bylaws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply. 5 SECTION TWO. AUDIT COMMITTEE. ----------- --------------- (A) There may be an Audit Committee of the Board of Directors consisting of two (2) or more directors, a majority of the members of which shall be "independent" (as that term is defined by the National Association of Securities Dealers, Inc. for listing on The Nasdaq National Market) designated by resolution passed by a majority of the entire Board of Directors. Members of the Audit Committee shall hold office during their terms as directors, provided the Board of Directors shall have the power at any time to remove any of the members thereof and to appoint other independent directors in lieu of the persons so removed. The Board of Directors shall also designate the chairman of the Audit Committee. The Audit Committee shall review the scope of the independent auditors' examinations of the corporation's financial statements and receive and review their reports. The Audit Committee shall also meet with the independent auditors, receive recommendations or suggestions for changes in accounting procedures and initiate and supervise any special investigations it may choose to undertake. (B) All action of the Audit Committee shall be reported to the Board of Directors at its meeting next succeeding such action and shall be subject to revision and alteration by the Board of Directors, provided that no rights of third parties shall be affected by any such provision or alteration. Regular minutes of the proceedings of the Audit Committee shall be kept in a book provided for that purpose. Vacancies in the Audit Committee shall be filled by the Board of Directors. (C) A majority of the members of the Audit Committee shall be necessary to constitute a quorum, and, in every case, an affirmative vote of a majority of the members shall be necessary for the passage of any resolution. It shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board of Directors, and it shall also meet at the call of the chairman or of any two (2) members of the Audit Committee. If the Audit Committee fails to fix its own rules, the provisions in these Amended and Restated Bylaws, pertaining to the calling of meetings and conduct of business by the Board of Directors, shall apply as nearly as may be. SECTION THREE. DESIGNATION AND POWERS OF OTHER COMMITTEES. The Board of ------------- ------------------------------------------ Directors may, in its discretion, by the affirmative vote of a majority of the entire Board of Directors, appoint such other committees of two or more directors which shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them. A majority of any such committee, if the committee be composed of more than two members, may determine its action and fix the time and place of its meetings unless the Board of Directors shall otherwise provide. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, or to discharge any such committees. SECTION FOUR. PROCEDURE; MEETINGS; QUORUM. Regular meetings of any ------------ --------------------------- committee of the Board of Directors, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof. Special meetings of any committee of the Board shall be called at the request of any member 6 thereof. Notice of each special meeting of any committee of the Board shall be sent by mail, telegraph or telephone, or be delivered personally to each member thereof not later than the day before the day on which the meeting is to be held, but notice need not be given to any member who shall, either before or after the meeting, submit a signed waiver of such notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of such notice to such member. Any special meeting of any committee of the Board shall be a legal meeting without any notice thereof having been given, if all the members thereof shall be present thereat. Notice of any adjourned meeting of any committee of the Board need not be given. Any committee of the Board may adopt such rules and regulations not inconsistent with the provisions of law, the Amended and Restated Certificate of Incorporation of the corporation or these Amended and Restated Bylaws for the conduct of its meetings as such committee may deem proper. A majority of a committee of the Board shall constitute a quorum for the transaction of business at any meeting, and the vote of a majority of the members thereof present at any meeting at which a quorum is present shall be the act of such committee. In the absence or disqualification of a member, the remaining members, whether or not a quorum, may fill a vacancy. Each committee of the Board of Directors shall keep written minutes of its proceedings, a copy of which is to be filed with the secretary of the corporation, and shall report on such proceedings to the Board. ARTICLE V - OFFICERS -------------------- SECTION ONE. EXECUTIVE OFFICERS. The Board of Directors, at its first ----------- ------------------ meeting after each annual meeting of stockholders, shall choose a Chairman of the Board and shall choose a President who shall be a member of the Board of Directors, and one or more Vice Presidents, a Chief Financial Officer, a Secretary, a Treasurer and such other officers as it shall deem necessary, who need not be members of the Board of Directors. Any two or more offices may be held by the same person. SECTION TWO. OTHER OFFICERS AND AGENTS. The Board of Directors may, by ------------ ------------------------- resolution, at any time, appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such offices as shall be determined from time to time by the Board of Directors. To the extent it deems advisable and in the best interests of the corporation, the Board of Directors may, by resolution, at any time, delegate the authority granted by this Section to the Chairman of the Board, Chief Executive Officer and President of the Company, subject to ratification by the Board of Directors. SECTION THREE. TENURE; RESIGNATION; REMOVAL AND VACANCIES. The officers of ------------- -------------------------------- --------- the corporation shall hold office until their death, their successors are elected and qualify in their stead or until their resignation or removal, whichever shall first occur; provided, however, that if the term of office of any officer elected or appointed pursuant to Section Two of this Article V shall have been fixed by the Board of Directors, he shall cease to hold such office not later than the date of expiration of such term regardless of whether any other person shall have been elected or appointed to succeed him. Any officer or agent elected or appointed by the Board 7 of Directors may be removed at any time, with or without cause, by the affirmative vote of the majority of the entire Board of Directors; provided, however, that any such removal shall be without prejudice to the rights, if any, of the officer so employed under any employment contract or other agreement with the corporation. An officer may resign at any time upon written notice to the Board of Directors. If the office of any officer becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the Board of Directors may choose a successor or successors to hold such office for such term as may be specified by the Board of Directors. SECTION FOUR. COMPENSATION. The salaries of all executive officers of the ------------ ------------ corporation shall be fixed by the Compensation Committee of the Board of Directors unless overruled by the action of the Board of Directors. To the extent it deems advisable and in the best interests of the corporation, the Board of Directors may, by resolution, at any time, delegate the authority granted by this Section to the Chairman of the Board, Chief Executive Officer and President of the Corporation, subject to ratification by the Board of Directors or the Company Committee. SECTION FIVE. AUTHORITY AND DUTIES. All officers as between themselves and ------------ -------------------- the corporation, shall have such authority and perform such duties in the management of the corporation as may be provided in these Amended and Restated Bylaws. In addition to the powers and duties hereinafter specifically prescribed for the respective officers, the Board of Directors may from time to time impose or confer upon any of the officers such additional duties and powers as the Board of Directors may see fit, and the Board of Directors may from time to time impose or confer any or all of the duties and powers hereinafter specifically prescribed for any officer upon any other officer or officers. SECTION SIX. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside ----------- --------------------- at all meetings of the stockholders and of the Board of Directors at which he is present. Except where by law the signature of the President is required, the Chairman of the Board shall possess the same power as the President to sign all certificates, contracts and other instruments of the corporation. The Chairman of the Board shall have such other powers and perform such other duties as from time to time may be conferred or imposed upon him by the Board of Directors. SECTION SEVEN. PRESIDENT. The President of the corporation shall be the ------------- --------- chief administrative officer of the corporation and, subject to the control of the Board of Directors and the Chief Executive Officer, will supervise and control all of the business and affairs of the corporation and, in connection therewith, shall be authorized to delegate to other officers of the corporation such of his powers and duties as the President at such times and in such manner as he may deem to be advisable. He shall possess power to sign all certificates, contracts and other instruments of the corporation. He shall, in the absence of the Chairman of the Board, preside at all meetings of the stockholders and of the Board of Directors. He shall perform all such other duties as are incident to his office or are properly required of him by the Board of Directors. He shall vote, in the name of the corporation, stock or securities in other corporations or associations 8 held by the corporation, unless another officer is designated by the Board of Directors for the purpose. He shall from time to time report to the Board of Directors all matters within his knowledge which the interest of the corporation may require to be brought to their notice, and shall also perform such other duties as may be assigned to him from time to time by the Board of Directors. SECTION EIGHT. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the ------------- ----------------------- corporation shall have, subject only to the Board of Directors, general and active management and supervision of the business and affairs of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall have all powers and duties or supervision and management usually vested in the general manager of a corporation, including the supervision and direction of all other officers of the corporation and the power to appoint and discharge agents and employees. SECTION NINE. CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the ------------ ----------------------- corporation shall assist the President in the general control and management of the business affairs of the corporation and shall have such other authority and responsibilities and perform such other duties as the President shall delegate or as the President or the Board of Directors shall assign to him. When specifically authorized by action of the Board of Directors, he shall possess power to sign all certificates, contracts and other instruments of the corporation. He shall from time to time report to the Board of Directors all matters within his knowledge which the interest of the corporation may require to be brought to their notice. SECTION TEN. VICE PRESIDENTS. When specifically authorized by action of the ------------ --------------- Board of Directors, each Vice President shall possess power to sign all certificates, contracts and other instruments of the corporation, and shall have such other authority and perform such other duties as may be assigned to them from time to time by the Board of Directors or as may be designated by these Amended and Restated Bylaws, the Chairman of the Board or the President. SECTION ELEVEN. CORPORATE SECRETARY. -------------- ------------------- (A) The Corporate Secretary (hereinafter called the ("Secretary") shall attend all meetings of the Board of Directors and stockholders and act as secretary thereof, and shall record all votes and the minutes of all proceedings in a book for that purpose belonging to the corporation to be kept in his custody and shall perform like duties for all committees of the Board of Directors. He shall give or cause to be given notice of all meetings of the stockholders and of the directors. He shall keep in safe custody the seal of the corporation and shall in general perform all of the duties incident to the office of Secretary, subject to the control of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board or the President. (B) The Secretary shall act as transfer agent of the corporation and/or registrar of its capital stock, with the usual duties pertaining thereto; provided, however, that the Board of Directors 9 may, by resolution, as to any class of its capital stock appoint one or more persons one or more persons or corporations as transfer agents and/or registrars in his stead. (C) Each Assistant Secretary shall have the powers of the Secretary subject to the direction of the Chairman of the Board, the President, the Secretary or the Board of Directors. SECTION TWELVE. TREASURER. -------------- --------- (A) The Treasurer shall have custody of all funds and securities of the corporation which may come into his hands. He may endorse, on behalf of the corporation, for collection, checks, notes and other obligations, and shall deposit the same to the credit of the corporation in such banks or depositories as the Board of Directors may designate, or pursuant to the authority of general or special resolutions of the Board of Directors. Whenever required by the Chairman of the Board, the President or the Board of Directors, he shall render a statement of his accounts. He shall enter regularly, in books of the corporation to be kept by him for the purpose, full and accurate accounts of all moneys received and paid by him on the account of the corporation; he shall at any reasonable time exhibit his books and accounts to any director of the corporation during business hours; and, he shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board or the President. He shall give a bond for the faithful discharge of his duties in such sum as the Board of Directors may require. (B) Each Assistant Treasurer shall have such of the other duties, and perform such of the duties, of the Treasurer, as may be prescribed by the Board of Directors, the Chairman of the Board, the President or the Treasurer. SECTION THIRTEEN. DUTIES OF OFFICERS MAY BE DELEGATED. For any reason that ---------------- ----------------------------------- the Directors may deem sufficient, the Board of Directors may delegate the powers or duties of any officer to any other person, for the time being, except where otherwise provided by statute. ARTICLE VI - CERTIFICATES OF STOCK ---------------------------------- SECTION ONE. FORM AND SIGNATURE. Every stockholder shall have a certificate ----------- ------------------ signed by the Chairman of the Board, the President or a Vice President and the Treasurer, Secretary or an Assistant Secretary, certifying the number of shares owned by him in the corporation. Such certificate shall be in such form as the Board of Directors may from time to time prescribe, and shall be countersigned and registered in such manner, if any, as the Board of Directors, by resolution, may prescribe. If the corporation has a transfer agent or an assistant transfer agent or a transfer clerk acting on its behalf, and a registrar, the signature of any such officer of the corporation may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the 10 corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION TWO. REGISTRATION OF TRANSFER. The shares of stock of the ----------- ------------------------ corporation shall be transferable on the books of the corporation by the holder thereof, in person or by his duly authorized attorney, upon surrender for cancellation of a certificate or certificates for the same number of shares, with an assignment and power of transfer duly endorsed thereon or ascribed thereto, duly executed, with such proof of the authenticity of the signature as the corporation or its agents may reasonably require; provided, however, that, if the corporation has a transfer agent, such transfers of stock in accordance with this Section Two of Article VI shall be the responsibility of such transfer agent. SECTION THREE. CLOSING OF TRANSFER BOOKS. The Board of Directors shall have ------------- ------------------------- the power to close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for payment or any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or determination of the stockholders entitled to notice of, and to vote at, any such meeting, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and, in such case, such stockholders, and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to such notice of, and to vote at, such meeting, or to receive payment of such dividends, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. SECTION FOUR. ISSUANCE OF NEW SHARES OF STOCK. In the event the corporation ------------ ------------------------------- issues new shares of stock, the stockholders shall not be entitled to preemptive rights. SECTION FIVE. LOST CERTIFICATES. The Board of Directors may direct a new ------------ ----------------- certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, on the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 11 SECTION SIX. REGISTERED STOCKHOLDERS. The corporation shall be entitled to ------------ ----------------------- recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for cause and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII - GENERAL PROVISIONS -------------------------------- SECTION ONE. CONTRACTS, DEEDS, OTHER INSTRUMENTS, ETC. Contracts and other ----------- ---------------------------------------- instruments in writing may be made on behalf and in the name of the corporation as follows: (i) by the officers authorized so to do under Article V of these Amended and Restated Bylaws, and if required by law, under the corporation seal, attested by the Secretary or an Assistant Secretary; and (ii) by such officers and such other persons as the President of the corporation may, in writing, authorize so to do with respect to specified types of contracts and other instruments, such authorizations to also specify whether the corporate seal and attestation by the Secretary or an Assistant Secretary shall be required; and, if so executed, shall be binding upon the corporation, provided, however, that the Board of Directors may, by resolution, authorize the execution of contracts, deeds and other instruments in writing generally or in specific instances in such manner and by such persons as may therein be designated. No person shall have authority, on behalf of the corporation, to sign checks, drafts or other instruments for the payment of money or notes or acceptances unless specifically authorized by the Board of Directors or these Amended and Restated Bylaws. SECTION TWO. NOTICES. ----------- ------- (A) Whenever by law, the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws notice is required to be given to any director, officer or stockholder, and no provisions is made as to how such notice shall be given, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, by depositing the same in the post office or letter box, in a postage prepaid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the corporation, or in default of other address, to such director, officer or stockholder at the General Post office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed. (B) Any stockholder, director or officer may waive any notice required to be given by law or under these Amended and Restated bylaws. SECTION THREE. FISCAL YEAR. The fiscal year shall begin the first day of -------------- ----------- December in each year. 12 SECTION FOUR. BOARD OF DIRECTORS' ANNUAL STATEMENT. The Board of Directors ------------ ------------------------------------ shall present at each annual meeting, and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the corporation. SECTION FIVE. AMENDMENTS. These Amended and Restated Bylaws may be altered, ------------ ---------- amended or repealed or new Bylaws may be adopted by a majority of the entire Board of Directors, without any action on the part of the stockholders, at any meeting of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such meeting; provided, however, that any such alteration, amendment, repeal or adoption must be effected in accordance with the Amended and Restated Certificate of Incorporation. The stockholders of the corporation shall have the power to adopt, amend or repeal any provisions of the Amended and Restated Bylaws only to the extent and in the manner provided in the Amended and Restated Certificate of Incorporation of the corporation. Notwithstanding any other provision contained herein to the contrary, these Amended and Restated Bylaws shall not be amended so as to make them inconsistent with any provision of the Amended and Restated Certificate of Incorporation. The affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock (as defined in the Amended and Restated Certificate of Incorporation), voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with the preceding sentence. SECTION SIX. APPLICATION OF THESE AMENDED AND RESTATED BYLAWS. In the event ----------- -------------------------------- --------------- that any provision of these Amended and Restated Bylaws is or may be in conflict with any law of the United States, of the State of Delaware, or of any other governmental body or power having jurisdiction of this corporation, or over the subject matter to which such provision of these Amended and Restated Bylaws applies, or may apply, such provision of these Amended and Restated Bylaws shall be inoperative to the extent only that the operation thereof conflicts with such law, and shall in all other respects be in full force and effect. SECTION SEVEN. INDEMNIFICATION BY CORPORATION. ------------- ------------------------------ (A) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as director, officer, employee or agent (including trustee) of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the corporation (funds paid or required to be paid to any person as a result of the provisions of this Section Seven shall be returned to the corporation or reduced, as the case may be, to the extent that such person receives funds pursuant to an indemnification from any such other corporation, partnership, joint venture, trust or enterprise) to the fullest extent permissible under Delaware law, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actu ally and reasonably incurred by such person in connection with such action, suit or proceeding, 13 if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its --------------- equivalent, shall not, of itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. Entry of a judgment by consent as part of a settlement shall not be deemed a final adjudication of liability for negligence or misconduct in the performance of any duty, nor of any other issue or matter. (B) Any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent (including trustee) of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the corporation (funds paid or required to be paid to any person as a result of the provisions of this Section Seven shall be returned to the corporation or reduced, as the case may be, to the extent that such person receives funds pursuant to an indemnification from any such other corporation, partnership, joint venture, trust or enterprise) to the fullest extent permissible under Delaware law against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action, suit or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (C) To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraph (A) or (B) of this Section Seven, or in defense of any claim, issue or matter therein, he shall be indemnified by the corporation against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (D) Any indemnification under paragraph (A) or (B) of this Section Seven (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (A) and (B) of this Section Seven. Such determination shall be made as follows: (i) by majority vote of the directors who were not parties to such action, suit or proceeding, even though less than a 14 quorum of the Board of Directors; or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or (iii) by the holders of a majority of the shares of capital stock of the corporation entitled to vote thereon. (E) Expenses incurred by an officer or director in defending a civil or criminal action, suit or proceeding may be paid in advance of final disposition upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Section Seven. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. (F) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section Seven shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. (G) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section Seven shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION EIGHT. CORPORATE SEAL. The corporate seal shall have inscribed ------------- -------------- thereon the name of the corporation and the words "Corporate Seal, Delaware". SECTION NINE. CONFLICTS WITH AMENDED AND RESTATED CERTIFICATE OF ------------ -------------------------------------------------- INCORPORATION. In the event of a conflict between the provisions of these - ------------- Amended and Restated Bylaws and the Amended and Restated Certificate of Incorporation, the provisions of the Amended and Restated Certificate of Incorporation shall control. The affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the Voting Stock (as defined in the Amended and Restated Certificate of Incorporation), voting together as a single class, shall be required to alter, amend, repeal, or adopt any provision inconsistent with this Section Nine. 15 EX-10.4 3 EMPLOYMENT AGREEMENT Exhibit 10.4 EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT (this "Agreement"), effective as of the date of last execution below (the "Effective Date"), by and between CellStar (Asia) Corporation Limited (the "Employer"), CellStar Corporation, a Delaware corporation and parent company of Employer ("Parent"), and Hong An-Hsien (the "Employee"). R E C I T A L S - - - - - - - - WHEREAS, Employer desires to obtain the benefit of the services of Employee as an employee of Employer for the period of time provided in this Agreement; and WHEREAS, Employee desires to render services for Employer on the terms and conditions hereinafter provided; and WHEREAS, Employer desires that Employee be able to participate in Parent's stock option and incentive compensation plans; and WHEREAS, the Compensation Committee of the Board of Directors of Parent deems it advisable and in the best interests of Parent and Employer to enter into this Employment Agreement with Employee; A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE I EMPLOYMENT 1.1 Employment. Effective on the Effective Date the Employer shall employ ---------- the Employee and the Employee shall accept employment by the Employer for the period and upon the terms and conditions contained in this Agreement. 1.2 Term. The term of this Agreement shall commence on the Effective Date ---- and shall end on the five year anniversary of the Effective Date (the "Original Term"), unless earlier terminated as provided herein (the period from the Effective Date to the five year anniversary of the Effective Date, or to the date of such earlier termination, as applicable, is hereinafter referred to as the "Term"). 1.3 Position and Duties. ------------------- (a) Position. During the Term, the Employee shall serve as Chairman -------- of Employer, with authority, duties and responsibilities consistent with such position, and shall perform such other services for Employer, Parent and their affiliated entities consistent with such position as may be reasonably assigned to him from time to time by senior management and/or the boards of directors of Employer and/or Parent. During the Term, Employee shall, if so elected or appointed, also accept election or appointment, and serve, as an officer and/or director of Employer or any of its affiliated entities and perform the duties appropriate thereto, without additional compensation other than as set forth herein. Employee's actions hereunder shall at all times be subject to the direction of the senior management and the boards of directors of Employer and Parent. (b) Commitment. During the Term, the Employee shall devote ---------- substantially all of his time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of Employer, Parent and their affiliated entities. Subject to the foregoing, the Employee may serve in any capacity with any civic, educational or charitable organization; provided that such activities and services do not interfere or conflict with the performance of his duties hereunder. Employee shall comply with reasonable policies, standards and regulations established from time to time by senior management and/or the boards of directors of Employer and Parent. 1.4 Compensation. ------------ (a) Base Salary. Subject to Section 1.4(c) below, beginning on the ----------- Effective Date, Employer shall pay the Employee as compensation an aggregate salary ("Base Salary") of U.S. $800,000 per year during the Term, or such greater amount as shall be approved in accordance with the policies of Employer and/or Parent, as applicable. The Base Salary for each year shall be paid by Employer in accordance with the regular payroll practices of Employer. (b) Annual Incentive Payment. Each year during the Term, the Employee ------------------------ shall be eligible to participate in an annual incentive plan approved by the Compensation Committee of Parent's Board of Directors. Subject to any required approvals of the Compensation Committee of the Board of Directors of Parent and subject to achievement of specified goals (the "Goals"), for the fiscal year ending in November 1998, Employee will be eligible to earn an annual incentive payment at the 50% target level (i.e., 50% of his base salary earned during such fiscal year), which incentive payment may be less than such target level or up to two times such target level. Subject to any required approvals of the Compensation Committee of the Board of Directors of Parent, the Goals will be 2 based 25% on Parent's earnings per share and 75% on achievement of budgeted net income for CellStar (Asia) Corporation Limited. (c) Withholding. With respect to any compensation received by ----------- Employee with respect to Employee's services for Employer or any of its affiliates, Employer will deduct such withholding and other payroll taxes as are required to be withheld by Employer under applicable law. (d) Stock Options. Parent will recommend to the Compensation ------------- Committee of the Board of Directors of Parent that Employee be granted a stock option (the "Option") entitling him to purchase 100,000 shares of Parent's common stock (i) at the reported market closing sales price thereof on the date of grant and (ii) at an exercise rate of 100% of the shares covered thereby on the first anniversary of the date of grant. (e) Life Insurance. During the Term and subject to Employee's -------------- qualification under normal life insurance underwriting standards as of the date hereof and at any policy renewal date, the Employer shall provide, at Employer's expense, a term life insurance policy on the life of Employee in a face amount equal to $4,000,000 for the benefit of such beneficiary or beneficiaries as may be designated from time to time by Employee. (f) Disability Insurance. During the Term and subject to Employee's -------------------- qualification under normal disability insurance underwriting standards as of the date hereof and at any policy renewal date, Employer shall provide, at Employer's expense, a disability insurance policy that will pay Employee, pursuant to the terms of such policy, an annual disability benefit of $640,000 until the Employee reaches the age of 65. (g) Payment and Reimbursement of Expenses. During the Term, Employer ------------------------------------- shall pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in performing his obligations under this Agreement in accordance with the policies and procedures of Employer or Parent, provided that the Employee properly accounts therefor in accordance with the regular policies of Employer or Parent, as applicable. (h) Fringe Benefits and Perquisites. During the Term, the Employee ------------------------------- shall be entitled to participate in or receive benefits under any stock purchase, profit-sharing, pension, retirement, life, medical, dental, disability or other plan or arrangement made available by Employer or Parent to employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. In addition, Employee will have use of a company car, if any. Nothing paid to the Employee under any plan or arrangement made available to the Employee shall be deemed to be in lieu of compensation hereunder. 3 (i) Vacations. During the Term and in accordance with the regular --------- policies of Employer, the Employee shall be entitled to no less than 20 days of vacation in any calendar year (prorated in any calendar year in which Employee is employed hereunder for less than the entire year in accordance with the number of days in such calendar year during which the Employee is so employed). (j) Medical Expenses. During the Term, Employer shall pay, or ---------------- reimburse the Employee for, all reasonable medical and dental expenses incurred by the Employee or his spouse or Dependents (as defined in Section 152 of the Internal Revenue Code). The Employee acknowledges that Employer may enter into insurance agreements with respect to the payments and reimbursements described in this subsection. The Employee will use reasonable efforts to assist Employer in recovering payments and reimbursements from such insurers. 1.5 Termination. ----------- (a) Disability. Employer may terminate this Agreement for Disability. ---------- "Disability" shall exist if, because of ill health, physical or mental disability, or any other reason beyond his control, and notwithstanding reasonable accommodations made by Employer, the Employee shall have been unable, unwilling or shall have failed to perform his duties under this Agreement, as determined in good faith by Parent's Board of Directors or a committee thereof, for a period of 180 consecutive days, or if, in any 12-month period, the Employee shall have been unable or unwilling or shall have failed to perform his duties for a period of 270 or more business days, irrespective of whether or not such days are consecutive. (b) Cause. Employer may terminate the Employee's employment for ----- Cause. Termination for "Cause" shall mean termination because of the Employee's (i) gross incompetence, (ii) willful gross misconduct that causes or is likely to cause material economic harm to Employer, Parent or their affiliated entities or that brings or is likely to bring substantial discredit to the reputation of Employer, Parent or any of their affiliated entities, as determined by the Board of Directors of Parent in good faith, (iii) failure to follow directions of senior management or the boards of directors of Employer or Parent that are consistent with his duties under this Agreement, (iv) conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude or entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting Employee from participating in the conduct of the affairs of Employer, Parent or their affiliated entities, or (v) material breach of any provision of this Agreement that is not remedied within 60 days after receipt of written notice from Employer or Parent specifying such breach. 4 (c) Without Cause. During the Term, Employer may terminate the ------------- Employee's employment Without Cause, subject to the provisions of subsection 1.6(c) (Termination Without Cause or for Company Breach). ----------------------------------------------- Termination "Without Cause" shall mean termination of the Employee's employment by Employer other than termination for Cause or for Disability. (d) Company Breach. The Employee may terminate his employment -------------- hereunder for Company Breach. For purposes of this Agreement a "Company Breach" shall be deemed to occur in the event of a material breach of this Agreement by Employer or Parent, including without limitation any material reduction in the authority, duties and responsibilities that the Employee has on the Effective Date of this Agreement; provided, however, that the -------- ------- foregoing items shall not constitute Company Breach unless the Employee notifies Employer thereof in writing, specifying in reasonable detail the basis therefor and stating that it is grounds for Company Breach, and unless Employer fails to cure such Company Breach within 60 days after such notice is sent or given under this Agreement. (e) Change in Control. The Employee may terminate his employment ----------------- hereunder within 12 months of a Change in Control (defined below): (i) "Change in Control" shall mean any of the following: (1) any consolidation or merger of Parent in which Parent is not the continuing or surviving corporation or pursuant to which shares of Parent's common stock would be converted into cash, securities or other property, other than a merger of Parent in which the holders of Parent common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Parent; (3) any approval by the stockholders of Parent of any plan or proposal for the liquidation or dissolution of Parent; (4) the cessation of control (by virtue of their not constituting a majority of directors) of Parent's Board of Directors by the individuals (the "Continuing Directors") who (x) at the date of this Agreement were directors or (y) become directors after the date of this Agreement and whose election or nomination for election by Parent's stockholders, was 5 approved by a vote of at least two-thirds of the directors then in office who were directors at the date of this Agreement or whose election or nomination for election was previously so approved); or (5) (A) the acquisition of beneficial ownership ("Beneficial Ownership"), within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of an aggregate of 15% or more of the voting power of Parent's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the Exchange Act) who Beneficially Owned less than 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this Agreement, (B) the acquisition of Beneficial Ownership of an additional 5% of the voting power of Parent's outstanding voting securities by any person or group who Beneficially Owned at least 10% of the voting power of Parent's outstanding voting securities on the Effective Date of this agreement, or (C) the execution by Parent and a stockholder of a contract that by its terms grants such stockholder (in its, hers or his capacity as a stockholder) or such stockholder's Affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933 (an "Affiliate")) including, without limitation, such stockholder's nominee to Parent's Board of Directors (in its, hers or his capacity as an Affiliate of such stockholder), the right to veto or block decisions or actions of Parent's Board of Directors; provided, however, that -------- ------- notwithstanding the foregoing, the events described in items (A), (B) or (C) above shall not constitute a Change in Control hereunder if the acquiror is (aa) Alan H. Goldfield or his Affiliates, (bb) a trustee or other fiduciary holding securities under an employee benefit plan of Employer, Parent or one of their affiliated entities and acting in such capacity, (cc) a corporation owned, directly or indirectly, by the stockholders of Parent in substantially the same proportions as their ownership of voting securities of Parent or (dd) a person or group meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1) under the Exchange Act or (ee) in the case of an acquisition described in items (A) or (B) above (but not in the case of an acquisition described in item (C) above), any other person whose acquisition of shares of voting securities is approved in advance by a majority of the Continuing Directors; provided further, however -------- ------- ------- that none of the following shall constitute a Change in Control: (aa) the right of the holders of any voting securities of Parent to vote as a class on any matter or (bb) any vote required of disinterested or unaffiliated directors or stockholders including, without limitation, pursuant to Section 144 of the Delaware General Corporation Law or Rule 16b-3 promulgated pursuant to the Exchange Act. 6 (6) subject to applicable law, in a Chapter 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving Parent to a case under Chapter 7. (f) Without Good Reason. During the Term, the Employee may terminate ------------------- his employment Without Good Reason upon 30 days prior written notice to Employer of such termination, which notice may be waived by Employer in Employer's discretion. Termination "Without Good Reason" shall mean termination of the Employee's employment by the Employee other than termination for Company Breach. (g) Explanation of Termination of Employment. Any party terminating ---------------------------------------- this Agreement shall give prompt written notice ("Notice of Termination") to the other party hereto advising such other party of the termination of this Agreement stating in reasonable detail the basis for such termination. The Notice of Termination shall indicate whether termination is being made for Cause, Without Cause or for Disability (if Employer has terminated the Agreement) or for Company Breach, upon a Change in Control or Without Good Reason (if the Employee has terminated the Agreement). (h) Date of Termination. "Date of Termination" shall mean the last ------------------- day of Employee's employment, as determined in accordance with this Section 1.5. 1.6 Compensation Upon Termination. ----------------------------- (a) During Disability. During any period that the Employee fails to ----------------- perform his duties hereunder because of ill health, physical or mental disability, or any other reason beyond his control, he shall continue to receive his full salary and benefits pursuant to Section 1.4 (Compensation) ------------ through the Date of Termination. (b) Termination for Cause or Without Good Reason. If Employer shall -------------------------------------------- terminate the Employee's employment for Cause or if the Employee shall terminate his employment Without Good Reason, then Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall ------------ terminate, except that Employer shall pay the Employee his accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through ------------ the Date of Termination. (c) Termination Without Cause or for Company Breach. If Employer ----------------------------------------------- shall terminate the Employee's employment Without Cause or if the Employee shall terminate his employment for Company Breach, then Employer shall pay to the Employee, as severance pay in a lump sum on the 15th day following the Date of Termination, the following amounts: 7 (i) his accrued but unpaid Base Salary through the Date of Termination at the rate in effect as of the Date of Termination; and (ii) in lieu of any further Base Salary and Annual Incentive Payments for periods subsequent to the Date of Termination, an amount equal to the product of (A) the sum of Employee's Base Salary at the rate in effect as of the Date of Termination plus the amount of the Annual Incentive Payment paid to the Employee for the preceding year (or such shorter period for which any Annual Incentive Payment has been paid) divided by 365 and (B) multiplied by the number of days from the Date of Termination to the last day of the Original Term. In addition, the Employee will be entitled to a prorated portion of any annual incentive payment earned for the fiscal year in which his employment is terminated, if earned in accordance with the terms of its grant. If the Employee terminates his employment for Company Breach based upon a material reduction by Employer of the Employee's Base Salary, then for purposes of this subsection 1.6(c) (Termination Without Cause or for -------------------------------- Company Breach), the Employee's Base Salary as of the Date of Termination -------------- shall be deemed to be the Employee's Base Salary immediately prior to the reduction that the Employee claims as grounds for Company Breach. (d) Termination Upon a Change in Control. If the Employee terminates ------------------------------------ his employment after a Change in Control pursuant to subsection 1.5(e) (Change in Control), then Employer shall pay to the Employee as severance ------------------ pay and as liquidated damages (because actual damages are difficult to ascertain), in a lump sum, in cash, within 15 days after termination, an amount equal to $100 less than three times the Employee's "annualized includable compensation for the base period" (as defined in Section 280G of the Internal Revenue Code of 1986); provided, however, that if such lump -------- ------- sum severance payment, either alone or together with other payments or benefits, either cash or non-cash, that the Employee has the right to receive from Employer, including, but not limited to, accelerated vesting or payment of any deferred compensation, options, stock appreciation rights or any benefits payable to the Employee under any plan for the benefit of employees, would constitute an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986), then such lump sum severance payment or other benefit shall be reduced to the largest amount that will not result in receipt by the Employee of a parachute payment. The determination of the amount of the payment described in this subsection shall be made by Parent's independent auditors. (e) Termination for Disability. If Employer shall terminate the -------------------------- Employee's employment for Disability, Employer's obligation to pay salary and benefits pursuant to Section 1.4 (Compensation) shall terminate, except ------------ that Employer shall pay the Employee 8 (i) accrued but unpaid salary and benefits pursuant to Section 1.4 (Compensation) through the Date of Termination, and (ii) the benefits set ------------ forth in Section 1.6(f) (Employee Benefits) through the Original ----------------- Term. The Employer also shall make any additional payments necessary to provide the disability benefits set forth in Section 1.4(f) (Disability ---------- Insurance) above. --------- (f) Employee Benefits. Employer shall maintain in full force and ----------------- effect (to the extent consistent with past practice), for the continued benefit of Employee and, if applicable, his wife and children, the employee benefits set forth in subsections 1.4(e) (Life Insurance), 1.4(f) -------------- (Disability Insurance), 1.4(h) (Fringe Benefits and Perquisites) and 1.4(j) --------------------- ------------------------------- (Medical Expenses) through the Date of Termination (subject to the ---------------- provisions of Section 1.6(e)); provided that his continued participation or, if applicable, the participation of his wife and children, is possible under the general terms and conditions of such plans and programs. (g) No Mitigation. The Employee shall not be required to mitigate ------------- the amount of any payment provided for in this Section 1.6 (Compensation ------------ Upon Termination) by seeking other employment or otherwise. ---------------- 1.7 Death of Employee. If Employee dies prior to the expiration of this ----------------- Agreement, Employee's employment and other obligations under this Agreement shall automatically terminate and all compensation to which Employee is or would have been entitled hereunder (including without limitation under subsections 1.4(a) (Base Salary) and 1.4(b) (Annual Incentive Payment)) shall terminate as ----------- ------------------------ of the end of the month in which Employee's death occurs; provided, however, -------- ------- that (i) Employer shall pay to Employee's estate, as soon as practicable, a prorated Annual Incentive Payment, if earned in accordance with Parent's annual incentive plan; (ii) for the balance of the month in which Employee's death occurs, Employee's wife and children shall be entitled to receive their benefits under Employer's group hospitalization, medical and dental plans (if any), to the extent permitted under the terms of such plans; (iii) Employee's estate or named beneficiary or beneficiaries, as appropriate, shall receive the benefits payable pursuant to subsection 1.4(e) (Life Insurance) and 1.4(h) (Fringe -------------- ------ Benefits and Perquisites) hereof and such reimbursement as may have been due to - ------------------------- the Employee pursuant to subsection 1.4(g) (Payment and Reimbursement of ---------------------------- Expenses) hereof. - -------- ARTICLE 2 NON-COMPETITION AND CONFIDENTIALITY 2.1 Non-Competition. --------------- (a) Description of Proscribed Actions. During the Term and for a --------------------------------- period of 18 months thereafter, in consideration for the obligations of Employer and Parent hereunder, 9 including without limitation their disclosure (pursuant to subsection 2.2(b) (Obligation of The Company) below) of Confidential Information, the ------------------------- Employee shall not: (i) directly or indirectly, engage or invest in, own, manage, operate, control or participate in the ownership, management, operation or control of, be employed by, associated or in any manner connected with, or render services or advice to, any Competing Business (defined below); provided, however, that the Employee may -------- ------- invest in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if (x) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act and (y) the Employee does not beneficially own (as defined Rule 13d-3 promulgated under the Exchange Act) in excess of 5% of the outstanding capital stock of such enterprise; (ii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, solicit, divert or take away any suppliers, customers or clients of the Company or any of its Affiliates; or (iii) directly or indirectly, either as principal, agent, independent contractor, consultant, director, officer, employee, employer, advisor (whether paid or unpaid), stockholder, partner or in any other individual or representative capacity whatsoever, either for his own benefit or for the benefit of any other person or entity, either (i) hire, attempt to hire, contact or solicit with respect to hiring, any employee of Employer or Parent or any Affiliate thereof, (ii) induce or otherwise counsel, advise or encourage any employee of Employer, Parent or any Affiliate thereof to leave the employment of Employer, Parent or any Affiliate thereof, or (iii) induce any representative or agent of Employer, Parent or any Affiliate thereof to terminate or modify its relationship with Employer, Parent or such Affiliate. (b) Judicial Modification. The Employee agrees that if a court of --------------------- competent jurisdiction determines that the length of time or any other restriction, or portion thereof, set forth in this Section 2.1 (Non- --- Competition) is overly restrictive and unenforceable, the court may reduce ----------- or modify such restrictions to those which it deems reasonable and enforceable under the circumstances, and as so reduced or modified, the parties hereto agree that the restrictions of this Section 2.1 (Non- --- Competition) shall remain in full force and effect. The Employee further ----------- agrees that if a court of competent jurisdiction determines that any provision of this Section 2.1 (Non-Competition) is invalid or against --------------- public policy, the remaining provisions of this Section 2.1 (Non- --- Competition) and the ----------- 10 remainder of this Agreement shall not be affected thereby, and shall remain in full force and effect. (c) Nature of Restrictions. The Employee acknowledges that the ---------------------- business of Employer and Parent and their Affiliates is international in scope and that the Restrictions imposed by this Agreement are legitimate, reasonable and necessary to protect Employer's, Parent's and their Affiliates' investment in their businesses and the goodwill thereof. The Employee acknowledges that the scope and duration of the restrictions contained herein are reasonable in light of the time that the Employee has been or will be engaged in the business of Employer, Parent and/or their Affiliates, and the Employee's relationship with the suppliers, customers and clients of Employer, Parent and their Affiliates. The Employee further acknowledges that the restrictions contained herein are not burdensome to the Employee in light of the consideration paid therefor and the other opportunities that remain open to the Employee. Moreover, the Employee acknowledges that he has other means available to him for the pursuit of his livelihood. (d) Competing Business. "Competing Business" shall mean any ------------------ individual, business, firm, company, partnership, joint venture, organization, or other entity engaged in the wholesale distribution or retail sales of wireless communication equipment in any domestic or international market area in which Employer, Parent or any of their Affiliates does business at any time during the Employee's employment with Employer or any of its Affiliates. 2.2 Confidentiality. For the purposes of this Section 2.2 --------------- (Confidentiality), the term "the Company" shall be construed also to include - ---------------- Employer, Parent and any and all Affiliates of Employer and Parent. (a) Confidential Information. "Confidential Information" shall mean ------------------------ information that is used in the Company's business and (i) is proprietary to, about or created by the Company; (ii) gives the Company some competitive advantage, the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of the Company; (iii) is not typically disclosed to non-employees by the Company, or otherwise is treated as confidential by the Company; or (iv) is designated as Confidential Information by the Company or from all the relevant circumstances should reasonably be assumed by the Employee to be confidential to the Company. 11 Confidential Information shall not include information publicly known (other than as a result of a disclosure by the Employee ). The phrase "publicly known" shall mean readily accessible to the public in a written publication and shall not include information that is only available by a substantial searching of the published literature or information the substance of which must be pieced together from a number of different publications and sources, or by focused searches of literature guided by Confidential Information. (b) Obligation of The Company. During the Term, the Company shall ------------------------- provide access to, or furnish to, the Employee Confidential Information of the Company necessary to enable the Employee properly to perform his obligations under this Agreement. (c) Non-Disclosure. The Employee acknowledges, understands and agrees -------------- that all Confidential Information, whether developed by the Company or others or whether developed by the Employee while carrying out the terms and provisions of this Agreement (or previously while serving as an officer of the Company), shall be the exclusive and confidential property of the Company and (i) shall not be disclosed to any person other than employees of the Company and professionals engaged on behalf of the Company, and other than disclosure in the scope of the Company's business in accordance with the Company's policies for disclosing information, (ii) shall be safeguarded and kept from unintentional disclosure and (iii) shall not be used for the Employee's personal benefit. Subject to the terms of the preceding sentence, the Employee shall not use, copy or transfer Confidential Information other than as is necessary in carrying out his duties under this Agreement. 2.3 Injunctive Relief. Because of the Employee's experience and ----------------- reputation in the industries in which Employer, Parent and their Affiliates operate, and because of the unique nature of the Confidential Information, the Employee acknowledges, understands and agrees that Employer and Parent will suffer immediate and irreparable harm if the Employee fails to comply with any of his obligations under Article 2 (Non-Competition and Confidentiality) of this ----------------------------------- Agreement, and that monetary damages will be inadequate to compensate Employer and Parent for such breach. Accordingly, the Employee agrees that Employer and Parent shall, in addition to any other remedies available to them at law or in equity, be entitled to injunctive relief to enforce the terms of Article 2 (Non- --- Competition and Confidentiality), without the necessity of proving inadequacy of - ------------------------------- legal remedies or irreparable harm. ARTICLE 3 REPRESENTATIONS AND WARRANTIES BY EMPLOYEE Employee hereby represents and warrants, the same being part of the essence of this Agreement, that, as of the Effective Date, he is not a party to any agreement, contract or 12 understanding, and that no facts or circumstances exist, that would in any way restrict or prohibit him from undertaking or performing any of his obligations under this Agreement. The foregoing representation and warranty shall remain in effect throughout the Term. ARTICLE 4 INDEMNIFICATION 4.1 Basic Indemnification Arrangement. --------------------------------- (a) Indemnity. If the Employee was, is or becomes a party to or --------- witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim (defined below) by reason of (or arising in part out of) an Indemnifiable Event (defined below), Parent shall indemnify the Employee to the fullest extent permitted by law, as soon as practicable but in any event no later than thirty days after written demand is presented to Parent, against any and all Expenses (defined below), judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges actually incurred and paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim. If so requested by the Employee, Parent shall advance (within two business days of such request) any and all Expenses to the Employee (an "Expense Advance"); provided, however, that Parent may require the Employee first to -------- ------- deliver to Parent an undertaking by or on behalf of the Employee to repay such Expense Advance if it shall ultimately be determined that he is not entitled to be indemnified by Parent. (b) Conditions. Notwithstanding the foregoing, (i) the obligations of ---------- Parent under subsection 4.1(a) (Indemnity) shall be subject to the --------- condition that the Reviewing Party (defined below) shall not have determined (in a written opinion, in any case in which the special, independent counsel referred to in subsection 4.1(c) (Independent Counsel) ------------------- hereof is involved) that the Employee would not be permitted to be indemnified under applicable law, and (ii) the obligation of Parent to make an Expense Advance pursuant to subsection 4.1(a) (Indemnity) shall be --------- subject to the condition that, if, when and to the extent that the Reviewing Party determines that the Employee would not be permitted to be so indemnified under applicable law, Parent shall be entitled to be reimbursed by the Employee (who hereby agrees to reimburse Parent) for all such amounts theretofore paid; provided, however, that if the Employee -------- ------- commences legal proceedings in a court of competent jurisdiction to secure a determination that the Employee should be indemnified under applicable law, any determination made by the Reviewing Party that the Employee would not be permitted to be indemnified under applicable law shall not be binding and the Employee shall not be required to reimburse Parent for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal 13 therefrom have been exhausted or lapsed). If there has been no determination by the Reviewing Party or if the Reviewing Party determines that the Employee substantively would not be permitted to be indemnified in whole or in part under applicable law, the Employee shall have the right to commence litigation in any court in the State of Texas having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and Parent hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on Parent and the Employee. (c) Independent Counsel. If the determination of entitlement to ------------------- indemnification is to be made by Independent Counsel (defined below), the Independent Counsel shall be selected as provided in this subsection 4.1(c) (Independent Counsel). The Independent Counsel shall be selected by ------------------- majority vote of a quorum of Disinterested Directors (defined below), and Parent shall give written notice to the Employee advising him of the identity of the Independent Counsel so selected. The Employee may, within seven days after receipt of the written notice, deliver to Parent a written objection to the selection. His objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in subsection 4.1(h) (Independent Counsel Definition) below, and the objection shall set forth ------------------------------- with particularity the factual basis of the assertion. If written objection is made, the Independent Counsel so selected shall be disqualified. If, within 20 days after submission by the Employee of a demand for indemnification pursuant to subsection 4.1(a) (Indemnity) of --------- this Agreement, no Independent Counsel shall have been selected, or if selected shall have been objected to, in accordance with this subsection 4.1(c) (Independent Counsel), either Parent or the Employee may petition a ------------------- court of competent jurisdiction in the State of Texas for the appointment as Independent Counsel of a person selected by that court or by any other person that court shall designate, and the person so appointed shall act as Independent Counsel. Parent shall pay all reasonable fees and expenses incident to the procedures of this subsection 4.1(c) (Independent Counsel), ------------------- regardless of the manner in which the Independent Counsel was selected or appointed. Parent shall pay the reasonable fees and expenses of the Independent Counsel and shall indemnify fully the Independent Counsel against any and all expenses (including attorneys' fees) claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. (d) Claim. "Claim" shall mean any threatened, pending or completed ----- action, suit or proceeding, any inquiry or investigation, or any appeal therefrom whether conducted by Parent or any other party, that the Employee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. 14 (e) Indemnifiable Event. "Indemnifiable Event" shall mean any event ------------------- or occurrence related to the fact that the Employee is or was serving Parent in some capacity, including without limitation, as a director, officer, employee, agent (including trustee) or fiduciary of Parent or of another corporation, partnership, joint venture, trust or other enterprise, or by reason of anything done or not done by the Employee in any such capacity. (f) Expenses. "Expenses" shall include attorneys' fees and all other -------- costs, expenses and obligations actually incurred and paid in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event. (g) Reviewing Party. "Reviewing Party" shall mean a quorum of --------------- Parent's Board of Directors consisting of Disinterested Directors or, if such a quorum is not obtainable or if such a quorum so directs, Independent Counsel. Any decision by such a quorum must be by a majority vote of the quorum. (h) Independent Counsel Definition. "Independent Counsel" shall mean ------------------------------ a law firm, or a member of a law firm, that is experienced in matters of Delaware corporate law and neither is, nor in the past five years has been, retained to represent Parent or the Employee in any matter material to either such party or any other party to the Claim relating to an Indemnifiable Event. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either Parent or the Employee in an action to determine the Employee's rights under this Agreement. (i) Disinterested Director. "Disinterested Director" shall mean a ---------------------- director of Parent who is not and was not at any time a party to a Claim relating to an Indemnifiable Event. 4.2 Notification and Defense of Claim. --------------------------------- (a) Notification. Promptly after receipt by the Employee of notice of ------------ the commencement of any Claim, the Employee will, if a claim for indemnification in respect thereof is to be made against Parent under this Agreement, notify Parent of the commencement thereof; but the omission to notify Parent will not relieve it from any liability which it may have to the Employee otherwise than under this Agreement. (b) Defense. With respect to any Claim as to which the Employee ------- notifies Parent of the commencement thereof, Parent will be entitled to participate therein at its own expense. Except as otherwise provided below, to the extent that it may wish, Parent jointly with any other indemnifying party similarly notified will be entitled to assume the 15 defense thereof, with counsel satisfactory to the Employee. After notice from Parent to the Employee of its election to assume the defense thereof, Parent will not be liable to the Employee under this Agreement for any legal or other expenses subsequently incurred by the Employee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Employee shall have the right to employ counsel in such Claim, but the fees and expenses of such counsel incurred after notice from Parent of its assumption of the defense thereof shall be at the expense of the Employee unless (i) the employment of counsel by the Employee has been authorized by Parent, (ii) the Employee shall have reasonably concluded that there may be a conflict of interest between Parent and the Employee in the conduct of the defense of such Claim or (iii) Parent shall not in fact have employed counsel to assume the defense of such Claim, in each of which cases the fees and expenses of counsel shall be borne by Parent. Parent shall not be entitled to assume the defense of any Claim brought by or on behalf of Parent or as to which the Employee shall have reasonably made the conclusion provided for in (ii) above. (c) Settlements. Parent shall not be liable to indemnify the Employee ----------- under this Agreement for any amounts paid in settlement of any Claim made without its written consent. Parent shall not settle any Claim in any manner that would impose any penalty or limitation on the Employee without the Employee's written consent. Neither Parent nor the Employee will unreasonably withhold their consent to any proposed settlement. 4.3 Indemnification for Additional Expenses. Parent shall indemnify the --------------------------------------- Employee against any and all expenses (including attorneys' fees) and, if requested by the Employee, shall (within two business days of such request) advance such expenses to the Employee, which are incurred by the Employee in connection with any claim asserted against or action brought by the Employee for (i) indemnification or advance payment of Expenses by Parent under this Agreement or any other agreement or Parent bylaw now or hereafter in effect relating to claims for Indemnifiable Events or (ii) recovery under any directors' and officers' liability insurance policies maintained by Parent, regardless of whether the Employee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 4.4 Partial Indemnity, Etc. If the Employee is entitled under any ----------------------- provision of this Agreement to indemnification by Parent for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, Parent shall nevertheless indemnify the Employee for the portion thereof to which the Employee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that the Employee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, the Employee shall be indemnified against all Expenses incurred in connection therewith. In connection with any determination by the 16 Reviewing Party or otherwise as to whether the Employee is entitled to be indemnified hereunder the burden of proof shall be on Parent to establish that the Employee is not so entitled. 4.5 No Presumption. For purposes of this Agreement, the termination of -------------- any Claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that the Employee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 4.6 Non-exclusivity. The rights of the Employee hereunder shall be in --------------- addition to any other rights the Employee may have under Parent's bylaws, pursuant to resolutions or determinations of Parent's Board of Directors or stockholders, under the Delaware General Corporation Law or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under Parent's bylaws and this Agreement, it is the intent of the parties hereto that the Employee shall enjoy by this Agreement the greater benefits so afforded by such change. 4.7 Liability Insurance. To the extent Parent maintains an insurance ------------------- policy or policies providing directors' and officers' liability insurance, the Employee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Parent employee. ARTICLE 5 MISCELLANEOUS 5.1 Period of Limitations. No legal action shall be brought and no cause --------------------- of action shall be asserted by or on behalf of Employer or Parent or any of their Affiliates against the Employee, the Employee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of Employer or Parent or any Affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 5.2 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 17 5.3 Indulgences, Etc. Neither the failure nor any delay on the part of ----------------- either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. 5.4 Employee's Sole Remedy. The Employee's sole remedy shall be against ---------------------- Employer or Parent for any claim, liability or obligation of any nature whatsoever arising out of or relating to this Agreement or an alleged breach of this Agreement or for any other claim arising out of the Employee's employment by Employer, his service to Employer or its Affiliates or the termination of the Employee's employment hereunder (collectively, "Employee Claims"). The Employee shall have no claim or right of any nature whatsoever against any of Employer's or its Affiliates' directors, former directors, officers, former officers, employees, former employees, stockholders, former stockholders, agents, former agents or the independent counsel in their individual capacities arising out of or relating to any Employee Claim. The Employee hereby releases and covenants not to sue any person other than Employer or Parent over any Employee Claim. The persons described in this Section 5.4 (other than Employer, Parent and the Employee) shall be third-party beneficiaries of this Agreement for purposes of enforcing the terms of this Section 5.4 (Employee's Sole Remedy) against the ----------------------- Employee. 5.5 Notices. All notices, requests, demands and other communications ------- required or permitted under this Agreement and the transactions contemplated herein shall be in writing and shall be deemed to have been duly given, made and received when sent by telecopy (with a copy sent by mail) or when personally delivered or one business day after it is sent by overnight service, addressed as set forth below: If to the Employee: Hong An-Hsien ------------------------ ------------------------ ------------------------ If to Employer or Parent: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: General Counsel 18 Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this subsection for the giving of notice, which shall be effective only upon receipt. 5.6 Provisions Separable. The provisions of this Agreement are -------------------- independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. 5.7 Entire Agreement. This Agreement contains the entire understanding ---------------- between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained, which shall be deemed terminated effective immediately. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 5.8 Headings; Index. The headings of paragraphs herein are included --------------- solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 5.9 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without giving effect to principles of conflict of laws. 5.10 Dispute Resolution. Subject to Employer's and Parent's right to seek ------------------ injunctive relief in court as provided in Section 2.3 (Injunctive Relief) of ----------------- this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 5.10 (Dispute Resolution), to arbitration. ------------------ (a) Arbitrators. The arbitration shall be heard and determined by one ----------- arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves -------- ------- more than $2,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. If (x) the parties 19 cannot agree on the sole arbitrator, (y) one party refuses to appoint its party-appointed arbitrator within said thirty (30) day period or (z) the party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal, then the appointing authority for the implementation of such procedure shall be the Senior United States District Judge for the Northern District of Texas, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. If the Senior United States District Judge for the Northern District of Texas refuses or fails to act as the appointing authority within ninety (90) days after being requested to do so, then the appointing authority shall be the Chief Executive Officer of the American Arbitration Association, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be made by majority vote. (b) Proceedings. Unless otherwise expressly agreed in writing by the ----------- parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Dallas, Texas, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; 20 (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. 5.11 Survival. The covenants and agreements of the parties set forth in -------- Article 2 (Non-Competition and Confidentiality), and Article 5 (Miscellaneous) ----------------------------------- ------------- are of a continuing nature and shall survive the expiration, termination or cancellation of this Agreement, regardless of the reason therefor. 5.12 Subrogation. In the event of payment under this Agreement, Employer ----------- and Parent shall be subrogated to the extent of such payment to all of the rights of recovery of the Employee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable Employer or Parent effectively to bring suit to enforce such rights. 5.13 No Duplication of Payments. Employer and Parent shall not be liable -------------------------- under this Agreement to make any payment in connection with any claim made against the Employee to the extent the Employee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 5.14 Binding Effect, Etc. This Agreement shall be binding upon and inure -------------------- to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of Employer, Parent, spouses, heirs, and personal and legal representatives. Employer and Parent shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of their business or assets, by written agreement in form and substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Employer or Parent would be required to perform if no such succession had taken place. 5.15 Contribution. If the indemnity contained in this Agreement is ------------ unavailable or insufficient to hold the Employee harmless in a Claim for an Indemnifiable Event, then separate from and in addition to the indemnity provided elsewhere herein, Parent shall contribute to Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of the Employee in connection with such Claim in such proportion as appropriately reflects the relative benefits received by, and fault of, Parent on the one hand and 21 the Employee on the other in the acts, transactions or matters to which the Claim relates and other equitable considerations. 5.16 Parent Guaranty. Parent guarantees the payment and performance of all --------------- obligations of Employer under this Agreement and agrees it will pay or perform those obligations if for any reason Employer fails to do so. This guarantee is absolute, continuing, irrevocable and not conditional or contingent. Any notice given hereunder to either Employer or Parent will be deemed to be notice to Parent for purposes of this guaranty. 5.17 Prior Employment Agreement. This Agreement supersedes, for all -------------------------- purposes, that certain Employment Agreement, dated as of June 1, 1995, by and between Employer and Employee. * * * * * * * * [Remainder of page intentionally left blank.] 22 IN WITNESS WHEREOF, Employer and Parent have caused this Agreement to be executed by their officer/general partner thereunto duly authorized, and Employee has signed this Agreement, as of the date(s) indicated below. CELLSTAR (ASIA) CORPORATION LIMITED By: /s/ ALAN H. GOLDFIELD ---------------------------------------------- Name: Alan H. Goldfield ---------------------------------------- Title: Director --------------------------------------- Date: CELLSTAR CORPORATION By: /s/ ALAN H. GOLDFIELD ---------------------------------------------- Name: Alan H. Goldfield ---------------------------------------- Title: Chairman and CEO --------------------------------------- Date: /s/ HONG AN-HSIEN -------------------------------------------------- Hong An-Hsien Date: Jan. 22, 1998 23 EX-10.14 4 CREDIT AGREEMENT EXHIBIT 10.14 ******************************************************************************** CREDIT AGREEMENT Dated as of October 15, 1997 by and among CELLSTAR CORPORATION, as Borrower, THE FIRST NATIONAL BANK OF CHICAGO and NATIONAL CITY BANK, as Co-Agents, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent $135,000,000 MULTICURRENCY REVOLVING CREDIT FACILITY ******************************************************************************** TABLE OF CONTENTS -----------------
Page ---- ARTICLE I - Definitions.......................................................... 1 Section 1.1. Definitions............................................. 1 Section 1.2. Other Definitional Provisions........................... 19 ARTICLE II - Advances............................................................ 20 Section 2.1. Advances................................................ 20 Section 2.2. Swing Line.............................................. 20 Section 2.3. Notes................................................... 23 Section 2.4. Repayment of Advances................................... 23 Section 2.5. Interest................................................ 23 Section 2.6. Borrowing Procedure..................................... 23 Section 2.7. Conversions and Continuations........................... 24 Section 2.8. Use of Proceeds......................................... 25 Section 2.9. Commitment Fee.......................................... 25 Section 2.10. Reduction or Termination of Commitments................. 26 Section 2.11. Administrative Fee...................................... 26 ARTICLE III - Letters of Credit.................................................. 26 Section 3.1. Letters of Credit....................................... 26 Section 3.2. Procedure for Issuing Letters of Credit................. 27 Section 3.3. Participation by Banks.................................. 27 Section 3.4. Payments Constitute Advances............................ 27 Section 3.5. Letter of Credit Fee.................................... 27 Section 3.6. Agent's Responsibilities................................ 28 Section 3.7. Letter of Credit Documents.............................. 28 ARTICLE IV - Payments............................................................ 28 Section 4.1. Method of Payment....................................... 28 Section 4.2. Voluntary Prepayment.................................... 29 Section 4.3. Mandatory Prepayment.................................... 29 Section 4.4. Pro Rata Treatment...................................... 30 Section 4.5. Non-Receipt of Funds by the Agent....................... 30 Section 4.6. Withholding Taxes....................................... 30 Section 4.7. Withholding Tax Exemption............................... 31 Section 4.8. Judgment Currency....................................... 31 ARTICLE V - Yield Protection; Limitations on Advances; Capital Adequacy.......... 32 Section 5.1. Additional Costs........................................ 32 Section 5.2. Limitation on Types of Advances......................... 34
-i- TABLE OF CONTENTS ----------------- (continued) Page ----- Section 5.3. Illegality.............................................. 34 Section 5.4. Substitute Floating Rate Advances....................... 35 Section 5.5. Compensation............................................ 35 Section 5.6. Capital Adequacy........................................ 36 Section 5.7. Additional Costs in Respect of Letters of Credit........ 36 ARTICLE VI - Security............................................................ 37 Section 6.1. Collateral.............................................. 37 Section 6.2. Setoff.................................................. 38 Section 6.3. Other Subsidiaries...................................... 39 ARTICLE VII - Conditions Precedent............................................... 39 Section 7.1. Initial Extension of Credit............................. 39 Section 7.2. All Extensions of Credit................................ 43 ARTICLE VIII - Representations and Warranties.................................... 43 Section 8.1. Existence and Authority................................. 43 Section 8.2. Financial Statements.................................... 44 Section 8.3. Corporate Action; No Breach............................. 44 Section 8.4. Operation of Business................................... 44 Section 8.5. Litigation and Judgments................................ 45 Section 8.6. Rights in Properties; Liens............................. 45 Section 8.7. Enforceability.......................................... 45 Section 8.8. Approvals............................................... 45 Section 8.9. Debt.................................................... 45 Section 8.10. Taxes................................................... 45 Section 8.11. Use of Proceeds; Margin Securities...................... 46 Section 8.12. ERISA................................................... 46 Section 8.13. Disclosure.............................................. 46 Section 8.14. Subsidiaries; Foreign Affiliates........................ 46 Section 8.15. Agreements.............................................. 47 Section 8.16. Compliance with Laws.................................... 47 Section 8.17. Investment Company Act.................................. 47 Section 8.18. Public Utility Holding Company Act...................... 47 Section 8.19. Environmental Matters................................... 47 Section 8.20. Patents, Trademarks and Copyrights...................... 47 Section 8.21. Relationship to the Banks............................... 47 Section 8.22. Government Regulation................................... 48 Section 8.23. Foreign Employee Benefit Matters........................ 48
-ii- TABLE OF CONTENTS ----------------- (continued) Page ---- ARTICLE IX - Affirmative Covenants............................................... 48 Section 9.1. Reporting Requirements.................................. 48 Section 9.2. Maintenance of Existence; Conduct of Business........... 50 Section 9.3. Maintenance of Properties............................... 50 Section 9.4. Taxes and Claims........................................ 51 Section 9.5. Insurance............................................... 51 Section 9.6. Inspection Rights....................................... 51 Section 9.7. Keeping Books and Records............................... 51 Section 9.8. Compliance with Laws and Agreements..................... 51 Section 9.9. Further Assurances...................................... 52 Section 9.10. ERISA................................................... 52 Section 9.11. Foreign Employee Benefit Compliance..................... 52 ARTICLE X - Negative Covenants................................................... 52 Section 10.1. Debt.................................................... 52 Section 10.2. Limitation on Liens..................................... 53 Section 10.3. Mergers, Etc............................................ 54 Section 10.4. Restricted Payments..................................... 54 Section 10.5. Loans and Investments................................... 54 Section 10.6. Transactions With Affiliates............................ 56 Section 10.7. Disposition of Assets................................... 57 Section 10.8. Prepayment of Debt...................................... 57 Section 10.9. Nature of Business...................................... 57 Section 10.10. Environmental Protection................................ 57 Section 10.11. Accounting.............................................. 57 ARTICLE XI - Financial Covenants................................................. 58 Section 11.1. Consolidated Tangible Net Worth......................... 58 Section 11.2. Consolidated Interest Coverage Ratio.................... 58 Section 11.3. Companies Interest Coverage Ratio....................... 58 Section 11.4. Minimum Turnover Ratio.................................. 58 Section 11.5. Consolidated Funded Debt to Consolidated Cash Flow Ratio 59 Section 11.6. Consolidated Senior Debt to Consolidated Cash Flow Ratio 59 ARTICLE XII - Default............................................................ 59 Section 12.1. Events of Default....................................... 59 Section 12.2. Remedies Upon Default................................... 61 Section 12.3. Cash Collateral......................................... 62 Section 12.4. Performance by the Agent................................ 62
-iii- TABLE OF CONTENTS ----------------- (continued) Page ---- ARTICLE XIII - The Agent......................................................... 62 Section 13.1. Appointment, Powers and Immunities...................... 62 Section 13.2. Rights of Agent as a Bank............................... 64 Section 13.3. Sharing of Payments, Etc................................ 64 SECTION 13.4. INDEMNIFICATION......................................... 65 Section 13.5. Independent Credit Decisions............................ 65 Section 13.6. Several Commitments..................................... 65 Section 13.7. Successor Agent......................................... 66 ARTICLE XIV - Miscellaneous...................................................... 66 Section 14.1. Expenses................................................ 66 SECTION 14.2. INDEMNIFICATION......................................... 67 Section 14.3. Limitation of Liability................................. 67 Section 14.4. No Fiduciary Relationship............................... 67 Section 14.5. No Waiver; Cumulative Remedies.......................... 68 Section 14.6. Successors and Assigns.................................. 68 Section 14.7. Survival................................................ 71 Section 14.8. ENTIRE AGREEMENT........................................ 71 Section 14.9. Amendments, Etc......................................... 71 Section 14.10. Maximum Interest Rate................................... 72 Section 14.11. Notices................................................. 72 SECTION 14.12. GOVERNING LAW; VENUE; SERVICE OF PROCESS................ 73 Section 14.13. Counterparts............................................ 73 Section 14.14. Severability............................................ 73 Section 14.15. Headings................................................ 73 Section 14.16. Non-Application of Chapter 346 of Texas Finance Code.... 73 Section 14.17. Construction............................................ 74 Section 14.18. Independence of Covenants............................... 74 Section 14.19. WAIVER OF JURY TRIAL.................................... 74
-iv- CREDIT AGREEMENT ---------------- THIS CREDIT AGREEMENT (this "Agreement"), dated as of October 15, 1997, is --------- among CELLSTAR CORPORATION, a Delaware corporation (the "Borrower"), each of the -------- banks or other lending institutions which is or may from time to time become a signatory hereto or any successor or permitted assignee thereof (each a "Bank" ---- and, collectively, the "Banks"), THE FIRST NATIONAL BANK OF CHICAGO and NATIONAL ----- CITY BANK, as co-agents (the "Co-Agents"), and TEXAS COMMERCE BANK NATIONAL --------- ASSOCIATION, a national banking association ("TCB"), as agent for itself and the --- other Banks, as issuer of Letters of Credit hereunder , and as the swing line lender (in such capacity, together with its successors in such capacity, the "Agent"). ----- R E C I T A L S: --------------- A. The Borrower has requested that the Banks, the Co-Agents and the Agent enter into this Agreement in order, among other things, to provide for a revolving credit facility not to exceed an aggregate principal amount of $135,000,000, including (i) a $10,000,000 sub-facility for the issuance of letters of credit, (ii) a $5,000,000 swing line facility and (iii) a $25,000,000 sub-facility for Alternate Currency Advances under the revolving credit facility, all on the terms and conditions set forth herein. B. The Banks are willing to extend credit to the Borrower, and TCB is willing to serve as Agent, upon and subject to the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I Definitions ----------- Section 1.1. Definitions. As used in this Agreement, the following terms ----------- have the following meanings: "A & S" means A & S Air Service, Inc., a Delaware corporation and a ----- Subsidiary of CAS. "ACC" means ACC-CellStar, Inc., a Delaware corporation and a --- Subsidiary of CellStar SA. "Additional Costs" is defined in Section 5.1. ---------------- ----------- "Administrative Questionnaire" means an administrative questionnaire ---------------------------- in a form satisfactory to the Agent which each Bank shall complete and provide to the Agent, setting forth such relevant information as Agent may request regarding such Bank, including without limitation such Bank's Applicable Lending Office for each Type of Advance. "Advance" means an advance of funds by the Banks or any one of them to ------- the Borrower pursuant to Article II or Section 3.4. ---------- ----------- "Advance Request Form" means a certificate, in substantially the form -------------------- of Exhibit B hereto, properly completed and signed by the Borrower --------- requesting an Advance. "Affiliate" means, as to any Person, any other Person (a) that --------- directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds five percent or more of any class of voting stock of such Person; or (c) five percent or more of the voting stock or other ownership, equity or voting interests of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise; provided, however, in no event shall the Agent or any Bank be -------- ------- deemed an Affiliate of the Borrower, any of the Guarantors, any of the Subsidiaries, or any of the Foreign Affiliates. "Alternate Base Rate" means as of any date of determination, a rate ------------------- per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%) equal to the greater of (a) the Prime Rate in effect on such day, or (b) the sum of the Federal Funds Effective Rate in effect on such day plus one- half of one percent. If for any reason the Agent shall have determined (which determination shall be prima facie correct) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure after diligent effort of the Agent to obtain sufficient quotations in accordance with the definition of Federal Funds Effective Rate, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively, without notice to the Borrower. "Alternate Currency" means the following so long as they are Eligible ------------------ Currencies: British pounds sterling, Japanese yen, German deutsche marks, Italian lire, Canadian dollars, Hong Kong dollars, French francs and ECU's. For purposes of this definition of Alternate Currency, "Eligible Currency" ----------------- means any currency other than Dollars that is readily available, freely traded, in which deposits are customarily offered to banks in the London interbank market, convertible into Dollars in the international interbank market and as to which an Equivalent Amount is available in Dollars in the London interbank -2- market (or other market where the Agent's currency exchange operations in respect of the applicable currency are then being conducted). "Alternate Currency Advances" means Advances which are funded in --------------------------- Alternate Currency and bear interest based upon the Alternate Currency Rate. "Alternate Currency Rate" means, for any Alternate Currency Advance ----------------------- for any Interest Period therefor, an interest rate per annum determined by the Agent by dividing: (i) the rate per annum determined by the Agent at or -------- before 10:00 A.M. (Dallas time) (or as soon thereafter as practicable) two Business Days before the first day of such Interest Period to be the rate per annum at which deposits in the relevant Alternate Currency are offered by the Principal Office of the Agent to first class banks in the interbank euro alternate currency market selected by the Agent for a period equal to such Interest Period and in an amount substantially equal to the amount of such Alternate Currency Advance during such Interest Period; by (ii) Statutory Reserves. "Applicable Lending Office" means for each Bank and each Type of ------------------------- Advance, the lending office of such Bank (or of an Affiliate of such Bank) designated for such Type of Advance in the Administrative Questionnaire or such other office of such Bank (or of an Affiliate of such Bank) as such Bank may from time to time specify to the Borrower and the Agent as the office by which its Advances of such Type are to be made and maintained. "Applicable Percentage" means, for any day, (a) with respect to --------------------- Eurodollar Advances, the margin of interest over the Eurodollar Rate that is applicable when any Applicable Rate based on the Eurodollar Rate is determined under this Agreement, (b) with respect to Floating Rate Advances, the margin of interest over the Alternate Base Rate that is applicable when any Applicable Rate based on the Alternate Base Rate is determined under this Agreement, (c) with respect to Alternate Currency Advances, the margin of interest over the Alternate Currency Rate that is applicable when any Applicable Rate based on the Alternate Currency Rate is determined under this Agreement, (d) with respect to commitment fees payable under Section 2.9, the commitment fee percentage that is applicable ----------- when any such commitment fee is determined under this Agreement, and (e) with respect to letter of credit fees payable under Section 3.5, the letter ----------- of credit fee percentage that is applicable when any such letter of credit fee is determined under this Agreement. The Applicable Percentage is subject to adjustment (upwards or downwards, as appropriate) based on the ratio of Consolidated Funded Debt to Consolidated Cash Flow. On each date a Compliance Certificate is due under Section 9.1(d), the Applicable -------------- Percentage shall be adjusted to reflect the Applicable Percentage prescribed below for the ratio of Consolidated Funded Debt to Consolidated Cash Flow as demonstrated by such Compliance Certificate. At all times the Applicable Percentage shall be as follows: -3-
APPLICABLE PERCENTAGE FOR EURODOLLAR RATIO OF CONSOLIDATED ADVANCES, ALTERNATE APPLICABLE MARGIN FUNDED DEBT TO CURRENCY ADVANCES AND FOR FLOATING APPLICABLE CONSOLIDATED CASH FLOW LETTER OF CREDIT FEES RATE ADVANCES COMMITMENT FEE ---------------------- --------------------- ------------- -------------- Less than 1.00 to 1.00 0.875% 0% 0.25% Greater than or equal to 1.00 to 1.000% 0% 0.25% 1.00, but less than 1.50 to 1.00 Greater than or equal to 1.50 to 1.250% 0% 0.30% 1.00, but less than 2.25 to 1.00 Greater than or equal to 2.25 to 1.500% 0% 0.375% 1.00, but less than 3.00 to 1.00 Greater than or equal to 3.00 to 1.750% 0.25% 0.375% 1.00 but less than 3.50 to 1.00 Greater than or equal to 3.50 to 2.000% 0.50% 0.375% 1.00
After each adjustment of the Applicable Percentage in accordance herewith due to a change in the ratio of Consolidated Funded Debt to Consolidated Cash Flow as demonstrated by the Compliance Certificate, the new Applicable Percentage shall apply to all Advances made or outstanding thereafter until the next date that a Compliance Certificate is due under Section 9.1(d) and -------------- demonstrates a change in the ratio of Consolidated Funded Debt to Consolidated Cash Flow to an amount so that another Applicable Percentage shall be applied. Upon the request of the Agent, the Borrower must demonstrate to the reasonable satisfaction of the Agent the required applicable ratio in order to obtain an adjustment to a lower Applicable Percentage. If the Borrower fails to furnish to the Agent any Compliance Certificate by the date required by this Agreement, then the maximum Applicable Percentage shall apply at all times after such date for all Advances made or outstanding after such date until the Borrower furnishes the required Compliance Certificate to the Agent. "Applicable Rate" means: (i) during the period that an Advance is a --------------- Floating Rate Advance (including, without limitation, the Swing Line Advances), the Alternate Base Rate plus the Applicable Percentage; (ii) during the period that an Advance is a Eurodollar Advance, the Eurodollar Rate plus the Applicable Percentage; and (iii) during the period that an Advance is an Alternate Currency Advance, the Alternate Currency Rate plus the Applicable Percentage. -4- "Asset Coverage Amount" means at any time: --------------------- (1) an amount equal to 80% of the sum of (a) Eligible Accounts less (b) Foreign Accounts to the extent Foreign Accounts exceed $15,000,000 in the aggregate; plus ---- (2) an amount equal to the lesser of (a) 50% of Eligible Inventory or (b) 60% of the aggregate amount of the Commitments. "Assignment and Acceptance" means an assignment and acceptance entered ------------------------- into by a Bank and its assignee and accepted by the Agent pursuant to Section 14.6, in substantially the form of Exhibit I hereto. ------------ --------- "Audiomex" means Audiomex Export Corp., a Texas corporation and a -------- Subsidiary of NAC. "Average Inventory" means, as of the end of each fiscal quarter of the ----------------- Borrower, the average inventory of the Borrower and the Subsidiaries on a consolidated basis for the period of the four fiscal quarters then ended, calculated as follows: (a) the sum obtained by adding together the Average Inventory Per Quarter for each of such four fiscal quarters, divided by (b) four. "Average Inventory Per Quarter" means, for any fiscal quarter of the ----------------------------- Borrower, the following for the Borrower and the Subsidiaries on a consolidated basis: (a) the sum of (i) the beginning inventory amount for such quarter, plus (ii) the ending inventory amount for such quarter, divided by (b) two. "Borrower Security Agreement" means the Security Agreement of the --------------------------- Borrower in favor of the Agent in substantially the form of Exhibit E-1 ----------- hereto, as the same may be amended, supplemented, or modified from time to time. "Business Day" means (a) any day on which national banks in Dallas, ------------ Texas are open for the conduct of commercial banking business, and (b) with respect to all borrowings, payments, Conversions, Continuations, Interest Periods, and notices in connection with each Eurodollar Advance or Alternate Currency Advance, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollar or ---------- Alternate Currency deposits are carried out in the relevant interbank market referred to by the Agent to determine the Eurodollar Rate for such Eurodollar Advance or the Alternate Currency Rate for such Alternate Currency Advance and which is also a day on which banks and foreign exchange markets are open for business in London and (if applicable) for the purpose of payments in an Alternate Currency in the principal financial center of the country of such currency. "Capital Lease Obligations" means, as to any Person, the obligations ------------------------- of such Person to pay rent or other amounts under a lease of (or other agreement conveying the -5- right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP. For purposes of this Agreement, the amount of such Capital Lease Obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CAS" means CellStar Air Services, Inc., a Delaware corporation and a --- Subsidiary of the Borrower. "CellStar Asia" means CellStar (Asia) Corporation LTD., a Hong Kong ------------- corporation and a Subsidiary of CellStar International. "CellStar International" means CellStar International ---------------------- Corporation/Asia, a Delaware corporation and a Subsidiary of NAC. "CellStar Ireland" means CellStar Ireland, a United Kingdom company ---------------- resident in Ireland and a Subsidiary, if and when established. "CellStar SA" means CellStar International Corporation/SA, a Delaware ----------- corporation and a Subsidiary of NAC. "Celular Express" means Celular Express S.A. de C.V., a Mexico --------------- corporation and a Subsidiary of Audiomex. "Change of Control" means any of the following: ----------------- (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than an Excluded Person is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 30% or more of the combined voting stock of Borrower ordinarily having the right to vote at an election of directors; provided that no Change of -------- Control shall be deemed to have occurred from a transfer of the Borrower's voting securities by Mr. Alan H. Goldfield ("Goldfield") to (i) a member of Goldfield's immediate family (determined in accordance with Rule 16a-1(e) of the Securities Exchange Act of 1934, as amended) either during Goldfield's lifetime or by will or the laws of descent and distribution; (ii) any trust as to which Goldfield or a member of (or members) of his immediate family is the sole beneficiary; (iii) any trust as to which Goldfield is the settlor and the sole trustee with sole power to revoke; (iv) 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 (v) any charitable trust, foundation or corporation under Section 501(c)(3) of the Internal -6- Revenue Code of 1986, as amended, that is funded and controlled by Goldfield; provided, further, that any further transfer by any of the -------- ------- foregoing Persons is not excluded from being deemed a Change of Control if such further transfer is to a person or group other than those specified in clauses (i) through (v) above; (b) during any period of 12 consecutive calendar months, individuals: (i) who were directors of Borrower on the first day of such period, or (ii) whose election or nomination for election to the board of directors of Borrower was recommended or approved by at least a majority of the directors then still in office who were directors of Borrower on the first day of such period, or whose election or nomination for election was so approved, shall cease to constitute a majority of the board of directors of Borrower; (c) Both Alan H. Goldfield and Richard M. Gozia shall at any time cease to be involved in the management of the Borrower and NAC (other than temporary absences for any period of time not longer than 60 days); and (d) The occurrence of a Change of Control (as defined in the Subordinated Note Documents). "Code" means the Internal Revenue Code of 1986, as amended, and the ---- regulations promulgated and rulings issued thereunder. "Collateral" is defined in Section 6.1. ---------- ----------- "Commitment" means, as to each Bank, the obligation of such Bank to ---------- make Advances pursuant to Sections 2.1 and 2.2 and issue or participate in ------------ --- Letters of Credit pursuant to Sections 3.1 and 3.3 in an aggregate ------------ --- principal amount at any time outstanding up to but not exceeding the amount set forth opposite the name of such Bank on the signature pages hereto under the heading "Commitment", as such amount may be reduced pursuant to Section 2.10 or terminated pursuant to Section 2.10 or Section 12.2. ------------ ------------ ------------ "Commitment Percentage" means, at any time for any Bank, the --------------------- proportion (stated as a percentage) that its Commitment under this Agreement bears to the Banks' total Commitments under this Agreement. "Companies" means, collectively, the Partnerships and NAC; and at all --------- times when the Agent has a first priority security interest in assets of CWI, "Companies" shall also include CWI. --------- -7- "Companies Cash Flow" means, for any period, the sum of the following, ------------------- calculated on a combined basis for the Companies, without duplication: (a) the amount of net income for such period (whether positive or negative) before interest expense, income taxes and extraordinary items, net of (b) all non-cash items (such as deferred taxes, depreciation, amortization of goodwill and all other non-cash charges accrued but not actually paid) which, in determining net income for such period, were deducted from (or included in) gross income for such period; provided, however, that in calculating Companies Cash Flow, changes in -------- ------- the allowance for doubtful accounts shall not be treated as a non-cash item for purposes of such calculation. "Compliance Certificate" means a certificate of the president, chief ---------------------- executive officer, chief financial officer or corporate controller of the Borrower, in the form of Exhibit D hereto, with appropriate completions. --------- "Consolidated Cash Flow" means, for any period, the sum of the ---------------------- following, calculated on a consolidated basis for the Borrower and the Subsidiaries without duplication: (a) the amount of net income for such period (whether positive or negative) before interest expense, income taxes and extraordinary items, net of (b) all non-cash items (such as deferred taxes, depreciation, amortization of goodwill and all other non-cash charges accrued but not actually paid) which, in determining net income for such period, were deducted from (or included in) gross income for such period; provided, however, that in calculating Consolidated Cash Flow, changes -------- ------- in the allowance for doubtful accounts shall not be treated as a non- cash item for purposes of such calculation. "Consolidated Funded Debt" means, at any particular time, the sum of ------------------------ the following, calculated on a consolidated basis for the Borrower and the Subsidiaries in accordance with GAAP: (a) all obligations for borrowed money (whether as a direct obligor on a promissory note, bond, debenture or other similar instrument, as a reimbursement obligor with respect to an issued letter of credit or similar instrument, as an obligor under a Guarantee of borrowed money, or as any other type of direct or contingent obligor), plus (but without duplication) ---- (b) all Capital Lease Obligations (other than the interest component of such obligations). -8- "Consolidated Senior Debt" means Consolidated Funded Debt other than ------------------------ Subordinated Debt. "Consolidated Tangible Net Worth" means, at any particular time, all ------------------------------- amounts which, in conformity with GAAP, would be included as stockholders' or owners' equity on a consolidated balance sheet of the Borrower and the Subsidiaries; provided, however, there shall be excluded therefrom: (a) -------- ------- any amount at which shares of capital stock of any Person appear as an asset on the balance sheet of such Person, (b) goodwill, including any amounts, however designated, that represent the excess of the purchase price paid for assets or stock over the value assigned thereto, (c) patents, trademarks, trade names, and copyrights, (d) deferred expenses, (e) loans and advances to any stockholder, director, officer, partner, or employee of the Borrower, any Subsidiary, or any Affiliate of the Borrower or any Subsidiary, and (f) all other assets which are properly classified as intangible assets. "Continue", "Continuation", and "Continued" shall refer to the -------- ------------ --------- continuation pursuant to Section 2.7 of (a) a Eurodollar Advance as a ----------- Eurodollar Advance from one Interest Period to the next Interest Period and (b) an Alternate Currency Advance as an Alternate Currency Advance from one Interest Period to the next Interest Period. "Convert", "Conversion", and "Converted" shall refer to a conversion ------- ---------- --------- pursuant to Section 2.7 or Article V of one Type of Advance into another ----------- --------- Type of Advance. "Cost of Goods Sold" means, as of the end of each fiscal quarter of ------------------ the Borrower, the cost of goods sold for the Borrower and the Subsidiaries on a consolidated basis in the period of the four fiscal quarters then ended. "CWI" means CellStar West, Inc., a Delaware corporation and a --- Subsidiary of the NAC. "Debt" means as to any Person at any time (without duplication): (a) ---- all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable of such Person arising in the ordinary course of business (including ordinary and customary duties related to purchases of inventory by Foreign Subsidiaries and Foreign Affiliates from or financed by the Companies, or any of them), (d) all Capital Lease Obligations of such Person, (e) all Debt or other obligations (other than trade payables for the purchase of goods or materials in the ordinary course of business) of others Guaranteed by such Person, (f) all obligations secured by a Lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person, (g) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds and similar instruments, -9- and (h) all liabilities of such Person in respect of unfunded vested benefits under any Plan. "Default" means an Event of Default or the occurrence of an event or ------- condition which with notice or lapse of time or both would become an Event of Default. "Default Rate" means the Maximum Rate or, if no Maximum Rate exists, ------------ the sum of the Alternate Base Rate in effect from day to day plus four percent. "Dollars" and "$" mean lawful money of the United States of America. ------- - "Domestic Subsidiary" means any Subsidiary which is domiciled in the ------------------- United States of America. "ECU" means that unit of account known as the ECU that is at present --- used in the European Monetary System, as defined from time to time by the European Community, including changes in the components of the ECU pursuant to the most recent council regulation. "Eligible Accounts" means, at any time, all accounts receivable of the ----------------- Companies, or any of them, that satisfy the following conditions: (a) The account has not been outstanding for more than 90 days past the original date of invoice; (b) A Company has good and indefeasible title to the account, the account is not subject to any Lien except Liens in favor of the Agent, and the Agent has a valid, perfected first priority Lien in the account; and (c) The account is not owed by an employee, a Subsidiary or Affiliate of any Company. "Eligible Assignee" means any commercial bank, savings and loan ----------------- association, savings bank, finance company, insurance company, mutual fund, or other financial institution (whether a corporation, partnership, or other entity) acceptable to the Agent. "Eligible Inventory" means, at any time, all inventory then owned by ------------------ (and in the possession or under the control of) the Companies, or any of them, and held for sale or disposition in the ordinary course of the Companies' business, in which the Agent has a perfected, first priority security interest, valued at the lower of (i) actual cost for the purchase of such inventory from the original wholesale supplier or (ii) fair market value. Eligible Inventory shall not include (a) the value of the obsolescence reserve, (b) inventory located at any location for which a landlord's waiver is required to be delivered under the Loan Documents and has not been received by the Agent, and (c) inventory located outside of the United States of America. -10- "Engagement Letter" means that certain letter agreement dated ----------------- September 8, 1997, among the Borrower, TCB, and Chase Securities, Inc. "Environmental Laws" means any and all United States of America ------------------ federal, state, and local laws, regulations, and requirements pertaining to health, safety, or the environment. "Environmental Liabilities" means all liabilities, obligations, ------------------------- responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, treble damages, costs, expenses, fines, penalties, sanctions, and interest arising from environmental, health or safety conditions or the release or threatened release of a Hazardous Material into the environment, resulting from the past, present, or future operations of the Borrower or any Subsidiary. "Equivalent Amount" means (a) the equivalent in Dollars of any ----------------- Alternate Currency and (b) the equivalent in any Alternate Currency of Dollars. For purposes of this Agreement, each Equivalent Amount shall be determined by using the quoted spot rate at which TCB or any affiliate of TCB offers to exchange Dollars for such Alternate Currency at 11:00 A.M. Dallas, Texas time two Business Days prior to the date on which such equivalent is to be determined pursuant to the provisions of this Agreement. The Agent shall notify each affected Bank of such determination on such date. The Equivalent Amount of each Advance made in Alternate Currency shall be recalculated hereunder on each date it is necessary to determine the unused portion of each Bank's Commitment or any Advances outstanding on such date. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and the regulations and published interpretations thereunder. "ERISA Affiliate" means any corporation or trade or business which is --------------- a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower or any Guarantor or is under common control (within the meaning of Section 414(c) of the Code) with the Borrower or any Guarantor. "Eurodollar Advances" means Advances which are funded in Dollars and ------------------- bear interest at rates determined on the basis of the rates referred to in the definition of "Eurodollar Rate" in this Section 1.1. ----------- "Eurodollar Rate" means, for any Eurodollar Advance for any Interest --------------- Period therefor, an interest rate per annum determined by the Agent at or before 10:00 A.M. (Dallas time) (or as soon thereafter as practicable) two Business Days before the first day of such Interest Period, by dividing: -------- (i) the rate per annum equal to the annual rate of interest shown on the appropriate reference page of Reuters America, Inc. for a period equal to such Interest Period, or if such page is not available, the annual rate of interest shown on the Bloomberg Screen British Banker's LIBOR Fixing for a period equal to such Interest Period, or if neither of the foregoing is available, the rate per annum -11- determined by the Agent to be the rate per annum at which deposits of Dollars are offered by the Principal Office of the Agent to first class banks in the interbank Eurodollar market selected by the Agent for a period equal to such Interest Period and in an amount substantially equal to the amount of such Eurodollar Advance during such Interest Period; by (ii) Statutory Reserves. "Event of Default" is defined in Section 12.1. ---------------- ------------ "Excluded Person" means (a) Alan H. Goldfield, (b) a trustee or other --------------- fiduciary holding securities under an employee benefit plan of the Borrower and acting in such capacity, and (c) a corporation owned, directly or indirectly, by the stockholders of the Borrower in substantially the same proportions as their ownership of voting securities of the Borrower. "Federal Funds Effective Rate" means, for any day, the rate per annum ---------------------------- determined by the Agent to be equal to the weighted average of the rate on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, New York, or if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent in its sole discretion. The determination by the Agent of the rate of interest per annum provided above shall be conclusive absent manifest error. "Fee Letter" means that certain Fee Letter, dated September 8, 1997, ---------- among the Borrower, TCB and Chase Securities, Inc. "Financo" means CellStar Financo, Inc., a Delaware corporation and a ------- Subsidiary of Borrower. "FIRA" is defined in Section 8.21. ---- ------------ "Floating Rate Advances" means Advances which are funded in Dollars ---------------------- and bear interest based upon the Alternate Base Rate, including without limitation, Swing Line Advances. "Foreign Accounts" means all accounts receivable of the Companies, or ---------------- any of them, with respect to which the account debtor is domiciled in any country other than the United States of America. "Foreign Affiliate" means any Person in which the Borrower or any ----------------- Subsidiary has an equity or ownership interest equal to or less than 50% and which is organized or domiciled in any country other than the United States of America. -12- "Foreign Employee Benefit Plan" means any employee benefit plan as ----------------------------- defined in Section 3(3) of ERISA which is maintained or contributed to for the benefit of the employees of Borrower, any of its Subsidiaries or any Affiliates and is not covered by ERISA pursuant to ERISA Section 4(b)(4). "Foreign Pension Plan" means any employee benefit plan as described in -------------------- Section 3(3) of ERISA which (a) is maintained or contributed to for the benefit of employees of Borrower, any of its Subsidiaries or any of its ERISA Affiliates, (b) is not covered by ERISA pursuant to Section 4(b)(4) of ERISA, and (c) under applicable local law, is required to be funded through a trust or other funding vehicle. "Foreign Subsidiary" means any Subsidiary which is organized or ------------------ domiciled in any country other than the United States of America. "Fulfillment" means CellStar Fulfillment, Inc., a Delaware ----------- corporation, a Subsidiary of the Borrower and general partner of CellStar Fulfillment, Ltd. "GAAP" means generally accepted accounting principles, applied on a ---- consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period. "Governmental Authority" means any nation or government, any state or ---------------------- political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government. "Guarantee" by any Person means any obligation, contingent or --------- otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or- pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. -13- "Guaranties" means the guaranties of Guarantors in favor of the Agent ---------- and the Banks, each in substantially the form of Exhibit G hereto, as the --------- same may be amended, supplemented or modified from time to time. "Guarantor Security Agreements" means the security agreements of the ----------------------------- Guarantors in favor of the Agent, in substantially the form of Exhibit E-2 ----------- hereto, as the same may be amended, supplemented or modified from time to time. "Guarantors" means, collectively, the Partnerships, NAC, ACC, Financo, ---------- CWI, Holdings, Fulfillment, CellStar International, Audiomex, CellStar SA, CAS, A & S and each other Subsidiary that at any time executes a Guaranty in favor of the Agents and the Banks. "Hazardous Material" means any substance, product, waste, pollutant, ------------------ material, chemical, contaminant, constituent, or other material which is or becomes listed, regulated, or addressed under any Environmental Law, including, without limitation, asbestos, petroleum, and polychlorinated biphenyls. "Hedging Agreements" is defined in Section 10.12. ------------------ ------------- "Hedging Obligations" of a Person means any and all obligations of ------------------- such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross- currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collateral protection agreements, forward rate currency or interest rate options, puts and warrants, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "Holdings" means NAC Holdings, Inc., a Nevada corporation, a -------- Subsidiary of the Borrower and the limited partner of CellStar, Ltd. and CellStar Fulfillment, Ltd. "Interest Coverage Ratio" means the ratio of (a) Consolidated Cash ----------------------- Flow to (b) interest expense of the Borrower and the Subsidiaries on a consolidated basis. "Interest Period" means with respect to any Eurodollar Advances or --------------- Alternate Currency Advances, each period commencing on the date such Advances are made or Converted from Floating Rate Advances or, in the case of each subsequent, successive Interest Period applicable to a Eurodollar Advance or an Alternate Currency Advance, the last day of the next preceding Interest Period with respect to such Advance, and ending on the numerically corresponding day in the first, second, or third calendar month thereafter, as the Borrower may select as provided in Section 2.6 or 2.7 ----------- --- hereof, except -14- that each such Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (a) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (b) any Interest Period which would otherwise extend beyond the Termination Date shall end on the Termination Date; (c) no more than five Interest Periods for Eurodollar Advances shall be in effect at the same time; (d) no more than five Interest Periods for Alternate Currency Advances shall be in effect at the same time; and (e) no Interest Period for any Eurodollar Advances or any Alternate Currency Advances shall have a duration of less than one month and, if the Interest Period for any Eurodollar Advances or any Alternate Currency Advances would otherwise be a shorter period, such Advances shall not be available hereunder. "L/C Application" is defined in Section 3.1. --------------- ----------- "L/C Documents" is defined in Section 3.1. ------------- ----------- "Letter of Credit" means any letter of credit issued by the Agent for ---------------- the liability of the Borrower pursuant to Article III. ----------- "Letter of Credit Liabilities" means, at any time, the aggregate face ---------------------------- amounts of all outstanding Letters of Credit. "Letter of Credit Request Form" means a certificate, in substantially ----------------------------- the form of Exhibit C hereto, properly completed and signed by the Borrower --------- requesting issuance of a Letter of Credit. "Lien" means any lien, mortgage, security interest, tax lien, ---- financing statement, pledge, charge, hypothecation, assignment, preference, priority, or other encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law, or otherwise. "Loan Documents" means this Agreement and all promissory notes, -------------- security agreements, pledge agreements, assignments, letters of credit, guaranties, L/C Documents, and other instruments, documents, and agreements executed and delivered pursuant to or in connection with this Agreement, as such instruments, documents, and agreements may be amended, modified, renewed, extended, or supplemented from time to time; provided, however that "Loan Documents" shall not include the Subordinated Note Documents. -------------- "Material Adverse Effect" means a material adverse effect on the ----------------------- business, condition (financial or otherwise), operations, prospects, or properties of the Borrower or the Subsidiaries and the Foreign Affiliates taken as a whole or the ability of the Borrower or any Guarantor to pay and perform the Obligations. -15- "Maximum Rate" means, at any time, the maximum rate of interest under ------------ applicable law that the Banks may charge the Borrower. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments, and other charges in respect of the Loan Documents that constitute interest under applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrower at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be the applicable interest rate ceiling described in, and computed in accordance with, Article 5069-1D.001 et seq., Vernon's Texas Civil Statutes. "Multiemployer Plan" means a multiemployer plan defined as such in ------------------ Section 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "NAC" means National Auto Center, Inc., a Delaware corporation, and a --- Subsidiary of the Borrower. "Net Proceeds" from any issuance, sale or other disposition of any ------------ shares of equity securities (or any securities convertible or exchangeable for any such shares, or any rights, warrants, or options to subscribe for or purchase any such shares) means the amount equal to (a) the aggregate gross proceeds of such issuance, sale or other disposition, less (b) the following: (i) placement agent fees, (ii) underwriting discounts and commissions, (iii) bank and other lender fees, and (iv) legal fees and other expenses payable by the issuer in connection with such issuance, sale or other disposition. "Notes" means, collectively, the Revolving Credit Notes. ----- "Obligated Party" means any Guarantor or any other Person who is or --------------- becomes party to any agreement that guarantees or secures payment and performance of the Obligations or any part thereof. "Obligations" means all obligations, indebtedness, and liabilities of ----------- the Borrower to the Agent and the Banks, or any of them, arising pursuant to any of the Loan Documents, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several (including, without limitation, all of the Borrower's contingent reimbursement obligations in respect of Letters of Credit and Hedging Obligations), and all interest accruing thereon and all attorneys' fees and other expenses incurred in the enforcement or collection thereof. "Partnerships" means, collectively, CellStar, Ltd. and CellStar ------------ Fulfillment, Ltd., each a Texas limited partnership. "Payor" is defined in Section 4.5. ----- ----------- -16- "PBGC" means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to all or any of its functions under ERISA. "Person" means any individual, corporation, business trust, ------ association, company, partnership, joint venture, Governmental Authority, or other entity. "Plan" means any employee benefit or other plan established or ---- maintained by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA. "Pledge Agreements" means the pledge agreements of the Borrower, ----------------- Fulfillment, Holdings, Audiomex, NAC, CAS and CellStar International in favor of the Agent in substantially the form of Exhibit F hereto, as the --------- same may be amended, supplemented or modified from time to time. "Prime Rate" means the Prime Rate as announced from time to time by ---------- the Agent, automatically fluctuating upward or downward with each announcement without notice to the Borrower or any other Person. The Borrower understands that the Prime Rate may not be the Agent's best or lowest rate or a favored rate, and any statement, representation or warranty to that effect is expressly disclaimed by the Agent and the Banks. "Principal Office" means the principal office of the Agent, presently ---------------- located at 1111 Fannin St., 9th Floor, MS46, Houston, Texas 77002 and, for purposes of interest rate determinations, at 707 Travis, Houston, Texas 77002. "Prohibited Transaction" means any transaction set forth in Section ---------------------- 406 of ERISA or Section 4975 of the Code. "Quarterly Payment Date" means the last day of each March, June, ---------------------- September, and December of each year, the first of which shall be the first such day after the date of this Agreement. "Refunded Swing Line Advances" is defined in Section 2.2. ---------------------------- ----------- "Register" is defined in Section 14.6(d). -------- --------------- "Regulation D" means Regulation D of the Board of Governors of the ------------ Federal Reserve System as the same may be amended or supplemented from time to time. "Regulatory Change" means, with respect to any Bank, any ----------------- implementation, adoption or change after the date of this Agreement of United States federal, state, or foreign laws, rules or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives, or requests applying to a class of banks including such Bank of or under any United States federal or state, or any foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. -17- "Reportable Event" means any of the events set forth in Section 4043 ---------------- of ERISA. "Required Banks" means (a) prior to termination of the Commitments, at -------------- any time while no Advances are outstanding, the Banks having at least 50.1% of the aggregate amount of the Commitments and, at any time while Advances are outstanding, the Banks holding at least 50.1% of the outstanding aggregate principal amount of the Advances other than Swing Line Advances, and (b) after termination of the Commitments, the Banks holding at least 50.1% of the outstanding aggregate principal amount of the Advances, including Swing Line Advances. "Required Payment" is defined in Section 4.5. ---------------- ----------- "Restricted Payment" means, as to any Person, (a) the declaration or ------------------ payment of any dividends or any other payment or distribution (in cash, property, or obligations) by a Person on account of such Person's capital stock, (b) the redemption, purchase, retirement, or other acquisition by a Person of any of its capital stock, or (c) the setting apart of any money for a sinking fund or other analogous fund for any dividend or other distribution on such Person's capital stock or for any redemption, purchase, retirement, or other acquisition of any of such Person's capital stock. "Revolving Credit Note" means a promissory note of the Borrower --------------------- payable to the order of a Bank, in substantially the form of Exhibit A --------- hereto, and all extensions, renewals, and modifications thereof. "Significant Subsidiary" means at any time (a) each Domestic ---------------------- Subsidiary, (b) CellStar Asia, (c) Celular Express, (d) CellStar International Telefonia Celular Ltda., a Brazilian corporation and a Subsidiary of CellStar SA, (e) CellStar Pacific Pte. Ltd., a Singapore corporation and a Subsidiary of CellStar International, and (f) each other Foreign Subsidiary that has assets, revenues or losses that are greater than 10% of the total assets, revenues or losses, respectively, of the Borrower and the Subsidiaries on a consolidated basis as of the end of Borrower's most recent fiscal quarter then ended. "Specified Currency" is defined in Section 4.8. ------------------ ----------- "Statutory Reserves" means the difference (expressed as a decimal) of ------------------ the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency, or supplemental reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve System and any other banking authority to which the Agent is subject for Eurocurrency Liabilities (as defined in Regulation D). Such reserve percentages shall include, without limitation, those imposed under Regulation D. Eurodollar Advances and Alternate Currency Advances shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to the Lender -18- under Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Debt" means all Debt of the Borrower and the ----------------- Subsidiaries subordinated in right of payment to the Obligations pursuant to documents containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to the Required Banks. "Subordinated Note Documents" means that certain Indenture dated as of --------------------------- October 14, 1997, relating to $150,000,000 of convertible subordinated notes due October 15, 2002 and all promissory notes and other documents and agreements executed and delivered pursuant to or in connection with such Indenture. "Subsidiary" means (a) any corporation of which at least a majority of ---------- the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by one or more of the Borrower and the Subsidiaries, and (b) any other entity (i) of which at least a majority of the ownership, equity or voting interests is at the time directly or indirectly owned or controlled by one or more of the Borrower and the Subsidiaries and (ii) which is treated as a subsidiary in accordance with GAAP. Without in any way limiting the foregoing, the Subsidiaries shall include the Partnerships. "Swing Line" means the swing line facility provided by the Agent under ---------- Section 2.2. ----------- "Swing Line Advance" means, any Floating Rate Advance disbursed by the ------------------ Agent to or on behalf of the Borrower under the Swing Line. "Swing Line Commitment" means, at any time, the Commitment of the --------------------- Agent under the Swing Line in the amount specified on the signature pages hereto. "Termination Date" means 11:00 A.M. Dallas, Texas time on June 1, ---------------- 2002, or such earlier date on which the Commitments terminate as provided in this Agreement. "Type" means any type of Advance (i.e., Floating Rate Advance, ---- Eurodollar Advance, Swing Line Advance or Alternate Currency Advance). "UCC" means the Uniform Commercial Code as in effect in the State of --- Texas. Section 1.2. Other Definitional Provisions. All definitions contained in ----------------------------- this Agreement are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein", and "hereunder" and words of similar import referring to this Agreement refer to this -19- Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all Article and Section references pertain to this Agreement. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. Terms used herein that are defined in the UCC, unless otherwise defined herein, shall have the meanings specified in the UCC. Unless indicated otherwise, all references to amounts expressed in Dollars shall be deemed to refer also to the Equivalent Amounts thereof. ARTICLE II Advances -------- Section 2.1. Advances. Subject to the terms and conditions of this -------- Agreement, each Bank severally agrees to make one or more Advances to the Borrower from time to time from the date hereof to and including the Termination Date in an aggregate principal amount at any time outstanding up to but not exceeding the amount of such Bank's Commitment as then in effect, provided that: (a) the aggregate amount of all Advances at any time outstanding shall not exceed, and the Banks shall not be obligated to make any Advance which would cause the aggregate amount of all outstanding Advances to exceed, the amount equal to (i) the lesser of (A) the aggregate amount of the Commitments or (B) the Asset Coverage Amount, minus (ii) the Letter of Credit Liabilities; and (b) the aggregate amount of all Alternate Currency Advances at any time outstanding shall not exceed, and the Banks shall not be obligated to make any Alternate Currency Advances which would cause the aggregate amount of all outstanding Alternate Currency Advances to exceed the Equivalent Amount of $25,000,000. Subject to the foregoing limitations, and the other terms and provisions of this Agreement, the Borrower may borrow, repay, and reborrow hereunder. The Borrower may borrow hereunder by means of Floating Rate Advances, Alternate Currency Advances or Eurodollar Advances and, until the Termination Date, the Borrower may Convert all or part of one Type of Advance into another Type of Advance or Continue all or part of any Eurodollar Advance or Alternate Currency Advance. Advances of each Type made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Advances of such Type. Section 2.2. Swing Line. ---------- (a) Subject to the terms and conditions of this Agreement, the Agent agrees to make loans to the Borrower as Swing Line Advances from time to time until and including the Business Day immediately preceding the Termination Date and not thereafter, in an aggregate principal amount at any time outstanding not to exceed its Swing Line Commitment, provided that at any time, the sum of the aggregate amount of all outstanding Advances plus the Letter of Credit Liabilities shall not exceed the lesser of the Asset Coverage Amount or the aggregate amount of the Commitments (as such -20- amount is reduced or cancelled in accordance with this Agreement). At any time until and including the Business Day immediately preceding the Termination Date, the Borrower may use the Swing Line by borrowing, prepaying the aggregate amount of all outstanding Advances under the Swing Line in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The proceeds of each Swing Line Advance shall be used by the Borrower solely for its short-term cash needs for working capital and general business purposes. (b) Each Swing Line Advance shall be a Floating Rate Advance and shall bear interest prior to maturity at a rate per annum equal to the lesser of (a) the Applicable Rate, or (b) the Maximum Rate. The Borrower shall not be entitled to Convert Swing Line Advances into either Eurodollar Advances or Alternate Currency Advances. (c) The Borrower may request Swing Line Advances by giving written notice to the Agent. Such notice shall be irrevocable and must be received by the Agent prior to 2:00 P.M. Dallas, Texas time for Swing Line Advances to be made by crediting the account of Borrower maintained with the Agent and prior to 1:00 P.M. Dallas, Texas time for Swing Line Advances to be made by wire transfer, in either case on the same Business Day as the requested date of the Swing Line Advance (which shall be a Business Day). Such notice shall be given by means of an Advance Request Form, specifying (i) the requested date of such Swing Line Advance (which shall be a Business Day), and (ii) the amount of the requested Swing Line Advance, which shall be in a minimum amount of $100,000. The proceeds of such Swing Line Advance will be made available by the Agent to the Borrower at the Principal Office on the requested date of such Advance by crediting the account of the Borrower maintained with the Agent with such proceeds or by wire transfer in accordance with written instructions from the Borrower. Notwithstanding anything to the contrary contained herein, the Borrower may, at any time and from time to time, prepay the aggregate amount of outstanding Swing Line Advances, in whole or in part, without premium or penalty, by giving the Agent at least one Business Day advance irrevocable notice of the date and amount of prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. (d) Notwithstanding anything herein to the contrary, the Agent shall not fund any Swing Line Advances if the conditions set forth in Article VII ----------- have not been satisfied. (e) The Agent, at any time in its sole and absolute discretion, may, on behalf of the Borrower (which hereby irrevocably directs the Agent to act on its behalf) request each Bank (including TCB), by giving written notice to the Agent and each Bank, to make a Floating Rate Advance in an amount equal to such Bank's Commitment Percentage of the amount of the Swing Line Advances outstanding on the date such notice is given or such lesser amount as the Agent shall specify (the "Refunded Swing Line ------------------- Advances"). Unless any of the events described in Section 12.1(e) or --------------- 12.1(f) shall have occurred with respect to the Borrower (in which event ------- the procedures specified in -21- Section 2.2(f) shall apply) each Bank shall make the proceeds of its -------------- Advance available to the Agent at the Principal Office prior to 12:00 noon (Dallas, Texas time) in funds immediately available on the Business Day next succeeding the date such notice is given. The proceeds of such Floating Rate Advances shall be immediately applied to repay the Refunded Swing Line Advances. Effective on the day such Floating Rate Advances are made, the portion of the Swing Line Advances so paid shall no longer be outstanding as Swing Line Advances, and shall be due under the respective Revolving Credit Notes payable to the Banks in accordance with their respective Commitment Percentages. (f) If prior to the making of an Advance pursuant to Section 2.2(e) -------------- one of the events described in Section 12.1(e) or 12.1(f) shall have --------------- ------- occurred and be continuing with respect to the Borrower, each Bank will, on the date such Advance was to have been made pursuant to Section 2.2(e), -------------- purchase an undivided participating interest in the Refunded Swing Line Advances in an amount equal to (i) its Commitment Percentage times (ii) the ----- Refunded Swing Line Advances. Each Bank will immediately transfer to the Agent, in immediately available funds, the amount of its participation. Thereafter, all payments of principal and interest on the Refunded Swing Line Advances shall be made to and distributed to the Banks by the Agent. (g) Whenever, at any time after any Bank has purchased a participating interest in a Swing Line Advances, the Agent receives any payment on account thereof, the Agent will distribute to such Bank its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank's participating interest was outstanding and funded); provided, -------- however, that in the event that such payment received by the Agent is ------- thereafter recovered from the Agent in connection with any bankruptcy or insolvency proceeding of the Borrower or otherwise, such Bank will return to the Agent any portion thereof previously distributed by the Agent to it. (h) Each Bank's obligation to make the Advances referred to in Section 2.2(e) and to purchase participating interests pursuant to Section -------------- ------- 2.2(f) shall be absolute and unconditional and shall not be affected by any ------ circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right which such Bank or the Borrower may have against the Agent, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Documents by the Borrower, any Guarantor or any other Bank; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, however, that (x) the Banks' obligations -------- ------- under Section 2.2(e) shall be subject to the minimum amounts specified in -------------- Section 2.6 so long as no Default or Event of Default is continuing, and ----------- (y) no Bank shall be required to make an Advance or purchase a participating interest in a Swing Line Advance that would cause the aggregate amount of such Lender's Advances, participations in Swing Line Advances and share of Letter of Credit Liabilities to exceed its Commitment under this Agreement. -22- Section 2.3. Notes. The obligation of the Borrower to repay each Bank for ----- Advances made by such Bank and interest thereon shall be evidenced by a Revolving Credit Note executed by the Borrower, payable to the order of such Bank, in the principal amount of such Bank's Commitment as in effect on the date hereof, and dated the date hereof. Section 2.4. Repayment of Advances. The Borrower shall repay the unpaid --------------------- principal amount of all Advances on the Termination Date. Section 2.5. Interest. The unpaid principal amount of the Advances shall -------- bear interest prior to maturity at a varying rate per annum equal from day to day to the lesser of (a) the Maximum Rate, or (b) the Applicable Rate. Interest on the Eurodollar Advances and Alternate Currency Advances shall be computed on the basis of a year of 360 days and the actual number of days elapsed; provided that, in the case of Advances denominated in any Alternate Currency in respect of which the Agent has determined that a 365-day basis is standard market practice in the applicable interbank market, interest shall be calculated on the basis of a year of 365 days and the actual number of days elapsed. Interest on the Floating Rate Advances shall be computed on the basis of a year of 360 days and the actual number of days elapsed at all times when the Alternate Base Rate is based on the Federal Funds Effective Rate and a year of 365 or 366 days, as the case may be, and the actual number of days elapsed at all times when the Alternate Base Rate is the Prime Rate. If at any time the Applicable Rate for any Advance shall exceed the Maximum Rate, thereby causing the interest accruing on such Advance to be limited to the Maximum Rate, then any subsequent reduction in the Applicable Rate for such Advance shall not reduce the rate of interest on such Advance below the Maximum Rate until the aggregate amount of interest accrued on such Advance equals the aggregate amount of interest which would have accrued on such Advance if the Applicable Rate had at all times been in effect. Accrued and unpaid interest on the Advances shall be due and payable as follows: (i) in the case of Floating Rate Advances, on each Quarterly Payment Date; (ii) in the case of each Eurodollar Advance and each Alternate Currency Advance, on the last day of the Interest Period with respect thereto; (iii) upon the payment or prepayment of any Advance or the Conversion of any Advance to an Advance of another Type (but only on the principal amount so paid, prepaid, or Converted); and (iv) on the Termination Date. All past due principal and interest shall bear interest at the Default Rate. Interest payable at the Default Rate shall be payable from time to time on demand. Section 2.6. Borrowing Procedure. The Borrower shall give the Agent ------------------- notice of each requested Advance (other than Swing Line Advances), by means of an Advance Request Form, before 11:00 A.M. Dallas, Texas time (a) on the same Business Day as the requested date of each -23- Floating Rate Advance, (b) at least three Business Days before the requested date of each Eurodollar Advance, and (c) at least four Business Days before the requested date of each Alternate Currency Advance, specifying: (i) the requested date of such Advance (which shall be a Business Day), (ii) the amount of such Advance, (iii) the Type of the Advance, (iv) in the case of Alternate Currency Advances, the requested Alternate Currency, it being agreed that Advances made on any one day shall be made in the same currency, and (v) in the case of a Eurodollar Advance or an Alternate Currency Advance, the duration of the Interest Period for such Advance. The Agent at its option may accept telephonic requests for Advances, provided that such acceptance shall not constitute a waiver of the Agent's right to delivery of an Advance Request Form in connection with subsequent Advances. Any telephonic request for an Advance by the Borrower shall be promptly confirmed by submission of a properly completed Advance Request Form to the Agent. Each Advance (other than Swing Line Advances) shall be in a minimum principal amount of $1,000,000 or the Equivalent Amount thereof or such greater amount which is an integral multiple of $100,000 or the Equivalent Amount thereof. The aggregate principal amount of Eurodollar Advances having the same Interest Period shall be at least equal to $1,000,000. The aggregate principal amount of Alternate Currency Advances having the same Interest Period shall be at least equal to the Equivalent Amount of $1,000,000. The Agent shall notify each Bank of the contents of each such notice on the day such notice is received by the Agent if received by 11:00 A.M. Dallas, Texas time on a Business Day and otherwise on the next succeeding Business Day. Promptly on the date specified for each Advance hereunder, each Bank will make available to the Agent at the Principal Office or, as to Alternate Currency Advances, at the office designated by Agent for such Alternate Currency, in the specified Alternate Currency for Alternate Currency Advances and in Dollars for all other Advances and in immediately available funds, for the account of the Borrower, such Bank's pro rata share of each Advance. After the Agent's receipt of such funds and subject to the terms and conditions of this Agreement, the Agent will (a) make each Advance (other than Alternate Currency Advances) available to the Borrower by depositing the same, in Dollars in immediately available funds, in an account of the Borrower maintained with the Agent designated by the Borrower or by wire transfer in accordance with written instructions from the Borrower, and (b) will make each Alternate Currency Advance available to the Borrower by depositing the same, in the requested Alternate Currency in immediately available funds, in an account of the Borrower maintained with a financial institution in the country where such Alternate Currency is legal tender, designated by the Borrower by written notice to the Agent containing the information specified in Exhibit K hereto for such account, --------- which notice shall be received by the Agent at least five Business Days before the requested date of such Alternate Currency Advance. All notices by the Borrower to the Agent under this Section shall be irrevocable and shall be given not later than the time specified above for such notice on the day which is not less than the number of Business Days specified above for such notice. Section 2.7. Conversions and Continuations. The Borrower shall have the ----------------------------- right from time to time to Convert all or part of one Type of Advance (excluding Swing Line Advances) into another Type of Advance or to Continue all or part of any Eurodollar Advance or any Alternate Currency Advance by giving the Agent written notice (by means of an Advance Request Form) at least one Business Day before Conversion into a Floating Rate Advance, and -24- at least three Business Days before Conversion into or Continuation of a Eurodollar Advance or an Alternate Currency Advance, specifying: (i) the Conversion or Continuation date, (ii) the amount of the Advance to be Converted or Continued, (iii) in the case of Conversions, the Type of Advance to be Converted into, (iv) in the case of Alternate Currency Advances, the requested Alternate Currency, and (v) in the case of a Continuation of or Conversion into a Eurodollar Advance or an Alternate Currency Advance, the duration of the Interest Period applicable thereto; provided that (a) Eurodollar Advances and Alternate Currency Advances may only be Converted on the last day of the Interest Period, (b) except for Conversions to Floating Rate Advances, no Conversions shall be made while a Default or Event of Default has occurred and is continuing and no Continuations of any Eurodollar Advances or any Alternate Currency Advances shall be made while a Default or an Event of Default has occurred and is continuing, unless such Conversion or Continuation has been approved by Required Banks, (c) the aggregate principal amount of Eurodollar Advances having the same Interest Period shall be at least equal to $1,000,000 and (d) the aggregate principal amount of Alternate Currency Advances having the same Interest Period shall be at least equal to the Equivalent Amount of $1,000,000. All notices given under this Section shall be irrevocable and shall be given not later than 11:00 A.M. Dallas, Texas time on the day which is not less than the number of Business Days specified above for such notice. If the Borrower shall fail to give the Agent the notice as specified above for Continuation or Conversion of a Eurodollar Advance prior to the end of the Interest Period with respect thereto, such Eurodollar Advance shall automatically be Converted into a Floating Rate Advance on the last day of the Interest Period for such Eurodollar Advance. If Borrower shall fail to give the Agent notice as specified above for the Continuation or Conversion of an Alternate Currency Advance prior to the end of the Interest Period with respect thereto, such Alternate Currency Advance shall be Continued for an Interest Period of one month; provided, however, that no Alternate Currency Advance shall be Continued as such if a Default or Event of Default has occurred and continuing but in such event shall instead be Converted to a Floating Rate Advance in Dollars at the end of the applicable Interest Period. Section 2.8. Use of Proceeds. The proceeds of Advances shall be used by --------------- the Borrower and the Subsidiaries (subject to the terms and provisions of this Agreement) for working capital in the ordinary course of business and general corporate purposes and to refinance existing Debt. All advances of loan proceeds by Borrower to any Guarantor shall be evidenced by a promissory note payable by such Guarantor to the order of the Borrower, and each such promissory note shall be endorsed to the order of the Agent and subject to a security interest in favor of the Agent pursuant to the Loan Documents. Section 2.9. Commitment Fee. The Borrower agrees to pay to the Agent for -------------- the account of each Bank a commitment fee equal to the Applicable Percentage of the daily average unused amount of such Bank's Commitment. The commitment fee shall be in each case based on a 360 day year and the actual number of days elapsed. For the purpose of calculating the commitment fee hereunder, (a) the Commitments of the Banks other than the Agent shall be deemed utilized by the amount of all outstanding Advances of such Banks (which shall not include Swing Line Advances) and all Letter of Credit Liabilities of such Banks, and (b) the Commitments of the Agent shall be deemed utilized by the amount of all outstanding Advances of the Agent (which -25- shall include outstanding Swing Line Advances) and all Letter of Credit Liabilities of the Agent. Accrued commitment fees shall be payable in arrears on each Quarterly Payment Date and on the Termination Date. Section 2.10. Reduction or Termination of Commitments. The Borrower shall --------------------------------------- have the right to terminate in whole or reduce in part the unused portion of the Commitments upon at least five Business Days prior notice (which notice shall be irrevocable) to the Agent specifying the effective date thereof, whether a termination or reduction is being made, and the amount of any partial reduction, provided that each partial reduction shall be in a minimum amount of $1,000,000 or Equivalent Amount or such greater amount which is an integral multiple of $100,000 or Equivalent Amount and the Borrower shall simultaneously prepay the amount by which the unpaid principal amount of the Advances exceeds the Commitments (after giving effect to such notice) plus accrued and unpaid interest on the principal amount so prepaid. The Commitments may not be reinstated after they have been terminated or reduced. Section 2.11. Administrative Fee. The Borrower shall pay to the Agent, ------------------ solely for its own account, an administrative fee as provided in the Fee Letter. ARTICLE III Letters of Credit ----------------- Section 3.1. Letters of Credit. Subject to the terms and conditions of ----------------- this Agreement, the Agent agrees to issue one or more Letters of Credit denominated and payable in Dollars for the account of the Borrower from time to time from the date hereof to and including the Termination Date; provided, -------- however, that the outstanding Letter of Credit Liabilities shall not at any time - ------- exceed, and the Agent shall not be obligated to issue any Letter of Credit which would cause the outstanding Letter of Credit Liabilities to exceed, the lesser of (a) $10,000,000 or (b) an amount equal to (i) the lesser of the aggregate amount of the Commitments or the Asset Coverage Amount, minus (ii) the outstanding Advances. Each Letter of Credit may be issued for the account of or used by the Borrower or any Subsidiary of the Borrower (including the Partnerships), but the Borrower shall have full liability for each Letter of Credit. Each Letter of Credit shall have an expiration date not to exceed one year, shall not have an expiration date beyond the Termination Date, shall be payable in Dollars, shall have a minimum face amount of $50,000, must support a transaction that is entered into in the ordinary course of the Borrower's or its Subsidiaries' business, must be satisfactory in form and substance to the Agent, and shall be issued pursuant to such documents and instruments (including, without limitation, the Agent's standard application for issuance of standby or commercial letters of credit, as the case may be, as then in effect [each an "L/C Application"]) as the Agent may require (collectively, the "L/C - ---------------- --- Documents"). A copy of the form of L/C Application which is in effect as of the - --------- date hereof for standby letters of credit is attached hereto as Exhibit H-1, and ----------- a copy of the form of L/C Application which is in effect as of the date hereof for commercial letters of credit is attached hereto as Exhibit H-2. However, ----------- the form of L/C Application may be changed by the Agent from time to time without notice to the Borrower or the Banks. -26- Section 3.2. Procedure for Issuing Letters of Credit. Each Letter of --------------------------------------- Credit shall be issued on at least four Business Days prior notice from the Borrower to the Agent by means of a Letter of Credit Request Form describing the transaction proposed to be supported thereby and specifying (a) the requested date of issuance (which shall be a Business Day), (b) the face amount of the Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name and address of the beneficiary, and (e) the name and address of the account party (which shall be the Borrower or a Subsidiary of the Borrower), (f) the purpose for which such Letter of Credit will be used, and (g) the form of the draft and any other documents required to be presented at the time of any drawing (such notice to set forth the exact wording of such documents or to attach copies thereof). The Agent shall notify each Bank of the contents of each such notice on the day such notice is received by Agent if received by 11:00 A.M. Dallas, Texas time on a Business Day and otherwise on the next succeeding Business Day. Section 3.3. Participation by Banks. Immediately upon the Agent's ---------------------- issuance of any Letter of Credit on or after the date hereof, the Agent shall be deemed to have sold and transferred to each other Bank and each other Bank shall be deemed irrevocably and unconditionally to have purchased and received from the Agent, without recourse or warranty, an undivided interest and participation (to the extent of such Bank's Commitment Percentage) in such Letter of Credit and all applicable rights of the Agent in such Letter of Credit. The Agent shall provide to each other Bank a copy of each Letter of Credit issued on or after the date hereof, promptly after issuance. Section 3.4. Payments Constitute Advances. Each payment by the Agent ---------------------------- pursuant to a drawing under a Letter of Credit shall constitute and be deemed a Floating Rate Advance by each Bank to the Borrower under such Bank's Note and this Agreement as of the day and time such payment is made by the Agent and in the amount of such Bank's pro rata share of such payment. Promptly on the date of each payment by the Agent pursuant to a drawing under a Letter of Credit and after receipt of notice from the Agent as to the amount of such payment, each Bank will make available to the Agent at the Principal Office in immediately available funds, such Bank's pro rata share of such payment. Section 3.5. Letter of Credit Fee. The Borrower shall pay to the Agent -------------------- for the account of the Banks a nonrefundable letter of credit fee with respect to standby Letters of Credit, payable on the date each such Letter of Credit is issued in an amount equal to the Applicable Percentage per annum of the face amount of such Letter of Credit, for the period during which such Letter of Credit will remain outstanding. The letter of credit fee is based on a 365 or 366 day year, as the case may be, and the actual number of days in the stated term of such Letter of Credit. The Borrower shall pay to the Agent for the account of the Banks a nonrefundable letter of credit fee with respect to commercial Letters of Credit, payable on the date each such Letter of Credit is issued, for the three month period following such issuance, and on the first day of each succeeding three month period, if such Letter of Credit is outstanding on such day. Each such fee for commercial Letters of Credit shall be in an amount equal to the Applicable Percentage per annum of the face amount of such Letter of Credit, for each such entire three month period, regardless of whether such Letter of Credit actually remains outstanding for such -27- entire three month period, and shall be calculated based on a 365 or 366 day year, as the case may be. The Borrower shall pay to the Agent, solely for its own account, a nonrefundable issuance and fronting fee for each Letter of Credit in an amount equal to one eighth of one percent per annum of the face amount of such Letter of Credit, calculated on the basis of a year of 365 or 366 days, as the case may be, and payable on the date each such Letter of Credit is issued. Section 3.6. Agent's Responsibilities. Agent agrees with each Bank that ------------------------ it will exercise and give the same care and attention to each Letter of Credit as it gives to its other letters of credit. Each Bank and the Borrower agree that, in paying any draft or draw under any Letter of Credit, the Agent has no responsibility to obtain any document (other than any documents expressly required by the respective Letter of Credit) or to ascertain or inquire as to any document's validity, enforceability, sufficiency, accuracy or genuineness or the authority of any Person delivering it. Neither the Agent nor any of its representatives, directors, officers, employees, attorneys or agents shall be liable to any Bank, the Borrower or any Subsidiary for any Letter of Credit's use or for any beneficiary's acts or omissions. The Agent shall have no liability to the Borrower, any Subsidiary or any Bank for any action, inaction, error, delay or omission taken or suffered by the Agent or any of its representatives, directors, officers, employees, attorneys or agents in connection with any Letter of Credit, applicable draws, drafts or documents, or the transmission, dispatch or delivery of any related message or advice, if done, taken or made in accordance with the L/C Documents. Section 3.7. Letter of Credit Documents. Certain additional provisions -------------------------- regarding the obligations, liabilities, rights, remedies and agreements of the Borrower and the Agent relative to the Letters of Credit shall be set forth in the L/C Documents. The terms of this Agreement shall control any express conflict between the terms of this Agreement and the terms of any L/C Application. ARTICLE IV Payments -------- Section 4.1. Method of Payment. All payments of principal, interest, and ----------------- other amounts to be made by the Borrower under this Agreement and the other Loan Documents (other than payments of principal and interest with respect to Alternate Currency Advances) shall be made to the Agent at the Principal Office in Dollars and immediately available funds, without setoff, deduction, or counterclaim, not later than 11:00 A.M., Dallas, Texas time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). All payments of principal and interest to be made by the Borrower under this Agreement and the other Loan Documents with respect to Alternate Currency Advances shall be made to the Agent, in such Alternate Currency and immediately available funds, without setoff, deduction, or counterclaim, to such account at such bank, in the country where such Alternate Currency is legal tender, as the Agent may designate to the Borrower. Such payments of principal and interest with respect to Alternate -28- Currency Advances shall be made no later than 11:00 A.M. local time in the place where such bank is located on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). The Borrower shall, at the time of making each payment under this Agreement and the other Loan Documents, specify to the Agent the sums payable by the Borrower under this Agreement and the other Loan Documents to which such payment is to be applied (and in the event the Borrower fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may apply such payment to the Obligations in such order and manner as it may elect in its sole discretion, subject to Section 4.4 ----------- hereof). Each payment received by the Agent under this Agreement or any other Loan Document for the account of a Bank shall be paid promptly to such Bank, in immediately available funds, for the account of such Bank's Applicable Lending Office. Whenever any payment under this Agreement or any other Loan Document shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and commitment fee, as the case may be. Each payment received by Agent hereunder or under any Note shall be paid promptly to the Banks in accordance with Section ------- 4.4, in immediately available funds, for the account of each Bank's Applicable - --- Lending Office for the Advance in respect of which such payment is made. If the Borrower notifies the Agent not later than fifteen Business Days prior to the date on which a payment in ECU's is to be made by the Borrower under this Agreement that, in its opinion, sufficient ECU's will not be available to it on the due date to make such payment in ECU's, such payment shall be made in such immediately available, freely convertible and freely transferable currency or currencies as may be agreed between the Borrower, the Agent and the Required Banks, and, failing such agreement prior to the fifth Business Day preceding the due date for the payment in question, such currency or currencies as may be specified by the Agent with the approval of the Required Banks (being a component currency of the ECU or Dollars or any combination thereof. Section 4.2. Voluntary Prepayment. The Borrower may prepay the Advances -------------------- in whole at any time or from time to time in part without premium or penalty but with accrued interest to the date of prepayment on the amount so prepaid, provided that (a) the Borrower shall give the Agent at least five Business Days' prior notice of any prepayment of Advances other than Floating Rate Advances, (b) each partial prepayment of any Advances (excluding Swing Line Advances) shall be in the principal amount of $1,000,000 or the Equivalent Amount or such greater amount which is an integral multiple of $1,000,000 or the Equivalent Amount, and (c) any and all amounts required pursuant to Section 5.5 hereof ----------- shall be paid concurrently with such prepayment. All notices under this Section shall be irrevocable and shall be given not later than 11:00 A.M. Dallas, Texas time on the day which is not less than the number of Business Days specified above for such notice. Section 4.3. Mandatory Prepayment. If at any time the amount equal to the -------------------- sum of (i) the outstanding principal amount of the Advances, plus (ii) the Letter of Credit Liabilities exceeds the lesser of the Asset Coverage Amount or the aggregate amount of the Commitments, the Borrower shall promptly prepay the outstanding Advances by the amount of the excess plus -29- accrued and unpaid interest on the amount so prepaid or, if no Advances are outstanding, the Borrower shall immediately pledge to the Agent cash or cash equivalent investments in an amount equal to the excess as security for the Obligations. Section 4.4. Pro Rata Treatment. Except to the extent otherwise provided ------------------ herein: (a) each Advance shall be made by the Banks under Section 2.1 or 2.2 or ----------- --- deemed made by the Banks under Section 3.4, each payment of the commitment fee ----------- under Section 2.9 and each letter of credit fee under Section 3.5 shall be made ----------- ----------- for the account of the Banks, each termination or reduction of the Commitments under Section 2.10 shall be applied to the Commitments of the Banks, and each ------------ Letter of Credit shall be deemed participated in by the Banks, pro rata according to the amounts of their respective Commitments; (b) the making, Conversion, and Continuation of Advances of a particular Type (other than Conversions provided for by Section 5.4) shall be made pro rata among the Banks ----------- holding Advances of such Type according to the amounts of their respective Commitments; (c) each payment and prepayment of principal of or interest on Advances by the Borrower of a particular Type shall be made to the Agent for the account of the Banks holding Advances of such Type pro rata in accordance with the respective unpaid principal amounts of such Advances held by such Banks; and (d) Interest Periods for Advances of a particular Type shall be allocated among the Banks holding Advances of such Type pro rata according to the respective principal amounts held by such Banks. Section 4.5. Non-Receipt of Funds by the Agent. Unless the Agent shall --------------------------------- have been notified by a Bank or the Borrower (the "Payor") prior to the date on ----- which such Bank is to make payment to the Agent of the proceeds of an Advance to be made by it hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Banks, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon ---------------- receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the Agent the amount made available to it together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Effective Rate for such period. Section 4.6. Withholding Taxes. All payments by the Borrower of principal ----------------- of and interest on the Advances and of all fees and other amounts payable under any Loan Document are payable without deduction for or on account of any present or future taxes, duties or other charges levied or imposed by the United States of America or by the government of any jurisdiction outside the United States of America or by any political subdivision or taxing authority of or in any of the foregoing through withholding or deduction with respect to any such payments, or otherwise with respect to any Alternate Currency Advances. If any such taxes, duties or other charges are so levied or imposed, the Borrower will pay additional interest or will make additional payments in such amounts so that every net payment of principal of and interest on the Advances and of all other amounts payable by it under any Loan Document, after -30- withholding or deduction for or on account of any such present or future taxes, duties or other charges, will not be less than the amount provided for herein or therein, provided that the Borrower shall have no obligation to pay such additional amounts to any Bank to the extent that such taxes, duties, or other charges are levied or imposed by reason of the failure of such Bank to comply with the provisions of Section 4.7. The Borrower shall furnish promptly to the ----------- Agent for distribution to each affected Bank, as the case may be, official receipts evidencing any such withholding or reduction and shall confirm that all applicable taxes, if any, imposed on this Agreement or transactions hereunder shall have been properly and legally paid by it to the appropriate taxing authorities by sending official tax receipts or notarized copies of such receipts to the Agent within 30 days after payment of any applicable tax. The Borrower agrees to cause all present and future taxes, duties or other charges levied or imposed by the government of any jurisdiction outside the United States of America or by any political substitution or taxing authority thereof (including those to be paid on behalf of any Bank, if any) directly to the appropriate Governmental Authority. Upon written demand by the Agent, the Borrower shall indemnify the Agent and the Banks and hold them harmless for the full amount of such taxes, duties or other charges payable with respect to any Alternate Currency Advance and any liabilities (including penalties, interest and expenses) arising from such taxes. Section 4.7. Withholding Tax Exemption. Each Bank that is not ------------------------- incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Bank is entitled to receive payments from the Borrower under any Loan Document without deduction or withholding of any United States federal income taxes. Each Bank which so delivers a Form 1001 or 4224 further undertakes to deliver to the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Bank is entitled to receive payments from the Borrower under any Loan Document without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Borrower and the Agent that it is not capable of receiving such payments without any deduction or withholding of United States federal income tax. Section 4.8. Judgment Currency. If, for the purposes of obtaining ----------------- judgment in any court, it is necessary to convert a sum due from the Borrower hereunder or under any of the Notes in the currency expressed to be payable herein or under the Notes (the "Specified Currency") into another currency, the ------------------ parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the Specified Currency with such other currency at the Principal Office on the Business Day preceding that on which the final, non-appealable -31- judgment is given. The obligations of the Borrower in respect of any sum due to any Bank or the Agent hereunder or under any Note shall, notwithstanding any judgment in a currency other than the Specified Currency, be discharged only to the extent that on the Business Day following receipt by such Bank or the Agent (as the case may be) of any sum adjudged to be so due in such other currency such Bank or the Agent (as the case may be) may in accordance with normal, reasonable banking procedures purchase the Specified Currency with such other currency. If the amount of the Specified Currency so purchased is less than the sum originally due to such Bank or the Agent, as the case may be, in the Specified Currency, the Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Bank or the Agent, as the case may be, against such loss, and if the amount of the Specified Currency so purchased exceeds (a) the sum originally due to any Bank or the Agent, as the case may be, in the Specified Currency and (b) any amounts shared with the other Banks as a result of allocations of such excess as a disproportionate payment to such Bank under Section 13.3, such Bank or the Agent, as the case may be, agrees to remit such - ------------ excess to the Borrower. Without prejudice to the survival of any of the other agreements of the Borrower hereunder, the agreements and obligations of the Borrower under this Section 4.8 shall survive the termination of this Agreement ----------- and the payment of all other amounts owing hereunder. ARTICLE V Yield Protection; Limitations on Advances; Capital Adequacy ----------------------------------------------------------- Section 5.1. Additional Costs. ---------------- (a) The Borrower shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate it for any costs incurred by such Bank which such Bank determines are attributable to its making or maintaining of any Eurodollar Advances or any Alternate Currency Advances hereunder or its obligation to make such Advances hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any such Advances or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: ---------------- (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Note in respect of any Eurodollar Advances or any Alternate Currency Advances (other than taxes imposed on the overall net income of such Bank or its Applicable Lending Office for any Eurodollar Advances or any Alternate Currency Advances by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio, or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Bank (including (A) any Eurodollar Advances or any deposits referred to in the -32- definition of "Eurodollar Rate" in Section 1.1 hereof or (B) any ----------- Alternate Currency Advances or any deposits referred to in the definition of "Alternate Currency Rate" in Section 1.1 hereof); or ----------- (iii) imposes any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments. Each Bank will notify the Borrower (with a copy to the Agent) of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this Section 5.1(a) as promptly as practicable -------------- after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for Eurodollar Advances or Alternate Currency Advances if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Bank, violate any law, rule, or regulation or be in any way disadvantageous to such Bank, provided that such Bank shall have no obligation to so designate an Applicable Lending Office located outside the United States of America. Each Bank will furnish to the Borrower, within 180 days after the occurrence of the event resulting in Additional Costs, a certificate setting forth the basis and the amount of each request of such Bank for compensation under this Section 5.1(a). -------------- If any Bank requests compensation from the Borrower under this Section ------- 5.1(a), the Borrower may, by notice to such Bank (with a copy to Agent), ------ suspend the obligation of such Bank to make or Continue making, or Convert Advances into, Eurodollar Advances or Alternate Currency Advances until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.4 hereof shall be applicable) and ----------- may Convert any Eurodollar Advance into a Floating Rate Advance or Convert any Alternate Currency Advance into a Floating Rate Advance which is funded in Dollars, subject to the provisions of Section 5.5. ----------- (b) Without limiting the effect of the foregoing provisions of this Section 5.1, in the event that, by reason of any Regulatory Change, any ----------- Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on Eurodollar Advances or Alternate Currency Advances is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes Eurodollar Advances or Alternate Currency Advances or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Borrower the obligation of such Bank to make or Continue making, or Convert Advances into, Eurodollar Advances or Alternate Currency Advances hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.4 hereof shall be applicable). ----------- (c) Determinations and allocations by any Bank for purposes of this Section 5.1 of the effect of any Regulatory Change on its costs of ----------- maintaining its -33- obligations to make Advances or of making or maintaining Advances or on amounts receivable by it in respect of Advances, and of the additional amounts required to compensate such Bank in respect of any Additional Costs, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. Section 5.2. Limitation on Types of Advances. Anything herein to the ------------------------------- contrary notwithstanding, if with respect to any Eurodollar Advances or any Alternate Currency Advances for any Interest Period therefor: (a) The Agent determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definitions of "Eurodollar Rate" and "Alternate Currency Rate" in Section 1.1 hereof are not being provided in the relative amounts or for ----------- the relative maturities for purposes of determining the rate of interest for such Advances as provided in this Agreement; or (b) Required Banks determine (which determination shall be conclusive) that the relevant rates of interest referred to in the definitions of "Eurodollar Rate" and "Alternate Currency Rate" in Section ------- 1.1 hereof on the basis of which the rate of interest for such Advances for --- such Interest Period is to be determined do not accurately reflect the cost to the Banks of making or maintaining such Advances for such Interest Period; or (c) There occurs on or before the date an Alternate Currency Advance is to be made any material adverse change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which would in the opinion of Agent make it impracticable for the Alternate Currency Advance to be denominated in the Alternate Currency specified by the Borrower; then the Agent shall give the Borrower prompt notice thereof specifying relevant amounts or periods, and so long as such condition remains in effect, the Banks shall be under no obligation to make additional Eurodollar Advances or Alternate Currency Advances or to Convert Floating Rate Advances into Eurodollar Advances or Alternate Currency Advances, and the Borrower shall, (i) on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Advances, either prepay such Eurodollar Advances or Convert such Eurodollar Advances into Floating Rate Advances in accordance with the terms of this Agreement, and (ii) either prepay such Alternate Currency Advances or Convert such Alternate Currency Advances into Floating Rate Advances funded in Dollars in accordance with the terms of this Agreement. Section 5.3. Illegality. Notwithstanding any other provision of this ---------- Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to (a) honor its obligation to make Eurodollar Advances or Alternate Currency Advances hereunder or (b) maintain Eurodollar Advances or Alternate Currency Advances hereunder, then such Bank shall promptly notify the Borrower (with a copy to the Agent) thereof and such Bank's obligation to make or maintain Eurodollar Advances or Alternate Currency Advances and to Convert Floating -34- Rate Advances into Eurodollar Advances or Alternate Currency Advances hereunder shall be suspended until such time as such Bank may again make and maintain Eurodollar Advances or Alternate Currency Advances (in which case the provisions of Section 5.4 hereof shall be applicable). ----------- Section 5.4. Substitute Floating Rate Advances. If the obligation of any --------------------------------- Bank to make Eurodollar Advances or Alternate Currency Advances shall be suspended pursuant to Section 5.1 or 5.3 hereof, all Advances which would be ----------- --- otherwise made by such Bank as Eurodollar Advances or Alternate Currency Advances shall be made instead as Floating Rate Advances in Dollars and all Advances which would otherwise be Converted into Eurodollar Advances or any Alternate Currency Advances shall be Converted instead into (or shall remain as) Floating Rate Advances in Dollars (and, if an event referred to in Section ------- 5.1(b) or 5.3 hereof has occurred and such Bank so requests by notice to the - ------ --- Borrower (with a copy to the Agent), all Eurodollar Advances and all Alternate Currency Advances of such Bank then outstanding shall be automatically Converted into Floating Rate Advances in Dollars on the date specified by such Bank in such notice) and, to the extent that Eurodollar Advances and Alternate Currency Advances are so made as (or Converted into) Floating Rate Advances, all payments and prepayments of principal which would otherwise be applied to such Bank's Eurodollar Advances or Alternate Currency Advances shall be applied instead to its Floating Rate Advances. Section 5.5. Compensation. The Borrower shall pay to the Agent for the ------------ account of each Bank, upon the request of such Bank through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank ) to compensate it for any loss, cost, or expense incurred by it as a result of: (a) Any payment, prepayment or Conversion of a Eurodollar Advance or an Alternate Currency Advance for any reason (including, without limitation, the acceleration of outstanding Advances pursuant to Section ------- 12.2) on a date other than the last day of an Interest Period for such ---- Advance; or (b) Any failure by the Borrower for any reason (including, without limitation, the failure of any conditions precedent specified in Article ------- VII to be satisfied) to borrow, Convert, or prepay a Eurodollar Advance or --- an Alternate Currency Advance on the date for such borrowing, Conversion, or prepayment, specified in the relevant notice of borrowing, prepayment, or Conversion under this Agreement; or (c) Any failure to pay any Alternate Currency Advance in the Alternate Currency in which it was made. Without limiting the effect of the preceding sentence, such compensation shall include, without limitation, (i) an amount equal to the excess, if any, of (1) the amount of interest which otherwise would have accrued on the principal amount so paid or Converted or not borrowed for the period from the date of such payment, Conversion, or failure to borrow to the last day of the Interest Period for such Advance (or, in the case of a failure to borrow, the Interest Period for such -35- Advance which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Advance provided for herein over (2) the interest component of the amount such Bank would have bid in the London interbank market for Dollar deposits (or deposits in the applicable Alternate Currency) of leading banks and amounts comparable to such principal amount and with maturities comparable to such period, (ii) any loss or reasonable expense sustained or incurred in liquidating or employing deposits from third Persons acquired to effect or maintain such Alternate Currency Advance or Eurodollar Advance or any part thereof, (iii) any loss incurred in liquidating or closing out any foreign currency contract undertaken by such Bank in funding and maintaining such Alternate Currency Advance, and (iv) any loss arising from any change in the value of Dollars in relation to any such Alternate Currency Advance which was not paid on the date due between the date such payment was due and the date of payment, or which was not paid in the Alternate Currency in which it was made, all as determined by such Bank in its good faith discretion. Section 5.6. Capital Adequacy. If after the date hereof, any Bank shall ---------------- have determined that any Regulatory Change or compliance by such Bank (or its parent) with any guideline, request, or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other Governmental Authority, has or would have the effect of reducing the rate of return on such Bank's (or its parent's) capital as a consequence of its obligations hereunder or the transactions contemplated hereby to a level below that which such Bank (or its parent) could have achieved but for such Regulatory Change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 10 Business Days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank (or its parent) such additional amount or amounts as will compensate such Bank for such reduction. Each Bank will furnish to the Borrower, within 180 days after such Bank actually incurs such reduction in its rate of return, a certificate of such Bank claiming compensation under this Section and setting forth the basis and the additional amount or amounts to be paid to it hereunder. Each such certificate shall be conclusive, provided that the determination of such amount or amounts is made on a reasonable basis. In determining such amount or amounts, such Bank may use any reasonable averaging and attribution methods. Section 5.7. Additional Costs in Respect of Letters of Credit. If as a ------------------------------------------------ result of any Regulatory Change there shall be imposed, modified, or deemed applicable any tax, reserve, special deposit, or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder or the Commitments to issue or participate in Letters of Credit hereunder, and the result shall be to increase the cost to the Agent or any Bank of issuing, maintaining or participating in any Letter of Credit or its Commitment to issue or participate in Letters of Credit hereunder or reduce any amount receivable by the Agent or any Bank hereunder in respect of any Letter of Credit (which increase in cost, or reduction in amount receivable, shall be the result of the Agent's or such Bank's reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by the Agent or such Bank, the Borrower agrees to pay the Agent or such Bank, as the case may be, from time to time as specified by the Agent or such Bank, as the case may be, such additional amounts as -36- shall be sufficient to compensate the Agent or such Bank for such increased costs or reductions in amount. Each Bank will furnish to the Borrower, within 180 days after such Bank actually incurs such increase in cost or reduction in amount receivable, a certificate of such Bank claiming compensation under this Section and setting forth the basis and the additional amount or amounts to be paid to it hereunder. Each such certificate shall be conclusive, provided that the determination of such amount or amounts is made on a reasonable basis. ARTICLE VI Security -------- Section 6.1. Collateral. To secure full and complete payment and ---------- performance of the Obligations, the Borrower shall execute and deliver or cause to be executed and delivered the documents described below covering the property and collateral described in this Section 6.1 (which, together with any other ----------- property and collateral which may now or hereafter secure the Obligations or any part thereof, is sometimes herein called the "Collateral"): ---------- (a) The Borrower shall grant to the Agent, for the pro rata benefit of the Banks, a first priority security interest in all of the Borrower's personal property, including without limitation all of its accounts, accounts receivable, equipment, furniture, fixtures, inventory, chattel paper, documents, instruments and general intangibles, whether now owned or hereafter acquired, and all products and proceeds thereof, pursuant to the Borrower Security Agreement, provided that the Agent's security interest in the Collateral shall be junior in priority to any prior Liens thereon existing on the date hereof and permitted under this Agreement. (b) The Guarantors shall grant to the Agent, for the pro rata benefit of the Banks, a first priority security interest in all personal property of the Guarantors, including without limitation all accounts, accounts receivable, equipment (except that one certain aircraft owned by A & S), furniture, fixtures, inventory, chattel paper, documents, instruments and general intangibles of each Guarantor, whether now owned or hereafter acquired, and all products and proceeds thereof, pursuant to the Guarantor Security Agreements, provided that the Agent's security interest in the Collateral shall be junior in priority to any prior Liens thereon existing on the date hereof and permitted under this Agreement. (c) The Borrower shall grant to the Agent, for the pro rata benefit of the Banks, a first priority security interest in all of the Borrower's shares of capital stock of NAC, Financo and CAS pursuant to a Pledge Agreement. (d) NAC shall grant to Agent, for the pro rata benefit of the Banks, a first priority security interest in (a) all of NAC's shares of capital stock of Holdings, Fulfillment, and CWI, (b) 65% of the shares of voting stock and all of the shares of non-voting preferred stock of CellStar SA, Audiomex and CellStar International, and -37- (c) all of NAC's rights, titles and interests as a general partner of CellStar, Ltd. pursuant to a Pledge Agreement. (e) CAS shall grant to the Agent, for the pro rata benefit of the Banks, a first priority security interest in all of the shares of capital stock of A & S, pursuant to a Pledge Agreement. (f) CellStar SA shall grant to the Agent, for the pro rata benefit of the Banks, a first priority security interest in all of CellStar SA's shares of capital stock of ACC, pursuant to a pledge agreement. (g) CellStar International shall grant to the Agent, for the pro rata benefit of the Banks, a first priority security interest in 65% of the shares of capital stock of CellStar Asia, pursuant to a Pledge Agreement. (h) Audiomex shall grant to the Agent, for the pro rata benefit of the Banks, a first priority security interest in 65% of the shares of capital stock of Celular Express, pursuant to a Pledge Agreement. (i) Fulfillment shall grant to the Agent, for the pro rata benefit of the Banks, a security interest in all of its rights, titles and interest as a general partner of CellStar Fulfillment, Ltd., pursuant to a Pledge Agreement. (j) Holdings shall grant to the Agent, for the pro rata benefit of the Banks, a security interest in all of its rights, titles and interest as a limited partner of the Partnerships pursuant to a Pledge Agreement. (k) The Borrower and each Guarantor shall execute and cause to be executed such further documents and instruments, including without limitation Uniform Commercial Code financing statements, as the Agent, in its sole discretion, deems necessary or desirable to create, evidence, preserve, and perfect its liens and security interest in the Collateral. Notwithstanding any provision or language to the contrary, nothing herein or in the Loan Documents shall operate or be construed to create any assignment, mortgage or Lien in any mark of Borrower or any Guarantor which is the subject of an intent-to-use application for federal registration under 15 U.S.C. (S)1051(b), prior to the filing of the Verified Statement of Use under 15 U.S.C. (S)1051(d) or any assignment, mortgage or Lien otherwise prohibited under the provisions of the second sentence of 15 U.S.C. (S)1060. Section 6.2. Setoff. If an Event of Default shall have occurred and be ------ continuing, each Bank shall have the right to set off and apply against the Obligations in such manner as such Bank may determine, at any time and without notice to the Borrower, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by -38- or owing from such Bank to the Borrower whether or not the Obligations are then due. Each Bank agrees to promptly notify the Agent after any such setoff and application. The rights and remedies of the Banks hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Banks may have. Section 6.3. Other Subsidiaries. Each Person which is now or hereafter ------------------ becomes a Subsidiary (other than Foreign Subsidiaries) shall execute and deliver to the Agent (a) a Guaranty in form and substance satisfactory to the Agent, pursuant to which such Subsidiary guaranties the prompt payment and performance in full of all of the Obligations, and (b) a Guarantor Security Agreement in form and substance satisfactory to the Agent, pursuant to which such Subsidiary grants to the Agent, for the pro rata benefit of the Banks, a first priority security interest in all of such Subsidiary's personal property, including without limitation the types of personal property described in Section 6.1(b), -------------- whether now owned or hereafter acquired, and all products and proceeds thereof. With regard to each Person which is now or hereafter becomes a Subsidiary (other than Foreign Subsidiaries), the Borrower shall execute or cause to be executed a pledge agreement in form and substance satisfactory to the Agent, pursuant to which the Agent, for the pro rata benefit of the Banks, is granted a first priority security interest (a) in the case of a Domestic Subsidiary (excluding the holding company of any Foreign Subsidiary), in all of the capital stock of such Subsidiary, and (b) in the case of a holding company of any Foreign Subsidiary, 65% of the shares of voting stock and all of the shares of non- voting preferred stock of such Subsidiary. The Borrower shall cause to be executed and delivered to the Agent (i) such further documents and instruments, including without limitation Uniform Commercial Code financing statements, as the Agent in its sole discretion deems necessary or desirable to create, evidence, preserve, and perfect its Liens in the Collateral, and (ii) such legal opinions, corporate and partnership documents and certificates as Agent or its counsel may require in connection with the documents executed and delivered pursuant to this Section. ARTICLE VII Conditions Precedent -------------------- Section 7.1. Initial Extension of Credit. The obligation of the Banks to --------------------------- make the initial Advance or issue the initial Letter of Credit hereunder is subject to the condition precedent that the Agent shall have received on or before the day of such Advance or Letter of Credit all of the following, each dated (unless otherwise indicated) the date hereof, in form and substance satisfactory to the Agent: (a) Resolutions. Resolutions of the Board of Directors of the ----------- Borrower and each Guarantor certified by the Secretary or an Assistant Secretary of such Person which authorize (i) the execution, delivery, and performance by the Borrower of this Agreement and the other Loan Documents to which such Person is or is to be a party, (ii) the execution, delivery, and performance by each Guarantor of the Guaranty and other Loan Documents to which such Person is or is to be a party, and (iii) the execution, delivery -39- and performance by NAC, Holdings and Fulfillment, respectively, on behalf of the Partnerships, of the Loan Documents to which the Partnerships are or are to be parties; (b) Incumbency Certificate. A certificate of incumbency certified by ---------------------- the Secretary or an Assistant Secretary of the Borrower and each Guarantor, respectively, certifying the names of (i) the officers of the Borrower authorized to sign this Agreement and each of the other Loan Documents to which the Borrower is or is to be a party (including the certificates contemplated herein) together with specimen signatures of such officers, (ii) the officers of each Guarantor authorized to sign the Guaranty and the other Loan Documents to which each Guarantor is or is to be a party (including the certificates contemplated herein) together with specimen signatures of such officers, and (iii) the officers of NAC, Holdings and Fulfillment on behalf of the Partnerships authorized to sign the Loan Documents to which the Partnerships, respectively, are or are to be parties (including the certificates contemplated therein) together with specimen signatures of such officers; (c) Articles of Incorporation. The articles or certificate of ------------------------- incorporation of the Borrower and each Guarantor, if applicable, respectively, certified by the Secretary of State of such Person's state of incorporation and dated within 20 days prior to the date hereof; (d) Bylaws. The bylaws of the Borrower and each Guarantor, if ------ applicable, certified by the Secretary or an Assistant Secretary of such Person; (e) Governmental Certificates. Certificates of the appropriate ------------------------- governmental officials of the respective states of incorporation of the Borrower and each Guarantor as to the existence and good standing of such Persons and certificates of the appropriate governmental officials of each state where any such Persons own property, conduct business or employ any Persons as to the qualification and good standing of such Persons, respectively, in such jurisdictions, each dated within 20 days prior to the date hereof. (f) Partnership Agreements. A copy of the Agreement of Limited ---------------------- Partnership of each Partnership, certified by the Secretary or an Assistant Secretary of the general partner of such Partnership; (g) Certificate of Limited Partnership. Certificate of Limited ----------------------------------- Partnership, certified by the Secretary of State of the State of Texas, for each of the Partnerships, dated within 20 days prior to the date hereof; (h) Partnership Governmental Certificates. Certificates of the ------------------------------------- Secretary of State of the State of Texas as to the existence of each of the Partnerships, and certificates of the appropriate governmental officials of each state where the Partnerships conduct business or employ any Persons as to the qualification of the Partnerships to do business in such jurisdictions, each dated within 20 days prior to the date hereof; -40- (i) Notes. The Notes of each Bank executed by the Borrower; ----- (j) Borrower Security Agreement. The Borrower Security Agreement --------------------------- executed by the Borrower; (k) Guarantor Security Agreements. The Guarantor Security Agreements ----------------------------- executed by the respective Guarantors; (l) Pledge Agreements. The Pledge Agreements, each executed by the ----------------- Borrower, Fulfillment, Holdings, Audiomex, NAC, CAS and CellStar International; (m) Financing Statements. Uniform Commercial Code financing -------------------- statements executed by the Borrower and the Guarantors and covering such Collateral as the Agent may request; (n) Intellectual Property Documentation. Documentation satisfactory ----------------------------------- to the Agent, executed by the appropriate parties, (i) for recording in the U.S. Patent and Trademark Office to properly reflect Agent's security interest in all U.S. patents, trademarks and applications therefor of the Borrower and the Guarantors, and (ii) for recording with the United States Library of Congress to properly reflect Agent's security interest in all U.S. copyrights and applications therefor of the Borrower and the Guarantors; (o) Guaranties. The Guaranties executed by the Guarantors; ---------- (p) Contribution and Indemnification Agreement. A Contribution and ------------------------------------------ Indemnification Agreement in the form of Exhibit J hereto, executed by the --------- Borrower and the Guarantors; (q) Intercompany Loan Documentation. Documentation (including without ------------------------------- limitation promissory notes, security agreements and financing statements) satisfactory to Agent evidencing advances made or to be made by the Borrower or any Guarantor to any Guarantor and obligations of such Guarantor to repay such advances, such obligations to be secured by a second priority security interest on the Collateral, and all of such obligations, security interests and documentation to be subject to a security interest in favor of the Agent pursuant to the Loan Documents; (r) Landlord and Mortgagee Waivers. Landlord and mortgagee waivers ------------------------------ required by Section 4.7 of the Borrower Security Agreement and the ----------- Guarantor Security Agreements to be delivered on or before the date hereof; (s) L/C Documents. With respect to issuance of any Letter of Credit, ------------- Agent shall have received all applicable L/C Documents, if any, as required by Section 3.1; ----------- -41- (t) Insurance Policies. Certificate of insurance with respect to all ------------------ insurance policies required by Section 9.5, and reflecting loss payable ----------- endorsements in favor of the Agent with respect to all insurance policies covering Collateral; (u) UCC Search. The results of a Uniform Commercial Code search ---------- showing all financing statements and other documents or instruments on file against the Borrower and the Guarantors in the office of the Secretary of State of the State of Texas and such other jurisdictions as the Agent may request, each such search to be as of a date no more than 10 days prior to the date hereof; (v) Opinion of Counsel. Favorable opinions of (i) Haynes & Boone, ------------------ legal counsel to the Borrower, Guarantors and the Subsidiaries, (ii) Hong Kong counsel to CellStar International, and (iii) Mexico counsel to Audiomex, in form and substance satisfactory to the Agent, as to such matters as the Agent may reasonably request; (w) Fees. Evidence that all fees provided for in the Engagement ---- Letter and the Fee Letter shall have been paid in full by the Borrower; (x) Financial Statements. A copy of Form 10Q of the Borrower and the -------------------- Subsidiaries on a consolidated basis for the fiscal quarter ended August 31, 1997 and for the portion of the fiscal year then ended; (y) Compliance Certificate. An initial Compliance Certificate dated ---------------------- as of the date hereof for the fiscal quarter ended August 31, 1997, executed by the president, chief executive officer, chief financial officer or corporate controller of the Borrower; (z) Solvency Certificate. A certificate, in form and substance -------------------- satisfactory to the Agent, executed by the chief financial officer of the Borrower as to the solvency of each of the Companies; (aa) Subordinated Notes. Evidence that Borrower shall have issued at ------------------ least $75,000,000 in convertible subordinated notes which mature at least 120 days after the Termination Date and evidenced by the Subordinated Note Documents satisfactory in form and substance to the Banks in their sole discretion, including a copy of the Subordinated Note Documents; (bb) Payoff Letters and Termination of Liens. Payoff letters from --------------------------------------- each of the prior lenders of the Borrower and its Subsidiaries who are being paid in full with Advances made under this Agreement or with advances made under the Subordinated Note Documents, which payoff letters shall set forth the amount owing by the Borrower to such prior lender and shall state that such prior lender shall terminate all of its Liens against the Collateral; and -42- (cc) Legal Structure. Evidence of legal structure of the Borrower and --------------- its Subsidiaries, in form and substance satisfactory to Banks. Section 7.2. All Extensions of Credit. The obligation of the Banks to ------------------------ make any Advance or issue any Letter of Credit (including the initial Advance and the initial Letter of Credit) is subject to the following additional conditions precedent: (a) Request for Advance or Letter of Credit. The Agent shall have --------------------------------------- received in accordance with Section 2.6 or 3.2, as the case may be, an ----------- --- Advance Request Form or Letter of Credit Request Form dated the date of such Advance or Letter of Credit and executed by an authorized officer of the Borrower; (b) L/C Documents. With respect to any Letter of Credit, Agent shall ------------- have received all applicable L/C Documents as required by Section 3.1; ----------- (c) No Default. No Default shall have occurred and be continuing, or ---------- would result from such Advance or Letter of Credit; (d) Representations and Warranties. All of the representations and ------------------------------ warranties contained in Article VIII hereof and in the other Loan Documents ------------ shall be true and correct on and as of the date of such Advance with the same force and effect as if such representations and warranties had been made on and as of such date; (e) No Material Adverse Change. No material adverse change in the -------------------------- Borrower or its Subsidiaries shall have occurred since the date of the most recent financial statements delivered by Borrower to Agent or could be reasonably expected to occur, and no material adverse change shall have occurred in the business condition (financial or otherwise), operations, prospects, or properties of the Borrower and its Subsidiaries on a consolidated basis; and (f) Additional Documentation. The Agent shall have received such ------------------------ additional approvals, opinions, or documents as the Agent or its legal counsel, Winstead Sechrest & Minick P.C., may reasonably request. ARTICLE VIII Representations and Warranties ------------------------------ To induce the Agent and the Banks to enter into this Agreement, the Borrower represents and warrants to the Agent and the Banks that: Section 8.1. Existence and Authority. The Borrower and each Significant ----------------------- Subsidiary (a) is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, or is a limited partnership duly organized and validly existing -43- under the laws of the State of Texas; (b) has all requisite power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would have a Material Adverse Effect. The Borrower and each Guarantor each has the power and authority to execute, deliver, and perform its obligations under this Agreement and the other Loan Documents to which it is or may become a party. Section 8.2. Financial Statements. The Borrower has delivered to the -------------------- Agent audited consolidated financial statements of the Borrower and its Subsidiaries as at and for the fiscal year ended November 30, 1996 and unaudited consolidated financial statements of the Borrower and its Subsidiaries for the nine-month period ended August 31, 1997. Such financial statements are true and correct, have been prepared in accordance with GAAP, and fairly and accurately present, on a consolidated basis, the financial condition of the Borrower and the Subsidiaries as of the respective dates indicated therein and the results of operations for the respective periods indicated therein. Neither the Borrower nor any of the Subsidiaries has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments that are material with respect to the Borrower or the Subsidiaries taken as a whole, except as referred to or reflected in such financial statements. There has been no material adverse change in the business, condition (financial or otherwise), operations, prospects, or properties of the Borrower or any of the Subsidiaries since the effective date of the most recent consolidated financial statements referred to in this Section. Section 8.3. Corporate Action; No Breach. The execution, delivery, and --------------------------- performance by the Borrower of this Agreement and by the Borrower and each Guarantor of the other Loan Documents to which they are party and compliance with the terms and provisions hereof and thereof, have been duly authorized by all requisite corporate and partnership action on the part of each such Person and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) the articles of incorporation, certificate of incorporation, bylaws, partnership agreement or other organizational documents of any such Person, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any agreement or instrument to which any such Person is a party or by which any of them or any of their property is bound or subject, or (b) constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien (except as provided in Article VI) upon any ---------- of the revenues or assets of any such Person. Section 8.4. Operation of Business. The Borrower and each of the --------------------- Significant Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted, except where failure to do so would not have a Material Adverse Effect. None of the Borrower or the Significant Subsidiaries is in violation of any valid rights of others with respect to any of the foregoing, except where such violation would not have a Material Adverse Effect. -44- Section 8.5. Litigation and Judgments. Except as disclosed on Schedule ------------------------ -------- 8.5 hereto, there is no action, suit, investigation, or proceeding before or by - --- any Governmental Authority or arbitrator pending, or to the knowledge of the Borrower, threatened against or affecting the Borrower, any Subsidiary, or any Foreign Affiliate that would, if adversely determined, have a Material Adverse Effect. There are no outstanding judgments against the Borrower or any Subsidiary which individually or in the aggregate have or could have a Material Adverse Effect. As of the date hereof, there are no outstanding judgments against the Borrower or any Subsidiary. Section 8.6. Rights in Properties; Liens. The Borrower and each --------------------------- Significant Subsidiary have good and indefeasible title to or valid leasehold interests in their respective properties and assets, real and personal, including the properties, assets, and leasehold interests reflected in the financial statements described in Section 8.2, and none of the properties, ----------- assets, or leasehold interests of the Borrower or any Significant Subsidiary is subject to any Lien, except as permitted by Section 10.2. ------------ Section 8.7. Enforceability. This Agreement constitutes, and the other -------------- Loan Documents when delivered, shall constitute legal, valid, and binding obligations of the Borrower and each Guarantor, respectively, which are party thereto, enforceable against such Persons, respectively, in accordance with their respective terms, except as limited by (i) bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors' rights, and (ii) general principles of equity, whether applied in a proceeding in equity or at law. Section 8.8. Approvals. No authorization, approval, or consent of, and no --------- filing or registration with, any Governmental Authority or third party is or will be necessary for the execution, delivery, or performance by the Borrower or any Guarantor of this Agreement and the other Loan Documents to which the Borrower or the Guarantors, respectively, is or may become a party or the validity or enforceability thereof. Section 8.9. Debt. The Borrower and the Subsidiaries have no Debt, except ---- as disclosed on Schedule 8.9 hereto or otherwise permitted by Section 10.1 ------------ ------------ hereof. Section 8.10. Taxes. The Borrower and each Subsidiary have filed all tax ----- returns (federal, state, and local) required to be filed, including all income, franchise, employment, property, and sales tax returns, except for any state or local tax returns the nonfiling of which will not have a Material Adverse Effect. The Borrower and each Subsidiary have paid all of their respective liabilities for taxes, assessments, governmental charges, and other levies that are due and payable, except for any state or local taxes, assessments, governmental charges and levies which are not known by the Borrower or any Subsidiary to be due and payable if the nonpayment thereof will not have a Material Adverse Effect. The Borrower does not know of any pending investigation of the Borrower or any Subsidiary by any taxing authority or of any pending but unassessed tax liability of the Borrower or any Subsidiary. Section 8.11. Use of Proceeds; Margin Securities. None of the Borrower or ---------------------------------- the Subsidiaries is engaged principally, or as one of its important activities, in the business of -45- extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. Section 8.12. ERISA. The Borrower and each Subsidiary are in compliance ----- in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan. No notice of intent to terminate a Plan has been filed, nor has any Plan been terminated. No circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings. Neither the Borrower nor any Guarantor nor any ERISA Affiliate has completely or partially withdrawn from a Multiemployer Plan. The Borrower, each Guarantor and each ERISA Affiliate have met their minimum funding requirements under ERISA with respect to all of their Plans, and the present value of all vested benefits under each Plan do not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with ERISA. Neither the Borrower nor any Guarantor nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA. Section 8.13. Disclosure. No statement, information, report, ---------- representation, or warranty made by the Borrower or any Guarantor in this Agreement or in any other Loan Document or furnished to the Agent in connection with this Agreement or any of the transactions contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not materially misleading. There is no fact known to the Borrower or any Guarantor which has a Material Adverse Effect, or which is likely to in the future have a Material Adverse Effect, that has not been disclosed in writing to the Agent. Section 8.14. Subsidiaries; Foreign Affiliates. The Borrower has no -------------------------------- Subsidiaries other than those listed on Schedule 8.14 hereto, and Schedule 8.14 ------------- ------------- (a) sets forth the jurisdiction of incorporation or organization of each Subsidiary, (b) sets forth the percentage of the Borrower's or any Subsidiary's ownership of the outstanding voting stock or other ownership or equity interests of each Subsidiary, and (c) designates the Foreign Subsidiaries. All of the outstanding capital stock of each Subsidiary, other than the Foreign Subsidiaries, has been validly issued, is fully paid, and is nonassessable. All of the Foreign Affiliates are specified on Schedule 8.14, and Schedule 8.14 (a) ------------- ------------- sets forth the jurisdiction of incorporation or organization of each Foreign Affiliate, and (b) sets forth the percentage of the Borrower's or any Subsidiary's ownership of the outstanding voting stock or other ownership or equity interests of each Foreign Affiliate. The Borrower shall, from time to time as necessary, deliver to Agent an updated Schedule 8.14 to this Agreement, ------------- together with a certificate of an authorized officer of the Borrower certifying that the information set forth in such schedule is true, correct, and complete as of such date. Section 8.15. Agreements. None of the Borrower or the Subsidiaries is a ---------- party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject -46- to any charter or corporate restriction which could have a Material Adverse Effect. None of the Borrower or the Subsidiaries is in default in any material respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. Section 8.16. Compliance with Laws. None of the Borrower, the -------------------- Subsidiaries or, to the best of the Borrower's knowledge, the Foreign Affiliates is in violation in any material respect of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator, except to the extent that the failure to comply therewith will not have a Material Adverse Effect. Section 8.17. Investment Company Act. None of the Borrower or the ---------------------- Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 8.18. Public Utility Holding Company Act. None of the Borrower or ---------------------------------- the Subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 8.19. Environmental Matters. Except as disclosed on Schedule 8.19 --------------------- ------------- hereto, (a) to the best of the Borrower's knowledge, there are no conditions or circumstances associated with the currently or previously owned or leased properties or operations of the Borrower or any Subsidiary that could reasonably be expected to give rise to any Environmental Liabilities of the Borrower or any Subsidiary, and (b) no Lien arising under any Environmental Law has attached to any property or revenues of the Borrower or any Subsidiary. Section 8.20. Patents, Trademarks and Copyrights. Schedule 8.20 hereto ---------------------------------- ------------- sets forth a true, accurate and complete listing, as of the date hereof, of all patents, trademarks and copyrights, and applications therefor, of the Borrower and Guarantors. Except as created or permitted under the Loan Documents, no Lien exists with respect to the interest of the Borrower or any Guarantor in any such patents, trademarks, copyrights or applications, and neither the Borrower nor any Guarantor has transferred or subordinated any interest it may have in such patents, trademarks, copyrights and applications. The Borrower shall, from time to time as necessary, deliver to Agent an updated Schedule 8.20 to this ------------- Agreement, together with a certificate of an authorized officer of the Borrower certifying that the information set forth on such schedule is true, correct and complete as of such date, which schedule may be used to prepare additional assignments, if necessary. Section 8.21. Relationship to the Banks. No Person having "control" (as ------------------------- such term is defined in the Financial Institutions Regulatory and Interest Rate Control Act of 1978 ("FIRA"), or in regulations promulgated pursuant thereto) of ---- the Borrower or any of the Subsidiaries is an "executive officer," "director" or "person who directly or indirectly or in concert with one or more persons, owns, controls, or has the power to vote more than 10% of any class of voting securities" (as such terms are defined in FIRA or in any regulations promulgated pursuant thereto) of any of the Banks. -47- Section 8.22. Government Regulation. Neither the Borrower, any Subsidiary --------------------- nor any Foreign Affiliate is subject to regulation under the Federal Power Act, the Interstate Commerce Act (as any of the preceding acts have been amended) or any other Law (other than Regulation X) which regulates the incurring by Borrower or any Subsidiary of Advances. Section 8.23. Foreign Employee Benefit Matters. To the best of Borrower's -------------------------------- and its Subsidiaries' knowledge after diligent inquiry of all relevant Persons: (a) each Foreign Employee Benefit Plan is in compliance in all respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plan, except for any non-compliance the consequences of which, in the aggregate, would not result in a Material Adverse Effect; (b) the aggregate of the accumulated benefit obligations under all Foreign Pension Plans does not exceed the current fair market value of the assets held in the trusts or similar funding vehicles for such Plans or reasonable reserves have been established in accordance with prudent business practices or as required by Agreement Accounting Principles with respect to any shortfall; (c) with respect to any Foreign Employee Benefit Plan (other than a Foreign Pension Plan) maintained or contributed to by Borrower or any Subsidiary, reasonable reserves have been established in accordance with prudent business practice or where required by ordinary accounting practices in the jurisdiction in which such Plan is maintained; and (d) there are no actions, suits or claims (other than routine claims for benefits) pending or, to the knowledge of Borrower and its Subsidiaries, threatened against Borrower or any Subsidiary of it or any ERISA Affiliate with respect to any Foreign Employee Benefit Plan that would, if adversely determined, have a Material Adverse Effect. ARTICLE IX Affirmative Covenants --------------------- The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder, the Borrower will perform and observe the following affirmative covenants, unless the Required Banks (or Agent with the consent of the Required Banks) shall otherwise consent in writing: Section 9.1. Reporting Requirements. The Borrower will furnish to the ---------------------- Agent and each Bank: (a) Annual Consolidated and Consolidating Financial Statements. ---------------------------------------------------------- As soon as available, and in any event within 90 days after the end of each fiscal year of the Borrower (or such later period as may be permitted by law for reporting companies under the Securities Exchange Act of 1934, as amended), beginning with the fiscal year ending November 30, 1997, (i) a copy of the Borrower's annual report on Form 10-K as filed with the Securities and Exchange Commission and a copy of the annual audited financial report of the Borrower and the Subsidiaries for such fiscal year containing, on a consolidated basis, balance sheets and statements of operations, stockholders' equity, and cash flows as at the end of such fiscal year and for the 12-month period then ended, in -48- each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and audited and certified by, and accompanied by the unqualified opinion of, independent certified public accountants of recognized standing acceptable to the Agent, to the effect that such report has been prepared in accordance with GAAP and presents fairly the consolidated financial condition and results of operations of the Borrower and the Subsidiaries at the date and for the periods indicated therein, and (ii) consolidating financial statements of the Borrower and the Subsidiaries, containing a balance sheet and statement of operations, all in reasonable detail; (b) Quarterly Consolidated and Consolidating Financial Statements. As ------------------------------------------------------------- soon as available, and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower (or such later period as may be permitted by law for reporting companies under the Securities Exchange Act of 1934, as amended), (i) a copy of an unaudited financial report of the Borrower and the Subsidiaries as of the end of such fiscal quarter and for the portion of the fiscal year then ended on Form 10-Q as filed with the Securities and Exchange Commission, containing, on a consolidated basis, balance sheets and statements of operations and cash flows, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified by the chief financial officer or corporate controller of the Borrower to have been prepared in accordance with GAAP and to fairly and accurately present (subject to year-end audit adjustments) the financial condition and results of operations of the Borrower and the Subsidiaries, on a consolidated basis, at the date and for the periods indicated therein, and (ii) consolidating financial statements of the Borrower and the Subsidiaries, containing a balance sheet and statement of operations, all in reasonable detail; (c) Annual Budget. As soon as available, and in any event within 60 ------------- days after the end of each fiscal year of the Borrower, a copy of the annual budget for the Borrower's next succeeding fiscal year including, without limitation, (i) a forecasted balance sheet, statement of income and statement of cash flows for such fiscal year, (ii) forecasted balance sheets, statements of income and statements of cash flows for each fiscal quarter of such fiscal year, and (iii) as soon as practicable, all material amendments, updates and revisions, if any, to the information provided pursuant to this subsection (e); -------------- (d) Compliance Certificate. Concurrently with the delivery of each of ---------------------- the financial statements referred to in subsections 9.1(a) and (b), a ------------------ --- Compliance Certificate showing calculation of the financial covenants and Asset Coverage Amount (a certificate showing calculation of the Asset Coverage Amount may be provided monthly at Borrower's option); (e) Notice of Litigation. Promptly after the commencement thereof, -------------------- notice of all actions, suits, and proceedings before any Governmental Authority or arbitrator affecting the Borrower, any Subsidiary or any Foreign Affiliate which, if determined -49- adversely to the Borrower, such Subsidiary, or such Foreign Affiliate could have a Material Adverse Effect; (f) Notice of Default. As soon as possible and in any event within ----------------- five days after the Borrower, any Subsidiary or any Foreign Affiliate obtains knowledge or becomes aware of the occurrence of any Default, a written notice setting forth the details of such Default and the action that the Borrower and such other Person have taken and propose to take with respect thereto; (g) Notice of Material Adverse Change. As soon as possible and in any --------------------------------- event within five days after the Borrower, any Subsidiary or any Foreign Affiliate obtains knowledge or becomes aware of the occurrence of any matter that could have a Material Adverse Effect, written notice of such matter; (h) Notice of Change in Representation or Warranty. As soon as ---------------------------------------------- possible and in any event within five days after the Borrower, any Subsidiary or any Foreign Affiliate obtains knowledge or becomes aware of any change in any material fact or circumstance represented or warranted in any of the Loan Documents, written notice of such change; (i) General Information. Promptly, such other information concerning ------------------- the Borrower, any Subsidiary or any Foreign Affiliate as the Agent or any Bank may from time to time reasonably request. All financial statements, certificates and reports required to be delivered under this Section shall be due on the Business Day immediately following the specified due date if the specified due date is not a Business Day. Section 9.2. Maintenance of Existence; Conduct of Business. Except as --------------------------------------------- permitted by Section 10.3, the Borrower will preserve and maintain, and will ------------ cause each Subsidiary to preserve and maintain, its corporate or partnership existence and all of its leases, privileges, licenses, permits, franchises, qualifications, agreements and rights that are necessary or desirable in the ordinary conduct of its business. The Borrower will conduct, and will cause each Subsidiary and each Foreign Affiliate to conduct, its business in an orderly and efficient manner in accordance with good business practices. Section 9.3. Maintenance of Properties. The Borrower will maintain, keep, ------------------------- and preserve, and cause each Subsidiary to maintain, keep, and preserve, in good working order and condition, all of its properties (tangible and intangible) which are useful in any material respect in the proper conduct of its business or are necessary in the proper conduct of its business. Section 9.4. Taxes and Claims. The Borrower will pay or discharge, and ---------------- will cause each Subsidiary to pay or discharge, at or before maturity or before becoming delinquent (a) all taxes, levies, assessments, and governmental charges imposed on it or its income or profits or any of its property, and (b) all lawful claims for labor, material, and supplies, which, if unpaid, -50- might become a Lien upon any of its property; provided, however, that none of -------- ------- the Borrower or the Subsidiaries shall be required to pay or discharge any tax, levy, assessment, or governmental charge or any claim for labor, material, or supplies which is being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves have been established. Section 9.5. Insurance. The Borrower will maintain, and will cause each --------- of the Subsidiaries to maintain, insurance with financially sound and reputable insurance companies in such amounts and covering such risks as is usually carried by corporations engaged in similar businesses and owning similar properties in the same general geographic areas in which the Borrower and the Subsidiaries operate, provided that in any event the Borrower will maintain and cause each Subsidiary to maintain workmen's compensation insurance, property insurance, comprehensive general liability insurance, and products liability insurance reasonably satisfactory to the Agent. Each insurance policy covering Collateral shall name the Agent as loss payee and shall provide that such policy will not be cancelled or reduced without 30 days prior written notice to the Agent. Section 9.6. Inspection Rights. At any reasonable time during normal ----------------- business hours and from time to time, the Borrower will permit, and will cause each Subsidiary and each Foreign Affiliate to permit, representatives of the Agent and each Bank to examine, copy, and make extracts from its books and records, to visit and inspect its properties, and to discuss its business, operations, and financial condition with its officers, employees, and independent certified public accountants. Without in any way limiting the foregoing, Agent may conduct (or cause a third party to conduct) annual audits of the Collateral at the expense of the Borrower. Such audits may be performed by Agent's in-house audit and asset management review staff. The Borrower agrees to pay to Agent on demand all fees, charges and out-of-pocket expenses of Agent in connection with each such audit. Section 9.7. Keeping Books and Records. The Borrower will maintain, will ------------------------- cause each Subsidiary to maintain, and will use its best efforts to cause each Foreign Affiliate to maintain, proper books of record and account in which full, true, and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; provided, however, -------- ------- that the Foreign Subsidiaries and the Foreign Affiliates shall be permitted to maintain day-to-day books of record and account in accordance with local statutory accounting practices rather than GAAP. Section 9.8. Compliance with Laws and Agreements. The Borrower will ----------------------------------- comply, and will cause each Subsidiary to comply, in all material respects with all applicable laws, rules, regulations, orders, and decrees of any Governmental Authority or arbitrator and all material agreements, contracts, and instruments binding on it or affecting its properties or business. Section 9.9. Further Assurances. The Borrower will, and will cause each ------------------ Subsidiary and each Foreign Affiliate to, execute and deliver such further agreements and instruments and take such further action as may be requested by the Agent to carry out the provisions and purposes -51- of this Agreement and the other Loan Documents and to create, preserve, and perfect the Liens of the Agent in the Collateral. Section 9.10. ERISA. The Borrower will comply, and will cause each ----- Subsidiary to comply, with all minimum funding requirements, and all other material requirements, of ERISA, if applicable, so as not to give rise to any liability for failure to comply with the requirements of ERISA. Section 9.11. Foreign Employee Benefit Compliance. Borrower will, and ----------------------------------- will cause each of its Subsidiaries and ERISA Affiliates to, establish, maintain and operate all Foreign Employee Benefit Plans to comply in all material respects with all laws, regulations and rules applicable thereto and the respective requirements of the governing documents for such Plans, except for failures to comply which, in the aggregate, would not result in a Material Adverse Effect. ARTICLE X Negative Covenants ------------------ The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder, the Borrower will perform and observe the following negative covenants, unless the Required Banks (or the Agent with the consent of the Required Banks) shall otherwise consent in writing: Section 10.1. Debt. The Borrower will not incur, create, assume, or ---- permit to exist, or permit any Subsidiary or Foreign Affiliate to incur, create, assume, or permit to exist, any Debt, except: (a) Debt to the Banks hereunder; (b) Debt of the Subsidiaries and Foreign Affiliates pursuant to loans and advances permitted by Section 10.5(i); --------------- (c) Debt of the Foreign Subsidiaries, Debt of the Foreign Affiliates, and Guarantees by the Borrower or any Subsidiary of any Debt or other obligations of any of the Foreign Subsidiaries or the Foreign Affiliates, all incurred when no Default exists or would result therefrom, provided that the aggregate amount of all such Debt and obligations (including such Debt existing on the date hereof and described on Schedule -------- 8.9 hereto, but excluding such Debt of the Foreign Subsidiaries and such --- Debt of the Foreign Affiliates to the Borrower or any Subsidiary permitted under Section 10.5(i)) outstanding at any time shall not exceed --------------- $10,000,000, it being understood that trade payables for the purchase of goods or materials in the ordinary course of business and Guarantees thereof are not prohibited or limited by this Section 10.1; -52- (d) Debt consisting of accounts payable of the Companies to each other for sales of inventory in the ordinary course of business; (e) Debt of the Guarantors to the Borrower or any Guarantor under the promissory notes referred to in Section 7.1(t); and -------------- (f) Any other Debt existing on the date hereof and described on Schedule 8.9 hereto. ------------ Section 10.2. Limitation on Liens. The Borrower will not incur, create, ------------------- assume, or permit to exist, or permit any Subsidiary to incur, create, assume, or permit to exist, any Lien upon any of its property, assets, or revenues, whether now owned or hereafter acquired, except: (a) Liens disclosed on Schedule 10.2 hereto; ------------- (b) Liens in favor of the Agent pursuant to the Loan Documents; (c) Encumbrances consisting of minor easements, zoning restrictions, or other restrictions on the use of real property that do not (individually or in the aggregate) materially affect the value of the assets encumbered thereby or materially impair the ability of the Borrower or the Subsidiaries to use such assets in their respective businesses, and none of which is violated in any material respect by existing or proposed structures or land use; (d) Liens for taxes, assessments, or other governmental charges which are not delinquent or which are being contested in good faith and for which adequate reserves have been established; (e) Liens of landlords (for any location where a landlord's waiver is not required under the Loan Documents), mechanics, materialmen, warehousemen, carriers, or other similar statutory Liens securing obligations that (i) are not yet due and are incurred in the ordinary course of business or (ii) are being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves have been established; (f) Liens resulting from good faith deposits to secure payments of workmen's compensation, unemployment insurance or other social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, or contracts (other than for payment of Debt), or leases made in the ordinary course of business; (g) Second priority Liens on the Collateral in favor of the Borrower or any Guarantor, securing the promissory notes referred to in Section 7.1(t); -------------- -53- (h) Liens on the assets of any of the Foreign Subsidiaries or Foreign Affiliates to secure Debt permitted by Section 10.1(c) in an --------------- aggregate amount outstanding at any time not to exceed $10,000,000; and (i) Liens in funds in the possession of credit card companies pertaining to credit card sales of goods to end users pursuant to merchant credit card services agreements. Section 10.3. Mergers, Etc. The Borrower will not, or will not permit any ------------ Subsidiary to, become a party to a merger or consolidation, or purchase or otherwise acquire all or substantially all of the assets of any Person or any shares or other evidence of beneficial ownership of any Person, or wind-up, dissolve, or liquidate; provided, however, that: -------- ------- (1) the Borrower or any Subsidiary shall be permitted to become a party to a merger or consolidation or acquire all or any part of the assets of any Person or any shares or other beneficial ownership of any Person, so long as (a) no Default is existing or would result therefrom, (b) the Borrower has given the Agent at least 20 days prior notice of such merger, consolidation or acquisition, (c) the total cash and non-cash consideration paid and Debt assumed or incurred by the Borrower or any Subsidiary in connection with all such mergers, consolidations or acquisitions (i) shall not exceed $10,000,000.00 for any single transaction and (ii) shall not exceed $20,000,000 in the aggregate for any fiscal year, and (d) the Borrower or such Subsidiary, as the case may be, is the surviving corporation in such merger or consolidation; (2) any Guarantor may be dissolved, liquidated or merged into another Subsidiary, so long as such dissolution, liquidation or merger results in all assets of such Guarantor being owned by Borrower or another Guarantor; and (3) any Subsidiary that is not a Guarantor may be dissolved, liquidated or merged into Borrower or any Subsidiary, so long as such dissolution, liquidation or merger results in all assets of such Subsidiary that is not a Guarantor being owned by Borrower or a Subsidiary. Section 10.4. Restricted Payments. The Borrower will not make, or permit ------------------- any Subsidiary to make, any Restricted Payment; provided, however, that (a) the -------- ------- Subsidiaries shall be permitted to declare and pay dividends to the Borrower or any Subsidiary that guarantees payment of the Obligations, and (b) the Borrower or any Subsidiary shall be permitted to declare and make dividend payments or other distributions payable solely in its own common stock. Section 10.5. Loans and Investments. The Borrower will not make, or --------------------- permit any Subsidiary or Foreign Affiliate to make, any advance, loan, extension of credit, or capital contribution to or investment in, or purchase, or permit any Subsidiary or Foreign Affiliate to purchase, any stock, bonds, notes, debentures, or other securities of, any Person, except: -54- (a) readily marketable direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition; (b) fully insured certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank operating in the United States of America having capital and surplus in excess of $50,000,000.00, provided, however, that time deposits in an -------- ------- aggregate amount not in excess of $100,000 may be maintained in any bank whose deposits are insured by the Federal Deposit Insurance Corporation; (c) commercial paper of a domestic issuer if at the time of purchase such paper is rated in one of the two highest rating categories of Standard & Poor's Rating Service, a division of McGraw/Hill, Inc. or Moody's Investors Service, Inc.; (d) debt securities which shall have one of the two highest ratings from Standard & Poor's Rating Service, a division of McGraw/Hill, Inc. or Moody's Investors Service, Inc. and which mature within one year from the date of acquisition; (e) investments in eurodollars placed through any financial institution having combined capital, surplus, and undivided profits of not less than $100,000,000; (f) repurchase agreements with any financial institution having combined capital, surplus, and undivided profits of not less than $100,000,000 for U.S. Government obligations maturing in less than 10 days; (g) investments in daily money market mutual funds having assets greater than $2,000,000,000 and limited in holdings to assets of the types described in subsections (a), (b) and (c) of this Section; --------------- --- --- (h) investments in the Texas Commerce Loan Participation Program or similar programs through any financial institution having combined capital, surplus, and undivided profits of not less than $100,000,000; (i) (A) stock or other equity or ownership interests in any Subsidiary or Foreign Affiliate existing on the date hereof or acquired in accordance with the provisions of Section 10.3; (B) capital contributions, ------------ loans and advances by the Borrower or any Guarantor to any Guarantor; (C) capital contributions, loans and advances by any Foreign Subsidiary to CellStar Ireland (or such other global agency treasury center as the Borrower may establish from time to time); (D) capital contributions by Fulfillment to CellStar Fulfillment, Ltd.; (E) capital contributions by NAC to Fulfillment, provided that any and all such capital contributions by NAC -------- to Fulfillment shall be used by Fulfillment for capital contributions to CellStar Fulfillment, Ltd.; (F) capital contributions by the Borrower or any Subsidiary to any other Subsidiary or any Foreign Affiliate (other than as described in subsections (B) through (E) above) in an aggregate amount --------------- --- not to exceed $5,000,000 during any fiscal year; (G) loans and advances by the Borrower or any -55- Subsidiary to any Foreign Affiliate in an aggregate amount outstanding at any time not to exceed $10,000,000; and (H) loans and advances by the Borrower or any Subsidiary to any other Subsidiary (other than as described in subsections (B) and (C) above) in an aggregate amount outstanding at any ----------------------- time not to exceed the greater of $40,000,000 or 20% of the stockholders' equity in the Borrower, provided that amounts loaned or advanced by the Borrower or any Subsidiary to any Subsidiary that are in turn loaned or advanced by that Subsidiary to another Subsidiary shall be counted only once for purposes of calculations under this subsection (H); -------------- (j) payroll advances made in the ordinary course of business; (k) accounts receivable for sales of inventory in the ordinary course of business, including sales of inventory to Foreign Subsidiaries and Foreign Affiliates in the ordinary course of the Companies' business, whether shipped to the Foreign Subsidiaries or Foreign Affiliates from a Company or directly from the manufacturer, and payment of ordinary and customary duties related thereto; (l) loans and advances made by the Borrower, any Subsidiary or any Foreign Affiliate to their respective officers and employees in the ordinary course of business not to exceed $1,500,000 in the aggregate outstanding at any time; (m) demand deposits at banks whose deposits are insured by the Federal Deposit Insurance Corporation, maintained by the Borrower or any Subsidiary in the ordinary course of business for the purpose of paying operating expenses; (n) intercompany receivables existing on the date hereof and described on Schedule 8.9 hereto; and ------------ (o) investments by Foreign Subsidiaries and Foreign Affiliates which follow a similar risk profile as the investments described in subsections (a) through (h) and subsection (m) above. --------------- --- -------------- Section 10.6. Transactions With Affiliates. The Borrower will not enter ---------------------------- into, or permit any Subsidiary or Foreign Affiliate to enter into, any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate of the Borrower, such Subsidiary or such Foreign Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's, such Subsidiary's or such Foreign Affiliate's business and upon fair and reasonable terms no less favorable to the Borrower, such Subsidiary or such Foreign Affiliate than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of the Borrower, such Subsidiary or such Foreign Affiliate; provided, -------- however, that (a) the Companies shall be permitted to enter into transactions, - ------- including without limitation the purchase, sale, or exchange of property or the rendering of any service, with each other, and such transactions among the Companies shall not be subject to the restrictions set forth in this Section, and (b) the Borrower and the Subsidiaries shall be permitted -56- to make loans and advances to each other to the extent otherwise permitted by this Agreement, and such loans and advances shall not be subject to the restrictions set forth in this Section. Section 10.7. Disposition of Assets. The Borrower will not sell, lease, --------------------- assign, transfer, or otherwise dispose of any of its assets, or permit any Subsidiary to do so with any of its assets, except (a) dispositions of inventory in the ordinary course of business, (b) dispositions of equipment and fixtures having a fair market value not to exceed $5,000,000 in the aggregate during the period from the date of this Agreement through the Termination Date, and (c) factoring of accounts receivable of any of the Foreign Subsidiaries pursuant to factoring arrangements entered into in the ordinary course of their respective businesses. Section 10.8. Prepayment of Debt. The Borrower will not prepay or permit ------------------ any Subsidiary to prepay, any Debt, except the Obligations. Section 10.9. Nature of Business. The Borrower will not, or will not ------------------ permit any Subsidiary to, engage in any business substantially different than the businesses in which they are engaged as of the date hereof. Section 10.10. Environmental Protection. The Borrower will not, or will ------------------------ not permit any Subsidiary to, (a) use (or permit any tenant to use) any of their respective properties or assets for the handling, processing, storage, transportation, or disposal of any Hazardous Material in violation of any Environmental Law, (b) generate any Hazardous Material in violation of any Environmental Law, (c) conduct any activity that causes a release or threatened release of any Hazardous Material, or (d) otherwise conduct any activity or use any of their respective properties or assets in any manner that is likely to violate any Environmental Law or create any Environmental Liabilities for which the Borrower or any Subsidiary would be responsible. Section 10.11. Accounting. The Borrower will not, or will not permit any ---------- Subsidiary to, change its fiscal year or make any change (a) in accounting treatment or reporting practices, except as required by GAAP and disclosed to the Agent, or (b) in tax reporting treatment, except as required by law and disclosed to the Agent. Notwithstanding the foregoing, the Borrower shall be permitted to change its tax year-end or its fiscal year-end, or both, to achieve coinciding tax and fiscal year ends, provided that the Borrower shall execute and deliver an amendment to this Agreement to change any covenants and reporting dates which Agent deems necessary or desirable as a result of such change. ARTICLE XI Financial Covenants ------------------- The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder, the Borrower will observe and perform the following financial covenants, unless the Required Banks (or the Agent with the consent of the Required Banks) shall otherwise consent in writing: -57- Section 11.1. Consolidated Tangible Net Worth. The Borrower will at all ------------------------------- times maintain or cause to be maintained Consolidated Tangible Net Worth in an amount not less than the sum of (a) $100,000,000, plus (b) 50% of net income, after provision for income taxes, of the Borrower and the Subsidiaries on a consolidated basis (without any deduction for losses), for each fiscal quarter of the Borrower ended through the date of determination beginning with the fiscal quarter ending August 31, 1997, plus (c) 100% of the Net Proceeds received by the Borrower from any issuance, sale or other disposition of any shares of capital stock or other equity securities of the Borrower of any class (or any securities convertible or exchangeable for any such shares, or any rights, warrants, or options to subscribe for or purchase any such shares). Section 11.2. Consolidated Interest Coverage Ratio. The Borrower will ------------------------------------ maintain or cause to be maintained, as of the end of each fiscal quarter of the Borrower, an Interest Coverage Ratio of not less than 3.0 to 1.0 for the most recent four fiscal quarters then ended. Section 11.3. Companies Interest Coverage Ratio. The Borrower will --------------------------------- maintain or cause to be maintained, as of the end of each fiscal quarter of the Borrower, a ratio of (a) the Companies Cash Flow to (b) interest expense of the Borrower and the Subsidiaries on a consolidated basis of not less than 1.25 to 1.0 for the most recent four quarters then ended. In the event it is determined (by the most recent quarterly Compliance Certificate or otherwise) that the Companies Cash Flow is not sufficient to cause compliance with this Section ------- 11.3, then within 10 days after such determination, the Borrower will cause to - ---- be transferred to the Companies from the other Subsidiaries cash in an amount which when added to the Companies Cash Flow is sufficient to cause compliance with this Section 11.3, and, to the extent they comply with such covenant, the ------------ Companies shall be deemed to have met the requirements of this Section 11.3 for ------------ the relevant period of determination. Notwithstanding anything to the contrary contained herein, the Companies may not use the transferred cash described in the preceding sentence to meet the ratio requirements of this Section 11.3 in ------------ more than two consecutive fiscal quarters. Such transferred cash shall remain with the Companies, notwithstanding any other covenants to the contrary contained herein, until the Companies have demonstrated compliance with this Section 11.3 without the benefit of such transferred cash. - ------------ Section 11.4. Minimum Turnover Ratio. The Borrower will maintain or cause ---------------------- to be maintained, as of the end of each fiscal quarter of the Borrower, a ratio of Cost of Goods Sold to Average Inventory of not less than 6.0 to 1.0. Section 11.5. Consolidated Funded Debt to Consolidated Cash Flow Ratio. -------------------------------------------------------- The Borrower will maintain or cause to be maintained, as of the end of each fiscal quarter of the Borrower, a ratio of Consolidated Funded Debt, as of the end of such quarter, to Consolidated Cash Flow, for the most recent four fiscal quarters then ended, of not greater than (a) 4.0 to 1.0 for the fiscal quarter ending November 30, 1997 and each fiscal quarter thereafter until and including the fiscal quarter ending February 28, 1999, and (b) 3.5 to 1.0 thereafter. Section 11.6. Consolidated Senior Debt to Consolidated Cash Flow Ratio. -------------------------------------------------------- The Borrower will maintain, or cause to be maintained, as of each fiscal quarter of the Borrower, a ratio of -58- Consolidated Senior Debt, as of the end of such quarter, to Consolidated Cash Flow, for the most recent four fiscal quarters then ended, of not greater than (a) 3.0 to 1.0 for the fiscal quarter ending November 30, 1997 and each fiscal quarter thereafter until and including the fiscal quarter ending February 28, 1999, and (b) 2.5 to 1.0 thereafter. ARTICLE XII Default ------- Section 12.1. Events of Default. Each of the following shall be deemed an ----------------- "Event of Default": (a) The Borrower shall fail to pay (i) any installment of interest on any of the Notes or any fees after the expiration of five days after the due date thereof, or (ii) any installment of principal on any of the Notes or any other portion of the Obligations when due. (b) Any representation or warranty made or deemed made by the Borrower or any Obligated Party (or any of their respective officers) in any Loan Document or in any certificate, report, notice, or financial statement furnished at any time in connection with this Agreement shall be false, misleading, or erroneous in any material respect when made or deemed to have been made. (c) The Borrower or any Obligated Party shall fail to perform, observe, or comply with any of the covenants contained in Article IX ---------- (except Section 9.1) and such failure continues unremedied for a period of ----------- 15 days after the earlier of (i) the giving of notice to the Borrower by the Agent or any Bank of such failure, or (ii) the Borrower's actual knowledge of such failure. (d) The Borrower or any Obligated Party shall fail to perform, observe, or comply with any covenant, agreement, or term contained in this Agreement or any other Loan Document (except those described in subsections ----------- (a) and (c) of this Section). --- --- (e) The Borrower, any Subsidiary, or any Obligated Party shall commence a voluntary proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or a substantial part of its property or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall generally fail to pay its debts as they become due or shall take any corporate action to authorize any of the foregoing. -59- (f) An involuntary proceeding shall be commenced against the Borrower, any Subsidiary, or any Obligated Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official for it or a substantial part of its property, and such involuntary proceeding shall remain undismissed and unstayed for a period of 60 days. (g) The Borrower, any Subsidiary, or any Obligated Party shall fail to discharge within a period of 30 days after the commencement thereof any attachment, sequestration, or similar proceeding or proceedings involving an aggregate amount in excess of $1,000,000 against any of their assets or properties. (h) A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered by a court or courts against the Borrower, any Subsidiary, or any Obligated Party and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Borrower, the relevant Subsidiary, or the relevant Obligated Party shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal. (i) (i) The Borrower, any Subsidiary, or any Obligated Party shall fail to pay when due, after any applicable grace periods, any principal of or interest on any Debt (other than the Obligations), or (ii) the maturity of any such Debt shall have been accelerated, or (iii) any such Debt shall have been required to be prepaid prior to the stated maturity thereof, or (iv) with respect to any such Debt in excess of $5,000,000, the occurrence of any other default, event of default, or other breach the effect of which permits any holder or holders under such Debt or any Person acting on behalf of such holder or holders to accelerate the maturity thereof or require prepayment thereof, or (v) with respect to any such Debt in excess of $1,000,000, any holder or holders of such Debt or any Person acting on behalf of such holder or holders have accelerated the maturity thereof or require any such prepayment upon the occurrence of a default, event of default or breach other than a payment default. (j) This Agreement or any other Loan Document shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by the Borrower, any Subsidiary, any Obligated Party or any of their respective shareholders, or the Borrower, any Subsidiary, or any Obligated Party shall deny that it has any further liability or obligation under any of the Loan Documents, or any lien or security interest created by the Loan Documents shall for any reason cease to be a valid, first priority perfected security interest in and lien upon any of the Collateral purported to be covered thereby. -60- (k) Any of the following events shall occur or exist with respect to the Borrower, any Guarantor or any ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any Reportable Event with respect to any Plan; (iii) filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iv) any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; or (v) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, have subjected or could in the reasonable opinion of the Required Banks subject the Borrower or any Guarantor to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate exceed or could reasonably be expected to exceed $25,000. (l) Any Change of Control shall occur. (m) The Borrower, any Subsidiary, or any Obligated Party, or any of their properties, revenues, or assets, shall become subject to an order of forfeiture, seizure, or divestiture and the same shall not have been discharged within 30 days from the date of entry thereof. (n) Any Material Adverse Effect shall occur. Section 12.2. Remedies Upon Default. If any Event of Default shall occur --------------------- and be continuing, the Agent may, with the consent of the Required Banks (and if directed by the Required Banks, shall), do any one or more of the following: (a) declare the Obligations or any part thereof to be immediately due and payable, and the same shall thereupon become immediately due and payable, without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrower, (b) terminate the Commitments without notice to the Borrower or any Guarantor, (c) reduce any claim to judgment, (d) foreclose or otherwise enforce any Lien granted to the Agent for the benefit of itself and the Banks to secure payment and performance of the Obligations, and (e) exercise any and all rights and remedies afforded by the laws of the State of Texas or any other jurisdiction, by any of the Loan Documents, by equity, or otherwise; provided, -------- however, that upon the occurrence of an Event of Default under Section 12.1(e) - ------- --------------- or Section 12.1(f), the Commitments of the Banks shall automatically terminate, --------------- and the Obligations shall become immediately due and payable without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrower. -61- Section 12.3. Cash Collateral. If any Event of Default shall occur and be --------------- continuing, the Borrower agrees to, if requested by the Agent or the Required Banks, immediately deposit with and pledge to the Agent cash or cash equivalent investments satisfactory to the Agent in its sole and absolute discretion in an amount equal to the outstanding Letter of Credit Liabilities as security for the Obligations, and the Agent may retain, as additional Collateral for the payment of the Obligations with respect to the Letters of Credit, any amounts received upon foreclosure, or in lieu of foreclosure, through offset, as proceeds of any Collateral or otherwise. Section 12.4. Performance by the Agent. If the Borrower shall fail to ------------------------ perform any covenant or agreement contained in any of the Loan Documents, the Agent may perform or attempt to perform such covenant or agreement on behalf of the Borrower. In such event, the Borrower agrees to, at the request of the Agent, promptly pay any amount expended by the Agent in connection with such performance or attempted performance to the Agent, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that neither the Agent nor any Bank shall have any liability or responsibility for the performance of any obligation of the Borrower under this Agreement or any other Loan Document. ARTICLE XIII The Agent --------- Section 13.1. Appointment, Powers and Immunities. In order to expedite ---------------------------------- the various transactions contemplated by this agreement, the Banks hereby irrevocably appoint and authorize TCB to act as their Agent hereunder and under each of the other Loan Documents. TCB consents to such appointment and agrees to perform the duties of the Agent as specified herein. The Banks authorize and direct the Agent to take such action in their name and on their behalf under the terms and provisions of the Loan Documents and to exercise such rights and powers thereunder as are specifically delegated to or required of the Agent for the Banks, together with such rights and powers as are reasonably incidental thereto. The Agent is hereby expressly authorized to act as the Agent on behalf of itself and the other Banks: (a) To receive on behalf of each of the Banks any payment of principal, interest, fees or other amounts paid pursuant to this Agreement and the Notes and to distribute to each Bank its pro rata share of all payments so received as provided in this Agreement; (b) To receive all documents and items to be furnished under the Loan Documents; (c) To act as nominee for and on behalf of the Banks in and under the Loan Documents; -62- (d) To arrange for the means whereby the funds of the Banks are to be made available to the Borrower; (e) To distribute to the Banks information, requests, notices, payments, prepayments, documents and other items received from the Borrower, the other Obligated Parties, and other Persons; (f) To execute and deliver to the Borrower, the other Obligated Parties, and other Persons, all requests, demands, approvals, notices, and consents received from the Banks; (g) To the extent permitted by the Loan Documents, to exercise on behalf of each Bank all rights and remedies of Banks upon the occurrence of any Event of Default; (h) To accept, execute, and deliver the Borrower Security Agreement, the Guarantor Security Agreements, the Pledge Agreements, and any other security documents as the secured party; and (i) To take such other actions as may be requested by Required Banks. Neither the Agent nor any of its Affiliates, officers, directors, employees, attorneys, or agents shall be liable for any action taken or omitted to be taken by any of them hereunder or otherwise in connection with this Agreement or any of the other Loan Documents except for its or their own gross negligence or willful misconduct. Without limiting the generality of the preceding sentence, the Agent (i) may treat the payee of any Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (ii) shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Bank; (iii) shall not be required to initiate any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by Required Banks; (iv) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, enforceability, or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by any Person to perform any of its obligations hereunder or thereunder; (v) may consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate, or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. As to any matters not expressly provided for by this Agreement, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in -63- accordance with instructions signed by Required Banks, and such instructions of Required Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks; provided, however, that the Agent shall not be -------- ------- required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or any other Loan Document or applicable law. Section 13.2. Rights of Agent as a Bank. With respect to its Commitment, ------------------------- the Advances made by it and the Note issued to it, TCB in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to, act as trustee under indentures of, provide merchant banking services to, and generally engage in any kind of business with the Borrower, any of its Subsidiaries, any other Obligated Party, and any other Person who may do business with or own securities of the Borrower, any Subsidiary, or any other Obligated Party, all as if it were not acting as the Agent and without any duty to account therefor to the Banks. Section 13.3. Sharing of Payments, Etc. If any Bank shall obtain any ------------------------ payment of any principal of or interest on any Advance made by it under this Agreement or payment of any other obligation under the Loan Documents then owed by the Borrower or any other Obligated Party to such Bank, whether voluntary, involuntary, through the exercise of any right of setoff, banker's lien, counterclaim or similar right, or otherwise, in excess of its pro rata share, such Bank shall promptly purchase from the other Banks participations in the Advances held by them hereunder in such amounts, and make such other adjustments from time to time as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of the other Banks in accordance with its pro rata portion thereof. To such end, all of the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if all or any portion of such excess payment is thereafter rescinded or must otherwise be restored. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any Bank so purchasing a participation in the Advances made by the other Banks may exercise all rights of setoff, banker's lien, counterclaim, or similar rights with respect to such participation as fully as if such Bank were a direct holder of Advances to the Borrower in the amount of such participation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. SECTION 13.4. INDEMNIFICATION. THE BANKS HEREBY AGREE TO INDEMNIFY THE --------------- AGENT FROM AND HOLD THE AGENT HARMLESS AGAINST (TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 14.1 AND 14.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE ------------- ---- BORROWER UNDER SECTIONS 14.1 AND 14.2), RATABLY IN ACCORDANCE WITH THEIR ------------- ---- RESPECTIVE COMMITMENTS, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES -64- (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF -------- THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE BANKS THAT THE AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE AGENT. WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER OR ANY OTHER OBLIGATED PARTY. Section 13.5. Independent Credit Decisions. Each Bank agrees that it has ---------------------------- independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and the Guarantors and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based upon such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower or any Obligated Party of this Agreement or any other Loan Document or to inspect the properties or books of the Borrower or any Obligated Party. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder or under the other Loan Documents, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other financial information concerning the affairs, financial condition or business of the Borrower or any Obligated Party (or any of their Affiliates) which may come into the possession of the Agent or any of its Affiliates. -65- Section 13.6. Several Commitments. The Commitments and other obligations ------------------- of the Banks under this Agreement are several. The default by any Bank in making an Advance in accordance with its Commitment shall not relieve the other Banks of their obligations under this Agreement. In the event of any default by any Bank in making any Advance, each nondefaulting Bank shall be obligated to make its Advance but shall not be obligated to advance the amount which the defaulting Bank was required to advance hereunder. In no event shall any Bank be required to advance an amount or amounts which shall in the aggregate exceed such Bank's Commitment. No Bank shall be responsible for any act or omission of any other Bank. Section 13.7. Successor Agent. Subject to the appointment and acceptance --------------- of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and the Borrower, and the Agent may be removed at any time with or without cause by Required Banks. Upon any such resignation or removal, Required Banks will have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by Required Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States of America or any State thereof and having combined capital and surplus of at least $100,000,000. Upon the acceptance of its appointment as successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges, immunities, and duties of the resigning or removed Agent, and the resigning or removed Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any Agent's resignation or removal as Agent, the provisions of this Article XIII shall continue in effect for its benefit in ------------ respect of any actions taken or omitted to be taken by it while it was the Agent. ARTICLE XIV Miscellaneous ------------- Section 14.1. Expenses. The Borrower agrees to pay on demand: (a) all -------- reasonable costs and out-of-pocket expenses of the Agent in connection with the preparation, negotiation, execution, and delivery of this Agreement and the other Loan Documents and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent, (b) all costs and out-of-pocket expenses of the Agent and the Banks, or any of them in connection with any Default and the enforcement of this Agreement or any other Loan Document, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent and the Banks, or any of them, (c) all transfer, stamp, documentary, or other similar taxes, assessments, or charges levied by any Governmental Authority in respect of this Agreement or any of the other Loan Documents, (d) all reasonable costs, out-of-pocket expenses, assessments, and other charges incurred in connection with any filing, registration, recording, or perfection of any security interest or Lien contemplated by this Agreement or any other Loan Document, and (e) all other reasonable costs and out-of-pocket expenses incurred by the Agent in connection with this -66- Agreement or any other Loan Document, including, without limitation, all fees, costs, out-of-pocket expenses, and other charges incurred in connection with performing or obtaining any audit or appraisal in respect of the Collateral. SECTION 14.2. INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY --------------- THE AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, AND PARTICIPANTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, INTEREST, EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES), AND AMOUNTS PAID IN SETTLEMENT TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE BORROWER OR ANY GUARANTOR OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK OR ANY OF THEIR RESPECTIVE CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT OR ALTERNATE CURRENCY ADVANCE, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING; PROVIDED, -------- HOWEVER THAT NO PERSON TO BE INDEMNIFIED HEREUNDER SHALL HAVE THE RIGHT TO BE - ------- INDEMNIFIED FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Section 14.3. Limitation of Liability. None of the Agent, any Bank, or ----------------------- any Affiliate, officer, director, employee, attorney, or agent thereof shall have any liability with respect to, and the Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by the Borrower in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan -67- Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. The Borrower hereby waives, releases, and agrees not to sue the Agent or any Bank or any of their respective Affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Section 14.4. No Fiduciary Relationship. The relationship between the ------------------------- Borrower and each Bank with respect to the Loan Documents and the transactions governed thereby is solely that of debtor and creditor, and neither the Agent nor any Bank has any fiduciary or other special relationship with the Borrower with respect to the Loan Documents and the transactions governed thereby, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between the Borrower and any Bank with respect to the Loan Documents and the transactions governed thereby to be other than that of debtor and creditor. Section 14.5. No Waiver; Cumulative Remedies. No failure on the part of ------------------------------ the Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law. Section 14.6. Successors and Assigns. ---------------------- (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Borrower shall not be permitted to assign or transfer any of its rights or obligations hereunder without the prior written consent of the Agent and all of the Banks. Any Bank may sell participations to one or more banks or other institutions in or to all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments, the Advances owing to it and its share of Letter of Credit Liabilities); provided, however, that (i) -------- ------- such Bank's obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment) shall remain unchanged, (ii) such Bank shall remain solely responsible to the Borrower for the performance of such obligations, (iii) such Bank shall remain the holder of its Note for all purposes of this Agreement, (iv) the Borrower shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents, and (v) such Bank shall not sell a participation that conveys to the participant the right to vote or give or withhold consents under this Agreement or any other Loan Document, other than the right to vote upon or consent to (A) any increase of such Bank's Commitment, (B) any reduction of the principal amount of, or interest to be paid on, the Advances of such Bank, (C) any reduction of any commitment fee or other amount payable to such Bank under any Loan -68- Document, (D) any postponement of any date for the payment of any amount payable in respect of the Advances of such Bank, or (E) any material release of Collateral other than releases contemplated in the Loan Documents as in effect on the date hereof and releases upon full payment and performance of the Obligations and termination of the Commitments. Such participants shall have no rights under the Loan Documents, other than certain voting rights as provided above. Subject to the following, each Bank may obtain (on behalf of its participants) the benefits of Article V --------- with respect to all participations in its part of the Obligations outstanding from time to time. If a participant is entitled to the benefits of Article V or a Bank grants rights to its participants to vote --------- or give or withhold consents respecting the matters described above, then that Bank must include a voting mechanism in the relevant participation agreement whereby a majority of its portion of the Obligations (whether held by it or participated) shall control the vote for all of that Bank's portion of the Obligations. Except in the case of the sale of a participating interest to another Bank, the relevant participation agreement shall prohibit the participant from transferring, pledging, assigning, selling participations in, or otherwise encumbering its portion of the Obligations. (b) The Borrower and each of the Banks agree that any Bank may at any time assign to one or more Eligible Assignees all, or a proportionate part of all, of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment, Advances and Letter of Credit Liabilities); provided, however, that (i) the Borrower -------- ------- shall have given its prior written consent to such assignment, such consent not to be unreasonably withheld, provided that after the occurrence and during the continuance of a Default no consent of the Borrower shall be required for any such assignment, (ii) each such assignment shall be of a consistent, and not a varying, percentage of all of the assigning Bank's rights and obligations under this Agreement and the other Loan Documents, (iii) except in the case of an assignment of all of a Bank's rights and obligations under this Agreement and the other Loan Documents, the amount of the Commitment of the assigning Bank being assigned pursuant to each assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000, and the amount of the Commitment of the assigning Bank remaining after each such assignment shall in no event be less than $5,000,000, and (iv) the parties to each such assignment shall execute and deliver to the Agent for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance, together with the Note subject to such assignment, and a processing and recordation fee of $3,000. Upon such execution, delivery, acceptance, and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least 10 Business Days after the execution thereof, or, if so specified in such Assignment and Acceptance, the date of acceptance thereof by the Agent, (x) the assignee thereunder shall be a party hereto as a "Bank" and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and under the Loan Documents and (y) the Bank that is an assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such -69- Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement and the other Loan Documents (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a Bank's rights and obligations under the Loan Documents, such Bank shall cease to be a party thereto). (c) By executing and delivering an Assignment and Acceptance, the Bank that is an assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Obligated Party or the performance or observance by the Borrower or any Obligated Party of its obligations under the Loan Documents; (iii) such assignee confirms that it has received a copy of the other Loan Documents, together with copies of the financial statements referred to in Section 8.2 ----------- and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent or such assignor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Bank. (d) The Agent may maintain at its Principal Office a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Advances owing to, each Bank from time to time (the "Register"). The entries in the Register shall be -------- conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent, and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes under the Loan Documents. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and assignee representing that it is an Eligible Assignee, together with any Note subject to such assignment, the Agent shall, if such Assignment and Acceptance has -70- been completed and is in substantially the form of Exhibit I hereto and all --------- requirements set forth in this Section have been satisfied, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, if any, and (iii) give prompt written notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower shall execute and deliver to the Agent in exchange for the surrendered Note a new Note payable to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Bank has retained a Commitment, a new Note payable to the order of the assigning Bank in an amount equal to the Commitment retained by it hereunder (each such promissory note shall constitute a "Note" for purposes of the Loan Documents). Such new Notes shall be in an aggregate face amount of the surrendered Note, shall be dated the effective date of such Assignment and Acceptance, and shall otherwise be in substantially the form of Exhibit A --------- hereto. (f) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant, subject to the confidentiality agreements between the Borrower and the Banks, any information relating to the Borrower, the Subsidiaries or the Foreign Affiliates furnished to such Bank by or on behalf of the Borrower, the Subsidiaries or the Foreign Affiliates. (g) Any Bank may at any time, without the consent of the Borrower or the Agent, collaterally assign all or any of its rights under the Loan Documents to a Federal Reserve Bank; provided, however, that no such -------- ------- assignment shall release the assigning Bank from its obligations thereunder. Section 14.7. Survival. All representations and warranties made in this -------- Agreement or any other Loan Document or in any document, statement, or certificate furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and no investigation by the Agent or any Bank or any closing shall affect the representations and warranties or the right of the Agent or any Bank to rely upon them. Without prejudice to the survival of any other obligation of the Borrower hereunder, the obligations of the Borrower under Sections 14.1 and 14.2 ---------------------- shall survive repayment of the Notes and termination of the Commitments and the Letters of Credit. Section 14.8. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE OTHER ---------------- LOAN DOCUMENTS REFERRED TO HEREIN REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. This Agreement replaces that certain Amended and Restated Loan Agreement dated as of July 20, 1995 as amended (the "Existing Agreement"), among NAC, the Borrower, the banks named therein and TCB as agent for such banks, which Existing Agreement is being terminated as of the date hereof by a separate termination agreement. -71- Section 14.9. Amendments, Etc. No amendment or waiver of any provision of ---------------- this Agreement, the Notes, or any other Loan Document to which the Borrower is a party (other than the Engagement Letter), nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to in writing by Required Banks (or Agent with the consent of Required Banks) and the Borrower, and each such waiver, amendment, or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, waiver, or consent shall, unless -------- in writing and signed by all of the Banks and the Borrower, do any of the following: (a) increase Commitments of the Banks or subject the Banks to any additional obligations; (b) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder (except any fees payable to the Agent solely for its account as specified herein or in the Engagement Letter); (c) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder (except any fees payable to the Agent solely for its account as specified herein or in the Engagement Letter); (d) increase any of the percentages of Eligible Accounts and Eligible Inventory included in the Asset Coverage Amount, as set forth in the definition thereof, or any change in the definition of Eligible Accounts or Eligible Inventory that results in an increase in the assets or values of assets included in the Asset Coverage Amount; (e) waive any of the conditions specified in Article VII; (f) change the percentage of the Commitments or of the aggregate - ----------- unpaid principal amount of the Notes or the number of Banks which shall be required for the Banks or any of them to take any action under this Agreement; (g) change any provision contained in this Section 14.9; (h) release any ------------ Collateral or any Guarantor. Notwithstanding anything to the contrary contained in this Section, no amendment, waiver, or consent shall be made with respect to Article XIII hereof without the prior written consent of the Agent. - ------------ Section 14.10. Maximum Interest Rate. No provision of this Agreement or --------------------- any other Loan Document shall require the payment or the collection of interest in excess of the maximum amount permitted by applicable law. If any excess of interest in such respect is hereby provided for, or shall be adjudicated to be so provided, in any Loan Document or otherwise in connection with this loan transaction, the provisions of this Section shall govern and prevail and neither the Borrower nor the sureties, guarantors, successors, or assigns of the Borrower shall be obligated to pay the excess amount of such interest or any other excess sum paid for the use, forbearance, or detention of sums loaned pursuant hereto. In the event any Bank ever receives, collects, or applies as interest any such sum, such amount which would be in excess of the maximum amount permitted by applicable law shall be applied as a payment and reduction of the principal of the indebtedness; and, if the principal has been paid in full, any remaining excess shall forthwith be paid to the Borrower. In determining whether or not the interest paid or payable exceeds the Maximum Rate, the Borrower and each Bank shall, to the extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the indebtedness evidenced by the Notes so that interest for the entire term does not exceed the Maximum Rate. -72- Section 14.11. Notices. All notices and other communications provided for ------- in this Agreement and the other Loan Documents shall be given in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, when duly deposited in the mails, in each case given or addressed as aforesaid; provided, however, notices to the -------- ------- Agent pursuant to Article II and Article III shall not be effective until ---------- ----------- received by the Agent. SECTION 14.12. GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT ---------------------------------------- SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. ANY ACTION OR PROCEEDING AGAINST THE BORROWER UNDER OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. THE BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. THE BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14.11. ------------- NOTHING HEREIN OR IN ANY OF THE OTHER LOAN DOCUMENTS SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT OR ANY BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR WITH RESPECT TO ANY OF ITS RESPECTIVE PROPERTY IN COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY BANK SHALL BE BROUGHT ONLY IN A COURT LOCATED IN DALLAS COUNTY, TEXAS. Section 14.13. Counterparts. This Agreement may be executed in one or ------------ more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 14.14. Severability. Any provision of this Agreement held by a ------------ court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be invalid or illegal. -73- Section 14.15. Headings. The headings, captions, and arrangements used in -------- this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 14.16. Non-Application of Chapter 346 of Texas Finance Code. The ---------------------------------------------------- provisions of Chapter 346 of the Texas Finance Code (Vernon's Texas Civil Statutes) are specifically declared by the parties hereto not to be applicable to this Agreement or any of the other Loan Documents or to the transactions contemplated hereby. Section 14.17. Construction. The Borrower, the Agent and each Bank ------------ acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by the parties hereto. Section 14.18. Independence of Covenants. All covenants hereunder shall ------------------------- be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or such condition exists. Section 14.19. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY -------------------- APPLICABLE LAW, THE BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. [REMAINDER OF PAGE INTENTIONALLY BLANK] -74- IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. BORROWER: -------- CELLSTAR CORPORATION By: /s/ Mark Q. Huggins ------------------------------ Mark Q. Huggins Senior Vice President and Chief Financial Officer Address for Notices: Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Telephone No.: (972) 466-5000 Attention: General Counsel AGENTS AND BANKS: ---------------- TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent and as a Bank Commitment By: /s/ Allen K. King - ---------- ------------------------------ Allen K. King $25,000,000, including a Vice President $5,000,000 Swing Line Commitment Address for Notices: Address: 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Fax No.: (214) 965-2997 Telephone No.: (214) 965-2705 Attention: Allen K. King -75- Principal Office: 1111 Fannin St. 9th Floor, MS46 Houston, Texas 77002 Fax No.: (713) 750-3810 Telephone No.: (713) 750-2784 Attention: Loan Syndication Services/ Gale Manning Principal Office for interest rate determinations: 707 Travis Houston, Texas 77002 THE FIRST NATIONAL BANK OF CHICAGO, as a Co-Agent and a Bank Commitment By: /s/ Kathleen Comella - ---------- ---------------------------------------- Name: Kathleen Comella ----------------------------------- $25,000,000 Title: Vice President ---------------------------------- Address for Notices: Address: One First National Plaza Suite 0088 Chicago, Illinois 60670 Fax No.: 312/732-3055 Telephone No.: 312/732-1706 Attention: Cory Olson NATIONAL CITY BANK, as a Co-Agent and a Bank Commitment By: /s/ Don Pullen - ---------- ---------------------------------------- Name: Don Pullen ----------------------------------- $25,000,000 Title: V.P. ---------------------------------- -76- Address for Notices: Address: 101 S. Fifth, 7th Floor Louisville, Kentucky 40202 Fax No.: (502) 581-5122 Telephone No.: (502) 581-6352 or (502) 894-9444 Attention: Don Pullen/Randy Rawe CREDIT LYONNAIS NEW YORK BRANCH Commitment By: /s/ Robert Ivosevich - ---------- ---------------------------------------- Robert Ivosevich $20,000,000 Senior Vice President Address for Notices: Address: 2200 Ross Avenue, Suite 4400W Dallas, Texas 75201 Fax No.: (214) 220-2323 Telephone No.: (214) 220-2300 Attention: Sam Hill THE FUJI BANK, LIMITED, HOUSTON AGENCY Commitment By: /s/ Nate Ellis - ---------- ---------------------------------------- Name: Nate Ellis -------------------------------------- $20,000,000 Title: Vice President & Manager ------------------------------------- Address for Notices: Address: 1 Houston Center, Suite 4100 1221 McKinney Street Houston, Texas 77010 Fax No.: (713) 759-0717 Telephone No.: (713) 650-7854 Attention: Christopher Smith -77- WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION Commitment By: /s/ Craig T. Scheef - ---------- ---------------------------------------- Name: Craig T. Scheef ----------------------------------- $20,000,000 Title: Vice President ---------------------------------- Address for Notices: Address: 1445 Ross Avenue Dallas, Texas 75202 Fax No.: (214) 740-1519 Telephone No.: (214) 740-1548 Attention: Craig Scheef -78- INDEX TO EXHIBITS ----------------- Exhibit Description of Exhibit - ------- ---------------------- A Form of Revolving Credit Note B Advance Request Form C Letter of Credit Request Form D Compliance Certificate E-1 Borrower Security Agreement E-2 Guarantor Security Agreement F Form of Pledge Agreement G Guaranty H-1 L/C Application for Standby Letters of Credit H-2 L/C Application for Commercial Letters of Credit I Assignment and Acceptance J Contribution and Indemnification Agreement K Account Information INDEX TO SCHEDULES ------------------ Schedule Description of Exhibit - -------- ---------------------- 8.5 Existing Litigation 8.9 Existing Debt 8.14 Subsidiaries and Foreign Affiliates 8.19 Environmental Matters 8.20 Patents, Trademarks and Copyrights 10.2 Existing Liens -79- EXHIBIT A TO CREDIT AGREEMENT Form of Revolving Credit Note ----------------------------- REVOLVING CREDIT NOTE --------------------- $__________________ Dallas, Texas October 15, 1997 FOR VALUE RECEIVED, the undersigned, CELLSTAR CORPORATION, a Delaware corporation ("Maker"), hereby promises to pay to the order of _________________ ----- ("Payee"), at the offices of Texas Commerce Bank National Association, as agent ----- (together with any successor as provided in the Agreement, hereinbelow defined, the "Agent"), at 1111 Fannin St., 9th Floor, MS46, Houston, Texas 77002, on the ----- dates hereinafter specified, in lawful money of the United States of America, the principal sum of _________________________ ($_____________) or so much thereof as may be advanced and outstanding hereunder, together with interest as hereinafter specified. This Note is one of the Revolving Credit Notes referred to in that certain Credit Agreement dated as of October 15, 1997, among Maker, Payee, Agent, The First National Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-Agents"), and each of the other banks or lending --------- institutions which is or may from time to time become a signatory thereto and any successors or permitted assigns thereof (such Credit Agreement, as the same may be amended, modified, or supplemented from time to time, being referred to herein as the "Agreement"). Capitalized terms used and not otherwise defined in --------- this Note have the respective meanings specified in the Agreement. The Agreement, among other things, contains provisions for acceleration of the maturity of this Note upon the happening of certain stated events and also for prepayments of Advances prior to the maturity of this Note upon the terms and conditions specified in the Agreement. This Note evidences Advances made by the Agent and the Banks to Maker under the Agreement. In addition, as provided in Section 3.4 of the Agreement, each payment made by Agent pursuant to a drawing under a Letter of Credit shall constitute and be deemed an Advance by the Banks to Maker, including an Advance by Payee to Maker under this Note, in accordance with the terms of the Agreement. Maker may borrow, repay and reborrow hereunder upon the terms and conditions specified in the Agreement. The outstanding principal balance hereof shall bear interest at a varying rate per annum which shall from day to day be equal to the lesser of (a) the Maximum Rate, or (b) the Applicable Rate, each such change in the rate of interest charged hereunder to become effective, without notice to Maker, on the effective date of each change in the Applicable Rate or the Maximum Rate, as the case may be; provided, however, if at any time the Applicable Rate shall exceed -------- ------- the Maximum Rate, thereby causing the interest rate hereon to be limited to the Maximum Rate, then any subsequent reduction in the Applicable Rate shall not reduce the rate of interest hereon below the Maximum Rate until the total amount of interest accrued hereon equals the amount of interest which would have accrued hereon if the Applicable Rate had at all times been in effect. REVOLVING CREDIT NOTE - Page 1 Accrued and unpaid interest on this Note shall be due and payable on the dates specified in Section 2.5 of the Agreement. All principal of this Note ----------- shall be due and payable on the Termination Date. All past due principal and interest shall bear interest at the Default Rate. Interest payable at the Default Rate shall be payable from time to time on demand. Interest on the Eurodollar Advances and Alternate Currency Advances shall be computed on the basis of a year of 360 days and the actual number of days elapsed; provided that, in the case of Advances denominated in any Alternate Currency in respect of which the Agent has determined that a 365-day basis is standard market practice in the applicable interbank market, interest shall be calculated on the basis of a year of 365 days and the actual number of days elapsed. Interest on the Floating Rate Advances shall be computed on the basis of a year of 360 days and the actual number of days elapsed at all times when the Alternate Base Rate is based on the Federal Funds Effective Rate and a year of 365 or 366 days, as the case may be, and the actual number of days elapsed at all times when the Alternate Base Rate is the Prime Rate. Notwithstanding anything to the contrary contained herein, no provisions of this Note shall require the payment or permit the collection of interest in excess of the Maximum Rate. If any excess of interest in such respect is herein provided for, or shall be adjudicated to be so provided, in this Note or otherwise in connection with this loan transaction, the provisions of this paragraph shall govern and prevail, and neither Maker nor the sureties, guarantors, successors or assigns of Maker shall be obligated to pay the excess amount of such interest, or any other excess sum paid for the use, forbearance or detention of sums loaned pursuant hereto. If for any reason interest in excess of the Maximum Rate shall be deemed charged, required or permitted by any court of competent jurisdiction, any such excess shall be applied as a payment and reduction of the principal of indebtedness evidenced by this Note; and, if the principal amount hereof has been paid in full, any remaining excess shall forthwith be paid to Maker. In determining whether or not the interest paid or payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted by applicable law, (i) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the indebtedness evidenced by this Note so that the interest for the entire term does not exceed the Maximum Rate. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS NOTE IS PERFORMABLE IN DALLAS COUNTY, TEXAS. Maker and each surety, guarantor, endorser, and other party ever liable for payment of any sums of money payable on this Note jointly and severally waive notice, presentment, demand for payment, protest, notice of protest and non- payment or dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, diligence in collecting, grace, and all other formalities of any kind, except any notice and grace periods provided in the Agreement, and consent to all extensions without notice for any period or periods of time and partial payments, before or after maturity, and any impairment of any Collateral securing this Note, all without prejudice to the holder. The holder shall similarly have the right to deal in any way, at any time, REVOLVING CREDIT NOTE - Page 2 with one or more of the foregoing parties without notice to any other party, and to grant any such party any extensions of time for payment of any of said indebtedness, or to release or substitute part or all of the Collateral securing this Note, or to grant any other indulgences or forbearances whatsoever, without notice to any other party and without in any way affecting the personal liability of any party hereunder. Maker hereby authorizes the holder hereof to endorse on the Schedule attached to this Note or any continuation thereof or to record in its internal records all advances made to Maker hereunder and all payments made on account of the principal thereof, which endorsements or records shall be prima facie evidence as to the outstanding principal amount of this Note; provided, however, any failure by the holder hereof to make any endorsement or record shall not limit or otherwise affect the obligations of Maker under the Agreement or this Note. CELLSTAR CORPORATION By:___________________________________________ Mark Q. Huggins Senior Vice President and Chief Financial Officer REVOLVING CREDIT NOTE - Page 3 Schedule DATE ADVANCE PRINCIPAL PAYMENT BALANCE -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- -------- ------------- ------------------- ----------- EXHIBIT B TO CREDIT AGREEMENT Advance Request Form -------------------- ADVANCE REQUEST FORM -------------------- TO: Texas Commerce Bank National Association, as Agent 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Attention: Allen K. King Ladies and Gentlemen: The undersigned is an officer of CELLSTAR CORPORATION, a Delaware corporation (the "Borrower"), and is authorized to make and deliver this -------- certificate pursuant to that certain Credit Agreement dated as of October 15, 1997, among the Borrower, each of the banks or other lending institutions which is or may from time to time become a signatory thereto and any successors or permitted assignees thereof, The First National Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-Agents"), and Texas Commerce Bank --------- National Association, a national banking association, as agent for itself and the other Banks and as issuer of Letters of Credit thereunder (the "Agent") ----- (such Credit Agreement as the same may be amended, supplemented or modified from time to time, being hereinafter referred to as the "Credit Agreement"). All ---------------- terms defined in the Credit Agreement shall have the same meaning herein. In accordance with the Credit Agreement, the Borrower hereby (check whichever is applicable): _____ 1. Requests that the Banks make an Advance (the "Requested Advance"), in ----------------- the amount set forth in item (g) below, of the following Type (check whichever is applicable): _____ Floating Rate Advance _____ Eurodollar Advance having an Interest Period of (check whichever is applicable): _____ one month _____ two months _____ three months _____ Alternate Currency Advance a. In _________________ (type of Alternate Currency) b. Having an Interest Period of (check whichever is applicable): _____ one month _____ two months _____ three months _____ Swing Line Advance/1/ _____ 2. Requests that the Banks Convert a Floating Rate Advance/2/ into a Eurodollar Advance in the amount of $__________, having an Interest Period of (check whichever is applicable): ______________________ /1/ Swing Line Advances must be Floating Rate Advances /2/ Swing Line Advances may not be converted into Eurodollar Advances or Alternate Currency Advances ADVANCE REQUEST FORM - Page 1 _____ one month _____ two months _____ three months _____ 3. Request that the Banks Convert a Floating Rate Advance/2/ into an Alternate Currency Advance in the Equivalent Amount of $_______________. a. Having an Interest Period of (check whichever is applicable): _____ one month _____ two months _____ three months b. In ____________________ (type of Alternate Currency) of $__________. _____ 4. Requests that the Banks Convert a Eurodollar Advance into a Floating Rate Advance in the amount $__________. _____ 5. Request that the Banks Convert a Eurodollar Advance into an Alternate Currency Advance in the Equivalent Amount of $______________. a. Having an Interest Period of (check whichever is applicable): _____ one month _____ two months _____ three months b. In ____________________ (type of Alternate Currency) _____ 6. Request that the Banks Convert an Alternate Currency Advance in _______________ (type of Alternative Currency) into a Floating Rate Advance in the amount of $_______________. _____ 7. Request that the Banks Convert an Alternate Currency Advance in ________________ (type of Alternate Currency) into a Eurodollar Advance in the amount of $_____________, having an Interest Period of (check whichever is applicable): _____ one month _____ two months _____ three months _____ 8. Requests that the Banks Continue a Eurodollar Advance in the amount of $__________, having an Interest Period of (check whichever is applicable): _____ one month _____ two months _____ three months _____ 9. Requests that the Banks Continue an Alternate Currency Advance in the Equivalent Amount of $___________: ADVANCE REQUEST FORM - Page 2 a. Having an Interest Period of (check whichever is applicable): _____ one month _____ two months _____ three months b. In _____________________ (type of Alternate Currency) The Borrower hereby requests and instructs the Agent to make the Requested Advance available to Borrower by (check whichever is applicable): _____ depositing the same in the following account maintained with Agent: -------------------------------------------------------------------- -------------------------------------------------------------------- _____ wire transfer in accordance with the following wiring instructions: -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- In connection with the foregoing and pursuant to the terms and provisions of the Credit Agreement, the undersigned hereby certifies that the following statements are true and correct: (i) The representations and warranties contained in Article VIII of the Credit Agreement and in each of the other Loan Documents are true and correct on and as of the date hereof with the same force and effect as if made on and as of such date. (ii) No Default has occurred and is continuing or would result from the Requested Advance. (iii) The amount of the Requested Advance, when added to all outstanding Advances and Letter of Credit Liabilities, will not exceed the lesser of the Asset Coverage Amount or the amount of the Commitments. (iv) If the Requested Advance is an Alternate Currency Advance, the amount of such Requested Advance when added to all outstanding Alternate Currency Advances, will not exceed $25,000,000. (v) If the Requested Advance is a Swing Line Advance, the amount of such Requested Advance, when added to all outstanding Swing Line Advances, will not exceed the Swing Line Commitment. (vi) Each Company has adequate capital to conduct its business as a going concern, as now conducted and as proposed to be conducted, each Company will be able to meet its obligations under the Loan Documents and in respect of its other existing and future indebtedness and liabilities as and when the same shall be due and payable, and each Company is not insolvent (as that term is defined in 11 U.S.C. (S) 101 or applicable law) and will not be rendered insolvent by the Requested Advance, and the foregoing statements are supported by the Companies' internal projections and forecasts. (vii) All information supplied below is true, correct, and complete as of the date hereof. Information ----------- (a) Outstanding principal amount of Advances............ $____________ (b) Outstanding Letter of Credit Liabilities............ $____________ (c) Asset Coverage Amount............................... $____________ (d) The amount of the Commitments minus the sum of line (a) plus line (b).............................. $____________ ADVANCE REQUEST FORM - Page 3 (e) The Asset Coverage Amount minus the sum of line (a) plus line (b).............................................................. $____________ (f) Net availability for Advances: [lesser of line (d) or line (e)]....... $____________ (g) Outstanding principal amount of Swing Line Advances................... $____________ (h) Outstanding principal amount of Alternate Currency Advances........... $____________ (i) Amount of Requested Advance/3/........................................ $____________
BORROWER: -------- CELLSTAR CORPORATION By:____________________________________ Name:________________________________ Title:_______________________________ Dated as of:___________________ [insert date of Requested Advance] cc: Texas Commerce Bank National Association, as Agent 1111 Fannin St. 9th Floor, MS46 Houston, Texas 77002 Attention: Loan Syndication Services/ Gale Manning ________________________ /3/ Each Advance (excluding Swing Line Advances) shall be in a minimum principal amount of $1,000,000 or such greater amount which is an integral multiple of $100,000. Each Swing Line Advance shall be in a minimum principal amount of $100,000. The aggregate principal amount of Eurodollar Advances having the same Interest Period shall be at least equal to $1,000,000. The aggregate principal amount of Alternate Currency Advances having the same Interest Period shall be at least equal to $1,000,000. ADVANCE REQUEST FORM - Page 4 EXHIBIT C TO CREDIT AGREEMENT Letter of Credit Request Form ----------------------------- LETTER OF CREDIT REQUEST FORM ----------------------------- TO: Texas Commerce Bank National Association, as Agent 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Attention: Allen K. King Ladies and Gentlemen: The undersigned is an officer of CELLSTAR CORPORATION, a Delaware corporation (the "Borrower"), and is authorized to make and deliver this -------- certificate pursuant to that certain Credit Agreement dated as of October 15, 1997, among Borrower, each of the banks or other lending institutions which is or may from time to time become a signatory thereto and any successors or permitted assigns thereof, The First National Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-Agents"), and Texas Commerce Bank --------- National Association, as agent for itself and the other Banks and as issuer of Letters of Credit thereunder (the "Agent") (such Credit Agreement, as the same may be amended, supplemented or modified from time to time, being hereinafter referred to as the "Credit Agreement"). All terms defined in the Credit ---------------- Agreement shall have the same meaning herein. In accordance with the Credit Agreement, the Borrower hereby requests that the Agent issue a Letter of Credit. The Letter of Credit shall: (a) be issued on ________________, 19___;/1/ (b) be in the amount of $____________;/2/ (c) permit [a single drawing/multiple drawings]/3/ on the terms and conditions set forth in the L/C Application attached as Annex I hereto; (d) be payable upon presentation of a [sight draft/time draft. The time draft shall be payable on __________________, 19___];/4/ (e) expire on __________________, 19___;/4/ (f) be issued for the account of ______________________;/5/ and (g) be used for the following purpose:_______________________________ _________________________________________________________________ _____________________________________________________________./6/ The Letter of Credit is to be delivered by the Agent to _______________./7/ [Drawing/Each drawing]/3/ under the Letter of Credit shall be subject to the conditions specified in the L/C Application attached as Annex I hereto. ------- In connection with the foregoing and pursuant to the terms and provisions of the Credit Agreement, the undersigned hereby certifies that the following statements are true and correct: (i) The representations and warranties contained in Article VIII of the Credit Agreement and in each of the other Loan Documents are true and correct on and as of the date hereof with the same force and effect as if made on and as of such date. (ii) No Default has occurred and is continuing or would result from the issuance of the Letter of Credit requested hereunder. (iii) The face amount of the Letter of Credit requested hereunder, when added to all outstanding Letter of Credit Liabilities, will not exceed $10,000,000. _________________________________ /1/ Insert date not later than the Termination Date. /2/ Insert face amount of Letter of Credit. Minimum face amount: $50,000. Issuance is subject to Dollar limit on aggregate face amount of Letters of Credit specified in Section 3.1 of the Credit Agreement. /3/ Specify one. /4/ Insert date not later than the earlier of (a) one year after issuance or (b) the Termination Date. /5/ Insert name and address of account party, which shall be the Borrower or a Subsidiary of the Borrower. /6/ Describe purpose for which Letter of Credit will be used. /7/ Insert name of Borrower or name and address of beneficiary. LETTER OF CREDIT REQUEST FORM - PAGE 1 (iv) The face amount of the Letter of Credit requested hereunder, when added to all outstanding Advances and Letter of Credit Liabilities, will not exceed the lesser of the Asset Coverage Amount or the amount of the Commitments. (v) Each Company has adequate capital to conduct its business as a going concern, as now conducted and as proposed to be conducted, each Company will be able to meet its obligations under the Loan Documents and in respect of its other existing and future indebtedness and liabilities as and when the same shall be due and payable, and each Company is not insolvent (as that term is defined in 11 U.S.C. (S) 101 or applicable law) and will not be rendered insolvent by the Letter of Credit, and the foregoing statements are supported by the Companies' internal projections and forecasts. (vi) The proposed terms of the Letter of Credit requested hereunder and the transactions proposed to be supported thereby are accurately and completely described on the L/C Application attached as Annex I hereto. ------- (vii) All information supplied below is true, correct, and complete as of the date hereof. Information ----------- (a) Outstanding principal amount of Advances........................... $____________ (b) Outstanding Letter of Credit Liabilities........................... $____________ (c) Asset Coverage Amount.............................................. $____________ (d) The amount of the Commitments minus the sum of line (a) plus line (b)............................ $____________ (e) The Asset Coverage Amount minus the sum of line (a) plus line (b).......................................... $____________ (f) Difference of $10,000,000 minus line (b)........................... $____________ (g) Net availability for Letters of Credit: [lesser of line (d), line (e) or line (f)]......................................... $____________ (h) Face Amount of requested Letter of Credit.......................... $____________ (i) Date requested for issuance of Letter of Credit.................... _______, 19__
BORROWER: -------- CELLSTAR CORPORATION By:________________________________ Name:___________________________ Title:__________________________ Dated as of:_____________________ [insert date of proposed issuance of Letter of Credit] cc: Texas Commerce Bank National Association, as Agent 1111 Fannin St. 9th Floor, MS46 Houston, Texas 77002 Attention: Loan Syndication Services/ Gale Manning LETTER OF CREDIT REQUEST FORM - PAGE 2 ANNEX 1 TO LETTER OF CREDIT REQUEST FORM L/C Application --------------- EXHIBIT D TO CREDIT AGREEMENT Compliance Certificate ---------------------- COMPLIANCE CERTIFICATE ---------------------- TO: Texas Commerce Bank National Association, as Agent 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Attention: Allen K. King Ladies and Gentlemen: The undersigned is the president, chief executive officer, the chief financial officer or the corporate controller of CELLSTAR CORPORATION, a Delaware corporation (the "Borrower"), and is authorized to make and deliver -------- this certificate pursuant to that certain Credit Agreement dated as of October 15, 1997, among the Borrower, each of the banks or other lending institutions which is or may become a party thereto and the successors and permitted assigns thereof, The First National Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-Agents"), and Texas Commerce Bank National Association, a --------- national banking association, as agent for itself and each of the other Banks and as issuer of Letters of Credit thereunder (the "Agent") (such Credit ----- Agreement, as the same may be amended, supplemented or modified from time to time, being hereinafter referred to as the "Credit Agreement"). All terms ---------------- defined in the Credit Agreement shall have the same meaning herein. In connection with the foregoing and pursuant to the terms and provisions of the Credit Agreement, the undersigned hereby certifies to the Agent, each Co- Agent and each Bank that the following statements are true and correct: A. Representations and Warranties. The representations and warranties ------------------------------ contained in Article VIII of the Credit Agreement and in each of the other Loan Documents are true and correct on and as of the date hereof with the same force and effect as if made on and as of such date. B. Financial Covenants. The information set forth below is true and ------------------- correct based upon the financial statements delivered herewith as of the last day of the fiscal quarter next preceding the date of this certificate: (1) Consolidated Tangible Net Worth as of ___________, 19___: ------------------------------- (a) Stockholders' or owners' equity of the Borrower and the Subsidiaries on a consolidated basis as of such date........................................ $___________ (b) Amount at which shares of capital stock of any Person appear as an asset on the balance sheet of such Person...................................... $___________ (c) Goodwill, including amounts that represent the excess of the purchase price paid for assets or stock over the value assigned thereto................. $___________ (d) Patents, trademarks, trade names, and copyrights............................... $___________ (e) Deferred expenses.............................................................. $___________ (f) Loans and advances to any stockholder, director, officer, partner or employee of the Borrower, any Subsidiary, or any Affiliate of the Borrower or any Subsidiary..................................................... $___________ (g) All other assets are properly classified as intangible assets.................. $___________ (h) Sum of Lines (b), (c), (d), (e), (f) and (g)................................... $___________ (i) Tangible Net Worth (Difference of Line (a) minus Line (h))..................... $___________ (j) Sum of net income, after provision for income taxes, of the Borrower and the Subsidiaries on a consolidated basis (without any deduction for losses) for each fiscal quarter of the Borrower ended through such date beginning with the fiscal quarter ending August 31, 1997.................. $___________ (k) 50% of Line (j)................................................................ $___________ (l) With respect to any issuance, sale or other disposition of any shares of capital stock or other equity securities of Borrower of any class (or any securities convertible or exchangeable for any such shares, or any rights, warrants or options to subscribe for or purchase any such shares), the aggregate gross proceeds of such issuance, sale or other disposition, less the following: (i) placement agent fees, (ii) underwriting discounts and commissions, (iii) bank and other lender fees, and (iv) legal fees and other expenses payable by the issuer
COMPLIANCE CERTIFICATE - Page 1 in connection with such issuance, sale or other disposition, to the extent such proceeds are received by the Borrower.................................. $___________ (m) Minimum Consolidated Tangible Net Worth required by Section 11.1 of Credit Agreement ($100,000,000 plus Line (k) plus Line (1))........................ $___________ (2) Consolidated Interest Coverage Ratio as of ___________, 19___ (for the four ------------------------------------ fiscal-quarter period most recently ended): (a) The sum of the following, calculated on a consolidated basis for the Borrower and the Subsidiaries, without duplication: (i) the amount of net income for the four-fiscal-quarter period most recently ended (whether positive or negative) before interest expense, income taxes and extraordinary items, net of (ii) all non-cash items (such as deferred taxes, depreciation, amortization of goodwill and all other non-cash charges accrued but not actually paid) which, in determining net income for such period, were deducted from (or included in) gross income for such period; provided, however, that for purposes of the -------- ------- foregoing calculation, changes in the allowance for doubtful accounts shall not be treated as a non-cash item............................................ $___________ (b) Interest expense of the Borrower and the Subsidiaries on a consolidated basis................................................................. $___________ (c) Ratio of Line (a) to Line (b)...................................................... _____ to____ (d) Minimum Consolidated Interest Coverage Ratio required by Section 11.2 of Credit Agreement................................................................ 3.0 to 1.0 (3) Companies Interest Coverage Ratio as of ____________, 19____: --------------------------------- (a) The sum of the following, calculated on a combined basis for the Companies, without duplication: (i) the amount of net income for the four fiscal quarter period most recently ended (whether positive or negative) before interest expense, income taxes and extraordinary items, net of (ii) all non-cash items (such as deferred taxes, depreciation, amortization of goodwill and all other non-cash charges accrued but not actually paid) which, in determining net income for such period, were deducted from (or included in) gross income for such period; provided, however, that for purposes of calculating the -------- ------- foregoing, changes in the allowance for doubtful accounts shall not be treated as a non-cash item......................................................... $___________ (b) Interest expense of the Borrowers and the Subsidiaries on a consolidated basis (Line 2(b))..................................................... $___________ (c) Ratio of Line (a) to Line (b)...................................................... _____ to____ (d) Amount of cash transferred from Subsidiaries to the Companies as permitted by Section 11.3 of the Credit Agreement/1/............................... $___________ (e) Ratio of the sum of Line (a) plus Line (d) to Line (b)............................. _____ to ____ (f) Minimum Companies Interest Coverage Ratio required by Section 11.3 of Credit Agreement................................................................... 1.25 to 1.0 (4) Minimum Turnover Ratio for the quarter ended ___________, 19___: ---------------------- (a) Cost of goods sold for the Borrower and the Subsidiaries on a consolidated basis in the period of the four fiscal quarters then ended.............................................................................. $___________ (b) Average Inventory Per Quarter for each of the most recent four fiscal quarters then ended:
_____________________________ /1/ In the event it is determined that the Companies Cash Flow is not sufficient to cause compliance with Section 11.3 of the Credit Agreement, then within ten days after such determination, the Borrower will cause to be transferred to the Companies from the other Subsidiaries cash in an amount which when added to the Companies Cash Flow is sufficient to cause compliance with Section 11.3 of the Credit Agreement, and, to the extent they comply with such covenant, the Companies shall be deemed to have met the requirements of Section 11.3 of the Credit Agreement for the relevant period of determination. The Companies may not use transferred cash to meet the ratio requirement of Section 11.3 of the Credit Agreement in more than two consecutive fiscal quarters. Such transferred cash shall remain with the Companies, notwithstanding any other covenants to the contrary contained herein, until the Companies have demonstrated compliance with Section 11.3 of the Credit Agreement without the benefit of such transferred cash. COMPLIANCE CERTIFICATE - Page 2
Beginning Ending Inventory Inventory Quarters Amount Amount -------- ------ ------ 1 $________ + $________ divided by 2 = ................... $____________ 2 $________ + $________ divided by 2 = ................... $____________ 3 $________ + $________ divided by 2 = ................... $____________ 4 $________ + $________ divided by 2 = ................... $____________ (c) Total sum of Average Inventory Per Quarter for quarters shown in Line (b)................................ $____________ (d) Average Inventory (Line (c) divided by four)............................................................. $____________ (e) Turnover Ratio (Ratio of Line (a) to Line (d))........................................................... ____ to _____ (f) Minimum Turnover Ratio required by Section 11.4 of Credit Agreement...................................... 6.0 to 1.0 (5) Consolidated Funded Debt to Consolidated Cash Flow Ratio as of __________, 19___: -------------------------------------------------------- (a) On a consolidated basis for the Borrower and the Subsidiaries in accordance with GAAP, all obligations for borrowed money (whether as a direct obligor on a promissory note, bond, debenture or other similar instrument, as a reimbursement obligor with respect to an issued letter of credit or similar instrument, as an obligor under a Guarantee for borrowed money, or as any type of direct or contingent obligor) as of the last day of the fiscal quarter most recently ended...................................................................................... $___________ (b) On a consolidated basis for the Borrower and the Subsidiaries, without duplicating any amount included in Line (a) above, the capitalized amount of all obligations to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a consolidated balance sheet of the Borrower under GAAP, as of the last day of the fiscal quarter most recently ended, determined in accordance with GAAP................................................................................................ $___________ (c) Consolidated Funded Debt (the sum of Line (a) plus Line (b))............................................. $___________ (d) Consolidated Cash Flow (Line (2)(a))..................................................................... $___________ (e) Ratio of Line (c) to Line (d)............................................................................ ____ to ____ (f) Maximum Consolidated Funded Debt to Consolidated Cash Flow Ratio permitted by Section 11.5 of Credit Agreement for the fiscal quarter ending November 30, 1997 and each fiscal quarter thereafter until and including the fiscal quarter ending February 28, 1999............................... 4.0 to 1.0 (g) Maximum Consolidated Funded Debt to Consolidated Cash Flow Ratio permitted by Section 11.5 of the Credit Agreement thereafter.......................................................... 3.5 to 1.0 (6) Consolidated Senior Debt to Consolidated Cash Flow Ratio as of _____________, 19___: -------------------------------------------------------- (a) Consolidated Funded Debt (Line (5)(c))................................................................... $____________ (b) Subordinated Debt........................................................................................ $____________ (c) Consolidated Senior Debt (Line (a) minus Line (b))....................................................... $____________ (d) Consolidated Cash Flow (Line (2)(a))..................................................................... $___________ (e) Ratio of Line (c) to Line (d)............................................................................ ____ to ____ (f) Maximum Consolidated Senior Debt to Consolidated Cash Flow Ratio permitted by Section 11.6 of Credit Agreement for the fiscal quarter ending November 30, 1997 and each fiscal quarter thereafter until and including the fiscal quarter ending February 28, 1999........................................................................................ 3.0 to 1.0 (g) Maximum Consolidated Senior Debt to Consolidated Cash Flow Ratio permitted by Section 11.6 of the Credit Agreement thereafter.......................................................... 2.5 to 1.0
COMPLIANCE CERTIFICATE - Page 3 (7) Intercompany Loans and Capital Contributions as of ___________, 19___: -------------------------------------------- (a) Capital contributions by the Borrower or any Subsidiary to any other Subsidiary or any Foreign Affiliate (other than as described in subsections (B) through (E) of Section 10.5(i) of the -------------- --- --------------- Credit Agreement) during the current fiscal year through the fiscal quarter most recently ended/2/........ $___________ (b) Capital contributions by the Borrower or any Subsidiary to any other Subsidiary or any Foreign Affiliate (other than as described in subsections (B) through (E) of Section 10.5(i) of the --------------- --- --------------- Credit Agreement) during the fiscal year most recently ended/3/........................................... $___________ (c) Maximum amount of such capital contributions permitted by subsection (F) of Section 10.5(i) of -------------- --------------- the Credit Agreement during any fiscal year............................................................... $5,000,000 (d) Aggregate amount of loans and advances by the Borrower or any Subsidiary Foreign Affiliate outstanding as of such date............................................................. $___________ (e) Maximum aggregate amount of such loans and advances permitted to be outstanding at any time............... $10,000,000 (f) Aggregate amount of loans and advances by the Borrower or any Subsidiary to any other Subsidiary (other than as described in subsections (B) and (C) of Section 10.5(i) of the ----------------------- --------------- Credit Agreement) outstanding as of such date/4/.......................................................... $___________ (g) Maximum aggregate amount of such loans and advances permitted to be outstanding at any time: (1) Stockholders' equity in the Borrower as of such date................................................. $___________ (2) 20% of Line (1)...................................................................................... $___________ (3) Greater of $40,000,000 or Line (2)................................................................... $___________ (8) Asset Coverage Amount as of _____________, 19___: --------------------- (a) Eligible Accounts: ----------------- (1) All accounts receivable of each of the Companies in which such Company has good and indefeasible title, which are not subject to any Lien except Liens in favor of the Agent, and in which the Agent has a valid, perfected first priority Lien: NAC.................................................................................................. $___________ CellStar, Ltd........................................................................................ $___________ CellStar Fulfillment, Ltd............................................................................ $___________ CWI (if applicable).................................................................................. $___________ TOTAL GROSS ACCOUNTS RECEIVABLE.................................................................... $___________ (2) Accounts which have been outstanding more than 90 days past the original date of invoice........................................................................................... $___________ (3) Accounts owned by any employee, Subsidiary or Affiliate of any Company............................... $___________ (4) Sum of Line (2) plus Line (3)........................................................................ $___________ (5) Eligible Accounts (Line (1) minus Line (4)).......................................................... $___________ (6) Foreign Accounts in excess of $15,000,000............................................................ $___________ (7) Line (5) minus Line (6).............................................................................. $___________ (8) 80% of Line (7)...................................................................................... $___________ (b) Eligible Inventory: ------------------ (1) All inventory then owned by (and in the possession or under the control of) the Companies, or any of them, and held for sale or disposition in the ordinary course of the Companies' business, in which the Agent has a perfected, first priority security interest, which is not located at any location for which a landlord's waiver is required to be delivered and has not been received by the Agent, and is not located outside of the United States of America, valued at the lower of (i) actual cost for the purchase of such inventory from the original wholesale supplier or (ii) fair market value:
__________________________________ /2/ For each Compliance Certificate delivered for any of the Borrower's first three quarters of any fiscal year. /3/ For each Compliance Certificate delivered for any fiscal year-end of the Borrower. /4/ Amounts loaned or advanced by the Borrower or any Subsidiary to any Subsidiary that are in turn loaned or advanced by that Subsidiary to another Subsidiary shall be counted only once for purposes of this calculation. COMPLIANCE CERTIFICATE - PAGE 4 NAC.................................................................................................. $___________ CellStar, Ltd........................................................................................ $___________ CellStar Fulfillment, Ltd............................................................................ $___________ CWI (if applicable).................................................................................. $___________ TOTAL INVENTORY...................................................................................... $___________ (2) The value of the obsolescence reserve................................................................ $___________ (3) Eligible Inventory (Line (1) minus Line (2))......................................................... $___________ (4) 50% of Line (3)...................................................................................... $___________ (5) Aggregate amount of the Commitments.................................................................. $___________ (6) 60% of Line (5)...................................................................................... $___________ (7) Lesser of Line (4) or Line (6)....................................................................... $___________ (c) Asset Coverage Amount (Line (a)(8) plus Line (b)(7))...................................................... $___________ (d) Outstanding principal amount of Advances.................................................................. $___________ (e) Outstanding Letter of Credit Liabilities.................................................................. $___________ (f) Sum of Line (d) plus Line (e)............................................................................. $___________ (g) Available credit amount or amount to be paid if negative (the lesser of the Commitments or Line (c), minus Line (f))................................................................................. $___________
The undersigned hereby certifies that (a) the above information and calculations are true and correct and not misleading as of the date hereof, (b) Borrower has delivered to the Agent, the Co-Agents and the Banks all financial information and reports required by the Credit Agreement by the dates provided therein, and (c) no Default has occurred and is continuing. CELLSTAR CORPORATION By:____________________________________ Name:_______________________________ Title:______________________________ Dated as of:___________ COMPLIANCE CERTIFICATE - PAGE 5 EXHIBIT E-1 TO CREDIT AGREEMENT Borrower Security Agreement --------------------------- BORROWER SECURITY AGREEMENT --------------------------- THIS SECURITY AGREEMENT (this "Agreement") dated as of October 15, 1997, is --------- by and between CELLSTAR CORPORATION, a Delaware corporation (the "Debtor"), and ------ TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association ("TCB"), not in its individual capacity but solely as agent for itself and each --- of the other banks or lending institutions (each, a "Bank" and, collectively, ---- the "Banks") which is or may from time to time become a signatory to the Credit ----- Agreement (hereinafter defined) or any successor or permitted assignee thereof (TCB in such capacity, together with its successors in such capacity, the "Agent"). ----- R E C I T A L S: - - - - - - - - A. The Debtor, the Agent, The First National Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-Agents"), and the Banks --------- heretofore entered into that certain Credit Agreement of even date herewith (such Credit Agreement, as the same may be amended, supplemented or modified from time to time, the "Credit Agreement"), providing for loans and extensions ---------------- of credit to the Debtor. B. The Agent, the Co-Agents and the Banks have conditioned their obligations under the Credit Agreement on the execution and delivery by the Debtor of this Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions ----------- Section 1.1 Definitions. As used in this Agreement, the following terms ----------- have the following meanings: "Accounts" means any "account", as such term is defined in Section -------- 9.106 of the UCC, now owned or hereafter acquired by the Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by the Debtor: (a) all rights of the Debtor to payment for goods sold or leased or services rendered, whether or not earned by performance, (b) all accounts receivable of the Debtor, (c) all rights of the Debtor to receive any payment of money or other form of consideration, (d) all security pledged, assigned, or granted to or held by the Debtor to secure any of the foregoing, (e) all guaranties of, or indemnifications with respect to, any of the foregoing, and BORROWER SECURITY AGREEMENT - Page 1 (f) all rights of the Debtor as an unpaid seller of goods or services, including, but not limited to, all rights of stoppage in transit, replevin, reclamation, and resale. "Chattel Paper" means any "chattel paper", as such term is defined in ------------- Section 9.105(a)(2) of the UCC, now owned or hereafter acquired by the Debtor. "Collateral" has the meaning specified in Section 2.1 of this ---------- ----------- Agreement. "Document" means any "document", as such term is defined in Section -------- 9.105(a)(6) of the UCC, now owned or hereafter acquired by the Debtor, including, without limitation, all documents of title and warehouse receipts of the Debtor. "Equipment" means any "equipment", as such term is defined in Section --------- 9.109(2) of the UCC, now owned or hereafter acquired by the Debtor and, in any event, shall include, without limitation, all machinery, equipment, furnishings, fixtures and vehicles now owned or hereafter acquired by the Debtor and any and all additions, substitutions, and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment, and accessories installed thereon or affixed thereto. "General Intangibles" means any "general intangibles", as such term is ------------------- defined in Section 9.106 of the UCC, now owned or hereafter acquired by the Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by the Debtor: (a) all of the Debtor's patents, patent applications, patent rights, service marks, trademarks, trade names, trade secrets, intellectual property, registrations, goodwill, copyrights, franchises, licenses, permits, proprietary information, customer lists, designs, and inventions, (b) all of the Debtor's books, records, data, plans, manuals, computer software, and computer programs, (c) all of the Debtor's contract rights, partnership interests, joint venture interests, securities, deposit accounts, investment accounts, and certificates of deposit, (d) all rights of the Debtor to payment under letters of credit and similar agreements, (e) all tax refunds and tax refund claims of the Debtor, (f) all choses in action and causes of action of the Debtor (whether arising in contract, tort, or otherwise and whether or not currently in litigation) and all judgments in favor of the Debtor, (g) all rights and claims of the Debtor under warranties and indemnities, and (h) all rights of the Debtor under any insurance, surety, or similar contract or arrangement. "Instrument" means any "instrument", as such term is defined in ---------- Section 9.105(a)(9) of the UCC, now owned or hereafter acquired by the Debtor, other than stock and other securities. BORROWER SECURITY AGREEMENT - Page 2 "Inventory" means any "inventory", as such term is defined in Section --------- 9.109(4) of the UCC, now owned or hereafter acquired by the Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by the Debtor: (a) all goods and other personal property of the Debtor that are held for sale or lease or to be furnished under any contract of service, (b) all raw materials, work-in- process, finished goods, inventory, supplies, and materials of the Debtor, (c) all wrapping, packaging, advertising, and shipping materials of the Debtor, (d) all goods that have been returned to, repossessed by, or stopped in transit by the Debtor, and (e) all Documents evidencing any of the foregoing. "Obligations" means: ----------- (a) the indebtedness, liabilities and obligations of the Debtor to the Banks evidenced by those Notes of even date herewith, executed by Debtor and payable to the order of the Banks in the aggregate principal amount of $135,000,000; (b) the "Obligations", as such term is defined in the Credit Agreement; (c) all future Advances by the Agent, any Co-Agent or any Bank to the Debtor, or either of them; (d) all costs and expenses, including without limitation all reasonable attorneys' fees and legal expenses, incurred by the Agent, any Co-Agent or any Bank to preserve and maintain the Collateral, collect the obligations herein described and enforce this Agreement; (f) all other obligations, indebtedness and liabilities of the Debtor, or either of them, to the Agent, any Co-Agent or any Bank under any of the Loan Documents, now existing or hereafter arising, regardless of whether such obligations, indebtedness and liabilities are similar, dissimilar, related, unrelated, direct, indirect, fixed, contingent, primary, secondary, joint, several, or joint and several; and (g) all extensions, renewals and modifications of any of the foregoing. "Permitted Liens" means the security interests granted hereby and --------------- Liens expressly permitted by Section 10.2 of the Credit Agreement. "Proceeds" means any "proceeds", as such term is defined in Section -------- 9.306 of the UCC and, in any event, shall include, but not be limited to, (a) any and all BORROWER SECURITY AGREEMENT - Page 3 proceeds of any insurance, indemnity, warranty, or guaranty payable to the Debtor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure, or forfeiture of all or any part of the Collateral by any Governmental Authority (or any person acting under color of Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "UCC" means the Uniform Commercial Code as in effect in the State of --- Texas or, if so required with respect to any particular Collateral by mandatory provisions of applicable law, as in effect in the jurisdiction in which such Collateral is located. Section 1.2 Terms Defined in Credit Agreement. All capitalized terms used --------------------------------- and not otherwise defined herein shall have their respective meanings as specified in the Credit Agreement. ARTICLE II Security Interest ----------------- Section 2.1 Security Interest. As collateral security for the prompt ----------------- payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration, or otherwise), the Debtor hereby grants to the Agent, for the pro rata benefit of the Banks, a first priority lien on and security interest in all of the Debtor's right, title, and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"): ---------- (a) all Accounts; (b) all Chattel Paper; (c) all Instruments; (d) all General Intangibles; (e) all Documents; (f) all Inventory; (g) all Equipment; and (h) all Proceeds and products of any or all of the foregoing. BORROWER SECURITY AGREEMENT - Page 4 Without limiting the foregoing, this Agreement secures the payment of all amounts that constitute part of the Obligations and would be owed by the Debtor to the Agent, any Co-Agent or any Bank but for the fact that they are unenforceable or not allowable due to the existence of bankruptcy, reorganization, or similar proceedings involving the Debtor. If the grant, pledge, or collateral transfer or assignment of any rights of the Debtor under any contract included in the Collateral is expressly prohibited by such contract, then the security interest hereby granted therein nonetheless remains effective to the extent allowed by UCC Section 9.318 or other applicable law but is otherwise limited by that prohibition. Section 2.2 Debtor Remains Liable. Notwithstanding anything to the --------------------- contrary contained herein, (a) the Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Agent of any of its rights hereunder shall not release the Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) neither the Agent nor any Bank shall have any obligation or liability under any of the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Agent or any Bank be obligated to perform any of the obligations or duties of the Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. ARTICLE III Representations and Warranties ------------------------------ To induce the Agent to enter into this Agreement and the Agent, the Co- Agents and the Banks to enter into the Credit Agreement, the Debtor represents and warrants to the Agent that: Section 3.1 Title. The Debtor is, and with respect to Collateral acquired ----- after the date hereof the Debtor will be, the legal and beneficial owner of the Collateral free and clear of any Lien, except Permitted Liens. Section 3.2 Accounts. Unless the Debtor has given the Agent written -------- notice to the contrary, whenever the security interest granted hereunder attaches to an Account, the Debtor shall be deemed to have represented and warranted to the Agent as to each and all of its Accounts that (a) each Account is genuine and in all respects what it purports to be, (b) each Account represents the legal, valid, and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor arising out of the performance of labor or services by the Debtor or the sale or lease of goods by the Debtor, (c) the amount of each Account represented as owing is the correct amount actually and unconditionally owing except for normal trade discounts granted in the ordinary course of business, and (d) to the best of Debtor's knowledge, no Account is subject to any offset, counterclaim, or other defense. Section 3.3 Financing Statements. No financing statement, security -------------------- agreement, or other Lien instrument covering all or any part of the Collateral is on file in any public office, except BORROWER SECURITY AGREEMENT - Page 5 those filed in favor of the Agent pursuant to this Agreement or with respect to any other Permitted Liens. Except as set forth on Schedule 3 hereto, the Debtor ---------- has not within the past five years done business under any name or trade name other than its legal name set forth at the beginning of this Agreement. Section 3.4 Principal Place of Business. The principal place of business --------------------------- and chief executive office of the Debtor, and the office where the Debtor keeps its books and records, is located at the address of the Debtor shown at the beginning of this Agreement. Section 3.5 Location of Collateral. All Inventory and Equipment of the ---------------------- Debtor is located at the places specified on Schedule 1 hereto. The Debtor has ---------- exclusive possession and control of its Inventory and Equipment. None of the Inventory or Equipment is evidenced by a Document (including, without limitation, a negotiable document of title). All Instruments and Chattel Paper have been delivered to the Agent. Section 3.6 Perfection. This Agreement creates a security interest in the ---------- Collateral in favor of the Agent. Upon the filing of UCC financing statements in favor of the Agent in the jurisdictions listed on Schedule 2 attached hereto, ---------- and upon the Agent's obtaining possession of all Documents and Instruments of the Debtor, the security interest in favor of the Agent created herein is and will constitute a valid and perfected Lien upon and security interest in the Collateral, subject to no equal or prior Lien, except the Permitted Liens. ARTICLE IV Covenants --------- The Debtor covenants and agrees with the Agent that until the Obligations are paid and performed in full and all Commitments have terminated: Section 4.1 Encumbrances. The Debtor shall not create, permit, or suffer ------------ to exist, and shall defend the Collateral against, any Lien on the Collateral, except the Permitted Liens, and shall defend the Debtor's rights in the Collateral and the Agent's security interest in the Collateral against the claims and demands of all Persons. The Debtor shall do nothing to impair the rights of the Agent in the Collateral. Section 4.2 Modification of Accounts. The Debtor shall, in accordance ------------------------ with prudent business practices, endeavor to collect or cause to be collected from each account debtor under its Accounts, as and when due, any and all amounts owing under such Accounts. Without the prior written consent of the Agent, the Debtor shall not (a) grant any extension of time for any payment with respect to any of the Accounts, except for extensions of time granted in the ordinary course of Debtor's business for payment with respect to Accounts not included in the Borrowing Base, (b) compromise, compound, or settle any of the Accounts for less than the full amount thereof, except for compromise, compound or settlement in the ordinary course of BORROWER SECURITY AGREEMENT - Page 6 business of Accounts not included in the Borrowing Base, (c) release, in whole or in part, any Person liable for payment thereof, except in connection with settlements permitted by clause (b) above, (d) allow any credit or discount for ---------- payment with respect to any Account other than trade discounts granted in the ordinary course of business, or (e) release any Lien or guaranty securing any Account, except in connection with settlements permitted by clause (b) above. ---------- Section 4.3 Disposition of Collateral. The Debtor shall not sell, lease, ------------------------- assign (by operation of law or otherwise), or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof without the prior written consent of the Agent, except as expressly permitted by the Credit Agreement. Section 4.4 Further Assurances. At any time and from time to time, upon ------------------ the request of the Agent, and at the sole expense of the Debtor, the Debtor shall promptly execute and deliver all such further instruments, agreements, and documents and take such further action as the Agent may deem necessary or desirable to preserve and perfect its security interest in the Collateral and carry out the provisions and purposes of this Agreement. Without limiting the generality of the foregoing, the Debtor shall (a) execute and deliver to the Agent such financing statements as the Agent may from time to time require; (b) deliver and pledge to the Agent all Documents (including, without limitation, negotiable documents of title) evidencing Inventory or Equipment; (c) deliver and pledge to the Agent all Instruments and Chattel Paper of the Debtor with any necessary endorsements; and (d) execute and deliver to the Agent such other documents, instruments, and agreements as the Agent may require to perfect and maintain the validity, effectiveness, and priority of the Loan Documents and the Liens intended to be created thereby. The Debtor authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of the Debtor where permitted by law. A carbon, photographic, or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. Section 4.5 Risk of Loss; Insurance. The Debtor shall be responsible for ----------------------- any loss or damage to the Collateral. The Debtor shall, at is own expense, maintain or cause to be maintained insurance with respect to the Collateral in such amounts, against such risks, in such form, and with such insurers as shall be satisfactory to the Agent from time to time. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Agent, for the pro rata benefit of the Banks, and the Debtor as their interests may appear. Each policy for property insurance shall contain loss payable clauses and a loss payable endorsement in favor of the Agent, for the pro rata benefit of the Banks, as its interest may appear. If the Debtor shall fail to maintain or cause to be maintained the insurance required by this Agreement, the Agent shall have the right (but shall be under no obligation) to obtain such insurance and the Debtor shall reimburse the Agent for all costs and expenses incurred by the Agent in obtaining such insurance. All such insurance shall provide that no cancellation, reduction in amount, or change in coverage thereof shall be effective unless the Agent has received 30 days prior written notice thereof. The Debtor shall deliver to the Agent and each Bank copies of all insurance policies required by this Agreement. BORROWER SECURITY AGREEMENT - Page 7 Section 4.6 Inspection Rights. The Debtor shall permit the Agent, each ----------------- Bank and their respective representatives to examine, inspect, and audit the Collateral and to examine, inspect, and copy the Debtor's books and records at any reasonable time and as often as the Agent or any such Bank may desire during normal business hours. The Agent and each Bank may at any time and from time to time contact account debtors and other obligors to verify the existence, amounts, and terms of the Debtor's Accounts. Section 4.7 Mortgagee's and Landlord's Agreements. With respect to each ------------------------------------- location of Inventory having an aggregate value of $100,000 or more, as specified on Schedule 1 hereto, the Debtor shall cause each mortgagee of real ---------- property owned by the Debtor and each landlord of real property leased by the Debtor who has not previously done so to execute and deliver to the Agent, on or before the date hereof, instruments satisfactory in form and substance to the Agent by which such mortgagee or landlord waives its rights, if any, in the Collateral (each, a "Landlord's Agreement"). After the date hereof, Debtor -------------------- shall promptly deliver or cause to be delivered to the Agent Landlord's Agreements in accordance with this Section for each location where the Inventory hereafter has an aggregate value of $100,000 or more. At the request of the Agent, Debtor shall promptly deliver or cause to be delivered Landlord's Agreements for any locations where any Collateral may now or hereafter be located. Section 4.8 Corporate Changes. The Debtor shall not change its name, ----------------- identity, or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless the Debtor shall have given the Agent 30 days prior written notice thereof and shall have taken all action deemed necessary or desirable by the Agent to make each financing statement not seriously misleading. The Debtor shall not change its principal place of business, chief executive office, or the place where it keeps its books and records unless it shall have given the Agent 30 days prior written notice thereof and shall have taken all action deemed necessary or desirable by the Agent to cause its security interest in the Collateral to be perfected with the priority required by this Agreement. Section 4.9 Books and Records; Information. The Debtor shall keep ------------------------------ accurate and complete books and records of the Collateral and the Debtor's business and financial condition in accordance with GAAP. The Debtor shall from time to time at the request of the Agent deliver to the Agent such information regarding the Collateral and the Debtor as the Agent may request, including, without limitation, lists and descriptions of the Collateral and evidence of the identity and existence of the Collateral. The Debtor shall mark its books and records to reflect the security interest of the Agent under this Agreement. Section 4.10 Equipment and Inventory. ----------------------- (a) The Debtor shall keep the Equipment and Inventory at the locations specified on Schedule 1 hereto or, upon 30 days prior written notice to the ---------- Agent, at such other places within the United States of America where all action required to perfect the Agent's security interest in the Equipment and Inventory with the priority required by this Agreement shall have been taken. BORROWER SECURITY AGREEMENT - Page 8 (b) The Debtor shall maintain the Equipment and Inventory in good condition and repair (ordinary wear and tear excepted). The Debtor shall not permit any waste or destruction of the Equipment or Inventory or any part thereof. The Debtor shall not permit the Equipment or Inventory to be used in violation of any law, rule, or regulation or inconsistently with the terms of any policy of insurance. The Debtor shall not use or permit any of the Equipment or Inventory to be used in any manner or for any purpose that would impair its value or expose it to unusual risk. Section 4.11 Warehouse Receipts Non-Negotiable. The Debtor agrees that if --------------------------------- any warehouse receipt or receipt in the nature of a warehouse receipt is issued in respect of any of the Collateral, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7.104 of the UCC as in effect in any relevant jurisdiction or under relevant law). Section 4.12 Notification. The Debtor shall promptly, and in any event ------------ within five days after the Debtor obtains knowledge or becomes aware of any of the following, notify the Agent of (a) any Lien or claim that has attached to or been made or asserted against any of the Collateral, (b) any material damage to or loss of any of the Collateral, (c) the occurrence of any other event that could have a material adverse effect on the Collateral or the security interest created hereunder, and (d) the occurrence or existence of any Default. Section 4.13 Collection of Accounts. Except as otherwise provided in this ---------------------- Section, the Debtor shall have the right to collect and receive payments on the Accounts. In connection with such collections, the Debtor may take (and, at the Agent's direction, shall take) such actions as the Debtor or the Agent may deem necessary or advisable to enforce collection of the Accounts. At any time, if an Event of Default shall have occurred and be continuing, the Agent shall have the right to, or upon the request of the Agent the Debtor shall, instruct all account debtors and other Persons obligated in respect of the Accounts to make all payments on the Accounts either (a) directly to the Agent, for the pro rata benefit of the Banks (by instructing that such payments be remitted to a post office box which shall be in the name and under the control of the Agent), or (b) to one or more other banks in the United States of America (by instructing that such payments be remitted to a post office box which shall be in the name or under the control of the Agent) under arrangements in form and substance satisfactory to the Agent pursuant to which the Debtor shall have irrevocably instructed such other bank (and such other bank shall have agreed) to remit all such payments directly to the Agent. In addition to the foregoing, the Debtor agrees that if any Proceeds of any Collateral (including payments made in respect of Accounts) shall be received by the Debtor while an Event of Default exists, the Debtor shall promptly deliver such Proceeds to the Agent, for the pro rata benefit of the Banks, with any necessary endorsements. Until such Proceeds are delivered to the Agent, such Proceeds shall be held in trust by the Debtor for the benefit of the Agent and shall not be commingled with any other funds or property of the Debtor. All Proceeds of Collateral received by the Agent pursuant to this Section may at the option of the Required Banks in the exercise of their absolute discretion, (i) be applied by the Agent, the Co- Agents and the Banks to their respective Obligations in such order and manner as they may each elect in their absolute discretion, or (ii) be deposited to the BORROWER SECURITY AGREEMENT - Page 9 credit of Debtor and held as collateral for the Obligations or permitted to be used by Debtor in the ordinary course of its business. ARTICLE V Rights of the Agent ------------------- Section 5.1 Power of Attorney. The Debtor hereby irrevocably constitutes ----------------- and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of the Debtor or in its own name, to take any and all action and to execute any and all documents and instruments which the Agent at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, the Debtor hereby gives the Agent the power and right on behalf of the Debtor and in its own name to do any of the following, without notice to or the consent of the Debtor, and whether or not an Event of Default has occurred and is continuing (except as otherwise expressly provided below). (i) after the occurrence and during the continuance of an Event of Default, to demand, sue for, collect, or receive in the name of the Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, documents of title, or any other instruments for the payment of money under the Collateral or any policy of insurance; (ii) to pay or discharge taxes or Liens levied or placed on or threatened against the Collateral; (iii) after the occurrence and during the continuance of an Event of Default, to notify post office authorities to change the address for delivery of mail of the Debtor to an address designated by the Agent and to receive, open, and dispose of mail addressed to the Debtor; (iv) (A) after the occurrence and during the continuance of an Event of Default, to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to the Agent or as the Agent shall direct; (B) after the occurrence and during the continuance of an Event of Default, to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any Collateral; (C) after the occurrence and during the continuance of an Event of Default, to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications, and notices in connection with accounts and other documents relating to the Collateral; (D) after the occurrence and during the continuance of an Event of Default, to commence and prosecute any suit, action, or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to BORROWER SECURITY AGREEMENT - Page 10 enforce any other right in respect of any Collateral; (E) after the occurrence and during the continuance of an Event of Default, to defend any suit, action, or proceeding brought against the Debtor with respect to any Collateral; (F) after the occurrence and during the continuance of an Event of Default, to settle, compromise, or adjust any suit, action, or proceeding described above and, in connection therewith, to give such discharges or releases as the Agent may deem appropriate; (G) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization, or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar, or other designated agency upon such terms as the Agent may determine; (H) to add or release any guarantor, indorser, surety, or other party to any of the Collateral; (I) to renew, extend, or otherwise change the terms and conditions of any of the Collateral; (J) to make, settle, compromise, or adjust claims under any insurance policy covering any of the Collateral; and (K) after the occurrence and during the continuance of an Event of Default, to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do, at the Agent's option and the Debtor's expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve, or realize upon the Collateral and the Agent's security interest therein. This power of attorney is a power coupled with an interest and shall be irrevocable. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges, and options expressly or implicitly granted to the Agent in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or in its capacity as attorney-in-fact except acts or omissions resulting from its willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve, and realize upon its security interest in the Collateral. The Agent will exercise its best efforts to notify Debtor of any action taken by the Agent in its capacity as attorney- in-fact pursuant to this Section, promptly after such action is taken, provided that any failure by the Agent to so notify Debtor shall not impose any liability upon the Agent or affect its rights and remedies hereunder, at law or in equity. The Agent shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve, or maintain any security interest or Lien given to secure the Collateral. Section 5.2 Setoff; Property Held by the Agents and the Banks. If an ------------------------------------------------- Event of Default shall have occurred and be continuing, the Agent, each Co-Agent and each Bank shall have the right to set off and apply against the Obligations, at any time and without notice to the Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from the Agent, any Co-Agent or any Bank to the Debtor whether or not the Obligations are then due. As additional security for the Obligations, the Debtor hereby grants the Agent, each Co-Agent and each Bank a security interest in all money, instruments, and other property of the Debtor now or hereafter held by the Agent, any Co-Agent or any Bank, including without limitation, property held in safekeeping. In addition to the Agent's, any Co- Agent's or any Bank's right of setoff and as further security for the Obligations, the Debtor BORROWER SECURITY AGREEMENT - Page 11 hereby grants the Agent, each Co-Agent and each Bank a security interest in all deposits (general or special, time or demand, provisional or final) of the Debtor now or hereafter on deposit with or held by the Agent, any Co-Agent or any Bank and all other sums at any time credited by or owing from the Agent, any Co-Agent or any Bank to the Debtor. The rights and remedies of the Agent, each Co-Agent and each Bank hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Agent, any Co- Agent or any Bank may have. Section 5.3 Performance by the Agent. If the Debtor shall fail to perform ------------------------ any covenant or agreement contained in this Agreement, the Agent may perform or attempt to perform such covenant or agreement on behalf of the Debtor. In such event, the Debtor shall, at the request of the Agent, promptly pay any amount expended by the Agent in connection with such performance or attempted performance to the Agent, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that the Agent shall not have any liability or responsibility for the performance of any obligation of the Debtor under this Agreement. Section 5.4 Subrogation. If any of the Obligations are given in renewal ----------- or extension or applied toward the payment of indebtedness secured by any Lien, the Agent, the Co-Agents and the Banks shall be, and are hereby, subrogated to all of the rights, titles, interests and Liens securing the indebtedness so renewed, extended, or paid. Section 5.5 Agent's Duty of Care. Other than the exercise of reasonable -------------------- care and the physical custody of the Collateral while held by the Agent hereunder, the Agent shall have no responsibility for or obligation or duty with respect to all or any part of the Collateral or any matter or proceeding arising out of or relating thereto, including without limitation any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights against prior parties or any other rights pertaining thereto, it being understood and agreed that Debtor shall be responsible for preservation of all rights in the Collateral. Without limiting the generality of the foregoing, the Agent shall be conclusively deemed to have exercised reasonable care in the custody of the Collateral if the Agent takes such action, for purposes of preserving rights in the Collateral, as Debtor may reasonably request in writing, but no failure or omission or delay by the Agent in complying with any such request by Debtor, and no refusal by the Agent to comply with any such request by Debtor, shall be deemed to be a failure to exercise reasonable care. ARTICLE VI Default ------- Section 6.1 Rights and Remedies. If an Event of Default shall have ------------------- occurred and be continuing, the Agent shall have the following rights and remedies: BORROWER SECURITY AGREEMENT - Page 12 (i) In addition to all other rights and remedies granted to the Agent in this Agreement or in any other Loan Document or by applicable law, the Agent shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral). Without limiting the generality of the foregoing, the Agent may (1) without demand or notice to the Debtor, collect, receive, or take possession of the Collateral or any part thereof and for that purpose the Agent may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (2) sell, lease, or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at the Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Agent shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of the Debtor, which right or equity of redemption is hereby expressly waived and released by the Debtor. Upon the request of the Agent, the Debtor shall assemble the Collateral and make it available to the Agent at any place designated by the Agent that is reasonably convenient to the Debtor and the Agent. The Debtor agrees that the Agent shall not be obligated to give more than five days written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. The Agent shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. The Debtor shall be liable for all expenses of retaking, holding, preparing for sale, or the like, and all reasonable attorneys' fees, legal expenses, and all other costs and expenses incurred by the Agent, any Co-Agent or any Bank in connection with the collection of the Obligations and the enforcement of the Agent's rights under this Agreement. The Debtor shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations in full. The Agent, the Co-Agents and the Banks may apply the Collateral against the Obligations in such order and manner as they may elect in their absolute discretion. The Debtor waives all rights of marshalling, valuation, and appraisal in respect of the Collateral. (ii) The Agent may cause any or all of the Collateral held by it to be transferred into the name of the Agent or the name or names of the Agent's nominee or nominees. (iii) The Agent may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. BORROWER SECURITY AGREEMENT - Page 13 (iv) On any sale of the Collateral, the Agent is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of the Agent's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority. ARTICLE VII Miscellaneous ------------- Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of the ------------------------------ Agent, any Co-Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 7.2 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the Debtor and the Agent and their respective heirs, successors, and assigns, except that the Debtor may not assign any of its rights or obligations under this Agreement without the prior written consent of the Agent. Section 7.3 ENTIRE AGREEMENT; AMENDMENT; CONTROLLING AGREEMENT. THIS -------------------------------------------------- AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS OF THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto. In the event any term or provision of this Agreement expressly conflicts with any term or provision of the Credit Agreement, the terms and provisions of the Credit Agreement shall govern and control. Section 7.4 Notices. All notices and other communications provided for in ------- this Agreement shall be given or made in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, when duly deposited in the mails, in each case given or addressed as aforesaid. Section 7.5 GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY AND -------------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE BORROWER SECURITY AGREEMENT - Page 14 OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. Section 7.6 Headings. The headings, captions, and arrangements used in -------- this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 7.7 Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 7.8 Waiver of Bond. In the event the Agent seeks to take -------------- possession of any or all of the Collateral by judicial process, the Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. Section 7.9 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 7.10 Termination. If all of the Obligations shall have been paid ----------- and performed in full and all Commitments shall have expired or terminated, the Agent shall, upon the written request of the Debtor, execute and deliver to the Debtor a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to the Debtor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Agent and has not previously been sold or otherwise applied pursuant to this Agreement. Section 7.11 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY -------------------- APPLICABLE LAW, THE DEBTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE AGENT, ANY CO-AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] BORROWER SECURITY AGREEMENT - Page 15 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. DEBTOR: ------ CELLSTAR CORPORATION By:___________________________________________ Mark Q. Huggins Senior Vice President and Chief Financial Officer Address for Notices: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Telephone No.: (972) 466-5000 Attention: General Counsel AGENT: ----- TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent By:___________________________________________ Allen K. King Vice President Address for Notices: 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Fax No.: (214) 965-2997 Telephone No.: (214) 965-2705 Attention: Allen K. King BORROWER SECURITY AGREEMENT - Page 16 Schedule 1 Location of Inventory and Equipment ----------------------------------- Locations of Inventory and Equipment having an aggregate value of $100,000 or more --------------------------------------------- NONE. Locations of Inventory and Equipment having an aggregate value of less than $100,000 ----------------------------------------------- NONE. SCHEDULE 1- LOCATION OF INVENTORY AND EQUIPMENT 1 Schedule 2 Jurisdictions for Filing UCC-1 Financing Statements -------------------------- Secretary of State of Texas Secretary of State of Kansas Secretary of State of Missouri Clay County, Missouri Jackson County, Missouri Secretary of State of Florida Secretary of State of California SCHEDULE 2. JURISDICTIONS FOR FILING UCC-1 FINANCING STATEMENTS PAGE SOLO Schedule 3 Additional Names and Trade Names -------------------------------- NONE. SCHEDULE 3- ADDITIONAL NAMES AND TRADE NAMES PAGE SOLO EXHIBIT E-2 TO CREDIT AGREEMENT Guarantor Security Agreement ---------------------------- GUARANTOR SECURITY AGREEMENT ---------------------------- THIS SECURITY AGREEMENT (this "Agreement") dated as of October 15, 1997, is --------- by and among the undersigned debtors (collectively, the "Debtors" and each a ------- "Debtor"), and Texas Commerce Bank National Association, a national banking ------ association ("TCB"), not in its individual capacity but solely as agent for --- itself and each of the other banks or lending institutions (each, a "Bank" and, ---- collectively, the "Banks") which is or may from time to time become a signatory ----- to the Credit Agreement (hereinafter defined) or any successor or permitted assignee thereof (TCB in such capacity, together with its successors in such capacity, the "Agent"). ----- R E C I T A L S: - - - - - - - - A. CellStar Corporation, a Delaware corporation (the "Borrower"), the -------- Agent, The First National Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-Agents"), and the Banks heretofore entered into that --------- certain Credit Agreement of even date herewith (such Credit Agreement, as the same may be amended, supplemented or modified from time to time, the "Credit ------ Agreement"). - --------- B. Pursuant to the Credit Agreement, the Agent, the Co-Agents and the Banks have extended credit to the Borrower. C. The Agent, the Co-Agents and the Banks have conditioned their obligations to extend credit under the Credit Agreement and the effectiveness of the Credit Agreement upon the execution and delivery by each Debtor of this Agreement. A G R E E M E N T - - - - - - - - - NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions ----------- Section 1.1. Definitions. As used in this Agreement, the following terms ----------- have the following meanings: "Accounts" means any "account", as such term is defined in Section -------- 9.106 of the UCC, now owned or hereafter acquired by any Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by any Debtor: (a) all rights of any Debtor to payment for GUARANTOR SECURITY AGREEMENT - Page 1 goods sold or leased or services rendered, whether or not earned by performance, (b) all accounts receivable of any Debtor, (c) all rights of any Debtor to receive any payment of money or other form of consideration, (d) all security pledged, assigned, or granted to or held by any Debtor to secure any of the foregoing, (e) all guaranties of, or indemnifications with respect to, any of the foregoing, and (f) all rights of any Debtor as an unpaid seller of goods or services, including, but not limited to, all rights of stoppage in transit, replevin, reclamation, and resale. "Chattel Paper" means any "chattel paper", as such term is defined in ------------- Section 9.105(a)(2) of the UCC, now owned or hereafter acquired by any Debtor. "Collateral" has the meaning specified in Section 2.1 of this ---------- ----------- Agreement. "Document" means any "document", as such term is defined in Section -------- 9.105(a)(6) of the UCC, now owned or hereafter acquired by any Debtor, including, without limitation, all documents of title and warehouse receipts of any Debtor. "Equipment" means any "equipment", as such term is defined in Section --------- 9.109(2) of the UCC, now owned or hereafter acquired by any Debtor and, in any event, shall include, without limitation, all machinery, equipment, furnishings, fixtures, and vehicles now owned or hereafter acquired by any Debtor and any and all additions, substitutions, and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment, and accessories installed thereon or affixed thereto. "General Intangibles" means any "general intangibles", as such term is ------------------- defined in Section 9.106 of the UCC, now owned or hereafter acquired by any Debtor and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by any Debtor: (a) all patents, patent applications, patent rights, service marks, trademarks, trade names, trade secrets, intellectual property, registrations, goodwill, copyrights, franchises, licenses, permits, proprietary information, customer lists, designs, and inventions of any Debtor, (b) all books, records, data, plans, manuals, computer software, and computer programs of any Debtor, (c) all contract rights, partnership interests, joint venture interests, securities, deposit accounts, investment accounts, and certificates of deposit of any Debtor, (d) all rights of any Debtor to payment under letters of credit and similar agreements, (e) all tax refunds and tax refund claims of any Debtor, (f) all choses in action and causes of action of any Debtor (whether arising in contract, tort, or otherwise and whether or not currently in litigation) and all judgments in favor of any Debtor, (g) all rights and claims of any Debtor under warranties and indemnities, and (h) all rights of any Debtor under any insurance, surety, or similar contract or arrangement. GUARANTOR SECURITY AGREEMENT - Page 2 "Instrument" means any "instrument", as such term is defined in ---------- Section 9.105(a)(9) of the UCC, now owned or hereafter acquired by any Debtor. "Inventory" means any "inventory", as such term is defined in Section --------- 9.109(4) of the UCC, now owned or hereafter acquired by any Debtor, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by any Debtor: (a) all goods and other personal property of any Debtor that are held for sale or lease or to be furnished under any contract of service, (b) all raw materials, work-in- process, finished goods, inventory, supplies, and materials of any Debtor, (c) all wrapping, packaging, advertising, and shipping materials of any Debtor, (d) all goods that have been returned to, repossessed by, or stopped in transit by any Debtor, and (e) all Documents evidencing any of the foregoing. "Obligations" means: ----------- (a) the indebtedness, liabilities and obligations of the Borrower to the Banks evidenced by those Notes of even date herewith, executed by the Borrower and payable to the order of the Banks in the aggregate principal amount of $135,000,000; (b) the indebtedness, liabilities and obligations of each Debtor to the Agent, the Co-Agents and the Banks under the Guaranty executed by each Debtor in favor of the Agent, the Co-Agents and the Banks; (c) the "Obligations" as such term is defined in the Credit Agreement; (d) all future Advances by the Agent, the Co-Agents or any Bank to the Borrower and the Debtors, or any of them; (e) all costs and expenses, including without limitation all reasonable attorneys' fees and legal expenses, incurred by the Agent, any Co-Agent or any Bank to preserve and maintain the Collateral, collect the obligations herein described and enforce this Agreement; (f) all other obligations, indebtedness and liabilities of the Borrower and the Debtors, or any of them, to the Agent, any Co-Agent or any Bank under any of the Loan Documents, now existing or hereafter arising, regardless of whether such obligations, indebtedness and liabilities are similar, dissimilar, related, unrelated, direct, indirect, fixed, contingent, primary, secondary, joint, several, or joint and several; and (g) all extensions, renewals and modifications of any of the foregoing. "Permitted Liens" means the security interests granted hereby and --------------- Liens expressly permitted by Section 10.2 of the Credit Agreement. ------------ GUARANTOR SECURITY AGREEMENT - Page 3 "Proceeds" means any "proceeds", as such term is defined in Section -------- 9.306 of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty, or guaranty payable to any Debtor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure, or forfeiture of all or any part of the Collateral by any Governmental Authority (or any person acting under color of Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "UCC" means the Uniform Commercial Code as in effect in the State of --- Texas or, if so required with respect to any particular Collateral by mandatory provisions of applicable law, as in effect in the jurisdiction in which such Collateral is located. Section 1.2. Terms Defined in Credit Agreement. All capitalized terms --------------------------------- used and not otherwise defined herein shall have their respective meanings as specified in the Credit Agreement. ARTICLE II Security Interest ----------------- Section 2.1. Security Interest. As collateral security for the prompt ----------------- payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration, or otherwise), each Debtor hereby grants to the Agent, for the pro rata benefit of the Banks, a first priority lien on and security interest in all of its personal property, including without limitation all of its right, title, and interest in and to the following, whether now owned or hereafter arising or acquired and wherever located (collectively, the "Collateral"): ---------- (a) all Accounts; (b) all Chattel Paper; (c) all Instruments; (d) all General Intangibles; (e) all Documents; GUARANTOR SECURITY AGREEMENT - Page 4 (f) all Inventory; (g) all Equipment; and (h) all Proceeds and products of any or all of the foregoing. Without limiting the foregoing, this Agreement secures the payment of all amounts that constitute part of the Obligations and would be owed by the Borrower to the Agent, any Co-Agent or any Bank but for the fact that they are unenforceable or not allowable due to the existence of bankruptcy, reorganization, or similar proceedings involving the Borrower. If the grant, pledge, or collateral transfer or assignment of any rights of any Debtor under any contract included in the Collateral is expressly prohibited by such contract, then the security interest hereby granted nonetheless remains effective to the extent allowed by Section 9.318 of the UCC or other applicable law but is otherwise limited by that prohibition. Section 2.2. Debtors Remain Liable. Notwithstanding anything to the --------------------- contrary contained herein, (a) each Debtor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Agent of any of its rights hereunder shall not release any Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) neither the Agent, any Co-Agent nor any Bank shall have any obligation or liability under any of the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Agent, any Co-Agent or any Bank be obligated to perform any of the obligations or duties of any Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. ARTICLE III Representations and Warranties ------------------------------ Each Debtor represents and warrants to the Agent that: Section 3.1. Title. The Debtors are, and with respect to Collateral ----- acquired after the date hereof the Debtors will be, the legal and beneficial owners of their respective Collateral free and clear of any Lien, except Permitted Liens. Section 3.2. Accounts. Unless a Debtor has given the Agent written notice -------- to the contrary, whenever the security interest granted hereunder attaches to an Account, each Debtor shall be deemed to have represented and warranted to the Agent as to each and all of its Accounts that (a) each Account is genuine and in all respects what it purports to be, (b) each Account represents the legal, valid, and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor arising out of the performance of labor or services by such Debtor or the sale or lease of goods by such Debtor, (c) the amount of each GUARANTOR SECURITY AGREEMENT - Page 5 Account represented as owing is the correct amount actually and unconditionally owing except for normal trade discounts granted in the ordinary course of business, and (d) to the best of Debtor's knowledge, no Account is subject to any offset, counterclaim, or other defense. Section 3.3. Financing Statements. No financing statement, security -------------------- agreement, or other Lien instrument covering all or any part of the Collateral is on file in any public office, except those filed in favor of the Agent pursuant to this Agreement or with respect to any other Permitted Liens. Except as set forth on Schedule 3 hereto, no Debtor has within the past five years done ---------- business under any name or trade name other than its legal name set forth at the beginning of this Agreement. Section 3.4. Principal Place of Business. The principal place of business --------------------------- and chief executive office of each Debtor, and the office where each Debtor keeps its books and records, is located at the address specified below the name of such Debtor on the signature pages hereof. Section 3.5. Location of Collateral. All Inventory and Equipment of each ---------------------- Debtor are located at the places specified on Schedule 1 hereto. Each Debtor ---------- has exclusive possession and control of its Inventory and Equipment. None of the Inventory or Equipment of any Debtor is evidenced by a Document (including, without limitation, a negotiable document of title). All Instruments and Chattel Paper of each Debtor have been delivered to the Agent. Section 3.6. Perfection. This Agreement creates a security interest in ---------- the Collateral in favor of the Agent. Upon the filing of UCC financing statements in favor of the Agent in the jurisdictions listed on Schedule 2 ---------- attached hereto, and upon the Agent's obtaining possession of all Documents and Instruments of each Debtor, the security interest in favor of the Agent created herein will constitute a valid and perfected Lien upon and security interest in the Collateral, subject to no equal or prior Lien, except the Permitted Liens. Section 3.7. Benefit to Debtors. The value of the consideration received ------------------ and to be received by each Debtor as a result of the Borrower, the Agent, the Co-Agents and the Banks entering into and obtaining credit under the Credit Agreement and the Debtors executing and delivering this Agreement is reasonably worth at least as much as the liability and obligation of such Debtor hereunder, and such liability and obligation and the Borrower's entering into and obtaining credit under the Credit Agreement have benefited and may reasonably be expected to benefit each Debtor directly and indirectly. Section 3.8. Credit Agreement. Each and every representation and warranty ---------------- contained in the Credit Agreement is true and correct in all respects. GUARANTOR SECURITY AGREEMENT - Page 6 ARTICLE IV Covenants --------- The Debtors jointly and severally covenant and agree with the Agent that until the Obligations are paid and performed in full and all Commitments have terminated: Section 4.1. Encumbrances. No Debtor shall create, permit, or suffer ------------ to exist, and each Debtor shall defend the Collateral against, any Lien on the Collateral, except the Permitted Liens, and each Debtor shall defend its rights in the Collateral and the Agent's security interest in the Collateral against the claims and demands of all Persons. No Debtor shall do anything to impair the rights of the Agent in the Collateral. Section 4.2. Modification of Accounts. Each Debtor shall, in ------------------------ accordance with prudent business practices, endeavor to collect or cause to be collected from each account debtor under its Accounts, as and when due, any and all amounts owing under such Accounts. Without the prior written consent of the Agent, no Debtor shall (a) grant any extension of time for any payment with respect to any of the Accounts, except for extensions of time granted in the ordinary course of such Debtor's business for payment with respect to Accounts not included in the Borrowing Base, (b) compromise, compound, or settle any of the Accounts for less than the full amount thereof, except for compromise, compound or settlement in the ordinary course of business of Accounts not included in the Borrowing Base, (c) release, in whole or in part, any Person liable for payment thereof, except in connection with settlements permitted by clause (b) above, (d) allow any credit or discount for payment with respect to - ---------- any Account other than trade discounts granted in the ordinary course of business, or (e) release any Lien or guaranty securing any Account, except in connection with settlements permitted by clause (b) above. ---------- Section 4.3. Disposition of Collateral. No Debtor shall sell, lease, ------------------------- assign (by operation of law or otherwise), or otherwise dispose of, or grant any option with respect to, the Collateral or any part thereof without the prior written consent of the Agent, except as expressly permitted by the Credit Agreement. Section 4.4. Further Assurances. At any time and from time to time, ------------------ upon the request of the Agent, and at the sole expense of the Debtors, each Debtor shall promptly execute and deliver all such further instruments, agreements, and documents and take such further action as the Agent may deem necessary or desirable to preserve and perfect its security interest in the Collateral and carry out the provisions and purposes of this Agreement. Without limiting the generality of the foregoing, each Debtor shall (a) execute and deliver to the Agent such financing statements as the Agent may from time to time require; (b) deliver and pledge to the Agent all Documents (including, without limitation, negotiable documents of title) evidencing Inventory or Equipment; (c) deliver and pledge to the Agent all Instruments and Chattel Paper of such Debtor with any necessary endorsements; and (d) execute and deliver to the Agent such other documents, instruments, and agreements as the Agent may require to perfect and maintain the validity, effectiveness, and priority of the Loan Documents and the Liens intended to be created GUARANTOR SECURITY AGREEMENT - Page 7 thereby. Each Debtor authorizes the Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of such Debtor where permitted by law. A carbon, photographic, or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. Section 4.5. Risk of Loss; Insurance. The Debtors shall be ----------------------- responsible for any loss or damage to the Collateral. The Debtors shall, at their own expense, maintain or cause to be maintained insurance with respect to the Collateral in such amounts, against such risks, in such form, and with such insurers as shall be satisfactory to the Agent from time to time. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Agent, for the pro rata benefit of the Banks and the Debtor as their interests may appear. Each policy for property insurance shall contain loss payable clauses and a loss payable endorsement in favor of the Agent, for the pro rata benefit of the Banks, as its interest may appear. If the Debtors shall fail to maintain or cause to be maintained the insurance required by this Agreement, the Agent shall have the right (but shall be under no obligation) to obtain such insurance and the Debtors jointly and severally agree to reimburse the Agent for all costs and expenses incurred by the Agent in obtaining such insurance. All such insurance shall provide that no cancellation, reduction in amount, or change in coverage thereof shall be effective unless the Agent has received 30 days prior written notice thereof. The Debtors shall deliver to the Agent and each Bank copies of all insurance policies required by this Agreement. Section 4.6. Inspection Rights. Each Debtor shall permit the Agent, ----------------- each Bank and their respective representatives to examine, inspect, and audit the Collateral and to examine, inspect, and copy such Debtor's books and records at any reasonable time and as often as the Agent or any such Bank may desire during normal business hours. The Agent and each Bank may at any time and from time to time contact account debtors and other obligors to verify the existence, amounts, and terms of any Debtor's Accounts. Section 4.7. Mortgagee's and Landlord's Agreements. With respect to ------------------------------------- each location of Inventory having an aggregate value of $100,000 or more, as specified on Schedule 1 hereto, each Debtor shall cause each mortgagee of real ---------- property owned by such Debtor and each landlord of real property leased by such Debtor who has not previously done so to execute and deliver to the Agent, on or before the date hereof, instruments satisfactory in form and substance to the Agent by which such mortgagee or landlord waives its rights, if any, in the Collateral (each, a "Landlord's Agreement"); provided, however, that with -------------------- -------- ------- respect to Collateral located at 8728 Westpark Drive, Houston, Texas, Debtors shall exert their best efforts to obtain a Landlord's Agreement, but Debtor's failure to obtain such a Landlord's Agreement with respect to such location shall not cause the Inventory located at such location to be excluded from the Asset Coverage Amount if such Inventory otherwise constitutes Eligible Inventory. After the date hereof, each Debtor shall promptly deliver or cause to be delivered to the Agent Landlord's Agreements in accordance with this Section for each location where the Inventory hereafter has an aggregate value of $100,000 or more. At the request of the Agent, each Debtor shall promptly GUARANTOR SECURITY AGREEMENT - Page 8 deliver or cause to be delivered Landlord's Agreements for any locations where any Collateral may now or hereafter be located. Section 4.8. Corporate Changes. No Debtor shall change its name, ----------------- identity, or corporate structure in any manner that might make any financing statement filed in connection with this Agreement seriously misleading unless such Debtor shall have given the Agent 30 days prior written notice thereof and shall have taken all action deemed necessary or desirable by the Agent to make each financing statement not seriously misleading. No Debtor shall change its principal place of business, chief executive office, or the place where it keeps its books and records unless it shall have given the Agent 30 days prior written notice thereof and shall have taken all action deemed necessary or desirable by the Agent to cause its security interest in the Collateral to be perfected with the priority required by this Agreement. Section 4.9. Books and Records; Information. The Debtors shall keep ------------------------------ accurate and complete books and records of the Collateral and the Debtors' business and financial condition in accordance with GAAP. Each Debtor shall from time to time at the request of the Agent deliver to the Agent such information regarding the Collateral and such Debtor as the Agent may request, including, without limitation, lists and descriptions of the Collateral and evidence of the identity and existence of the Collateral. Each Debtor shall mark its books and records to reflect the security interest of the Agent under this Agreement. Section 4.10. Equipment and Inventory. ----------------------- (a) The Debtors shall keep the Equipment and Inventory at the locations specified on Schedule 1 hereto or, upon 30 days prior ---------- written notice to the Agent, at such other places within the United States of America where all action required to perfect the Agent's security interest in the Equipment and Inventory with the priority required by this Agreement shall have been taken. (b) The Debtors shall maintain the Equipment and Inventory in good condition and repair (ordinary wear and tear excepted). None of the Debtors shall permit any waste or destruction of the Equipment or Inventory or any part thereof. None of the Debtors shall permit the Equipment or Inventory to be used in violation of any law, rule, or regulation or inconsistently with the terms of any policy of insurance. None of the Debtors shall use or permit any of the Equipment or Inventory to be used in any manner or for any purpose that would impair its value or expose it to unusual risk. Section 4.11. Warehouse Receipts Non-Negotiable. Each Debtor agrees --------------------------------- that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued in respect of any of the Collateral, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7.104 of the UCC as in effect in any relevant jurisdiction or under relevant law). GUARANTOR SECURITY AGREEMENT - Page 9 Section 4.12. Notification. The Debtors shall promptly, and in any event ------------ within five days after any Debtor obtains knowledge or becomes aware of any of the following, notify the Agent of (a) any Lien or claim that has attached to or been made or asserted against any of the Collateral, (b) any material damage to or loss of any of the Collateral, (c) the occurrence of any other event that could have a material adverse effect on the Collateral or the security interest created hereunder, and (d) the occurrence or existence of any Default. Section 4.13. Collection of Accounts. Except as otherwise provided in ---------------------- this Section, the Debtors shall have the right to collect and receive payments on the Accounts. In connection with such collections, the Debtors may take (and, at the Agent's direction, shall take) such actions as the Debtors or the Agent may deem necessary or advisable to enforce collection of the Accounts. At any time, if an Event of Default shall have occurred and be continuing, the Agent shall have the right to, or upon the request of the Agent the Debtors shall, instruct all account debtors and other Persons obligated in respect of the Accounts to make all payments on the Accounts either (a) directly to the Agent (by instructing that such payments be remitted to a post office box which shall be in the name and under the control of the Agent), or (b) to one or more other banks in the United States of America (by instructing that such payments be remitted to a post office box which shall be in the name or under the control of the Agent) under arrangements in form and substance satisfactory to the Agent pursuant to which the Debtors shall have irrevocably instructed such other bank (and such other bank shall have agreed) to remit all such payments directly to the Agent. In addition to the foregoing, each Debtor agrees that if any Proceeds of any Collateral (including payments made in respect of Accounts) shall be received by such Debtor while an Event of Default exists, such Debtor shall promptly deliver such Proceeds to the Agent, for the pro rata benefit of the Banks, with any necessary endorsements. Until such Proceeds are delivered to the Agent, such Proceeds shall be held in trust by such Debtor for the benefit of the Agent and shall not be commingled with any other funds or property of any Debtor. All Proceeds of Collateral received by the Agent pursuant to this Section may at the option of the Required Banks in the exercise of their absolute discretion, (i) be applied by the Agent and the Banks to their respective Obligations in such order and manner as they may elect in their absolute discretion, or (ii) be deposited to the credit of any Debtor and held as collateral for the Obligations or permitted to be used by such Debtor in the ordinary course of its business. ARTICLE V Rights of the Agent ------------------- Section 5.1. Power of Attorney. Each Debtor hereby irrevocably ----------------- constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of such Debtor or in its own name, to take any and all action and to execute any and all documents and instruments which the Agent at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, each Debtor hereby gives the Agent the power and right on behalf of such Debtor and in its own GUARANTOR SECURITY AGREEMENT - Page 10 name to do any of the following, without notice to or the consent of such Debtor and whether or not an Event of Default has occurred and is continuing (except as otherwise expressly provided below). (i) after the occurrence and during the continuance of an Event of Default, to demand, sue for, collect, or receive in the name of any Debtor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, documents of title, or any other instruments for the payment of money under the Collateral or any policy of insurance; (ii) to pay or discharge taxes or Liens levied or placed on or threatened against the Collateral; (iii) after the occurrence and during the continuance of an Event of Default, to notify post office authorities to change the address for delivery of mail of any Debtor to an address designated by the Agent and to receive, open, and dispose of mail addressed to any Debtor; (iv) (A) after the occurrence and during the continuance of an Event of Default, to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to the Agent or as the Agent shall direct; (B) after the occurrence and during the continuance of an Event of Default, to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any Collateral; (C) after the occurrence and during the continuance of an Event of Default, to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, proxies, stock powers, verifications, and notices in connection with accounts and other documents relating to the Collateral; (D) after the occurrence and during the continuance of an Event of Default, to commence and prosecute any suit, action, or proceeding at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) after the occurrence and during the continuance of an Event of Default, to defend any suit, action, or proceeding brought against any Debtor with respect to any Collateral; (F) after the occurrence and during the continuance of an Event of Default, to settle, compromise, or adjust any suit, action, or proceeding described above and, in connection therewith, to give such discharges or releases as the Agent may deem appropriate; (G) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization, or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar, or other designated agency upon such terms as the Agent may determine; (H) to add or release any guarantor, indorser, surety, or other party to any of the Collateral; (I) to renew, extend, or otherwise change the terms and conditions of any of the Collateral; (J) to make, settle, compromise, GUARANTOR SECURITY AGREEMENT - Page 11 or adjust claims under any insurance policy covering any of the Collateral; and (K) after the occurrence and during the continuance of an Event of Default, to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do, at the Agent's option and the Debtors' expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve, or realize upon the Collateral and the Agent's security interest therein. This power of attorney is a power coupled with an interest and shall be irrevocable. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges, and options expressly or implicitly granted to the Agent in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or in its capacity as attorney-in-fact except acts or omissions resulting from its willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve, and realize upon its security interest in the Collateral. The Agent shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve, or maintain any security interest or Lien given to secure the Collateral. Section 5.2. Setoff; Property Held by the Agents and the Banks. If an ------------------------------------------------- Event of Default shall have occurred and be continuing, the Agent, each Co-Agent and each Bank shall have the right to set off and apply against the Obligations, at any time and without notice to any Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from the Agent, any Co-Agent or any Bank to such Debtor whether or not the Obligations are then due. As additional security for the Obligations, each Debtor hereby grants the Agent, each Co-Agent and each Bank a security interest in all money, instruments, and other property of such Debtor now or hereafter held by the Agent, any Co-Agent or any Bank, including without limitation, property held in safekeeping. In addition to the Agent's, any Co- Agent's or any Bank's right of setoff and as further security for the Obligations, each Debtor hereby grants the Agent, each Co-Agent and each Bank a security interest in all deposits (general or special, time or demand, provisional or final) of such Debtor now or hereafter on deposit with or held by the Agent, any Co-Agent or any Bank and all other sums at any time credited by or owing from the Agent, any Co-Agent or any Bank to such Debtor. The rights and remedies of the Agent, each Co-Agent and each Bank hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Agent, any Co-Agent or any Bank may have. Section 5.3. Performance by the Agent. If any Debtor shall fail to ------------------------ perform any covenant or agreement contained in this Agreement, the Agent may perform or attempt to perform such covenant or agreement on behalf of such Debtor. In such event, the Debtors shall, at the request of the Agent, promptly pay any amount expended by the Agent in connection with such performance or attempted performance to the Agent, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such GUARANTOR SECURITY AGREEMENT - Page 12 expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that the Agent shall not have any liability or responsibility for the performance of any obligation of any Debtor under this Agreement. Section 5.4. Subrogation. If any of the Obligations are given in renewal ----------- or extension or applied toward the payment of indebtedness secured by any Lien, Agent, the Co-Agents and the Banks shall be, and are hereby, subrogated to all of the rights, titles, interests and Liens securing the indebtedness so renewed, extended, or paid. Section 5.5. Agent's Duty of Care. Other than the exercise of reasonable -------------------- care and the physical custody of the Collateral while held by the Agent hereunder, the Agent shall have no responsibility for or obligation or duty with respect to all or any part of the Collateral or any matter or proceeding arising out of or relating thereto, including without limitation any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights against prior parties or any other rights pertaining thereto, it being understood and agreed that each Debtor shall be responsible for preservation of all rights in the Collateral. Without limiting the generality of the foregoing, the Agent shall be conclusively deemed to have exercised reasonable care in the custody of the Collateral if the Agent takes such action, for purposes of preserving rights in the Collateral, as any Debtor may reasonably request in writing, but no failure or omission or delay by the Agent in complying with any such request by any Debtor, and no refusal by the Agent to comply with any such request by any Debtor, shall be deemed to be a failure to exercise reasonable care. ARTICLE VI Default ------- Section 6.1. Rights and Remedies. If an Event of Default shall have ------------------- occurred and be continuing, the Agent shall have the following rights and remedies: (i) In addition to all other rights and remedies granted to the Agent in this Agreement or in any other Loan Document or by applicable law, the Agent shall have all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral). Without limiting the generality of the foregoing, the Agent may (1) without demand or notice to any Debtor, collect, receive, or take possession of the Collateral or any part thereof and for that purpose the Agent may enter upon any premises on which the Collateral is located and remove the Collateral therefrom or render it inoperable, and/or (2) sell, lease, or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at the Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Agent shall have the right at any public sale or sales, and, to the extent permitted by applicable law, at any private sale or sales, to bid and become a purchaser of the Collateral or any part thereof free of any right or equity of redemption on the part of any Debtor, which right or equity of redemption GUARANTOR SECURITY AGREEMENT - Page 13 is hereby expressly waived and released by each Debtor. Upon the request of the Agent, each Debtor shall assemble the Collateral and make it available to the Agent at any place designated by the Agent that is reasonably convenient to such Debtor and the Agent. Each Debtor agrees that the Agent shall not be obligated to give more than five days written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. The Agent shall not be obligated to make any sale of Collateral if it shall determine not to do so, regardless of the fact that notice of sale of Collateral may have been given. The Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. The Debtors shall be jointly and severally liable for all expenses of retaking, holding, preparing for sale, or the like, and all attorneys' fees, legal expenses, and all other costs and expenses incurred by the Agent in connection with the collection of the Obligations and the enforcement of the Agent's rights under this Agreement. The Debtors shall remain liable for any deficiency if the Proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations in full. The Agent, the Co-Agents and the Banks may apply the Collateral against the Obligations in such order and manner as the Agent may elect in its sole discretion. Each Debtor waives all rights of marshalling, valuation, and appraisal in respect of the Collateral. (ii) The Agent may cause any or all of the Collateral held by it to be transferred into the name of the Agent or the name or names of the Agent's nominee or nominees. (iii) The Agent may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (iv) On any sale of the Collateral, the Agent is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of the Agent's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable Governmental Authority. ARTICLE VII Miscellaneous ------------- Section 7.1. Expenses. The Debtors hereby jointly and severally agree to -------- pay on demand: (a) all reasonable costs and out-of-pocket expenses of the Agent in connection with the preparation, negotiation, execution, and delivery of this Agreement and the other Loan GUARANTOR SECURITY AGREEMENT - Page 14 Documents and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent, (b) all costs and out-of- pocket expenses of the Agent and the Banks, or any of them in connection with any Default and the enforcement of this Agreement or any other Loan Document, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent and the Banks, or any of them, (c) all transfer, stamp, documentary, or other similar taxes, assessments, or charges levied by any Governmental Authority in respect of this Agreement or any of the other Loan Documents, (d) all reasonable costs, out-of-pocket expenses, assessments, and other charges incurred in connection with any filing, registration, recording, or perfection of any security interest or Lien contemplated by this Agreement or any other Loan Document, and (e) all other reasonable costs and out-of-pocket expenses incurred by the Agent in connection with this Agreement or any other Loan Document, including, without limitation, all fees, costs, out-of-pocket expenses, and other charges incurred in connection with performing or obtaining any audit or appraisal in respect of the Collateral. Section 7.2. INDEMNIFICATION. THE DEBTORS HEREBY JOINTLY AND SEVERALLY --------------- AGREE TO INDEMNIFY THE AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, AND PARTICIPANTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, INTEREST, EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES), AND AMOUNTS PAID IN SETTLEMENT TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE BORROWER OR ANY DEBTOR OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER, ANY DEBTOR OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK OR ANY OF THEIR RESPECTIVE CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING; PROVIDED, HOWEVER THAT NO PERSON TO BE -------- ------- INDEMNIFIED HEREUNDER SHALL HAVE THE RIGHT TO BE INDEMNIFIED FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS GUARANTOR SECURITY AGREEMENT - Page 15 AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Section 7.3. Limitation of Liability. None of the Agent, any Bank, or any ----------------------- Affiliate, officer, director, employee, attorney, or agent thereof shall have any liability with respect to, and each Debtor hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by such Debtor in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Each Debtor hereby waives, releases, and agrees not to sue the Agent or any Bank or any of their respective Affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Section 7.4. No Fiduciary Relationship. The relationship between each ------------------------- Debtor and each Bank with respect to the Loan Documents and the transactions governed thereby is solely that of debtor and creditor, and neither the Agent nor any Bank has any fiduciary or other special relationship with any Debtor with respect to the Loan Documents and the transactions governed thereby, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between the Debtor and any Bank with respect to the Loan Documents and the transactions governed thereby to be other than that of debtor and creditor. Section 7.5. No Waiver; Cumulative Remedies. No failure on the part of ------------------------------ the Agent, any Co-Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 7.6. Successors and Assigns; Parties Bound. This Agreement shall ------------------------------------- be binding upon and inure to the benefit of the Debtors and the Agent and their respective heirs, successors, and assigns, except that the Debtors may not assign any of their rights or obligations under this Agreement without the prior written consent of the Agent. The Debtors' obligations and agreements hereunder are joint and several. The provisions of this Agreement shall apply to each Debtor, individually and collectively. Section 7.7. ENTIRE AGREEMENT; AMENDMENT; CONTROLLING AGREEMENT. THIS -------------------------------------------------- AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT GUARANTOR SECURITY AGREEMENT - Page 16 ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto. In the event any term or provision of this Agreement expressly conflicts with any term or provision of the Credit Agreement, the terms and provisions of the Credit Agreement shall govern and control. Section 7.8. Notices. All notices and other communications provided for ------- in this Agreement shall be given or made in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the address specified below its name on the signature pages hereof; or, as to any party at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, when duly deposited in the mails, in each case given or addressed as aforesaid. Section 7.9. GOVERNING LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY -------------------- AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. Section 7.10. Headings. The headings, captions, and arrangements used in -------- this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 7.11. Survival of Representations and Warranties. All ------------------------------------------ representations and warranties made in this Agreement shall survive the execution and delivery of this Agreement, and no investigation by the Agent, any Co-Agent or any Bank shall affect the representations and warranties of any Debtor herein or the right of the Agent, any Co-Agent or any Bank to rely upon them. Section 7.12. Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 7.13. Waiver of Bond. In the event the Agent seeks to take -------------- possession of any or all of the Collateral by judicial process, each Debtor hereby irrevocably waives any bonds and any surety or security relating thereto that may be required by applicable law as an incident to such possession, and waives any demand for possession prior to the commencement of any such suit or action. Section 7.14. Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such GUARANTOR SECURITY AGREEMENT - Page 17 prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 7.15. Termination. If all of the Obligations shall have been paid ----------- and performed in full and all Commitments shall have expired or terminated, the Agent shall, upon the written request of the Borrower, execute and deliver to the Debtors a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to the Debtors (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Agent and has not previously been sold or otherwise applied pursuant to this Agreement. Section 7.16. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY -------------------- APPLICABLE LAW, EACH DEBTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE AGENT, ANY CO-AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] GUARANTOR SECURITY AGREEMENT - Page 18 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. DEBTORS: ------- NATIONAL AUTO CENTER, INC., a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR, LTD., a Texas limited partnership By: National Auto Center, Inc., its general partner By:__________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel GUARANTOR SECURITY AGREEMENT - Page 19 CELLSTAR FULFILLMENT, LTD., a Texas limited partnership By: CellStar Fulfillment, Inc., its general partner By:__________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR WEST, INC., a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel ACC-CELLSTAR, INC., a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer GUARANTOR SECURITY AGREEMENT - Page 20 Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR FINANCO, INC., a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR FULFILLMENT, INC., a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel NAC HOLDINGS, INC., a Nevada corporation By:_______________________________________ Elaine F. Rodriguez President GUARANTOR SECURITY AGREEMENT - Page 21 Address: 1325 Airmotive Way Reno, Nevada 89502 Fax No.: (702) 322 8808 Phone No.: (702) 322-3221 Attention: Secretary CELLSTAR INTERNATIONAL CORPORATION/ASIA, a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel AUDIOMEX EXPORT CORP., a Texas corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel GUARANTOR SECURITY AGREEMENT - Page 22 CELLSTAR INTERNATIONAL CORPORATION/SA, a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR AIR SERVICES, INC., a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel A&S AIR SERVICE, INC., a Delaware corporation By:_______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer GUARANTOR SECURITY AGREEMENT - Page 23 Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel AGENT: ----- TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent By:_______________________________________ Allen K. King Vice President Address: 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Fax No.: (214) 965-2997 Phone No.: (214) 965-2705 Attention: Allen K. King GUARANTOR SECURITY AGREEMENT - Page 24 Schedule 1 Location of Inventory and Equipment of Guarantors ------------------------------------------------- Locations of Inventory and Equipment having an aggregate value of $100,000 or more --------------------------------------------- DEBTOR LOCATION - ------ -------- CellStar, Ltd. 1728 Briercroft Court Carrollton, Texas 75006 CellStar, Ltd. 1730 Briercroft Court Carrollton, Texas 75006 CellStar, Ltd. 605 West Airport Freeway Irving, Texas 75062 National Auto Center, Inc. 7899 East Frontage Road Overland Park, Kansas 66204 National Auto Center, Inc. 7500 N.W. 25th Street, Unit 4 Miami, Florida 33122 National Auto Center, Inc. 1230 Santa Anita Avenue Units A, C & D South El Monte, California 917 33 CellStar West, Inc. 31035 Genstar Road Hayward, California 94544 Locations of Inventory and Equipment having an aggregate value of less than $100,000 ----------------------------------------------- Debtor Location - ------ -------- CellStar, Ltd. 512 North Central Expressway Richardson, Texas 75080 CellStar, Ltd. 4216 LBJ Freeway Dallas, Texas 75244 Schedule 1 - Location of Inventory and Equipment of Guarantors 1 Schedule 1 Location of Inventory and Equipment of Guarantors ------------------------------------------------- DEBTOR LOCATION - ------ -------- CellStar, Ltd. 1870 Crown Drive, Suite 1510 Farmers Branch, Texas 75234 CellStar, Ltd. 5937 Donnelly Fort Worth, Texas 76107 CellStar, Ltd. 4146 South Cooper Street Arlington, Texas 76015 CellStar, Ltd. 8728 Westpark Drive Houston, Texas 77063 CellStar, Ltd. 6943 FM 1960 West Houston, Texas 77069 CellStar, Ltd. 19750 Gulf Freeway Webster, Texas 77598 CellStar, Ltd. 9222 Burnett Road Austin, Texas 78758 National Auto Center, Inc. 6700 North Oak Street Trafficway Gladstone, Missouri 64118 National Auto Center, Inc. 13208 East Highway 40, Suite C Independence, Missouri 64055 National Auto Center, Inc. 504 South Edgemoor Wichita, Kansas 67208 CellStar West, Inc. 2417 Front Street Sacramento, California 95691 CellStar West, Inc. 4704 West Jennifer, Suite 105 Fresno, California 95205-2661 Schedule 1 - Location of Inventory and Equipment of Guarantors 2 Schedule 1 Location of Inventory and Equipment of Guarantors ------------------------------------------------- DEBTOR LOCATION - ------ -------- NAC Holdings, Inc. 1325 Airmotive Way Reno, Nevada 89502 ACC-CellStar, Inc. 7500 N.W. 25th Street, Unit 4 Miami, Florida 33122 CellStar Financo, Inc. 1730 Briercroft Court Carrollton, Texas 75006 Schedule 1 - Location of Inventory and Equipment of Guarantors 3 Schedule 2 Jurisdictions for Filing UCC-1 Financing Statements --------------------------
Debtor Name Jurisdiction - ----------- ------------ National Auto Center, Inc. Secretary of State of Texas CellStar West, Inc. Secretary of State of Texas NAC Holdings, Inc. Secretary of State of Texas CellStar Fulfillment, Inc. Secretary of State of Texas CellStar International Corporation\SA Secretary of State of Texas ACC-CellStar, Inc. Secretary of State of Texas A & S Air Service, Inc. Secretary of State of Texas Audiomex Export Corp. Secretary of State of Texas CellStar International Corporation\Asia Secretary of State of Texas CellStar Air Services, Inc. Secretary of State of Texas CellStar Financo, Inc. Secretary of State of Texas CellStar Fulfillment, Ltd. Secretary of State of Texas CellStar, Ltd. Secretary of State of Texas National Auto Center, Inc. Secretary of State of California CellStar West, Inc. Secretary of State of California National Auto Center, Inc. Secretary of State of Florida ACC-CellStar, Inc. Secretary of State of Florida National Auto Center, Inc. Secretary of State of Kansas National Auto Center, Inc. Johnson County, Kansas National Auto Center, Inc. Sedgwick County, Kansas National Auto Center, Inc. Secretary of State of Missouri National Auto Center, Inc. Clay County, Missouri National Auto Center, Inc. Jackson County, Missouri NAC Holdings, Inc. Secretary of State of Nevada
UCC-1 Financing Statements of Guarantors - Page Solo - ---------------------------------------- Schedule 3 Additional Names and Trade Names -------------------------------- NATIONAL AUTO CENTER, INC. - -------------------------- National Auto Cellular PC Cellular C-Mart CellStar CellStar West CELLSTAR, LTD. - -------------- National Auto Cellular PC Cellular CellStar Pacific Bell Mobile Services Fulfillment Schedule 3 - Additional Names and Trade Names Page Solo EXHIBIT F TO CREDIT AGREEMENT Form of Pledge Agreement ------------------------ PLEDGE AGREEMENT ---------------- THIS PLEDGE AGREEMENT (this "Agreement") dated as of October 15, 1997, is --------- by and between ___________________________________, a __________ corporation (the "Pledgor"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national ------- banking association ("TCB"), not in its individual capacity but solely as agent --- for itself and each of the other banks or lending institutions (each, a "Bank" ---- and collectively, the "Banks") which is or may from time to time become a ----- signatory to the Credit Agreement (hereinafter defined) or any successor or permitted assignee thereof (TCB in such capacity, together with its successors in such capacity, the "Agent"). ----- R E C I T A L S: --------------- A. CellStar Corporation, a Delaware corporation (the "Borrower"), the -------- Agent, The First National Bank of Chicago and National City Bank, as co-agents (collectively, the "Co-Agents"), and the Banks are parties to that certain --------- Credit Agreement of even date herewith (such Credit Agreement, as the same may be amended, supplemented or modified from time to time, the "Credit Agreement"). ---------------- B. As a condition to the Credit Agreement, the Pledgor is required to execute and deliver this Agreement. A G R E E M E N T: ----------------- NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Security Interest and Pledge ---------------------------- Section 1.1. Terms Defined in Credit Agreement. All capitalized terms --------------------------------- used and not otherwise defined herein shall have their respective meanings as specified in the Credit Agreement. Section 1.2. Security Interest and Pledge. Subject to the terms of this ---------------------------- Agreement, Pledgor hereby pledges and grants to the Agent, for the pro rata benefit of the Banks, a first priority security interest in the following property whether now owned or hereafter acquired by Pledgor (such property being hereinafter sometimes called the "Collateral"): ---------- [(a) All of Pledgor's rights, titles and interests (whether legal, equitable or beneficial) but not obligations or liabilities (collectively, the "Partnership Interest") as a -------------------- PLEDGE AGREEMENT - Page 1 [limited partner/general partner] of ____________________________, a Texas limited partnership (the "Partnership"), and all of Pledgor's rights, ----------- titles and interests in, to and under that certain partnership agreement forming the Partnership by and between Pledgor and ____________, including, without limitation, the Pledgor's undivided interest in partnership properties and assets and any and all rights to receive distributions, whether in cash or in kind, draws, proceeds, income, or any other payment of any nature whatsoever, or assignment or conveyance of undivided interests in assets, whether real or personal, made or required to be made with respect to the Partnership Interest, whether upon dissolution or termination of the Partnership or otherwise, including without limitation all interests of Pledgor in all payments, gross receipts, accounts, accounts receivable, notes and other rights to the payment of money and all property and assets of the Partnership, together with any and all evidence of the Partnership Interest and any and all certificates, options, rights, or other interests or distributions issued in addition to, in substitution or exchange for, or on account of, the Partnership Interest, and any and all exchanges and substitutions for, increases, products and proceeds of the foregoing, all of the foregoing whether now owned or hereafter acquired by Pledgor;] [(b) All present and future issued and outstanding shares of capital stock or other equity or investment securities issued by ____________, now owned or hereafter acquired by Pledgor, including without limitation _____ shares of common capital stock of ____________ evidenced by certificate number _____;] [(c) (i) 65% of all present and future issued and outstanding shares of voting capital stock or other voting equity or investment securities issued by ________________ __________, a ____________ corporation ("____________"), now owned or hereafter acquired by Pledgor, including without limitation _________ shares of common capital stock of ____________ evidenced by certificate no. _____, and (ii) 100% of all present and future issued and outstanding shares of non-voting preferred stock or other non- voting equity or investment securities issued by ____________, now owned or hereafter acquired by Pledgor;] [CellStar International: (d) _______ shares of Hong Kong Dollar one each representing 65% of all present issued share capital of CellStar (Asia) Corporation Ltd., a Hong Kong corporation ("CellStar Asia");] ------------- (e) All present and future issued and outstanding shares of capital stock or other equity or investment securities issued by any Subsidiary of Pledgor not named above, except Foreign Subsidiaries and holding companies of Foreign Subsidiaries, now owned or hereafter acquired by Pledgor; (f) All present and future issued and outstanding shares of non- voting capital stock or other non-voting equity or investment securities issued by any Subsidiary of Pledgor not named above which is a holding company of any Foreign Subsidiary, now owned or hereafter acquired by Pledgor; PLEDGE AGREEMENT - Page 2 (g) 65% of all present and future issued and outstanding shares of voting capital stock or other voting equity or investment securities issued by any Subsidiary of Pledgor not named above which is a holding company of any Foreign Subsidiary, now owned or hereafter acquired by Pledgor; (h) All present and future increases, profits, combinations, reclassifications of, and substitutes and replacements for, all or part of the foregoing, and all present and future accounts, contract rights, general intangibles, chattel paper, documents, instruments, cash and noncash proceeds, and other rights arising from or by virtue of, or from the voluntary or involuntary sale, lease, or other disposition of, or collections with respect to, all or any part of the foregoing; and (i) All products, proceeds, revenues, distributions, dividends, stock dividends, securities, and other property, rights, and interests that Pledgor receives or is at any time entitled to receive on account of any of the foregoing. Section 1.3. Obligations. The security interest granted, ratified and ----------- confirmed hereby is to secure the payment or performance of the following obligations, indebtedness, and liabilities of Pledgor, now existing or hereafter arising (all of such obligations, indebtedness, and liabilities being hereinafter sometimes called the "Obligations"): ----------- (a) the indebtedness, liabilities and obligations of Borrower to the Banks evidenced by those Notes executed by Borrower pursuant to the Credit Agreement and payable to the order of the Banks in the aggregate principal amount of $135,000,000; (b) the indebtedness, liabilities and obligations of Pledgor to the Agent, the Co-Agents and the Banks under that certain Guaranty of even date hereof executed by the Pledgor and the other guarantors named therein in favor of the Agent, the Co-Agents and the Banks; (c) the indebtedness, liabilities and obligations of the Borrower to the Agent, the Co-Agents and the Banks pursuant to the Credit Agreement; (d) all of the "Obligations," as such term is defined in the Credit Agreement; (e) all future Advances by the Agent or any Bank to the Borrower; (f) all costs and expenses, including without limitation all reasonable attorneys' fees and legal expenses, incurred by the Agent, any Co-Agent or any Bank to preserve and maintain the Collateral, collect the obligations herein described and enforce this Agreement; (g) all other obligations, indebtedness and liabilities of Pledgor to the Agent, any Co-Agent or any Bank under any of the Loan Documents, now existing or hereafter PLEDGE AGREEMENT - Page 3 arising, regardless of whether such obligations, indebtedness and liabilities are similar, dissimilar, related, unrelated, direct, indirect, fixed, contingent, primary, secondary, joint, several, or joint and several; and (h) all extensions, renewals and modifications of any of the foregoing. Without limiting the foregoing, this Agreement secures the payment of all amounts that constitute part of the obligations and would be owed by the Borrower to the Agent, any Co-Agent or any Bank but for the fact that they are unenforceable or not allowable due to the existence of bankruptcy, reorganization, or similar proceedings involving the Borrower. ARTICLE II Representations and Warranties ------------------------------ Pledgor represents and warrants to the Agent that: Section 2.1. Title. Pledgor owns, and with respect to Collateral acquired ----- after the date hereof, Pledgor will own, legally and beneficially, the Collateral free and clear of any Lien or claim or any right or option on the part of any Person to purchase or otherwise acquire the Collateral or any part thereof. The Collateral is not subject to any restriction on transfer or assignment except for (a) compliance with applicable federal and state securities laws and regulations promulgated thereunder[, and (b) with regard to stock of CWI, that certain Shareholders Agreement dated as of January 22, 1996, among CWI, CPD, Inc., Pledgor and the other Shareholders (as defined therein)] [CellStar International: , and (c) prior approval of the directors of CellStar Asia as required by its Articles of Association, which approval has been completed for the transfer of the Collateral to the Agent]. Pledgor has the unrestricted right to pledge the Collateral as contemplated hereby. All of the Collateral has been duly and validly issued and is fully paid and nonassessable. [Pledgor is the sole general partner of the Partnership.] Section 2.2. Organization and Authority. Pledgor is a corporation duly -------------------------- organized, validly existing, and in good standing under the laws of its state of incorporation. Pledgor has the corporate power and authority to execute, deliver, and perform this Agreement, and the execution, delivery, and performance of this Agreement by Pledgor have been duly authorized by all necessary corporate action on the part of Pledgor and do not and will not violate or conflict with the certificate/articles of incorporation or bylaws of Pledgor or any law, rule or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator and do not and will not conflict with, result in a breach of, or constitute a default under the provisions of any agreement or instrument to which Pledgor is a party or by which Pledgor or any of its property is bound or subject. Section 2.3. Financing Statements. No financing statement covering any of -------------------- the Collateral or its proceeds, except financing statements naming the Agent as secured party, is on PLEDGE AGREEMENT - Page 4 file in any public office. So long as any amount remains unpaid on any Obligations or the Agent has any Commitment, Pledgor will not execute or file, or consent to or permit the filing of, any such financing statement or statements in any public office, except the financing statement filed or to be filed with respect to the security interest hereby granted. Section 2.4. Principal Place of Business. The principal place of business --------------------------- and chief executive office of Pledgor, and the office where Pledgor keeps its books and records, is located at the address of Pledgor shown at the beginning of this Agreement. Section 2.5. Percentage of Stock. The shares of capital stock included in ------------------- the Collateral constitute (a) 100% of the issued and outstanding shares of capital stock of _________________, (b) 65% of the issued and outstanding shares of voting capital stock of _____________________, and (c) 100% of the issued and outstanding shares of non-voting capital stock of _____________________. Section 2.6. Litigation. Except as disclosed on Schedule 8.5 to the ---------- Credit Agreement, there is no litigation, investigation, or governmental proceeding pending or threatened against Pledgor or any of its properties which if adversely determined would have a material adverse effect on the Collateral or the financial condition, operations, or business of Pledgor. Section 2.7. First Priority Perfected Security Interest. Upon the filing ------------------------------------------ of UCC financing statements and Agent's taking possession of the certificates representing the stock included in the Collateral, this Agreement creates in favor of the Agent a first priority perfected security interest in the Collateral. There are no conditions precedent to the effectiveness of this Agreement that have not been fully and permanently satisfied. [Section 2.8. Benefit to Pledgor. The value of the consideration received ------------------ and to be received by the Pledgor as a result of the Borrower, the Agent, the Co-Agents and the Banks entering into the Credit Agreement and the Pledgor executing and delivering this Agreement is reasonably worth at least as much as the liability and obligation of the Pledgor hereunder. Such liability and obligation of the Pledgor hereunder. Such liability and obligation and the Borrower's entering the Credit Agreement have benefited and may reasonably be expected to benefit the Pledgor directly and indirectly. The ability of Borrower to borrow and obtain letters of credit from time to time under the Credit Agreement will benefit Pledgor and the consolidated corporate group of which the Pledgor is a part and are necessary and convenient to the conduct, promotion and attainment of the business of the Pledgor. The Pledgor has adequate capital to conduct its business as a going concern, as presently conducted and as proposed to be conducted. The Pledgor will be able to meet its obligations hereunder and in respect of its other existing and future indebtedness and liabilities as and when the same shall be due and payable. The Pledgor is not insolvent (as that term is defined in 11 U.S.C. (S) 101 or applicable law) and will not be rendered insolvent by its obligations hereunder. The foregoing representations are supported by the Pledgor's internal projections and forecasts. The Pledgor has determined that the execution and delivery of this Agreement is to its advantage and benefit, taking into account all relevant facts and circumstances.] PLEDGE AGREEMENT - Page 5 ARTICLE III Affirmative and Negative Covenants ---------------------------------- Pledgor covenants and agrees with the Agent that until the Obligations are paid and performed in full and all Commitments have terminated: Section 3.1. Delivery. Prior to or concurrently with the execution and -------- delivery of this Agreement, Pledgor shall deliver to the Agent all certificates identified in subsections (b) and (c) of Section 1.2 hereof, and all other --------------- --- ----------- certificates evidencing any other Collateral existing on the date hereof, accompanied by undated stock powers duly executed in blank. [CellStar International: Prior to or concurrently with the execution and delivery of this Agreement, the Pledgor shall deliver to the Agent an instrument of transfer duly executed by the Pledgor in relation to the transfer of _____ shares in the issued share capital of CellStar Asia to the Agent or its nominee. The Pledgor will procure CellStar Asia to issue a share certificate in favor of the Agent or its nominee for the said _____ shares in due course. The Pledgor will also deliver to the Agent a contract note executed by the Pledgor in blank as further security for the Obligations. For the avoidance of doubt, the beneficial ownership of the said shares shall not be transferred to the Agent or its nominee unless or until an Event of Default shall occur.] Section 3.2. Encumbrances. Pledgor shall not create, permit, or suffer to ------------ exist, and shall defend the Collateral against, any Lien on the Collateral except the Permitted Liens, and shall defend Pledgor's rights in the Collateral and the Agent's security interest in the Collateral against the claims and demands of all Persons. Pledgor shall do nothing to impair the rights of the Agent in the Collateral. Section 3.3. Disposition of Collateral. Pledgor shall not sell, assign ------------------------- (by operation of law or otherwise), or otherwise dispose of, or grant any option with respect to the Collateral or any part thereof without the prior written consent of the Agent. Section 3.4. Distributions. If Pledgor shall become entitled to receive ------------- or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase, or reduction of capital or issued in connection with any reorganization), option or rights, whether as an addition to, in substitution of, or in exchange for any Collateral or otherwise, Pledgor agrees to accept the same as the Agent's agent and to hold the same in trust for the Agent, and to deliver the same forthwith to the Agent in the exact form received, with the appropriate [endorsement of Pledgor when necessary and/or appropriate undated stock powers duly executed in blank], [CellStar International: instrument of transfer and contract note duly executed by the Pledgor in blank] to be held by the Agent as additional Collateral for the Obligations, subject to the terms hereof. Any sums paid upon or in respect of the Collateral upon the liquidation, dissolution or winding up of any issuer of Collateral shall be paid over to the Agent to be held by it as additional Collateral for the Obligations subject to the terms hereof; and in case any distribution of capital shall be made on or in respect of the Collateral or any property shall be distributed upon or with PLEDGE AGREEMENT - Page 6 respect to the Collateral pursuant to any recapitalization or reclassification of the capital of any issuer of Collateral or pursuant to any reorganization of any issuer of Collateral, the property so distributed shall be delivered to the Agent to be held by it, as additional Collateral for the Obligations, subject to the terms hereof. All sums of money and property so paid or distributed in respect of the Collateral that are received by Pledgor shall, until paid or delivered to the Agent, be held by Pledgor in trust as additional security for the Obligations. Section 3.5. Further Assurances. At any time and from time to time, upon ------------------ the request of the Agent, and at the sole expense of Pledgor, Pledgor shall promptly execute and deliver all such further instruments and documents and take such further action as the Agent may deem necessary or desirable to preserve and perfect its security interest in the Collateral and carry out the provisions and purposes of this Agreement, including, without limitation, the execution and filing of such financing statements as the Agent may require. A carbon, photographic, or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. Subject to the right of Pledgor to receive cash dividends and distributions under Section 4.3 ----------- hereof, in the event any Collateral is ever received by Pledgor, Pledgor shall promptly transfer and deliver to the Agent such Collateral so received by Pledgor (together with any necessary endorsements in blank, pledge endorsements, other appropriate endorsements, or undated stock powers duly executed in blank), which Collateral shall thereafter be held by the Agent pursuant to the terms of this Agreement. [delete if CellStar International: The Agent shall at all times have the right to exchange any certificates representing Collateral for certificates of smaller or larger denominations for any purpose consistent with this Agreement.] Section 3.6. Inspection Rights. Pledgor shall permit the Agent and its ----------------- representatives to examine, inspect, and copy Pledgor's books and records at any reasonable time and as often as the Agent may desire during normal business hours. Section 3.7. Taxes. The Pledgor agrees to pay or discharge prior to ----- delinquency all taxes, assessments, levies, and other governmental charges imposed on it or its property, except Pledgor shall not be required to pay or discharge any tax, assessment, levy, or other governmental charge if (i) the amounts or validity thereof is being contested by Pledgor in good faith by appropriate proceedings diligently pursued, (ii) such proceedings do not involve any risk of sale, forfeiture, or loss of the Collateral or any interest therein, and (iii) adequate reserves therefor have been established in conformity with GAAP. Section 3.8. Notification. Pledgor shall promptly, and in any event ------------ within five days after Pledgor obtains knowledge or becomes aware of any of the following, notify the Agent of (a) any Lien or claim that has attached to or been made or asserted against any of the Collateral, (b) any material damage to or loss of any of the Collateral, (c) the occurrence of any other event that could have a material adverse effect on the Collateral or the security interest created hereunder, and (d) the occurrence or existence of any Default. PLEDGE AGREEMENT - Page 7 Section 3.9. Books and Records; Information. Pledgor shall keep accurate ------------------------------ and complete books and records of the Collateral and Pledgor's business and financial condition in accordance with GAAP. Pledgor shall from time to time at the request of the Agent deliver to the Agent such information regarding the Collateral and Pledgor as the Agent may request. Pledgor shall mark its books and records to reflect the security interest of the Agent under this Agreement. Section 3.10. Compliance with Laws and Agreements. Pledgor shall comply ----------------------------------- in all material respects with all applicable laws, rules, regulations, orders and decrees of any Governmental Authority or arbitrator and all material agreements, contracts, and instruments binding on it or affecting its properties or business. Section 3.11. Additional Securities. Pledgor shall not consent to or --------------------- approve the issuance of any additional shares of any class of capital stock of any issuer of Collateral, or any securities convertible into, or exchangeable for, any such shares or any warrants, options, rights, or other commitments entitling any Person to purchase or otherwise acquire any such shares. ARTICLE IV Rights of Agent and Pledgor --------------------------- Section 4.1. Power of Attorney. Pledgor hereby irrevocably constitutes ----------------- and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead and in the name of Pledgor or in its own name, to take any and all action and to execute any and all documents and instruments which the Agent at any time and from time to time deems necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, Pledgor hereby gives the Agent the power and right on behalf of Pledgor and in its own name to do any of the following (subject to the rights of Pledgor under Sections 4.2 and 4.3 hereof), without notice to or ------------ --- the consent of Pledgor, and whether or not an Event of Default has occurred or is continuing (except as otherwise expressly provided below): (i) after the occurrence and during the continuance of an Event of Default, to demand, sue for, collect, or receive in the name of Pledgor or in its own name, any money or property at any time payable or receivable on account of or in exchange for any of the Collateral and, in connection therewith, endorse checks, notes, drafts, acceptances, money orders, or any other instruments for the payment of money under the Collateral; (ii) to pay or discharge taxes or Liens levied or placed on or threatened against the Collateral; (iii) (A) after the occurrence and during the continuance of an Event of Default, to direct account debtors and any other parties liable for any payment under any of the Collateral to make payment of any and all monies due and to become due thereunder directly to the Agent or as the Agent shall direct; (B) after the occurrence and during the PLEDGE AGREEMENT - Page 8 continuance of an Event of Default, to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any Collateral; (C) after the occurrence and during the continuance of an Event of Default, to sign and endorse any drafts, assignments, proxies, stock powers, verifications, notices, and other documents relating to the Collateral; (D) after the occurrence and during the continuance of an Event of Default, to commence and prosecute any suit, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) after the occurrence and during the continuance of an Event of Default, to defend any suit, action, or proceeding brought against Pledgor with respect to any Collateral; (F) after the occurrence and during the continuance of an Event of Default, to settle, compromise, or adjust any suit, action, or proceeding described above and, in connection therewith, to give such discharges or releases as the Agent may deem appropriate; (G) to exchange any of the Collateral for other property upon any merger, consolidation, reorganization, recapitalization, or other readjustment of any issuer of Collateral and, in connection therewith, deposit any of the Collateral with any committee, depositary, transfer agent, registrar, or other designated agency upon such terms as the Agent may determine; (H) to add or release any guarantor, indorser, surety, or other party to any of the Collateral or the Obligations; (I) to renew, extend, or otherwise change the terms and conditions of any of the Collateral or Obligations; and (J) after the occurrence and during the continuance of an Event of Default, to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do, at the Agent's option and Pledgor's expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve, or realize upon the Collateral and the Agent's security interest therein. This power of attorney is a power coupled with an interest and shall be irrevocable. The Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges, and options expressly or implicitly granted to the Agent in this Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or in its capacity as attorney-in-fact except acts or omissions resulting from its willful misconduct. This power of attorney is conferred on the Agent solely to protect, preserve, and realize upon its security interest in the Collateral. The Agent will exercise its best efforts to notify Pledgor of any action taken by the Agent in its capacity as attorney- in-fact pursuant to this Section, promptly after such action is taken provided that any failure by the Agent to so notify Pledgor shall not impose any liability upon the Agent or affect its rights and remedies hereunder, at law or in equity. The Agent shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve, or maintain any security interest or Lien given to secure the Collateral. Section 4.2. Voting Rights. Unless and until an Event of Default shall ------------- have occurred and be continuing, Pledgor shall be entitled to exercise any and all voting rights pertaining to the PLEDGE AGREEMENT - Page 9 Collateral or any part thereof in accordance with the direction of the Pledgor for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement. Section 4.3. Dividends and Distributions. Unless and until an Event of --------------------------- Default shall have occurred and be continuing, Pledgor shall be entitled to receive and retain or distribute to Borrower any dividends and distributions on the Collateral paid in cash to the extent and only to the extent that such dividends and distributions are permitted by the Credit Agreement, except as provided in Section 3.4 hereof. [CellStar International: Accordingly, unless ----------- and until an Event of Default shall have occurred and be continuing, the Agent shall transmit to Pledgor any and all such cash dividends received by Agent.] Section 4.4. Setoff; Property Held by Agents and the Banks. If an Event --------------------------------------------- of Default shall have occurred and be continuing, the Agent, each Co-Agent and each Bank shall have the right to set off and apply against the Obligations, at any time and without notice to Pledgor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from the Agent, any Co-Agent or any Bank to Pledgor whether or not the Obligations are then due. As additional security for the Obligations, Pledgor hereby grants the Agent, each Co-Agent and each Bank a security interest in all money, instruments, and other property of Pledgor now or hereafter held by the Agent, any Co-Agent or any Bank, including, without limitation, property held in safekeeping. In addition to the Agent's, any Co- Agent's or any Bank's right of setoff and as further security for the Obligations, Pledgor hereby grants the Agent, each Co-Agent and each Bank a security interest in all deposits (general or special, time or demand, provisional or final) and other accounts of Pledgor now or hereafter on deposit with or held by the Agent, any Co-Agent or any Bank and all other sums at any time credited by or owing from the Agent, any Co-Agent or any Bank to Pledgor. The rights and remedies of the Agent, each Co-Agent and each Bank hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Agent, any Co-Agent or any Bank may have. Section 4.5. Performance by Agent. If Pledgor shall fail to perform any -------------------- covenant or agreement contained in this Agreement, the Agent may perform or attempt to perform such covenant or agreement on behalf of Pledgor. In such event, Pledgor shall, at the request of the Agent, promptly pay any amount expended by the Agent in connection with such performance or attempted performance to the Agent, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that the Agent shall not have any liability or responsibility for the performance of any obligation of Pledgor under this Agreement. Section 4.6. Agent's Duty of Care. Other than the exercise of reasonable -------------------- care in the physical custody of the Collateral while held by the Agent hereunder, the Agent shall have no responsibility for or obligation or duty with respect to all or any part of the Collateral or any matter or proceeding arising out of or relating thereto, including, without limitation, any obligation or duty to collect any sums due in respect thereof or to protect or preserve any rights against prior parties or any other rights pertaining thereto, it being understood and agreed that PLEDGE AGREEMENT - Page 10 Pledgor shall be responsible for preservation of all rights in the Collateral. Without limiting the generality of the foregoing, the Agent shall be conclusively deemed to have exercised reasonable care in the custody of the Collateral if the Agent takes such action, for purposes of preserving rights in the Collateral, as Pledgor may reasonably request in writing, but no failure or omission or delay by the Agent in complying with any such request by Pledgor, and no refusal by the Agent to comply with any such request by Pledgor, shall be deemed to be a failure to exercise reasonable care. ARTICLE V Default ------- Section 5.1. Rights and Remedies. If any Event of Default shall occur, ------------------- the Agent shall have the following rights and remedies: (i) In addition to all other rights and remedies granted to the Agent in this Agreement and in any other Loan Document or by applicable law, the Agent shall have all of the rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, the Agent may (A) without demand or notice to Pledgor, collect, receive, or take possession of the Collateral or any part thereof, (B) sell or otherwise dispose of the Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at the Agent's offices or elsewhere, for cash, on credit, or for future delivery, and/or (C) bid and become a purchaser at any sale free of any right or equity of redemption in Pledgor, which right or equity is hereby expressly waived and released by Pledgor. Upon the request of the Agent, Pledgor shall assemble the Collateral and make it available to the Agent at any place designated by the Agent that is reasonably convenient to Pledgor and the Agent. Pledgor agrees that the Agent shall not be obligated to give more than five days written notice of the time and place of any public sale or of the time after which any private sale may take place and that such notice shall constitute reasonable notice of such matters. The Agent shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor shall be liable for all expenses of retaking, holding, preparing for sale, or the like, and all attorneys' fees and other expenses incurred by the Agent in connection with the collection of the Obligations and the enforcement of the Agent's rights under this Agreement, all of which expenses and fees shall constitute additional Obligations secured by this Agreement. The Agent may apply the Collateral against the Obligations in such order and manner as the Agent may elect in its sole discretion. Pledgor shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay the Obligations. Pledgor waives all rights of marshalling in respect of the Collateral. PLEDGE AGREEMENT - Page 11 (ii) The Agent may cause any or all of the Collateral held by it to be transferred into the name of the Agent (if the Agent is not yet the registered owner of the Collateral) or the name or names of the Agent's nominee or nominees. (iii) The Agent may collect or receive all money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so. (iv) The Agent shall have the right, but shall not be obligated to, exercise or cause to be exercised all voting, consensual, and other powers of ownership pertaining to the Collateral[, including, without limitation, all rights, titles and interests of Pledgor as general partner of the Partnership,] [and Pledgor shall deliver to the Agent, if requested by the Agent, irrevocable proxies with respect to the Collateral in form satisfactory to the Agent.] [CellStar International: and shall no longer be required to vote in accordance with Pledgor's directions; and in the event that the Agent is not yet the registered owner of the Collateral, Pledgor shall deliver to Agent, if requested by the Agent, irrevocable proxies with respect to the Collateral in form satisfactory to the Agent.] (v) The Agent may notify or require Pledgor to notify parties obligated under any accounts, instruments, contracts or agreements which are part of the Collateral, [including without limitation the Partnership Agreements,] to make payment directly to the Agent, and the Agent may take possession of all proceeds of any such instruments and contracts in Pledgor's possession. Any such payments or distributions received by Pledgor after an Event of Default shall, until paid or delivered to the Agent, be held by Pledgor in trust as additional security for the Obligations. (vi) [Pledgor hereby acknowledges and confirms that the Agent may be unable to effect a public sale of any or all of the Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obligated to agree, among other things, to acquire any shares of the Collateral for their own respective accounts for investment and not with a view to distribution or resale thereof. Pledgor further acknowledges and confirms that any such private sale may result in prices or other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner, and the Agent shall be under no obligation to take any steps in order to permit the Collateral to be sold at a public sale. The Agent shall be under no obligation to delay a sale of any of the Collateral for any period of time necessary to permit any issuer thereof to register such Collateral for public sale under the Securities Act of 1933, as amended, or under applicable state securities laws.] [CellStar International: Pledgor hereby acknowledges and confirms that under applicable Hong Kong law the Agent cannot effect a public sale of any or all of the Collateral. Pledgor further acknowledges and confirms that if a private sale results in prices or other terms less favorable to the seller than may PLEDGE AGREEMENT - Page 12 have resulted if such sale were a public sale, such circumstances shall not cause such sale to be deemed not to have been made in a commercially reasonable manner. Nothing in this Agreement shall prohibit a public sale of the Collateral if any change in circumstances or applicable law otherwise results in the availability of public sale with respect to the Collateral.] (vii) On any sale of the Collateral, the Agent is hereby authorized to comply with any limitation or restriction with which compliance is necessary, in the view of the Agent's counsel, in order to avoid any violation of applicable law or in order to obtain any required approval of the purchaser or purchasers by any applicable governmental authority. (viii) The Agent may subrogate to all of Pledgor's interests, rights, and remedies with respect to any of the Collateral. ARTICLE VI Miscellaneous ------------- Section 6.1. Expenses. The Pledgor hereby agrees to pay on demand: (a) -------- all reasonable costs and out-of-pocket expenses of the Agent in connection with the preparation, negotiation, execution, and delivery of this Agreement and the other Loan Documents and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent, (b) all costs and out-of-pocket expenses of the Agent, the Co-Agents and the Banks, or any of them in connection with any Default and the enforcement of this Agreement or any other Loan Document, including, without limitation, the reasonable fees and expenses of legal counsel for the Agent, the Co-Agents and the Banks, or any of them, (c) all transfer, stamp, documentary, or other similar taxes, assessments, or charges levied by any Governmental Authority in respect of this Agreement or any of the other Loan Documents, (d) all reasonable costs, out-of-pocket expenses, assessments, and other charges incurred in connection with any filing, registration, recording, or perfection of any security interest or Lien contemplated by this Agreement or any other Loan Document, and (e) all other reasonable costs and out-of-pocket expenses incurred by the Agent in connection with this Agreement or any other Loan Document, including, without limitation, all fees, costs, out-of-pocket expenses, and other charges incurred in connection with performing or obtaining any audit or appraisal in respect of the Collateral. SECTION 6.2. INDEMNIFICATION. THE PLEDGOR HEREBY AGREES TO INDEMNIFY THE --------------- AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AGENTS, AND PARTICIPANTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, INTEREST, EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES), AND AMOUNTS PAID IN SETTLEMENT TO PLEDGE AGREEMENT - Page 13 WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY [THE BORROWER OR] THE PLEDGOR OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF [THE BORROWER,] THE PLEDGOR OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK OR ANY OF THEIR RESPECTIVE CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING; PROVIDED, HOWEVER, THAT NO PERSON -------- ------- TO BE INDEMNIFIED HEREUNDER SHALL HAVE THE RIGHT TO BE INDEMNIFIED FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Section 6.3. No Waiver; Cumulative Remedies. No failure on the part of ------------------------------ the Agent, any Co-Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement are cumulative and not exclusive of any rights and remedies provided by law. Section 6.4. Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of Pledgor and the Agent and their respective heirs, successors, and assigns, except that Pledgor may not assign any of its rights or obligations under this Agreement without the prior written consent of the Agent. Section 6.5. AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE --------------------------- FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR PLEDGE AGREEMENT - Page 14 SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or waived only by an instrument in writing signed by the parties hereto. Section 6.6. Notices. All notices and other communications provided for ------- in this Agreement shall be given or made in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, when duly deposited in the mails, in each case given or addressed as aforesaid. SECTION 6.7. GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS AGREEMENT ---------------------------------------- SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THIS AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IT SHALL BE PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. Section 6.8. Headings. The headings, captions, and arrangements used in -------- this Agreement are for convenience only and shall not affect the interpretation of this Agreement. Section 6.9. Survival. All representations and warranties made in this -------- Agreement shall survive the execution and delivery of this Agreement, and no investigation by the Agent or any Bank shall affect the representations and warranties of Pledgor herein or the right of the Agent or any Bank to rely upon them. Section 6.10. Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 6.11. Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 6.12. Construction. Pledgor and the Agent acknowledge that each ------------ of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement with its legal counsel and that this Agreement shall be construed as if jointly drafted by Pledgor and the Agent. PLEDGE AGREEMENT - Page 15 Section 6.13. Termination. If all of the Obligations shall have been paid ----------- and performed in full and all Commitments shall have expired or terminated, the Agent shall, upon the written request of Pledgor, execute and deliver to Pledgor a proper instrument or instruments acknowledging the release and termination of the security interests created by this Agreement, and shall duly assign and deliver to Pledgor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Agent and has not previously been sold or otherwise applied pursuant to this Agreement. The Agent shall also return to the Pledgor all documents, including certificates, instruments of transfer and contract notes in relation to the Collateral. Section 6.14. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY -------------------- APPLICABLE LAW, PLEDGOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE CREDIT AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF THE AGENT, ANY CO-AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. [REMAINDER OF PAGE INTENTIONALLY BLANK] PLEDGE AGREEMENT - Page 16 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first written above. PLEDGOR: ------- ________________________________________ By:_____________________________________ Mark Q. Huggins Senior Vice President and Chief Financial Officer Address for Notices: [1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Telephone No.: (972) 466-5000 Attention: General Counsel] AGENT: ----- TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent By:____________________________________ Allen K. King Vice President Address for Notices: 2200 Ross Avenue, 3rd Floor Dallas, Texas 75201 Fax No.: (214) 965-2997 Telephone No.: (214) 965-2705 Attention: Allen K. King PLEDGE AGREEMENT - Page 17 EXHIBIT G TO CREDIT AGREEMENT Guaranty -------- GUARANTY -------- THIS GUARANTY ("Guaranty"), dated as of October 15, 1997, is executed by -------- the undersigned guarantors (each a "Guarantor" and, collectively, the --------- "Guarantors"), for the benefit of each of the banks or lending institutions - ----------- (each, a "Bank" and, collectively, the "Banks") which is or may from time to ---- ----- time become a signatory to the Credit Agreement (hereinafter defined) or any successor or permitted assignee thereof, and Texas Commerce Bank National Association, a national banking association ("TCB"), as agent for itself and --- each of the other Banks (TCB in such capacity, together with its successors in such capacity, the "Agent"). ----- WHEREAS, Cellstar Corporation, a Delaware corporation (the "Borrower"), the -------- Banks, The First National Bank of Chicago and National City Bank (collectively, the "Co-Agents"), and the Agent are parties to that certain Credit Agreement of --------- even date herewith (such Credit Agreement, as the same may be amended, supplemented or modified from time to time, the "Credit Agreement"); and ---------------- WHEREAS, as a condition to the Credit Agreement, each Guarantor is required to execute and deliver this Guaranty. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantors hereby jointly and severally, irrevocably and unconditionally guarantee to the Agent, the Co-Agents and the Banks the full and prompt payment and performance of the Guaranteed Indebtedness (hereinafter defined), this Guaranty being upon the following terms: 1. The term "Guaranteed Indebtedness", as used herein, means all of the ----------------------- "Obligations", as defined in the Credit Agreement. The term "Guaranteed ---------- Indebtedness" shall include any and all post-petition interest and expenses - ------------ (including reasonable attorneys' fees) whether or not allowed under any bankruptcy, insolvency, or other similar law. All other capitalized terms used and not otherwise defined herein shall have their respective meanings as set forth in the Credit Agreement. 2. This instrument shall be an absolute, continuing, irrevocable, and unconditional guaranty of payment and performance, and not a guaranty of collection, and each Guarantor shall remain liable on its obligations hereunder until the payment and performance in full of the Guaranteed Indebtedness. No set-off, counterclaim, recoupment, reduction, or diminution of any obligation, or any defense of any kind or nature which Borrower may have against the Agent, any Co-Agent, any Bank or any other party, or which any Guarantor may have against Borrower, the Agent, any Co-Agent, any Bank or any other party, shall be available to, or shall be asserted by, any Guarantor against the Agent, any Co- Agent, any Bank or any subsequent holder of the Guaranteed Indebtedness or any part thereof or against payment of the Guaranteed Indebtedness or any part thereof. GUARANTY - Page 1 3. The obligations of each Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or to being set aside, avoided, or annulled under any applicable state law relating to fraudulent transfers or fraudulent obligations. 4. If any Guarantor becomes liable for any indebtedness owing by Borrower to the Agent, any Co-Agent or any Bank by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby, and the rights of the Agent, the Co-Agents and the Banks hereunder shall be cumulative of any and all other rights that any of them may ever have against any Guarantor. The exercise by the Agent, any Co-Agent or any Bank of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 5. In the event of default by Borrower in payment or performance of the Guaranteed Indebtedness, or any part thereof, when such Guaranteed Indebtedness becomes due, whether by its terms, by acceleration, or otherwise, Guarantors jointly and severally agree to promptly pay the amount due thereon to the Agent, for the pro rata benefit of the Banks, without notice or demand in lawful currency of the United States of America and it shall not be necessary for the Agent, any Co-Agent or any Bank, in order to enforce such payment by any Guarantor, first to institute suit or exhaust its remedies against Borrower, any Guarantor or others liable on such Guaranteed Indebtedness, or to enforce any rights against any collateral which shall ever have been given to secure such Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in this Guaranty, each Guarantor hereby irrevocably subordinates to the prior indefeasible payment in full of the Guaranteed Indebtedness, any and all rights such Guarantor may now or hereafter have under any agreement or at law or in equity (including, without limitation, any law subrogating such Guarantor to the rights of the Agent, the Co-Agents and the Banks) to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Indebtedness for any payment made by such Guarantor under or in connection with this Guaranty or otherwise. 6. If acceleration of the time for payment of any amount payable by Borrower under the Guaranteed Indebtedness is stayed upon the insolvency, bankruptcy, or reorganization of Borrower, all such amounts otherwise subject to acceleration under the terms of the Guaranteed Indebtedness shall nonetheless be jointly and severally payable by the Guarantors hereunder forthwith on demand by the Agent. 7. Each Guarantor hereby agrees that its obligations under this Guaranty shall not be released, discharged, diminished, impaired, reduced, or affected for any reason or by the occurrence of any event, including, without limitation, one or more of the following events, whether or not with notice to or the consent of any Guarantor: (a) the taking or accepting of collateral as security for any or all of the Guaranteed Indebtedness or the release, surrender, GUARANTY - Page 2 exchange, or subordination of any collateral now or hereafter securing any or all of the Guaranteed Indebtedness; (b) any partial release of the liability of any Guarantor hereunder, or the full or partial release of any other guarantor from liability for any or all of the Guaranteed Indebtedness; (c) any disability of Borrower, or the dissolution, insolvency, or bankruptcy of Borrower, any Guarantor, or any other party at any time liable for the payment of any or all of the Guaranteed Indebtedness; (d) any renewal, extension, modification, waiver, amendment, or rearrangement of any or all of the Guaranteed Indebtedness or any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Indebtedness; (e) any adjustment, indulgence, forbearance, waiver, or compromise that may be granted or given by the Agent, any Co-Agent or any Bank to Borrower, any Guarantor, or any other party ever liable for any or all of the Guaranteed Indebtedness; (f) any neglect, delay, omission, failure, or refusal of the Agent, any Co-Agent or any Bank to take or prosecute any action for the collection of any of the Guaranteed Indebtedness or to foreclose or take or prosecute any action in connection with any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Indebtedness; (g) the unenforceability or invalidity of any or all of the Guaranteed Indebtedness or of any instrument, document, or agreement evidencing, securing, or otherwise relating to any or all of the Guaranteed Indebtedness; (h) any payment by Borrower or any other party to the Agent, any Co-Agent or any Bank is held to constitute a preference under applicable bankruptcy or insolvency law or if for any other reason the Agent, any Co-Agent or any Bank is required to refund any payment or pay the amount thereof to someone else; (i) the settlement or compromise of any of the Guaranteed Indebtedness; (j) the non-perfection of any security interest or lien securing any or all of the Guaranteed Indebtedness; (k) any impairment of any collateral securing any or all of the Guaranteed Indebtedness; (l) the failure of the Agent, any Co-Agent or any Bank to sell any collateral securing any or all of the Guaranteed Indebtedness in a commercially reasonable manner or as otherwise required by law; (m) any change in the corporate existence, structure, or ownership of Borrower; or (n) any other circumstance which might otherwise constitute a defense available to, or discharge of, Borrower or any Guarantor. 8. Each Guarantor represents and warrants to the Agent, the Co-Agents and the Banks that: (a) Each and every representation and warranty contained in the Credit Agreement is true and correct in all respects. (b) The value of the consideration received and to be received by such Guarantor as a result of Borrower, the Banks, the Co-Agents and the Agent entering into the Credit Agreement, the extensions of credit thereunder and such Guarantor executing and delivering this Guaranty is reasonably equivalent to or greater than the liability and obligation of such Guarantor hereunder, and such liability and obligation, the Borrower's entering into the Credit Agreement and the extensions of credit thereunder have benefited and may reasonably be expected to benefit such Guarantor directly or indirectly. GUARANTY - Page 3 (c) Such Guarantor has, independently and without reliance upon the Agent, any Co-Agent or any Bank and based upon such documents and information as such Guarantor has deemed appropriate, made its own analysis and decision to enter into this Guaranty. (d) The ability of Borrower to borrow and obtain letters of credit from time to time under the Credit Agreement will enable such Guarantor to obtain credit, will benefit such Guarantor and the consolidated corporate group of which such Guarantor is a part and are necessary and convenient to the conduct, promotion and attainment of the business of such Guarantor. (e) As additional consideration for entering into this Guaranty, such Guarantor has obtained certain rights under that certain Contribution and Indemnification Agreement of even date herewith, among the Borrower and the Guarantors. (f) Such Guarantor has adequate capital to conduct its business as a going concern, as presently conducted and as proposed to be conducted; such Guarantor will be able to meet its obligations hereunder and in respect of its other existing and future indebtedness and liabilities as and when the same shall be due and payable; such Guarantor is not insolvent (as that term is defined in 11 U.S.C. (S) 101 or applicable law) and will not be rendered insolvent by its obligations hereunder, and the foregoing representations are supported by such Guarantor's internal projections and forecasts. (g) Such Guarantor has determined that the execution and delivery of this Guaranty is to its advantage and benefit, taking into account all relevant facts and circumstances. 9. If an Event of Default shall have occurred and be continuing, the Agent and each Bank shall have the right to set off and apply against this Guaranty or the Guaranteed Indebtedness or both, at any time and without notice to any Guarantor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from the Agent, any Co-Agent or any Bank to any Guarantor whether or not the Guaranteed Indebtedness is then due and irrespective of whether or not the Agent, any Co- Agent or any Bank shall have made any demand under this Guaranty. As security for this Guaranty and the Guaranteed Indebtedness, each Guarantor hereby grants the Agent, each Co-Agent and each Bank a security interest in all money, instruments, certificates of deposit, and other property of such Guarantor now or hereafter held by the Agent, each Co-Agent and each Bank, including without limitation, property held in safekeeping. In addition to the Agent's, each Co- Agent's and each Bank's right of setoff and as further security for this Guaranty and the Guaranteed Indebtedness, each Guarantor hereby grants the Agent, each Co-Agent and each Bank a security interest in all deposits (general or special, time or demand, provisional or final) and all other accounts of such Guarantor now or hereafter on deposit with or held by the Agent, any Co-Agent or any Bank and all other sums at any time credited by or owing from the Agent, any Co-Agent GUARANTY - Page 4 or any Bank to such Guarantor. The rights and remedies of the Agent, each Co- Agent and each Bank hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Agent, each Co-Agent and each Bank may have. 10. (a) Each Guarantor hereby agrees that the Subordinated Indebtedness (hereinafter defined) shall be subordinate and junior in right of payment to the prior payment in full of all Guaranteed Indebtedness, and each Guarantor hereby assigns the Subordinated Indebtedness to the Agent, for the pro rata benefit of the Banks, as security for the Guaranteed Indebtedness. If any sums shall be paid to any Guarantor by Borrower or any other Person on account of the Subordinated Indebtedness, such sums shall be held in trust by such Guarantor for the benefit of the Agent and shall forthwith be paid to the Agent, for the pro rata benefit of the Banks, without affecting the liability of any Guarantor under this Guaranty and may be applied by the Banks against the Guaranteed Indebtedness in such order and manner as they may determine in their absolute discretion; provided, however, that so long as no Event of Default shall have -------- ------- occurred, Borrower shall be permitted to pay to any Guarantor, and each Guarantor shall be permitted to receive and retain, payments on account of Subordinated Indebtedness consisting of trade payables owing by Borrower to any Guarantor. Upon the request of the Agent, each Guarantor shall execute, deliver, and endorse to the Agent, for the pro rata benefit of the Banks, such documents and instruments as the Agent may request to perfect, preserve, and enforce the rights of the Agent and the Banks hereunder. For purposes of this Guaranty, the term "Subordinated Indebtedness" means all indebtedness, ------------------------- liabilities, and obligations of Borrower and the Subsidiaries, or any of them, to any Guarantor, whether such indebtedness, liabilities, and obligations now exist or are hereafter incurred or arise, or whether the obligations of Borrower or such Subsidiary thereon are direct, indirect, contingent, primary, secondary, several, joint, joint and several, or otherwise, and irrespective of whether such indebtedness, liabilities, or obligations are evidenced by a note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such indebtedness, obligations, or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. (b) Each Guarantor agrees that any and all liens, security interests, judgment liens, charges, or other encumbrances upon the assets of Borrower and the Subsidiaries, or any of them, securing payment of any Subordinated Indebtedness shall be and remain inferior and subordinate to any and all liens, security interests, judgment liens, charges, or other encumbrances upon such assets securing payment of the Guaranteed Indebtedness or any part thereof, regardless of whether such encumbrances in favor of any Guarantor or the Agent presently exist or are hereafter created or attached. No Guarantor shall (i) file suit against Borrower or any Subsidiary or exercise or enforce any other creditor's right it may have against Borrower or any Subsidiary, or (ii) foreclose, repossess, sequester, or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any liens, security interests, collateral rights, judgments or other encumbrances held by any Guarantor on assets of Borrower or any Subsidiary unless and until the Guaranteed GUARANTY - Page 5 Indebtedness shall have been paid in full, no Letters of Credit are outstanding, and the Commitments have expired or terminated. (c) In the event of any receivership, bankruptcy, reorganization, rearrangement, debtor's relief, or other insolvency proceeding involving Borrower or any Subsidiary as debtor, the Agent shall have the right to prove and vote any claim under the Subordinated Indebtedness and to receive, for the benefit of the Banks, directly from the receiver, trustee or other court custodian all dividends, distributions, and payments made in respect of the Subordinated Indebtedness. The Agent, the Co-Agents and the Banks may apply any such dividends, distributions, and payments against the Guaranteed Indebtedness in such order and manner as they may determine in their absolute discretion. (d) Each Guarantor agrees that all promissory notes, accounts receivable, ledgers, records, or any other evidence of Subordinated Indebtedness shall contain a specific written notice thereon that the indebtedness evidenced thereby is subordinated under the terms of this Guaranty. 11. No Guarantor shall prepay any Debt, except the Guaranteed Indebtedness. 12. No amendment or waiver of any provision of this Guaranty or consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Agent and the Required Banks. No failure on the part of the Agent, any Co-Agent or any Bank to exercise, and no delay in exercising, any right, power, or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 13. Any acknowledgment or new promise, whether by payment of principal or interest or otherwise and whether by Borrower or others (including any Guarantor), with respect to any of the Guaranteed Indebtedness shall, if the statute of limitations in favor of any Guarantor against the Agent, any Co-Agent or any Bank shall have commenced to run, toll the running of such statute of limitations and, if the period of such statute of limitations shall have expired, prevent the operation of such statute of limitations. 14. This Guaranty is for the benefit of the Agent, the Co-Agents and the Banks and their respective successors and assigns, and in the event of an assignment of the Guaranteed Indebtedness, or any part thereof, the rights and benefits hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Guaranty is binding not only on each Guarantor, but on each Guarantor's successors and assigns. The Guarantors' obligations and agreements hereunder are joint and several. The provisions of this Guaranty shall apply to each Guarantor individually and collectively. GUARANTY - Page 6 15. Each Guarantor recognizes that the Agent, the Co-Agents and the Banks are relying upon this Guaranty and the undertakings of each Guarantor hereunder in making extensions of credit to Borrower under the Credit Agreement and further recognizes that the execution and delivery of this Guaranty is a material inducement to the Agent, the Co-Agents and the Banks in entering into the Credit Agreement. Each Guarantor hereby acknowledges that there are no conditions to the full effectiveness of this Guaranty. 16. THIS GUARANTY IS EXECUTED AND DELIVERED AS AN INCIDENT TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED, AND PERFORMABLE IN DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 17. Guarantors jointly and severally agree to pay on demand all attorneys' fees and all other costs and expenses incurred by the Agent and each Bank in connection with the preparation, administration, enforcement, or collection of this Guaranty. 18. Each Guarantor hereby waives promptness, diligence, notice of any default under the Guaranteed Indebtedness, demand of payment, notice of acceptance of this Guaranty, presentment, notice of protest, notice of dishonor, notice of intent to accelerate, notice of acceleration, notice of the incurring by Borrower of additional indebtedness, and all other notices and demands with respect to the Guaranteed Indebtedness and this Guaranty. 19. Each Guarantor agrees that the Agent, each Co-Agent and each Bank may exercise any and all rights granted to them under the Credit Agreement and the other Loan Documents without affecting the validity or enforceability of this Guaranty. 20. Each Guarantor hereby represents and warrants to the Agent, the Co- Agents and the Banks that such Guarantor has adequate means to obtain from the Borrower and the Subsidiaries on a continuing basis information concerning the financial condition and assets of the Borrower and the Subsidiaries and that such Guarantor is not relying upon the Agent, any Co-Agent or any Bank to provide (and neither the Agent, any Co-Agent nor any Bank shall have any duty to provide) any such information to such Guarantor either now or in the future. 21. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES. 22. Each Guarantor acknowledges that it has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Guaranty with its legal counsel and that this Guaranty shall be construed as if jointly drafted by the Guarantors and the Agent. GUARANTY - Page 7 23. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS GUARANTY, THE CREDIT AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF THE AGENT, ANY CO-AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] GUARANTY - Page 8 EXECUTED as of the day and year first written above. GUARANTORS: ---------- NATIONAL AUTO CENTER, INC., a Delaware corporation By:__________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR, LTD., a Texas limited partnership By: National Auto Center, Inc., its general partner By:______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel GUARANTY - Page 9 CELLSTAR FULFILLMENT, LTD., a Texas limited partnership By: CellStar Fulfillment, Inc., its general partner By:______________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR WEST, INC., a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel ACC-CELLSTAR, INC., a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer GUARANTY - Page 10 Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR FINANCO, INC., a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR FULFILLMENT, INC., a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel GUARANTY - Page 11 NAC HOLDINGS, INC., a Nevada corporation By:_________________________________________ Elaine F. Rodriguez President Address: 1325 Airmotive Way Reno, Nevada 89502 Fax No.: (702) 322 8808 Phone No.: (702) 322-3221 Attention: Secretary CELLSTAR INTERNATIONAL CORPORATION/ASIA, a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel AUDIOMEX EXPORT CORP., a Texas corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer GUARANTY - Page 12 Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR INTERNATIONAL CORPORATION/SA, a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel CELLSTAR AIR SERVICES, INC., a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel GUARANTY - Page 13 A & S AIR SERVICE, INC., a Delaware corporation By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer Address: 1730 Briercroft Carrollton, Texas 75006 Fax No.: (972) 466-0288 Phone No.: (972) 466-5000 Attention: General Counsel GUARANTY - Page 14 EXHIBIT H-1 TO CREDIT AGREEMENT L/C Application for Standby Letters of Credit --------------------------------------------- [LOGO OF COMMENCE APPLICATION AND AGREEMENT BANK APPEARS FOR IRREVOCABLE STANDBY LETTER OF CREDIT HERE] [_] WITHOUT RENEWALS [_] WITH RENEWALS Renewable until ----------------, FOR BANK USE ONLY initial date To: TEXAS COMMERCE BANK NATIONAL ASSOCIATION ------------------------------------------------------------- P.O. Box 2528 Date : L/C.: ------------------------------------------------------------- Houston, Texas 77252-8300 Applicant No.: ------------------------------------------------------------- Date of this Application ------------------ Beneficiary No.: ------------------------------------------------------------- Advising Bank No.: ------------------------------------------------------------- Gentlemen: The undersigned Applicant(s) hereby request(s) you to establish an irrevocable Standby Letter of Credit as set forth below in such language as you may deem appropriate, with such variations from such terms as you may in your discretion determine are necessary and are not materially inconsistent with this Application and Agreement, and forward the same by: [_] Cable/telex (full details) [_] Airmail [_] Brief Cable/telex [_] Other -------------------------- [_] Through your correspondence for delivery to the beneficiary or advised through ------------------------------------------- [_] Directly to beneficiary All banking charges other than the issuing Bank's are for [_] Beneficiary [_] Applicant(s) - ------------------------------------------------------------------------------------------------------------------------------ Liability of on Behalf of (as to appear on Letter of Credit) - ---------------In favor of (Beneficiary)------------------------------------------------------------------------------------- Amount In figures: In words: - ---------------------------------------------------------------------------------------------------------------------------- Partial drawings: [_] Allowed [_] Not Allowed Expiring at the close of business on If drawings are allowed in installments within given periods and no drawing is made for an installment within the applicable period, the credit ---------------------------------------------------------- [_] Shall [_] Shall not be available for subsequent At your counters, unless otherwise indicated, for Sight installments Payment - ---------------------------------------------------------------------------------------------------------------------------- To be available by drafts at sight drawn on you duly signed and endorsed, or specify any other drawee: --------------------- And accompanied by documents as specified below: Beneficiary's manually signed statement on its letterhead reading exactly as follows: - ---------------------------------------------------------------------------------------------------------------------------- (Complete only when the beneficiary's bank or correspondent is to issue its undertaking based on the issued Standby Letter of Credit) [_] Request beneficiary's bank to issue and deliver their (specify type of undertaking, bid or performance bond, or other) ----------------------------------------------------------- In favor of: ----------------------------------------------------------- For an amount not exceeding that specified above, effective immediately and expiring at their office on ---------------- (30 days prior to expiry date above) relative to ---------------------------------------------------- THE OPENING OF THIS CREDIT IS SUBJECT TO THE TERMS AND CONDITIONS AS SET FORTH ON THE FOLLOWING PAGES, TO WHICH TERMS AND CONDITIONS WE AGREE Please date and sign this Application and Agreement on Page 4 hereof. - ---------------------------------------------------------------------------------------------------------------------------
Page 1 of 4 TERMS AND CONDITIONS FOR STANDBY LETTER OF CREDIT In consideration of the Issuance of the letter of credit and all renewals, extensions, replacements and amendments thereof (herein called the "Credit") by Bank in accordance with this Application and Agreement (this "Agreement"), the undersigned (hereinafter called "Applicants", whether one or more) jointly and severally agree to the following terms and conditions: 1. Applicants promise to pay to Bank on demand at its office shown on front, in United States currency as follows: A. As to drafts, draws, demands, or other evidence of amounts drawn under or purporting to be drawn under the Credit which are payable in United States currency, the amount paid thereon, or, if so demanded by Bank, to pay Bank at its office in advance the amount required to pay such drafts, draws, demands or other evidence of amounts drawn under or purporting to be drawn under the Credit; B. As to drafts, draws, demands, or other evidence of amounts drawn under or purporting to be drawn under the Credit are payable in currency other than United States currency, either (i) the amount paid in the currency of the Credit at the bank of Bank's choice in the country of such currency, or (ii) the equivalent of the amount paid, in United States currency, at Bank's then current selling rate for such currency; C. All taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature whatsoever and by whomsoever and wherever imposed in connection with this Agreement, the Credit or any transactions hereunder or thereunder; and D. Interest on all amounts owing to Bank hereunder at the maximum nonusurious rate of interest permitted by applicable laws of the United States of America or the State of Texas, from time to time in effect, whichever shall permit the highest lawful rate (hereinafter called "the Highest Lawful Rate"). At all times, if any, that Chapter One of Title 79, Texas Revised Civil Statues, 1925, as amended, establishes the Highest Lawful Rate, the Highest Lawful Rate shall be the "indicated" rate ceiling (as defined therein) from time to time in effect. It is the intention of Applicants and Bank to conform strictly to applicable usury laws. It is therefore agreed that: (i) if, for any reason, the interest received for the actual period of the existence of any loan by Bank hereunder exceeds the Highest Lawful Rate, Bank shall refund to Applicants the amount of the excess or shall credit the amount of the excess against amounts owing hereunder and shall not be subject to any of the penalties provided by law for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate, (ii) the aggregate of all interest and other charges constituting interest under applicable law and contracted for, chargeable or receivable under this Agreement or otherwise in connection with this Agreement or the Credit, shall not for the actual period of the existence of any loan hereunder exceed the maximum amount of interest, nor produce a rate in excess of the Highest Lawful Rate, (iii) if, for any reason, usurious interest is contracted for, charged or received, then the sole remedy of Applicants shall be to receive a refund thereof or a credit on the accrued and unpaid interest and unpaid principal under this Agreement equal to the usurious interest, it being agreed that usurious interest shall mean the amount by which the total interest contracted for, charged or received exceeds the amount of interest allowed by applicable law; and this Agreement shall be automatically deemed reformed so as to permit only the collection of the Highest Lawful Rate of Interest, and (iv) determination of the rate of Interest on any loan evidenced hereby shall be made by amortizing, prorating, allocating, and spreading, in equal parts during the period of the full stated term of such loan, all interest at any time contracted for, charged or received from Applicants in connection with such loan. E. Applicants assume all risks (political, economic or otherwise) of disruptions or interruptions in currency exchange with respect to any demand payable in other than United States currency, and if there is no then prevailing exchange rate, Bank may obtain the non-United States currency from any commercially reasonable source, in which case Applicants shall pay Bank's cost therefor, inclusive of all expenses, in United States currency. F. Demand, for all purposes of this Agreement, shall be considered made at the time Bank mails, telephones or otherwise sends notification to Applicants. G. Applicants agree to pay to Bank, any Member and/or Correspondent (as hereinafter defined), or its correspondents, annually in advance not later than forty-five (45) days prior to the then current expiration date of the Credit, all fees and commissions owing to or which become owing in respect of the Credit. Such fees and commissions shall be payable at the then current rate charged by Bank and/or such other entity(ies). Payment of such fees or commissions in advance shall not affect the Bank's absolute right not to renew the Credit, however, should Bank decide in its sole and absolute discretion not to renew the Credit, Bank shall refund such advance payment to Applicants. 2. Applicants agree that if because of any law or regulation, or because of any change in any existing law or regulation, or in the interpretation thereof by any official authority whether or not having the force of law, which comes into effect after the date of this Agreement, (a) Bank or Applicants should, with respect to this Agreement, the Credit or any transactions hereunder or thereunder, be subject to any tax, charge, fee, insurance premium, deduction or withholding of any kind whatsoever, or (b) reserve requirements, or changes in existing reserve requirements, should be imposed on Bank with respect to this Agreement or the Credit or any transactions hereunder or thereunder, and if any of the above-mentioned measures, or any other similar measure, should result in (i) any increase in the cost to Bank of issuing and maintaining the Credit pursuant to this Agreement or of any transaction under or in connection with the Credit of this Agreement, or (ii) any reduction in the payment or deposit of any amount (principal, interest, fee, commission or otherwise) receivable by Bank in respect of the Credit or this Agreement or of any transaction under the Credit of this Agreement, then Applicants shall pay to Bank upon demand such increased cost or reduction, including such additional amounts as may be necessary so that every net payment or deposit, after deduction or withholding for or on account of such payment or deposit (including any taxes levied on additional amounts paid pursuant to this paragraph), will not be less than the corresponding amount provided for under the Credit or this Agreement before giving effect to such increased cost or reduction; provided that in no event shall any additional amounts constitute interest exceed what is considered, together with other interest payments, the Highest Lawful Rate. 3. Availments under the Credit may be effected through Bank or any advising or confirming bank (the "Payor") at the then current buying rate of the Payor for banker's sight drafts at the place from which the Payor is to receive reimbursement under the terms of the Credit, it being understood and further agreed: (a) that the amounts(s) disbursed to the beneficiary(ies) relative thereto may be in the currency local to the site of the Payor, and may be reduced by any taxes and/or other charges whether of the Payor or otherwise, and (b) that an advice of an availment under the Credit from the Payor shall be sufficient evidence to Bank of an availment under the Credit, and such evidence thereof shall be binding upon Applicants for the purposes of this Agreement. 4. If at any time(s) any funds and/or securities are paid to or deposited with or under the control of Bank, not as payment under paragraph 1 hereof, but to be held relative hereto, same shall be held as collateral security for the Obligations (as hereinafter defined) and without Applicants having any right to dispose of the same while any Obligations (as hereinafter defined) exist under this Agreement, but with the discretionary right in Bank to release or surrender all or any part of said funds and/or securities to or upon the order of Applicants. If any such funds are available to Bank at its office in the currency of the Credit at any time after any payment may become due hereunder, Bank may (acting in each instance in its discretion and without being required to make any prior demand for payment hereunder) apply all or any part thereof at any time(s) on account of the Obligations (as hereinafter defined), irrespective of the then current rate of exchange. Should the aggregate market value of any such funds and/or securities at any time(s) suffer any decline, or should any such property be unavailable at any time for any reason to Bank at its office or fail to conform to legal requirements. Applicants will, upon demand, make such payment(s) on account of the aforesaid Obligations, or as additional collateral therefor, will deposit and pledge with Bank additional property that is satisfactory to Bank. If any such funds as aforesaid be other then United States Dollars and occasion arises for a refund by Bank of all or any portion thereof, it shall be optional with Bank as to whether refund will be made (a) in United States Dollars at the buying rate for the foreign currency on the date of refund, or (b) in the amount and kind of the foreign currency on the date of refund, or (c) by instructing a branch or correspondent of Bank to hold the refundable amount of foreign currency for Applicants' account and risk. 5. Applicants hereby pledge, assign and hypothecate to Bank as security for any and all of the obligations and liabilities of Applicants with respect to the Credit, the Application portion of this Agreement (the "Application") and this Agreement, whether hereinbefore or hereinafter referred to, now or hereafter existing (herein called the "Obligations"), any and all property of Applicants now or at any time(s) hereafter in Bank's possession or control or in its possession or control of any third party acting in Bank's behalf, whether for the express purpose of being used by Bank as collateral security or for safekeeping for any other or different purpose, including such property as may be in transit by mail or carrier to or from Bank, a lien and security interest being hereby given Bank upon and in any and all such property for the aggregate amount of the Obligations; and Applicants authorize Bank, at Bank's option, at any time(s), whether or not the property then held by Bank as security hereunder is deemed by Bank to be adequate, to appropriate and apply to or upon any and all of the Obligations, whether or not then due, any and all monies now or hereafter with Bank on deposit or otherwise to the credit of or belonging to Applicants and in Bank's discretion, to hold any such monies as security for any such Obligations until the exact amount thereof, if any, shall have been definitely ascertained by Bank. Bank's rights, liens and security interests hereunder shall continue unimpaired, and Applicants shall be and remain obligated in accordance with the terms and provisions hereof, notwithstanding the release or substitution of any property may be held as collateral hereunder at any time(s) or of any rights or interests therein, or any delay, extension of line, renewal, compromise or other indulgence granted by Bank in reference to any of the Obligations, or any promissory note, draft, bill of exchange or other instrument given Bank in connection with any of the Obligations, Applicants, and each of them individually, hereby waiving notice of any such delay, extension, release, substitution renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if Applicants had expressly agreed thereto in advance. 6. Applicants agree at any time and from time to time, on demand, (i) to deliver, convey, transfer or assign to Bank, as security for any and all of the Obligations, and also for any and all other obligations and/or liabilities, absolute or contingent, due or to become due, which are now, or may at any time hereafter, be owing by Applicants to Bank, additional security of a value and character satisfactory to Bank, or (ii) to make such cash payment(s) in partial or full satisfaction of the Obligations of such other obligations or liabilities as Bank in its sole discretion may require. 7. Bank is hereby authorized, at its option and without any obligation to do so, to transfer to and/or register in the name(s) of Bank's nominee(s) all or any part of the property which may be held by it as security at any time(s) hereunder, and to do so before or after the maturity of any of the Obligations and with or without notice to Applicants. 8. The word "Property" as used herein includes goods and merchandise (as well as any and all documents relative thereto) securities, funds, monies (whether United States currency or otherwise), choses in action and any and all other forms of property, whether real, personal or mixed, tangible or intangible, and any right or interest of Applicants, or any one or more of them, therein or thereto. Bank is authorized, at its option, to file financing statement(s) and continuation statement(s) without the signature of Applicants with respect to any of the property, and Applicants jointly and severally agree to pay the cost of any such filing and to sign upon request any instruments, documents or other papers which Bank may require to perfect its security interest in the property. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement. Page 2 of 4 9. No proceeds of the Credit will be used for any purpose which would constitute the Credit a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. 10. Applicants jointly and severally represent and warrant that (a) each of them which is not a natural person is duly organized in good standing and validly existing with full power and authority to execute this Agreement; (b) the execution of this Agreement has been duly authorized by all necessary action on the part of all Applicants and does not violate or contravene any law, regulation, order or decree or the articles of incorporation, bylaws, partnership agreement or any other organizational document of any Applicant; (c) all requisite licenses, permits and franchises for the operation of Applicant's business are in full force and effect; (d) any financial statements delivered to Bank in connection herewith fairly present the financial condition and results of operations of the subject or subjects thereof as of the dates and for the periods indicated therein, and no material adverse change has occurred in the financial condition of the subject or subjects thereof since the dates thereof; (e) except as disclosed in writing to Bank in connection herewith, no litigation or administrative proceeding is pending or threatened against any Applicant; and (f) each Applicant has filed all tax returns required to have been filed and paid all taxes shown thereon to be due. Applicants further represent and warrant to Bank that Applicants are not now in violation of any applicable limitations on the aggregate amount of loans that may be made to a borrower by any lender and that issuance of the Credit by Bank will not be, or cause the aggregate credit outstanding to any or all Applicants to exceed such limitations, and Applicants covenant and agree that Applicants will at all times during the term of this Agreement fully comply with and fully advise Bank and Member, if any, of all circumstances relevant to, all applicable lending limits. 11. Upon the non-performance of any of the promises to pay herein set forth, or upon the non-payment of any of the Obligations or other obligations or liabilities of Applicants herein, or upon the failure of Applicants to furnish satisfactory additional collateral or to make payments on account as hereinabove agreed, or to perform or comply with any of the other terms or provisions of this Agreement, or in the event of default under any security agreement or guaranty or other document securing or guaranteeing Applicants' payment and performance of the Obligations, or should any information supplied on behalf of Applicants prove to be incorrect, false or misleading, or in the event of the death, insolvency, business failure, dissolution or termination of existence of any Applicant, or in case any petition in bankruptcy is filed by or against any Applicant, or any proceeding is commenced for the relief or readjustment of any indebtedness of any Applicant, either through reorganization, composition, extension or otherwise, or if any Applicant should make an assignment for the benefit of creditors or take advantage of any insolvency law, or if a receiver for any property of any Applicant should be appointed at any time, and in each case any of the foregoing is initiated under laws or regulations of any jurisdiction relating to the relief of debtors, then upon such occurrence, any or all of the Obligations shall, at Bank's option, become due and payable immediately, without demand or notice, notice of acceleration and of intention to accelerate being hereby expressly waived by each Applicant. 12. Upon Applicants' failure to pay any Obligation when due, as aforesaid, or upon the occurrence of any of the events described in paragraph 11 above, Bank shall have, in addition to all other rights and remedies allowed by law, the right immediately, without demand for performance and without notice of intention to sell or of the time or place of safe sale or of redemption or other notice or demand whatsoever to any Applicant, all of which are hereby expressly waived, and without advertisement, to sell at any broker's board, or at public or private sale, or to grant options to purchase, or otherwise to realize upon the whole or from time to time any part of the collateral upon which Bank shall have a security interest or lien as aforesaid, or any interest which Applicants may have therein, and after deducting from the proceeds of sale or other disposition of the said collateral all expenses (including but not limited to reasonable attorneys' fees for legal services of every kind and other expenses as set forth below) shall apply the residue of such proceeds toward the payment of any of the Obligations, in such order as Bank shall elect, and whether then due or not due, Applicants remaining liable for any deficiency remaining unpaid after such application. If notice of any sale or other disposition is required by law to be given, each Applicant hereby agrees that a notice sent at least two (2) days before the time of any intended public sale or of the time after which any private sale or other disposition of the said collateral is to be made, shall be reasonable notice of such sale or other disposition. Applicants also agree to assemble the said collateral at such place or places as Bank designates by written notice. At any such sale or other disposition, Bank may itself purchase the whole or any part of the said collateral sold, free from any right of redemption on the part of Applicants and free of any right to require sale in inverse order of alienation, which rights are hereby waived and released. Applicants agree that the said collateral secures, and further agree to pay on demand, whether or not any default by Applicants has occurred, all expenses (including but not limited to, reasonable attorneys' fees for legal services of every kind, the cost of any insurance and the payment of all taxes or other charges) of, or incidental to, the custody, care, appraisal, sale or collection of, or realization upon, any of the said collateral or in any way relating to the enforcement or protection of Bank's rights hereunder. Where applicable, Bank shall have, to the maximum extent permitted by applicable law, in addition to and cumulative of the rights hereinabove provided, all of the rights and remedies provided to a secured party by the Uniform Commercial Code in effect in the State of Texas on the date of this Agreement. 13. No delay on the part of Bank in exercising any power of sale, lien, option or other right hereunder, and no notice or demand which may be given or made upon Applicants by Bank with respect to any power of sale, lien or other right hereunder, shall constitute a waiver thereof or limit or impair the right of Bank to take any action or to exercise any power of sale, lien, option or any other right hereunder, without demand or notice or prejudice to the rights of Bank as against Applicants in any respect. Any and all rights and liens of Bank hereunder shall continue unimpaired, and Applicants shall be and remain obligated in accordance with the terms and provisions hereof, notwithstanding the release or substitution of any property as referred to herein, or of any rights or interests therein, or any delay, extension of time, renewal, compromise or other indulgence granted by Bank in reference to any of the Obligations, Applicants each hereby waiving notice of any such delay, extension, release, substitution, renewal, compromise or other indulgence, and each hereby consenting to be bound thereby as fully and effectually as if Applicants had expressly and specifically agreed thereto. 14. The users and beneficiaries of the Credit shall be deemed Applicants' agents, and Applicants assume all risks of the acts or omissions of the users or beneficiaries of the Credit. Neither Bank nor its correspondents or affiliates shall assume any liability to anyone for failure to pay or accept if such failure is due to any restriction in force at the time and place of presentment, and Applicants agree to indemnify Bank from any consequences that may arise therefrom. Neither Bank nor Bank's correspondents or affiliates shall be liable or responsible in any respect for any (a) error, omission, interruption or delay in transmission, dispatch or delivery of any one or more messages or advices in connection with the Application or the Credit, whether transmitted by cable, radio, telegraph, twx, wireless, mail, electronic mail, telex, telefax, telecopy, SWIFT, or otherwise and despite any cipher or code may be employed, or (b) errors in translation or for errors in interpretation of technical terms, or (c) action, inaction or omission may be taken or suffered by it or them in good faith or through inadvertence in identifying or failing to identify any beneficiary(ies) or otherwise in connection with the Credit, or (d) validity, sufficiency or genuineness of document(s) even if such document(s) should in fact prove to be in any or all respects invalid or insufficient, fraudulent or forged, or (e) act, error, neglect or default, omission, insolvency or failure in business of any of Bank's correspondents. The happening of any one or more of the contingencies described above shall not affect, impair or prevent the vesting of any of Bank's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions hereinbefore set forth, it is hereby further agreed that any action, inaction, or omission taken or suffered by Bank or by any of its correspondents under or in connection with the Credit or the relative drafts, demands, documents or property, if in good faith and in conformity with such foreign or domestic laws, customs or regulations as Bank or any of its correspondents may deem to be applicable thereto, shall be binding upon Applicants and shall not place Bank or any of its corespondents under any resulting liability to Applicants. If the Credit or this Agreement shall be terminated or revoked by operation of law as to any Applicant, or if any Applicant shall restrain the payment of the Credit by court order or any other means, or if this Agreement or the Credit are amended, modified, revoked or cancelled as provided for herein and any dispute, claim, demand or cause of action arises with respect thereto, Applicants will jointly and severally indemnify and save Bank harmless from any and all loss, cost, damage, expense, suit, claim, cause of action, judgment and attorneys' fees which may be suffered or incurred by Bank, whether caused in whole or in part by the negligence of Bank or any correspondent or affiliate of Bank. 15. The Credit and this Agreement may be amended, modified, cancelled or revoked only upon the receipt by Bank from all Applicants of a written request therefor, and then only upon such terms and conditions as Bank may prescribe and then only by a writing signed by all Applicants, the beneficiaries and Bank. Notwithstanding the foregoing, however, Bank may, upon receipt of a written request therefor, signed by all Applicants, extend the expiration date and/or increase the amount of the Credit without the written or oral acceptance or consent of any or all beneficiaries of the Credit. Bank is authorized without reference to or approval by any Applicant to set forth the terms appearing on the Application portion hereof in the Credit and to modify or after such terms in such language as Bank may deem appropriate, with such variations from such terms as Bank may at its discretion determine (which determination shall be conclusive and binding upon Applicants) are necessary and are not materially inconsistent with such terms. 16. Notwithstanding anything herein (except paragraph 17) to the contrary, it is understood and agreed that, if the Credit is issued in favor of a sovereign or commercial entity is to issue a commitment of guarantee on Applicants' behalf in connection herewith, each Applicant shall remain liable on the Credit until Bank is fully released in writing by such entity. Applicants jointly and severally agree to pay (a) all costs and expenses incurred by Bank in collection of amounts advanced under the Credit and any and all other amounts remaining unpaid hereunder through probate, reorganization, bankruptcy or any other proceeding and (b) reasonable attorneys' fees when and if collection of any such amounts is placed in the hands of an attorney for collection after default. 17. Notwithstanding anything contained herein or in any other separate security agreement or other document executed heretofore, herewith or hereafter in connection with or related to this credit obligation, if this is a consumer credit obligation (as defined or described in 12 C.F.R. 227, Regulation AA, promulgated by the Federal Reserve Board), the security for this credit obligation shall not extend to any non-possessory security interest in household goods (as defined in said Regulation AA) other than a purchase money security interest, and no waiver of any notice contained herein or therein shall be construed under any circumstances to extend to any waiver of notice prohibited by Regulation AA. 18. This Agreement and the Credit are subject to and incorporate fully herein (except as expressly modified herein or in the Credit) the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, (hereinafter referred to as "The Uniform Customs"). This Agreement and the rights of Applicants and Bank hereunder shall be subject to and governed by the substantive laws of the State of Texas, without regard to the rules regarding conflicts of laws, except when the substantive laws of the State of Texas conflict with the Uniform Customs, in which event the provisions of the Uniform Customs shall govern. Page 3 of 4 19. If the Credit is governed by the laws of a foreign jurisdiction, the Credit may require Bank to pay funds as Bank's primary obligation. In the event Bank is, or in good faith deems itself to be, obligated to advance funds to the beneficiary(ies) hereof, Applicants hereby expressly jointly and severally agree to reimburse Bank on demand for all such advances made, notwithstanding any expiration or cancellation of the Credit by Bank or under Texas law or the Uniform Customs and even though Applicants may have an unresolved controversy with a third party or the beneficiary(ies) related to the transaction for which the Credit is being sought, including the proper interpretation of the law of such foreign jurisdiction. In the event Applicants have a dispute with the beneficiary(ies) or a third party, Applicants are required to reimburse Bank on demand, and Applicants' remedy is to seek reimbursement from the beneficiary(ies) or the third party. Bank is expressly authorized to presume that all demands for payment made by the beneficiary(ies) hereof are made in accordance with such foreign law. 20. Unless otherwise expressly stated herein or in the Credit, neither the Credit nor this Agreement may be assigned by the beneficiary(ies) or any Applicant without the prior written consent of Bank. Bank may assign or transfer the Credit or this Agreement, or any instrument(s) evidencing all or any of the Obligations, and may deliver all or any of the property then held as security therefor, to the transferee(s) of Bank, who shall thereupon become vested with all of the powers and rights in respect thereof given to Bank herein or in the instrument(s) transferred, and Bank shall thereafter be forever relieved and fully discharged from any liabilities or responsibility with respect thereto, but Bank shall retain all rights and powers hereby given with respect to any and all instrument(s), rights or property not so transferred. 21. This Agreement, the Application and the Credit constitute the entire agreement among the parties hereto, except for such agreements executed in connection herewith which specifically refer to this Agreement, the Application or the Credit or which grant to Bank a lien or security interest to secure any debts or obligations of any Applicant, regardless of any reference or lack thereof to this Agreement, Application or the Credit. Terms used herein in the plural number shall be construed as singular as the context requires and vice versa. 22. Although the Credit may refer to a particular agreement or other obligation to the beneficiary(ies) executed by Applicants, the terms of such agreement are not in any manner incorporated herein. Bank shall therefore make payment upon demand under the Credit unless it appears that such demand, on its face, does not comply with the terms of the Credit. Such payment shall be made without regard to performance of any obligation by any contracting party under such agreement. 23. Applicants agree that at all times now and hereafter they will indemnify and save Bank harmless from and against all suits, judgments, liabilities, losses or damages to it arising in any manner, including negligence on the part of Bank in connection with the Credit or this Agreement, unless due to gross negligence or willful misconduct on the part of Bank, and from and against all costs, charges and expenses, including in connection with all legal proceedings, whether groundless or otherwise, attorney's fees, it being the purpose of this Agreement to protect Bank fully in the premises. 24. Applicants agree that no acceptance or payment of overdrafts or irregular drafts or of drafts with irregular documents attached shall, if assented to or approved by any Applicant orally or in writing, or if Bank in good faith accepts an indemnity limited to the actual damage, if any, caused by such irregularity or discrepancy, impair any rights which Bank may have under this Agreement. In case of any variation between the documents called for by the Credit or this Agreement and the documents accepted by Bank or Bank's correspondents. Applicants shall each be deemed conclusively to have waived any right to object to such variation with respect to any action by Bank or Bank's correspondents relating to such documents and to have ratified and approved such action as having been taken on Applicants' direction, unless Applicants immediately upon receipt of such documents (and prior to receipt thereof by any beneficiary or user of the Credit) file objection with Bank in writing, or unless Bank has been provided with an indemnity, as aforesaid. Applicants acknowledge and agree that, the information in the Application portion of this Agreement may be transmitted to Bank and relied on by Bank, in issuing the Credit by any means acceptable to Bank, including without limitation, SWIFT, electronic mail, telex, telephone, twx, telecopy or telefax. Applicants, Member and Correspondent (both as hereinafter defined) agree to hold Bank harmless from and against all claims, expenses, costs, liabilities, attorneys' fees, suits, judgments, and causes of action arising out of any discrepancy between the information in this Agreement, including without limitation, the Application, and that transmitted to, or received by, Bank. 25. Issuance by Bank of the Credit applied for herein shall constitute acceptance by Bank of this Agreement. 26. If this Agreement contains the signature of a bank which is a subsidiary of Texas Commerce Bancshares, Inc. (hereinafter referred to as the "Member") or of a correspondent bank of Bank (hereinafter referred to as the "Correspondent"), then this paragraph shall be applicable. In consideration of Bank's issuing the Credit at the request of Correspondent or Member, as applicable, Correspondent or Member as applicable, agrees that it is an Applicant hereunder with respect to Bank, and it agrees to reimburse Bank on demand and authorizes Bank, without demand or any notice whatsoever, to charge, set off against and otherwise exercise any rights Bank may have with respect to, any monies now or hereafter on deposit with or otherwise to the credit of or belonging to Correspondent or Member, as applicable, at or with Bank for any and all Obligations hereunder, whether or not any demand has been made on Applicants hereunder. As an Applicant hereunder, each Correspondent or Member Bank, as applicable, makes the same representations, warranties, covenants and agreements to Bank as the Applicants in paragraph 10 hereof and otherwise provided in this Agreement; provided, however unless otherwise agreed to in writing, or stated herein neither Member nor Correspondent agrees to furnish any security for this Agreement or the Credit other than the aforementioned monies. Upon Member's or Correspondent's, as applicable, payment to Bank of all Obligations hereunder, Bank thereupon automatically, and without further action on the part of any party, assigns and transfers rights hereunder to Correspondent or Member, as applicable, who shall be fully subrogated thereto, and Applicants agree that any right, claim or cause of action any of them may hereunder or under the Credit shall be made only against Correspondent or Member, as applicable, and Applicants agree to indemnify and hold Bank harmless from and against any claims, costs, expenses, suits or causes of action by Applicants or any beneficiary or user of the Credit. Applicants hereby agree that Correspondent or Member, as applicable, shall also (in addition to Bank) have the same rights, remedies, security interests and other liens as are stated herein, to the same effect as if additional paragraphs were fully written herein containing the same terms but substituting "Correspondent" or "Member" for "Bank" throughout. All references to secured party, beneficiary or other similar term contained in any deed of trust, security agreement, financing statement or other document or instrument executed contemporaneously herewith or previously executed by any of the Applicants for the benefit of Member or Correspondent shall be deemed to include Bank as well as Member or Correspondent. All such security agreements, financing statements, deeds of trust and other documents and instruments are amended to the extent necessary in order that the Obligations of Applicants hereunder are secured thereby and by the collateral described therein on a pari passu basis with, and in addition to, any other obligations secured thereby. 27. [_] If this box is checked this paragraph is applicable. Applicants have requested Bank to issue a Credit which the Bank may, but is not required, to renew on an annual basis until the "latest date" indicated on the Application or such later date as any Applicant may hereafter request in writing. Applicants agree that Bank has made no commitment to any beneficiary or any Applicant, and that Bank has no obligation, to renew the Credit at or prior to the original or any subsequent expiration date. Except as expressly provided in the Credit, Bank shall have no liability to any beneficiary for the renewal of, or failure to renew, the Credit for any reason. Except as hereinafter agreed, the Bank shall not have any liability to Applicants due to the renewal of, or failure to renew, the Credit for any reason. Except to the extent any notice may be required in the Credit, Bank is not required to notify any beneficiary or Applicant of the renewal, or failure to renew, the Credit. Subject to the other conditions and indemnities in this Agreement, including negligence by Bank, Bank and Applicants agree that Bank will not renew the Credit if it receives, and an authorized officer of Bank acknowledges such receipt in writing, written notification from any Applicant at least 14 days and not more than 30 days prior to the earliest date on which, pursuant to the terms of the Credit, Bank must either renew or decline to renew the Credit or notify beneficiary(ies) of its decision to renew or not to renew the Credit. Such written notification must specify to the satisfaction of Bank the Credit, the then current expiration date, and such Applicant's request that the Credit not be renewed. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. APPLICANTS: ____________________________________ Printed Name __________________________________ Printed Name By:_________________________________ Authorized Signature __________________________________ Authorized Signature CORRESPONDENT/MEMBER BANK: __________________________________ ____________________________________ Printed Name Printed Name By:_______________________________ By:_________________________________ Authorized Signature Authorized Signature BANK ACCEPTANCE: The Bank's Acceptance evidenced by the undersigned authorized representative's signature is provided as its acknowledgement that this agreement represents the final agreement by the parties may not be contradicted by evidence of prior contemporaneous, or subsequent oral agreements between the parties. TEXAS COMMERCE BANK NATIONAL ASSOCIATION By:________________________________ Page 4 of 4 EXHIBIT H-2 TO CREDIT AGREEMENT L/C Application for Commercial Letters of Credit ------------------------------------------------ [LOGO OF TEXAS COMMERCE BANK APPEARS APPLICATION AND AGREEMENT FOR COMMERCIAL LETTER OF CREDIT HERE] TO: FOR BANK USE ONLY ---------------------------------------------------- TEXAS COMMERCE BANK NATIONAL ASSOCIATION Date: LC NO :. ---------------------------------------------------- P.O. BOX 2558 Applicant No.: ---------------------------------------------------- HOUSTON, TEXAS 77252-8300 Beneficiary No.: ---------------------------------------------------- Date of this Application __________________________ Advising Bank No.: ---------------------------------------------------- Please issue an irrevocable ([_] Transferable) letter of credit as set forth below and forward same by [_] Airmail [_] Brief Telex [_] Full Telex (No written confirmation to follow) - ------------------------------------------------------------------------------------------------------------------------------------ Applicant(s) (Name and Address) Advising Bank (if blank, correspondent bank) Account Number - -------------------------------------------------- Amount __________________ ______________________ Figures Currency -------------------------------------------------------------------------------- Amount in Words Beneficiary: (Name and Address) [_] About (+ or -10%) - -------------------------------------------------- Partial Shipments [_] Allowed [_] Not Allowed Transhipment [_] Allowed [_] Not Allowed - -------------------------------------------------- Shipment/Discharge /Taking in Charge -------------------------------------------------------------------------------- Against documents detailed herein and beneficiary's draft(s) drawn at [_] Sight From/At __________________________________________ Not Later Than ___________________________________ [_] _____ Days B/L Date [_] ______ Days After Sight [_] ______________ on To _______________________________________________ Texas Commerce Bank National Association or ___________________________________ - ------------------------------------------------------------------------------------------------------------------------------------ Expiry Date Documents must be presented within ______ days after shipping date, but within At the Counters of the Drawee Bank validity of credit. - ------------------------------------------------------------------------------------------------------------------------------------ [_] F.O.B. [_] F.A.S. [_] C.F.R. [_] C.I.F [_] C.I.P. [_] F.C.A. [_] Other: _______________________________ Name of City _______________________________________________________________________________________________________________________ - ------------------------------------------------------------------------------------------------------------------------------------ DOCUMENTS REQUIRED: [_] Commercial invoice manually signed in original and ______ copies stating that it covers: (please mention commodity only, omitting excessive details) ________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________________ [_] Certificate of Origin in Original and ___ copies [_] Certificate of Weight and Measurement in Original and ___ copies [_] Mill Test certificate in Original and ___ copies. [_] Special Customs invoice in Original and ___ copies [_] Special Steel Summary invoice in Original and ___ copies. [_] Packing List in Original and ___ copies [_] Inspection Certificate manually signed and issued by ___________________________________________________________________________ [_] Negotiable Marine/Air Insurance Policy/Certificate in duplicate, for ______% of invoice value [_] Covering [_] All Risks [_] War Risks [_] Other Risks (please specify) _______________________________________________________ [_] Copy of beneficiary's telex/fax sent to _____________ within ___ days of shipment date advising details of shipment. [_] Clean Railway Bill [_] Clean Truck Bill of Lading [_] Clean Air Waybill Consigned to: _______________________________________ [_] "Clean On Board" Marine Bills of Lading (full set required if more than one original has been issued) consigned to [_] order of Texas Commerce Bank National Association [_] to the order of ______________________________________________________________ Notify: ________________________________________________________________________________________________________________________ Marked Freight [_] Collect [_] Prepaid [_] Beneficiary's statement evidencing that 1 set of non-negotiable documents has been sent by [_] Fax to ____________________ within ________ days of shipment. [_] Courier Other Documents:_______________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ All documents to be forwarded in one cover by registered airmail, unless otherwise stated under Special Instructions. Special Instructions: ______________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ ____________________________________________________________________________________________________________________________________ All banking charges other than the issuing bank's are for [_] Beneficiary [_] Applicant [_] Insurance effected by Applicants, who agree to keep insurance coverage in effect until this transaction is completed. - ------------------------------------------------------------------------------------------------------------------------------------ WE HEREBY CERTIFY THAT TRANSACTIONS IN THE MERCHANDISE COVERED BY THIS APPLICATION ARE NOT PROHIBITED UNDER THE FOREIGN ASSETS CONTROL REGULATIONS OF THE UNITED STATES TREASURY DEPARTMENT OR THE DEPARTMENT OF COMMERCE EXPORT ADMINISTRATION REGULATIONS AND THAT ANY IMPORTATION COVERED BY THIS APPLICATION CONFORMS IN EVERY RESPECT WITH ALL EXISTING UNITED STATES GOVERNMENT AND OTHER APPLICABLE REGULATIONS. THE OPENING OF THIS CREDIT IS SUBJECT TO THE TERMS AND CONDITIONS AS SET FORTH ON THE FOLLOWING PAGES, TO WHICH TERMS AND CONDITIONS WE AGREE. Please date and sign this Application and Agreement on page 4 hereof. - ------------------------------------------------------------------------------------------------------------------------------------
Page 1 of 4 TERMS AND CONDITIONS FOR COMMERCIAL LETTER OF CREDIT In consideration of the issuance of the letter of credit and all renewals, extensions, replacements and amendments thereof (herein called the "Credit") by Texas Commerce Bank National Association (the "Bank") in accordance with this Application and Agreement (this "Agreement"), the undersigned (hereinafter called "Applicants," whether one or more) jointly and severally agree to the following terms and conditions: 1. Applicants promise to pay to Bank on demand at 717 Travis Street, Houston, Harris County, Texas 77002, in United States currency as follows: A. As to drafts, demands, or acceptances drawn under or purporting to be drawn under the Credit which are payable in United States currency: (a) in the case of each sight draft or demand, the amount paid thereon, or, if so demanded by Bank, to pay Bank in advance, the amount required to pay such drafts or demands; and (b) in the case of each acceptance or time draft, the amount thereof on demand, but in any event not later than one business day prior to maturity, or, in case the acceptance is not payable at Bank's office, then on demand, but in any event in time to reach the place of payment in the ordinary course of the mails not later than one business day prior to maturity, it being understood that Bank will notify Applicants of the amount and date of maturity of each such acceptance; B. As to drafts, demands, or acceptances under or purporting to be under the Credit which are payable in currency other than United States currency; (a) in the case of each sight draft or demand, either (i) the amount paid in the currency of the Credit at the bank of Bank's choice in the country of such currency, or (ii) the equivalent of the amount paid, in United States currency, at Bank's then current selling rate for such currency; and (b) in the case of each acceptance or time draft, to pay Bank, on demand, but in any event in time to reach the place of payment in the ordinary course of the mails not later than one business day prior to maturity, either (i) the amount paid in the currency of the Credit at the bank of Bank's choice in the country of such currency, or (ii) the equivalent of the acceptance in United States currency at Bank's then current selling rate for the currency in which the acceptance is payable; C. All taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature whatsoever and by whomsoever and wherever imposed in connection with this Agreement, the Credit or any transactions hereunder or thereunder; D. All commissions of Bank, any Member or Correspondent (as hereinafter defined) or its correspondents, as applicable, at the rate agreed upon or as specified by Bank or such other entity, and all charges and expenses incurred by Bank for or in connection with this Agreement, the Credit or any transaction hereunder or thereunder; and E. Interest on all amounts owing to Bank hereunder at the Highest Lawful Rate (as hereinafter defined) permitted by applicable laws of the United States of America or the State of Texas, from time to time in effect, whichever shall permit the highest lawful rate (hereinafter referred to as "the Highest Lawful Rate"). At all times, if any, that Chapter One of Title 79, Texas Revised Civil Statues, 1925, as amended, establishes the Highest Lawful Rate, the Highest Lawful Rate shall be the "indicated" rate ceiling (as defined therein) from time to time in effect. It is the intention of Applicants and Bank to conform strictly to applicable usury laws. It is therefore agreed that: (i) if, for any reason, the interest received for the actual period of the existence of any loan by Bank hereunder exceeds the Highest Lawful Rate, Bank shall refund to Applicants the amount of the excess or shall credit the amount of the excess against amounts owing hereunder and shall not be subject to any of the penalties provided by law for contracting for, charging, or receiving interest in excess of the Highest Lawful Rate, (ii) the aggregate of all interest and other charges constituting interest under applicable law and contracted for, chargeable or receivable under this Agreement or otherwise in connection with this Agreement or the Credit, shall not for the actual period of the existence of any loan hereunder exceed the maximum amount of interest, nor produce a rate in excess of the Highest Lawful Rate, (iii) if, for any reason, usurious interest is contracted for, charged or received, then the sole remedy of Applicants shall be to receive a refund thereof or a credit on the accrued and unpaid interest and unpaid principal under this Agreement equal to the usurious interest, it being agreed that usurious interest shall mean the amount by which the total interest contracted for, charged or received exceeds the amount of interest allowed by applicable law; and this Agreement shall be automatically deemed reformed so as to permit only the collection of the Highest Lawful Rate of interest, and (iv) determination of the rate of interest on any loan evidenced hereby shall be made by amortizing, prorating, allocating, and spreading, in equal parts during the period of the full stated term of such loan, all interest at any time contracted for, charged or received from Applicants in connection with such loan. F. Applicants assume all risks (political, economic or otherwise) of disruptions or interruptions in currency exchange with respect to any demand payable in other than United States currency, and if there is no then prevailing exchange rate, Bank may obtain the non-United States currency from any commercially reasonable source, in which case Applicants shall pay Bank's cost therefor, inclusive of all expenses, in United States currency. G. Demand, for all purposes of this Agreement, shall be considered made at the time Bank mails, telephones or otherwise sends notification to Applicants. 2. Applicants agree that if because of any law or regulation, or because of any change in any existing law or regulation, or in the interpretation thereof by any official authority, whether or not having the force of law, which comes into effect after the date of this Agreement, (a) Bank or Applicants should, with respect to this Agreement, the Credit or any transactions hereunder or thereunder, be subject to any tax, charge, fee, insurance premium, deduction or withholding of any kind whatsoever, or (b) reserve requirements, or changes in existing reserve requirements, should be imposed on Bank with respect to this Agreement or the Credit or any transactions hereunder or thereunder, and if any of the above-mentioned measures, or any other similar measure, should result in (i) any increase in the cost to Bank of issuing and maintaining the Credit pursuant to this Agreement or of any transaction under or in connection with the Credit or this Agreement, or (ii) any reduction in the payment or deposit of any amount (principal, interest, fee, commission or otherwise) receivable by Bank in respect of the Credit or this Agreement or of any transaction under the Credit or this Agreement, then Applicants shall pay to Bank upon demand such increased cost or reduction, including such additional amounts as may be necessary so that every net payment or deposit, after deduction or withholding for or on account of such payment or deposit (including any taxes levied on additional amounts paid pursuant to this paragraph), will not be less than the corresponding amount provided for under the Credit or this Agreement before giving effect to such increased cost or reduction; provided that in no event shall any additional amounts which constitute interest exceed what is considered, together with other interest payments, the Highest Lawful Rate. 3. Applicants hereby recognize and admit the Bank's ownership of and unqualified right to the possession and disposal of, and do hereby grant to Bank a security interest in, all property shipped or warehoused under or pursuant to or in connection with the Credit and in all things in any way relative thereto and the drafts, demands and acceptances drawn thereunder, whether or not released to or by Bank on trust or bailee receipt or other form of security agreement, and also in and to all shipping documents, warehouse receipts, trust or bailee receipts, policies or certificates of insurance and any other documents accompanying or relative to drafts drawn under the Credit, whether or not released to Applicants on trust or bailee receipt or other form of security agreement, and in and to the proceeds of each and all the foregoing, until such time as all the obligations or liabilities of the Applicants pursuant to the Credit, the Application and this Agreement, now or hereafter existing (the "Obligations") have been fully paid and discharged; and that all or any of the foregoing property and documents, and the proceeds of any thereof, coming into the possession of Bank or any of its correspondents, may be held and disposed of by Bank as hereinafter provided; and the receipt by Bank, or any of its correspondents, at any time of other security, of whatsoever nature, including cash, shall not be deemed a waiver of any of Bank's rights or powers granted or acknowledged herein. 4. In the event that Bank delivers to Applicants or upon Applicant's order any documents or any property with respect to the Credit prior to Bank's having received reimbursement with respect to the relative drafts, acceptances, demands or receipts as herein provided, Applicants further agree to execute and deliver to Bank a trust receipt or other security agreement and a financing statement or like statement all in form acceptable to Bank, and pay all attorneys', filing and recording fees. 5. Applicants hereby pledge, assign and hypothecate to Bank as security for any and all of the Obligations, any and all property of Applicants now or at any time(s) hereafter in Bank's possession or control, or that of any third party acting in Bank's behalf whether for the express purpose of being used by Bank as collateral security or for safekeeping or for any other purpose, including such property as may be in transit by mail or carrier to or from Bank, a lien and security interest being herby granted Bank upon and in any and all such property for the aggregate amount of the Obligations; and Applicants authorize Bank, at Bank's option, at any time(s), whether or not the property then held by Bank as security hereunder is deemed by Bank to be adequate, to appropriate and apply upon any and all of the Obligations, whether or not then due, any and all monies now or hereafter with Bank on deposit or otherwise to the credit of or belonging to Applicants or in Bank's discretion, to hold any such monies as security for Obligations until the exact amount of such Obligations, if any, shall have been definitely ascertained by Bank. Bank's rights, liens and security interests hereunder shall continue unimpaired, and Applicants shall be and remain obligated in accordance with the terms and provisions hereof notwithstanding the release or substitution of any property which may be held as collateral hereunder at any time(s) or of any rights or interests therein, or any delay, extension of time, release, substitution, waiver, renewal, compromise or other indulgence granted by Bank in reference to any of the Obligations, or any promissory note, draft, bill of exchange or other instrument given Bank in connection with any of the Obligations, Applicants, and each of them individually, hereby waiving notice of any such delay, extension, release, substitution, waiver, renewal, compromise or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if Applicants had expressly agreed thereto in advance. 6. Applicants agree at any time and from time to time, on demand, (i) to deliver, convey, transfer or assign to Bank, as security for any and all of the Obligations, and also for any and all other obligations and/or liabilities, whether absolute or contingent, due or to become due, which are now, or may at any time hereafter, be owing by Applicants to Bank, additional security of a value and character satisfactory to Bank, or (ii) to make such cash payment(s) in partial or full satisfaction of the Obligations of such other obligations or liabilities as Bank in its sole direction may require. 7. Bank is hereby authorized, at its option and without any obligation to do so, to transfer to or register in the name(s) of Bank's nominee(s) all or any part of the property which may be held by it as security at any time(s) hereunder, and to do so before or after the maturity of any of the Obligations and with or without notice to Applicants. 8. Upon the non-performance of any of the promises to pay herein set forth, or upon the non-payment of any of the Obligations or other obligations or liabilities of Applicants herein, or upon the failure of Applicants to furnish satisfactory additional collateral or to make payments on account as hereinabove agreed, or to perform or comply with any of the other terms or provisions of this Agreement, or in the event of default under any security agreement or guaranty or other document securing or guaranteeing Applicants' payment or performance of the Obligations, or should any information supplied on behalf of Applicants prove to be incorrect, false or misleading, or in the event of the death, insolvency, business failure, dissolution or termination or existence of any Applicant, or in case any petition in bankruptcy is filed by or against any Applicant, or any proceeding is commenced for the relief or readjustment of any indebtedness of any Applicant, either through reorganization, composition extension or otherwise, or if any Applicant should make an assignment for the benefit or creditors or take advantage of any insolvency law, or if a receiver of any property of any Applicant should be appointed at any time, and in each case any of the foregoing is initiated under laws or regulations of any jurisdiction relating to the relief of debtors, then upon such occurrence, any or all of the Obligations shall, at Bank's option, become due and payable immediately, without demand or notice, notice of acceleration and of intention to accelerate being hereby expressly waived. Page 2 of 4 9. Upon Applicants' failure to pay any Obligation when due, as aforesaid, or upon the occurrence of any of the events described in paragraph 8 above, Bank shall have, in addition to all other rights and remedies allowed by law, the right immediately, without demand for performance and without notice of intention to sell or of the time or place of sale or of redemption or other notice or demand whatsoever to any Applicant, all of which are hereby expressly waived, and without advertisement, to sell at any broker's board, or at public or private sale, or to grant options to purchase, or otherwise to realize upon the whole or from time to time any part of the collateral upon which Bank shall have a security interest or lien as aforesaid, or any interest Applicants may have therein, and after deducing from the proceeds of sale or other disposition of the said collateral all expenses (including but not limited to reasonable attorneys' fees for legal services of every kind and other expenses as set forth below) shall apply the residue of such proceeds toward the payment of any of the Obligations, in such order as Bank shall elect, and whether then due or not due. Applicants remaining liable for any deficiency remaining unpaid after such application. If notice of any sale or other disposition is required by law to be given, Applicants hereby agree that a notice sent at least two (2) days before the time of any intended public sale or of the time after which any private sale or other disposition of the said collateral is to be made, shall be reasonable notice of such sale or other disposition. Applicants also agree to assemble the said collateral at such place or places as Bank designates by written notice. At any such sale or other disposition, Bank may itself purchase the whole or any part of the said collateral sold, free from any right of redemption on the part of Applicants and free of any right to require sale in inverse order of alienation, which rights are hereby waived and released. Applicants agree that the said collateral secures, and further agree to pay on demand, whether or not any default by Applicants has occurred, all expenses (including but not limited to, reasonable attorneys' fees for legal services of every kind, the cost of any insurance and the payment of all taxes or other charges) of, or incidental to, the custody, care, appraisal, sale or collection of, or realization upon, any of the said collateral or in any way relating to the enforcement or protection of Bank's rights hereunder. Where applicable, Bank shall have, to the maximum extent permitted by applicable law, in addition to and cumulative of the rights hereinabove provided, all of the rights and remedies provided to a secured party by the Uniform Commercial Code in effect in the State of Texas of the date of this Agreement. 10. Bank and any of its correspondents may receive and accept as "bills of lading" under the Credit any documents issued or purporting to be issued by or on behalf of any carrier acknowledge receipt of property for transportation, whatever the specific provisions of such documents, and the date of each such document shall be deemed the date of shipment of the property mentioned therein; and such documents shall be deemed in order if such date is within the time limit fixed by the Credit; and Bank may receive and accept as documents of insurance either insurance policies or insurance certificates. 11. In the event of any change or modification with respect to: (a) the amount or duration of the Credit; (b) the time or place of shipment of any property thereunder; (c) the drawing, negotiation, presentation, acceptance, or maturity of any drafts, acceptances or other documents; or (d) any of the other terms or provisions of the Credit, such change or modification being done at the request of any Applicant, this Agreement shall be binding upon Applicants in all respects with regard to the Credit so changed or modified, inclusive of any action taken by Bank or any of its correspondents. 12. The users and beneficiaries of the Credit shall be deemed Applicants' agents, and Applicants assume all risks of the acts or omissions of the users or beneficiaries of the Credit. Neither Bank nor its correspondents shall assume any liability to anyone for failure to pay or accept if such failure is due to any restriction in force at the time and place of presentment, and Applicants agree to indemnify Bank from any consequences that may arise therefrom. Neither Bank nor Bank's correspondents shall be responsible: (a) for existence, character, quality, quantity, condition, packing, value, or delivery of the property purporting to be represented by documents; (b) for any difference in character, quality, quantity, condition, packing, or value of the property from that expressed in documents; (c) for the validity, sufficiency, or genuineness of documents, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (d) for the time, place manner or order in which shipment is made; (e) for partial or incomplete shipment, or failure or omission to ship any or all of the property referred to in the Credit; (f) for the character, adequacy, validity or genuineness of any insurance; (g) for the solvency or responsibility of any insurer, or for any other risk connected with insurance; (h) for any deviation from instruction, delay, default or fraud by the shipper or anyone else in connection with the property or the shipping thereof or the documents; (i) for the solvency, responsibility or relationship to the property of any party issuing any documents in connection therewith; (j) for delay in arrival or failure to arrive of either the property or any of the documents relating thereto; (k) for delay in giving or failure to give notice of arrival or any other notice; (l) for any breach of contract between the shippers or vendors and Applicants; (m) for failure of any draft, demand or acceptance to bear any reference or adequate reference to the Credit, or failure of documents to accompany and draft, demand or acceptance at negotiation, or failure to send forward documents apart from drafts as required by terms of the Credit (each of which provisions, if contained in the Credit, may be waived by Bank); (n) for errors, omissions, interruptions or delays in transmission or delivery of any messages by mail, cable, telegraph, twx, wireless, telecopy, telefax, electronic mail, SWIFT or otherwise, whether or not they be in or contain code; or, (o) for errors in translation or for errors in interpretation of technical terms. Bank shall not be responsible for any act, error, neglect or default, omission, insolvency or failure in business of any of its correspondents, and the happening of any one or more of the contingencies referred to in the preceding sentence shall not affect, impair or prevent the vesting of any of Bank's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions hereinbefore set forth, it is herby further agreed that any action, inaction, or omission taken or suffered by Bank or by any of its correspondents under or in connection with the Credit or the relative drafts, demands, acceptances, documents, or property, if in good faith and in conformity with such foreign or domestic laws, customs or regulations as Bank or any of its correspondents may deem to be applicable thereto, shall be binding upon Applicants and shall not place Bank or any of its correspondents under any resulting liability to Applicants. If the Credit or this Agreement shall be terminated or revoked by operation of any law as to any Applicant, or, if any Applicant shall restrain the payment of the Credit by court order or any other means, Applicants will jointly and severally indemnify and save Bank harmless from any and all loss, cost damage, expense, suit, claim, cause of action, judgement and attorneys' fees which may be suffered or incurred by Bank, whether caused in whole or in part by the negligence of Bank or any correspondent or affiliate of Bank. 13. Applicants agree to procure promptly any required import, export or other licenses, consents or certifications for the import, export or shipping of any and all property shipped under or pursuant to or in connection with the Credit; to comply with any and all foreign and domestic government regulations, rules and executive orders in regard to the shipment of any and all such property or the financing thereof; to furnish such certificates in that respect as Bank may at any time(s) require; to keep the property covered by insurance satisfactory to Bank, insured by insurers acceptable to Bank; and to assign the policies or certificates of insurance to Bank, or to make the loss or adjustment, if any, payable to Bank, at its option, and to furnish Bank, if demanded, with evidence of acceptance by the insurers of such assignment. Applicants certify that neither the shipment of the property nor the origin thereof is such as would render shipment or the issuance of or payment on the Credit in violation of the laws, regulations, rules or executive orders of the United States of America or of any other country having jurisdiction thereof. 14. No delay on Bank's part in exercising any power of sale or any other rights or options hereunder, and no notice or demand which may be given to or made upon Applicants by Bank with respect to any power of sale or other right or option hereunder, shall constitute a waiver thereof, or limit or impair Bank's right to take any action or to exercise any power of sale, or any other rights or options hereunder, without notice or demand, or prejudice Bank's rights as against Applicants in any respect. Bank will not be deemed to have waived any of its rights unless Bank shall have signed such waiver in writing. 15. Applicants represent and warrant that each Applicant has the authority and has obtained all approvals and consents necessary to enter into and perform this Agreement, and that the entering into and performance of this Agreement will not result in a breach of any of the terms and conditions of any agreement, instrument, order or judgment under which any Applicant is a party or by which any Applicant or its property may be bound or affected or under any charter documents of any Applicant, and will not violate any provision of applicable law. This Agreement is to remain in force and be applicable to all transactions notwithstanding any change in the composition of any firm or firms, parties to this Agreement, or users or beneficiaries of the Credit, whether such change shall arise from the accession of one or more partners or from the death or secession of any partner or partners or from the incorporation of any partnership, or otherwise. 16. Applicants agree that at all times now and hereafter they will indemnify and save Bank harmless from and against all suits, judgments, liabilities, losses or damages to it arising in any manner, including negligence on the part of the Bank, in connection with the Credit or this Agreement, unless due to gross negligence or willful misconduct on the part of Bank, and from and against all costs, charges and expenses, reasonable attorneys' fees and those costs, charges and expenses incurred in connection with all legal proceedings, whether groundless or otherwise, it being the purpose of this Agreement to protect Bank fully in the premises. 17. Applicants agree that no acceptance or payment of overdrafts or irregular drafts or of drafts with irregular documents attached shall, if assented to or approved by any Applicant orally or in writing, or if Bank in good faith accepts an indemnity limited to the actual damage, if any, caused by such irregularity or discrepancy, impair any rights which Bank may have under this Agreement. In case of any variation between the documents called for by the Credit or this agreement and the documents accepted by Bank or Bank's correspondents. Applicants each shall be deemed conclusively to have waived any right to object to such variation with respect to any action by Bank or Bank's correspondents relating to such documents and to have ratified and approved such action as having been taken on Applicants' direction, unless Applicants immediately upon receipt of such documents (and prior to receipt thereof by any beneficiary or user of the Credit) file objection with Bank in writing, or unless Bank has been provided with an indemnity, as aforesaid. Applicants acknowledge and agree that the information in the Application portion of this Agreement (the "Application") may be transmitted to Bank and relied on by Bank in issuing the Credit by any means acceptable to Bank, including without limitation, SWIFT, electronic mail, telex, twx, telephone, telecopy or telefax. Applicants, Member and Correspondent (both as hereinafter defined) agree to hold Bank harmless from and against all claims, expenses, costs, liabilities, attorneys' fees, suits, judgments, and causes of action arising out of any discrepancy between the information in this Agreement, including without limitation, the Application, and that transmitted to, or received by, Bank. 18. This Agreement and the Credit are subject to and incorporate fully herein (except as expressly modified herein or in the Credit) the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, hereinafter referred to as "the Uniform Customs". THIS AGREEMENT AND THE RIGHTS OF APPLICANTS AND BANK HEREUNDER SHALL BE SUBJECT TO AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO THE RULES REGARDING CONFLICTS OF LAWS, EXCEPT WHEN THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS CONFLICT WITH THE UNIFORM CUSTOMS, IN WHICH EVENT THE PROVISIONS OF THE UNIFORM CUSTOMS SHALL GOVERN. 19. Issuance by Bank of the Credit applied for herein shall constitute acceptance by Bank of this Agreement. Page 3 of 4 20. If this Agreement contains the signature of a bank which is a subsidiary of Texas Commerce Bancshares, Inc. (hereinafter referred to as the "Member") or of a correspondent bank of Bank (hereinafter referred to as the "Correspondent"), then this Paragraph shall be applicable. In consideration of Bank's issuing the Credit at the request of Correspondent or Member, as applicable, Correspondent or Member as applicable, agrees that it is an Applicant hereunder with respect to Bank, and it agrees to reimburse Bank on demand and authorizes Bank, without demand or any notice whatsoever, to charge, setoff against and otherwise exercise any rights Bank may have with respect to, any monies now or hereafter on deposit with or otherwise to the credit of or belonging to Correspondent or Member, as applicable, at or with Bank for any and all Obligations hereunder, whether or not any demand has been made on Applicants hereunder. However, unless agreed otherwise, or stated herein neither Member nor Correspondent agrees to furnish any security for this Agreement or the Credit other than the aforementioned monies. Upon Member's or Correspondent's payment to Bank of all Obligations hereunder, Bank thereupon automatically, and without further action on the part of any party, assigns and transfers its rights hereunder to Correspondent or Member, as applicable, who shall be fully subrogated thereto, and Applicants agree that any right, claim or cause of action which any of them may have hereunder or under the Credit shall be made only against Correspondent or Member, as applicable, and Applicants agree, regardless of whether Bank was negligent or not, to indemnify and hold Bank harmless from and against any claims, costs, expenses, suits or causes of action by Applicants or any beneficiary or user of the Credit. Applicants hereby agree that Correspondent or Member, as applicable, shall also (in addition to Bank) have the same rights, remedies, security interests and other liens as are stated herein, to the same effect as if additional paragraphs were fully written herein containing the same terms but substituting "Correspondent" or "Member" for "Bank" throughout. All references to secured party, beneficiary or other similar term contained in any deed of trust, security agreement, financing statement or other document or instrument executed contemporaneously herewith or previously executed by any of the Applicants for the benefit of Member or Correspondent shall be deemed to include Bank as well as Member or Correspondent. All such security agreements, financing statements, deeds of trust and other documents and instruments are amended to the extent necessary in order that the Obligations of Applicants hereunder are secured thereby and by the collateral described therein on a pari passu basis with, and in addition to, any other obligations secured thereby. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. APPLICANTS: ________________________________ ___________________________________ Printed Name Printed Name By:_____________________________ By:________________________________ Authorized Signature Authorized Signature ________________________________ CORRESPONDENT/MEMBER BANK: Printed Name By:_____________________________ ___________________________________ Authorized Signature Printed Name By:________________________________ Authorized Signature BANK ACCEPTANCE: The Bank's Acceptance evidenced by the undersigned authorized representative's signature is provided as its acknowledgement that this agreement represents the final agreement by the parties which may not be contradicted by evidence of prior contemporaneous, or subsequent oral agreements between the parties. TEXAS COMMERCE BANK NATIONAL ASSOCIATION By:____________________________________________ Page 4 of 4 EXHIBIT I TO CREDIT AGREEMENT Form of Assignment and Acceptance --------------------------------- ASSIGNMENT AND ACCEPTANCE ------------------------- Dated _____________, 19__ Reference is made to the Credit Agreement dated as of October 15, 1997 (as the same may be amended and in effect from time to time, the "Credit ------ Agreement"), among CELLSTAR CORPORATION, a Delaware corporation (the - --------- "Borrower"), each of the banks or other lending institutions which is or may -------- from time to time become a signatory thereto or any successor or permitted assignee thereof named therein (each a "Bank" and, collectively, the "Banks"), ---- ----- THE FIRST NATIONAL BANK OF CHICAGO and NATIONAL CITY BANK, as co-agents (collectively, the "Co-Agents"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a --------- national banking association, as agent (in such capacity, the "Agent"). ----- Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. __________________________________________________________ (the "Assignor") and __________________________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a _____% interest in and to all the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents as of the Effective Date (as defined below) (including, without limitation, such percentage interest in the Commitment of the Assignor on the Effective Date, such percentage interest in the Advances owing to the Assignor outstanding on the Effective Date, and such percentage interest in Assignor's participation share of the Letter of Credit Liabilities outstanding on the Effective Date, together with such percentage interest in all unpaid interest and fees accrued from the Effective Date). This Assignment and Acceptance is made by Assignor without recourse. 2. The Assignor (i) represents that as of the date hereof, its Commitment is $_______________, the outstanding principal balance of its Advances is $_______________, and the amount of Assignor's participation interest in the Letter of Credit Liabilities is $_______________ (all as unreduced by any assignments which have not yet become effective); (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other Loan ASSIGNMENT AND ACCEPTANCE - Page 1 Document, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Obligated Party or the performance or observance by the Borrower or any other Obligated Party of any of their obligations under the Agreement or any other Loan Document; and (iv) attaches the Note held by Assignor and requests that the Agent exchange such Notes for new Notes payable to the order of (A) Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and (B) the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, respectively, as specified above. 3. The Assignee (i) represents and warrants that it is legally authorized to enter in this Assignment and Acceptance; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 9.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iii) agrees that it will, independently and without reliance upon the Agent, the Assignor, or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Loan Documents; (iv) confirms that it is eligible to be an Assignee; (v) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (vi) agrees that it will perform in accordance with their terms all the obligations which by the terms of the Credit Agreement and the other Loan Documents are required to be performed by it as a Bank; [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Loan Documents or such other documents as are necessary to indicate that all such payments are subject to such tax at a rate reduced by an applicable tax treaty]./1/ _________________________ /1/ If the Assignee is organized under the laws of a jurisdiction outside the United States. ASSIGNMENT AND ACCEPTANCE - Page 2 4. The effective date for this Assignment and Acceptance shall be ______________, 19___ (the "Effective Date")./2/ Following the -------------- execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. 5. Upon such acceptance and recording, from and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, shall have the rights and obligations of a Bank thereunder and under the other Loan Documents and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement and the other Loan Documents. 6. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments in respect of the interest assigned hereby (including payments of principal, interest, fees, and other amounts) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the Effective Date by the Agent or with respect to the making of this assignment directly between themselves. 7. The Assignee has executed and delivered a confidentiality agreement in substantially the form of the confidentiality agreements between the Borrower and the other Banks. 8. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. [NAME OF ASSIGNOR], By:__________________________ Name:________________________ Title:_______________________ __________________ /2/ Such date shall be at least ten (10) Business Days after the execution of this Assignment and Acceptance and delivery thereof to the Agent. ASSIGNMENT AND ACCEPTANCE - Page 3 [NAME OF ASSIGNEE], By:__________________________ Name:________________________ Title:_______________________ ACCEPTED BY: TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent By:___________________________ Name:_______________________ Title:______________________ Date:_______________________ CONSENTED TO BY: CELLSTAR CORPORATION/3/ By:___________________________ Name:_______________________ Title:______________________ ________________________ /3/ This Assignment and Acceptance shall be required to be signed by Borrower only if its consent is required under the Credit Agreement. The consent of Borrower shall not be unreasonably withheld and is not required after the occurrence and during the continuance of a Default. ASSIGNMENT AND ACCEPTANCE - Page 4 EXHIBIT J TO CREDIT AGREEMENT Contribution and Indemnification Agreement ------------------------------------------ CONTRIBUTION AND INDEMNIFICATION AGREEMENT ------------------------------------------ THIS CONTRIBUTION AND INDEMNIFICATION AGREEMENT (this "Agreement"), dated --------- as of October 15, 1997, is entered into by and among CellStar Corporation, a Delaware corporation (the "Borrower"), and the undersigned Guarantors (each a -------- "Guarantor" and collectively, the "Guarantors," and together with Borrower each --------- ---------- a "Company" and, collectively, the "Companies"). ------- --------- R E C I T A L S: - - - - - - - - A. Borrower, certain banks or lending institutions from time to time party thereto (each a "Bank" and, collectively, the "Banks"), The First National ---- ----- Bank of Chicago and National City Bank, as co-agents (collectively, the "Co- --- Agents"), and Texas Commerce Bank National Association, as agent for the Banks - ------ (the "Agent"), have entered into that certain Credit Agreement of even date ----- herewith (such Credit Agreement, as the same may be amended, supplemented or modified from time to time, the "Credit Agreement"), providing for loans and ---------------- extensions of credit to the Borrower. B. Concurrently herewith, the Guarantors are executing and delivering a Guaranty (the "Guaranty"), pursuant to which the Guarantors jointly and -------- severally guarantee the full and prompt payment and performance of the Guaranteed Indebtedness, as such term is defined in the Guaranty. C. The Companies wish to enter into this Agreement to effect an equitable sharing of their risk in respect of the Guaranteed Indebtedness. A G R E E M E N T: - - - - - - - - - NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Capitalized terms used in this Agreement to the extent not otherwise defined herein shall have the same meanings as in the Credit Agreement. 2. If any Guarantor makes a payment in respect of the Guaranteed Indebtedness, it shall have the rights of contribution and reimbursement set forth below against the other Companies and shall be indemnified as set forth below; provided that no Guarantor shall enforce its rights to any payment by -------- exercising its rights of contribution, reimbursement or indemnification unless and until all the Guaranteed Indebtedness shall have been paid in full. 3. If any Guarantor makes a payment in respect of the Guaranteed Indebtedness that is greater than its Pro Rata Percentage (hereinafter defined) of the Guaranteed Indebtedness, calculated as of the date such payment is made, the Guarantor making such payment shall have CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 1 the right to receive from each of the other Guarantors, and the other Guarantors jointly and severally agree to pay to such Guarantor, when permitted by paragraph 2 hereof, an amount such that the net payments made by the Guarantors - ----------- in respect of the Guaranteed Indebtedness shall be shared among the Guarantors pro rata in proportion to their respective Pro Rata Percentages of the Guaranteed Indebtedness. The Guarantors hereby jointly and severally indemnify each of the other Guarantors and jointly and severally agree to hold each of them harmless from and against any and all amounts which any such Guarantor shall ever be required to pay in respect of the Guaranteed Indebtedness in excess of such Guarantor's respective Pro Rata Percentage of the Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in this paragraph or in this Agreement, no liability or obligation of any Guarantor that shall accrue pursuant to this Agreement shall be paid nor shall it be deemed owed pursuant to this Agreement or any Loan Documents unless and until all of the Guaranteed Indebtedness shall be paid in full. As used herein, the term "Pro Rata Percentage" shall mean, for each Guarantor, the percentage derived by ------------------- dividing (a) the amount by which the fair saleable value of its assets on August 31, 1997 exceeds its liabilities (without giving effect to its Guaranty) (such excess for each Guarantor, its "Net Worth"), by (b) the Net Worth of all of the --------- Guarantors. 4. If any Guarantor makes any payment in respect of the Guaranteed Indebtedness, the Guarantor making such payment shall have the right to receive from the Borrower, and the Borrower agrees to pay to such Guarantor, when permitted by paragraph 2 hereof, an amount equal to such payment. The Borrower ----------- hereby indemnifies each of the Guarantors and agrees to hold each of them harmless from and against any and all amounts which any such Guarantor shall ever be required to pay in respect of the Guaranteed Indebtedness. Notwithstanding anything to the contrary contained in this paragraph or in this Agreement, no liability or obligation of the Borrower that shall accrue pursuant to this Agreement shall be paid or shall be deemed owed pursuant to this Agreement or any Loan Documents unless and until all of the Guaranteed Indebtedness shall be paid in full. 5. Each Company represents and warrants to each other Company and to their respective successors and assigns that: (a) the execution, delivery and performance by each party hereto of this Agreement are within such Company's corporate or partnership powers, have been duly authorized by all necessary corporate or partnership action, as the case may be, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles or certificate of incorporation or bylaws or other organizing document of such party or of any agreement, judgment, injunction, order, decree or other instrument binding upon such party or result in the creation or imposition of any lien, security interest or other charge or encumbrance on any asset of such Company; (b) this Agreement constitutes a legal, valid and binding agreement of each Company, enforceable against such Company in accordance with its terms; and CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 2 (c) such Company has adequate capital to conduct its business as a going concern, as presently conducted and as proposed to be conducted, will be able to meet its obligations hereunder and in respect of its other existing and future indebtedness and liabilities as and when the same shall be due and payable, and is not insolvent (as that term is defined in 11 U.S.C. (S) 101 or applicable law) and will not be rendered insolvent by its obligations hereunder, and the foregoing representation is supported by such Company's internal projections and forecasts. 6. No failure or delay by any Guarantor in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and non-exclusive of any rights or remedies provided by law. 7. Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the parties hereto and consented to by the Agent. 8. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 9. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. 10. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when a counterpart hereof shall have been signed by all the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BORROWER: -------- CELLSTAR CORPORATION By:_________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 3 GUARANTORS: ---------- NATIONAL AUTO CENTER, INC. By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CELLSTAR, LTD. By: National Auto Center, Inc., its general partner By:__________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CELLSTAR FULFILLMENT, LTD. By: CellStar Fulfillment, Inc., its general partner By:__________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CELLSTAR WEST, INC. By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 4 CELLSTAR AIR SERVICES, INC. By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer A & S AIR SERVICE, INC. By:_______________________________________________ Mark Q. Huggins, Senior Vice President Chief Financial Officer CELLSTAR INTERNATIONAL CORPORATION/SA By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer AUDIOMEX EXPORT CORP. By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CELLSTAR INTERNATIONAL CORPORATION/ASIA By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 5 CELLSTAR FULFILLMENT, INC. By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer NAC HOLDINGS, INC. By:_______________________________________________ Elaine F. Rodriguez President ACC-CELLSTAR, INC. By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CELLSTAR FINANCO, INC. By:_______________________________________________ Mark Q. Huggins, Senior Vice President and Chief Financial Officer CONTRIBUTION AND INDEMNIFICATION AGREEMENT - Page 6 EXHIBIT K TO CREDIT AGREEMENT Account Information ------------------- Name:_____________________________________________________________________ City:_____________________________________________________________________ Country:__________________________________________________________________ Sort Code:________________________________________________________________ For Credit To:____________________________________________________________ Attention:________________________________________________________________ Reference:________________________________________________________________ Account Number:___________________________________________________________ Swift Address:____________________________________________________________ SCHEDULE 8.5 ------------ EXISTING LITIGATION ------------------- Four purported class action lawsuits were filed in the United States District Court for the Northern District Court for the Northern District of Texas, Dallas Division, which have been consolidated in the case styled State of Wisconsin Investment Board, Diane Lawson, Martin Katz, Mostafa Aboul-Fetouh, Ahmed Aboul- Fetouh and Enass Aboul-Fetouh on behalf of themselves and others similarly situated v. Alan H. Goldfield, Terry S. Parker, Kenneth W. Sanders, John S. Bain, Evelyn M. Henry, Michael S. Hedge, Kenneth E. Kerby, Daniel T. Bogar, Leonard C. Ratley, James L. Johnson, Ronald J. Kramer, CellStar Corporation and KPMG Peat Marwick LLP, Civil Action No. 3:96-CV-1353-R. The State of Wisconsin Investment Board has been appointed lead plaintiff in the consolidated action and has filed a Consolidated Amended Complaint asserting claims against CellStar Corporation and certain of its present and former officers and directors for violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, Section 27.01 of the Texas Civil Statutes, common law fraud, negligent misrepresentation, and breach of fiduciary duty to disclose under Delaware common law. The consolidated Amended Complaint alleges, among other things, that the defendants misrepresented or failed to disclosed material facts regarding the business, financial condition, performance and future prospects of CellStar Corporation and that, as a result of such statements or omissions, the value of CellStar Corporation's Common Stock was artificially inflated. In December, 1996, defendants filed motions to dismiss all claims asserted in the Consolidated Amended Complaint. The motions are pending. CellStar Corporation is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these other matters will not have a materially adverse effect on the consolidated financial condition or results of operations of CellStar Corporation. Schedule 8.5, Existing Litigation 1 SCHEDULE 8.9 ------------ EXISTING DEBT ------------- 1. $150.0 Million Convertible Subordinated Notes due October 15, 2002, issued by CellStar Corporation pursuant to Indenture dated October 14, 1997. 2. Guarantee by CellStar Corporation of obligations of CellStar Amtel Sdn Bhd (the Malaysian affiliate) under its credit facility with DCB Bank Berhad Malaysia, which guarantee is limited to a maximum of RM 13.2 million, or US $4.6 million as of August 31, 1997. SCHEDULE 8.9, EXISTING DEBT. SCHEDULE 8.14 ------------- LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES ------------------------------------------- AND PERCENTAGE OF BORROWER'S OWNERSHIP /1/ -------------------------------------- Name of Subsidiary Incorporation - ------------------ ------------- National Auto Center, Inc. Texas CellStar Financo, Inc. Delaware CellStar Air Services, Inc. Delaware A&S Air Service, Inc. Delaware CellStar Fulfillment, Inc. Delaware NAC Holdings, Inc. Nevada CellStar West, Inc. /2/ Delaware CellStar, Ltd. Texas Limited Partnership CellStar Fulfillment, Ltd. Texas Limited Partnership CellStar International Corporation/SA Delaware CellStar, S.A. Argentina CellStar International Telefonia Celular Ltda. Brazil Cellular Industria da Telefonia da Amazonia Ltda. Brazil ___________________ /1/ 100%, unless otherwise stated. /2/ 80% owned 1 SCHEDULE 8.14 ------------- CellStar Celular Chile, S.A. Chile CellStar de Colombia, S.A. Colombia CellStar Ecuador, S.A. Ecuador CellStar (UK) Ltd. United Kingdom CellStar Europe Ltd. United Kingdom CellStar Celular, S.A. Venezuela ACC-CellStar, Inc. /3/ Delaware Audiomex Export Corp. Texas Celular Express S.A. de C.V. Mexico Celular Express Management S.A. de C.V. Mexico CellStar International Corporation/Asia Delaware CellStar Pacific Pte. Ltd. Singapore CellStar Amtel Sdn Bhd /4/ Malaysia CellStar Philippines, Inc. Philippines CellStar Telecommunication Taiwan Co Ltd. Taiwan CellStar (Asia) Corporation Limited Hong Kong Shanghai CellStar International ___________________ /3/ 80% owned. /4/ 30% directly owned and 19% beneficially owned. 2 SCHEDULE 8.14 ------------- Trading Co. Ltd. PRC CellStar Telecommunications Service (Asia) Limited /5/ Hong Kong CellStar Singapore Pte Ltd Singapore HCL-CellStar Ltd. /6/ India ___________________ /5/ 60% owned. /6/ 50% owned. 3
- ------------------------------------------------------------------------------------------------------------------------------------ CellStar Corporation Delaware CellStar Air Services, Inc. National Auto Center, Inc Delaware Texas A & S Air Services, Inc CellStar Fulfillment Inc. NAC Holdings, Inc. Delaware Delaware Nevada CellStar Fulfillment Ltd. CellStar Ltd. TX Ltd Ptnership TX Ltd Ptnership CellStar International AudioMex Export Corp. CellStar West, Inc. CellStar International Corporation/SA Delaware Texas Delaware Corporation/Asia Delaware Cellular, SA CellStar International Telefonia Celular Express S.A. de C.V. CellStar Pacific Pte, Ltd Argentina Celular Ltda. Mexico Singapore Brazil CellStar Industries da Telefonia Celular Express CellStar Amtel Sdn Bhd CellStar Phillipines, Inc da Amazonia Ltda. Management S.A. de C.V. Malaysia Phillipines Brazil Mexico CellStar Celular Chile, S.A. CellStar de Columbia CellStar Telecommunication Chile S.A. Columbia Taiwan Co. Ltd. Taiwan CellStar Ecuador, S.A. CellStar (UK) Ltd. CellStar (Asia) Corporation Limited Ecuador UK Hong Kong CellStar Europe Ltd. Shanghai CellStar International CellStar Telecommunications UK Trading Co. Ltd Service (Asia) Limited PRC Hong Kong CellStar Celular, S.A. ACC-CellStar, Inc. CellStar Singapore Pte Ltd. Venezuela Delaware Singapore HCL-CellStar Ltd. India CellStar Financo, Inc Delaware - ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 8.19 ------------- ENVIRONMENTAL MATTERS --------------------- NONE. 1 SCHEDULE 8.20 ------------- PATENTS, TRADEMARKS AND COPYRIGHT --------------------------------- SEE ATTACHED SCHEDULES. 10/13/97 CELLSTAR, LTD. U.S. PATENT APPLICATION --------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ SERIAL NO. FILING DATE TITLE INVENTOR(S) ASSIGNMENT RECORDATION (REEL/FRAME) ==================================================================================================================================== 08/565,159 11/30/95 Unitized Package Rebecca Kimbrell Richardson 7798/0164 Assembly - ------------------------------------------------------------------------------------------------------------------------------------
1 10/13/97 CELLSTAR, LTD. COPYRIGHT REGISTRATION -------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ REG. NO. TITLE OF WORK DATE OF PUBLICATION ==================================================================================================================================== VA 725-904 Accessory Performance Pac Box with Handle May 19, 1995 - ------------------------------------------------------------------------------------------------------------------------------------
2 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ Argentina CELLSTAR (stylized) cellular telephones and accessories for 1,871,769/ 1,510,201/ 03/31/2004 cellular telephones (accessories include 02/26/93 03/31/94 antennas, antenna mounts, antenna passive repeater, batteries, battery chargers, battery charger clips, and battery charter Y-adapters) in class 9 - ------------------------------------------------------------------------------------------------------------------------------------ Argentina CELLSTAR all goods in class 9 1,985,259 06/28/95 - ------------------------------------------------------------------------------------------------------------------------------------ Argentina CELLSTAR all goods in class 38 1,985,260 1,598,164 06/28/95 04/30/96 04/30/2006 - ------------------------------------------------------------------------------------------------------------------------------------ Argentina CELLSTAR all goods in class 42 1,985,261 06/28/95 - ------------------------------------------------------------------------------------------------------------------------------------ Argentina SERVICELL cellular telephones and accessories for 1,899,480/ 1,531,704/ 07/29/2004 cellular telephones, including mounting 11/17/93 07/29/94 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones and remote listening and speaking devices (class 9) - ----------------------------------------------------------------------------------------------------------------------------------- Australia CELLSTAR cellular telephones and accessories such 74/651,649/ A651,649 01/27/2005 as mounting brackets, antennas, antenna 01/27/95 01/2797 mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9) - ----------------------------------------------------------------------------------------------------------------------------------- Australia CELLSTAR cellular telephone communication services 651,650/ A651650 01/27/2005 (class 38) 01/27/95 - -----------------------------------------------------------------------------------------------------------------------------------
1 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ Australia CELLSTAR retail outlets featuring cellular 651,652/ A651,652 01/27/2005 telephones and accessories for cellular 01/27/95 01/27/97 telephones and cellular telephone subscription contracts; and wholesale distributing services featuring cellular telephones and related accessories (class 42) - ------------------------------------------------------------------------------------------------------------------------------------ Bangledesh CELLSTAR class 9 42,983 02/12/95 - ------------------------------------------------------------------------------------------------------------------------------------ Bangledesh CELLSTAR class 38 [in preparation] - ------------------------------------------------------------------------------------------------------------------------------------ Bolivia CELLSTAR class 9 57977-C/ 05/18/2003 02/09/95 - ------------------------------------------------------------------------------------------------------------------------------------ Bolivia CELLSTAR (stylized) class 9 1236/ [published for 05/18/93 opposition] - ------------------------------------------------------------------------------------------------------------------------------------ Brazil CELLSTAR electrical communications equipment 817,322,698/ 817,322,698/ including cellular telephones and 06/23/93 01/24/95 01/24/2005 accessories for cellular telephones in class 9.35/80 - ------------------------------------------------------------------------------------------------------------------------------------ Brazil CELLSTAR electrical communications equipment 817,136,878/ 817,136,878/ 06/05/2005 including cellular telephones and 03/02/93 06/06/95 accessories for cellular telephones in class 37.45 (services) - ------------------------------------------------------------------------------------------------------------------------------------ Brazil CELLSTAR class 40:15 819,435,686 [published for 08/27/96 opposition 08/12/97] - ------------------------------------------------------------------------------------------------------------------------------------ Brazil *(Note 1) CELLULAR EXPRESS class 9/35.80 817,663,924 817,663,924 7/8/2006 07/09/96 - ------------------------------------------------------------------------------------------------------------------------------------ Brazil *(Note 1) CELLULAR EXPRESS class 37/44.45 817,663,932 - ------------------------------------------------------------------------------------------------------------------------------------ Brazil *(Note 1) CELLULAR EXPRESS class 9/35.80 817,762,604 817,762,6040 04/15/2006 (stylized) 4/16/96 - ------------------------------------------------------------------------------------------------------------------------------------ Brazil *(Note 1) CELLULAR EXPRESS class 37.44.45 817,762,612 817,762,612 04/15/2006 (stylized) 04/16/96 - ------------------------------------------------------------------------------------------------------------------------------------
Note 1: Filed by Brazilian affiliate; information in schedule based on information received from local associate. 2 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ Brazil *(Note 1) FIGURITIVA (and class 35.80 817,762,582 817,762,582 04/15/2006 design) 04/16/96 - ------------------------------------------------------------------------------------------------------------------------------------ Brazil *(Note 1) FIGURITIVA (and class 9/35.80 817,762,590 817,762,590 04/15/2006 design) 04/16/96 - ------------------------------------------------------------------------------------------------------------------------------------ Brunei CELLSTAR cellular telephones and accessories for 24615 20230 02/22/2002 cellular telephones including mounting 02/22/95 12/06/95 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, and remote listening and speaking devices (class 9) - ------------------------------------------------------------------------------------------------------------------------------------ Cambodia CELLSTAR cellular telephones and accessories for 4038/ 4036/ 01/01/2004 cellular telephones, including mounting 01/01/94 01/12/94 *01/12/1999 - Use brackets, antennas, antenna mounts, batteries, battery chargers, battery *01/12/2000 - eliminators, input and output jacks, Affidavit of Use carrying cases, headphones and remote listening and speaking devices (class 9) - ------------------------------------------------------------------------------------------------------------------------------------ Cambodia CELLSTAR class 38 [in preparation] - ------------------------------------------------------------------------------------------------------------------------------------ Cambodia CELLSTAR class 42 [in preparation] 432,754/ - ------------------------------------------------------------------------------------------------------------------------------------ Canada CELLSTAR cellular telephones and accessories for 721,282/ cellular telephones; namely: mounting 01/26/93 09/02/94 09/02/2009 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, and remote listening and speaking devices for use with cellular telephones - ------------------------------------------------------------------------------------------------------------------------------------
Note 1: Filed by Brazilian affiliate; information in schedule based on information received from local associate. 3 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- Chile CELLSTAR (stylized) all goods in class 9 241,663/ 415,964/ 11/08/2003 05/26/93 11/08/93 - ----------------------------------------------------------------------------------------------------------------------------------- Chile SERVICELL cellular telephones and accessories for 256,531/ cellular telephones, including mounting 02/02/94 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones and remote listening and speaking devices (class 9) - ----------------------------------------------------------------------------------------------------------------------------------- China CELLSTAR (plain) cellular telephones and accessories for 93015835/ 694522/ 06/20/2004 cellular telephones such as aerials and 03/11/93 06/21/94 frame for wireless aerials, chargers batteries, electrical adapters, and the like in class 9 - ----------------------------------------------------------------------------------------------------------------------------------- China CELLSTAR (stylized) cellular telephones and accessories for 93015836/ 694523/ 06/20/2004 cellular telephones such as aerials and 03/11/93 06/21/94 frame for wireless aerials, chargers batteries, electrical adapters, and the like in class 9 - ----------------------------------------------------------------------------------------------------------------------------------- Colombia/ASR CELLSTAR class 9 93/388,651 05/27/93 - ----------------------------------------------------------------------------------------------------------------------------------- Colombia CELLSTAR cellular telephones and accessories for 93/403,362 cellular telephones (accessories include 08/20/93 antennas, antenna mounts, antenna passive repeater, batteries, battery chargers, battery charger clips and battery charter Y-adapters) in class 9 - ----------------------------------------------------------------------------------------------------------------------------------- Colombia CELLSTAR class 38 [in preparation] - ----------------------------------------------------------------------------------------------------------------------------------- Colombia CELLSTAR class 42 [in preparation] - -----------------------------------------------------------------------------------------------------------------------------------
4 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- Colombia CELLSTAR tradename [in preparation] - ----------------------------------------------------------------------------------------------------------------------------------- Colombia SERVICELL cellular telephones and accessories for 421,437/ 158,157/ 05/16/2004 cellular telephones, including mounting 12/06/93 05/17/94 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones and remote listening and speaking devices (class 9) - ----------------------------------------------------------------------------------------------------------------------------------- Colombia CELULAR EXPRESS cellular telephones and accessories for 9,422,250/ 165,447 09/27/2004 cellular telephones, including mounting 05/25/94 09/28/94 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, phone cradles, headphones and remote listening and speaking devices (class 9) - ----------------------------------------------------------------------------------------------------------------------------------- Costa Rica CELLSTAR cellular telephones sold to cellular 95202 03/13/2005 telephone service subscribers and 03/14/96 accessories for use with cellular telephones; namely, mounting brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices, in class 9. - ----------------------------------------------------------------------------------------------------------------------------------- Costa Rica CELLSTAR agent services for cellular telephone 96482 08/26/2005 service subscription agreements in 08/26/96 international class 35 - ----------------------------------------------------------------------------------------------------------------------------------- Costa Rica CELLSTAR cellular telephone communication services 96481 08/25/2005 in international class 38 08/26/96 - -----------------------------------------------------------------------------------------------------------------------------------
5 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- Costa Rica CELLSTAR retail outlets featuring cellular 95203 03/13/2005 telephones and accessories for cellular 03/14/96 telephones and cellular telephone subscription contracts, and wholesale distributing services featuring cellular telephones and related accessories in international class 42 - ----------------------------------------------------------------------------------------------------------------------------------- European Union CELLSTAR [classes 9, 38, 42] 47233 04/01/96 - ----------------------------------------------------------------------------------------------------------------------------------- Ecuador CELLSTAR communications apparatus in general and 6436 DNPI-2197- 08/01/2004 especially antennas and receivers for 03/28/95 MICIP television channels via satellite in 08/01/94 class 9 - ----------------------------------------------------------------------------------------------------------------------------------- France CELLSTAR cellular telephones and accessories, 95/560,740 95,560,740 03/01/2005 namely mounting brackets, antennas, 03/01/95 07/31/95 antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9); telephone communication services and in particular cellular telephone communication services (class 38) - -----------------------------------------------------------------------------------------------------------------------------------
6
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- France CELLULAR EXPRESS cellular telephones and accessories, 95/569,698/ 95,569,698 04/28/2005 (and design) namely mounting brackets, antennas, 04/28/95 10/06/95 antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9); telephone communication services and inparticular cellular telephone communication services (class 38) - ----------------------------------------------------------------------------------------------------------------------------------- Germany CELLSTAR cellular telephones and accessories, 395,078,598 395,078,598 02/28/2005 namely mounting brackets, antennas, 02/21/95 02/16/96 antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9); telephone communication services, and particularly cellular telephone communication services (class 38) - ----------------------------------------------------------------------------------------------------------------------------------- Germany CELLULAR EXPRESS cellular telephones and accessories, 39517285.3/ 39,517,285 04/30/2005 (and design) namely mounting brackets, antennas, 04/21/95 04/29/96 antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9); telephone communication services, and particularly cellular telephone communication services (class 38) - -----------------------------------------------------------------------------------------------------------------------------------
7 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE * OTHER - ----------------------------------------------------------------------------------------------------------------------------------- Great Britain CELLSTAR cellular telephones; mounting brackets, 2,011,720 2,011,720 02/21/2005 antennas, antenna mounts, batteries, 02/21/95 02/23/96 battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices; all the aforesaid for use with cellular telephones their parts and fittings comprised in this class (class 9); cellular telephone communication services (class 38) - ----------------------------------------------------------------------------------------------------------------------------------- Great Britain CELLULAR EXPRESS cellular telephones and accessories, 2,018,225/ 2,018,225 04/22/2005 (and design) therefor namely mounting brackets, 04/22/95 03/01/96 antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9); telephone communication services, particularly cellular telephone communication services (class 38) - ----------------------------------------------------------------------------------------------------------------------------------- Hong Kong CELLSTAR cellular telephones, parts and fittings 93/12897 8357/1995 therefor, mounting brackets, antennas, 11/30/93 no date listed antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases therefor, headphones and remote listening and speaking devices; all included in class 9 - ----------------------------------------------------------------------------------------------------------------------------------- Hong Kong CELLSTAR class 38 [in preparation] - ----------------------------------------------------------------------------------------------------------------------------------- Hong Kong CELLSTAR class 42 [in preparation] - -----------------------------------------------------------------------------------------------------------------------------------
8 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE * OTHER - ----------------------------------------------------------------------------------------------------------------------------------- India CELLSTAR cellular telephones and accessoriies for 613,904 12/14/93 cellular telephones, including mounting brackets, antenas, antenna mounts, batteries, battery chargers, battery eliminators, imput and output jacks, carrying cases, headphones and remote listening and speaking devices in class 9 - ----------------------------------------------------------------------------------------------------------------------------------- Indonesia CELLSTAR cellular telephones and accessories for H4.Hc.01. 342,614 02/15/2004 cellular telephones such as mounting 01-14643 08/31/95 brackets, antenna, antenna mounts, 08/15/94 batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, and remote listening and speaking devices, their parts and fittings in class 9 - ----------------------------------------------------------------------------------------------------------------------------------- Indonesia CELLSTAR repair and maintenance services for D97 1529 01/22/97 celular telephones and wireless telecommunication equipment and their accessories (class 37) - ----------------------------------------------------------------------------------------------------------------------------------- Indonesia CELLSTAR cellular telephones and wireles D97-1528 01/22/97 telecommunication services (class 38) - ----------------------------------------------------------------------------------------------------------------------------------- Indonesia CELLSTAR class 42 [in preparation] - ----------------------------------------------------------------------------------------------------------------------------------- Ireland Ireland cellular telephones and accessories; 6182/95 09/07/95 167,790 09/06/2002 mounting brackets, antennas, antenna 08/08/96 mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9) - -----------------------------------------------------------------------------------------------------------------------------------
9 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE DATE DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------- Israel CELLSTAR cellular telephones and accessories 96247/ 96247/ 12/25/2001 therefor (class 9) 12/25/94 08/05/96 - ----------------------------------------------------------------------------------------------------------------------------- Israel CELLSTAR cellular telephone communication services 96248/ 96248/ 12/25/2001 (class 38) 12/25/94 08/05/96 - ----------------------------------------------------------------------------------------------------------------------------- Israel CELLSTAR wholesale distributing services featuring 96249/ 96249/ 12/25/2001 cellular telephones and related 12/25/94 08/05/96 accessories; retail outlets featuring cellular telephones and accessories for cellular telephones and cellular telephone subscription contracts (class 42). - ----------------------------------------------------------------------------------------------------------------------------- Korea CELLULAR EXPRESS cellular telephones; mounting brackets, 13992/95 348,903 10/22/2006 (and design) antennas, antenna mounts; batteries; 04/12/95 10/22/96 battery chargers; battery eliminators; input and output jacks; carrying cases; headphones; remote listening and speaking devices (class 39) - ----------------------------------------------------------------------------------------------------------------------------- Korea CELLULAR EXPRESS cellular telephone communication services 3359/95 34230 01/15/2006 (and design) (class 106) 04/12/95 01/15/97 - ----------------------------------------------------------------------------------------------------------------------------- Korea CELLULAR EXPRESS retail outlet and wholesale distributing 3359/95 36433 05/29/2007 (and design) agency services featuring cellular 04/12/95 05/29/97 telephones and accessories for cellular telephones and cellular telephone subscription contracts; retail and wholesale distributing chain-store management services featuring cellular telephones and related accessories (class 112) - ----------------------------------------------------------------------------------------------------------------------------- Laos CELLSTAR (and all goods in international class 9 2686/ 2879/ 12/29/2003 design) 12/29/93 12/05/94 - ----------------------------------------------------------------------------------------------------------------------------- Laos CELLSTAR (and all goods in international class 38 [in design) preparation] - -----------------------------------------------------------------------------------------------------------------------------
10 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------- Laos CELLSTAR (and all goods in international class 42 [in design) preparation] - ------------------------------------------------------------------------------------------------------------------------- Malaysia CELLSTAR cellular telephones and cellular 94/06847/ telephones accessories such as mounting 08/03/94 brackets, antenna, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, and remote listening and speaking devices, their parts and fittings (class 9) - ------------------------------------------------------------------------------------------------------------------------- Mexico CELLSTAR Apparatus for communication known in this 169,936/ 468,271/ 06/09/2003 class, particularly antenna receivers 06/09/93 08/01/94 (class 9) - ------------------------------------------------------------------------------------------------------------------------- New Zealand CELLSTAR communications products in this class 245184/ including cellular telephones, mounting 01/31/95 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices and other accessories; parts and fittings for all the aforesaid goods (class 9) - ------------------------------------------------------------------------------------------------------------------------- New Zealand CELLSTAR telecommunication services including 245185/ 245185 01/31/2002 cellular telephone communication services 01/31/95 01/31/95 (class 38) - ------------------------------------------------------------------------------------------------------------------------- New Zealand CELLSTAR wholesale and retail services in this 245186/ 245186 01/31/2002 class all relating to electrical and 01/31/95 01/31/95 communication products including cellular telephones and accessories for cellular telephones; cellular telephone subscription contracts (class 42) - -------------------------------------------------------------------------------------------------------------------------
11 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ FILING REG. NO./ RENEWAL DATE/ DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ New Zealand CELLULAR EXPRESS communications products in this class 246,076/ (and design) including cellular telephones, mounting 02/22/95 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices and other accessories; parts and fittings in this class for all the aforesaid goods (class 9) - ------------------------------------------------------------------------------------------------------------------------------------ New Zealand CELLULAR EXPRESS telecommunication services including 246,077/ (and design) cellular telephone communication services 02/22/95 (class 38) - ------------------------------------------------------------------------------------------------------------------------------------ New Zealand CELLULAR EXPRESS services in retailing electrical and 246,078/ (and design) communication products including cellular 02/22/95 telephones and accessories for cellular telephones and cellular telephone subscription contracts; and wholesale distributing services featuring electrical and communication products (class 42) - ------------------------------------------------------------------------------------------------------------------------------------ Pakistan CELLSTAR cellular telephones and accessories for 124,187 [approved for cellular telephones such as mounting 03/01/94 publication] brackets, antenna, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, and remote listening and speaking devices, their parts and fittings in class 9 - ------------------------------------------------------------------------------------------------------------------------------------
12 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ FILING REG. NO./ RENEWAL DATE/ *OTHER DATE REG. DATE - ------------------------------------------------------------------------------------------------------------------------------------ Pakistan CELLSTAR repair and maintenance services for [in preparation] celular telephones and wireless telecommunication equipment and their accessories (class 37) - ------------------------------------------------------------------------------------------------------------------------------------ Pakistan CELLSTAR cellular telephones and wireles [in preparation] telecommunication services (class 38) - ------------------------------------------------------------------------------------------------------------------------------------ Paraguay CELLSTAR communications apparatus in general and 9,303,636/ 165,440 11/16/2003 especially antennas and receivers for 11/16/93 7/25/95 television channels via satellite in class 9 - ------------------------------------------------------------------------------------------------------------------------------------ Peru CELLSTAR scientific, nautical surveying and 221,226 6821 04/22/2004 (with design) electrical apparatus and instruments (including wireless), photographic, cinematographic, optical, weighing, measuring signaling, checking, (supervision), lifesaving and teaching apparatus and instruments; coil or counterfredd (sic) apparatus; talking machines; cash registers; calculating machines, fire extinguishing apparatus including parts and accessories (class 9) - ------------------------------------------------------------------------------------------------------------------------------------ Philippines CELLSTAR cellular telephones sold to cellular 840930- [approved for telephone service subscribers and 00095628-PN/ publication] accessories for use with cellular 09/30/94 telephones; namely, mounting brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices (class 9) - ------------------------------------------------------------------------------------------------------------------------------------
13 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ REG. RENEWAL DATE/ FILING DATE DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ Philippines CELLULAR EXPRESS (and design) class 9 - cellular telephones and 107,227 accessories for cellular telephones, 04/03/96 namely mounting brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jackets, carrying cases, headphones, remote listening and speaking devices - ------------------------------------------------------------------------------------------------------------------------------------ Singapore CELLSTAR cellular telephones and cellular 6959/94 telephone accessories such as mounting 08/11/94 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices and their parts and fittings (class 9) - ------------------------------------------------------------------------------------------------------------------------------------ Singapore CELLSTAR Cellular telephones, wireless 5069/97 SHE LE SHI DA (Chinese telecommunication apparatus for cellular 05/02/97 Characters) telephones and wireless telecommunication apparatus such as mounting brackets, antennas, antenna mounts, batteries, battery charges, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speacking devices; parts and fittings for the aforesaid goods; all included in class 9 - ------------------------------------------------------------------------------------------------------------------------------------ Singapore CELLSTAR Cellular telephone and wireless 0570/97 SHE LE SHI DA telecommunication services provided by a 05/02/97 (Chinese Characters) third party; (class 38) - ------------------------------------------------------------------------------------------------------------------------------------
14 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ Singapore CELLSTAR Repair and maintenance services for 12899/96 cellular telephones and other wireless 11/29/96 telecommunication equipment (class 37) - ------------------------------------------------------------------------------------------------------------------------------------ Singapore CELLSTAR Cellular telephone and wireless 12900/96 telecommunication services provided by a 11/29/96 third party; (class 38) - ------------------------------------------------------------------------------------------------------------------------------------ Singapore CELLSTAR retail outlets featuring cellular 12901/96 telephones, wireless telecommunication 11/29/96 equipment and accessories for cellular telephones and wireless communication equipment; and wholesale distribution services fetureing cellular telephones, wireless telecommunication equipment and related accessories (class 42) - ------------------------------------------------------------------------------------------------------------------------------------
15 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ South Africa CELLULAR EXPRESS scientific, nautical, surveying, 9,503,360/ (and design) electric, photographic, cinematographic, 03/17/95 optical, weighing, measuring, signaling, checking (supervision), life-saving and teaching apparatus and instruments; apparatus for recording, transmission or reproduction of sound or images; telecommunication devices of all kinds included in the class including mobile and cellular telephones and devises and their accessories; magnetic date carriers, recording discs; automatic vending machines and mechanisms for coin-operated apparatus; cash registers, calculating machines, data processing equipment and computers; fire-extinguishing apparatus (class 9) - ------------------------------------------------------------------------------------------------------------------------------------ South Africa CELLULAR EXPRESS communication services in relation to 9,503,361/ (and design) mobile and cellular telephones and 03/17/95 devices and their accessories (class 38) - ------------------------------------------------------------------------------------------------------------------------------------ South Africa CELLULAR EXPRESS wholesale, retail, mail-order, 9,503,362/ (and design) distribution and subscription services 03/17/95 all relating to mobile and cellular telephones and devices and their accessories (class 42) - ------------------------------------------------------------------------------------------------------------------------------------ Spain CELLSTAR cellular telephones and accessories for 1,744,587/ 1,744,587/ 02/15/2003 cellular telephones in class 9 02/15/93 04/20/94 *02/28/98 Second tax due - ------------------------------------------------------------------------------------------------------------------------------------
16 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ---------------------------------------------------------------------------------------------------------------------------------- Sri Lanka CELLSTAR (and cellular telephones and accessories for 73904/ design) cellular telephones, including mounting 04/06/95 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones and remote listening and speaking devices (class 9) - ---------------------------------------------------------------------------------------------------------------------------------- Sri-Lanka CELLSTAR (and class 38 [in design) preparation] - ---------------------------------------------------------------------------------------------------------------------------------- Sri-Lanka CELLSTAR class 42 [in (and design) preparation] - ---------------------------------------------------------------------------------------------------------------------------------- Taiwan CELLSTAR cellular telephones and accessories for (84) 029970/ [published cellular telephones, namely mounting 06/16/95 05/16/97] brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jackets, carrying cases, headphones, remote listening and speaking devices in class 9 - --------------------------------------------------------------------------------------------------------------------------------- Taiwan CELLSTAR (stylized) services as an agent for the (86) 012806/ sale/distribution of cellular telephones 04/16/97 and parts thereof in class 35 - --------------------------------------------------------------------------------------------------------------------------------- Taiwan CELLSTAR Chinese services as an agent for the (86) 018205/ transliteration sale/distribution of cellular telephones 04/16/97 "Shih-Lo-Shyh-Ta" and parts thereof in class 35 - --------------------------------------------------------------------------------------------------------------------------------- Taiwan CELLULAR EXPRESS (and cellular telephones and accessories for (84)029969/ [published design) cellular telephones, namely mounting 06/16/95 06/01/97] brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jackets, carrying cases, headphones, remote listening and speaking devices in class 9 - ------------------------------------------------------------------------------------------------------------------------------------
17 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ---------------------------------------------------------------------------------------------------------------------------------- Thailand CELLSTAR (stylized) cellular telephones and accessories for 276,536/ cellular telephones in class 9 11/25/94 - ---------------------------------------------------------------------------------------------------------------------------------- Uruguay CELLSTAR all goods in classes 9, 38 and 42 279,888/ 279,888 07/31/95 (approved 04/29/97 registration certificate not yet received) - ---------------------------------------------------------------------------------------------------------------------------------- Venezuela AMIGO DE CELL STAR insurance and financial services in 96014598 [published *(Note 2) class 36 09/02/96 03/07/97 - ---------------------------------------------------------------------------------------------------------------------------------- Venezuela AMIGO DE CELL STAR communications in class 38 96014597 [published *(Note 2) 09/02/96 030797] - ---------------------------------------------------------------------------------------------------------------------------------- Venezuela CELLSTAR (stylized) cellular telephones and accessories 3011/ [published for cellular telephones (accessories 02/26/93 11/01/94] include antennas, antenna mounts, antenna passive repeater, batteries, battery chargers, battery charger clips and battery charger Y-adapters) (class 9) - ---------------------------------------------------------------------------------------------------------------------------------- Venezuela MOVISTAR DE CELL STAR insurance and financial services in 96014595 [published *(Note 2) class 36 09/02/96 03/07/97] - ---------------------------------------------------------------------------------------------------------------------------------- Venezuela MOVISTAR DE CELL STAR communications in class 38 96014594 [published *(Note 2) 09/02/96 03/07/97] - ---------------------------------------------------------------------------------------------------------------------------------- Venezuela SISTEMA AMIGO CELL STAR insurance and financial services in 96016221 [published *(Note 2) class 36 09/27/96 03/07/97] - ---------------------------------------------------------------------------------------------------------------------------------- Venezuela SISTEMA AMIGO CELL STAR communications in class 38 96016218 [published *(Note 2) 09/27/96 03/07/97] - ----------------------------------------------------------------------------------------------------------------------------------
Note 2: Filed by Venezuelan affiliate (Cellstar Celular C.A.); information in schedule based on information received from local associate 18 10/13/97 CELLSTAR, LTD. FOREIGN TRADEMARKS ---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- Vietnam CELLSTAR (and design) cellular telephones and accessories for 16,487/ 13868 12/21/2003 cellular telephones, including mounting 12/21/93 10/22/94 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones and remote listening and speaking devices (class 9) - ---------------------------------------------------------------------------------------------------------------------------------- Vietnam CELLSTAR (and design) class 38 [in preparation] - ---------------------------------------------------------------------------------------------------------------------------------- Vietnam CELLSTAR (and design) class 42 [in preparation] - ----------------------------------------------------------------------------------------------------------------------------------
19 10/13/97 CELLSTAR, LTD. US TRADEMARKS ----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ ACCESSORY cellular telephones and accessories for 74/677,425 2,007,790 10/05/2006 PREFORMANCE PAC cellular telephones, namely batteries, 05/17/95 10/15/96 *10/15/2002 - (S)8 battery eliminators leather cases in and 15 Affidavits class 9, leather cases, in class 18 - ----------------------------------------------------------------------------------------------------------------------------------- BACKED BY THE wholesale distributorships featuring (in BEST cellular telephones and accessories. preparation) - ----------------------------------------------------------------------------------------------------------------------------------- CELLSTAR cellular telephones sold to cellular 74/354,588 1,835,240 05/10/2004 telephone service subscribers and 02/01/93 05/10/94 *05/10/2000 - (S)8 accessories for use with cellular and 15 Affidavits telephones; namely, mounting brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices, in class 9 - ----------------------------------------------------------------------------------------------------------------------------------- CELLSTAR w/globe wholesale distributing services 74/489,103 1,896,626 5/30/2005 logo featuring cellular telephones and 2/14/94 5/30/95 *5/30/2001 - (S)8 related accessories, in class 42 and 15 Affidavits - -----------------------------------------------------------------------------------------------------------------------------------
1 10/13/97 CELLSTAR, LTD. US TRADEMARKS ----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ CELLSTAR (stylized) cellular telephones sold to cellular 74/651,394 1,976,263 05/28/2006 telephone service subscribers and 03/24/95 05/28/96 *05/28/2001 - (S)8 accessories for use with cellular and 15 Affidavits telephones, namely mounting brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices in class 9, cellular telephone communication services, in class 38, retail outlets featuring cellular telephones, and accessories for cellular telephones and cellular telephone subscription contracts; and wholesale distributing services featuring cellular telephones and related accessories, in class 42 - ------------------------------------------------------------------------------------------------------------------------------------ CELLULAR PHONE providing subscription contracts for 74/577,186 1,967,868 04/16/2006 CENTER and design cellular telephone communication 09/22/94 04/16/96 *04/16/2002 - (S)8 services, provided by a third party, in and 15 Affidavits class 38, retail outlets featuring cellular telephones and cellular telephone subscription contracts, in class 42 - ------------------------------------------------------------------------------------------------------------------------------------
2 10/13/97 CELLSTAR, LTD. US TRADEMARKS ----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COMMUNICATION providing subscription contracts for and 74/582,145 2,016,191 11/12/2006 CENTER (stylized) activation of cellular telephone 10/03/94 11/12/96 *11/12/2002- (S)8 communication services, provided by a and 15 Affidavits third party, in class 38, retail outlets featuring cellular telephones, accessories for cellular telephones and cellular telephone subscription contracts in class 42 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- COMMUNICATION CENTER promoting the telecommunications goods 75/028,757 Statement of Use AFFILIATES (stylized) and services of itself and others by 12/01/95 Due 11/28/97 means of promoting memberships in third party discount merchandising clubs, in class 35 - ------------------------------------------------------------------------------------------------------------------------------------ ESSENTIALS CELLULAR cellular telephone accessories, namely 74/686,976 2,086,312 08/05/2007 ACCESSORIES (stylized) antennas, batteries, battery eliminators, 06/12/95 08/05/97 *09/05/2003 (S)8 and battery chargers, carrying cases and 15 Affidavits mounting apparatus and hardware therefor in class 9 - ------------------------------------------------------------------------------------------------------------------------------------ ESSENTIALS CELLULAR whole distributing services featuring 74/686,975 1,985,444 07/09/2006 ACCESSORIES (stylized) accessories related to cellular 06/12/95 07/09/96 *07/09/2002 (S)8 and telephones in class 42 15 Affidavits - ------------------------------------------------------------------------------------------------------------------------------------ FULLFILLING A WIRELESS wholesale distributorship services 74/874,551 2,007,764 10/15/2006 WORLD featuring cellular telephones and related 05/18/95 10/15/96 *10/15/2002- (S)8 and accessories, in class 42 15 Affidavits - ------------------------------------------------------------------------------------------------------------------------------------ FULFILLING YOUR WIRELESS cellular telephone communication services 74/603,603 2,005,075 10/01/2006 WORLD in class 38, Wholesale distributorships 11/28/94 10/01/96 *10/01/2002- (S)8 and featuring cellular telephones, 15 Affidavits accessories for cellular telephones and cellular telephone subscription contracts in class 42
3 10/13/97 CELLSTAR, LTD. US TRADEMARKS ----------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- INTELLIGENT FAST CHARGER cellular telephone battery chargers, in 74/559,265 1,968,988 04/16/2006 class 9 08/10/94 04/16/96 *4/16/2002 - (S)8 and 15 Affidavits - -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- INTERACT (stylized) video terminals used in retail outlets 74/663,849 2,084,473 07/29/97 for the selection and configuration of 04/20/95 07/29/2003 07/29/2007 - (S)8 wireless telecommunications equipment, in and 15 Affidavits class 9, custom design of video terminals used in retail outlets for the selection and configuration of wireless telecommunications equipment, in class 42 - ----------------------------------------------------------------------------------------------------------------------------------- INTERACT INTERACTIVE video terminals used in retail outlets 74/663,850 2,065,618 05/27/2007 ASSISTANT FOR for the selection and configuration of 04/20/95 05/27/97 *05/27/2003- (S)8 COMMUNICATION TECHNOLOGY wireless telecommunications equipment, in and 15 Affidavits class 9, custom design of video terminals used in retail outlets for the selection and configuration of wireless telecommunications equipment, in class 42 - -----------------------------------------------------------------------------------------------------------------------------------
4 10/13/97 CELLSTAR, LTD. US TRADEMARKS ----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ NATIONAL AUTO CELLULAR service activation and subscription 75/015,298 [published for (and design) contracts for cellular telephone 11/06/95 opposition communication services in class 38; 09/30/97] retail outlets featuring cellular telephones, accessories for cellular telephones and services activation and subscription contracts for cellular telephone communication services in class 35 - ------------------------------------------------------------------------------------------------------------------------------------ NATIONAL COMMUNICATION subscription contracts for cellular 74/582,146 Statement of Use Due (and design) telephone communication services in class 10/03/94 12/24/97 38; retail outlets featuring cellular telephones, accessories for cellular telephones and cellular telephone subscription contracts in class 42 - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ------------------------------------------------------------------------------------------------------------------------------------ TWO NAMES YOU CAN cellular telephone communication services 74/483,718 1,875,583 01/24/2005 CLEARLY COUNT ON in class 38, retail outlets featuring 01/28/94 01/24/95 *01/24/2001 - (S)8 cellular telephones and cellular and 15 Affidavits telephone subscription contracts, in class 42 - ------------------------------------------------------------------------------------------------------------------------------------
5 10/13/97 CELLSTAR PACIFIC PTE LTD. TRADEMARKS ------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------------- Saudi Arabia CELLSTAR cellular telephones and accessories 30267 383/12 04/01/2005 (accessories can include mounting 07/30/95 09/09/96 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices) (class 9) - ----------------------------------------------------------------------------------------------------------------------------------- Saudi Arabia CELLSTAR services for business management 39268 383/13 04/01/2005 assistance for the sale of goods, sale 07/30/95 09/09/96 promotion services, demonstration of goods, distribution of samples and shop window dressing services (class 35) - ----------------------------------------------------------------------------------------------------------------------------------- Saudi Arabia CELLSTAR cellular telephone service subscription 30269 383/14 04/01/2005 contracts (class 38) 07/30/95 09/09/96 - ----------------------------------------------------------------------------------------------------------------------------------- United Arab CELLSTAR cellular telephones and accessories 10680 Emirates (accessories can include mounting 05/20/95 brackets, antennas, antenna mounts, batteries, battery chargers, battery eliminators, input and output jacks, carrying cases, headphones, remote listening and speaking devices) (class 9) - ---------------------------------------------------------------------------------------------------------------------------------- United Arab CELLSTAR cellular telephone communication services 10681 Emirates (class 38) 05/20/95 - ---------------------------------------------------------------------------------------------------------------------------------- United Arab CELLSTAR retail outlets featuring cellular 10682 Emirates telephones and accessories for cellular 05/20/95 telephones and cellular telephone subscription contract; and wholesale distributing services featuring cellular telephones and related accessories (class 42) - ----------------------------------------------------------------------------------------------------------------------------------
1 10/13/97 CELLULAR EXPRESS, S.A. de C.V. TRADEMARKS* -----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO./ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR EXPRESS services lent for warehouse buying in 159,172 (and design) bulk and selling retail, and particularly 01/25/93 dedicated to the selling of cellular telephones and their parts and accessories in class 42 - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR EXPRESS (description of goods not available) in 165,316 class 42 04/14/93 - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR EXPRESS (description of goods not available) in 159,238 (and design) class 9 01/26/93 - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR EXPRESS services of repair and maintenance for 135,932 419,106 03/24/2002 (and design) cellular telephones, pieces of sound 03/24/92 08/03/92 equipment for automobiles, and pieces of security for automobiles and the accessories and repair of the previous products in class 37 - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR EXPRESS sale of services of cellular telephones, 135,933 (and design) pieces of sound equipment for 03/24/92 automobiles, pieces of security equipment for automobiles, accessories and refreshment for the previous products in class 42 - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR EXPRESS communications in class 37 302,740 MUCHO MAS QUE 07/29/97 TELEFONIA CELLULAR (and design) [CELLULAR EXPRESS HAS MUCH MORE THAN JUST CELLULAR TELEPHONES] - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR ONE (description of goods not available) in 143,548 class 9 06/30/92 - ----------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR ONE (description of goods not available) in 143,546 class 37 06/30/92 - -----------------------------------------------------------------------------------------------------------------------------
1 10/13/97 CELLULAR EXPRESS, S.A. de C.V. TRADEMARKS* -----------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- COUNTRY MARK DESCRIPTION OF GOODS AND SERVICES SER. NO/ REG. NO./ RENEWAL DATE/ FILING DATE REG. DATE *OTHER - -------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR ONE (description of goods not available) in 143,545 class 42 06/30/92 - -------------------------------------------------------------------------------------------------------------------------- Mexico CELL STAR (and pieces of equipment or instruments 165,557 474,925 04/16/2003 design) scientific nautical, of surveying, of 04/16/93 09/27/94 weight, of measurement, of signal (lighted marker) of control (inspection), of held (aid) and of teaching; pieces transmittal, reproduction of the sound or the images; supports of magnetic registers acoustic discs; automatic distributors and mechanics for pieces of equipment of previous pay, cash registers, calculator machines, equipment of the treatment of the information (data process) and the computers' extinguisher, with exclusive express of the cellular telephones in class 9 - -------------------------------------------------------------------------------------------------------------------------- Mexico CELL STAR (and construction and repair services in class 167,739 446,979 05/14/2003 design) 37 05/14/93 11/23/93 - -------------------------------------------------------------------------------------------------------------------------- Mexico CELL STAR (and services lent for warehouse buying in 167,738 446,978 05/14/2003 design) bulk and selling retail, and particularly 05/14/93 11/23/93 dedicated to the selling of cellular telephones and their parts and accessories in class 42 - -------------------------------------------------------------------------------------------------------------------------- Mexico CELL STAR (and cellular telephones in class 9 160,775 440,077 02/15/2003 design) 02/15/93 08/19/93 - -------------------------------------------------------------------------------------------------------------------------- Mexico CELLULAR EXPRESS trade name 440,077 S.A. de C.V. 06/02/94 - --------------------------------------------------------------------------------------------------------------------------
* Based on information provided to Sroufe, Payne & Lundeen, L.L.P. by a third party which may be incomplete or inaccurate; while Sroufe, Payne & Lundeen, L.L.P. has taken every effort to present the information available as accurately and completely as possible, Sroufe, Payne & Lundeen, L.L.P. takes no responsibility for the completeness or accuracy of the information herein. 2 SCHEDULE 10.2 ------------- EXISTING LIENS --------------
DEBTOR JURISDICTION SECURED PARTY FILE NO FILE DATE COLLATERAL - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Florida Citicorp Dealer 96-211524 10/07/96 1996 Mitsubishi PMWR Finance #30198 - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948 CellStar Finance - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Shannon Corp. 93-90829 5/10/93 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Citicorp Corp. 93-102461 5/24/93 Sch not on file with S/S - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas European American 94-30859 2/17/94 Equipment Bank - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Shannon Corp. 94-113649 6/9/94 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Shannon Corp. 94-148847 7/28/94 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas IBM Corp. 95-6283 1/10/95 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas IBM Corp. 95-6284 1/10/95 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas European American 95-39185 2/27/95 Equipment Bank - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Citicorp Dealer 96-202240 10/10/96 1996 Mitsubishi PMWR Finance #30198 - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Shannon Corp. 96-254520 12/27/96 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Citicorp Dealer 97-20214 02/03/97 1996 Pettibone #352948 Finance - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Texas Raymond Leasing 97-104133 5/29/97 Equipment CellStar, Ltd. Corp. - ------------------------------------------------------------------------------------------------------------------------------------ CellStar West, Inc. S/S California Lucent Technologies 9430260066 10/6/94 AT&T Inventory - ------------------------------------------------------------------------------------------------------------------------------------ CellStar West, Inc. S/S California Bay Area Cellular 9610860112 4/16/96 Equipment, Inventory, consignment - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas GTE Leasing Corp. 95-61910 3/20/95 Telephone equipment - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas Computer Sales Int'l 95-76492 4/18/95 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas European American 95-77664 4/20/95 Equipment Lease Bank - ------------------------------------------------------------------------------------------------------------------------------------
Schedule 10.2 - Existing Liens 1 SCHEDULE 10.2 ------------- EXISTING LIENS -------------- - ------------------------------------------------------------------------------------------------------------------------------------ National Auto Center, Inc. S/S Florida Citicorp Dealer 96-211524 10/07/96 1996 Mitsubishi PMWR Finance #30198 - ------------------------------------------------------------------------------------------------------------------------------------ CellStar Ltd. S/S Texas Shannon Corp. 95-82654 4/27/95 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas First Interstate Bank /1/ 95-104339 5/26/95 Real Property, fixtures - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas USL Capital Corp. 95-174786 9/8/95 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas Computer Sales Int'l 95-211875 11/1/95 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas American Business 95-233005 12/4/95 Equipment Credit Corp. - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas American Business 96-134429 7/8/96 Equipment Credit Corp. - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas AT&T Leasing 96-201879 10/10/96 Equipment Systems - ------------------------------------------------------------------------------------------------------------------------------------ CellStar, Ltd. S/S Texas Raymond Leasing 97-104133 5/19/97 Equipment National Auto Center, Inc. Corp. - ------------------------------------------------------------------------------------------------------------------------------------ CellStar S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948 Finance - ------------------------------------------------------------------------------------------------------------------------------------ CellStar Corporation Harris Co., Texas Houston Westpark 874662 12/13/93 Furniture, Requipment, Warehouse Inventory - ------------------------------------------------------------------------------------------------------------------------------------ CellStar Corporation S/S Texas Houston Westpark 93-226388 11/29/93 Furniture, Equipment, Warehouse Inventory - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
_________________________ /1/ Indebtedness secured by this loan has been paid in full and releases are being processed. Schedule 10.2 - Existing Liens 2 SCHEDULE 10.2 ------------- EXISTING LIENS --------------
- --------------------------------------------------------------------------------------------------------------------------- DEBTOR JURISDICTION SECURED PARTY FILE NO FILE DATE COLLATERAL - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Florida Citicorp Dealer 96-211524 10/07/96 1996 Mitsubishi PMWR Finance #30198 - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948 CellStar Finance - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Shannon Corp. 93-90829 5/10/93 Equipment - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Citicorp Corp. 93-102461 5/24/93 Sch not on file with S/S - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas European American 94-30859 2/17/94 Equipment Bank - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Shannon Corp. 94-113649 6/9/94 Equipment - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Shannon Corp. 94-148847 7/28/94 Equipment - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas IBM Corp. 95-6283 1/10/95 Equipment - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas IBM Corp. 95-6284 1/10/95 Equipment - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas European American 95-39185 2/27/95 Equipment Bank - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Citicorp Dealer 96-202240 10/10/96 1996 Mitsubishi PMWR Finance #30198 - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Shannon Corp. 96-254520 12/27/96 Equipment - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Citicorp Dealer 97-20214 02/03/97 1996 Pettibone #352948 Finance - --------------------------------------------------------------------------------------------------------------------------- National Auto Center, Inc. S/S Texas Raymond Leasing 97-104133 5/29/97 Equipment CellStar, Ltd. Corp. - --------------------------------------------------------------------------------------------------------------------------- CellStar West, Inc. S/S California Lucent Technologies 9430260066 10/6/94 AT&T Inventory - --------------------------------------------------------------------------------------------------------------------------- CellStar West, Inc. S/S California Bay Area Cellular 9610860112 4/16/96 Equipment, Inventory, consignment - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas GTE Leasing Corp. 95-61910 3/20/95 Telephone equipment - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas Computer Sales Int'l 95-76492 4/18/95 Equipment - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas European American 95-77664 4/20/95 Equipment Lease Bank - ---------------------------------------------------------------------------------------------------------------------------
Schedule 10.2- Existing Liens 1 SCHEDULE 10.2 ------------- EXISTING LIENS --------------
- --------------------------------------------------------------------------------------------------------------------------- NATIONAL AUTO CENTER, INC. S/S FLORIDA CITICORP DEALER 96-211524 10/07/96 1996 MITSUBISHI PMWR FINANCE #30198 - --------------------------------------------------------------------------------------------------------------------------- CellStar Ltd. S/S Texas Shannon Corp. 95-82654 4/27/95 Equipment - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas First Interstate Bank /1/ 95-104339 5/26/95 Real Property, fixtures - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas USL Capital Corp. 95-174786 9/8/95 Equipment - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas Computer Sales Int'l 95-211875 11/1/95 Equipment - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas American Business 95-233005 12/4/95 Equipment Credit Corp. - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas American Business 96-134429 7/8/96 Equipment Credit Corp. - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas AT&T Leasing 96-201879 10/10/96 Equipment Systems - --------------------------------------------------------------------------------------------------------------------------- CellStar, Ltd. S/S Texas Raymond Leasing 97-104133 5/19/97 Equipment National Auto Center, Inc. Corp. - --------------------------------------------------------------------------------------------------------------------------- CellStar S/S Florida Citicorp Dealer 97-008867 1/13/97 1996 Pettibone #352948 Finance - --------------------------------------------------------------------------------------------------------------------------- CellStar Corporation Harris Co., Texas Houston Westpark 874662 12/13/93 Furniture, Requipment, Warehouse Inventory - --------------------------------------------------------------------------------------------------------------------------- CellStar Corporation S/S Texas Houston Westpark 93-226388 11/29/93 Furniture, Equipment, Warehouse Inventory - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
________________________ /1/ Indebtedness secured by this loan has been paid in full and releases are being processed. Schedule 10.2- Existing Liens 2 EX-10.15 5 LONG-TERM INCENTIVE PLAN EXHIBIT 10.15 CELLSTAR CORPORATION 1993 AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN -------------------------------------------------- (as amended and restated through January 13, 1998) This Plan amends and restates the CellStar Corporation 1993 Stock Option Plan, as previously amended and restated, which first became effective on December 3, 1993. Capitalized terms used herein are defined in Article 2 hereof. To the extent permitted under Rule 16b-3, Sections 162(m) and 422 of the Code, and any other applicable law or regulation, the Committee shall have the power, in its sole discretion, to apply any or all of the amendments effected hereby to outstanding Stock Options previously granted under the Plan; provided that, to the extent that the application of any such amendment to an outstanding Stock Option shall have an Adverse Consequence for the Company and/or a Participant, such amendment shall not apply unless it is specifically approved by the Committee and consented to by the Participant. This Plan, as amended and restated, shall be effective as of January 13, 1998. 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 the Board or by a committee appointed by the Board, consisting of at least two members of the Board; provided that, (i) with respect to any Award that is intended to satisfy the requirements of Rule 16b-3, such Award shall be granted and administered by the full Board or by a committee of the Board consisting of at least such number of directors as are required from time to time by Rule 16b-3, and each such board or committee member shall meet such qualifications as are required by Rule 16b-3 from time to time; and (ii) with respect to any Award that is intended to satisfy the requirements of the Section 162(m) Exception, such Award shall be granted and administered by a committee of the Board consisting of at least such number of directors as are required from time to time to satisfy the Section 162(m) Exception, and each such committee member shall meet such qualifications as are required, from time to time, to satisfy the Section 162(m) Exception. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. The Committee shall select one of its members to act as its Chairman. A majority of the Committee shall constitute a quorum, and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. 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 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. 11 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: (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; 15 (b) Appropriate adjustments shall be made in the number of shares of Common Stock purchasable under outstanding, unexercised Stock Options and the Option Exercise Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each such instance shall remain subject to purchase at the same aggregate Option Exercise Price; (c) Appropriate adjustments shall be made in the number of shares of Common Stock subject to outstanding, unexercised SARs and the SAR Price therefor, to the end that the same proportion of the Company's issued and outstanding shares of Common Stock in each instance shall remain subject to exercise at the same aggregate SAR Price; and (d) Appropriate adjustments shall be made in the number of outstanding shares of Restricted Stock with respect to which restrictions have not yet lapsed prior to any such change. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, (i) the number, or Option Exercise Price, of shares of Common Stock then subject to outstanding Stock Options granted under the Plan, (ii) the number, or SAR Price, of SARs then subject to outstanding SARs granted under the Plan, or (iii) the number of outstanding shares of Restricted Stock. Upon the occurrence of each event requiring an adjustment with respect to Stock Options, SARs, or shares of Restricted Stock, the Company shall mail to each affected Participant its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant. ARTICLE 13 RECAPITALIZATION, MERGER AND CONSOLIDATION ------------------------------------------ (a) The existence of this Plan and Incentives granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, or other changes in the Company's capital structure and its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common stock or the rights thereof (or any rights, options, or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any Incentive granted hereunder shall pertain to and apply to the securities or rights (including cash, property, or assets) to which a holder of the number of shares of Common Stock subject to the Incentive would have been entitled. (c) In the event of any merger or consolidation pursuant to which the Company is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised or unvested portions of outstanding Incentives, that number of shares of each class of stock or other securities or that amount of cash, property, or assets of the surviving or consolidated company that were distributed or distributable to the stockholders of the Company in respect to each share of Common Stock held by them, such outstanding Incentives be thereafter pertain to such stock, securities, cash, or property in accordance with their terms (subject to subparagraph (d) below). Notwithstanding the foregoing, however, all such Incentives may be cancelled by the Board as of the effective date of any such 16 reorganization, merger, or consolidation, by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the exercise during the thirty (30) day period next preceding such effective date of any outstanding Stock Options or SARs, whether or not vested in accordance with their original terms, and by waiving all restrictions on outstanding shares of Restricted Stock. (d) In the event of a Change of Control, then, notwithstanding any other provision in this Plan to the contrary, all unmatured installments of Incentives outstanding shall thereupon automatically be accelerated and exercisable in full, and all restrictions and/or performance goals with respect to any Incentive shall be deemed satisfied. The determination of the Committee that any of the foregoing conditions has been met shall be binding and conclusive on all parties. ARTICLE 14 LIQUIDATION OR DISSOLUTION -------------------------- In case the Company shall, at any time while any Incentive under this Plan shall be in force and remain unexpired, (i) sell all or substantially all of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant may thereafter receive upon exercise of any Option or SAR (in lieu of each share of Common Stock of the Company which such Participant would have been entitled to receive) the same kind and amount of any securities or assets as may be issuable, distributable, or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Company. If the Company shall, at any time prior to the expiration of any Incentive, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such), then in such event the exercise prices then in effect with respect to any outstanding Stock Options or SARs shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company's Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution. ARTICLE 15 INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS ---------------------------------------- Stock Options, SARs and shares of Restricted Stock may be granted under the Plan from time to time in substitution for options, stock appreciation rights or shares of restricted stock held by employees of a corporation who become or are about to become Employees of the Company or any Subsidiary as a result of a merger or consolidation of the employing corporation with the Company or the acquisition by the Company of stock of the employing corporation. The terms and conditions of the substitute Incentives so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options, stock appreciation rights or shares of restricted stock in substitution for which they are granted. ARTICLE 16 MISCELLANEOUS PROVISIONS ------------------------ 16.1 INVESTMENT INTENT. The Company may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Incentives granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution. 17 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 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 18 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 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. 19 IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of January 13, 1998, 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 Rodriguez - ------------------------------------ Secretary 20 EX-10.18 6 REGISTRATION RIGHTS EXHIBIT 10.18 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of June --------- 2, 1995, between Hong An Hsien ("Mr. Hong") and CellStar Corporation (the -------- "Company"). ------- R E C I T A L S --------------- A. CellStar International Corporation\Asia ("CellStar Asia"), C-Mart USA ------------- Corporation ("C-Mart"), Jemsem International Corp. ("Jemsem"), and Mr. Hong ------ ------ are parties to an Asset Purchase Agreement dated as of May 31, 1995 (the "Asset Purchase Agreement"), pursuant to which CellStar Asia has purchased ------------------------ specified assets of C-Mart and Jemsem. B. In consideration of the transactions described in the Asset Purchase Agreement, the Company now wishes to grant to Mr. Hong registration rights in 1,000,000 of the shares of Common Stock, par value $0.01 (the "Stock"), ----- of the Company held by Mr. Hong, represented by certificate number _____. A G R E E M E N T ----------------- Based on the foregoing and the mutual promises contained herein, the parties agree as follows: Registration of the Stock ------------------------- 1. Incidental Registration. If the Company 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 the Company shall use its reasonable best efforts to include under such registration statement all shares of the Stock that Mr. Hong may request, limited to: (i) One registration statement that becomes effective under the Securities Act in which Mr. Hong is not subject to reduction in clause (ii) below; and (ii) 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 Mr. Hong is required, pursuant to clause (ii) above, to ------- reduce the number of shares of 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. Mr. Hong 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 Mr. Hong has requested registration, divided by the total of the number of shares for which Mr. Hong has requested registration plus all other shares for which other stockholders have requested registration and that are subject to reduction. 3. Conditions to Registration. (a) As a condition to Mr. Hong's -------------------------- participation in any underwritten offering, Mr. Hong shall (i) execute the underwriting agreement agreed on by the Company and the underwriter, (ii) pay his pro rata share of offering expenses, all underwriting discounts, selling commissions and transfer taxes applicable to his shares and the fees of his own counsel, if any, and (iii) cooperate with, and provide information to, the Company in connection with the preparation of the registration statement and the sale of stock contemplated thereby. (b) As a condition to Mr. Hong's participation in any registration that is not an underwritten offering, Mr. Hong shall (i) pay his pro rata share of offering expenses and transfer taxes applicable to his shares and the fees of his own counsel, if any, and (ii) cooperate with, and provide information to, the Company 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. -2- If to the Company: CellStar Corporation 1730 Briercroft Court Carrollton, Texas 75006 Attn: Elaine F. Rodriguez If to Mr. Hong: 81 Ching Chian Road Peitou, Taipei Taiwan ROC 8. Counterparts. This Agreement may be executed in any number of ------------ counterparts, 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 of this Agreement shall be adjudicated by any 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. * * * * * -3- This Agreement has been executed and delivered as of the date first written above. /s/ Hong An Hsien ------------------------------------- Hong An Hsien CELLSTAR CORPORATION By: /s/ Alan H. Goldfield ---------------------------------- Name: Alan H. Goldfield --------------------------- Title: Chief Executive Officer --------------------------- -4- EX-21.1 7 LIST OF SUBSIDIARIES EXHBIT 21.1 LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES ------------------------------------------- AND PERCENTAGE OF CELLSTAR CORPORATION'S OWNERSHIP/1/ ----------------------------------------------------- [as of February 23, 1998] Name of Subsidiary Incorporation - ------------------ ------------- National Auto Center, Inc. Delaware CellStar Financo, Inc. Delaware CellStar Air Services, Inc. Delaware A&S Air Service, Inc. Delaware CellStar Telecom, Inc. Delaware Topp Telecom, Inc./2/ Florida CellStar Ireland Ireland CellStar Fulfillment, Inc. Delaware NAC Holdings, Inc. Nevada CellStar Holding AB Sweden CellStar - Intercall AB Sweden CellStar West, Inc./3/ Delaware Florida Properties, Inc. Texas CellStar, Ltd. Texas Limited Partnership CellStar Fulfillment, Ltd. Texas Limited Partnership - ------------------------ /1/ 100%, unless otherwise stated. /2/ 18%. Have subscribed for an additional 12% of outstanding stock. /3/ 80% owned LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES ------------------------------------------- AND PERCENTAGE OF CELLSTAR CORPORATION'S OWNERSHIP -------------------------------------------------- [as of February 23, 1998] Name of Subsidiary Incorporation - ------------------ ------------- CellStar International Corporation/SA Delaware CellStar, S.A. Argentina CellStar International Telefonia Celular Ltda. Brazil CellStar Industria da Telefonia da Amazonia Ltda. Brazil CellStar do Brasil Ltda./4/ Brazil CellStar Celular Chile, S.A. Chile CellStar de Colombia, S.A. Colombia CellStar Ecuador, S.A. Ecuador CellStar (UK) Ltd. United Kingdom CellStar Europe Ltd. United Kingdom CellStar Celular, S.A. Venezuela ACC-CellStar, Inc./5/ Delaware Audiomex Export Corp. Texas Celular Express S.A. de C.V. Mexico Celular Express Management S.A. de C.V. Mexico - ------------------------- /4/ 51% owned. /5/ 80% owned. 2 LIST OF SUBSIDIARIES AND FOREIGN AFFILIATES ------------------------------------------- AND PERCENTAGE OF CELLSTAR CORPORATION'S OWNERSHIP -------------------------------------------------- [as of February 23, 1998] Name of Subsidiary Incorporation - ------------------ ------------- CellStar International Corporation/Asia Delaware CellStar Pacific Pte. Ltd. Singapore CellStar Amtel Sdn Bhd/6/ Malaysia CellStar Philippines, Inc. Philippines CellStar Telecommunication Taiwan Co Ltd. Taiwan CellStar (Asia) Corporation Limited Hong Kong Shanghai CellStar International Trading Co. Ltd. PRC CellStar Telecommunications Service (Asia) Limited/7/ Hong Kong CellStar Singapore Pte Ltd Singapore HCL-CellStar Ltd./8/ India - ------------------------ /6/ 30% directly owned and 19% beneficially owned. /7/ 60% owned. /8/ 50% owned. 3 EX-23.1 8 AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors CellStar Corporation: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-87754 and 333-23381) and Form S-3 (No. 333-41753) of CellStar Corporation of our report dated January 13, 1998, relating to the consolidated balance sheets of CellStar Corporation and subsidiaries as of November 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended November 30, 1997, and the related schedule, which report appears in the November 30, 1997 annual report on Form 10-K of CellStar Corporation. /s/ KPMG Peat Marwick LLP Dallas, Texas February 27, 1998 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR NOV-30-1997 DEC-01-1996 NOV-30-1997 74,646 0 199,889 23,857 190,404 446,200 34,009 11,132 497,111 186,246 150,000 0 0 293 160,572 497,111 1,482,814 1,482,814 1,325,488 77,080 (2,725) 4,239 7,776 70,956 17,323 53,633 0 0 0 53,633 1.78 0
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