-----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, Inq3dwxzbzulRVspAXkfPbDuXNutOwD7EjazIi6+0OO/X7kxDWGCtJNbDQMHNv6l uFoxN4v6cMhCYhMKYI8vJw== 0000930661-97-001697.txt : 19970711 0000930661-97-001697.hdr.sgml : 19970711 ACCESSION NUMBER: 0000930661-97-001697 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970710 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLSTAR CORP CENTRAL INDEX KEY: 0000913590 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 752479727 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-22972 FILM NUMBER: 97639148 BUSINESS ADDRESS: STREET 1: 1730 BRIERCROFT DR CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 2144665000 10-K405/A 1 AMENDMENT NO. 1 TO FORM 10-K405/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number November 30, 1996 0-22972 CELLSTAR CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2479727 (State of Incorporation) (I.R.S. Employer Identification No.) 1730 Briercroft Court Carrollton, Texas 75006 Telephone (972) 466-5000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, 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. X --- On January 31, 1997, the aggregate market value of the voting stock held by nonaffiliates of the Company was approximately $277,603,415, based on the closing sales price of $23.125 as reported by the NASDAQ/NMS. (For purposes of determination of the above stated amount, only directors, executive officers and 10% or greater stockholders have been deemed affiliates). On January 31, 1997, there were 19,274,812 outstanding shares of Common Stock, $0.01 par value. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held during 1997 are incorporated by reference into Part III of the Form 10-K. CELLSTAR CORPORATION INDEX TO FORM 10-K/A, AMENDMENT NO. 1
Page Number Part I. - ------- Item 1. Business 3 Item 2. Properties * Item 3. Legal Proceedings * Item 4. Submission of Matters to a Vote of Security Holders * Part II. - -------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters * Item 6. Selected Consolidated Financial Data * Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations * Item 8. Consolidated Financial Statements and Supplementary Data 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure * Part III. - --------- Item 10. Directors and Executive Officers of the Registrant * Item 11. Executive Compensation * Item 12. Security Ownership of Certain Beneficial Owners and Management * Item 13. Certain Relationships and Related Transactions * Part IV. - -------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17
- ------------------- * Not amended. 2 Part I. Item 1. Business General CellStar Overview CellStar Corporation ("CellStar" or the "Company") is an integrated wholesaler and retailer of cellular phones and other wireless communications products, with operations in the United States, the Asia-Pacific region, Latin America and the United Kingdom. The Company is one of the world's largest non- carrier wholesale distributors of cellular phones for Motorola Inc. ("Motorola"), Nokia Mobile Phones, Inc. ("Nokia") and Ericsson Inc. ("Ericsson"). The Company is also one of the largest non-carrier wholesale distributors of cellular phones for NEC Corporation ("NEC") in the United States. The Company is also a retailer of wireless communications products and services, with 36 retail locations in the United States, 6 retail locations in the Asia-Pacific region and 20 locations in Latin America as of November 30, 1996. The Company was formed as a Delaware corporation in 1981 to distribute and install automotive aftermarket products. In 1984, the Company began offering cellular phone products and services, and in 1989, the Company became an authorized distributor of Motorola cellular phones in certain regions of the United States. The Company entered into a similar arrangement with Motorola in Latin America in 1991 and in the Asia-Pacific region in 1994. In addition to its operations in the United States, as of November 30, 1996, the Company conducted operations in Hong Kong, China, Singapore, Malaysia, Taiwan and the Philippines (collectively, the "Asia-Pacific Region"), Mexico, Colombia, Venezuela, Ecuador, Chile, Argentina, and Brazil (collectively, the "Latin American Region") and the United Kingdom. Industry Overview Wireless communications technology provides a communications link between the public switched phone network and wireless communications devices, such as cellular handheld, mobile and transportable phones, pagers and two-way radios. Since its inception in 1983, the market for commercial cellular phone service has experienced rapid growth worldwide. According to industry estimates, as of December 31, 1995, there were approximately 85 million cellular phone subscribers worldwide, of which approximately 32 million subscribers were in the United States, approximately 7 million subscribers were in the Asia Pacific Region, approximately 3 million subscribers were in the Latin American Region and approximately 5 million subscribers were in the United Kingdom. As the communications industry evolves, new wireless communications technologies, such as personal communications services ("PCS"), enhanced specialized mobile radio ("ESMR") systems, and satellite-based systems, continue to emerge as alternatives to cellular systems. The Company anticipates that the continued growth of communications technologies and services such as PCS, ESMR and satellite-based systems will impact the composition of the wireless communications market. Although these new technologies are expected to compete with cellular technology, the Company believes that the wireless communications equipment industry as a whole will benefit from the emergence of such technologies, as well as from the rapid growth of the worldwide cellular market in general and the expected continuance of upgrades from analog to digital cellular technology. 3 United States Industry In the United States, cellular phone service was developed as an alternative to conventional landline systems and existing mobile phone service and has been one of the fastest growing market segments in the communications industry. The number of U.S. cellular subscribers has grown significantly since the inception of the cellular phone industry in 1983. According to industry estimates, as of December 31, 1995, there were approximately 32 million subscribers in the United States. In 1996, according to industry estimates, the number of cellular subscribers in the United States grew over 10 million. The chart below sets forth certain estimated information regarding U.S. cellular phone shipments and subscriber growth.
Year Ended December 31, ----------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Number of Cellular Phones Shipped 16,619 14,381 12,774 8,565 6,049 Number of Subscribers 42,300 32,187 23,630 16,255 11,428
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market Trends 1996 (December 1996 Estimates) The Company believes that the U.S. market for wireless services will continue to expand due to the increasing affordability and availability of such services and shorter development cycles for new products and enhancements. In addition, many cellular service providers are upgrading their existing cellular systems from analog to digital technology as a result of capacity constraints in many of the larger cellular markets and in order to respond to competition. Digital technology increases system capacity and is expected to offer other advantages, such as improved overall average signal quality, improved call security, potentially lower incremental costs for additional subscribers and the ability to provide data transmission services. If digital technology improves and becomes more affordable, the Company may benefit both from the sale of digital cellular phones as replacements for existing analog cellular phones and from the increased system capacity digital technology offers. Wholesale Operations General. Approximately 87% of the Company's U.S. revenues during fiscal 1996 were derived from wholesale operations. In the United States, manufacturers such as Motorola, Nokia, Ericsson and NEC sell cellular phones directly to large cellular carriers, such as AT&T Wireless Services, Inc., and large mass merchandisers, such as Sears, Roebuck and Co. The Company's wholesale operations complement these manufacturers' distribution channels, in that these manufacturers generally also sell to wholesale distributors such as the Company in order to access smaller volume purchasers. The Company also acts as a wholesale distributor of cellular accessories manufactured by original equipment manufacturers ("OEMs") and other suppliers to cellular carriers and mass merchandisers, as well as to smaller volume purchasers. 4 During fiscal 1996, the Company sold its products to over 3,000 U.S. wholesale customers, the ten largest of which accounted for approximately 24% of the Company's consolidated net product sales in fiscal 1996. The Company offers cellular phones and accessories manufactured by OEMs, such as Motorola, Nokia, NEC and Ericsson, and aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, antennas, batteries, battery packs, battery eliminators and battery chargers. The Company sells these products under private labels to cellular carriers such as Southwestern Bell Mobile Systems, Inc., GTE Mobilnet, AirTouch Cellular, Cellular One and U.S. Cellular. The Company continues to broaden its product mix to include products that are compatible with new systems, such as GSM (Global System for Mobile Communications) and other digital systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. During fiscal 1996, the Company began to take advantage of the growing demand for value-added facilitation and fulfillment services, including aftermarket and OEM product packaging and configuration, inventory management, order processing, return and repair management, marketing and design, credit and collections, and phone sales. The Company has provided some or all of these services to small carriers and, in October 1996, the Company entered into an agreement with Pacific Bell Mobile Services, pursuant to which the Company provides certain of these facilitation services. The Company's primary distribution facility, a 120,000 square foot warehouse facility, is located at its international headquarters in the Dallas/Fort Worth metropolitan area. The Company also operates a wholesale distribution facility in Miami, Florida to serve customers in the Latin American Region. During fiscal 1996, the Company altered its business strategy to sell to customers exporting into Colombia, Venezuela, Ecuador, Chile, Argentina and Brazil ("South America") directly from the Miami location rather than from its operations in South America. The Company also offers facilitation services for its operations in the Latin American Region out of the Miami location. The Company also operates smaller distribution facilities from its Hayward, California location. Sales and Marketing. The Company markets its products nationally to wholesale purchasers through its direct sales force and trade journal advertising. The Company offers advertising allowances, ready-to-use advertising materials and displays, easy access to hard-to-find products, credit terms, a variety of name brand products and highly responsive customer service. Retail Operations General. Approximately 13% of the Company's U.S. revenues in fiscal 1996 were derived from retail operations. On November 26, 1996, as part of its move to focus on its core wholesale business, the Company sold 334 of its 355 Communication Centers to MCI Telecommunications Corporation ("MCI"). Prior to such sale, the Company was a large activation agent of cellular phones in the United States, activating cellular service for large cellular carriers throughout the United States. During fiscal 1996, the Company had an average of approximately 350 Communication Centers in operation. As of November 30, 1996, the Company conducted its U.S. retail operations through 15 stand-alone retail stores in four states and its 21 remaining Communication Centers. The Company's retail stores generate revenues from three sources: the sale of cellular phones and other products, activation commissions and, in many cases, residual payments. An 5 activation commission is paid by a cellular carrier when a customer initially subscribes for cellular service. The amount of the activation commission paid by a cellular carrier is based on the service plans and promotional marketing programs offered by that particular cellular carrier. Many of the Company's carrier contracts provide for a residual payment, which is a monthly payment made by a cellular carrier to the Company based on the cellular phone usage by a customer activated by the Company. Because standard cellular industry practice among activation agents is to offer certain cellular phones to a cellular subscriber at no charge, as a practical matter, the Company does not believe it can operate at the retail level on a profitable basis without agency agreements with cellular carriers that provide for activation commissions or residual fees. The Company's relationships with its carriers are governed by contracts, pursuant to which the Company is engaged as an agent to solicit and sell cellular phone services in certain geographic areas and may not act as a representative or agent for any other carrier or reseller in those areas. In the Dallas/Fort Worth, Texas, Kansas City, Missouri, and Kansas City and Wichita, Kansas markets, the Company conducts its retail operations under the name National Auto Cellular, and in the Houston and Austin, Texas markets, the Company conducts business under the name PC Cellular. The Company recently closed its retail locations in San Diego, California and Syracuse, New York. Sales and Marketing. The Company promotes its stand-alone retail stores through direct mailings and local media, including billboards, newspapers and radio. Most of the Company's advertising expenditures are spent on print and radio advertising in order to take advantage of cooperative advertising allowances generally provided by manufacturers and cellular phone carriers. To penetrate local markets, the Company has made use of subagent relationships. Subagents solicit customers and activate cellular service on behalf of the Company and receive a majority of the activation commissions, while the Company receives the residual commissions. Asia-Pacific Region Industry According to industry estimates, in 1995, the number of cellular subscribers in the Asia-Pacific Region grew over 3 million. In 1996, according to industry estimates, the number of cellular subscribers in the Asia-Pacific Region grew over 5 million. Whereas demand for wireless service in major industrialized countries has been driven primarily by automobile and business travel, the Company believes that in the Asia-Pacific Region, demand for such services has been and will continue to be driven by an unsatisfied demand for basic phone service due to the lack of adequate landline service and limited wireless penetration. The Company believes that wireless systems in this region offer a more attractive alternative to landline systems because wireless systems do not require the substantial amount of time and investment in infrastructure (in the form of buried or overhead cables) associated with landline systems. Based on these factors, as well as the large population bases and economic growth in this region, the Company believes that phone users will increasingly utilize wireless systems, despite the fact that wireless service may be more expensive to the consumer than conventional landline communications. 6 The chart below sets forth certain estimated information regarding cellular phone shipments and subscriber growth in the Asia-Pacific Region.
Year Ended December 31, ----------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Number of Cellular Phones Shipped 5,883 3,606 1,685 954 545 Number of Subscribers 11,865 6,753 3,576 2,054 1,195
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market Trends 1996 (December 1996 Estimates) Operations General. The key to the Company's expansion in the Asia-Pacific Region has been its relationships with wireless equipment manufacturers. The Company typically enters a new market with the support of a manufacturer. The Company distributes products in the Asia-Pacific Region primarily for Motorola and Ericsson. Throughout the Asia-Pacific Region, CellStar acts as a wholesale distributor of wireless phones to large and small volume purchasers, including indirect sales to the large cellular carriers. Although the Company's business in the Asia-Pacific Region is predominantly wholesale, operations within a particular country may be either wholesale, retail, or both, and may be owned solely by the Company or jointly with local partners, depending on the market and regulatory environment in the host country. The following table outlines the Company's entry into the Asia-Pacific Region:
Type of Operation Country Year Entered (as of November 30, 1996) - ------- ------------ ------------------------- Hong Kong/China 1993 Wholesale Singapore 1995 Wholesale and Retail The Philippines 1995 Wholesale Malaysia 1995 Wholesale and Retail Taiwan 1995 Wholesale
All of the Company's operations in this region are wholly or majority-owned except for the Company's operations in Malaysia. CellStar (Asia) Corporation, Ltd. ("CellStar Asia"), the oldest of the Company's business units in the region and the Company's most significant operation outside the United States, began as a joint venture in 1993 and became wholly-owned in June 1995. CellStar Asia's revenue is derived principally from wholesale sales of wireless products to Hong Kong-based companies that ship wireless products to China. At November 30, 1996, the Company sold its products to approximately 56 wholesale customers in the Asia-Pacific Region, the ten largest of which accounted for approximately 21% of the Company's consolidated net product sales in fiscal 1996. The Company offers wireless phones and accessories manufactured by OEMs, such as Motorola and Ericsson, and 7 aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, hands-free kits, earphones and plug-in chargers. The Company continues to broaden its product mix in the Asia-Pacific Region to include products that are compatible with new systems, such as ETAC (Enhanced Total Access Communications), GSM and other digital systems. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company's operations and sales in the Asia-Pacific Region are subject to political and economic risks, including political instability, currency controls, currency devaluations, exchange rate fluctuations, increased credit risks, inflation, foreign tax laws, changes in import/export regulations and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. Sales and Marketing. The Company markets its products to wholesale purchasers through direct sales and advertising. To penetrate local markets in the Philippines, the Company has made use of subagent relationships. Latin American Region Industry According to industry estimates, in 1995, the number of cellular subscribers in the Latin American Region grew over 1 million. In 1996, according to industry estimates, the number of cellular subscribers in the Latin American Region grew by close to 2 million. The Company believes that in the Latin American Region, demand for such services has been and will continue to be driven by an unsatisfied demand for basic phone service due to lack of adequate landline service and limited wireless penetration, as well as expansion of wireless capacity in this region. 8 The chart below sets forth certain estimated information regarding cellular phone shipments and subscriber growth in the Latin American Region.
Year Ended December 31, ------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands) Number of Cellular Phones Shipped 2,222 1,461 1,010 434 271 Number of Subscribers 5,272 3,305 1,951 962 527
Source: Dataquest, Cellular Telephony Market Worldwide Overview - Market Trends 1996 (December 1996 Estimates) Operations General. The key to the Company's expansion in the Latin American Region has been its relationships with wireless equipment manufacturers and wireless service carriers. The Company distributes products in the Latin American Region for Motorola, Ericsson and Nokia. CellStar acts as a wholesale distributor of cellular phones in the Latin American Region to large volume purchasers, such as the large cellular carriers (e.g., Telcel, the cellular subsidiary of Telmex), as well as to smaller volume purchasers. Although the Company's business in the Latin American Region is predominantly wholesale, operations within a particular country may be either wholesale, retail, or both. In fiscal 1996, the Company instituted a program to reduce the overall level of assets maintained in the Latin American Region to reduce its exposure to financial and operating risks in the region and to reduce working capital requirements. Changes to the Company's operating strategy include sales of products from the Miami, Florida warehouse to South American customers exporting into South American countries and a general reduction in the number of employees in the region. The following table outlines the Company's entry into its Latin American Region:
Type of Operation Country Year Entered (as of November 30, 1996) - ------- ------------ ------------------------- Mexico 1991 Wholesale and Retail Venezuela 1993 Wholesale and Retail Brazil 1993 Wholesale and Retail Chile 1993 Wholesale and Retail Colombia 1994 Wholesale and Retail Ecuador 1995 Wholesale and Retail Argentina 1995 Wholesale
The Company acts through wholly-owned subsidiaries in each of the countries in this region. The Company's largest wholesale customers in the region are cellular carriers. As of November 30, 1996, the Company operated 20 full-service retail stores in Latin America -- 13 in Mexico, 3 in Columbia, and 1 in each of Venezuela, Chile, Brazil and Ecuador. As of 9 November 30, 1996, the Company also operated 4 kiosks in Venezuela. The Company receives activation commissions in all Latin American retail markets except Brazil. At November 30, 1996, the Company sold its products to approximately 550 wholesale customers in the Latin American Region, the ten largest of which accounted for approximately 7% of the Company's consolidated net product sales in fiscal 1996. The Company offers cellular phones and accessories manufactured by OEMs, such as Motorola, Nokia and Ericsson, and aftermarket accessories manufactured by a variety of suppliers. Accessories include, among others, batteries, battery eliminators, chargers, leather cases, power supplies and antennas. The Company sells these products to mass merchandisers and other retailers. The Company continues to broaden its product mix in the Latin American Region to include products that are compatible with new systems, such as digital. The Company anticipates that its product offerings will continue to expand with the evolution of new technologies as they become commercially viable. The Company's operations and sales in the Latin American Region are subject to political and economic risks, including political instability, currency controls, currency devaluations, exchange rate fluctuations, increased credit risks, inflation, foreign tax laws, changes in import/export regulations and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. Sales and Marketing. The Company markets its products through direct sales and advertising. In the Latin American markets where it conducts retail operations, the Company primarily utilizes direct mailings and newspapers to promote its retail operations. To penetrate local markets, the Company has made use of subagent relationships in Mexico, Venezuela, Colombia and Ecuador. During fiscal 1996, the Company launched prepaid cellular programs in Mexico and Venezuela. The Company expects these prepaid programs to make wireless communications services more accessible to the overall population in these markets because it eliminates the need for established credit and monthly fees. Other Regions During fiscal 1996, the Company formed a majority-owned U.K. subsidiary to distribute cellular phones, pagers, PCS, mobile radio and other wireless communications equipment and related accessory products throughout the United Kingdom. The Company also signed an agreement with Motorola to distribute wireless products throughout the United Kingdom. The Company is also considering entry into other countries where the Company believes the environment is conducive to the growth of the wireless market. The Company will continue to assess evolving market conditions, economic conditions and other factors which may affect its prospects in a particular foreign country. Industry Relationships The Company has established relationships with leading wireless equipment manufacturers and wireless service carriers. These alliances have been key to the Company's market and product expansion. Although the Company purchased its products from more than 20 suppliers in fiscal 1996, substantially all of the Company's purchases were from Motorola, Nokia, Ericsson and 10 NEC. The Company also distributed cellular products that are manufactured by these and other manufacturers under its own trade name, CellStar. The Company has various one-year supply contracts with Motorola, Nokia and Ericsson that specify territories, minimum purchase levels, pricing and payment terms. These contracts typically provide that the Company will receive the benefit of price decreases on products in the Company's inventory if such products were shipped to the Company within a specified period of time prior to the price decrease. The Company's expansion is due to several factors, one of which is its relationship with Motorola, the largest manufacturer of cellular products in the world, according to industry sources, and the Company's largest supplier. For the year ended November 30, 1996, Motorola accounted for approximately 74% of the Company's product purchases, including CellStar branded products. The Company considers its relationships with its suppliers to be satisfactory. The Company believes that its relationship with Motorola will enable it to continue to offer a wide variety of cellular products in the marketplace. In July 1995, Motorola purchased 696,437 shares of the outstanding common stock of the Company. While the Company believes that its relationship with Motorola and other significant vendors is satisfactory, there can be no assurance that these relationships will continue. The loss of Motorola or any other significant vendor or a substantial price increase imposed by a vendor could have a materially adverse impact on the Company. In addition, if the Company is unable to obtain sufficient amounts of products from its vendors on a timely basis, its operations could be materially and adversely affected. Seasonality and Cyclicality The effects of seasonal fluctuations have not historically been apparent in the Company's operating results due to the Company's rapid growth in revenues. However, the Company's sales are influenced by a number of seasonal factors in the different countries and markets in which it operates, including the purchasing patterns of customers in different markets, product promotions of competitors and suppliers, availability of distribution channels, and product supply and pricing. Seasonality contributed to the increase in the Company's sales during the fourth quarter of 1996. The Company's sales are also influenced by cyclical economic conditions in the different countries and markets in which it operates. An economic downturn in one of the Company's principal markets could have a material adverse effect on the Company's operating results. Asset Management Management Information Systems During fiscal 1996, the Company continued to invest in technology to improve financial and information technology control systems. The Company is continuing to focus on materials management and international operations. In addition, the Company has targeted several new short-term and long-term projects to enhance its information systems, including (i) development of data warehousing and decision support technologies, (ii) updates to the network operating system and core network servers to newer technology, (iii) upgrades to allow remote computing, (iv) advancements in inventory planning and control, (v) implementation of electronic commerce utilizing the Internet and (vi) integration and more efficient communication between global sites. Inventory The Company purchases its products from more than 20 suppliers that ship directly to the Company's warehouse or distribution facilities. Inventory purchases are based on quality, 11 price, service, market demand, product availability and brand recognition. Certain of the Company's major vendors provide favorable purchasing terms to the Company, including price protection credits, stock balancing, increased product availability and cooperative advertising and marketing allowances. The Company provides stock balancing to certain of its customers. The manufacturers of products typically provide replacement warranties, which the Company extends to its customers. Currently, the Company has no long-term contracts for the purchase of merchandise. The market for wireless products is characterized by rapidly changing technology and frequent new product introductions. The Company's success depends in large part upon its ability to identify and obtain the right to market products that will meet the changing requirements and demands of the marketplace. Inventory control is important to the Company's ability to maintain margins while offering its customers competitive prices and rapid delivery of a wide variety of products. The Company uses its management information system and an electronic purchase order system to help manage inventory and sales margins. There can be no assurance that the Company will be able to identify, obtain and offer products necessary to remain competitive. The Company has in the past experienced shortages in supply for certain products that have been in high demand, and no assurance can be given that product shortages will not occur in the future. The Company maintains a significant investment in its product inventory and, therefore, is subject to the risks of inventory obsolescence and excessive inventory levels. The Company attempts to limit this risk by managing inventory turns and by entering into arrangements with its vendors, including price protection credits and return privileges for slow-moving products. The Company's significant inventory investment in its international operations exposes it to certain political and economic risks. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." During fiscal 1996, the Company embarked upon a program to re-engineer its materials management processes, including reconfiguration of its main warehouse layout to optimize cycle times and reduce inventory handling costs. During fiscal 1997, the Company intends to continue implementation of the re- engineering program and to expand on technologies such as Radio Frequency (to capture outbound serial numbers into the Company's AS/400 system) and integration of the Company's major shipping partner into the AS/400 system. Typically, the Company ships its products within 24 hours from receipt of customer orders. Therefore, the only backlog is on products that the Company is unable to obtain from a supplier. At November 30, 1996, no such orders were considered firm. Trademarks The Company markets certain of its products under the trade name CellStar. The Company has registered its trade name on the Principal Register of the United States Patent and Trademark Office and has registered or applied for registration of its trade name in certain foreign jurisdictions. The Company also has filed for registrations of its other trade names in the United States and other jurisdictions where it does business. Competition The Company operates in a highly competitive environment and believes that such competition will intensify in the future. The Company competes primarily on the basis of inventory availability and selection, delivery time, service and price. Many of the Company's competitors are larger and have greater capital and management resources than the Company. 12 In addition, potential users of cellular systems may find their communications needs satisfied by other current and developing technologies. For example, ESMR, PCS or satellite-based systems are being developed to compete with cellular systems. The Company's ability to remain competitive will therefore depend upon its ability to anticipate and adapt its business to such technological changes. There can be no assurance that the Company will be successful in anticipating and adapting to such technological changes. In the current U.S. wholesale wireless phone and accessory product markets, the Company's primary competitors are cellular carriers and other independent distributors such as Brightpoint, Inc. ("Brightpoint") and Pana-Pacific Corporation. The Company also competes with logistics companies. The Company's major competitors in the United States in the retail cellular phone markets are other agents and resellers and cellular carriers that have retail outlets. Competitors of the Company in the Asia-Pacific and Latin American Regions include national carriers that have retail outlets with direct end-user access, and U.S. and foreign-based exporters and distributors, including Brightpoint. In addition, the Company competes for activation fees and residual fees with agents and subagents for the cellular carriers. Products that reach the market outside of normal distribution channels, such as "gray market" resales (e.g., unauthorized or illegal resales, which may avoid applicable duties and taxes), may also have a negative impact on the Company's operations. Employees As of November 30, 1996, the Company had approximately 1,010 employees. Of these employees, approximately 540 work in U.S. operations, approximately 180 work in the Asia-Pacific operations, approximately 270 work in the Latin American operations and approximately 20 work in the U.K. operations. Of the Company's U.S. employees, approximately 185 are involved in wholesale operations, approximately 260 are involved in retail operations, and approximately 95 are corporate office personnel. None of the Company's U.S. or Asia-Pacific employees are subject to collective bargaining agreements. In Mexico, approximately 115 employees are subject to labor agreements. The Company never has experienced any material labor disruption and is unaware of any efforts or plans to organize additional employees. Management believes that its labor relations are satisfactory. Executive Officers of the Registrant The following table sets forth certain information concerning the executive officers of the Company:
Alan H. Goldfield 53 Chief Executive Officer and Chairman of the Board of Directors Richard M. Gozia 52 President, Chief Operating Officer and Director Mark Q. Huggins 47 Senior Vice President -- Administration, Chief Financial Officer and Treasurer A.S. Horng 39 General Manager of CellStar Asia Daniel T. Bogar 37 Vice President -- South American Operations and Director Michael S. Hedge 40 Vice President -- Wholesale Sales and Director Timothy L. Maretti 43 Vice President -- Mexican Operations Evelyn Henry Miller 39 Vice President -- Corporate Controller Elaine Flud Rodriguez 40 Vice President, General Counsel and Secretary Richard L. White 37 Vice President & Chief Information Officer
13 Alan H. Goldfield is a founder of the Company and has been the Chairman of the Board of Directors and Chief Executive Officer of the Company since its formation in 1981. Mr. Goldfield served as President of the Company from its formation until March 1995, when Terry S. Parker was appointed President, and from August 1996 until December 1996, when Richard M. Gozia was appointed President. Mr. Goldfield serves as an officer and director of the Company pursuant to his employment agreement. Richard M. Gozia has been the President and Chief Operating Officer of the Company since December 1996. Mr. Gozia joined CellStar as Executive Vice President-Administration and Chief Financial Officer in June 1996. He has been a member of the Board of Directors since June 1996. Mr. Gozia serves as an officer and director of the Company pursuant to his employment agreement. From 1994 to 1996, Mr. Gozia served as Executive Vice President of SpectraVision, Inc., a provider of in-room hotel movies. In June 1995, SpectraVision, Inc. 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 been General Manager of CellStar Asia since September 1993. He currently has responsibility for all of the Company's operations in the Asia-Pacific Region. From 1991 to 1993, Mr. Horng was President of C-Mart USA Corporation, a distributor and manufacturer of aftermarket cellular phone accessory products. Mr. Horng serves CellStar Asia pursuant to his employment agreement. Mark Q. Huggins joined the Company as Senior Vice President - Administration, Chief Financial Officer and Treasurer in January 1997. From September 1992 until January 1997, Mr. Huggins served as Chief Financial Officer of Van Camp Seafood Company, Inc., a manufacturer of canned seafood products. From May 1991 until September 1992, Mr. Huggins served as Vice President - Finance of Clarke American Checks, Inc., a check printer. Mr. Huggins serves as an officer of the Company pursuant to his employment agreement. Daniel T. Bogar has served as Vice President of South American Operations since October 1993 and has been a director of the Company since July 1994. From August 1991 to November 1992, Mr. Bogar managed the Company's operations in Mexico, and from 1987 to 1991, Mr. Bogar was General Manager of the Company's Houston operations. Mr. Bogar has been responsible for the Company's South American operations since November 1992. Michael S. Hedge has served as Vice President of Wholesale Sales and as a director of the Company since October 1993. From 1990 to 1993, Mr. Hedge was the Company's Wholesale Distribution Sales Manager. From 1987 until 1990, Mr. Hedge was Sales Manager of the Company's Houston operations. Timothy L. Maretti has served as Vice President of Mexican Operations of the Company since October 1993. In January 1995, Mr. Maretti was given the additional responsibility of developing the Company's operations in certain areas of the Asia-Pacific Region, and in January 1996, Mr. Maretti was given the additional responsibility of developing the Company's operations in Brazil. From March 1992 to 1993, Mr. Maretti served as general director of the Company's Mexican operations. From 1987 to 1992, Mr. Maretti served as vice president- regional general manager of Southwestern Bell Mobile Systems, Inc., Dallas. Evelyn Henry Miller has served as Vice President - Corporate Controller of the Company since November 1995. From August 1993 until October 1995, Ms. Miller served as Director, Corporate Accounting of Aviall, Inc. ("Aviall"), the world's largest independent overhauler of turbine engines and distributor of airline parts. From April 1988 until August 1993, Ms. Miller served in various other capacities for Aviall, including Director, Financial Planning and Analysis; Senior Manager, Accounting; and Manager, Inventory Accounting and Control. Prior to joining Aviall, Ms. Miller served as Assistant Controller, Accounting 14 Operations for Dallas Market Center (a Trammell Crow Company) and held several positions with KPMG Peat Marwick. Ms. Miller is a Certified Public Accountant. Elaine Flud Rodriguez joined the Company in September 1993 and has been Vice President, General Counsel and Secretary since October 1993. From October 1991 to August 1993, she was General Counsel and Secretary of Zoecon Corporation, a pesticide manufacturer and distributor owned by Sandoz Ltd. Prior thereto she was engaged in the private practice of law with Atlas & Hall and Akin, Gump, Strauss, Hauer & Feld. Ms. Rodriguez is licensed to practice law in the states of Texas and Louisiana. Richard L. White has served as Vice President and Chief Information Officer of the Company since November 1996. From October 1995 until joining the Company, Mr. White served as a director with BSG Alliance/IT, a systems integrater. From April 1983 to October 1995, Mr. White held several positions with various units of AMR Corporation, an airline holding company, including Vice President - Technology for Data Management Services, an AMR Services subsidiary specializing in offshore data capture and image processing, Manager of Project Consulting/Risk Assessment for The Sabre Group, and various management positions with The Sabre Group and American Airlines' technology services. 15 Item 8. Consolidated Financial Statements and Supplementary Data See Index to Consolidated Financial Statements on Page F-1 of this Form 10-K/A, Amendment No. 1. 16 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/A, Amendment No. 1. 2. Financial Statement Schedules All schedules are omitted because the information is not applicable or is presented in the Consolidated Financial Statements or related Notes. 3. Exhibits -------- 3.1 Amended and Restated Certificate of Incorporation of the Company.(1) 3.2 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation").(12) 3.3 Amended and Restated Bylaws of the Company.(2) 4.1 The Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws and the Certificate of Designation of the Company filed in response to items 3.1 3.2 and 3.3 are incorporated in this item by reference.(1)(2)(12) 4.2 Specimen Common Stock Certificate of the Company.(3) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.(12) 10.1 Employment Agreement by and between the Company and Alan H. Goldfield, effective as of December 1, 1994.(3)(15) 10.2 Employment Agreement by and between CellStar, Ltd., the Company and Mark Q. Huggins, effective as of January 15, 1997.(14)(15) 10.3 Authorized Agency Agreement by and between CellStar, Ltd., and Southwestern Bell Mobile Systems, Inc., entered into as of December 17, 1996.(13)(16) 10.4 Authorized Agency Agreement by and between National Auto Center and Southwestern Bell Mobile Systems, Inc., entered into as of February 5, 1993.(4) 10.5 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of South Texas Limited Partnership, dated effective as of February 1, 1993.(4) 10.6 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of Austin Limited Partnership, dated effective as of February 1, 1993.(4) 10.7 Agreement by and between Motorola Inc. by and through its Pan American Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1996 (United States).(5) 10.8 Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd., effective September 20, 1996.(13)(16) 10.9 Agreement by and between CellStar Pacific PTE LTD and Motorola Inc., dated February 9, 1995 (the Philippines) (the "Philippines Agreement").(7) 10.10 Amendment to the Philippines Agreement, dated July 20, 1995.(3) 17 10.11 Agreement by and between National Auto Center and the Pan American Cellular Subscriber Division of Motorola Inc., dated as of January 1, 1995 (Latin American and Caribbean Territory). (6) 10.12 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (People's Republic of China). (8) 10.13 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (Taiwan). (3) 10.14 Agreement by and between CellStar Pacific PTE LTD and Ericsson Mobile Communications AB, dated as of April 12, 1995 (China, Hong Kong, Taiwan and Korea). (8) 10.15 Distribution Contract by and between Cellular Express and Radiomovil Dipsa, S.A. de C.V., dated as of September 23, 1992 (English translation of executed agreement). (4) 10.16 Agent Agreement by and between CellStar Celular C.A. and Telecomunicaciones Movilnet C.A., dated July 23, 1993. (4) 10.17 Lease by and between Alan H. Goldfield and National Auto Center, Inc. regarding 605 West Airport Freeway, Irving, Texas. (4)(15) 10.18 Exclusive Cellular Subagent Agreement by and between National Auto Center and Alan H. Goldfield d/b/a National Tape. (4)(15) 10.19 Registration Rights Agreement by and between the Company and Audiovox Corporation. (4) 10.20 Form of Warrant for the purchase of shares of common stock to be issued to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc. (4) 10.21 Agency Agreement by and between CellStar de Colombia Ltda. and Occidente y Caribe Celular S.A., dated as of June 24, 1994. (9) 10.22 Joint Venture Agreement by and among CellStar International Corporation\Asia, Leap International Pte Ltd. and Hong An Hsein, dated February 1, 1995. (3) 10.23 National Retail Dealer Agreement by and between National Auto Center, Inc. and McCaw National Accounts, Inc. (6) 10.24 Agreement by and between Express Telecommunication Company, Inc. (Extelcom) and CellStar Philippines, Inc., dated January 16, 1995. (6) 10.25 Stock Purchase Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.26 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.27 Amended and Restated Loan Agreement among National Auto Center, Inc., the Company, each of the banks or other lending institutions signatory thereto and Texas Commerce Bank National Association, dated as of July 20, 1995 (the "Credit Agreement"). (1) 10.28 First Amendment to Credit Agreement, dated as of February 29, 1996. (2) 10.29 Second Amendment to Credit Agreement, dated as of July 31, 1996. (5) 10.30 Third Amendment to Credit Agreement, dated as of July 31, 1996. (5) 10.31 Deed of Trust among CellStar, Ltd., First Interstate Bank of Texas, N.A. and P. Michael Wells, Jr., dated April 28, 1995. (1) 10.32 First Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A., dated as of August 31, 1995. (1) 10.33 Second Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A. (11) 10.34 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A. dated April 15, 1996. (11) 10.35 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A. , dated August 31, 1995. (1) 18 10.36 Loan Agreement by and between NDB Bank, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Asia Loan Agreement"), dated August 9, 1995. (1) 10.37 Supplement to Debenture, dated November 22, 1995, relating to the Asia Loan Agreement. (3) 10.38 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan. (14)(15) 10.39 CellStar Corporation Amended and Restated Annual Incentive Compensation Plan. (14)(15) 10.40 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan. (7)(15) 10.41 Form of Stock Purchase Agreement by and between Alan H. Goldfield and CellStar International Corporation/Asia, dated as of June 2, 1995. (10) 10.42 Employment Agreement, effective as of May 24, 1996, by and between CellStar, Ltd., the Company and Richard M. Gozia. (11)(15) 10.43 Joint Venture Agreement, dated as of April 1, 1996, between CellStar International Corporation\S.A., Simon Rex Earle and Martin Robert deRooy and CellStar UK Limited. (11) 10.44 Supply and Service Agreement by and between CellStar, Ltd., and MCI Telecommunications Corporation, dated as of November 26, 1996 (the "MCI Supply Agreement"). (13)(16) 10.45 Amendment Number One to MCI Supply Agreement, dated as of January 4, 1997. (14) 10.46 Amendment to MCI Supply Agreement, dated January 8, 1997. (14) 10.47 Distributor Supply Agreement between Motorola Ltd., trading as Motorola, Cellular Subscriber Division, UK, and CellStar UK Limited, executed April 3, 1996. (14) 10.48 Accessory Supply Agreement between Motorola Limited, trading as European Cellular Subscriber Group, and CellStar UK Limited, executed October 25, 1996. (14)(16) 10.49 Separation Agreement and Release between Kenneth E. Kerby and CellStar, Ltd., effective December 19, 1996. (14)(15) 10.50 Loan Agreement by and between The First National Bank of Chicago, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Amended Asian Loan Agreement"), dated July 31, 1996. (14) 10.51 Employment Agreement by and between CellStar (Asia) Corporation Limited and Hong An-Hsien, dated as of June 1, 1995. (14)(15) 21.1 Subsidiaries of the Company. (13) 23.1 Consent of KPMG Peat Marwick LLP. (13) 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 Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and incorporated herein by reference. 19 (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1994, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1994, and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Current Report on Form 8-K, dated June 2, 1995, and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1996, and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A(File No. 000-22972) and incorporated herein by reference. (13) Filed herewith. (14) 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. (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. 4. Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year covered by this report on Form 10-K. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. CELLSTAR CORPORATION By: /s/ Mark Q. Huggins ---------------------------------------- Mark Q. Huggins Senior Vice President-Administration, Chief Financial Officer and Treasurer Date: July 10, 1997 21 CellStar Corporation and Subsidiaries Index to Consolidated Financial Statements Independent Auditors' Report........................................... F-2 Consolidated Balance Sheets............................................ F-3 Consolidated Statements of Operations.................................. F-4 Consolidated Statements of Stockholders' Equity ....................... F-5 Consolidated Statements of Cash Flows.................................. F-6 Notes to Consolidated Financial Statements............................. F-7 F-1 Independent Auditors' Report The Board of Directors and Stockholders CellStar Corporation: We have audited the accompanying consolidated balance sheets of CellStar Corporation and subsidiaries as of November 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended November 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CellStar Corporation and subsidiaries as of November 30, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended November 30, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Dallas, Texas January 31, 1997 F-2 CellStar Corporation and Subsidiaries Consolidated Balance Sheets November 30, 1996 and 1995 (Dollars in thousands, except per share data)
1996 1995 -------- -------- Assets Current assets: Cash and cash equivalents $ 27,296 31,508 Accounts receivable (less allowance for doubtful accounts of $29,023 and $3,738, respectively) 131,812 125,079 Inventories 94,473 109,287 Deferred income taxes 4,274 3,158 Prepaid expenses 1,513 2,124 --------- --------- Total current assets 259,368 271,156 Property and equipment, net 20,134 23,181 Goodwill (less accumulated amortization of $1,330 and $437, respectively) 16,597 17,047 Other assets 2,452 3,537 --------- --------- $ 298,551 314,921 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 116,091 78,758 Notes payable to financial institutions 56,136 98,603 Accrued expenses 12,250 8,446 Income taxes payable 2,958 10,355 Current portion of long-term debt 568 584 --------- --------- Total current liabilities 188,003 196,746 Long-term debt, less current portion 6,285 6,880 --------- --------- Total liabilities 194,288 203,626 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued - - Common stock, $.01 par value, 45,000,000 shares authorized; 19,274,000 shares issued and outstanding 193 193 Additional paid-in capital 68,167 68,167 Common stock warrants 4 4 Foreign currency translation adjustments (4,520) (3,901) Retained earnings 40,419 46,832 --------- --------- Total stockholders' equity 104,263 111,295 --------- --------- $ 298,551 314,921 ========= =========
See accompanying notes to consolidated financial statements. F-3 CellStar Corporation and Subsidiaries Consolidated Statements of Operations Years ended November 30, 1996, 1995 and 1994 (In thousands, except per share data)
1996 1995 1994 ----------- ----------- ----------- Revenues: Net product sales $ 845,569 723,886 447,741 Activation income 88,474 75,690 60,153 Residual income 13,558 12,339 10,528 ----------- ----------- ----------- Total revenues 947,601 811,915 518,422 Cost of sales 810,000 702,074 448,780 ----------- ----------- ----------- Gross profit 137,601 109,841 69,642 Selling, general and administrative expenses 135,585 76,553 44,598 ----------- ----------- ----------- Operating income 2,016 33,288 25,044 Other income (expense): Interest expense (8,350) (6,144) (1,016) (Undistributed loss) equity in earnings of joint ventures (219) 3,222 1,073 Other, net (313) (28) 175 ----------- ----------- ----------- Total other income (expense) (8,882) (2,950) 232 ----------- ----------- ----------- (Loss) income before income taxes (6,866) 30,338 25,276 (Benefit) provision for income taxes (453) 7,442 9,028 ----------- ----------- ----------- Net (loss) income $ (6,413) 22,896 16,248 =========== =========== =========== Net (loss) income per share $ (0.33) 1.22 0.88 =========== =========== =========== Weighted average number of shares outstanding 19,274 18,822 18,441 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 CellStar Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity Years ended November 30, 1996, 1995 and 1994 (In thousands)
Foreign Common Stock Additional Common currency ------------ paid-in stock translation Retained Shares Amount capital warrants adjustments earnings Total ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1993 13,500 $ 135 - - (74) 7,688 7,749 Net income - - - - - 16,248 16,248 Issuance of common stock 5,060 51 52,940 - - - 52,991 Warrants issued in connection with initial public offering - - - 4 - - 4 Foreign currency translation adjustment - - - - (350) - (350) ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1994 18,560 186 52,940 4 (424) 23,936 76,642 Net income - - - - - 22,896 22,896 Issuance of common stock 714 7 15,227 - - - 15,234 Foreign currency translation adjustment - - - - (3,477) - (3,477) ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1995 19,274 193 68,167 4 (3,901) 46,832 111,295 Net loss - - - - - (6,413) (6,413) Foreign currency translation adjustment - - - - (619) - (619) ------ ------ ---------- -------- ----------- -------- ------- Balance at November 30, 1996 19,274 $ 193 68,167 4 (4,520) 40,419 104,263 ====== ====== ========== ======== =========== ======== =======
See accompanying notes to consolidated financial statements. F-5 CellStar Corporation and Subsidiaries Consolidated Statements of Cash Flows Years ended November 30, 1996, 1995 and 1994 (In thousands)
1996 1995 1994 ---------- ---------- ---------- Cash flows from operating activities: Net (loss) income $ (6,413) 22,896 16,248 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Allowance for doubtful accounts, net of chargeoffs 24,538 849 1,103 Provision for inventory obsolescence 8,718 466 338 Depreciation and amortization 5,799 3,372 1,623 Gain on sale of assets (128) - - (Undistributed loss) equity in earnings of joint ventures 219 (3,222) (1,073) Deferred income tax benefit (1,116) (1,823) (1,424) Changes in certain operating assets and liabilities: Accounts receivable (32,637) (71,391) (30,512) Inventories 6,067 (5,971) (51,413) Prepaid expenses 611 (1,480) (518) Other assets 318 (1,708) (741) Accounts payable 36,162 (5,166) 24,682 Accrued expenses 3,361 3,056 1,074 Income taxes payable (7,397) 3,495 1,757 ---------- ---------- ---------- Net cash provided by (used in) operating activities 38,102 (56,627) (38,856) ---------- ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (6,139) (12,284) (4,615) Proceeds from sale of assets 6,903 - - Acquisition, net of cash acquired - - (260) Purchase of equity investments in joint ventures - (750) - ---------- ---------- ---------- Net cash provided by (used in) investing activities 764 (13,034) (4,875) ---------- ---------- ---------- Cash flows from financing activities: Net (payments) borrowings on notes payable to financial institutions (42,467) 86,103 10,000 Proceeds from issuance of note payable to stockholder - 3,728 - Payments on notes payable to stockholders - (22,000) (13,682) Proceeds from issuance of long-term debt - 4,425 - Principal payments on long-term debt (611) (291) (198) Net proceeds from issuance of common stock and common stock warrants - 15,234 54,031 ---------- ---------- ---------- Net cash (used in) provided by financing activities (43,078) 87,199 50,151 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents (4,212) 17,538 6,420 Cash and cash equivalents at beginning of year 31,508 13,970 7,550 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 27,296 31,508 13,970 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-6 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (1) Description of Business and Summary of Significant Accounting Policies (a) Description of Business CellStar Corporation and subsidiaries (the "Company") is an integrated wholesaler and retailer of cellular phones and other wireless communications products, with operations in the United States, the Asia-Pacific Region, Latin America and the United Kingdom. The Company is one of the world's largest non-carrier wholesale distributors of cellular phones for Motorola, Nokia and Ericsson. The Company is also one of the largest non-carrier wholesale distributors of cellular phones for NEC in the United States. The Company is also a retailer of wireless communications products and services, with 36 retail locations in the United States, 6 retail locations in the Asia-Pacific Region and 20 retail locations in Latin America as of November 30, 1996. All significant intercompany balances and transactions have been eliminated in consolidation. The fair value of current assets and liabilities approximates carrying value due to their short maturity. The fair value of long-term debt approximates carrying value due to the market rates of interest being charged. Certain prior year amounts have been reclassified to conform to the current year presentation. (b) Inventories Inventories are stated at the lower of cost (primarily on a moving average basis) or market. (c) Property and Equipment Property and equipment are recorded at cost. Depreciation of equipment is provided over the estimated useful lives of the respective assets, which range from three to thirty years, on a straight-line basis. Leasehold improvements are amortized over the shorter of their useful life or the related lease term. Major renewals are capitalized, while maintenance, repairs and minor renewals are expensed as incurred. (d) Preopening Costs Labor and certain other costs related to the opening of new retail locations are expensed as incurred. (e) Revenue Recognition For the Company's wholesale business, revenue is recognized when product is shipped. In accordance with contractual agreements with cellular service providers, the Company receives an initial activation commission for obtaining subscribers for cellular phone services in connection with the Company's retail operations. The agreements contain various provisions for additional commissions ("residual commissions") based upon subscriber usage. The agreements also provide for the reduction or elimination of initial activation commissions if subscribers deactivate service within stipulated periods. The Company recognizes initial activation and residual commission revenue when earned and provides an allowance for estimated cellular service deactivations, which is reflected as a reduction of accounts receivable in the accompanying consolidated balance sheets. (f) Foreign Currency Assets and liabilities of the Company's foreign subsidiaries have been translated at the rates of exchange at the end of each period. Revenues and expenses have been translated at the weighted average rates of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated as a separate component of stockholders' equity, except for subsidiaries F-7 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements located in countries whose economies are considered highly inflationary. In such cases, translation adjustments are included primarily in cost of sales in the accompanying consolidated statements of operations. Transaction gains or losses for the years ended November 30, 1996, 1995 and 1994 were $1.8 million, $1.3 million and $1.4 million, respectively, and are included in the accompanying consolidated statements of operations. The currency exchange rates of the Latin American countries in which the Company conducts operations have historically been volatile. The Company manages the risk of foreign currency devaluation by attempting to increase prices of products sold at or above the anticipated rate of local currency devaluation relative to the U.S. dollar, by indexing certain of its receivables to exchange rates in effect at the time of their payment and by entering into foreign currency exchange contracts in certain instances. (g) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) Net (Loss) Income Per Share Net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock and common stock equivalents outstanding during each period. The dilutive effect of common stock options and warrants, treated as common stock equivalents, is calculated using the treasury stock method. Primary and fully diluted earnings per common and common equivalent share are essentially the same. (i) Statements of Cash Flow Information For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. The Company paid approximately $8.7 million, $6.0 million and $1.0 million of interest expense for the years ended November 30, 1996, 1995 and 1994, respectively. The Company paid approximately $7.8 million, $4.0 million and $8.7 million of income taxes for the years ended November 30, 1996, 1995 and 1994, respectively. The Company wrote-off accounts receivable of approximately $2.8 million, $2.0 million and $1.3 million for the years ended November 30, 1996, 1995 and 1994, respectively. (j) Equity Investments The Company accounts for its investments in common stock of its joint ventures using the equity method. The investments are included in other assets. (k) 401(k) Savings Plan The Company established a savings plan for employees in 1994. Employees are eligible to participate if they were full-time employees as of July 1, 1994 or upon completing ninety days of service. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974. Under provisions of the plan, eligible employees are allowed to contribute as much as 15% of their compensation, up to the annual maximum allowed by the Internal Revenue Service. To date, the Company has made no contributions to the plan. F-8 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (l) Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and is amortized using the straight-line method over 20 years. The Company assesses the net realizable value of this intangible asset by determining the estimated future cash flows related to such assets. In the event that assets are found to be carried at amounts which are in excess of estimated future operating cash flows, then the intangible assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets. (m) Use of Estimates Management of the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities in preparation of these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) Related Party Transactions (a) Transactions with Motorola Motorola is a major supplier of cellular phones and accessories to the Company. Total purchases from Motorola approximated $609.7 million, $420.2 million and $310.4 million for the years ended November 30, 1996, 1995 and 1994, respectively. Included in accounts payable at November 30, 1996 and 1995 was approximately $90.8 million and $54.1 million, respectively, due to Motorola for purchases of inventory. In accordance with a stock purchase agreement dated July 20, 1995, Motorola purchased 696,437 shares of restricted stock from the Company for approximately $15.0 million. The proceeds were used to pay a portion of the $22.0 million note payable to the Chief Executive Officer made in connection with the Company's acquisition of CellStar Asia (note 10). (b) Transactions with Audiovox Corporation In December 1993, the Company entered into a one-year distributor agreement with Audiovox Corporation ("Audiovox") whereby the Company was named an exclusive independent distributor of certain Audiovox products in Texas, Oklahoma, New Mexico and Mexico. Effective in 1995, the Company only served as a sales representative for certain Audiovox automotive products. Total inventory purchases from Audiovox were $0.5 million, $1.2 million and $21.6 million for the years ended November 30, 1996, 1995 and 1994, respectively. Included in accounts payable at November 30, 1996 and 1995 was $0.3 million and $0.4 million, respectively, due to Audiovox for purchases of inventory. (3) Inventories Inventories consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ---------- ---------- Inventories $102,795 $110,091 Reserves (8,322) (804) ---------- ---------- Inventories, net $ 94,473 $109,287 ========== ==========
F-9 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (4) Property and Equipment Property and equipment consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ------------ ------------ Land and building $ 6,837 6,837 Furniture, fixtures and equipment 14,894 12,587 Jet aircraft 4,306 4,306 Leasehold improvements 1,688 2,998 Construction in progress - 998 ------------ ------------ 27,725 27,726 Less accumulated depreciation and amortization (7,591) (4,545) ------------ ------------ $ 20,134 23,181 ============ ============
(5) Debt Notes payable to financial institutions consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ------------ ------------ U.S. revolving credit facility $ 53,233 70,000 Asian revolving credit facility - 21,603 Brazilian note payable - 7,000 Brazilian credit facility 2,903 - ------------ ------------ $ 56,136 98,603 ============ ============
The U.S. revolving credit facility, with Texas Commerce Bank ("TCB") as agent, was reduced from $135.0 million to $90.0 million in July 1996. The facility matures on July 20, 1998 and is secured primarily by certain of the Company's U.S. accounts receivable and inventory. At November 30, 1996, the availability of funds under the U.S. revolving credit facility was governed by a borrowing base of $85.6 million. Effective December 24, 1996, the advance rates of the borrowing base were lowered. Borrowings were limited to $65.9 million at January 27, 1997. The U.S. revolving credit facility contains, among other provisions, covenants relating to minimum net worth, the maintenance of certain financial ratios, capital spending, dividend payments, additional debt, mergers, and acquisitions and dispositions of assets. The Company did not comply with certain covenants at November 30, 1996 and accordingly has received waivers with respect to such covenants from its lenders. Covenants are measured on a quarterly basis. There can be no assurance that the Company will not require additional waivers in the future or, if required, that the lenders will grant them. The Asian revolving credit facility, extended by the First National Bank of Chicago, Hong Kong branch, was reduced from $22.5 million to $15.0 million on March 31, 1996. The facility matures on July 31, 1997 and is secured primarily by CellStar Asia's accounts receivable and inventory and the Company's guarantee. The availability of funds under the Asian revolving credit facility is governed by a F-10 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements borrowing base. The Asian revolving credit facility contains, among other provisions, covenants relating to CellStar Asia's net worth and certain financial ratios. The outstanding balance under the Brazilian note payable was repaid by the Company during 1996. At November 30, 1996, the Company's Brazilian subsidiary had a $2.9 million line of credit with a Brazilian bank that was secured by a letter of credit issued by TCB. The weighted average interest rate on short-term borrowings at November 30, 1996 and 1995 was 9.57% and 7.65%, respectively. Long-term debt consisted of the following at November 30, 1996 and 1995 (in thousands):
1996 1995 ---------- ---------- Equipment loan $ 2,723 3,039 Mortgage note payable 4,130 4,425 ---------- ---------- 6,853 7,464 Less current portion (568) (584) ---------- ---------- $ 6,285 6,880 ========== ==========
The equipment loan is a note payable to a finance company which bears interest at the Federal Reserve Bank's one-month Commercial Paper Rate plus 3.12% (8.57% at November 30, 1996). The note is payable in monthly installments of approximately $41,000 through July 2003 and is secured by the Company's jet aircraft. The Company has an option to convert the interest rate to a fixed rate at a comparable U.S. Treasury base rate plus 3.25%. The $4.1 million mortgage note is due to a financial institution in quarterly installments of approximately $74,000 through September 2005; bears interest at the institution's prime rate plus 1.0%, 9.25% at November 30, 1996, and is secured by the Company's headquarters facilities. Required principal payments on long-term debt are as follows (in thousands):
Year ending November 30, Payments - ------------ -------- 1997 $ 568 1998 592 1999 618 2000 647 2001 678 Thereafter 3,750
F-11 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (6) Income Taxes Income tax (benefit) expense for the years ended November 30, 1996, 1995 and 1994 consisted of the following (in thousands):
Current Deferred Total ----------- ------------ ----------- Year ended November 30, 1996: United States: Federal $ (4,682) (1,383) (6,065) State (366) (78) (444) Latin America 1,237 204 1,441 Asia-Pacific 4,474 141 4,615 ----------- ----------- ----------- $ 663 (1,116) (453) =========== =========== =========== Year ended November 30, 1995: United States: Federal $ 4,793 (1,187) 3,606 State 575 (25) 550 Latin America 655 (450) 205 Asia-Pacific 3,242 (161) 3,081 ----------- ----------- ----------- $ 9,265 (1,823) 7,442 =========== =========== =========== Year ended November 30, 1994: United States: Federal $ 6,899 (1,177) 5,722 State 681 (107) 574 Latin America 2,872 (140) 2,732 ----------- ----------- ----------- $ 10,452 (1,424) 9,028 =========== =========== ===========
F-12 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements Income tax (benefit) expense differed from the amounts computed by applying the United States Federal income tax rate of 35% to pretax income as a result of the following (in thousands):
1996 1995 1994 ---------- ---------- --------- Expected tax (benefit) expense $ (2,403) 10,618 8,847 Foreign and U.S. tax effects attributable to foreign operations 2,658 (2,630) 409 State income taxes, net of Federal benefit (289) 358 386 (Undistributed loss) equity in earnings of joint ventures - (1,128) (375) Change in the valuation allowance for deferred tax assets - - (71) Other, net (419) 224 (168) ---------- ---------- --------- Actual tax (benefit) expense $ (453) 7,442 9,028 ========== ========== =========
The tax effect of temporary differences underlying significant portions of deferred tax assets at November 30, 1996 and 1995, is presented below (in thousands):
1996 1995 ---------- ---------- United States: Accounts receivable, principally allowance for doubtful accounts $ 2,734 956 Inventory adjustments for tax purposes 2,265 2,545 Other, net (897) (860) Asia-Pacific: Accounts receivable, principally allowance for doubtful accounts 20 161 Latin America: Other, net 152 356 ---------- ---------- Net deferred tax asset $ 4,274 3,158 ========== ==========
Based on the expectation that the temporary differences will reverse in the next year and the ability to carryback deferred tax benefits, management believes it is more likely than not that the Company will realize the benefit of such deferred tax assets. The Company does not provide for Federal income taxes or tax benefits on the undistributed earnings and/or losses of its international subsidiaries because earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely. At November 30, 1996, the Company had not provided Federal income taxes on earnings of international subsidiaries of approximately $23.8 million. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes in the various international jurisdictions. F-13 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements Because many types of transactions are susceptible to varying interpretations under foreign and U.S. income tax laws and regulations, the amounts recorded in the accompanying consolidated financial statements may be subject to change upon final determination by the respective taxing authorities. Management believes it has provided an adequate tax provision. (7) Leases The Company leases certain land, retail stores, office facilities and equipment under operating leases which range from two to ninety-nine years and which generally contain renewal options for consecutive five-year terms. Rental expense for operating leases was approximately $4.3 million, $3.1 million and $2.1 million for the years ended November 30, 1996, 1995 and 1994, respectively. Future minimum lease payments under operating leases as of November 30, 1996 are as follows (in thousands):
November 30, Amount ---------- 1997 $ 3,234 1998 2,630 1999 1,574 2000 1,077 2001 157 Thereafter 1,247 ---------- $ 9,919 ==========
(8) Concentration of Credit Risk and Major Customer Information CellStar Asia accounted for 11.5% or $59.8 million of total revenues for the year ended November 30, 1994 and accounted for 11.1% or $90.2 million of total revenues for the year ended November 30, 1995, prior to it becoming a wholly-owned subsidiary of the Company (note 10). No other customer accounted for 10% or more of total revenues in each of the years ended November 30, 1996, 1995 and 1994. F-14 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (9) Geographic Area Information The Company operates predominantly within one business segment, wholesale and retail sales of cellular phones and related equipment. Financial information by geographic area as of and for the years ended November 30, 1996, 1995 and 1994, is as follows (in thousands):
United Latin States Asia-Pacific America Europe Total ---------- -------------- ----------- ---------- ----------- November 30, 1996: Total revenues, net of intercompany amounts $ 568,744 248,493 119,796 10,568 947,601 Intercompany sales (purchases) 38,802 (2,121) (36,676) (5) - (Loss) income before income taxes (3,870) 20,094 (22,877) (213) (6,866) Net income (loss) 2,639 15,479 (24,318) (213) (6,413) Identifiable assets 159,993 82,024 44,382 12,152 298,551 November 30, 1995: Total revenues, net of intercompany amounts $ 478,177 183,274 150,464 - 811,915 Intercompany sales (purchases) 103,332 (32,564) (70,768) - - Income before income taxes 10,213 19,775 350 - 30,338 Net income 6,057 16,694 145 - 22,896 Identifiable assets 149,320 93,441 72,160 - 314,921 November 30, 1994: Total revenues, net of intercompany amounts $ 398,104 - 120,318 - 518,422 Intercompany sales (purchases) 66,199 - (66,199) - - Income before income taxes 19,170 - 6,106 - 25,276 Net income 12,874 - 3,374 - 16,248 Identifiable assets 131,219 - 55,135 - 186,354
(10) Purchase of CellStar Asia In October 1993, the Company purchased a 50% ownership interest in a newly-formed company, CellStar Asia, for approximately $0.2 million. On February 1, 1995, the Company entered into a joint venture agreement with Leap International PTE LTD. ("Leap"), a Singapore company, and Horng An Hsien ("Mr. Horng"), an individual who was also the Company's joint venture partner in CellStar Asia. Under the terms of the joint venture agreement, the parties formed CellStar Pacific PTE LTD ("CellStar Pacific"), a Singapore company which was owned 75% by the Company, 20% by Leap and 5% by Mr. Horng. The Company's initial investment was approximately $0.2 million. An additional 5% of CellStar Pacific was purchased by the Company in fiscal 1995. CellStar Asia and CellStar Pacific distribute cellular phone products in the People's Republic of China and other Asia-Pacific markets. F-15 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements On June 2, 1995, the Company's Chief Executive Officer acquired the remaining 50% interest in CellStar Asia for cash of $1.0 million and 1.0 million shares of restricted common stock with a fair value of $21.0 million. Simultaneously, the Chief Executive Officer then transferred this ownership interest in CellStar Asia to the Company in exchange for a note payable of $22.0 million, giving the Company 100% ownership in CellStar Asia. The acquisition of the remaining 50% interest in CellStar Asia is being accounted for as a purchase and the results of operations of CellStar Asia have been included in the consolidated financial statements from the date of acquisition. The Company's 50% equity interest in the operations of CellStar Asia, prior to the date of acquisition, is included in equity in earnings of joint venture. Goodwill of $17.5 million is being amortized on a straight-line basis over 20 years. The following unaudited pro forma information presents the consolidated results of operations of the Company as if the acquisition of CellStar Asia had occurred on December 1, 1993, with pro forma adjustments to give effect to the elimination of sales by the Company to CellStar Asia, amortization of goodwill, interest expense on acquisition debt, and certain other adjustments at November 30, 1995 and 1994 (in thousands, except per share amounts):
1995 1994 --------- --------- Revenues $ 806,648 519,712 Net income 24,913 15,215 Net income per share 1.32 0.83
Prior to the acquisition, the Company's sales to CellStar Asia were $90.2 million and $59.8 million in 1995 and 1994, respectively. Gross profit recognized by the Company on these sales was $3.6 million and $1.8 million in 1995 and 1994, respectively. (11) Stockholders' Equity (a) Reorganization and Initial Public Offering On December 1, 1993, a wholly-owned subsidiary of the Company was merged with and into National Auto Center, Inc. ("NAC"), a Texas corporation which was incorporated in 1981. As a result of this transaction, the Company acquired all of the outstanding common stock of NAC. In connection with the reorganization, all of the outstanding stock of Audiomex Export Corp. ("Audiomex"), the parent company of Celular Express, S.A. de C.V. (the Mexican operations), was contributed to NAC. NAC and Audiomex had been jointly owned by Audiovox and the Company's Chief Executive Officer, each of which was issued 6.75 million shares of the Company's common stock in the reorganization. The reorganization was treated in a manner similar to a pooling of interests. In December 1993, the Company issued 5.06 million shares of common stock to the public. The net proceeds of this initial public offering were $53.0 million. The proceeds were used to pay $13.7 million of notes payable to the Company's stockholders, $2.5 million of a note payable to a financial institution, and $2.9 million of accrued fees and bonus to stockholders. The balance of the proceeds was added to the Company's working capital for general corporate purposes. F-16 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (b) Common Stock Options and Warrants In December 1993, the Company issued warrants for 440,000 shares of its common stock. The warrants are exercisable at $13.80 per share for a period of four years commencing in December 1994, subject to adjustment in certain events, and expire in December 1998. In December 1993, the Company adopted the 1993 Stock Option Plan ("the Plan") covering 500,000 shares of common stock of the Company. On March 14, 1995, the number of shares covered by the Plan was increased to 1.5 million. Options under the Plan will be granted as determined by the Company's Board of Directors. The options will expire ten years from the date of grant unless earlier termination due to death, disability, retirement or other termination of employment of the optionee. Options, other than options granted to the Company's Chief Executive Officer, have vesting schedules ranging from immediate vesting on the date of grant to vesting 25% per year commencing on the first anniversary of the date of grant. The exercise price is the quoted market value of the common stock on the date of grant. In March 1994, the Board of Directors also adopted the 1994 Directors' Nonqualified Stock Plan (the "Directors' Option Plan") and subsequently amended it in November 1994. The Directors' Option Plan provides that each non-employee director of the Company as of the date the Directors' Option Plan was adopted and each person who thereafter becomes a non-employee director will automatically be granted an option to purchase 2,500 shares of common stock. The purchase price for the shares on the grant date is equal to fair market value of the shares on the grant date. A total of 50,000 shares of common stock is authorized for issuance pursuant to the Directors' Option Plan. Each option granted under the Directors' Option Plan will become exercisable six months after its date of grant and will not be exercisable more than ten years after its date of grant. The options will expire ten years from the date of grant unless earlier termination due to death, disability, retirement or other termination of employment of the optionee. F-17 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements Details of stock options are as follows:
Number of Shares Option Price ------------------- ----------------- 1994 - ------------------------- Granted 120,000 $11.50 - 19.00 Exercised - - Forfeited 27,500 $11.50 Outstanding, end of year 92,500 $11.50 - 19.00 Exercisable, end of year - - 1995 - ------------------------- Granted 598,600 $18.50 - 29.75 Exercised 17,125 $11.50 - 18.62 Forfeited 13,750 $11.50 - 18.50 Outstanding, end of year 660,225 $11.50 - 29.75 Exercisable, end of year 9,750 $11.50 - 19.00 1996 - ------------------------- Granted 471,665 $ 6.50 - 26.25 Exercised - - Forfeited 404,422 $11.50 - 29.75 Outstanding, end of year 727,468 $ 6.50 - 22.75 Exercisable, end of year 180,468 $11.50 - 22.75 Reserved for future grants under the Plan 780,032 Reserved for future grants under the Directors' Option Plan 42,500
(c) Common Stock Ownership and Voting Rights In December 1993, Audiovox granted the Chief Executive Officer a two- year option to purchase, in whole or in part, up to 1.5 million shares of the Company's common stock owned by Audiovox. On June 2, 1995, the Chief Executive Officer exercised this option at $11.50 per share. Additionally, Audiovox granted the Chief Executive Officer an option to purchase up to 250,000 shares of the Company's common stock at $13.80 per share, commencing in December 1993 and expiring in December 1996. These options were subject to certain restrictions and adjustments. The Chief Executive Officer had the right to vote the 1.3 million shares owned by Audiovox until December 3, 1995. Further, the Chief Executive Officer has a revocable proxy to vote the 1.0 million shares transferred for the acquisition of CellStar Asia (note 10). (d) Stockholder Rights Plan On December 30, 1996, the Board of Directors of the Company declared a dividend distribution of one common stock purchase right ("Right") for each share of the Company's common stock outstanding on January 9, 1997. Each Right entitles the holder to buy one one-thousandth of a share of Series A Preferred Stock, par value $.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 F-18 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements attempting to acquire 15% or more of the outstanding shares of common stock of the Company. The Rights expire on January 9, 2007, unless earlier redeemed by the Company. (12) Commitments and Contingencies (a) Employment Contracts In January 1995, the Board of Directors approved an employment agreement with the Company's Chief Executive Officer ("CEO"). This agreement has no fixed expiration date. Instead, the agreement expires on the fifth anniversary of the date the Board of Directors determines to fix the expiration date. The agreement, among other provisions, provides the CEO with a base salary of $850,000 (subject to adjustment by the Board of Directors), potential annual incentive payments, stock options and life and disability insurance. In 1996 and 1995, the Chief Executive Officer received a base salary of $850,000. In 1994, the Chief Executive Officer received a base salary of $400,000 plus a bonus, based on the Company's operating performance, of an additional $400,000. These amounts are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. In May 1996, the Board of Directors approved an employment agreement with the Company's Chief Financial Officer (current President and Chief Operating Officer). Such agreement will expire on May 24, 2001, and provides for a base salary of $250,000 (subject to adjustment by the Board of Directors), potential for annual incentive payments, stock options and life and disability insurance. In 1996, the Chief Financial Officer received a prorated base salary of $125,000. (b) Litigation During the period from May 14, 1996 through July 22, 1996, four separate purported class action lawsuits were filed in the United States District Court, Northern District of Texas, Dallas Division against the Company; certain of the Company's current and former officers, directors and employees; and the Company's independent auditors. The four lawsuits have been consolidated, and the State of Wisconsin Investment Board has 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 other matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. (c) Financial Guarantee The Company has guaranteed up to RM6.4 million (Malaysian ringgits), $2.5 million as of November 30, 1996, for bank borrowings of its Malaysian joint venture. F-19 CellStar Corporation and Subsidiaries Supplemental Financial Data (Unaudited) (In thousands, except per share data)
First Second Third Fourth Three Months Ended Quarter Quarter Quarter Quarter - ------------------ ------------- ------------ ----------- ---------- 1996 Total revenues $ 204,975 225,571 223,590 293,465 Gross profit 32,005 29,628 30,792 45,176 Net income (loss) 738 (3,052) (12,331) 8,232 Net income (loss) per share 0.04 (0.16) (0.64) 0.43 1995 Total revenues $ 190,876 177,772 198,300 244,967 Gross profit 23,849 23,226 30,746 32,020 Net income 5,143 5,163 6,222 6,368 Net income per share 0.28 0.28 0.33 0.33
F-20 EXHIBIT INDEX 3.1 Amended and Restated Certificate of Incorporation of the Company.(1) 3.2 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation").(12) 3.3 Amended and Restated Bylaws of the Company.(2) 4.1 The Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws and the Certificate of Designation of the Company filed in response to items 3.1, 3.2 and 3.3 are incorporated in this item by reference.(1)(2)(12) 4.2 Specimen Common Stock Certificate of the Company.(3) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.(12) 10.1 Employment Agreement by and between the Company and Alan H. Goldfield, effective as of December 1, 1994.(3)(15) 10.2 Employment Agreement by and between CellStar, Ltd., the Company and Mark Q. Huggins, effective as of January 15, 1997.(14)(15) 10.3 Authorized Agency Agreement by and between CellStar, Ltd., and Southwestern Bell Mobile Systems, Inc., entered into as of December 17, 1996.(13)(16) 10.4 Authorized Agency Agreement by and between National Auto Center and Southwestern Bell Mobile Systems, Inc., entered into as of February 5, 1993.(4) 10.5 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of South Texas Limited Partnership, dated effective as of February 1, 1993.(4) 10.6 Agency Agreement by and between National Auto Center, Inc. and GTE Mobilnet of Austin Limited Partnership, dated effective as of February 1, 1993.(4) 10.7 Agreement by and between Motorola Inc. by and through its Pan American Cellular Subscriber Group, and CellStar, Ltd., effective January 1, 1996 (United States).(5) 10.8 Master Agreement for the Purchase of Products and Inventory Maintenance, Assembly and Fulfillment (IAF) Services between Pacific Bell Mobile Services and CellStar, Ltd., effective September 20, 1996.(13)(16) 10.9 Agreement by and between CellStar Pacific PTE LTD and Motorola Inc., dated February 9, 1995 (the Philippines) (the "Philippines Agreement").(7) 10.10 Amendment to the Philippines Agreement, dated July 20, 1995.(3) 10.11 Agreement by and between National Auto Center and the Pan American Cellular Subscriber Division of Motorola Inc., dated as of January 1, 1995 (Latin American and Caribbean Territory). (6) 10.12 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (People's Republic of China). (8) 10.13 Agreement by and between CellStar, Ltd. and Motorola Inc., Greater China Cellular Subscriber Division, dated as of April 28, 1995 (Taiwan). (3) 10.14 Agreement by and between CellStar Pacific PTE LTD and Ericsson Mobile Communications AB, dated as of April 12, 1995 (China, Hong Kong, Taiwan and Korea). (8) 10.15 Distribution Contract by and between Cellular Express and Radiomovil Dipsa, S.A. de C.V., dated as of September 23, 1992 (English translation of executed agreement). (4) 10.16 Agent Agreement by and between CellStar Celular C.A. and Telecomunicaciones Movilnet C.A., dated July 23, 1993. (4) 10.17 Lease by and between Alan H. Goldfield and National Auto Center, Inc. regarding 605 West Airport Freeway, Irving, Texas. (4)(15) 10.18 Exclusive Cellular Subagent Agreement by and between National Auto Center and Alan H. Goldfield d/b/a National Tape. (4)(15) 10.19 Registration Rights Agreement by and between the Company and Audiovox Corporation. (4) 10.20 Form of Warrant for the purchase of shares of common stock to be issued to Ladenburg, Thalmann & Co., Inc. and Raymond James & Associates, Inc. (4) 10.21 Agency Agreement by and between CellStar de Colombia Ltda. and Occidente y Caribe Celular S.A., dated as of June 24, 1994. (9) 10.22 Joint Venture Agreement by and among CellStar International Corporation\Asia, Leap International Pte Ltd. and Hong An Hsein, dated February 1, 1995. (3) 10.23 National Retail Dealer Agreement by and between National Auto Center, Inc. and McCaw National Accounts, Inc. (6) 10.24 Agreement by and between Express Telecommunication Company, Inc. (Extelcom) and CellStar Philippines, Inc., dated January 16, 1995. (6) 10.25 Stock Purchase Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.26 Registration Rights Agreement by and between the Company and Motorola Inc., dated as of July 20, 1995. (1) 10.27 Amended and Restated Loan Agreement among National Auto Center, Inc., the Company, each of the banks or other lending institutions signatory thereto and Texas Commerce Bank National Association, dated as of July 20, 1995 (the "Credit Agreement"). (1) 10.28 First Amendment to Credit Agreement, dated as of February 29, 1996. (2) 10.29 Second Amendment to Credit Agreement, dated as of July 31, 1996. (5) 10.30 Third Amendment to Credit Agreement, dated as of July 31, 1996. (5) 10.31 Deed of Trust among CellStar, Ltd., First Interstate Bank of Texas, N.A. and P. Michael Wells, Jr., dated April 28, 1995. (1) 10.32 First Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A., dated as of August 31, 1995. (1) 10.33 Second Modification of Deed of Trust by and between CellStar, Ltd. and First Interstate Bank of Texas, N.A. (11) 10.34 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A. dated April 15, 1996. (11) 10.35 Promissory Note from CellStar, Ltd. to First Interstate Bank of Texas, N.A., dated August 31, 1995. (1) 10.36 Loan Agreement by and between NDB Bank, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Asia Loan Agreement"), dated August 9, 1995. (1) 10.37 Supplement to Debenture, dated November 22, 1995, relating to the Asia Loan Agreement. (3) 10.38 CellStar Corporation 1993 Amended and Restated Long-Term Incentive Plan. (14)(15) 10.39 CellStar Corporation Amended and Restated Annual Incentive Compensation Plan. (14)(15) 10.40 CellStar Corporation 1994 Amended and Restated Director Nonqualified Stock Option Plan. (7)(15) 10.41 Form of Stock Purchase Agreement by and between Alan H. Goldfield and CellStar International Corporation/Asia, dated as of June 2, 1995. (10) 10.42 Employment Agreement, effective as of May 24, 1996, by and between CellStar, Ltd., the Company and Richard M. Gozia. (11)(15) 10.43 Joint Venture Agreement, dated as of April 1, 1996, between CellStar International Corporation\S.A., Simon Rex Earle and Martin Robert deRooy and CellStar UK Limited. (11) 10.44 Supply and Service Agreement by and between CellStar, Ltd., and MCI Telecommunications Corporation, dated as of November 26, 1996 (the "MCI Supply Agreement"). (13)(16) 10.45 Amendment Number One to MCI Supply Agreement, dated as of January 4, 1997. (14) 10.46 Amendment to MCI Supply Agreement, dated January 8, 1997. (14) 10.47 Distributor Supply Agreement between Motorola Ltd., trading as Motorola, Cellular Subscriber Division, UK, and CellStar UK Limited, executed April 3, 1996. (14) 10.48 Accessory Supply Agreement between Motorola Limited, trading as European Cellular Subscriber Group, and CellStar UK Limited, executed October 25, 1996. (14)(16) 10.49 Separation Agreement and Release between Kenneth E. Kerby and CellStar, Ltd., effective December 19, 1996. (14)(15) 10.50 Loan Agreement by and between The First National Bank of Chicago, Hong Kong Branch, and CellStar (Asia) Corporation Limited (the "Amended Asian Loan Agreement"), dated July 31, 1996. (14) 10.51 Employment Agreement by and between CellStar (Asia) Corporation Limited and Hong An-Hsien, dated as of June 1, 1995. (14)(15) 21.1 Subsidiaries of the Company. (13) 23.1 Consent of KPMG Peat Marwick LLP. (13) 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 Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement No. 33-70262 on Form S-1, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1994, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1994, and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Current Report on Form 8-K, dated June 2, 1995, and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1996, and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A(File No. 000-22972) and incorporated herein by reference. (13) Filed herewith. (14) 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. (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-10.3 2 AUTHORIZED AGENCY AGRMNT-CELLSTAR & SWB MOBILE SYS EXHIBIT 10.3 AUTHORIZED AGENCY AGREEMENT BETWEEN SOUTHWESTERN BELL MOBILE SYSTEMS, INC. AND CELLSTAR, LTD. THIS AGREEMENT is made and entered into this 17th day of Dec., 1996, by and between SOUTHWESTERN BELL MOBILE SYSTEMS, INC. ("SBMS"), acting in its capacity as general partner of the Dallas SMSA Limited Partnership, and being a corporation organized and existing under the laws of the States of Delaware and Virginia with its principal place of business at 17330 Preston Road, Suite 100A, Dallas, Texas 75252, and CELLSTAR, LTD., a Texas limited partnershipwith its principal place of business at 1730 Briarcroft Court, Carrollton, Texas 75006 ("AGENT"). W I T N E S S E T H: -------------------- Whereas, SBMS is involved in the development, establishment and resale of cellular radio service ("CRS"), which requires the use by CRS subscribers ("Subscribers") of cellular terminal equipment ("CPE"); Whereas, SBMS and/or its Affiliates is or may become involved in the development and/or sale of other services, including but not limited to long distance/toll service for CRS Subscribers, paging services, other Commercial Mobile Radio Services, and competitive landline local exchange and/or long distance services (collectively referred to as the "Services"); Whereas, SBMS has been granted regulatory authority to provide CRS in the cellular geographic service area(s) within the Dallas - Ft. Worth and Sherman - Denison metropolitan statistical areas ("MSA") and desires to provide CRS in these Areas, as well as other Services in designated areas, through Authorized Agents, Resellers, Distributors, direct sales and other forms of distribution to Subscribers; Whereas, SBMS has adopted and used or intends to adopt and use certain valuable trademarks and service marks, symbols, logos and other identifying indicia ("Marks") in the provision of its Services and CPE; Whereas, AGENT is desirous of selling SBMS' CRS as a nonexclusive, authorized CRS agent of SBMS and is desirous of selling, installing, providing warranty service and/or maintaining CPE necessary for Subscribers to utilize Services; 1 THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT BY "[REDACTED]". Whereas, SBMS and AGENT further agree AGENT shall sell, install, and/or maintain and provide warranty service for CPE, and is licensed to use certain identifying trademarks and the like in its business operations, as more specifically detailed hereinafter. Now, therefore, in consideration of the mutual promises herein contained, it is hereby agreed: 1. DEFINITIONS ----------- Activation. The act of initiating an Authorized Service in or to a ---------- Subscriber's CPE by SBMS. Affiliate. A person, association, partnership, corporation or joint-stock --------- company, trust or other business entity however organized ("Person") is an affiliate of that entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Person. Control shall be defined as (i) ownership of a majority of the voting power of all classes of voting stock or (ii) ownership of a majority of the beneficial interests in income and capital of an entity other than a corporation. Authorized Services. Those Services provided by SBMS that AGENT is ------------------- authorized hereunder to sell on behalf of SBMS, including CRS and any other Services set forth on Exhibit "A" hereto, which shall be amended, from time to time, as determined by SBMS in its sole discretion. Area. The Dallas - Ft. Worth and Sherman - Denison metropolitan ---- statistical areas ("MSAs") within which SBMS has applied for and obtained regulatory authority to provide CRS. The counties generally comprising these MSAs and any additional counties that may be added to the areas served through the Dallas SMSA Limited Partnership shall be deemed added to the Area, without the necessity of an amendment to this Agreement with respect to other Authorized Services, Area is defined as those Areas in which SBMS is authorized to and is providing or reselling such Authorized Service, except as may be otherwise defined or limited on Exhibit "A". Cellular Radio Service (CRS). Any and all service (including resale of ---------------------------- said service) authorized by the F.C.C under Part 22 of its rules as amended under the cellular orders set forth in An Inquiry Into the Use of the Bands 825- 845 MHz and 870-890 MHz for Cellular Communications Systems; and Amendments of Parts 2 and 22 of the Commission's Rules Relative to Cellular Communications Systems (CC Docket No. 79-318), 86 F.C.C. 2d 469 (1981), modified as set forth in reconsideration order 89 F.C.C. 2d. 58 (1982), and as further modified as set forth in reconsideration orders, rules or orders from time to time. Commercial Mobile Radio Services (CMRS). Any and all services (including --------------------------------------- resale of said services) that (i) fit the definition of commercial mobile services pursuant to Section 332 of 2 the Communications Act, 47 U.S.C. (S)332, (ii) are subject to regulation as commercial mobile radio services by the FCC under the orders set forth in Implementation of Sections 3(n) and 332 of the Communications Act:, Regulatory Treatment of Mobile Services (CC Docket No. 93-252) or such other orders or rules as may be in effect from time to time, or (iii) are the functional equivalent of a commercial mobile service as defined in 47 U.S.C. (S)332. CMRS shall in any event include CRS, all forms of specialized mobile radio service (SMR and ESMR), and personal communications services (PCS). CPE. The cellular terminal equipment needed for using CRS and other --- Authorized Services. Marks. Any and all trademarks, service marks, trade names, insignia, ----- symbols, logos, decorative designs, or the list SBMS owns or is licensed or sublicensed to use in connection with the Authorized Services or products relating thereto and which SBMS, in its sole discretion, determines from time to time that AGENT is authorized to use. Paging Services. A service provided by a communication common carrier --------------- engaged in rendering one-way communication. Reseller. Any person, association, partnership, corporation, joint stock -------- company, trust, or other entity that purchases bulk quantities of CRS from a cellular carrier for resale distribution, directly or indirectly, to ultimate users of CRS. Subscriber. A customer of an Authorized Service provided by SBMS. Each ---------- CRS telephone number assigned to a customer of SBMS' CRS is deemed to be a separate Subscriber, regardless of how many CRS telephone numbers may be assigned to or used by any one customer. Successor. Any person, association, partnership, corporation, joint stock --------- company, trust or other entity however organized, that succeeds to or acquires the rights, title or interests of another. 2. ACKNOWLEDGMENTS AND REPRESENTATIONS ----------------------------------- SBMS and AGENT acknowledge that they have read this Agreement and understand and accept the terms, conditions and covenants contained herein as being reasonably necessary to maintain SBMS' high standards for CRS and other Services, thereby to protect and preserve the goodwill of SBMS' CRS, Services and its Marks. AGENT has read and understands the obligations imposed by the FCC upon CRS licensees and their duties to SBMS as specified in Section 22.9l2 of the FCC's cellular rules. AGENT acknowledges that SBMS' ability to provide CRS and other Services is conditioned upon the continuing validity of its FCC operating license(s) and any other required 3 licenses, certificates and permits, and may be affected by state and federal court decisions and regulatory approvals. SBMS makes no representation concerning whether said licenses, certificates, and permits will continue to be valid. AGENT agrees that if SBMS is prohibited from, or otherwise ceases selling an Authorized Service in the Area, SBMS may declare this Agreement null and void as to any or all Authorized Services with no penalty. AGENT acknowledges that it has conducted an independent investigation of the business of selling CRS and any other Services that it will conduct pursuant to this Agreement. AGENT recognizes that entry into business as an AGENT of SBMS involves business risks and the AGENT'S success in such business will depend primarily upon its abilities and efforts. SBMS expressly disclaims the making of, and AGENT acknowledges that it has not received or relied upon, any guaranty, express or implied, as to the amount of commissions or other gross revenue that it may earn as a result of its agency relationship with SBMS and acknowledges that it has no knowledge of any representations relating to its agency relationship with SBMS by an officer, employee or agent of SBMS that are contrary to the terms herein. AGENT represents to SBMS, as an inducement to its entry into this Agreement, that AGENT has made no misrepresentations to SBMS in its application for appointment as a nonexclusive, Authorized Agent of SBMS or in any other manner. AGENT and SBMS mutually agree that they shall not have any liability to the other for any lost profits, consequential, or special damages even if advised of the possibility of such damages. 3. RELATIONSHIP OF THE PARTIES --------------------------- SBMS hereby appoints AGENT as a nonexclusive Authorized Agent within the Area to solicit and contract, on behalf of SBMS, with Subscribers for the Authorized Services subject to all of the terms and conditions hereof. During the term of this Agreement or thereafter, SBMS reserves the right without obligation or liability to AGENT, to market the Authorized Services and CPE in the same geographical areas served by AGENT, whether through SBMS' own representatives or through others, including but not limited to, other Authorized Agents, retailers, Resellers and distributors. Upon enrollment of a particular Subscriber, that Subscriber shall become a customer of SBMS, and SBMS shall offer and furnish such customer billing services and other customer services as SBMS deems appropriate. SBMS shall be responsible to collect any charges for Authorized Services from Subscribers. With the sole exception of the Subscribers enrolled by AGENT for the account of SBMS, with respect to which AGENT acts as agent of SBMS and owes SBMS the fiduciary and other obligations of an agent to its principal, SBMS and AGENT acknowledge and agree that their agency relationship arising from this Agreement does not constitute or create a general agency, 4 joint venture, partnership, employment relationship or franchise between them. The parties agree that personnel employed by AGENT to perform services under this Agreement are not SBMS employees and AGENT assumes full responsibility for their acts. Such personnel employed by AGENT shall be informed that they are not entitled to the provisions of any SBMS' employee benefits. With respect to such personnel, AGENT shall have sole responsibility for supervision, daily direction and control. SBMS will not be responsible for worker's compensation, disability benefits, unemployment insurance and withholding income taxes and social security for said personnel. 3A. RELATIONSHIP WITH SUB-AGENTS ---------------------------- AGENT warrants that it entered into or may enter into appropriate agreements with all persons or businesses (other than Agent's own employees) (subject to the conditions stated below) that sell the Authorized Services on behalf of AGENT ("Sub-Agent"), and that such agreements are, or will be sufficient to enable it to comply with all provisions of this Agreement except those that by their nature would not be applicable to a Sub-Agent. Without limiting the generality of the foregoing, AGENT understands, convents and agrees that (i) any Sub-Agent appointed by AGENT must agree to comply with all of the restrictive covenants in Paragraph 18 of this Agreement and the Confidentiality Obligations in Paragraph 31 of this Agreement. AGENT may not delegate its responsibilities under this Authorized Agency Agreement to any Sub-Agent, and shall remain liable to SBMS pursuant to the terms of this Agreement notwithstanding any agreement with a Sub-Agent, (ii) AGENT will inform SBMS within thirty (30) days of the identity of any new Sub-Agent, and SBMS shall have the right to disapprove any new Sub-Agent that in the sole opinion of SBMS, reflects adversely upon SBMS or which is or has been associated in any way with a competitor of SBMS in the Area or, for any reasonable business purpose; and SBMS shall have the right to request the removal of any Sub-Agent who breaches the agreements set forth above or whose actions, in the sole opinion of SBMS, reflect adversely upon SBMS; (iii) AGENT shall inform SBMS prior to any intended relocation of any of its Sub-Agents, which relocation shall then be subject to SBMS' approval; (iv) Prior to AGENT'S appointment of a Sub-Agent, SBMS may request, and AGENT will provide, any further information SBMS deems necessary with respect to any prospective Sub-Agent. A complete list of all current Sub-Agents, along with the names of the owners, managers, principals, officers and directors thereof is attached as Exhibit "D". All existing Sub- Agents of AGENT who are listed in Exhibit " D" are approved by SBMS except to the extent the relationship between AGENT and a Sub-Agent is inconsistent with the agreement; however, any Sub-Agent not listed in Exhibit " D" must be approved in accordance with the procedure in this Paragraph A. AGENT understands and agrees that Sub-Agents of AGENT shall not be permitted to use, in any manner whatsoever, the name, trademarks or service marks of SBMS, unless expressly agreed in a writing signed by AGENT, SBMS and Sub-Agent. Any unauthorized use of SBMS' name, trademarks or service marks shall be grounds for immediate termination of any Sub-Agent agreements. 5 4. AGENT RESPONSIBILITIES ---------------------- a. AGENT agrees to provide materials and advertising to actively promote SBMS' Authorized Services in a quality manner, and appropriate sales facilities to enhance the sale of SBMS' Authorized Service. b. AGENT will sell SBMS' Authorized Services to customers by employing the following techniques (in addition to others): providing demonstrations of SBMS' Service, explaining its benefits, explaining the terms and conditions of purchase of the Service, providing sales literature prepared by SBMS, and training the customer in the use of SBMS' service. AGENT will offer CRS subject to all of the applicable terms of SBMS' form of contract for customers. AGENT will offer Services subject to all terms and conditions established by SBMS for each such service, which form of contract will be attached hereto as an addendum. c. AGENT agrees that it must obtain SBMS' prior written approval to (i) open any locations in addition to those listed in Exhibit "B" and (ii) must notify SBMS sixty (60) days prior to closing any location listed in Exhibit "B". However, an amendment of this Agreement shall not be necessary to subject any new or additional AGENT locations to the terms and conditions of this Agreement; rather, the opening of such locations shall automatically subject them to the terms and conditions of this Agreement. AGENT agrees to establish and maintain installation and maintenance facilities at the locations set forth in Exhibit "B"; provided that AGENT may request the consent of SBMS to close or centralize certain of such facilities, which consent shall not be unreasonably withheld. Agent may, in Agent's discretion, maintain installation and maintenance facilities at such other locations as AGENT may establish from time to time, approval of SBMS shall not be unreasonably withheld, and to furnish high quality and prompt installation, warranty and maintenance service for all CPE sold by it to Subscribers. AGENT, at its own expense, shall obtain from the manufacturer(s) and distributor(s) all required training in the operation, installation, warranty and maintenance service of CPE. AGENT shall be obligated to comply with all of the requirements of the Quality Assurance Program contained in the Certification Training Manual, as amended from time to time, and with the specific requirements described in the remainder of this subparagraph (c). AGENT'S installation, warranty and maintenance service CRS facility shall be required to obtain certification from the manufacturer(s) of CPE AGENT sells and AGENT shall be responsible to secure such certifications. AGENT may only delegate its installation, warranty and maintenance service obligations hereunder to a subcontractor with the express prior written approval of SBMS, which approval will not be unreasonably withheld or withdrawn, and with any approval necessary from each manufacturer and/or distributor of an approved model of CPE to be sold or leased by AGENT. Such delegation shall be by written agreement between AGENT and the service subcontractor. Notwithstanding such agreement with a service subcontractor, 6 AGENT shall remain responsible to SBMS for all installation, warranty and maintenance service obligations hereunder. AGENT shall reimburse SBMS for the reasonable cost of installation, repair or warranty which SBMS, in its sole discretion, deems necessary to have performed at a facility other than AGENT'S for customers as to whom AGENT fails to comply with SBMS' standards applicable thereto. Notwithstanding the foregoing, AGENT's obligations to repair and maintain CPE are subject to any limitations on AGENT's and/or the manufacturers warranty obligation. d. AGENT agrees to maintain sufficient liability insurance to protect SBMS from all claims arising out of the acts, omissions, and/or representations of AGENT. SBMS shall be named as an additional insured party on each policy. Such insurance coverage shall be maintained under one or more policies of insurance from a recognized insurance company qualified to do business within the Area providing in the aggregate minimum liability protection of ONE MILLION DOLLARS ($1,000,000.00) per occurrence for bodily and personal injury and death and ONE MILLION DOLLARS ($1,000,000.00) per occurrence of property damage. Each such insurance policy shall provide for not less than thirty (30) days prior notice to all insured of any modification, cancellation or nonrenewal. SBMS may, at any time and with ninety (90) days prior notice to AGENT, require AGENT to increase its coverage of any type of insurance in reasonable amounts and require different or additional kinds of insurance, to reasonably reflect inflation, identification of special risks, changes in law or standards of liability, higher damage awards or other changes in circumstances. Upon request, AGENT shall furnish SBMS with a copy of the insurance policy or a binder that demonstrates that AGENT maintains insurance required as set forth above, such policy or binder to specifically show SBMS as an additional insured. The furnishing of such proof of insurance is required within fifteen (15) days of the execution of this Agreement by AGENT and AGENT agrees to furnish such proof as soon as prudent after such policies are renewed. e. AGENT agrees to take all necessary steps to ensure compliance with AGENT'S obligations under this Agreement by AGENT and its personnel and any other parties involved in the sale of the Authorized Services by AGENT, including but not limited to Sub-Agents. f. AGENT agrees to maintain operations and follow procedures that are in full compliance with SBMS' requirements as specified in SBMS' Agent Operations Manual, as amended and distributed from time to time, and to allow SBMS reasonable access to AGENT'S facilities for inspection. The SBMS Agent Operations Manual is binding upon AGENT as if fully set forth herein. g. For its own account, AGENT agrees to sell CPE to be used by Subscribers of SBMS' CRS or other end users. AGENT may only offer FCC approved equipment. AGENT agrees to maintain an inventory of CPE sufficient to meet reasonable 7 anticipated demand by Subscribers which AGENT enrolls. AGENT also agrees to maintain a minimum inventory of parts. In particular, but without limitation, AGENT agrees not to use any CPE bearing trademarks similar to or resembling the Marks of SBMS. Except for any SBMS-owned CPE which AGENT handles on behalf of SBMS, all CPE sales and leases shall be made by or on behalf of AGENT for its own account and not as agent for, or for the account of, SBMS. AGENT may establish sale and lease prices, fees and charges for the CPE and SBMS shall have no control over such prices or over AGENT'S CPE. With respect to the sale or lease of AGENT'S CPE, Subscribers shall be customers of AGENT and SBMS shall have no responsibility to AGENT or to Subscribers with respect to the sale or lease of AGENT'S CPE. h. AGENT agrees that AGENT will at all times faithfully, honestly and diligently perform its obligations hereunder, and that AGENT will continuously exert its best efforts to promote and enhance the use of SBMS' Authorized Services. i. In the relevant Area, AGENT agrees that it will not, at any time either during the term of this Agreement, or any extension thereof, (1) induce, influence or suggest to any Subscriber of SBMS' CRS to purchase CRS or any other CMRS from another Reseller or provider of CRS or CMRS or switch to and/or contract with another CRS provider, (2) induce, influence or suggest to any Subscriber of any other Authorized Service to purchase a service competing with a service provided or offered by SBMS from any other provider or Reseller of such competing service, whether or not the competing service is technologically the same as the Authorized Service in question. As more fully described in Paragraph 18, AGENT agrees not to act as a representative or agent of any other reseller or provider of CMRS in the relevant Area. Notwithstanding any language to the contrary, AGENT shall have the right to enter into or continue current provision of Paging Services and other Services that are not SBMS' Authorized Services as of the date of execution of this Agreement ("Additional Authorized Services"), provided, however, that in the event SBMS should enter into the business of providing Paging Services or other Additional Authorized Services, AGENT and SBMS agree to negotiate in good faith with respect to AGENT'S provision of such Paging Services or other Additional Authorized Services. j. AGENT agrees not to take any action inconsistent with the provisions of this Agreement and shall use its best efforts to support SBMS' efforts in providing the Authorized Services to Subscribers. k. AGENT agrees not to take any action inconsistent with, and agrees to support SBMS' efforts before legal or regulatory authorities regarding any modification of rates. 8 l. AGENT agrees that during and after the term of this Agreement, AGENT will not reveal, divulge, make known, sell, exchange, give away, or transfer in any way any part of its list of Subscribers or use such information for any purpose other than (i) AGENT (but no other successor business entity) maintaining such periodic contact with Subscribers as is required for warranty service, installation or maintenance of CPE, (ii) the resolution of disputes between AGENT (but no other corporate entity) and Subscribers relating to CPE charges and (iii) AGENT (but no other corporate entity) business activities unrelated to CRS, CMRS, or any other Authorized Services; provided, however, AGENT shall be under no such limitation to the extent such Subscriber list or information known to AGENT regarding such Subscriber list becomes available to any third party in a manner destroying its nature as a trade secret, other than through the fault of AGENT and, provided further, that AGENT shall be under no restriction regarding the use of such information as long as such use is consistent with the terms of this Agreement. m. AGENT agrees to advertise association with SBMS' Authorized Services as an Authorized Agent of SBMS, pursuant to any written procedures SBMS may publish from time to time. n. AGENT agrees to use its best efforts to install and maintain CPE for Subscribers referred to AGENT by SBMS' direct sales force and sales associates for installation and maintenance on a "first come, first serve basis", in accordance with SBMS standards established from time to time. 5. SBMS' RESPONSIBILITIES ---------------------- SBMS will: a. Upon approval, and subject to compliance with procedures and guidelines established from time to time, SBMS will furnish the Authorized Services to Subscribers. b. Secure any necessary regulatory approvals to conduct the Authorized Services. c. Establish the rates, terms, and conditions of the sale of its Authorized Services to Subscribers. d. Establish the administrative procedures and guidelines for sale of Authorized Services, enrollment of Authorized Services Subscribers, and customer service provided to Subscribers. e. Promote SBMS' Authorized Services and provide promotional literature as 9 SBMS deems necessary and appropriate. SBMS may advertise SBMS' Authorized Services from time to time if it deems necessary and appropriate. f. Provide a reasonable amount of training on sales of SBMS' Authorized Services and administrative procedures associated with the enrollment of Subscribers. g. Bill Subscribers for SBMS' Authorized Services charges and provide customer service and assistance, including collection of Authorized Services charges. 10 6. CPE BEARING SBMS' MARKS ----------------------- AGENT shall not have the right, except after SBMS' approval, to sell CPE bearing SBMS' Marks to any person or entity other than a Subscriber to whom AGENT has sold SBMS' Authorized Service(s) hereunder. This clause is intended to protect SBMS' Marks and to assure that such Marks are used properly. 7. COMMISSIONS ----------- SBMS shall pay commissions to AGENT for Subscribers enrolled by AGENT onto SBMS' Authorized Services. A Subscriber will be deemed to be enrolled only when the Subscriber's CRS telephone number is installed in CPE and activated by SBMS. The current commissions and related Authorized Services are defined and outlined in the attached Exhibit "C." This commission schedule may be revised or restructured by SBMS in its sole discretion, upon thirty (30) days advance written notice to AGENT or by mutual agreement of the parties at any time. AGENT recognizes that SBMS' ability to sell the Authorized Services may be affected by state and federal court decisions and state and federal regulatory approvals. AGENT agrees that if SBMS is prohibited from, or otherwise ceases, selling the Authorized Services in the Area, SBMS may declare this Agreement null and void with no penalty. Commissions shall only continue to accrue as long as this Agreement is in effect, and the expiration or termination of this Agreement shall effectively terminate AGENT'S right to any further commissions that would otherwise accrue after the date of expiration or termination. Subscriber activation commissions shall be debited in the event a Subscriber does not remain continuously active on SBMS' system for at least that period(s) of time indicated in Exhibit "C." SBMS may withhold and offset or apply AGENT compensation against 30 days past due amount owed to SBMS. Whenever AGENT fails to comply with any term hereof or any procedure referenced in this Agreement or AGENT does not provide complete and/or accurate information concerning Subscribers to whom an Authorized Service is sold or, if applicable, the CPE is sold or leased, SBMS shall have the right to withhold all or a portion of any compensation or other amount otherwise payable hereunder to AGENT with respect to such Authorized Service or if applicable, CPE. 8. USE OF MARKS BY AGENT --------------------- Periodically SBMS will publish a list of the Marks AGENT is licensed to use under the Agreement. The right granted hereunder shall be the non- exclusive right of AGENT to use the Marks solely in the Area defined herein. Such list will also be supplemented with rules and regulations pertaining to the Marks. AGENT agrees to comply with all such rules and procedures prescribed by SBMS from time to time during the term of this Agreement. AGENT 11 acknowledges that its right to use the Marks is derived solely from this Agreement and is limited to the identification of AGENT as an agent of SBMS. AGENT recognizes the great value of the goodwill associated with the Marks, and acknowledges that the Marks and all rights therein and goodwill pertaining thereto belong exclusively to SBMS, and that the Marks have a secondary meaning in the mind of the public. AGENT acknowledges and agrees that all usage of the Marks by AGENT and any goodwill established thereby shall inure to the exclusive benefit of SBMS and its Affiliates and that this Agreement does not confer any goodwill or other interests in the Marks upon AGENT. Any unauthorized use of the Marks by AGENT, or any use not in compliance herewith, shall constitute an infringement of the rights of SBMS and its Affiliates in and to the Marks and shall further constitute a material breach of this Agreement. AGENT shall use the Marks with such words qualifying or identifying the agency relationship of SBMS and AGENT as SBMS from time to time shall in its sole discretion prescribe. AGENT shall not use the Marks as part of any corporate or trade name or with any prefix, suffix or other modifying words, terms, designs or symbols, or in any modified form, nor may AGENT use the Marks in connection with the sale or lease of any unauthorized product or service or in any other manner not expressly authorized by this Agreement or separately in writing by SBMS. If AGENT uses SBMS' Marks on any of AGENT'S stationery, other forms or business cards, AGENT agrees to display the Marks on such stationery, other forms, and business cards used in connection with Authorized Services in the manner prescribed by SBMS. AGENT agrees to obtain such fictitious or assumed name certificates or registrations as may be required by applicable law, provided the fictitious or assumed name, if in connection with this Agreement, is approved in writing by SBMS and SBMS is provided a copy of the certificate and/or registration. If any fictitious or assumed name used by AGENT includes anything that identifies SBMS or its Marks, SBMS may at any time require AGENT to cease using such fictitious or assumed name, and to cancel any corresponding certificate and/or registration. If it becomes advisable at any time in SBMS' sole discretion for AGENT to modify or discontinue use of any Mark or substitute one or more additional trade or service marks to identify its relationship with SBMS or, if applicable, any CPE, AGENT agrees to comply therewith within a reasonable time after notice thereof by SBMS and the sole obligation of SBMS in any such event shall be to reimburse AGENT for the out-of-pocket costs, if any, of complying with this obligation. In addition, AGENT shall replace obsolete identification signs or identification material with new signs or identification material should AGENT adopt new Marks replacing one or more Marks identified by SBMS in such list as herein before specified. Upon reasonable notice from SBMS, AGENT shall provide to SBMS written reports containing such statistical and other types of information as SBMS shall reasonably request for the purpose of ascertaining or determining compliance with the licensing provisions of this Agreement. Further, upon SBMS' request, AGENT shall provide SBMS with samples of all 12 advertising and other literature, packages, labels, and labeling prepared by AGENT which use the Marks or the logos. When using the Marks or the logos under this Agreement, AGENT undertakes to comply with all laws pertaining to trademarks in force at any time in the Area defined herein. 9. SBMS' TITLE AND PROTECTION OF SBMS' RIGHTS ------------------------------------------ AGENT agrees that it will not attack the title or any rights of SBMS in and to the Marks either during the term of this Agreement or thereafter. SBMS hereby indemnifies AGENT and undertakes to hold AGENT harmless against any damages and costs from claims or suits arising out of the use by AGENT of the Marks as authorized in this Agreement, provided that prompt notice is given to SBMS of any such claim or suit and provided, further, that SBMS shall have the option to undertake and conduct the defense of any suit so brought and that no settlement of any such claim or suit is to be made by AGENT without the prior written consent of SBMS. AGENT agrees to assist SBMS and SBMS agrees to reimburse AGENT for all associated reasonable costs to the extent necessary in the procurement of any protection or to protect any of SBMS' rights to the Marks, and SBMS, if it so desires, may commence or prosecute any claims or suits in its own name or in the name of AGENT or join AGENT as a party thereto. When known, AGENT shall immediately notify SBMS in writing of any infringements or imitations by others of the Marks that are the same as or similar to those covered by this Agreement. SBMS shall have the sole right to determine whether any action shall be taken on account of any such infringements or imitations. AGENT shall not institute any suit or take any action on account of any such infringements or imitations without first obtaining the written consent of SBMS. 10. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES ------------------------------------------------ AGENT shall secure and maintain in force all licenses and permits required of AGENT and its employees in the enrollment of Subscribers and the sale of CPE, installation and maintenance of CPE, including without limitation, all required FCC permits and certifications, if required, and business and sales tax licenses, and shall conduct its business in full compliance with all state and federal laws, ordinances and regulations applicable to AGENT'S business. SBMS shall sell or resell the Authorized Services in accordance with applicable rules, regulations, statutes and decisions governing such Services. AGENT shall promptly pay, when due, all taxes and assessments against any real or personal property used in connection with AGENT'S business, and all liens or encumbrances of every kind or character created or placed upon or against any such property, and all accounts and other indebtedness of every kind incurred by AGENT in the conduct of its business. AGENT shall comply, at its own expense, with the provisions of all applicable municipal requirements and those state and federal laws, inclusive of Executive Orders applicable to AGENT as an employer. AGENT will fully comply with the provisions of the Federal Occupational Safety and Health Act of 1970 and with any rules and regulations issued pursuant 13 to this Act. AGENT understands that if AGENT operates its CPE business or represents SBMS' Authorized Services in a manner that is inconsistent with or contrary to state or federal law or regulation, such action will reflect adversely upon the name and goodwill of SBMS and its Affiliates. Therefore, AGENT agrees to comply, if applicable, with Part 22 of the FCC rules, and all tariffs, other governmental rules and procedures in existence relating to the sale of the Authorized Services and the sale, lease, warranty service and the conduct of AGENT'S CPE business hereunder as well as any rules and procedures relating to such matters reasonably prescribed from time to time by SBMS. AGENT shall be responsible to familiarize itself with the laws and regulations applicable to the conduct of its business. 11. ADVERTISING AND BUSINESS PRACTICES OF AGENT ------------------------------------------- All advertising and promotion by AGENT shall be completely factual and shall conform to the highest standards of ethical advertising. All advertising and marketing materials that AGENT desires to use in connection with Authorized Services or CPE and that have not been prepared by or previously approved by SBMS must be submitted to SBMS for approval prior to use. AGENT agrees that it will not begin its advertising and promotion without SBMS' prior written consent. AGENT shall notify SBMS in writing within five (5) days of the commencement of any material action, suit or proceeding, and of the issuance of any order, writ, injunction, award or decree of any court, agency of other governmental instrumentality, involving AGENT in connection with any business conducted by AGENT on behalf of SBMS hereunder. 12. AGENT'S BUSINESS RECORDS ------------------------ AGENT agrees to create and to maintain at its principal office and preserve for three years from the date of their preparation, full, complete and accurate records of its business conducted pursuant to this Agreement. Such records shall include, without limitation, records of all Authorized Services enrollments and CPE sales, leases or rentals, and SBMS shall be entitled to inspect the same upon reasonable notice. 13. ASSIGNMENT ---------- This Agreement is fully assignable by SBMS to any affiliated person or entity and shall inure to the benefit of any assignee or other legal successor to the interest of SBMS herein. AGENT acknowledges that SBMS has entered into this Agreement in reliance upon the character, business experience and ability of AGENT and its owner(s), officers and managers and 14 that neither the rights and duties created by this Agreement nor a controlling interest in the ownership of AGENT may be voluntarily, involuntarily, directly or indirectly assigned, or otherwise transferred (including, without limitation, by transfer of capital stock or partnership interests, by merger or consolidation, by issuance of additional securities representing an ownership interest in AGENT or convertible thereto, or in the event of the death of a shareholder or partner of AGENT, by will, in declaration of or transfer in trust or the laws of intestate succession) without the written approval of SBMS, which will not be unreasonably withheld, subject to such conditions as SBMS deems reasonably necessary. Any such assignment or transfer without such approval shall constitute a breach hereof, subject to termination and convey no rights to or interests herein. Any change in management, personnel or identity that materially impairs the ability of AGENT to market the Authorized Services shall also constitute such a breach. "Control" for purposes hereof is defined in Paragraph 1 above. 14. TERM AND EXTENSION OF AGENCY RELATIONSHIP ----------------------------------------- The term of this Agreement shall be three (3) years, commencing upon final execution of this Agreement. AGENT shall provide to SBMS written notice of the date on which AGENT initiates operations under this Agreement in the Area. AGENT agrees that SBMS must provide written consent before AGENT actually initiates business operations. Upon expiration of this Agreement, if SBMS plans to continue to sell Authorized Services in the Area and AGENT has substantially complied with all provisions of this Agreement, then this Agreement shall automatically extend for additional one (1) year renewal periods subject to either party's option to terminate this Agreement upon written notice as outlined below. Upon extension of their agency relationship, SBMS and AGENT shall continue their business relationship on the same terms and conditions set forth in this Agreement, subject to changes required by regulatory authorities or as mutually agreed upon by SBMS and AGENT. AGENT and/or SBMS shall give the other party written notice of exercise of its option to terminate this Agreement not less than sixty (60) nor more than one hundred twenty (120) days prior to the expiration of the original term or the renewal period. 15. LATE PAYMENTS; SECURITY DEPOSIT ------------------------------- In the event any amount payable by AGENT to SBMS is more than thirty (30) days overdue, SBMS may, at its sole option, do one or more of the following: (i) require AGENT to pay its account in full; (ii) apply commissions and any other credits or other amounts payable to AGENT to reduce the AGENT'S account payable balance; (iii) require AGENT to deposit with SBMS an irrevocable commercial letter of credit, cash or other form of security acceptable to SBMS in its sole discretion to secure future delays or defaults in payment; or (iv) thirty days after providing written notice to Agent of the overdue payment, if payment remains overdue, terminate this Agreement. This deposit will secure payment of any amounts due under this Agreement or any other agreement between the parties. 15 AGENT understands that in order to purchase CPE from SBMS (if SBMS determines that it will sell CPE) other than on a cash on delivery basis, AGENT may be required to sign security agreements, financing statements and related documents. 16. TERMINATION OF AGREEMENT ------------------------ A. By Agent -------- If AGENT is in substantial compliance with this Agreement and SBMS materially breaches this Agreement and fails to cure such breach within thirty (30) days after written notice thereof is delivered to SBMS, AGENT may terminate this Agreement effective thirty (30) days after delivery to SBMS of written notice thereof and AGENT shall not be bound by the provisions in Paragraph 18, "Covenants Not to Compete." B. By SBMS ------- SBMS shall have the right to terminate this Agreement effective upon thirty (30) days written notice if (a) the FCC Cellular Radio Decisions are not continued in substantially the same form and such change materially adversely impacts SBMS' (or an Affiliate's) ability to conduct its business in the Area; (b) state and/or federal regulatory approval empowering SBMS or its Affiliate to construct and provide the Authorized Services and/or CPE in the Area is not granted to either SBMS or an Affiliate, is granted subject to terms and conditions unacceptable to SBMS or an Affiliate, or is granted under such terms and conditions that, in SBMS' opinion, materially affect the intended purpose of this Agreement; or (c) regulatory authorization of the commission schedule of this Authorized Agent Agreement is made subject to terms and conditions unacceptable to SBMS or its Affiliates; (d) prior to selling or providing any Authorized Service to AGENT, SBMS decides not to provide the Authorized Services in the particular area set forth in Exhibit "A". Further, SBMS shall have the right to terminate this Agreement effective upon written notice if: (a) AGENT makes an assignment for the benefit of creditors; (b) an Order for Relief under Title 11 of the United States Code is entered by any United States Court against AGENT; (c) a trustee or receiver of any substantial part of the AGENT'S assets is appointed by any Court; (d) AGENT sells all or substantially all of AGENT'S inventory or assets other than any sale in the ordinary course of business. In addition, SBMS shall have the right to terminate this Agreement effective upon delivery of notice of termination of AGENT, if AGENT (or one or more of its owners and affiliates): (i) has made any material misrepresentation or omission in its application to establish an agency relationship with SBMS or is convicted of or pleads no contest to a felony or other crime or offense that, in SBMS' reasonable sole opinion, is likely to adversely affect the reputation of SBMS or its affiliated companies or the goodwill of the Marks; (ii) attempts to make an unauthorized assignment of this Agreement; (iii) receives a notice of violation of the 16 terms or conditions of any license or permit required by AGENT or its employee(s) in the conduct of AGENT'S Authorized Services and fails to correct such violation, or to terminate the employment of such employee(s) within the time period specified in such notice, if any, or within thirty (30) days after receipt of such notice, whichever first expires; (iv) fails to achieve a minimum average of twenty-five (25) gross activations for three (3) consecutive months; or (v) fails to comply with any provision of this Agreement, including any applicable tariff relating to Authorized Services and/or CPE, and AGENT does not correct such failure within ten (10) days as to monetary defaults and within thirty (30) days if non-monetary default after written notice of such failure to comply is delivered to AGENT. 17. OBLIGATIONS OF AGENT UPON TERMINATION OR EXPIRATION --------------------------------------------------- AGENT agrees that upon the expiration or termination of this Agreement, AGENT and its owner(s) and Affiliates will: (i) not thereafter use any actual or similar Marks, or any actual or similar trade name, service mark, trademark, logo, insignia, symbol or decorative design therefore used by AGENT specifically in the sale of the Authorized Services in any manner or for any purpose in the Area except that AGENT and its owner(s) may use or continue to use any trade name, service mark, logo, insignia, symbol or decorative design that AGENT or its owner(s) lawfully used in any business prior to the date of this Agreement; and will not utilize for any purpose any actual or similar trade name, trade or service mark or other commercial symbol that suggests or indicates a connection or association with SBMS or any affiliated company of SBMS, and will not directly or indirectly, at any time or in any manner, identify itself or any other business as being associated with SBMS or any affiliated company of SBMS; (ii) return to SBMS all advertising and marketing materials, forms, and other materials containing any Mark or otherwise identifying or relating to SBMS' Authorized Services in the Area; (iii) take such action as may be required to cancel all fictitious or assumed name or equivalent registrations relating to any Mark; or authorize SBMS, and any officer of SBMS, as AGENT'S attorney in fact, to take such actions as may be required to cancel such fictitious or assumed name or equivalent registration if AGENT fails or refuses to do so, and all governmental agencies administering fictitious or assumed name or equivalent registrations may accept and rely upon appropriate documents executed by SBMS or its officer canceling any such registration; and (iv) provide SBMS with an updated list of names, addresses and all other relevant information AGENT then possesses concerning Subscribers of Authorized Services AGENT has enrolled in the Area. 18. COVENANT NOT TO COMPETE ------------------------ In consideration of SBMS' grant to AGENT of the right to use the Marks, the right to advertise affiliation with SBMS as an Authorized Agent of SBMS and the great value of the goodwill associated with AGENT'S ability to use the Marks, which rights and value are not available to distributors generally, and in recognition of the value of specialized, technical knowledge of the cellular industry and other services imparted by SBMS to AGENT from time to time, AGENT agrees to be bound by the covenants in this Paragraph 18. Such rights and 17 value shall constitute independent consideration for the covenants in this Paragraph 18. Therefore, for value received, as identified above, AGENT agrees that AGENT, its officers, directors, key employees, and principals, any Affiliate or the person or persons owning a controlling interest in AGENT or an Affiliate, shall during the term of this Agreement and except as noted below, and AGENT and the person or persons owning a controlling interest in AGENT for a period of one (1) year following the latter of the expiration or termination of this Agreement; (1) not, directly or indirectly, induce, influence or suggest to any Subscriber of SBMS' CRS to purchase CRS or any other CMRS from another reseller or provider of CRS or CMRS in the Area as existing at the time of execution of this Agreement; (2) not directly or indirectly, influence or suggest to any Subscriber of any other Authorized Service to purchase a competing service from any other provider or reseller of such competing service in the Area as existing at the time of execution of this Agreement, whether or not the competing service is technologically the same as the Authorized Service in question; (3) not, under any circumstances or conditions whatsoever, directly or indirectly, as an individual, partner, stockholder, director, officer, employee, manager or in any other relation or capacity whatsoever engage in the sale or promotion of CRS, CMRS, or any other Authorized Service on behalf of any competing reseller or provider of such service in the Area as existing at the time of execution of this Agreement. (4) not, directly or indirectly, allow any other person, firm or other entity to use the name, trade name, goodwill or any other assets or property of AGENT or SBMS in any manner in connection with such other entity's sale of CRS, CMRS or any other Authorized Service on behalf of a competing reseller or provider of service in the Area, and AGENT specifically agrees not to transfer, assign, authorize or consent to the transfer of an AGENT telephone number to such a competing person, firm or other entity upon the expiration or termination of this Agreement. Notwithstanding any language to the contrary, subject to the obligation to negotiate in good faith as set forth in Section (4) (i), the restrictive covenants contained herein shall not operate so as to restrict AGENT from the business of providing or selling Paging Services or nonexclusive Additional Authorized Services. 19. SEVERABILITY AND SUBSTITUTION OF VALID PROVISIONS ------------------------------------------------- 18 Except as expressly provided to the contrary herein, each term and condition of this Agreement, and any portion thereof, shall be considered severable and if, for any reason, any such provision hereof is held to be invalid, contrary to, or in conflict with any applicable present or future law, regulation or public policy in a final, unappealable ruling issued by any court, agency or tribunal with competent jurisdiction in a proceeding to which SBMS or its Affiliate is a party, that ruling shall not impair the operation of, or have any other effect upon, such other portions of this Agreement as may remain otherwise enforceable which shall continue to be given full force and effect and bind the parties hereto, although any portion held to be invalid shall be deemed not to be a part of this Agreement from the date the time for appeal expires, if AGENT is a party thereto, otherwise upon AGENT'S receipt of a notice of nonenforcement thereof from SBMS. To the extent that Paragraphs 4 or 18 contain or impose a restriction upon AGENT that is deemed unenforceable by virtue of its scope in terms of area, business activity prohibited and/or length of time, but could be enforceable by reducing any or all thereof, AGENT and SBMS agree that same shall be enforced to the fullest extent permissible under the laws and public policies applied in the jurisdiction in which enforcement is sought. SBMS and AGENT shall mutually agree to a modification of any invalid or unenforceable term or condition hereof to the extent required to be valid and enforceable. Such modifications to this Agreement shall be required only in the Area directly affected by any such ruling. 20. WAIVER OF OBLIGATIONS --------------------- SBMS and AGENT may by written instrument unilaterally waive or reduce any obligation of or restriction upon the other under this Agreement, effective upon delivery of written notice thereof to the other or such other effective date stated in the notice of waiver. Whenever this Agreement requires the consent of a party, such request shall be in writing and no consent may be unreasonably withheld. All consents or withholding of consent with reasons therefore shall be in writing. SBMS and AGENT shall not be deemed to have waived or impaired any right, power or option reserved by this Agreement (including, without limitation, the right to demand exact compliance with every term, condition and covenant herein, or to declare any breach hereof to be a default and to terminate this Agreement prior to the expiration of its term), by virtue of any custom or practice of the parties at variance with the terms hereof or any failure, refusal or neglect of SBMS or AGENT to exercise any right under this Agreement or to insist upon exact compliance by the other with its obligations hereunder, including without limitation any rule or procedure, or any waiver, forbearance, delay, failure or omission by SBMS to exercise any right, power or option, whether of the same, similar or different nature, with respect to one or more other Authorized Agents or other forms of distribution. 21. RIGHTS OF PARTIES ARE CUMULATIVE -------------------------------- 19 The rights of SBMS and AGENT hereunder are cumulative and no exercise or enforcement by SBMS or AGENT of any right or remedy hereunder shall preclude the exercise or enforcement by SBMS or AGENT of any other right or remedy hereunder or that SBMS or AGENT is entitled by law to enforce. 20 22. GOVERNING LAW AND LIMITATION OF ACTIONS --------------------------------------- Except to the extent governed by United States law that preempts state law, this Agreement shall be interpreted under and governed by the laws of the State of Texas. Any lawsuit or other claim arising out of or in connection with this Agreement or the relationship of the parties must be brought, if at all, within twenty-five (25) months after the cause of action accrues, regardless of when it is discovered. If any suit or action shall be brought to enforce or declare any of the terms of this Agreement, to terminate this Agreement or to recover any damages sustained as a result of a default in the performance of any obligations under this Agreement, or a breach of any of the representations and warranties herein contained or otherwise pursuant to this Agreement, then the party not prevailing in such suit or action shall be liable to the prevailing party for the prevailing party's cost and expenses, including, without limitation, court costs and reasonable attorney's fees and expert witness' fees (including without limitations, the value of time spent by in-house personnel), the amount of which shall be fixed by the court and shall be made a part of any judgment rendered. The parties agree that such suit or action must be brought, if at all, within one (1) year after the underlying cause of action accrues. 23. TESTIMONY --------- Matters relating to this Agreement may be an issue before various regulatory bodies. Upon reasonable notice AGENT agrees to fully cooperate with SBMS regarding any such matters including willingly providing employees of AGENT to testify at appropriate times regarding any aspect of this Agreement or other related issues. SBMS agrees to reimburse AGENT for reasonable costs expended in supplying such testimony. 24. BINDING EFFECT -------------- This Agreement is binding upon the parties hereto, their respective executors, administrators, heirs, assigns and successors in interest. All obligations by either party that expressly or by their nature survive the expiration or termination of this Agreement shall continue in full force and effect subsequent to and notwithstanding its expiration or termination and until they are satisfied in full or by their nature. 25. IMPOSSIBILITY OF PERFORMANCE ---------------------------- Neither SBMS nor AGENT shall be liable for loss or damage or deemed to be in breach of this Agreement if its failure to perform its obligations results from: (i) compliance with any law, ruling, order, regulation, requirement or instruction of any federal, state or municipal government or any department or agency thereof or court of competent jurisdiction; (ii) acts of 21 God; (iii) acts or omissions of the other party; (iv) fires, strikes, embargoes, war, insurrection or riot. Any delay resulting from any of said causes shall extend performance accordingly or excuse performance, in whole or in part, as may be reasonable. 26. INTERPRETATION -------------- The preambles and exhibits to this Agreement are a part of this Agreement, which constitute the entire agreement of the parties, and there are no other oral or written understandings or agreements between SBMS and AGENT relating to the subject matter hereof. Nothing in this Agreement is intended, nor shall be deemed, to confer any rights or remedies upon any person or legal entity not a party hereto, except for those affiliates of SBMS as may be involved in the provision of one or more of the Authorized Services, provided that SBMS shall remain liable to Agent pursuant to the terms of this Agreement. The headings of the several paragraphs hereof are for convenience only and do not define, limit or construe the contents of such paragraphs. The term "AGENT" as used herein is applicable to one or more persons, a corporation or a partnership. If two or more persons are at any time AGENT hereunder, whether or not as partners or joint ventures, their obligations and liabilities to SBMS shall be joint and several. This Agreement shall be interpreted and governed without regard as to which party hereto drafted the Agreement. This Agreement shall be executed in multiple copies, each of which shall be deemed an original. 27. INDEMNITY --------- Subject to the provisions of Paragraph 3 and the insurance requirements set forth in Paragraph 4, each party hereto agrees to defend, indemnify and save harmless the other party and its successors and assigns and its employees and agents and their heirs, legal representatives and assigns from any and all claims or demands whatsoever, including the costs, expenses and reasonable attorneys' fees incurred on account thereof, that may be made (i) by the indemnifying party's employees or any other persons for bodily injury or damage to property occasioned by the acts or omissions of the indemnifying party or its subcontractor, or the employees or agents of any of them, and (ii) by the party's employees under workers compensation or similar acts. 22 28. SURVIVAL -------- The terms, provisions, representations, and warranties contained in this Agreement that by their sense and context are intended to survive the performance thereof by either or both parties hereunder shall so survive the completion of performances and termination of this Agreement, including the making of any and all payments due hereunder. 29. LICENSES -------- No licenses, express or implied, under any patents are granted by SBMS or its Affiliates to AGENT. 30. NOTICES AND PAYMENTS -------------------- All payments due AGENT shall be made to such address or bank as AGENT from time to time designates. All notices and reports required to be delivered by the provisions of the Agreement shall be deemed so delivered three (3) business days after placement in the United States Certified or Registered Mail, postage prepaid and addressed to the party to be notified at its most current principal business address of which the notifying party has been notified. All reports and other information required by this Agreement shall be directed to SBMS at the data processing center or the address provided to AGENT from time to time, or to such other persons and places as SBMS may direct from time to time. Any required report not actually received or postmarked by SBMS or AGENT during regular business hours on the date due, shall be deemed delinquent. 31. CONFIDENTIAL INFORMATION ------------------------ Any specifications, drawings, sketches, models, samples, data, computer programs or documentation, or technical or business information ("Information") furnished or disclosed by SBMS to AGENT hereunder shall be deemed the exclusive property of SBMS, including title to copyright in all copyrightable material, and, when in tangible form, shall be returned to SBMS upon completion or termination of authorized work. Unless such Information is required to be disclosed by law, was previously known to AGENT free of any obligation to keep it confidential, or has been or is subsequently made public by SBMS or a third party, it shall be held in confidence by AGENT, shall be used only for the purposes hereunder, and may be used for other purposes only upon such terms and conditions as may be mutually agreed upon in writing. In addition, the parties hereby agree that Subscriber lists and related information or data are the exclusive property of SBMS and are to be used by AGENT solely in the performance of its obligations and duties as described herein and are to be returned to SBMS upon the termination of this Agreement. So long as this Agreement is in effect, AGENT shall not publicly disclose any of the terms of this Agreement without the prior written consent of SBMS, except as may be required 23 by law or otherwise authorized by the terms of this Agreement. AGENT is served with process to obtain Information, AGENT shall immediately notify SBMS, which shall have the right to seek to quash such process regardless of any such efforts by Agent. Unless marked "proprietary," any Information furnished or disclosed by AGENT to SBMS shall not obligate SBMS to hold such Information in confidence. 32. COVENANT NOT TO SOLICIT EMPLOYMENT ---------------------------------- Agent and SBMS recognize and agree that each party hereto takes a great deal of time to hire and train employees for its respective business. Agent and SBMS fully understand the time and expense each party incurs to obtain qualified personnel, and Agent and SBMS agree not to offer employment to or employ any of the other party's employees without written consent by a Vice President or the President of the other party. 33. AUTHORITY --------- Each of the parties represents, warrants and agrees that it is a corporation or partnership duly organized, validly existing and in good standing under the laws of the state of its formation, and has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; that the execution and delivery of this Agreement and the performance hereof have been duly and validly authorized by all necessary corporate or partnership action; and that the execution and delivery by it of this Agreement and the performance of this Agreement by it will not conflict with or result in a breach of or constitute or result in a default under any of the terms, conditions or provisions of the Articles or Certificates of Incorporation, By-Laws, or other of its governing instruments or any judgment, order, decree, law, regulation or ruling of any court or governmental authority or any agreement, contract, commitment or other instrument to which it is a party or by which it is bound. Specifically, AGENT represents and warrants that (i) AGENT is not a party to any agreement to distribute, promote or otherwise sell CRS, CMRS or any other Authorized Service ( except Paging Services or Additional Authorized Services) on behalf of any competing provider, reseller or agent in the Area; (ii) the execution and delivery by it of this Agreement and the performance of this Agreement by it will not conflict with or result in a breach or constitute or result in a default under any of the terms, conditions or provisions of any agreement between AGENT and any other carrier, reseller or agent of CRS, CMRS or any other Authorized Service. 34. RIGHT OF FIRST REFUSAL TO SUBLET OR ASSIGN STORE LOCATION(S) ------------------------------------------------------------ A. Preapproval of SBMS as Subtenant or Assignee 24 In connection with negotiating the lease(s) for store location(s) (the "Lease Premises"), Agent will use its reasonable best efforts to obtain a clause in each such lease allowing for the free transferability of AGENT'S interest in the lease(s) in the form of any unrestricted right on the part of Agent to sublet, assign or otherwise transfer the Leased Premises to SBMS or any Affiliate thereof. B. Terms of Sublease or Agreement The assignment or sublease shall specifically state that rental payments shall be made directly to the landlord under the lease(s), and Agent shall indemnify SBMS for any and all defaults under the lease(s) or any other damage claims, etc. which arose during AGENT'S possession of the Lease Premises. C. Right of First Refusal If, during the term of this Agreement, Agent shall elect to close or relocate one or more of the sales locations located in any one or more of the Leased Premises, Agent shall give written notice (the "Relocation Notice") to SBMS of its desire to close or relocate one or more of its sales locations on or before sixty (60) days prior to anticipated closure or relocation of such sales location. The Relocation Notice shall include a copy of the lease(s) for the particular Leased Premise(s) which are the subject of the Relocation Notice, together with any and all amendments, letter agreements, correspondence, etc. with respect to that particular lease(s). Within thirty (30) days after the receipt by SBMS of the Relocation Notice and lease(s), SBMS shall advise Agent in writing whether it intends to become AGENT'S subleasee or assignee under the lease(s). If the consent of the landlord is required, Agent shall use its best efforts to obtain such consent and shall generally cooperate fully with SBMS in connection with the assignment or subletting of the Leased Premises to SBMS. The terms and conditions of the sublease or assignment shall be identical to those set forth in the lease(s). If SBMS does not advise Agent of its intentions with respect to the lease(s) within such thirty (30) day period, Agent shall be free to attempt to sublet or assign the lease(s) to a third party under any terms and conditions. If Agent should attempt to sublet or assign the Leased Premises under different terms and conditions than those set forth in the lease(s). Agent shall first offer in writing the Leased Premises under the new terms and conditions to SBMS who shall have fifteen (15) days in which to determine if it will enter a sublease or assignment with Agent under such different terms or conditions. 35. RIGHT OF FIRST REFUSAL TO PURCHASE STORE LOCATION(S) ---------------------------------------------------- If at any time during the term of this Agreement or upon termination of this Agreement, 25 Agent receives a bona fide offer to purchase any or all of Agent's store location(s), from a third party, and Agent desires to accept such offer, Agent shall cause such offer to be reduced to writing and shall notify SBMS in writing of such offer. Agent shall provide SBMS thirty (30) business days to exercise a right of first refusal with respect to AGENT'S store location(s) by delivering to Agent a written notice indicating SBMS' desire to make the same purchase under terms and conditions identical in all material respects to the terms and conditions of the third party's offer. Notwithstanding the foregoing, if a term of the third party's offer specifies consideration other than cash, SBMS may exercise its right of first refusal by agreeing to pay an amount in cash reasonably equivalent to the value of such noncash consideration. IN WITNESS WHEREOF the parties hereto have executed and delivered this Agreement in two counterparts on the day and year first above written, AND HEREBY DECLARE THAT THEY HAVE READ AND DO UNDERSTAND EACH AND EVERY TERM, ----------------------------------------------------- CONDITION, AND COVENANT CONTAINED IN THIS AGREEMENT OR IN ANY DOCUMENT - ---------------------------------------------------------------------- INCORPORATED BY REFERENCE. - -------------------------- CELLSTAR, LTD. By: /s/ Alan H. Goldfield ---------------------------------------- Title: Chairman and Chief Executive Officer ------------------------------------- Name: Alan H. Goldfield -------------------------------------- (Print/Type) Date: 12/16/96 -------------------------------------- SOUTHWESTERN BELL MOBILE SYSTEMS, INC., AS GENERAL PARTNER FOR: - ------------------------------------------- By: /s/ Lowell Whitlock ---------------------------------------- Title: VP / GM - DFW ------------------------------------ Name: Lowell Whitlock ------------------------------------- (Print/Type) Date: 12/17/96 -------------------------------------- Approved as to Form: /s/ illegible 26 EXHIBIT A --------- AUTHORIZED SERVICES - ------------------- 1. Commercial Mobile Radio Services (CMRS) 2. CMRS Long Distance 27 EXHIBIT B --------- AUTHORIZED AGENT LOCATIONS - -------------------------- This Exhibit "B" sets forth the initial locations at which AGENT is authorized to operate as described in this Agreement. It is agreed by AGENT and SBMS that if the initial business location(s) and/or the date upon which Authorized Services operations of AGENT will commence are not known at the date of execution of this Agreement, the same may be added from time to time as such information becomes known but no later than the effective date of AGENT operations. AGENT shall not change or add business locations without SBMS' prior written approval. AGENT shall consult with SBMS before initiating any action to change or supplement any of its business locations. Any business locations that AGENT opens and operates in the Area shall be subject to all of the terms of the Agreement, whether or not an amendment is signed by the parties adding the addresses of any new or different locations. COUNTIES IN WHICH AGENT IS AUTHORIZED: Dallas and Tarrant BUSINESS LOCATIONS: 1. 605 W. Airport Freeway, Irving, Texas 75062 2. 512 N. Central Expressway, Richardson, Texas 75080 3. 4146 S. Cooper, Arlington, Texas 76015 4. 4216 LBJ Freeway, Dallas, Texas 75244 5. 5937 Donnelly, Ft. Worth, Texas 76107 EFFECTIVE DATE OF AGENT OPERATIONS: (under this Agreement) - ----------------------------------- 28 EXHIBIT C ---------- COMMISSION SCHEDULE (DALLAS-FT. WORTH) TO AUTHORIZED AGENCY AGREEMENT (THIS EXHIBIT C SHALL BE EFFECTIVE AS OF AUGUST 1, 1996) CELL STAR, LTD. COMMISSIONS - ----------- Commissions will be paid by SBMS to AGENT in the following manner:
RATE PLAN COMMISSION --------- ---------- Bell 15 I, Basic [REDACTED] Weekender III, Bell 250 I, III and Corporate [REDACTED] Bell 400 I, III, Bell 700 I, III, and Bell 950 I, III [REDACTED]
SPECIAL PLAN COMMISSION ------------ ---------- Bell 15 III [REDACTED] Weekender I [REDACTED]
Commissions will be paid within thirty (30) days of the bill close date on paperwork properly completed and received by SBMS by the second business day of the following month. Incomplete or incorrect paperwork will be returned to the Agent and will not be paid during the current cycle unless it is received back by SBMS by the second business day of the following month. Agent inquiries must be submitted within six (6) months of the activation date to be eligible for payment. Subscriber activation commissions shall be debited in full in the event Subscriber does not remain on SBMS system in the Area for at least [REDACTED] subsequent to activation. In addition, if Subscriber switches rate plans during the initial [REDACTED], then the Agent's commission will be debited or credited by the difference in the two commission rates. Commissions will not be paid on paperwork SBMS deems to be fraudulent. This includes, but is not limited to, forged signatures or forged initials. If it is determined that the Agent, its sales personnel or Sub-Agent committed the fraudulent activation, then the Agent will be held responsible for any subsequent charge-offs involved with such activation. RESIDUALS - --------- Residuals will be paid in the following manner: ACTIVATIONS RESIDUALS [REDACTED] [REDACTED] Residuals will be paid by calculating the appropriate percentage of Agent originated Subscribers' air-time, features, monthly access charges and long distance charges for the previous months bills. Taxes, one time fees, directory assistance and any other miscellaneous charges will not be included in the calculation of residual payments. Any customer account in a suspend or final status will not be eligible in the calculation for residuals. MSA/NW OCTOBER 30, 1996 1 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. Example: Agent XX activates a customer on the Weekender III ($39.95) rate plan. The customer also wants detailed air ($3.00) and voice mail ($6.95). During the month, the customer uses airtime of $125.00 and long-distance of $20.00. Agent XX has 110 activations for the month. Residual amounts paid to the Agent for this customer would be [REDACTED], calculated as follows:
Access $ 39.95 Feature (Detailed Air) $ 3.00 Feature (Voice Mail) $ 6.95 Airtime $ 125.00 Long Distance $ 20.00 -------- Total $ 194.90 Times Residual Tier (110 Activations) X [REDACTED] ------------ Residuals [REDACTED]
Agent's right to payment of residuals shall terminate following expiration of this Agreement, including any renewal period, or as otherwise provided herein. SBMS, in its sole discretion, may terminate or suspend payment of Agents' entire residual base if the current month's gross activations [REDACTED] drop below [REDACTED]. TRADE-IN - -------- Agent may be eligible to receive payment pursuant to the Trade-in Program to be established by SBMS. Failure to comply with all current Trade-in Program guidelines may result in Agent's loss of eligibility to participate in the Trade-in Program. The Trade-in Program may be revised or restructured at any time by SBMS, in its sole discretion, upon fifteen (15) days advance written notice to Agent. VERTICAL SERVICES - ----------------- Vertical Services will be paid in the following manner: Commissions will be paid on vertical services equal to two times the amount of the monthly charge for the service. Ninety (90) day vesting will apply to commissions on vertical services. Promotional and no charge verticals are compensated at $ 0.00 unless otherwise stated. CO-OP - ----- Co-op will be paid in the following manner: Advertising Co-op will be accrued on a monthly basis in the amount of [REDACTED] per net activation. Co-op guidelines must be followed in order to receive co-op payments. Co-op payments shall be due and payable to Agent 30 days following submission of invoices approved by the SBMS Marketing Department, provided however, no Co-op invoices will be paid until such amounts have been earned and accrued in Agent's Co-op account. MSA/NW OCTOBER 30, 1996 2 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. SPIFFS - ------ The Agent with the lowest churn for the month will receive a special incentive payment (SPIFF) of [REDACTED] per net activation based on SBMS' commission report. The Agent with the highest percentage increase in net activations over the same month in the previous year (excluding sales due to Agent's Sam's Club Operations in the previous year) will receive a (SPIFF) of [REDACTED] per net activation based on SBMS' commission report. The Agent must be in operation a minimum of [REDACTED] and have [REDACTED] net activations per month to be eligible to receive any such (SPIFF). Agents will fall into a [REDACTED] net activation category or [REDACTED] net activation category, for purposes of the calculation.
NET ACTIVATIONS SPIFF --------------- ----- [REDACTED] [REDACTED]
GENERAL - ------- In order to receive compensation as set forth in this Exhibit C, SBMS must be notified and in agreement with any transfer of ownership of store locations. SBMS reserves the right to withhold or apply commissions and residuals against overdue receivables owed to SBMS by Agent, or against write-offs assessed by SBMS resulting from fraudulent paperwork deemed to be caused by the Agent, its sales personnel, or its Sub-Agent. Agent must submit customer deposit checks that have been returned to them by a financial institution (e.g. NSF check, closed account, etc.) to SBMS Dallas Treasury whose address is 15660 Dallas Parkway, Suite 1300, Dallas, TX 75248, within two months from the date of the check in order to receive reimbursement. This Exhibit C may be revised or restructured at any time by SBMS, in its sole discretion, upon thirty (30) days advance written notice to Agent. Agent will be compensated for the services and rate plans as set forth in this Exhibit C. SBMS reserves the right to compensate Agent for all other services and rate plans not set forth herein in amounts to be determined solely by SBMS. DEFINITIONS - ----------- Net activations are equal to monthly gross activations less all non-vested deactivations. ** Non-vested deactivations are deactivations less than 180 days old. SOUTHWESTERN BELL MOBILE SYSTEMS ACKNOWLEDGMENT: - -------------------------------- -------------- AGENT: Cellstar, Ltd. BY: /s/ Lowell D. Whitlock BY: /s/ Alan H. Goldfield ----------------------------- ----------------------------------- NAME: LOWELL D. WHITLOCK NAME: ALAN H. GOLDFIELD --------------------------- --------------------------------- TITLE: VICE PRESIDENT & TITLE: CHAIRMAN AND CHIEF GENERAL MANAGER EXECUTIVE OFFICER -------------------------- -------------------------------- DATE: 12/17/96 DATE: 12/16/96 --------------------------- --------------------------------- MSA/NW OCTOBER 30, 1996 3 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT D --------- Subagents Ratel Communications John Boling 3001 D. Airport Freeway Bedford, Texas 76021 817-267-1770 Cellular International Fima Kuperburg 10434 Ryker #C Dallas, Texas 75238 214-341-2610 Beepers Etc. Leo Prather/Cleveland Armstead 13455 Noel Road, Suite 1000 Dallas, Texas 75240 214-774-4537 Advanced Cellular Technology Mike Jeffus 1420 Schukar Court Irving, Texas 75061 972-986-2213 Cellular Paging Chris Adeime 3317 West Illinois Dallas, Texas 75211 214-339-5283 Cellular Paging Chris Adeime 2431 A South Collins Arlington, Texas 76014 817-265-4117 EXHIBIT D --------- Subagents Callnet Communication Felix Osimiri 2302 Gus Thomason Dallas, Texas 75228 214-327-9308 Radio Shack Larry Criner 1601 B West Ennis Avenue Ennis, Texas 75119 214-875-5770 Beepers Unlimited Bobby & Debbie Harris 1147 East Industrial Sulphur Springs, Texas 75482 903-439-6049 Universal Paging Marvis Oa 3068 Forest Lane, Suite 209B Dallas, Texas 75234 214-357-6565 Prime Time Communications Keith Stenson 4607 Village Fair Drive, #327 Dallas, Texas 75234 214-374-7534 Protech Electronics Scott Grant 3884 Shiloh Road, Suite 100 Garland, Texas 75041 972-864-4720 EXHIBIT D --------- Subagents Larry Haag 1802 Guildford Street Garland, Texas 75044 972-414-8430 Mobile Advantage Eric Jobe 503 A West Henderson Cleburne, Texas 76031 817-558-0610 Mobile Electronics Eric Jobe 726 East Highway 377 Grandbury, Texas 76048 817-279-7243 Moeller Cellular David Pitre 3805 B Camp Bowie Cleburne, Texas 76107 817-731-1011 Mobile Communications Jay Montgomery 903 South Main Weatherford, Texas 76086 817-596-0099 Texoma Prime Connie Ferguson Route 6, Box 569A Gainesville, Texas 76240 888-453-3229 EXHIBIT D --------- Subagents Golden Key Leasing Darrell Wright P.O. Box 541 Arlington, Texas 76004-0541 817-226-4477 Telemart Ben Tobar 546 Harwood Road Hurst, Texas 76054 817-498-7831 National Tape dba National Auto Accessories Alan Goldfield, Sole Proprietor 2608 South Buckner Dallas, Texas 75127 214-285-2188 Cellular on the Go Curt Miller 3512 Sweetwood Bedford, Texas 76021 817-364-2878 K.A. Marketing Sandy Monroe 1 Stone Briar Way Frisco, Texas 75034 972-957-7547 972-993-3993 EXHIBIT D --------- Subagents Bengo Networks Ben Udechukwu 9492 Webb Chapel Dallas, Texas 75220 972-654-0721 Advanced Voice Systems Hazel Altheia 11551 Forest Central, Suite 105 Dallas, Texas 75243 214-340-1976 EX-10.8 3 MASTER AGREEMENT FOR PURCHASE OF PRODUCTS EXHIBIT 10.8 MASTER AGREEMENT NO. P/PS-960163 MASTER AGREEMENT FOR THE PURCHASE OF PRODUCTS AND INVENTORY MAINTENANCE, ASSEMBLY AND FULFILLMENT (IAF) SERVICES BETWEEN PACIFIC BELL MOBILE SERVICES AND CELLSTAR, LTD. PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT BY "[REDACTED]". MASTER AGREEMENT NO. P/PS-960163 TABLE OF CONTENTS ----------------- 1. DEFINITIONS 1 2. TERM OF AGREEMENT 3 3. MASTER AGREEMENT 3 4. SCOPE OF WORK 4 4.1 CUSTOMER PARTNER TEAM 4 4.2 EXTERNAL RELATIONSHIPS 4 4.2.1 Sourcing 4 4.2.2 Vendors and Product Suppliers 5 4.2.3 Retailers and Other Resellers 6 4.2.4 Direct Sales Accounts (Subscriber and Business Customers) 6 4.3 WORKING RELATIONSHIP 6 4.3.1 Dedicated Product Inventory Ownership and Management 6 4.3.2 Open Stock Forecast and Supply 7 4.3.3 Product Assembly 7 4.3.4 Credit Line Administration, Order Processing and Fulfillment 7 4.3.5 Accounts Receivable, Invoicing and Collections 8 4.3.6 Inventory Accounting and Control 9 4.3.7 Maintenance of Books and Records 9 4.3.8 Inventory/Warehousing 9 4.3.9 Returns Processing 9 4.3.10 Use of Fictitious Business Name 9 4.4 COMPENSATION 10 4.4.1 Start-up Costs 10 4.4.2 Inventory Carrying Costs 10 4.4.3 Standard Product Cost 10 4.4.4 Credit for Customer Receivable 11 4.4.5 Fulfillment Services Costs 11 4.4.6 Monthly Recurring Service Fees 11 4.4.7 Returns 11 4.4.8 Purchase Price Variances 11 4.5 PBMS/SUPPLIER AGREEMENTS 12 5. ORDERS 13 6. PRICES 14 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 7. INVOICING AND PAYMENT 14 8. SHIPPING AND PACKING 15 9. TAXES 15 10. RECORDS AND AUDITS 16 11. INDEPENDENT CONTRACTOR 16 12. NONEXCLUSIVE AGREEMENT 16 13. INDEMNIFICATION 16 14. INSURANCE 17 15. ACCESS 18 16. INFORMATION 19 17. QUALITY 20 18. REGISTRATION 21 19. INSIGNIA 22 20. HAZARDOUS MATERIALS 22 21. CODES, LAWS OR REGULATIONS 22 22. NOTICE OF DELAYS 22 23. CHANGES AND SUSPENSIONS 22 24. TERMINATION AND CANCELLATION 23 25. PARTIAL TERMINATION OR CANCELLATION 23 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 26. NONASSIGNMENT 24 27. NOTICES 24 28. PUBLICITY 24 29. COMPLIANCE WITH LAWS 24 30. TITLE 25 31. NO THIRD PARTY BENEFICIARIES 25 32. AMENDMENTS AND WAIVERS 25 33. EXECUTIVE ORDERS 25 34. HEADINGS 25 35. GOVERNING LAW 25 36. REMEDIES CUMULATIVE 25 37. SEVERABILITY 25 38. SURVIVAL 26 39. PATENTS 26 40. FORCE MAJEURE 26 41. SUBCONTRACTING PLAN 26 42. MBE/WBE/DVBE CANCELLATION CLAUSE 26 43. DELIVERY OF PRODUCTS AND PERFORMANCE OF SERVICES 27 44. USE OF CELLSTAR'S PUBLISHED SPECIFICATIONS 28 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 45. DOCUMENTATION 28 46. RISK OF LOSS 28 47. WARRANTIES 28 48. TERMINATION OF ORDERS 29 49. ALTERNATE DISPUTE RESOLUTION 29 50. PRECEDENCE 30 51. LIMITATION OF LIABILITY 30 52. CORPORATE AUTHORIZATION 30 53. ENTIRE AGREEMENT 31 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 EXHIBITS -------- EXHIBIT A: Executive Orders and Associated Regulations EXHIBIT A-1: Job Specific Subcontracting Plan EXHIBIT A-2: MBE/WBE/DVBE Summary Subcontracting Report (Job Specific Results) EXHIBIT A-3: Commodity Product Subcontracting Plan EXHIBIT A-4: MBE/WBE/DVBE Summary Subcontracting Report (Commodity Results) EXHIBIT B: Description of Products, Services & Prices EXHIBIT C: PBMS' Credit and Collection Costs EXHIBIT D: PCS Price List EXHIBIT E: Sample Order EXHIBIT F: Assembly Cost Model APPENDIX 1: Procedures Manual PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 THIS MASTER AGREEMENT ("AGREEMENT"), EFFECTIVE SEPTEMBER 20, 1996, IS BETWEEN CELLSTAR, LTD., A TEXAS LIMITED PARTNERSHIP ("CELLSTAR"), AND PACIFIC BELL MOBILE SERVICES, A CALIFORNIA CORPORATION ("PBMS"). THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS: 1. DEFINITIONS For purposes of this Agreement, the following terms and all other terms defined in this Agreement shall have the meanings so defined unless the context clearly indicates otherwise. A term defined in the singular shall include the plural and vice versa when the context so indicates. "AFFILIATE" - means with respect to PBMS (a) any corporation or other entity owning, either directly or indirectly, a majority of the outstanding stock of PBMS ("Parent"), or (b) any corporation or other entity in which a majority of the ownership interest is held, either directly or indirectly, by Parent or PBMS. "CELLSTAR ORDER" - means an order executed by CellStar under a product supplier/PBMS agreement. "COMPONENT INVENTORY" - means items carried in inventory at the component level for resale to subscribers as repair or replacement items. These components are usually but not always "B Stock" items which have been received as returns without apparent defect or reconditioned merchandise which cannot be sold as new equipment. "CUSTOMERS" - means either Retailers, resellers, business and/or end users. "DEDICATED PRODUCTS" - means Products purchased by CellStar at PBMS" direction under terms negotiated by PBMS with the Product manufacturers. Subject to Section 4.3.1.c, Dedicated Products shall be reserved exclusively for PBMS' use. "FULFILLMENT SERVICES" - means picking, assembling of Products, packaging, preparation of shipping documents, shipping to Customers, processing of Customer returns and tracking of shipments and all associated Services associated with providing Products to Customers and receiving Products back from Customers. "INFORMATION" - means all ideas, discoveries, concepts, know-how, techniques, designs, specifications, drawings, sketches, models, manuals, samples, tools, pricing, Customer lists, competitor, manufacturer, or manufacturing information, computer programs, technical information, and other confidential business, Customer or personnel information or data, whether written, oral or otherwise owned or controlled by the disclosing party. "INSIGNIA" - means PBMS' and as applicable, the manufacturers' trademarks, trade names, symbols, decorative designs or evidence of PBMS' inspection. 1 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 "MATERIAL ADVERSE CHANGE" - means a material adverse change in (a) the business assets, operations, prospects or financial condition of either party, or (b) the ability of either party to perform its obligations under this Agreement. "OPEN STOCK" - means Products purchased at CellStar's discretion and in CellStar's inventory available to the general market. "OPEN STOCK INVENTORY" - means original equipment manufacturer accessories carried in inventory by CellStar for sale to PBMS and other CellStar customers. These items may be packaged as PBMS branded items in unique PBMS retail packages. When so packaged at the request of PBMS, these items are converted to "Dedicated Products". "ORDERS" - means purchase orders, in written (e.g. mailed or faxed), or electronic form (e.g. EDI, flat file) as may be delivered to CellStar for the purpose of ordering Products and/or Services hereunder. A purchase order shall be substantially in the form of Exhibit E (Sample Order) attached hereto and made a part hereof. Each such purchase order, in written or electronic form shall be deemed to be a separate and independent agreement between the parties thereto with respect to the subject matter thereof and shall incorporate (a) all of the provisions of this Agreement (including any appendices, exhibits, specifications and other documents attached hereto) as it may from time to time be amended, and (b) any specifications attached thereto. "PCS" - means Personal Communication Services. "PROCEDURES MANUAL" - means a multi-paged document, (the initial version of which is attached hereto and incorporated by reference hereto as Appendix 1), which details processes and deliverables which will be routinely performed in the relationship between CellStar and PBMS, and which shall be periodically revised, from time to time, upon written agreement by both parties. "PRODUCTS" - means the equipment and materials, including but not limited to: PCS handsets, accessories, and collateral material, as may be furnished to PBMS' Customers by CellStar hereunder. "PURCHASE PRICE VARIANCE" - means the difference between the actual delivered cost of Products or components and the standard cost contained in CellStar's accounting systems. "RETAILER" - means any vendor of products, whether through traditional retail outlet or through membership or discount or wholesale establishments selling to the end user consumer. "SERVICES" - means all services furnished by CellStar hereunder to PBMS and/or to PBMS' Customers. "SPECIFICATIONS" - means CellStar's commercial and technical specifications (including drawings) for the Products and Services provided hereunder and such other specifications, e.g. (Procedures Manual), as are listed in the exhibits or appendices, attached hereto and made a part hereof, or as are attached to and made a part of the applicable Order. 2 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 "WARRANTY" - means the warranties for CellStar's Services or the Products covered by CellStar's and/or the Product manufacturer's warranties under this Agreement. 2. TERM OF AGREEMENT a. This Agreement shall become effective as of the date stated above (the "Effective Date"), and unless sooner terminated or canceled as provided herein, shall continue through September 20, 2001. b. Either CellStar or PBMS may terminate this Agreement upon one hundred and eighty (180) calendar days' prior written notice to the other setting forth the effective date of such termination. The termination, cancellation or expiration of this Agreement shall not affect the obligations of the parties under any Order previously executed hereunder, and the terms and conditions of this Agreement shall continue to apply to such Order as if this Agreement had not expired, or been terminated or canceled. Upon the termination, cancellation or expiration of this Agreement, PBMS agrees to purchase any Dedicated Products remaining in CellStar's inventory, including any Open Stock inventory which has been converted to Dedicated Product inventory. 3. MASTER AGREEMENT a This Agreement anticipates the future issuance of Orders by Pacific Bell Mobile Services and any PBMS Affiliate as may be designated by Pacific Bell Mobile Services in writing. Each such entity executing an Order shall be deemed to be a party to that Order and shall be subject to the terms and conditions of this Agreement for purposes of that Order; provided that no PBMS Affiliate shall be permitted to issue an Order hereunder until (i) such Affiliate has satisfied CellStar's credit standards, and (ii) an authorized representative of such Affiliate has executed appropriate documentation pursuant to which it agrees to be bound by the terms and conditions of this Agreement for the obligations incurred under such Order. For the purposes of any Order executed hereunder by any PBMS Affiliate, the term "PBMS" in this Agreement shall be deemed to also refer to such Affiliate where the context so indicates. Prior to any Affiliate's execution of an Order hereunder, PBMS shall obtain that Affiliate's written agreement to be bound by all the terms and conditions of this Agreement. b. The provisions of this Agreement shall apply to all contracts entered into between CellStar and PBMS during the term of this Agreement with respect to the Products and Services which are the subject of this Agreement unless the parties expressly agree otherwise by a written modification to this Agreement, signed by the persons who executed this Agreement or any other authorized representative of the parties, or unless an Affiliate of PBMS enters into a separate written agreement with CellStar, signed by CellStar and the persons authorized to execute agreements for the PBMS Affiliate. Any such separate agreement signed between CellStar and a PBMS Affiliate shall apply only to CellStar and such Affiliate and have no effect 3 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 whatsoever on PBMS. In the absence of such a modification to this Agreement or such separate agreement, any terms in any other contract respecting the subject matter of this Agreement which are additional to, different from or inconsistent with the provisions of this Agreement shall be deemed to be void and of no effect whatsoever. 4. SCOPE OF WORK This Agreement describes the principles of the relationship between PBMS and CellStar and describes CellStar's provision of Products and value added Services, including but not limited to, sourcing, inventory, assembly, credit, collections and fulfillment Services to support Product distribution to PBMS' Customers. 4.1 CUSTOMER PARTNER TEAM The parties will jointly commit resources to support the following business processes and structures to accomplish PBMS' and CellStar's objectives under this Agreement. The Customer Partner Team ("CPT") shall set direction, priorities, expectations and boundaries and act to resolve business issues which arise. The CPT will particularly focus on emphasizing collaborative work between the parties and to preserve and promote partnering between the parties. CPT members shall consist of three (3) representatives each from CellStar and PBMS. At least one representative from each party will be at the vice president level or higher. Those representatives, together with the other CPT members shall be responsible for: 1. Maintaining and reviewing the Services cost structure; 2. Reviewing current processes and additional issues as the parties may identify for process improvements; 3. At least once each calendar quarter, reviewing pricing, and recommending price adjustments to the CPT, if necessary; 4. Reviewing forecasting, supply management, and delivery processes in an effort to streamline processes and to reduce costs associated with these processes for the benefit of both parties; and 5. Facilitating the Alternate Dispute Resolution ("ADR") process as defined in this Agreement. 4.2 EXTERNAL RELATIONSHIPS 4.2.1 SOURCING PCS Equipment. PBMS has entered into, or may enter into, ------------- agreements ("PBMS/supplier agreements") with certain manufacturers or suppliers (hereinafter individually and collectively "product suppliers") for the purchase of Products. CellStar agrees that, except with respect to Open Stock, it shall, upon receipt of an Order by PBMS, place a CellStar 4 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 Order under the PBMS/supplier agreement specified by PBMS for the quantity of Dedicated Products identified by PBMS in such Order. Notwithstanding the above, CellStar shall not be obligated to purchase Products on behalf of PBMS which will bring anticipated inventory above a level of expected 60 day sales. PBMS shall provide CellStar the applicable PBMS/supplier agreement (or all pertinent portions thereof) in order for CellStar to place a CellStar Order. If CellStar cannot abide by any term(s) set out in the PBMS/supplier agreement (or portions thereof) provided by PBMS, CellStar shall immediately notify PBMS and shall not proceed with placing a CellStar Order under such agreement until PBMS and CellStar expressly agree otherwise in writing. Further terms around CellStar's use of PBMS/supplier agreements are set forth in Section 4.2.2 below and the section entitled "PBMS/Supplier Agreements" of this Agreement. 4.2.2 VENDORS AND PRODUCT SUPPLIERS a. Generally, in this Agreement where the term "vendor" or "manufacturer" is used, it means the supplier providing Open Stock to CellStar. Where the term "product supplier" is used, it means the supplier providing Dedicated Products to CellStar under a CellStar Order issued pursuant to the PBMS/supplier agreement. b. With respect to Dedicated Products, PBMS will be responsible for product supplier selection and certification, product selection, pricing and contract negotiations for Dedicated Products. As to each CellStar Order for Dedicated Products, PBMS shall pass through to CellStar the rights of PBMS under the product supplier agreement, including but not limited to, product supplier indemnity and warranties applicable to CellStar's use of the Dedicated Products, to the extent allowed by the product supplier. Nothing in this Agreement shall diminish any pass-through warranties, indemnity or other rights extended to CellStar through PBMS, by the product suppliers. c. If PBMS directs CellStar to issue a CellStar Order for the purchase of Dedicated Products under a PBMS/supplier agreement, PBMS will ensure that the product supplier has granted CellStar all necessary rights to place that Order. d. CellStar will procure, receive, inventory, pack for shipping, ship, and disburse Dedicated Products received from the vendors and product suppliers. e. CellStar will be solely responsible for entering into any necessary vendor agreements for the purchase of Open Stock Products. CellStar shall pass through to PBMS the rights of CellStar under the vendor agreement, including but not limited to, vendor indemnity and warranties applicable to PBMS' and its Customers' use of the Open Stock Products, to the extent allowed by the vendor. Nothing in this Agreement shall diminish any 5 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 pass-through warranties, indemnity or other rights extended to PBMS through CellStar, by the vendor. 4.2.3 RETAILERS AND OTHER RESELLERS a. Generally all Customer contact will be through PBMS. b. Generally, issues related to Customer payment, credit and collections will be handled through CellStar. c. CellStar will provide Products to Customers as specified in Exhibit D and invoice Customers at PBMS' direction as stated in the applicable Order or if not stated in the Order, as specified in the Procedures Manual. d. CellStar will process Customer returns in accordance with PBMS' sales policy as specified in the Procedures Manual. 4.2.4 DIRECT SALES ACCOUNTS (SUBSCRIBER AND BUSINESS CUSTOMERS) PBMS will handle all billing and accounts receivable transactions with direct sales account Customers. CellStar's primary responsibility in connection with Direct Sales Accounts ("Direct Sales Accounts") will be to provide fulfillment Services and to process Customer returns in accordance with the Procedures Manual. 4.3 WORKING RELATIONSHIP The following processes will be contained and further described in the Procedures Manual: 4.3.1 DEDICATED PRODUCT INVENTORY OWNERSHIP AND MANAGEMENT a. CellStar will maintain inventories in its facilities and will be responsible for risk of physical loss or damage, and any requested insurance as is consistent with prepaid and add conventions. b. CellStar will determine inventory and safety stock levels necessary to support PBMS' business pursuant to a rolling 90 calendar day forecast which PBMS shall provide and update monthly. c. PBMS and CellStar recognize that product suppliers may prohibit sale of handsets outside PBMS' services territory. In light of that recognition, PBMS and CellStar shall work cooperatively with the product suppliers to dispose of slow- moving stock. If CellStar wishes to sell Dedicated Products to third parties in addition to PBMS' Customers, CellStar shall 1) gain the written consent of PBMS Director of Procurement prior to the sale, and 2) if requested by PBMS and at a charge to be agreed upon, remove the Insignia from the Product. d. CellStar will provide space for PBMS to perform quality control inspections on inbound Dedicated Products as reasonably required by PBMS, as specified in the Procedures Manual. 6 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 4.3.2 OPEN STOCK FORECAST AND SUPPLY a. PBMS will provide a forecast of PBMS' requirements for Open Stock Products on a rolling 90 calendar day forecast. Such forecast shall be updated by PBMS. b. CellStar will advise PBMS promptly, within 2 business days, of any Open Stock vendor supply constraints. c. CellStar will make reasonable best efforts to provide Open Stock Product availability to fill all PBMS Orders. 4.3.3 PRODUCT ASSEMBLY a. CellStar will assemble and package components to PBMS' specifications. b. CellStar will control the security and data collection processes for SIM cards. c. CellStar will provide PBMS with sales forecasting and DRP/MRP assistance to facilitate efficient inventory management accessible manually initially, by 11-1-1996. d. PBMS will provide input to sales forecasting modules and DRP/MRP system parameters to (i) facilitate efficient inventory management and (ii) ensure product availability as necessary. e. PBMS and CellStar will work together to develop cost effective production/assembly processes. 4.3.4 CREDIT LINE ADMINISTRATION, ORDER PROCESSING AND FULFILLMENT a. PBMS' Customer Care and Order Processing systems shall be capable of accepting orders from Retailers and other resellers, individual subscribers, and business Customers. b. PBMS will determine and administer all Order processing procedures, specific Customer Order packaging requirements, pricing, sales and marketing relationships with its Customers. c. PBMS will pass Customer shipping instructions (including without limitation, Order packaging and labeling specifications), and billing information to CellStar electronically through the PBMS Order Processing system, as specified in the Procedures Manual, or in such other manner used by PBMS to communicate the information. d. CellStar shall generate a packing list for each Order. e. CellStar will provide Retailer and other reseller credit line administration for Orders received from PBMS. Exceptions to credit lines may be approved by PBMS' Chief Financial Officer or designate and PBMS assumes responsibility for Customer credit risk with respect to such approved exceptions. CellStar assumes responsibility for all other credit risk associated with the financial strength of Retailers and other resellers invoiced by CellStar. PBMS shall be responsible for collection or repayment to CellStar for customer deductions for allowances, fines, 7 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 penalties and other debits unrelated to traditional credit risk. Notwithstanding the foregoing sentence, if PBMS in good faith believes that any Customer deduction for allowances, fines, etc. are the result of a CellStar error in fulfilling CellStar's obligations under the applicable Order and further believes that CellStar should assume the burden of that deduction, then PBMS may present the issue to the CPT for resolution. f. CellStar shall provide all Fulfillment Services with respect to Customer Orders. g. CellStar will provide electronic confirmation to PBMS of all shipments completed on behalf of PBMS including carrier tracking codes by January 31, 1997. 4.3.5 ACCOUNTS RECEIVABLE, INVOICING AND COLLECTIONS a. PBMS will bill individual subscribers and business Customers for its Direct Sales Accounts through PBMS' Customer Care and Billing systems (CCBS). Accordingly, PBMS will not provide this type of billing information to CellStar. b. CellStar will invoice Retailers and other resellers upon Product shipment in accordance with PBMS' instructions regarding the Customer's billing information as stated in the applicable Order or, if not stated in the applicable Order, as specified in the Procedures Manual. c. CellStar will collect payments from Retailers and other resellers. d. CellStar will perform payment reconciliation with Retailers and other resellers to assist PBMS in properly classifying deductions and resolving disputes for unauthorized Customer deductions from invoices. PBMS will reimburse CellStar for all Customer deductions (not associated with traditional risk of creditworthiness), whether authorized or otherwise, in accordance with PBMS' Deductions Policy. PBMS shall reimburse CellStar for any unresolved Customer deduction that is outstanding for more than 180 days without regard of the status of collection efforts. Notwithstanding the foregoing sentence, if PBMS in good faith believes that any such Customer deduction arose from a CellStar error which was in CellStar's control, in fulfilling CellStar's obligations under the applicable Order, PBMS shall present the issue to the CPT for resolution. If PBMS reimburses CellStar for a Customer deduction and CellStar subsequently collects the deduction from the Customer, CellStar shall immediately credit PBMS that amount. e. CellStar will invoice PBMS for Products shipped to the Customer immediately following Product shipment to the Customer. f. Upon PBMS' request, CellStar will promptly provide information to PBMS on each Customer's sales and credit status. 8 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 4.3.6 INVENTORY ACCOUNTING AND CONTROL CellStar covenants and agrees to employ methods of inventory accounting and control that are in accordance with generally accepted accounting principles. 4.3.7 MAINTENANCE OF BOOKS AND RECORDS CellStar covenants and agrees to maintain books and records covering all transactions under this Agreement and shall make such books and records available for PBMS' inspection at any time, including CPA auditors from a major accounting firm hired by or engaged by PBMS, by and through CellStar's representatives and agents, during regular business hours on any business day. 4.3.8 INVENTORY/WAREHOUSING CellStar shall separately inventory and warehouse Dedicated Products from Open Stock. CellStar shall designate an area for Dedicated Products in a separate secure area and in accordance with PBMS' instructions. 4.3.9 RETURNS PROCESSING a. CellStar will process Customer returns from Retailers and other resellers, individual subscribers, and business Customers through its J.D. Edwards system and PBMS' Customer Care and Order Processing systems. b. PBMS will be responsible for setting the appropriate standard cost value of the A and B and discard stock items in the inventory master file. CellStar will determine the value of the returned products based on the returns procedures set forth in the Procedures Manual. CellStar will bill PBMS for any inventory writedown from A to B or discard stock value. c. All Customer returns and vendor and product supplier warranty procedures for the Products shall be in accordance with the Procedures Manual. 4.3.10 USE OF FICTITIOUS BUSINESS NAME a. The parties understand and agree that CellStar will, for certain purposes, need to use the name "Pacific Bell Mobile Services Fulfillment" or such other substantially similar name as CellStar is able to register as an assumed name in the State of Texas and Dallas County, Texas (the "Name"). PBMS hereby authorizes CellStar to use the name for the following purposes: (i) receipt and acceptance of payment from Customers (including, without limitation, via lock-box wire transfer or check), (ii) inclusion in shipping collateral provided to Customers, (iii) invoicing of Customers and provision of Customer statements, (iv) written and oral correspondence with Customers, (v) such other purposes 9 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 as are authorized in writing by PBMS and (vi) collection activities; provided that any use of the Name by CellStar shall be in accordance with the guidelines provided by PBMS entitled "Four Basic Rules", incorporated by reference into this Agreement. PBMS further authorizes CellStar to register the Name with the Secretary of State of the State of Texas and in Dallas County, Texas. CellStar's right to use the Name is a nonexclusive right and PBMS shall retain all ownership and intellectual property rights in the Name. Except as provided herein, CellStar shall not use the Name in any advertising or publicity matter without PBMS' prior written consent. b. Upon expiration, termination or cancellation of this Agreement, CellStar may continue to use the Name only during the period the Services are transitioned to PBMS or its authorized contractor and for the purpose of receiving or collecting remaining payments, if any, due CellStar from Customers in connection with the Agreement (collectively, the "Transition Period"). Upon the conclusion of the Transition Period, and upon PBMS' request, CellStar shall confirm in writing that it has ceased all use of the Name. 4.4 COMPENSATION As detailed in Exhibits B and C, PBMS shall compensate CellStar for each of the following Service components: 4.4.1 START-UP COSTS Upon execution of this Agreement, CellStar will invoice PBMS for the start-up costs set forth in Exhibit B. 4.4.2 INVENTORY CARRYING COSTS A recurring charge, calculated and billed monthly as a "cost of capital" charged on average daily inventory plus the average daily balance of amounts due from PBMS for Product shipments. The calculation shall include a credit for the average daily balance of unpaid product supplier invoices to reflect an adjustment in accordance with Exhibit B for vendor payment terms. CellStar will invoice PBMS the daily average balance carrying costs as of the close of each month. 4.4.3 STANDARD PRODUCT COST CellStar shall invoice PBMS standard Product cost at the time of shipment as set forth in Section 7.a. This cost represents the sum of all Product components and assembly costs including assembly charges, packaging and collateral materials and standard loss allowances as shown on the Product bill of materials. 10 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 4.4.4 CREDIT FOR CUSTOMER RECEIVABLE Following each shipment, CellStar will record a payable to PBMS for the value of the invoice to the Retailer or other reseller as set forth in Section 7.b. 4.4.5 FULFILLMENT SERVICES COSTS A warehouse picking charge of [REDACTED] per carton shipped. An additional charge of [REDACTED] per Order picked from Component Inventory. Actual transportation charges as billed by the carrier (the discounted amount) for delivery to the Customer. Actual insurance charges covering loss or damage in transit. 4.4.6 MONTHLY RECURRING SERVICE FEES The monthly service fees shall be comprised of the following components: a. A monthly "cost of capital" charge predicated on the average daily balance for accounts receivable for outstanding invoices to PBMS and Customers, minus the average daily balance of amounts due to PBMS from CellStar for receivables transferred to CellStar by PBMS, plus a [REDACTED] of net monthly invoices to Retailers and other resellers and resellers billed by CellStar for PBMS sales . b. A monthly Service fee for invoice processing and collection Services predicated on the cost of such Services plus margins as set forth in Exhibit C. c. Non-recoverable returns and freight. d. Such other items as set forth in Exhibit C. 4.4.7 RETURNS See Procedures Manual. See also Exhibit B for the fees to be billed to PBMS for skid storage fees and Products returned by Customers ("return fees"). 4.4.8 PURCHASE PRICE VARIANCES CellStar shall operate on the basis of a "standard cost" accounting system and shall invoice all Product cost at "standard cost" as noted in Section 4.4.3. All purchase price variances for the account of PBMS shall be invoiced or credited to PBMS as of the close of each month. Periodic changes in standard cost will generate a change in inventory valuation and corresponding debit or credit to Purchase Price Variances accounts. These debits and credits to the Purchase Price Variances 11 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 accounts for the account of PBMS shall be invoiced or credited by CellStar as of the close of each month. 4.5 PBMS/SUPPLIER AGREEMENTS a. PBMS has included in certain third party manufacturer or supplier agreements (hereinafter "PBMS/supplier agreements") with its PCS product suppliers (the "product suppliers") the right for a third party distributor, such as CellStar, to execute orders under the PBMS/supplier agreements for the purchase of PCS products. As necessary and as permitted by nondisclosure agreements between PBMS and its suppliers, PBMS agrees to provide CellStar a copy of the PBMS/supplier agreements (or pertinent extracts) in order for CellStar to order Dedicated Products only as PBMS may direct, and not for the purpose of ordering products for any of CellStar's other customers. CellStar agrees to keep the terms of the supplier agreements strictly confidential and not to disclose the terms of the PBMS/supplier agreements, including pricing, to any third party, without PBMS' prior written consent, unless that third party has a legitimate need to know in the performance of services to CellStar, and is covered by an appropriate confidentiality agreement prior to accessing the Information. "Third parties" shall include without limitation, any potential competitors of the product suppliers, including competitors that are partners or third parties holding any form of equity interest in CellStar. b. In addition to the above and subject to CellStar's rights under Section 4.2.1. above (regarding instances, if any, in which CellStar has notified PBMS that it cannot comply with a product supplier agreement prior to executing a CellStar Order), CellStar agrees to abide by all applicable terms and conditions of the PBMS/supplier agreements, including payment and confidentiality terms. CellStar may not add any supplementary or conflicting terms to any CellStar Order under a PBMS/supplier agreement without PBMS' prior written consent. The right to receive any liquidated damages, promotional monies or other such payments under a PBMS/supplier agreement shall belong exclusively to PBMS whether or not CellStar executed a CellStar Order for Dedicated Products in connection with the product supplier's payment of liquidated damages, promotional monies or other such payments. In the event the product supplier pays any such liquidated damages, promotional monies or other such payments to CellStar in connection with Dedicated Products, CellStar shall immediately transfer those funds to PBMS without set-off, administrative charge or deduction of any kind. c. In connection with a CellStar Order for Dedicated Products under a PBMS/supplier agreement, if CellStar does not or, believes it cannot, make full payment to any product supplier within 30 days following product delivery by the product supplier under the applicable CellStar 12 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 Order, CellStar shall notify PBMS immediately and provide information concerning the reason for the nonpayment. Notwithstanding the foregoing, CellStar agrees to make best efforts to make payment to the product suppliers when due and CellStar expressly acknowledges that failure to do so shall result in a material breach by CellStar of the terms of this Agreement, unless PBMS expressly waives CellStar's breach in writing. PBMS agrees that it shall not cure a breach of CellStar's payment obligations under a PBMS/supplier agreement unless and until such time that CellStar's 15 calendar day cure period (as described in Section 24 of this Agreement) has elapsed. d. In the event that PBMS cures CellStar's default on any payment obligation to a product supplier under a CellStar Order issued pursuant to a PBMS/supplier agreement, CellStar shall with respect to that default: i) TO THE EXTENT THAT CELLSTAR HAS PREVIOUSLY SHIPPED THE PRODUCTS TO THE CUSTOMER: CellStar shall immediately credit PBMS' account in full for the money PBMS paid to the product supplier (the "default amount"). ii) IN THE EVENT THAT THE PRODUCTS HAVE NOT YET BEEN SHIPPED TO THE CUSTOMER: CellStar shall automatically be deemed to have sold the Products to PBMS upon the date, and in consideration of, PBMS' payment to the product supplier. Any subsequent shipment of such Products to Customers shall be considered consignment inventory and Product costs shall not be billed to PBMS, unless CellStar buys back the Products from PBMS. e. In the event that this Agreement expires or is terminated or canceled, any credits, including default amounts remaining in PBMS' account, shall be paid to PBMS in cash within thirty (30) days of such expiration, termination or cancellation date. Additionally, at any time, PBMS may set-off any PBMS payment due CellStar, by the amount of credits due PBMS. 5. ORDERS CellStar's commencement of performance of any Order shall be deemed to be acceptance of such Order upon the terms and provisions of this Agreement. Any additional or different terms in any CellStar quotation, acknowledgment, invoice or other communication to PBMS, whether or not such terms materially alter an Order, shall be deemed objected to by PBMS without need of further notice of objection and shall be of no effect and not in any circumstance be binding upon PBMS unless expressly accepted by PBMS in writing. Subject to CellStar's rights set forth in the preceding paragraph, the parties expressly agree that all Orders electronically transmitted by PBMS to CellStar shall be deemed to constitute a "writing sufficient to indicate that a contract for sale has been made between 13 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker" for purposes of section 2201 of the California Uniform Commercial Code. The parties further agree that data mechanically or electronically stored by PBMS or CellStar in the course of business shall constitute acceptable documentation of the contents of any Order or invoice electronically transmitted by either party to the other. 6. PRICES Prices are set forth in Exhibit B and D. [REDACTED] Prices changes and prices for any new Products or Services set forth in Exhibit B shall be implemented only when agreed to by the CPT. Additionally, the following shall apply: (i) Any price changes for assembly costs as set forth in Section 1.c. of Exhibit B, shall be determined on the basis of the assembly cost model set forth in Exhibit F. (ii) Assembly prices for all new Products set forth in Exhibit B, including price changes for those Products, shall be determined on the basis of assembly cost model set forth in Exhibit F. (iii) Any price changes for credit and collection Services as set forth in Section 3.c. of Exhibit B shall be determined on the basis of the component cost analysis set forth in Exhibit C. (iv) Prices for any new administrative Services set forth in Exhibit B, including any price changes for those Services, shall be determined on the basis of component cost analysis similar to that set forth in Exhibit C. 7. INVOICING AND PAYMENT a. Promptly after shipment of Products to the Customer, CellStar shall render an invoice to PBMS for each such shipment. The invoice shall identify and separately show quantities and prices for each item shipped and for Services provided any shipping charges to be borne by PBMS, applicable sales or use taxes, any discounts and total amount due. PBMS shall promptly pay CellStar the amount due within one (1) business day after receipt of the invoice. Both parties are currently working to develop EFT capabilities. Until such time that EFT is implemented, PBMS will remit payment by wire transfer each Monday, for the prior week. b. Promptly after the shipment of Products to the Customer, CellStar shall remit payment to PBMS in an amount that equals the invoiced amount generated by CellStar to the Retailer or other reseller. Both parties are currently working to develop EFT capabilities. Until such time that EFT is implemented, CellStar will remit payment by wire transfer each Monday, for the prior week. c. Promptly after the performance of Services rendered, CellStar shall render an invoice electronically for such Services. The invoice shall identify and separately show prices for the Services, including Cost of Capital. PBMS shall promptly pay CellStar the amount due via electronic funds transfer ("EFT') within one (1) business day after receipt of the invoice. Both parties are currently working to develop EFT capabilities. Until such time that EFT is 14 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement - ------------ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 implemented, PBMS will remit payment by wire transfer each Monday, for the prior week. d. If PBMS disputes any invoice rendered or amount paid, PBMS shall so notify CellStar after payment, and the parties, through the CPT, shall use their best efforts to resolve such dispute expeditiously. The CPT shall provide all pertinent information to PBMS and CellStar upon request to enable and cooperate with PBMS in investigating the amount in dispute. e. With respect to Section 7.a. and b. above, upon agreement by both parties, amounts due for transactions under such Sections may be consolidated for the purpose of the single transfer of funds. Nothing in this paragraph e. however, limits PBMS' right to set-off payments due CellStar as set forth in Section 4.5.e. of this Agreement. 8. SHIPPING AND PACKING a. CellStar shall ship all Orders to PBMS' Retailers and other resellers according to the specific shipping instructions for that Customer when set forth in the Procedures Manual, unless PBMS specifies other instructions in the applicable Order, provided that CellStar shall have had a reasonable opportunity to (i) review the applicable Customer's standard shipping instructions prior to receipt of such Order, and (ii) make arrangements to accommodate any special instructions of such Customer. PBMS agrees to reimburse CellStar for additional freight charges, if any, required to satisfy such special instructions. Whenever possible however, CellStar shall use the lowest priced shipping carrier (and where possible use a contract carrier) capable of shipping the Products on time. In the event the Order contains other shipping instructions, then notwithstanding the section entitled "Order of Precedence" in this Agreement, the Order shall take precedence over the shipping instructions set forth in the Procedures Manual. b. CellStar shall ship Products as specified in PBMS' Order to meet PBMS' specified shipment or arrival date. c. Unless expressly stated to the contrary, CellStar's charges for transportation Services including, but not limited to, routing, transporting, hauling, hoisting, storage and detention, are not included in any prices furnished for Products. d. Marking and labeling ("Marking") of packages may vary depending on Product and Order type. Standard Markings shall include, but not be limited to, Markings which are or shall be required by applicable laws and regulations governing the environment and hazardous materials/wastes, Order number, container number, ship-to address, return address, Product identification, quantity, date packed and gross weight, where applicable. 9. TAXES a. PBMS shall reimburse CellStar the cost of all sales and use taxes and import and export duties, and other governmental fees to the extent related to PBMS' Orders not otherwise included in the invoice for the original shipment to PBMS Customers. b. CellStar agrees to pay, and to hold PBMS harmless from and against, any penalty, interest, additional tax or other charge that may be levied or assessed as 15 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 a result of the delay or failure of CellStar for any reason to pay any tax or file any return or information required by law, rule or regulation or by this Agreement to be paid or filed by CellStar. c. If PBMS is exempt from payment of any applicable sales and/or use tax upon notifying CellStar of the basis for claiming such exemption CellStar agrees to take all legal and proper steps to sell the Products free of sales and/or use tax or to act as PBMS' agent in applying for any applicable rebate of tax. PBMS will, upon request furnish CellStar with any applicable tax exemption number. 10. RECORDS AND AUDITS CellStar shall maintain accurate records of all matters which relate to CellStar's obligations hereunder in accordance with generally accepted accounting principles and practices, uniformly and consistently applied in a format that will permit audit. Unless otherwise provided in this Agreement, CellStar shall retain such records for a period of four (4) years from the date of final payment under the Order to which such records relate. To the extent that such records may be relevant in determining if CellStar is complying with its obligations under the applicable Order, PBMS and its authorized representatives shall, at any time, upon reasonable advance notice, have access to such records for inspection and audit during normal business hours. 11. INDEPENDENT CONTRACTOR CellStar hereby declares and represents that CellStar is engaged in an independent business and will perform its obligations under this Agreement as an independent contractor and not as the agent or employee of PBMS; that the persons performing services hereunder are not agents or employees of PBMS; that CellStar has and hereby retains the right to exercise full control of and supervision over the performance of CellStar's obligations hereunder and full control over the employment, direction, compensation and discharge of all employees assisting in the performance of such obligations; that CellStar shall be solely responsible for all matters relating to payment of such employees, including compliance with workers' compensation, unemployment, disability insurance, social security, withholding and all other federal, state and local laws, rules and regulations governing such matters; and that CellStar shall be responsible for CellStar's own acts and omissions and those of CellStar's agents, employees and contractors during the performance of CellStar's obligations under this Agreement. 12. NONEXCLUSIVE AGREEMENT This Agreement is a nonexclusive agreement. PBMS expressly reserves the right to contract with others for any of the products or services it may require. PBMS also reserves the right, at any time, to 1) bring any of the Services described under this Agreement in-house or 2) enter into an arrangement whereby a PBMS Affiliate provides the types of Services described hereunder. 13. INDEMNIFICATION CellStar shall indemnify, defend and hold harmless PBMS and its Affiliates, and the directors, shareholders, agents and employees of any of them ("Indemnitees"), from and against any fine, penalty, loss, cost, damage, injury, claim, expense or liability, including 16 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 attorney's fees and court costs (individually and collectively "Liabilities"), as a result of (i) injury to or death of any person; (ii) damage to, loss or destruction of any property; (iii) failure to comply with the section entitled "Compliance with Laws", or (iv) breach of a PBMS/supplier agreement where such Liabilities arise out of CellStar's performance of this Agreement except for that portion of Liabilities which are caused by PBMS' negligence or willful misconduct. CellStar shall (1) keep PBMS and any PBMS Indemnitees subject to such Liabilities fully informed as to the progress of the defense and/or settlement and (2) afford PBMS or any Indemnitee, each at its own expense, an opportunity to participate on an equal basis with CellStar in the defense or settlement of any such Liabilities. With respect to any claim of infringement of any patent, copyright, trade secret or other intellectual property right of any third party in connection with Open Stock, CellStar shall pass through to PBMS the manufacturer's and/or vendor's indemnity in connection with such infringement claim to the extent allowed by that manufacturer or vendor. With respect to any claim of infringement of any patent, copyright, trade secret or other intellectual, proprietary right of any third party in connection with Dedicated Products, PBMS shall pass through to CellStar the product supplier's indemnity in connection with such infringement claim, to the extent allowed by that product supplier. While PBMS is on CellStar's premises, PBMS agrees to indemnify CellStar under the same terms as set forth in paragraph a. above, for Liabilities as a result of any injury to or death of any person or damage, loss or destruction of any property which arises from PBMS' negligence or willful misconduct except for that portion of Liabilities which are caused by CellStar's negligence or willful misconduct. In addition, PBMS agrees to indemnify CellStar under the same terms as set forth in paragraph a. above for Liabilities as a result of failure to comply with the Section entitled "Compliance With Laws" which arise out of PBMS' performance of this Agreement. PBMS agrees to indemnify, defend and hold harmless CellStar and its affiliates, and the directors, stockholders, agents and employees of any of them, from and against any Liabilities that arise in connection with CellStar's use of the Name, except to the extent such Liabilities are due to CellStar's negligence or misconduct. 14. INSURANCE Any and all insurance, including Worker's Compensation Insurance, that may be required under the laws, ordinances, and regulations of any governmental authority, with respect to CellStar's performance under this Agreement, is and shall be the sole responsibility of CellStar. a. Without in any way limiting CellStar's indemnification obligations hereunder, CellStar shall maintain the following insurance: i) Commercial General Liability (Bodily Injury and Property Damage) Insurance including the following supplementary coverages: 1. Contractual Liability to cover liability assumed under this Agreement; 2. Personal Injury Liability; 17 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 3. Product and Completed Operations Liability Insurance; 4. Property Damage Liability Insurance; ii) Business Automobile Liability Insurance if any of CellStar's employee owned, leased, hired or borrowed automobiles are used in the performance of this Agreement. Coverage shall be in force for all owned, non-owned and hired automobiles used by CellStar. iii) The limit of the liability for insurance required above shall not be less than two million dollars ($2,000,000) combined single limit per occurrence. b. The insurance specified above shall: i) Name PBMS, its Affiliates, directors, agents and employees as additional insureds in matters covered by this Agreement, at CellStar's sole expense; ii) Provide that such insurance is primary coverage with respect to all insureds; iii) Contain a Standard Cross Liability Endorsement which provides that the liability insurance applies separately to each insured and that the policies cover claims or suits by one insured against the other; iv) Contain a waiver of subrogation and an assignment of statutory lien against PBMS for purposes of Worker's Compensation Insurance; v) Include a requirement that the insurer provide PBMS with thirty (30) days written notice to PBMS prior to the effective date of any cancellation or material change of the policy or policies of insurance; vi) have insurance issued by insurance companies that hold a current rating of not less than A/XV, according to Best's Key Rating Guide. c. If requested by PBMS, CellStar shall provide PBMS with a Certificate of Insurance executed by a duly authorized representative of the insurer evidencing the coverages, limits, and provisions specified above. d. If CellStar's insurance is on "claims-made" forms, CellStar's obligations to maintain the insurance and to provide policy endorsements required herein shall survive the termination of this Agreement for a period of five (5) years. 15. ACCESS a. PBMS' Premises CellStar shall when appropriate have reasonable access to PBMS' premises during normal business hours and at such other times as may be agreed upon by the parties in order to enable CellStar to perform its obligations under this Agreement. CellStar shall coordinate such access with PBMS' designated representative prior to visiting such premises. If PBMS for any lawful reason requests CellStar to discontinue furnishing any person provided by CellStar for performing work on PBMS' premises, CellStar shall immediately comply with such request. Such person shall leave PBMS' premises promptly and CellStar 18 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 shall not furnish such person again to perform work on PBMS' premises without PBMS' prior consent. b. CellStar's Premises PBMS shall, upon reasonable prior notice to CellStar and at no additional charge, have reasonable access to CellStar's premises during normal business hours in order to observe CellStar's work with respect to the Products and Services or to take possession of any Dedicated Products paid for by PBMS. If CellStar for any lawful reason requests PBMS to discontinue furnishing any person provided by PBMS for performing work on CellStarOs premises, PBMS shall immediately comply with such request. Such person shall leave CellStarOs premises promptly and PBMS shall not furnish such person again to perform work on CellStarOs premises without CellStarOs prior consent. c. Rules and Regulations The employees and agents of CellStar and PBMS shall, while on the premises of the other, comply with all site rules and regulations, including, where required by government regulations, submission of satisfactory clearance from the U.S. Department of Defense and other governmental authorities concerned. d. Releases Void Neither party shall require waivers or releases of any personal rights from representatives of the other in connection with visits to its premises, and no such releases or waivers shall be pleaded by either party in any action or proceeding. 16. INFORMATION a. In the performance of its obligations under this Agreement, either party may receive or access (the Oreceiving partyO) Information from the other party (the Odisclosing partyO). Such Information may contain material which is proprietary or confidential, disclosures of patentable inventions with respect to which patents may not have been issued or for which patent applications may not have been filed, or material which is subject to applicable laws regarding secrecy of communications or trade secrets. Accordingly, the receiving party agrees: i) that all such Information so acquired by it or its employees, contractors or agents (individually and collectively "personnel") hereunder shall be and shall remain the disclosing party's exclusive property; ii) to inform all of its personnel engaged in handling such Information of the proprietary or confidential character of such Information and of the existence of applicable laws regarding secrecy of communications; iii) to limit access to such Information to its personnel having a need to know; iv) to keep, and have its personnel who receive or access such Information keep, such Information confidential; v) to return promptly or certify that it has destroyed, any copies of such Information in written, graphic or other tangible form upon the disclosing partyOs request; and vi) to use such Information only for purposes of this Agreement and for other purposes only upon such terms as may be agreed upon between the parties in writing. 19 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 b. Notwithstanding the foregoing, nothing contained in this Section 16 shall restrict either party in the use or disclosure of any Information from the other party which: i) is already in such party's possession without accompanying use or disclosure restrictions prior to its receipt from the other party; or ii) is or subsequently becomes publicly available through no fault of such party; or iii) is rightfully received by such party from a third party without accompanying use or disclosure restrictions; or iv) is independently developed by such party or a third party without the aid, application or use of any Information received pursuant to this Agreement; or v) is approved in writing for release by the other party. c. Each party hereto acknowledges and agrees that in the event of the violation of this Section 16, irreparable damage may occur, and therefore the aggrieved party shall be entitled to seek court ordered injunctive relief to halt the violation of this Agreement which such remedy shall be in addition to any other remedies available to the aggrieved party at law or in equity. d. If either party is required by law or by governmental regulation or rule or receives a request to disclose all or any part of the disclosing party's Information by applicable law or, under the terms of a subpoena or other order issued by a court of competent jurisdiction or by a government agency, the receiving party shall: (i) promptly notify the disclosing party of the existence, terms and circumstances surrounding any such requirement or request; (ii) consult with the disclosing party regarding the advisability of taking steps to resist or narrow such requirement or request; (iii) if disclosure of such Information is required, furnish only such portion of the Information as the receiving party is advised by counsel is legally required to be disclosed; and (iv) cooperate with the disclosing party, at the disclosing party's expense, in its efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to that portion of the Information that is required to be disclosed. 17. QUALITY a. PBMS and CellStar believe that benefits accrue to both parties when they cooperate to improve quality and to control costs. b. CellStar shall be engaged in on-going quality improvement efforts and practices which are consistent with the latest standards and practices in the industry. c. CellStar shall maintain a quality assurance system designed to identify, correct and prevent deficiencies. d. i) CellStar agrees to perform all quality control functions in conformance with the "Warranties" section of the Agreement, the Specifications and applicable Order; and, in the absence of Specifications, to good commercial practice. Detailed inspection records, documentation and 20 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 other data relating to CellStar's standards in effect at CellStar's premises shall be maintained by and made available to PBMS upon request. ii) At PBMS' option, PBMS may at all reasonable times and places, either perform or observe CellStar performance of inspections and tests of any Products pertaining to the Agreement. CellStar shall designate, at each of CellStar's applicable distribution facilities, one (1) or more responsible employees with whom PBMS may discuss any matters relating to Product quality and reliability. CellStar shall also make available to PBMS at no additional charge, such facilities, data, Specifications and information regarding CellStar procedures and any other documents, information and assistance as may be deemed reasonably necessary by PBMS to perform inspections and tests related to CellStar's Product handling and as mutually agreed by the CPT in writing. iii) PBMS may inspect and test Products, in whole or in part, prior to or subsequent to final assembly and/or completion of Product manufacturing or repair processes. Whenever Products are made available to PBMS for inspection and testing, CellStar shall also make available to PBMS copies of any Order(s) applicable to such Products. Whenever CellStar establishes a stock of Products to be shipped to PBMS or its Customers pursuant to Orders to be issued by PBMS in the future, such Products shall be available for inspections by PBMS prior to delivery by CellStar. iv) PBMS' exercise of, or failure to exercise, the rights provided in this Section shall not relieve CellStar of its obligation to furnish all Products in conformance to this Agreement and the applicable Order. 18. REGISTRATION To the extent that PBMS purchases Open Stock, CellStar represents that, from the date of this Agreement on a going forward basis, it will use its best reasonable efforts to include in its contracts with each manufacturer that provides Open Stock to CellStar, the manufacturer's commitment and obligation to comply with all Federal Communications Commission's Rules and Regulations as may be amended from time to time, including, but not limited to, all labeling and Customer instruction requirements with respect to that Open Stock. CellStar agrees to indemnify PBMS for any Liabilities pursuant to the Section entitled "Indemnification" of this Agreement for CellStar's breach of this Section entitled "Registration". PBMS agrees that it will use its best reasonable efforts to include in its contracts with each product supplier that provides Dedicated Products to CellStar the product supplier's commitment and obligation to comply with all Federal Communication Commission's rules and regulations as may be amended from time to time, including but not limited to all labeling and Customer instruction requirements with respect to that Dedicated Product. PBMS agrees to indemnify CellStar for any Liabilities pursuant to the Section entitled "Indemnification" of this Agreement for PBMS' breach of this Section entitled "Registration". 21 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 19. INSIGNIA Upon PBMS' written request, Insignia shall be properly affixed by CellStar to the Products furnished. Such Insignia shall not be affixed, used or otherwise displayed on the Products furnished or in connection therewith without PBMS' written approval. The manner in which such Insignia will be affixed must be approved in writing by PBMS. If PBMS directs CellStar to remove Insignia from any Products rejected or not purchased by PBMS, CellStar shall do so at a price to be negotiated by the CPT for such removal. 20. HAZARDOUS MATERIALS a. CellStar shall notify PBMS in writing at least thirty (30) days prior to shipment when any Open Stock Product or Services or processes consists of or contains a "hazardous chemical substance or mixture" or a "hazardous and/or radioactive material", as these terms are defined in all applicable federal, state and local laws, regulations and orders ("Regulations"). b. Any hazardous materials in Products or Services provided hereunder by CellStar shall be transported or handled in accordance with the requirements of the applicable Regulations including, but not limited to, those of the Department of Transportation governing transportation of such hazardous materials. 21. CODES, LAWS OR REGULATIONS CellStar shall make any changes to its Services and will use its best efforts to cause the manufacturers of Open Stock to change the Open Stock and PBMS will use its best efforts to cause the product suppliers of Dedicated Products to change the Dedicated Products, in order to meet codes, laws or regulations which are in effect. 22. NOTICE OF DELAYS Whenever any actual or potential cause delays or threatens to delay CellStar's performance, CellStar shall immediately so notify PBMS in writing. Such notice shall include all relevant information concerning the actual or potential cause of the delay and its background. During the period such actual or potential cause exists, CellStar shall keep PBMS advised of its effect on CellStar's performance and of the measures being taken to remove it. 23. CHANGES AND SUSPENSIONS a. Subject to Section 48 below, PBMS may, by notice to CellStar, suspend, in whole or in part, the delivery of Products and the performance of Services or any Order. If PBMS directs any such change or suspension, the parties shall agree to any adjustments in prices or dates necessitated thereby and shall execute a revised Order reflecting such adjustments. b. Subject to Section 40 below, CellStar may not, without PBMS' prior written consent, make any changes whatsoever with respect to the Products or Services specified in any Order hereunder. 22 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 24. TERMINATION AND CANCELLATION a. Default If either party is in material default of any of its obligations under this Agreement and such default continues for fifteen (15) calendar days after written notice thereof is given by the party not in default, such nondefaulting party may cancel this Agreement and/or any Orders which may be affected by such default. The parties acknowledge that the first 180 calendar days of this Agreement will involve prototype development and process refinement and that breaches which are immaterial in nature with respect to such efforts shall not constitute a default which shall allow the other party to cancel this Agreement, unless however the default is ongoing and the defaulting party does not take reasonable steps within 60 calendar days following notice of the breach, to eliminate the default. Default may include any of the following Events of Default which would allow the nondefaulting party to cancel this Agreement and/or any Orders immediately: i) Termination of Business, Bankruptcy, Etc. Either party shall ----------------------------------------- cease its operations or sell or otherwise dispose of all or substantially all of its assets or there shall be change in ownership of either party's business, an assignment for the benefit of creditors, insolvency, appointment of a receiver or the filing of any petition under bankruptcy or debtor's relief laws of, or against either party. ii) Material Adverse Change Either party shall have reasonably ----------------------- determined that since the Effective Date, a Material Adverse Change has occurred with respect to the other party. iii) Representations and Warranties Any warranty, representation or ------------------------------ certification made by either party or any officer of either party in this Agreement or in any document executed and delivered by either party in connection therewith shall be untrue in any material respect, in any case, on any date as of which the facts set forth are stated or certified. b. Termination Provisions for termination of Orders hereunder are set forth in Section 48 of this Agreement. 25. PARTIAL TERMINATION OR CANCELLATION Subject to Section 48, where a provision of this Agreement or applicable law permits PBMS to terminate or cancel an Order, such termination or cancellation may, at PBMS' option, be either complete or partial. Subject to Section 48, in the case of a partial termination or cancellation PBMS may, at its option, accept a portion of the Products or Services covered by an Order and pay CellStar for such Products or Services at the prices set forth in such Order and the parties shall execute a revised Order to reflect such partial termination or cancellation. The right to cancel an Order shall also include the right to cancel any other affected Order. 23 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 26. NONASSIGNMENT Except as otherwise provided by law, neither party shall assign its rights or delegate its duties ("Assignment") under this Agreement, without the prior written consent of the other party, which consent shall not be unreasonably withheld. Any attempted Assignment or delegation of duties in contravention of this section shall be void and of no effect. This Agreement shall inure to the benefit of and be binding upon the respective successors and assigns, if any, of CellStar and PBMS. The assigning party shall provide thirty (30) days prior written notice to the other party of any proposed Assignment. 27. NOTICES Except as otherwise provided in this Agreement, or applicable Order, all notices or other communications hereunder shall be deemed to have been duly given when made in writing and either 1) delivered in person, 2) delivered to an agent, such as an overnight or similar delivery service, or 3) deposited in the United States Mail, postage prepaid, and addressed as follows: To: CELLSTAR, LTD. 1730 Briercroft Court Carrollton, TX 75006 Attn.: General Counsel To: PACIFIC BELL MOBILE SERVICES 4410 Rosewood Dr. Bldg. 1, 4th Floor Pleasanton, CA 94588 Attn.: Director - Procurement The address to which notices or communications may be given by either party may be changed by written notice given by such party to the other pursuant to this paragraph entitled "Notices". 28. PUBLICITY CellStar shall not use PBMS' or PBMS' Customers' or manufacturers' names or any language, pictures or symbols which could, in PBMS' judgment, imply their identity in any a) written or oral advertising or presentation or b) brochure, newsletter, book, or other written advertising material of whatever nature, without PBMS' prior written consent. PBMS shall not use Open Stock manufacturers' names or any language, pictures, or symbols which could, in CellStar's judgment, imply their identity in any a) written or oral advertising or presentation or b) brochure, newsletter, book or other written advertising material of whatever nature, without CellStar's prior written consent. 29. COMPLIANCE WITH LAWS Each party shall comply with all applicable federal, state and local laws, regulations and codes, including, but not limited to, the procurement of permits, certificates and licenses when needed in the performance of this Agreement. PROPRIETARY AND CONFIDENTIAL 24 Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 30. TITLE Unless otherwise provided in this Agreement, title to Dedicated Products shall vest in CellStar when the Products have been delivered by the product suppliers or manufacturers to CellStar's destination. 31. NO THIRD PARTY BENEFICIARIES This Agreement is for the benefit of PBMS and CellStar and not for any other person. 32. AMENDMENTS AND WAIVERS This Agreement may be amended or modified only by a written document signed by authorized representatives of both parties. No course of dealing or failure of either party to strictly enforce any term, right or condition of this Agreement shall be construed as a general waiver or relinquishment of such term, right or condition. Waiver by either party of any default shall not be deemed a waiver of any other default. 33. EXECUTIVE ORDERS Exhibit A entitled "Exhibit A - Executive Orders and Associated Regulations" is attached hereto and made a part hereof. As used in Exhibit A "Contractor" shall mean CellStar. 34. HEADINGS Article, section, or paragraph headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 35. GOVERNING LAW This Agreement and each Order shall be construed in accordance with the domestic laws (including the Uniform Commercial Code) but not the rules governing conflicts of law, of the State of California. To the extent that an Order involves the performance of Services, such Services shall be deemed to be "goods" within the meaning of the California Uniform Commercial Code. 36. REMEDIES CUMULATIVE Except to the extent of any conflict with the section entitled "Limitation of Liability", any rights of cancellation, termination, or other remedies prescribed in this Agreement are cumulative and are not intended to be exclusive of any other remedies to which the injured party may be entitled, including but not limited to, the remedies of specific performance and cover, however, neither party shall retain the benefit of inconsistent remedies. Notwithstanding the foregoing, the remedy of specific performance shall apply only in the event of breach of 1) Section 16.c, 2) CellStar's obligation to sell Dedicated Products only to PBMS' Customers (unless otherwise permitted by PBMS), and 3) Section 52. 37. SEVERABILITY If any provision or any part of a provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render unenforceable any other portion of this Agreement. 25 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 38. SURVIVAL Provisions contained in this Agreement that by their sense and context are intended to survive completion of performance, termination or cancellation of this Agreement shall so survive. 39. PATENTS No licenses, express or implied, under any patents are granted by either party to the other party hereunder. 40. FORCE MAJEURE a. Neither party shall be deemed in default of this Agreement or any Order hereunder to the extent that any delay or failure in the performance of its obligations results from any cause beyond its reasonable control and without its fault or negligence, due to acts of God, disruption of telecommunications links, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions or strikes. b. If any force majeure condition occurs, the affected party shall give immediate notice to the other party and the other party may elect to: (1) terminate the affected Order(s) or any part thereof, (2) suspend the affected Order(s) or any part thereof for the duration of the force majeure condition, with the option to obtain elsewhere products and services to be furnished under such Order(s) and deduct from any commitment under such Order(s) the products and services obtained or for which commitments have been made elsewhere or (3) resume performance under such Order(s) once the force majeure condition ceases with an option in the notified party to extend any affected delivery or performance date up to the length of time the force majeure condition endured. Unless the notified party gives written notice within thirty (30) days after being notified of the force majeure condition, (2) shall be deemed selected. 41. SUBCONTRACTING PLAN CellStar shall adopt and comply with the Exhibit(s) entitled Prime Contractor MBE/WBE/DVBE Job Specific Subcontracting Plan and/or Prime Contractor MBE/WBE/DVBE Commodity Product Subcontracting Plan, attached hereto and made a part hereof. 42. MBE/WBE/DVBE CANCELLATION CLAUSE a. If CellStar has represented itself or one of its subcontractors as a minority- or women-owned business or disabled veteran business enterprise: CellStar agrees that falsification or misrepresentation of, or failure to report a disqualifying change in, the MBE/WBE/DVBE status of CellStar or any subcontractor utilized by CellStar; or CellStar's failure to comply in good faith with any MBE/WBE/DVBE utilization goals established by CellStar's Subcontracting Plan; or CellStar's failure to cooperate in any investigation conducted by PBMS, or by PBMS' agent, to determine CellStar's compliance with this section, will constitute a material breach of this Agreement. In the event of any such breach, 26 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 PBMS may, at its option, cancel this Agreement; and CellStar waives all claims related to such cancellation. b. As used in this Agreement, Minority and Women Business Enterprises (MBEs/WBEs) are defined as businesses which are certified by the California Public Utilities Commission Clearinghouse to be 51% owned and operated by a minority individual or group or by one or more women; for publicly-held businesses, at least 51% of the stock must be owned by one or more minorities or women who are U.S. citizens or legal aliens with permanent residence status. In each case, the management and daily operations must be controlled by one or more of those individuals. Foreign-owned firms operating in the United States are not included in these definitions. For the purposes of this definition, minority group members include male or female Asian Americans, Black Americans, Filipino Americans, Hispanic Americans, Native Americans (i.e., American Indians, Eskimos, Aleuts and Native Hawaiians), Polynesian Americans, and multi-ethnic (i.e., any combination of MBEs and WBEs where no one specific group has a 51% ownership and control of the business, but when aggregated, the ownership and control combination meets or exceeds the 51% rule). "Control" in this context means exercising the power to make policy decisions. "Operate" in this context means actively involved in the day-to-day management of the business. Disabled Veteran Business Enterprises (DVBEs) are defined as business concerns certified as DVBEs by the California State Office of Small and Minority Business (OSMB). The DVBE must be: (1) a sole proprietorship at least 51% owned by one or more disabled veterans; or (2) a publicly-owned business in which at least 51% of the stock is owned by one or more disabled veterans; or (3) a subsidiary which is wholly owned by a parent corporation, but only if at least 51% of the voting stock of the parent corporation is owned by one or more disabled veterans; or (4) a joint venture in which at least 51% of the joint venture's management and control and earnings are held by one or more disabled veterans. In each case the management and control of the daily business operations are by one or more disabled veterans. For the purpose of this definition, a disabled veteran is a veteran of the military, naval or air service of the United States with a service-connected disability who is a resident of the State of California. 43. DELIVERY OF PRODUCTS AND PERFORMANCE OF SERVICES a. All dates for shipment or delivery of Products and performance of Services are firm and time is of the essence. Shipment or delivery dates shall be specified in each Order. (i) In the event CellStar fails to meet the scheduled delivery date set forth in the applicable Order and the Customer cancels the Order, CellStar agrees to assume return shipping costs for the canceled Products if the late delivery was due to CellStar's error. (ii) In the event CellStar fails to meet the scheduled delivery date set forth in the applicable Order but the Customer nonetheless accepts the late shipment, CellStar shall, if the CPT 27 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 agrees, assume liability for any deductions taken by that Customer in connection with the late shipment if the late shipment was due to CellStar's error and within CellStar's reasonable control. b. Notwithstanding anything to the contrary herein, PBMS understands and agrees that CellStar shall not be responsible for same day shipping unless CellStar receives the applicable Order by 3:00 pm, Central Standard Time on the shipment date. 44. USE OF CELLSTAR'S PUBLISHED SPECIFICATIONS CellStar shall, at no charge, provide PBMS with copies of CellStar's published Specifications, user instructions, manuals and other training materials pertaining to the Products and Services purchased hereunder. PBMS shall have the right to reproduce any and all of such materials as necessary for PBMS' use of such Products. 45. DOCUMENTATION Each party shall furnish to the other at no charge, mutually agreeable documentation, and any succeeding changes thereto, as described herein. PBMS may reproduce such documentation for use hereunder. 46. RISK OF LOSS Subject to the following sentence, CellStar will be responsible for risk of physical loss of or damage to all inventories in their facilities and during shipment to the destination specified in the applicable Order, until such time that PBMS' Customer signs the carrier's receipt for the delivery. CellStar shall secure and prepay cartage insurance on behalf of the Customer and bill the Customer for such cartage insurance. 47. WARRANTIES Services a. CellStar warrants to PBMS that the Services provided hereunder shall be performed in a fully workmanlike manner to PBMS' reasonable satisfaction and in accordance with the Specifications set forth in this Agreement and the applicable Order. CellStar further warrants that such Services shall be free from material defects in workmanship. This warranty shall survive inspection, acceptance and payment for a period of one (1) year. b. If during the term hereof, PBMS believes that there is a breach of warranty as described herein, PBMS shall notify CellStar, setting forth in writing the nature of such claimed breach. CellStar shall promptly investigate such breach and advise PBMS of CellStar's planned corrective action. Thereafter, CellStar shall either repair or replace the affected Product, in CellStar's sole discretion. If such breach of warranty has not been corrected within a reasonable time (not to exceed five (5) business days from PBMS' notice to CellStar of the breach) or if two (2) or more such breaches of warranty occur within any thirty (30) day period, PBMS may, in addition to all other rights and remedies provided by law or this Agreement, cancel the Order for the Services affected by such breach. 28 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 48. TERMINATION OF ORDERS Services PBMS may terminate any Order covering the Services as described in Exhibit C and this Agreement, upon 90 calendar days written notice to CellStar. PBMS may terminate any other Order for other types of Services upon immediate notice. In the event of such termination, PBMS shall pay to CellStar the reasonable cost for such Services as set forth in Exhibit B and C, incurred by CellStar up to the date of said termination. PBMS shall not be responsible for the cost of any work performed by CellStar after such termination, nor for any costs incurred by CellStar's subcontractors which CellStar could have reasonably avoided. In no case shall termination costs exceed the amount, if any, agreed upon in the applicable Order for such Services. CellStar shall credit or reimburse PBMS for payments made by PBMS prior to termination to the extent such payments exceed the cost of work performed by CellStar, up to CellStar's receipt of the notice of termination. 49. ALTERNATE DISPUTE RESOLUTION a. If a controversy or claim should arise, a PBMS project representative and a project representative of CellStar, or their respective successors in the positions they now hold (herein called the "project representatives"), will meet in a mutually convenient location, at least once, and will attempt to, and are empowered to resolve the matter. Either project representative may request the other to meet within fourteen (14) days, at a mutually agreed time. b. If the matter has not been resolved within twenty-one (21) days of their first meeting, the project representatives shall refer the matter to a PBMS senior executive, who shall have full authority to settle the dispute with a senior executive of CellStar. Thereupon, the project representatives shall promptly prepare and exchange memoranda stating the issues in dispute and their positions, summarizing the negotiations which have taken place, and attaching relevant documents. The senior executives will meet for negotiations within fourteen (14) days of the end of the twenty-one (21) day period referred to above, at a mutually agreed time. c. The first meeting shall be held at the offices of the project representative receiving the request to meet. If more than one meeting is held, the meetings shall be held in rotation at the offices of CellStar and PBMS. d. If the matter has not been resolved within thirty (30) days of the meeting of the senior executives (which period may be extended by mutual agreement), the parties will attempt in good faith to resolve the controversy or claim under the commercial Mediation Rules of the American Arbitration Association, before resorting to arbitration, litigation, or some other dispute resolution procedure. e. If the parties cannot resolve the dispute by mediation, the controversy or claim arising out of or relating to this Agreement, shall be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision of the Arbitrator(s) is/are considered self-execution and failure of either party to abide by the decision may be considered to be a breach of contract. Judgment upon the award rendered by the arbitrator(s) may also be entered in any court having jurisdiction thereof. for the 29 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 purpose of determining federal diversity jurisdiction the parties are considered residents and domicilliaries of different states. f. Nothing in this provision shall prevent the parties from mutually agreeing to use an alternative means to resolve the dispute, such as a "mini-trial" or other procedure, whether or not it is sponsored by the American Arbitration Association. Additionally, nothing in this Section 49 shall restrict either party from seeking injunctive relief under Section 16.c. of this Agreement and with respect to CellStar's obligation to sell Dedicated Products only to PBMS' Customer, unless otherwise permitted by PBMS. 50. PRECEDENCE In the event of any conflict or inconsistency contained within this Agreement and for purposes of resolving disputes between the parties regarding the interpretation of this Agreement, resolution thereof shall be made by giving precedence to the following portions of this Agreement in the order listed: 1. Exhibits 2. Main Body 3. Orders 4. Procedures Manual (Appendix 1) Notwithstanding the above, if PBMS includes any specific payment or delivery instructions in the applicable Order which conflict with the Exhibits, Main Body, or Procedures Manual, those instructions shall take precedence over the Exhibits, Main Body and Procedures Manual but only with respect to those specific instructions. 51. LIMITATION OF LIABILITY In no event will either party be liable to the other under this Agreement for any indirect, special, or consequential damages, such as frustration of economic or business expectations, or lost profits or revenues, whether or not the other party has been informed of the possibility of such damages. [REDACTED] Nothing in this Section 51 shall limit either party's liability in connection with payments or credits which are due or thereafter due and owing from one party to the other or for any payment or credits due or thereafter due and owing any product supplier in connection with Products ordered from that product supplier. 52. CORPORATE AUTHORIZATION The parties shall take any and all steps necessary or appropriate, including without limitation, the taking of appropriate corporate action, to implement and to give effect to the provisions of this Agreement. Each party acknowledges and agrees that the other has entered into this Agreement in reliance of the foregoing. Accordingly, each party agrees that the other party may enforce this provision by obtaining specific performance or injunctive relief. CellStar, Ltd. is a subsidiary of CellStar Corporation which guarantees all 30 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 of the obligations of and performance of CellStar, Ltd. under this Agreement. By signing this Agreement as a duly authorized officer of CellStar Corporation the undersigned waives individual notice to CellStar Corporation and commits to indemnify and hold PBMS harmless from any and all financial or performance obligations of CellStar, Ltd. which are not carried out fully in accordance with the terms of this Agreement. 53. ENTIRE AGREEMENT This Agreement, including all Orders, exhibits and subordinate documents attached to or referenced in this Agreement or any Orders and all proposals, descriptions, drawings, Specifications, marketing materials and other literature published by CellStar in connection with or in contemplation of any Order or of this Agreement shall constitute the entire agreement between PBMS and CellStar with respect to the subject matter. (Signature Page Follows) 31 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives. PACIFIC BELL MOBILE SERVICES By: /s/ KEN ELMER ---------------------------------- (Signature) Print Name: Ken Elmer -------------------------- Title: Chief Financial Officer ------------------------------- Date Signed: 10/5/96 ------------------------- CELLSTAR, LTD. By National Auto Center, Inc., its General Partner By: /s/ R.M. GOZIA ---------------------------------- (Signature) Print Name: Richard M. Gozia -------------------------- Title: Executive Vice President ------------------------------- Date Signed: 10/7/96 ------------------------- BY SIGNING THIS AGREEMENT, CELLSTAR CORPORATION FULLY ACCEPTS AND GUARANTEES THE PERFORMANCE AND FINANCIAL OBLIGATIONS OF CELLSTAR, LTD. CELLSTAR CORPORATION CELLSTAR CORPORATION By: /s/ R.M. GOZIA By: /s/ ELAINE F. RODRIGUEZ --------------------------------- ---------------------------------- (Signature) (Signature) Print Name: Richard M. Gozia Print Name: Elaine Flud Rodriguez ------------------------- -------------------------- Title: Executive Vice President Title: Vice President ------------------------------ ------------------------------- Date Signed: 10/7/96 Date Signed: 10/7/96 ------------------------ ------------------------- PROPRIETARY AND CONFIDENTIAL 32 Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement EXHIBIT A EXECUTIVE ORDERS AND ASSOCIATED REGULATIONS PBMS as a common carrier of telecommunications services, engage in work as contractors for various departments and agencies of the United States Government. Also, certain facilities may be constructed pursuant to federally assisted construction programs. Because of the foregoing, work under this contract may be subject to the provisions of certain Executive Orders, federal laws and associated regulations. To the extent that such Executive Orders, federal laws and associated regulations apply to the work under this contract, and only to that extent, Contractor agrees to comply with the provisions of all such Executive Orders, federal laws and associated regulations, as now in force or as may be amended in the future, including, but not limited to the following: 1. EQUAL EMPLOYMENT OPPORTUNITY PROVISIONS In accordance with Executive Order 11246, dated September 24, 1965, and 41 C.F.R.(S)60-1.4, the parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of nonexempt contracts and subcontracts. 2. CERTIFICATION OF NON SEGREGATED FACILITIES In accordance with Executive order 11246, dated September 24, 1965, and 41 C.F.R.(S)60-1.8, Contractor certifies that is does not and will not maintain or provide for its employees any facilities segregated on the basis of race, color, religion, sex, or national origin at any of its establishments, and that it does and will not permit its employees to perform their services at any location, under its control, where such segregated facilities are maintained. The term "facilities" as used herein means waiting rooms, work areas, restaurants and other eating areas, time clocks, restrooms, wash rooms, locker rooms and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation and housing facilities provided for employees, provided that separate or single- user toilet and necessary changing facilities shall be provided to assure privacy between the sexes. Contractor will obtain similar certifications from proposed subcontractors prior to the award of any nonexempt subcontract. 3. CERTIFICATION OF AFFIRMATIVE ACTION PROGRAM Contractor certifies that it has developed and is maintaining an Affirmative Action Plan as required by 41 C.F.R.(S)60-1.40. 4. CERTIFICATION OF FILING Contractor certifies that it will file annually, on or before the 31st day of March, complete and accurate reports on Standard Form 100 (EEO-1) or such forms as may be promulgated in its place as required by 41 C.F.R.(S)60-1.7. 5. AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA In accordance with Executive Order 11701, dated January 15, 1974, and 41 C.F.R.(S)60-250.20, the parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of Government contracts and subcontracts. 6. AFFIRMATIVE ACTION FOR HANDICAPPED PERSONS In accordance with Executive Order 11758, dated January 15, 1974, and 41 C.F.R.(S)60-741.20, the parties incorporate herein by this reference the regulations and contract clauses required by those provisions to be made a part of Government contracts and subcontracts. 7. UTILIZATION OF SMALL BUSINESS CONCERNS AND SMALL DISADVANTAGED BUSINESS CONCERNS 48 C.F.R., Ch. 1, (S)19.704(4) and 19.708(a) require that the following clause is included: Utilization of Small Business Concerns and Small Disadvantaged Business Concerns (June, 1985) (a) It is the policy of the United States that small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals shall have the maximum practicable opportunity to participate in performing contracts let by any Federal agency, including contracts and subcontracts for subsystems, assemblies, components, and related services for major systems. It is further the policy of the United States that its prime contractors establish procedures to ensure the timely payment of amounts due pursuant to the terms of their subcontracts with small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals. (b) The Contractor hereby agrees to carry out this policy in the awarding of subcontracts to the fullest extent consistent with efficient contract performance. The Contractor further agrees to cooperate in any studies or surveys as may be conducted by the United States Small Business Administration or the awarding agency of the United States as may be necessary to determine the extent of the Contractor's compliance with this clause. (c) As used in this contract, the term "small business concern" shall mean a small business as defined pursuant to section 3 of the Small Business Act and relevant regulations promulgated pursuant thereto. The term "small business concern owned and controlled by socially and economically disadvantaged individuals" shall mean a small business concern: (1) Which is at least 51 percent owned by one or more socially and economically disadvantaged individuals; or, in the case or any publicly owned business, at least 51 percent of the stock of which is owned by one or more socially and economically disadvantaged individuals; and (2) Whose management and daily business operations are controlled by one or more of such individuals. The Contractor shall presume that socially and economically disadvantaged individuals include Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Asian-Indian Americans and other minorities, or any other individual found to be disadvantaged by the Administration pursuant to section 8(a) of the Small Business Act. 1 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement (d) Contractors acting in good faith may rely on written representations by their subcontractors regarding their status as either a small business concern or a small business concern owned and controlled by socially and economically disadvantaged individuals. Small Business and Small Disadvantaged Business Subcontracting Plan Contractor, unless it is a small business concern, as defined in section 3 of the Small Business Act, agrees to adopt and comply with a small business and small disadvantaged business subcontracting plan, which shall be included in and made a part of this contract. The parties incorporate herein by this reference the regulations and contract clauses required by 48 C.F.R., Ch. 1, (S)19-704(4) and 19.708(b) to be made a part of Government contracts and subcontracts. 8. WOMEN-OWNED SMALL BUSINESSES As prescribed in 48 C.F.R., Ch. 1, (S)19.902, the following clause is included in solicitations and contracts when the contract amount is expected to be over the small purchase threshold, unless (a) the contract is to be performed entirely outside the United States, its possessions, Puerto Rico, and the Trust Territory of the Pacific Islands, or (b) a personal services contract is contemplated: (a) "Women-owned small businesses", as used in this clause, means businesses that are at least 51 percent owned by women who are United States Citizens and who also control and operate the business. "Control", as used in this clause, means exercising the power to make policy decisions. "Operate", as used in this clause, means being actively involved in the day-to-day management of the business (b) It is the policy of the United States that women-owned small businesses shall have the maximum practicable opportunity to participate in performing contracts awarded by any Federal agency. (c) The Contractor agrees to use its best efforts to give women-owned small businesses the maximum practicable opportunity to participate in the subcontracts it awards to the fullest extent consistent with the efficient performance of its contract. 9. LABOR SURPLUS AREA CONCERNS As prescribed in 48 C.F.R., Ch. 1, (S)20.302(a)(b), the following clauses are included: (a) Applicability. This clause is applicable if this contract exceeds the appropriate small purchase limitation in Part 13 of the Federal Acquisition Regulation. (b) Policy. It is the policy of the Government to award contracts to concerns that agree to perform substantially in labor surplus areas (LSA's) when this can be done consistent with the efficient performance of the contract and at prices no higher than are obtainable elsewhere. The Contractor agrees to use its best efforts to place subcontracts in accordance with this policy. (c) Order of Preference. In complying with paragraph (b) above and with paragraph (c) of the clause of this contract entitled Utilization of Small Business Concerns and Small Disadvantaged Business Concerns, the Contractor shall observe the following order of preference in awarding subcontracts: (1) small business concerns that are LSA concerns, (2) other small business concerns, and (3) other LSA concerns. (d) Definitions. "Labor Surplus Area", as used in this clause, means a geographical area identified by the Department of Labor in accordance with 20 C.F.R.(S)654, Subpart A, as an area of concentrated unemployment or underemployment or an area of labor surplus. "Labor surplus area concern", as used in this clause, means a concern that together with its first-tier subcontractors will perform substantially in labor surplus areas. Performance is substantially in labor surplus areas if the costs incurred under the contract on account of manufacturing, production, or performance of appropriate services in labor surplus areas exceed 50 percent of the contract price. Labor Surplus Area Subcontracting Program (a) See the Utilization of Labor Surplus Area Concerns clause of this contract for applicable definitions. (b) The Contractor agrees to establish and conduct a program to encourage labor surplus area (LSA) concerns to compete for subcontracts within their capabilities when the subcontracts are consistent with the efficient performance of the contract at prices no higher than obtainable elsewhere. The Contractor shall: (1) Designate a liaison officer who will (I) maintain liaison with authorized representatives of the Government on LSA matters, (ii) supervise compliance with the Utilization of Labor Surplus Area Concerns clause, and (iii) administer the Contractor's labor surplus are subcontracting program; (2) Provide adequate and timely consideration of the potentialities of LSA concerns in all make-or-buy decisions; (3) Ensure that LSA concerns have an equitable opportunity to compete for subcontracts, particularly by arranging solicitations, time for the preparation of offers, quantities, specifications and delivery schedules so as to facilitate the participation of LSA concerns; (4) Include the Utilization of Labor Surplus Area Concerns clause in subcontracts that offer substantial LSA subcontracting opportunities; and (5) Maintain records showing (I) the procedures adopted and (ii) the Contractor's performance, to comply with this clause. The records will be kept available for review by the Government until the expiration of 1 year after the award of this contract, or for such longer period as may be required by any other clause of this contract, or by applicable law or regulations. (c) The Contractor further agrees to insert in any related subcontract that may exceed $500,000 and that contains the Utilization of Labor Surplus Area Concerns clause, terms that conform substantially to the language of this clause, including this paragraph (c), and to notify the Contracting Officer of the names of subcontractors. 2 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement EXHIBIT A-1 PRIME CONTRACTOR MBE/WBE/DVBE JOB SPECIFIC SUBCONTRACTING PLAN Prime Contractor Name: ---------------------------------------------------------- Address: ------------------------------------------------------------------------- Telephone Number: --------------------------------------------------------------- Description Of Goods Or Services: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following, together with any attachments is submitted as an MBE/WBE/DVBE subcontracting plan. 1. Do you plan to subcontract any portion of the goods or services being quoted, bid or proposed? YES NO -------- -------- 2. If answer to item 1 is Yes, A. What is your overall company MBE/WBE/DVBE program goal? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- B. What is your projected MBE/WBE/DVBE purchases? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- *SEE MBE/WBE/DVBE SUBCONTRACTING PLAN CLAUSE IN AGREEMENT FOR DEFINITION OF MBE, WBE AND DVBE 3 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement 3. If answer to item 1 is No, or if no MBE/WBE/DVBE subcontractors will be utilized where subcontracting has been identified, please explain in detail (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 4. List the principal goods and/or services to be subcontracted to MBE/WBE/DVBEs, should your quotation, bid or proposal be accepted (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 5. Describe what good faith efforts you plan to undertake to ensure that MBE/WBE/DVBEs will have an equitable opportunity to compete for subcontracts to be awarded (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 6. Contractor agrees that it will maintain, if awarded the resulting contract/purchase or work order, all necessary documents and records to support its efforts to achieve its estimated MBE/WBE/DVBE subcontracting goal(s). Contractor also agrees that it will be responsible for identifying, soliciting and qualifying MBE/WBE/DVBE subcontractors. ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 7. The following individual, acting in the capacity of MBE/WBE/DVBE coordinator for contractor, will: *administer the MBE/WBE/DVBE subcontracting plan and *cooperate in any studies or surveys as may be required by PBMS in order to determine the extent of compliance by contractor with the subcontracting plan. NAME: ------------------------------------------------------ TITLE: ----------------------------------------------------- TELEPHONE NUMBER: ------------------------------------------ AUTHORIZED SIGNATURE: -------------------------------------- DATE: --------------------------- 4 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL MOBILE SERVICES MBE/WBE/DVBE SUMMARY SUBCONTRACTING REPORT (Job Specific Results) 1. Reporting Corporation | 2. Contract/Purchase or | 3. This report reflects the or Company (Name, | Work Order Number | utilization of Minority address, city, zip | | Business Enterprise/ and telephone number) | | Women Business Enter- | | prise/Disabled Veterans | | Enterprise (MBE/WBE/ | | DVBE) subcontractors | | for period | | | | ________________ through | | | | ________________________ | | (Please indicate dates) 4. SUBCONTRACT DOLLAR AND PERCENTAGE Ethnicity Actual Cumulative for Period $ | % $ | % Polynesian Female | | Polynesian Male | | Filipino Female | | Filipino Male | | Hispanic Female | | Hispanic Male | | Black Female | | Black Male | | Asian Female | | Asian Male | | Native American Female | | Native American Male | | Multi-Ethnic Female | | Multi-Ethnic Male | | Non-Minority Female | | Disabled Veteran | | *See Attached Definitions Percent of MBE/WBE/DVBE Purchase/Total Purchase 5 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 5. SUBCONTRACT ACHIEVEMENT
Subcontracting Plan Estimate Actual for Period Cumulative MBE WBE DVBE MBE WBE DVBE MBE WBE DVBE Subcontracted Dollars $ $ $ $ $ $ $ $ $ ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Contract/Purchase or Work Order Dollars $ $ --------------------- ----------------------- Subcontracted Percent to Total Dollars % % % % % % % % % ----- ----- ----- ----- ----- ----- ----- ----- -----
6 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 6. MBE/WBE/DVBE Subcontractor(s) (Name, address, city, zip, telephone number), description of goods or service(s) supplied during this reporting and total dollars paid. (Attach additional sheets if necessary) Name_____________________ | _________________________ | _______________________ Address__________________ | _________________________ | _______________________ City, State, Zip_________ | _________________________ | _______________________ Telephone Number___________________ | _________________________ | _______________________ Goods/Service(s)_________ | _________________________ | _______________________ Ethnicity________________ | _________________________ | _______________________ Total Dollars____________ | _________________________ | _______________________ 7. Remarks (Explain if the actual results as identified in items 4 and 5 are below estimated MBE/WBE/DVBE utilization goal submitted as part of this contract/purchase or work order). - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 8. MBE/WBE/DVBE | I hereby certify that | Date Coordinator | the above information | (Name & Title) | is true and correct | (Print or Type) | | | | _______________________ | | _______________________ | _____________________________ | ____________________ | Signature | ________________________|_______________________________|_____________________ | | 9. Approving Officer | I hereby certify that | Date (Name & Title) | the above information | (Print or Type) | is true and correct | _______________________ | | 7 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-2 MASTER AGREEMENT NO. P/PS-960163 _______________________ | | _______________________ | _____________________________ | ____________________ | (Signature) | ________________________|_______________________________|_____________________ 10. This summary report should be mailed promptly to: Pacific Bell Mobile Services Note: Questions and/or MBE/WBE/DVBE Operations Staff requests for assistance Results and Analysis Administrator may be referenced to the 2600 Camino Ramon, Room 1E400 MBE/WBE/DVBE San Ramon, California 94583 Subcontracting Administrator at (510) 823-7048 8 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 EXHIBIT A-3 PRIME CONTRACTOR MBE/WBE/DVBE COMMODITY PRODUCT SUBCONTRACTING PLAN Prime Contractor Name: ---------------------------------------------------------- Address: ------------------------------------------------------------------------ Telephone Number: --------------------------------------------------------------- RFQ/RFB/RFP/RFI Number (if applicable) ------------------------------------------------------------------- Description Of Goods Or Services: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Definition: A commodity (or commercial) product is defined as a unit in regular - ---------- production that is sold in substantial quantities to the general public and/or industry at regular prices. If a company is offering a commodity product, then the subcontracting plan may relate to the company's general production of both commercial and noncommercial products, rather than just specific items being procured under the contract. The following, together with any attachments is submitted as an MBE/WBE/DVBE subcontracting plan. 1. Do you plan to subcontract any portion of the goods or services being quoted, bid or proposed? YES NO -------------- --------------- 2. If answer to item 1 is Yes, A. What is your overall company MBE/WBE/DVBE program goal? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- B. What is your projected MBE/WBE/DVBE purchases? *Minority Business Enterprises (MBEs) % -------- *Women Business Enterprises (WBEs) % -------- *Disabled Veteran Business Enterprises (DVBEs) % -------- *SEE MBE/WBE/DVBE SUBCONTRACTING PLAN CLAUSE IN AGREEMENT FOR DEFINITION OF MBE, WBE AND DVBE 9 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 3. If answer to item 1 is No, or if no MBE/WBE/DVBE subcontractors will be utilized where subcontracting has been identified, please explain in detail (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 4. List the principal goods and/or services to be subcontracted to MBE/WBE/DVBEs, should your quotation, bid or proposal be accepted (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 5. Describe what good faith efforts you plan to undertake to ensure that MBE/WBE/DVBEs will have an equitable opportunity to compete for subcontracts to be awarded (attach additional sheets if necessary): ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 6. Contractor agrees that is will maintain, if awarded the resulting contract/purchase or work order, all necessary documents and records to support its efforts to achieve its estimated MBE/WBE/DVBE subcontracting goal(s). Contractor also agrees that it will be responsible for identifying, soliciting and qualifying MBE/WBE/DVBE subcontractors. ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- 7. The following individual, acting in the capacity of MBE/WBE/DVBE coordinator for contractor, will: *administer the MBE/WBE/DVBE subcontracting plan *submit summary reports (in the form Exhibit A-4), and *cooperate in any studies or surveys as may be required by PBMS in order to determine the extent of compliance by contractor with the subcontracting plan. NAME: ------------------------------------------------------ TITLE: ----------------------------------------------------- TELEPHONE NUMBER: ------------------------------------------ AUTHORIZED SIGNATURE: -------------------------------------- TYPED/PRINTED NAME: ---------------------------------------- TITLE: DATE: ------------------ ------------------------------ 10 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL MOBILE SERVICES MBE/WBE/DVBE SUMMARY SUBCONTRACTING REPORT (Commodity Results) 1. Reporting Corporation | 2. Contract/Purchase or | 3. This report reflects the or Company (Name, | Work Order Number | utilization of Minority address, city, zip | | Business Enterprise/ and telephone number) | | Women Business Enter- | | prise/Disabled Veterans | | Enterprise (MBE/WBE/ | | DVBE) subcontractors | | for period | | | | ________________ through | | | | ________________________ | | (Please indicate dates) 4. SUBCONTRACT DOLLAR AND PERCENTAGE
Ethnicity Actual Cumulative Ethnicity Actual Cumulative for for Period Period $ | % $ | % $ | % $ | % Polynesian Female | | Asian Female | | Polynesian Male | | Asian Male | | Filipino Female | | Native American Female | | Filipino Male | | Native American Male | | Hispanic Female | | Multi-Ethnic Female | | Hispanic Male | | Multi-Ethnic Male | | Black Female | | Non-Minority Female | | Black Male | | Disabled Veteran | |
*See Attached Definitions Percent of MBE/WBE/DVBE Purchase/Total Purchase 11 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 5. SUBCONTRACT ACHIEVEMENT
Subcontracting Plan Estimate Actual for Period Cumulative MBE WBE DVBE MBE WBE DVBE MBE WBE DVBE MBE/WBE/DVBE Purchases to Sales % % % % % % % % % ----- ----- ----- ----- ----- ----- ----- ----- -----
12 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 6. MBE/WBE/DVBE Subcontractor(s) (Name, address, city, zip, telephone number), description of goods or service(s) supplied during this reporting and total dollars paid. (Attach additional sheets if necessary) Name_____________________ | _________________________ | _______________________ Address__________________ | _________________________ | _______________________ City, State, Zip_________ | _________________________ | _______________________ Telephone Number___________________ | _________________________ | _______________________ Goods/Service(s)_________ | _________________________ | _______________________ Ethnicity________________ | _________________________ | _______________________ Total Dollars____________ | _________________________ | _______________________ 7. Remarks (Explain if the actual results as identified in items 4 and 5 are below estimated MBE/WBE/DVBE utilization goal submitted as part of this contract/purchase or work order). - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 8. MBE/WBE/DVBE | I hereby certify that | Date Coordinator | the above information | (Name & Title) | is true and correct | (Print or Type) | | | | _______________________ | | _______________________ | _____________________________ | ____________________ | Signature | ________________________|_______________________________|_____________________ | | 9. Approving Officer | I hereby certify that | Date (Name & Title) | the above information | (Print or Type) | is true and correct | _______________________ | | 13 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement Exhibit A-4 MASTER AGREEMENT NO. P/PS-960163 _______________________ | | _______________________ | _____________________________ | ____________________ | (Signature) | ________________________|_______________________________|_____________________ 10. This summary report should be mailed promptly to: Pacific Bell Mobile Services Note: Questions and/or MBE/WBE/DVBE Operations Staff requests for assistance Results and Analysis Administrator may be referenced to the 2600 Camino Ramon, Room 1E400 MBE/WBE/DVBE San Ramon, California 94583 Subcontracting Administrator at (510) 823-7048 14 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement MASTER AGREEMENT NO. P/PS-960163 EXHIBIT B CELLSTAR DESCRIPTION OF PRODUCTS AND SERVICES
- -------------------------------------------------------------------------------- DESCRIPTION ONE TIME MONTHLY PRICE FEE FEE [REDACTED] - -------------------------------------------------------------------------------- 1 LOGISTICS - -------------------------------------------------------------------------------- A Hardware Costs [REDACTED] - -------------------------------------------------------------------------------- B Personnel Costs [REDACTED] - -------------------------------------------------------------------------------- C Assembly Costs [REDACTED] [REDACTED] - -------------------------------------------------------------------------------- D Advance Return and Pick to Ship [REDACTED] - -------------------------------------------------------------------------------- E Fulfillment Costs [REDACTED] - -------------------------------------------------------------------------------- F Returns Processing * . Receiving and Sort [REDACTED] . Triage and return to vendor . Triage and repair/refurb . Restocking Fee - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INVENTORY CARRYING COSTS - -------------------------------------------------------------------------------- A recurring charge, calculated [REDACTED] and billed monthly as a "cost of capital" charged on average daily inventory plus the average daily balance of amounts due from PBMS for Product shipments. The calculation shall include a credit for average daily balance of unpaid product supplier invoices. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3 CREDIT AND COLLECTIONS - -------------------------------------------------------------------------------- A Receivable Maintenance [REDACTED] Costs (calculated on the average daily balance of Retailer receivables minus the average daily balance of amounts due to PBMS from CellStar for receivables transferred to CellStar by PBMS; plus a [REDACTED] of net monthly invoices to Retailers billed by CellStar for PBMS sales). - -------------------------------------------------------------------------------- B Skid Storage Fee (after [REDACTED] days) [REDACTED] - -------------------------------------------------------------------------------- C Credit and Collection Services [REDACTED] - --------------------------------------------------------------------------------
* In addition, PBMS will be billed for the difference when A stock is written down and for return freight of non PBMS items 1 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MASTER AGREEMENT NO. P/PS-960163 EXHIBIT C PBMS Credit & Collection Costs
- -------------------------------------------------------------- Item Annual Monthly Comment - -------------------------------------------------------------- Collection Analyst [REDACTED] [REDACTED] [REDACTED] A/R Posting Rep Lock Box PBMS DID Line Long Distance D&B Investigation Postage Invoices Credit Applications EDI Transactions AS 400 Business Analyst Sr. Programmer Programmer EDI Specialist EBE @ 20% - -------------------------------------------------------------- Sub-Total - -------------------------------------------------------------- Contingency - -------------------------------------------------------------- TOTAL - -------------------------------------------------------------- Margin - -------------------------------------------------------------- Grand Total - --------------------------------------------------------------
__________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT D MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL PCS PRICE LIST OEM ACCESSORIES FOR MOTOROLA FLARE BATTERIES - -------------------------------------------------------------------------------- SNN4512PB TALK PACK NICD BATTERY - BLACK [REDACTED] SNN4516PB TALK PACK NIMH BATTERY - BLACK SNN4582PB XT TALK PACK NICD BATTERY - BLACK SNN4585PB XT TALK PACK NIMH BATTERY - BLACK SNN4588PB STANDARD NICD BATTERY - BLACK SNN4591PB STANDARD NIMH BATTERY - BLACK SNN4594PB XT SLIM NICD BATTERY - BLACK SNN4597PB XT SLIM NIMH BATTERY - BLACK POWER PLUS TALK AND CHARGE - -------------------------------------------------------------------------------- SLN9933PB ULTRA SAVER/CHARGER LEATHER CASE - -------------------------------------------------------------------------------- LCSXPB LEATHER CASE OEM ACCESSORIES FOR NOKIA 2190 BATTERIES - -------------------------------------------------------------------------------- BBH2SPB 400 MAH NICD SLIM BATTERY BBH1SPB 500 MAH NIMH SLIM BATTERY BBH2HPB 1100 MAH NICD HICAP BATTERY BBH1HPB 1500 MAH NIMH HICAP BATTERY POWER PLUS TALK AND CHARGE - -------------------------------------------------------------------------------- LCH2PB RAPID IN-CAR CHARGER LEATHER CASE - -------------------------------------------------------------------------------- LCSXPB LEATHER CASE OEM ACCESSORIES FOR ERICSSON CH337 BATTERIES - -------------------------------------------------------------------------------- BKB1931001PB 550MAH SLIMLINE NIMH BATTERY BKB1931009PB 950 MAH MIDCAP NIMH BATTERY BKB1931015PB 700 MAH BASIC NICD BATTERY ** BKB193025PB 1000 MAH HICAP NICD BATTERY ** *BKB1931021PB 1200 MAH NIMH BATTERY *BKB193085PB 500 MAH NIMH BATTERY POWER PLUS TALK AND CHARGE - -------------------------------------------------------------------------------- BML1631001PB VEHICLE POWER ADAPTER PLUS ** LEATHER CASE KRY1041032PB FLIP LEATHER POUCH ** NOTE: "*" REPRESENTS NEW SKU "**" REPRESENTS NEW PRICING "PB" SUFFIX ON ABOVE PART NUMBERS REPRESENT PACIFIC BELL CUSTOM PACKAGING. __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT E MASTER AGREEMENT NO. P/PS-960163 PACIFIC BELL --------------------------------------- MOBILE SERVICES Purchase Order 4410 Rosewood Drive, Suite 400 --------------------------------------- Pleasanton, CA 94588 PURCHASE ORDER NO. REVISION PAGE Phone (510) 227-2200 Fax (510) 227-2223 --------------------------------------- THIS PURCHASE ORDER NO. MUST APPEAR ON ALL INVOICES, PACKING LISTS, CARTONS AND CORRESPONDENCE RELATED TO THIS ORDER. --------------------------------------- SHIP TO: --------------------------------------- VENDOR: BILL TO: - -------------------------------------------------------------------------------- CUSTOMER ACCT. NO. VENDOR NO. DATE OF ORDER/BUYER REVISED DATE/BUYER - -------------------------------------------------------------------------------- PAYMENT TERMS SHIP VIA F.O.B. - -------------------------------------------------------------------------------- FREIGHT TERMS REQUESTOR/DELIVER TO CONFIRM TO/TELEPHONE - -------------------------------------------------------------------------------- ITEM PART NUMBER/ DELIVERY DATE QUANTITY UNIT UNIT PRICE EXTENSION TAX DESCRIPTION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- APPROVAL: TOTAL ------------------------------ AUTHORIZATION - ------------------------------ ------------------ ------------------------------ Requested By Phone Name ------------------------------ Signature - ------------------------------ ------------------ ------------------------------ Prepared By Phone ------------------------------ Date - -------------------------------------------------------------------------------- 45 PROPRIETARY AND CONFIDENTIAL Not for Use or Disclosure Outside CELLSTAR, LTD. and PACIFIC BELL MOBILE SERVICES Except Under Written Agreement EXHIBIT F MASTER AGREEMENT NO. P/PS-960163 Assembly Cost Model [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EX-10.44 4 SUPPLY & SERVICE AGE. BETWEEN CELLSTAR & MCI EXHIBIT 10.44 SUPPLY AND SERVICE AGREEMENT This Supply and Service Agreement (this "Agreement") is entered into, as of this 26 day of November, 1996 and effective as of the closing of the below- ---- defined Asset Purchase Agreement ("Effective Date") by and between CellStar, Ltd., a Texas limited partnership, ("CellStar") and MCI Telecommunications Corporation, a Delaware corporation, ("MCI"). WHEREAS, MCI has simultaneously herewith purchased certain assets used by CellStar in connection with the operation of its retail business involving the sale and activation of wireless communications equipment at kiosks located inside Sam's Club locations throughout the United States. (Such kiosks located inside Sam's Clubs throughout the United States which may hereafter be owned or operated by MCI are hereinafter referred to as the "Communication Centers"); and WHEREAS, MCI has simultaneously herewith entered into an Interim Services Agreement pursuant to which CellStar will be providing to MCI certain operational and inventory management services ("Interim Services Agreement"); and WHEREAS, CellStar is willing to provide to MCI the benefits of its supply arrangements with manufacturers of the products sold in the Communication Centers, as well as CellStar's distribution process for the supply of such products to the Communication Centers; and WHEREAS, MCI wishes to obtain a source of supply for accessory products for Wireless Handsets (as defined below) listed in Exhibit A (the "Accessory --------- Products") and cellular telephones ("Cellular Telephones"), Personal Communications Services ("PCS") handsets and two-way radios listed in Exhibit B --------- (collectively referred to herein as the "Wireless Handsets") for the Communication Centers and contemplates repetitive purchases of such products from CellStar (the Accessory Products and Wireless Handsets purchased by MCI from CellStar hereunder being collectively referred to herein as the "Products"); and WHEREAS, MCI wishes to retain the services of CellStar for the receiving, warehousing, assembly (if requested), fulfillment and distribution to the Communication Centers on behalf of MCI of products sourced by MCI from vendors other than CellStar (including, but not limited to wireless handsets, pagers, pre-paid calling cards and movie discount passes) as well as promotional literature, packaging materials and such other items as may be requested by MCI from time to time (such products, promotional literature, packaging materials and other items not purchased by MCI from CellStar hereunder hereinafter collectively referred to as the "Inventory Items"); and WHEREAS, MCI wishes to obtain the services of CellStar for packaging (if requested), programming (if requested), returns processing and other customized fulfillment services; and NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions herein contained, and other good and valuable consideration, the receipt and sufficiency of which THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS AGREEMENT BY "[REDACTED]". is hereby acknowledged, MCI and CellStar agree as follows: 1. SALE AND PURCHASE OF ACCESSORY PRODUCTS. (a) MCI agrees to purchase and CellStar agrees to sell Accessory Products under the terms and conditions set forth in this Agreement. Subject to (b) and (c) below, MCI agrees that, during the term of this Agreement, it shall purchase exclusively from CellStar all of its requirements for Accessory Products for sale in the Communication Centers. CellStar shall not substitute any Accessory Product without the express written consent of MCI. Additional accessory products which are not listed on Exhibit A as of the date hereof may --------- be added to this Agreement and the list set forth on Exhibit A upon written --------- agreement of the parties. In such an event, the parties will amend this Agreement accordingly and include a revised Exhibit A. --------- (b) In the event that CellStar materially breaches the Interim Services Agreement between the parties as such material breaches are defined in the Interim Services Agreement, MCI may, at its option, either terminate (i) this Agreement in its entirety; or (ii) MCI's exclusive obligation hereunder to purchase all Accessory Products and associated distribution services associated with such Accessory Products from CellStar. (c) In addition, the requirement of MCI to purchase a specific Accessory Product hereunder shall terminate if (i) MCI has failed to approve such non-OEM Accessory Product after the technical and quality evaluation set forth herein in Section 16; and (ii) CellStar has been unable to supply an alternative product that is acceptable to MCI within the time period set forth in Section 16. In accordance with the provisions of Section 16 hereof, the obligation of MCI to purchase all of its requirements of such particular non-OEM Accessory Product hereunder will be reinstated automatically when CellStar has available and can provide such a non-OEM Accessory Product that conforms to MCI's commercially reasonable technical and quality specifications. In such case, MCI will be permitted to satisfy any outstanding purchase commitments that it has made to any other vendors who have agreed to provide such a non-OEM Accessory Product that conforms to MCI's technical and quality specifications, which commitments shall not exceed one hundred and twenty (120) days from the date MCI's requirement to purchase such Accessory Products from CellStar pursuant to this subsection 1(c) terminates. (d) For purposes of this Agreement, the term "OEM Accessory Products" shall refer to Wireless Handset accessory products manufactured for, by, or on behalf of, the original equipment manufacturer. 2. SALE AND PURCHASE OF WIRELESS HANDSETS. MCI agrees to purchase and CellStar agrees to sell the Wireless Handsets listed on Exhibit B attached --------- hereto under the terms and conditions set forth in this Agreement. It is understood that MCI has the right but not the obligation to purchase all or a portion of its requirements for Wireless Handsets for sale in the Communication Centers from CellStar. CellStar shall not substitute any Wireless Handset without the express written consent of MCI. Additional wireless handsets which are not listed on Exhibit B as of the --------- 2 date hereof may be added to this Agreement and the list set forth on Exhibit B --------- upon written agreement of the parties. In such an event, the parties will amend this Agreement accordingly and include a revised Exhibit B. --------- 3. WAREHOUSE, DISTRIBUTION AND FULFILLMENT SERVICES. (a) CellStar will provide to MCI all warehouse, distribution and fulfillment services required by MCI in connection with MCI's sale in the Communication Centers of (i) all Products (except for Accessory Products and associated distribution services which are deleted from the list of Accessory Products and Services pursuant to Section 1(b) above); and (ii) all wireless handsets purchased by MCI from third parties. (b) CellStar will provide to MCI warehouse, distribution and fulfillment services required by MCI in connection with the sale by MCI in the Communication Centers of certain Inventory Items, including all wireless handsets purchased by MCI from third parties. (c) The services described in (a) and (b) above shall include but are not limited to warehousing, assembly (if requested), programming (if requested), packaging (if requested), shipping, insuring (as agreed below), reporting, and returns processing (if requested) of such Products, Inventory Items, and wireless handsets purchased by MCI from third parties, to the Communication Centers as described in Exhibit C (the "Services") . --------- (d) Additional services which are not listed on Exhibit C as of the --------- date hereof may be added to this Agreement and the list set forth in Exhibit C --------- by written agreement of the parties and only if CellStar is able to provide such additional services at a Competitive Market Price (as such term is defined in Section 4(j) hereof). In such an event, the parties will amend this Agreement accordingly and include a revised Exhibit C. --------- 4. PRICING AND PAYMENT TERMS, AND RIGHT OF OFFSET. (a) CellStar's prices to MCI for OEM Accessory Products purchased hereunder shall initially be as set forth on Exhibit A. Those stated prices are --------- and such Product Prices for OEM Accessory Products thereafter shall be in an amount equal to the manufacturer's invoice price less any pro-rata manufacturer discounts, special incentives and similar rebates to which MCI would otherwise be entitled if MCI were purchasing such products directly from the manufacturer (but specifically excluding Co-op and MDF, as defined in Sections 9 and 10 respectively, allowances or credits for which shall be handled in accordance with Sections 9 and 10 hereof respectively). CellStar shall provide standard private label packaging of such OEM Accessory Products in accordance with reasonable instructions from MCI and agreed upon by CellStar and the manufacturer at no additional cost. Should MCI choose not to have CellStar perform private label packaging of OEM Accessory Products, prices of such OEM Accessory Products shall be determined using the formula set forth in subsection 4(b) below. 3 (b) CellStar's prices to MCI for non-OEM Accessory Products purchased hereunder shall initially be as set forth on Exhibit A. Those stated prices are --------- and such Product prices for non-OEM Accessory Products thereafter shall be an amount equal to [REDACTED]. CellStar shall provide standard private label packaging of such non-OEM Accessory Products in accordance with reasonable instructions from MCI and agreed upon by CellStar at no additional cost. (c) Prices for Wireless Handsets purchased hereunder shall initially be as set forth on Exhibit B. Those stated prices are and such Product prices --------- for Wireless Handsets thereafter shall be an amount equal to [REDACTED]. (d) Unless otherwise stated herein, actual freight and insurance associated with each shipment from CellStar's warehouse to the Communication Centers shall be billed to and payable by MCI as separate line items on each invoice. CellStar shall make commercially reasonable efforts to insure that all such freight and insurance charges paid for by MCI under this Agreement are the lowest in the market. CellStar and MCI shall work together to obtain such favorable rates. (e) Prices for Accessory Products and Wireless Handsets calculated as set forth in subsections (a), (b) and (c) above are hereinafter collectively referred to as the "Product Prices." (f) [REDACTED] (g) [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. 4 (h) MCI shall pay CellStar for the Services at the rates established on Exhibit C (the "Service Fees"). Such Service Fees (including the --------- $0.88 set forth below) shall remain fixed until July 1, 1997 following which date CellStar may adjust its Service Fees upon thirty (30) days prior written notice to MCI subject to the procedures and limitations set forth in Section 4(j) below. Prior to July 1, 1997, CellStar reserves the right to change such Service Fees if MCI (i) requests that CellStar distribute wireless handsets purchased by MCI from third parties; or (ii) sources its accessories product program in its entirety to another vendor in accordance with the terms of Sections 1(b) or 4(j) herein and requests CellStar to distribute such accessories; provided that any such change in Service Fees requested by CellStar as a result of (i) above shall be determined by adding $0.88 for each wireless handset purchased by MCI from such third parties and any change as a result of (ii) above shall be subject to the procedures and limitations set forth in Section 4(j) below. (i) Each delivery of Products and Inventory Items to the Communication Centers will be separately invoiced, along with related Service Fees for assembly and order processing. All Product Prices and freight and insurance, including any expediting fees, shall be included as separate line items on each invoice and payable by MCI unless otherwise stated herein. Such invoices shall include, but not be limited to: (i) purchase order number; (ii) SKU or item numbers shipped; (iii) 5 quantity shipped and billed; (iv) "ship to" address; (v) Service Fees incurred; (vi) Services performed; (vii) net invoice amount; and (viii) any other information or special instructions reasonably requested by MCI. CellStar shall provide reasonable supporting documentation for each invoice as MCI may reasonably request including, but not limited to packing slips. CellStar will also issue invoices from time to time for returns processing credits and/or fees, credits for penalties, credits for MDF, credits for MCI's twenty percent (20%) share of 800# orders as described in Exhibit C hereof, and other Service --------- Fees for Services rendered which are not otherwise invoiced with each delivery. Co-op reimbursements will be handled in accordance with Section 9 hereof. Such invoices or credit statements shall include information reasonably requested by MCI. MCI shall pay all invoiced amounts within thirty (30) days after the date of invoice. (j) [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. 6 (k) CellStar shall provide to MCI a credit against payments owed under this Agreement for any amounts finally determined to be owed by National Auto or CellStar under Sections 3.6 and 3.7 of the Asset Purchase Agreement. 5. PERFORMANCE STANDARDS. (a) CellStar warrants that the Services provided hereunder shall be performed in a professional and workmanlike manner in accordance with the deadlines and specifications set forth herein or as reasonably requested by MCI from time to time. (b) Notwithstanding whether or not CellStar has had an opportunity to inspect the Inventory Items, CellStar shall be responsible for all security and safety of the premises used to perform activities under this Agreement, and shall be responsible for any loss or damage to Inventory Items while in CellStar's possession or on CellStar's premises in accordance with Section 11. CellStar shall make best efforts to identify and eliminate any pattern of shrinkage of Inventory Items. In addition, CellStar shall immediately correct any deficiencies it identifies in its processes that are contributing to such shrinkage. CellStar shall maintain a log for all significant problem resolutions and shall provide problem trending reporting. (c) CellStar shall be responsible for establishing a comprehensive problem escalation, coordination and response procedure to respond to systems failures, or any developments or problems that impact the order processing and fulfillment activities described in this Agreement. CellStar shall establish eight (8) hour per day, five (5) day per week notification procedures to ensure that appropriate MCI personnel are notified promptly following CellStar's determination of a significant problem or possible problem. In addition, CellStar will provide an after hours contact person for MCI who will be available to MCI twenty-four (24) hours a day, seven (7) days a week. Such person shall be capable of implementing problem resolution plans that are mutually agreed upon by MCI and CellStar. 6. FORECASTS. (a) MCI's Inventory Manager shall provide CellStar on a monthly basis, within ten (10) days prior to the end of each calendar month, a continuous usage forecast for the next three 7 (3) calendar months to assist CellStar in maintaining an orderly production flow for the purpose of MCI's delivery requirements for both Products and Services. MCI shall indicate the Product model number or SKU, projected purchase volume by units, and specific Services requested for each calendar month included in the forecast. The first calendar month of the three month forecast shall constitute a firm purchase commitment by MCI for the Products and Services set forth therein. If there is a shortage of such forecasted Products caused solely by the manufacturer, CellStar shall allocate products received from the manufacturer among its customers who have firm purchase commitments on a prorata basis in accordance with the volume of their respective commitments. MCI shall draw down on such firm purchase commitment by placing weekly or bi-weekly Purchase Orders (as defined in Section 7(a) below) against such forecast. MCI shall have three (3) months to make up any shortfall. If after such three (3) month period MCI has not satisfied such shortfall, then MCI shall pay to CellStar the forecasted price of the Products not yet purchased by MCI and CellStar shall ship such Products to MCI in accordance with MCI's instructions. (b) If the total of Products included in Purchase Orders for shipment submitted by MCI in any calendar month exceeds the forecasted amount (such orders hereinafter referred to as "Out of Forecast Orders"), CellStar agrees that it shall utilize a "first order in-first shipment out" method for allocating inventory among customers. CellStar shall make commercially reasonable efforts to ship such materials by MCI's requested deadline and shall not be assessed any penalty for failure to meet such deadline. MCI shall approve any rush charges before they are incurred. 7. PURCHASE ORDERS. (a) MCI shall submit purchase orders for Products ("Purchase Orders") to CellStar at 1730 Briercroft Court, Carrollton, Texas 75006 via facsimile or other mutually agreed upon methods. Each Purchase Order shall be submitted by MCI and received by CellStar before 1 p.m. (Dallas time) on Monday of each week (Tuesday when Monday is a holiday) (the "Order Deadline"). Any Purchase Order received by the Order Deadline shall be shipped by CellStar in order to be delivered to the Sam's Club address where the particular Communication Center is located no later than Friday of the same week in which the Purchase Order was received. In the event CellStar shall fail to timely deliver any order which was received by CellStar by the Order Deadline, CellStar shall credit to MCI on future purchases an amount equal to the lesser of ten percent (10%) of the insured value of Products and Inventory Items ordered for that shipment or fifty percent (50%) of the insured value of any missing or damaged materials; provided, however, that CellStar shall not be required to issue such credit to MCI in the event CellStar's failure to timely and accurately deliver was due to (i) a Force Majeure event as defined in Section 24 hereof; (ii) the Purchase Order was changed after the order entry process has been performed; (iii) the order was an Out of Forecast Order described in Section 6(b) above; (iv) the damage to or discrepancy in an order was caused by the shipping carrier; (v) the Inventory Items to be delivered were not available to CellStar in a timely manner for any reason beyond CellStar's control; (vi) such failure is due solely to the default of any carrier or supplier; or (vii) such failure is due solely to the acts or omissions of Sam's Club, MCI or their agents or employees. CellStar agrees to use commercially reasonable efforts to notify MCI of any Purchase Orders it receives which request shipment to locations other than the Sam's Club 8 locations at which MCI owns kiosks or which are unusual orders due to size or product mix. CellStar agrees to cooperate with MCI in immediately halting the shipment of any such orders upon notice from MCI. (b) All Purchase Orders shall be only upon the terms and conditions of this Agreement. The only effect of any terms and conditions in MCI's Purchase Orders shall be to request the time and place of delivery or the number and type of units to be delivered, but they shall not change, alter or add to the terms and conditions of this Agreement in any other way. CellStar's invoice shall also not change the terms and conditions of this Agreement. (c) In order the facilitate transactions under this Agreement, the parties may electronically transmit and receive data in agreed formats in substitution for conventional paper based documents as provided in an Electronic Data Interchange Trading Partner Agreement to be mutually agreed upon by the parties. 8. Stock Balancing. Within [REDACTED] following the end of each [REDACTED] during the term of this Agreement, MCI may return for credit against future purchases, F.O.B. CellStar's warehouse, an unlimited amount of new, unopened, undamaged and not defaced Accessory Products purchased by MCI from CellStar during the previous [REDACTED]. MCI shall be responsible for the cost of freight and insurance for such returned Accessory Products. MCI will include a return authorization received from CellStar with any such returned shipment. CellStar agrees to issue any credit for the actual Product Price, including any taxes paid by MCI to CellStar, of such returned Accessory Products within thirty (30) days of receipt of the Accessory Products. 9. [REDACTED] 10. [REDACTED] __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. 9 11. DELIVERY, RISK OF LOSS AND TITLE. (a) Unless otherwise mutually agreed upon in writing by the parties, all deliveries of Products and Inventory Items hereunder are FOB the Sam's Club location designated on the . Unless otherwise agreed to herein, actual freight and insurance associated with each shipment shall be billed to and payable by MCI as separate line items on each invoice. CellStar reserves the right to make deliveries of any per kiosk shipment in installments; provided, however, that any additional costs incurred by CellStar as a result of such installment shipments shall be borne by CellStar. (b) Title to Products and risk of loss or damage to the Products shall pass to MCI upon CellStar's delivery to and MCI's acceptance at the Sam's Club location. Such acceptance by MCI shall be deemed to have occurred when the receipt of such goods is acknowledged by MCI or by Sam's Club acting on behalf of MCI. MCI hereby grants to CellStar a purchase money security interest in Products delivered to MCI and the proceeds thereof now existing or hereafter arising out of MCI's sale or other disposition of the Products. MCI agrees to cooperate in whatever manner necessary to assist CellStar in perfecting and recording such purchase money security interest upon CellStar's request. (c) Title to Inventory Items shall at all times remain with MCI; provided, however, that CellStar shall be responsible for any loss or damage to Inventory Items upon delivery and acceptance by CellStar at CellStar's warehouse; and provided, further, however, that CellStar shall not be responsible for loss or damage to fulfillment, collateral and promotional materials included in the list of Inventory Items in an amount up to five percent (5%) of the total value of such fulfillment, collateral and promotional materials received by CellStar during the calendar quarter in which such shrinkage occurred. Such acceptance by CellStar shall be deemed to have occurred when the receipt of such goods is acknowledged by CellStar. CellStar shall use best efforts for the safekeeping and safe handling of all Inventory Items provided to CellStar pursuant to this Agreement and shall insure the full replacement value of the Inventory Items located in its warehouse at any time. 10 12. INSPECTION. (a) MCI must notify CellStar, in writing, within seventy-two (72) hours of receipt of shipment of Products or Inventory Items of (i) any shortages, discrepancies or freight damage claims existing between the items charged to MCI on any packing slip and the goods actually received by MCI in the corresponding shipment; or (ii) any damages to the corresponding goods. CellStar shall promptly correct such shortage, discrepancy, or damage at no charge to MCI within one (1) business day following notice from MCI if CellStar has goods in stock in its warehouse. If CellStar does not have such goods in stock in its warehouse, CellStar shall make best reasonable efforts to correct such shortage, discrepancy, or damage promptly at no charge to MCI. If written notice of such shortage, discrepancy, damage, or other objection is not received by CellStar within that time, MCI shall be deemed to have accepted the missing or damaged goods, and MCI agrees to pay the total amounts agreed to herein for such missing or damaged goods. Freight damage claims shall be filed by CellStar directly with the carrier within seven (7) days of receipt of the notification of damage. (b) CellStar must notify MCI, in writing, within twenty-four (24) hours of receipt of shipment of Inventory Items of (i) any shortages, discrepancies or freight damage claims existing between the items charged to MCI on any packing slip from MCI or a third party vendor for Inventory Items and the Inventory Items actually received by CellStar in the corresponding shipment; or (ii) any damages to the corresponding Inventory Items. MCI shall promptly intervene with such third party vendors on behalf of CellStar to correct such shortage, discrepancy, or damage at no charge to CellStar. If after such intervention by MCI, such third party vendors refuse to correct any such shortage, discrepancy, or damage, then MCI shall not hold CellStar responsible for such missing or damaged goods; provided that CellStar has exercised commercially reasonable care regarding the protection and security of such goods. If written notice of such shortage, discrepancy, damage, or other objection is not received by MCI within that time, CellStar shall be deemed to have accepted the missing or damaged goods, and CellStar agrees to be responsible to MCI for such missing or damaged goods. Freight damage claims shall be filed by MCI or its third party vendors directly with the carrier within seven (7) days of receipt of the notification of damage from CellStar. CellStar will assist MCI or its third party vendors in the filing of such freight damage claims and shall retain all packaging and shipping materials from such damaged shipments until the claim is settled and unless otherwise directed by MCI. 13. RETURNS. (a) Return Authorization. A return authorization must be obtained in accordance with CellStar's standard procedures prior to any Products or Inventory Items being shipped back to CellStar. Except as specifically set forth in subsection (d) below, all freight and insurance charges for returned goods must be paid by MCI. (b) Warranty Returns for Products. 11 (i) Accessory Products. Accessory Products shall be accepted for ------------------ return in accordance with the warranty provisions set forth in Section 18 hereof. Upon receipt, CellStar shall inspect such Accessory Products and the accompanying documentation, if any, to determine whether such returned Accessory Products qualify for warranty protection under the terms of the applicable warranty. If such Accessory Products are found to be defective under the terms of the applicable warranty, CellStar shall, at its option exchange or credit MCI for such defective Accessory Products and shall report to MCI accordingly pursuant to the Interim Services Agreement or Section 17, as appropriate. If CellStar exchanges such products, CellStar shall ship such exchanged product, at CellStar's cost (including freight and insurance), to the Communication Center from which the defective product was received. If such Accessory Product is found not to qualify for warranty protection under the terms of the applicable warranty, CellStar shall, at MCI's option, return such non-qualifying product at MCI's cost to the Communication Center from which the product was received or dispose of such Accessory Products at no cost to MCI. (ii) Cellular Telephones. Cellular Telephones shall be accepted ------------------- for return in accordance with the manufacturers' warranty set forth in Section 18 hereof. Upon receipt, CellStar shall inspect such Cellular Telephones and the accompanying documentation, if any, to determine whether such returned Cellular Telephones qualify for warranty protection under the terms of the applicable warranty. If such Cellular Telephones are found to be defective under the terms of the applicable warranty, CellStar shall, at MCI's option, repair or return to the manufacturer for repair or replacement such defective Cellular Telephones at no cost to MCI. Any repaired or replaced product shall be returned, at CellStar's cost (including freight and insurance), to the Communication Center from which the defective product was received. If such Cellular Telephones are found not to qualify for warranty protection under the terms of the applicable warranty, CellStar shall return such non- qualifying product, at MCI's cost (including freight and insurance), to the Communication Center from which the product was received. (iii) Two-Way Radios. Two-Way Radios shall be accepted for return -------------- in accordance with the manufacturers' warranty set forth in Section 18 hereof. Upon receipt, CellStar shall, at its own expense, coordinate the return of such products to the manufacturer, for repair or replacement in accordance with the terms of the applicable warranty. 12 Any repaired or replaced product shall be returned, at CellStar's cost (including freight and insurance), to the Communication Center from which the defective product was received. If such Two-Way Radios are found not to qualify for warranty protection under the terms of the applicable warranty, CellStar shall return such non-qualifying product, at MCI's cost (including freight and insurance), to the Communication Center from which the product was received. (iv) Technical Support for Products. CellStar shall make ------------------------------ available to MCI telephone technical support and assistance in the diagnosis and resolution of problems with Products eight hours a day, five (5) days a week during CellStar's normal business hours. There shall be no charge for such technical support. (c) Returns for Inventory Items. CellStar shall accept returns of Pagers from Communication Centers for processing in accordance with Exhibit C --------- attached hereto. Pagers accepted for return shall be subject to the returns processing fees set forth in Exhibit C hereto. The parties may agree to add --------- returns services for other Inventory Items by mutual written agreement and shall amend this Agreement accordingly. (d) Transition Period. Regardless of whether the Products are under warranty, for a period of forty five (45) days following the Effective Date hereof, CellStar shall credit to MCI the refund value of such items, including all freight, insurance, and any taxes related to the return of such Products returned to CellStar from the Communication Centers. Thereafter, MCI shall be responsible for all freight and insurance for the return of all Products returned to CellStar from the Communication Centers. 14. CANCELLATION OR CHANGE OF PURCHASE ORDERS. MCI may cancel, change or reschedule Products or Inventory Items on any Purchase Order subject to MCI's payment to CellStar of a cancellation, change or rescheduling fee equal to [REDACTED] for each Purchase Order that has advanced to order entry/print status and [REDACTED] for each Purchase Order that has advanced to pick confirm status. MCI shall not be charged cancellation or change fee for orders having a pre- order entry status. If any such change or rescheduling results in additional shipments within the same calendar week to the same "ship to" address, such shipment shall be made at a cost of [REDACTED] per shipment per "ship to" address. 15. TAXES. The prices set forth herein are exclusive of any amount for Federal, State and/or Local excise or sales taxes on the Products and/or Services provided under this Agreement. If any such excluded tax, exclusive however, of any taxes measured by CellStar's net income or taxes based on CellStar's gross receipts or based on CellStar's franchise, is determined to be applicable to the Products and Services provided under this Agreement or to the extent CellStar is required to pay or bear burden thereof, one hundred percent (100%) thereof shall be added to the prices set forth 13 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. herein and paid by MCI. In the event MCI claims exemption from sales or other such taxes under this Agreement, MCI shall hold CellStar harmless for any subsequent assessments levied by a proper taxing authority for such taxes, including interests, penalties and late charges. 16. PRODUCT CHANGES. (a) MCI shall make best efforts within ten (10) business days from the Effective Date hereof to (i) perform a commercially reasonable technical and quality evaluation of Accessory Products provided to MCI as of the date of closing in accordance with 16(b) and approve or reject Accessory Products in accordance with the procedures set forth in Section 16(b) herein; and (ii) provide to CellStar its minimum commercially reasonable technical and quality specifications for each Accessory Product. If the technical and quality evaluation required in (i) above results in MCI's rejection of the Accessory Products, CellStar shall immediately initiate efforts to provide a conforming Accessory Product. In any case, however, MCI may not source or give notice of an intent to source such an Accessory Product from another vendor until January 1, 1997. (b) In the event CellStar wishes to (i) make available to MCI any new non-OEM Accessory Product, or (ii) change any style or manufacturer for any non- OEM Accessory Product, CellStar shall, at least twenty (20) business days prior to offering such Accessory Product for sale or effecting such change, provide to MCI at least three (3) random samples for a ten (10) business day technical and quality evaluation in accordance with MCI's minimum technical and quality specifications described in subsection 16(a) above or MCI's revised commercially reasonable technical and quality specifications that are provided to CellStar from time to time. In the event such Accessory Product is approved by MCI, such Accessory Product shall be added to the list set forth on Exhibit A upon --------- execution of an amendment hereto. (c) In the event MCI wishes to buy a new non-OEM Accessory Product or change any style or specification for any non-OEM Accessory Product, MCI shall provide to CellStar in writing commercially reasonable technical and quality specifications for any such new product or changes. CellStar shall stock in its warehouse such new or changed product within thirty (30) days in accordance with the following procedure. Within five (5) business days following receipt by CellStar of MCI's technical and quality specifications, CellStar shall provide at least three (3) random samples of such new or changed product for a ten (10) business day technical and quality evaluation in accordance with those minimum technical and quality specifications. If MCI approves such accessory product, it shall be added to the list of Accessory Products and this Agreement shall be amended accordingly. If CellStar is unable to provide three (3) random samples of such accessory product within five (5) business days or MCI rejects the accessory products due to failure to satisfy such technical and quality evaluation, MCI may source such accessory product from another party until CellStar is able to source such accessory product for MCI. Alternatively, CellStar and MCI may agree in writing on the substitution of an alternative accessory product that conforms to MCI's commercially reasonable technical and quality specifications. (d) All samples to be provided hereunder shall be sent to Steven Molyneaux, 14 National Service Manager, MCI Wireless, 2000 York Road, Oakbrook, Illinois 60521, Suite 126, or such other person or address as MCI may designate in writing to CellStar from time to time. Within 72 hours following the completion of any such evaluations or tests, MCI shall provide to CellStar copies of any test results or other evaluations which it conducts on non-OEM Accessory Products, including a detailed written explanation of any perceived failure to meet specifications previously provided to CellStar. 17. RECORDS AND REPORTS. (a) CellStar shall maintain complete and accurate records of all invoices, shipping, inventory, insurance, returns, penalties, MDF, Co-op, MCI's twenty percent (20%) share of #800 items, all amounts billable to and payments made by MCI, the information listed in subsection (d) below, and any other matters which relate to CellStar's obligations hereunder, in accordance with generally accepted accounting practices. CellStar shall retain and make available upon request such records for a period of three (3) years from the date of shipment of Products, Inventory Items, or rendering of Services covered by this Agreement. (b) CellStar shall provide to MCI by 11 a.m. (EST) each Monday, an ASCII file (in similar fashion as file transmissions described in the Interim Services Agreement) containing all of the information contained in each of the individual invoices issued during the prior calendar week, consolidating such information by "ship-to" address (which corresponds to a Communication Center or an area manager's address) and as soon as reasonably available by SKU or item number. Such file shall also contain all fees invoiced during such calendar week and such other sales order information as MCI may reasonably request. CellStar shall provide a paper printout of such ASCII file promptly thereafter. (c) CellStar shall provide to MCI a consolidated monthly statement. The monthly statement shall include the information listed in subsection 17(b) above for outstanding invoices. (d) Upon the reasonable request of MCI, CellStar agrees to provide weekly inventory reports on Inventory Items located in its warehouse and cycle counts within one (1) business day. (e) CellStar has agreed as part of the Interim Services Agreement to provide to MCI certain information for inventory information reporting. During the term of the Interim Services Agreement, all such information will be provided under the terms and conditions of the Interim Services Agreement. Thereafter, CellStar shall continue to provide the following information under the terms of this Agreement to MCI five (5) business days a week (except as otherwise noted in subsection 17(e)(v)) with Monday information including Friday, Saturday and Sunday data, no later than noon, CST (except for Mondays when Friday, Saturday and Sunday data get transmitted at approximately 6:00 p.m. CST). If any of the following information is not made available within one (1) business day of the time that MCI notifies CellStar that the information has not been received in accordance with the deadlines above, then MCI shall be entitled to a credit 15 against the Services Fee equal to[REDACTED] per day for each day that the information is not made available starting on the day of MCI's notice. (i) MCI Purchase Orders (ii) Receipts of Inventory Items against MCI Purchase Orders (iii) Replenishment orders from the Communication Centers (iv) All orders of items shipped from CellStar's warehouse to the Communication Centers (v) Warehouse inventory quantities for all Inventory Items on a weekly basis (vi) Adjustments/returns that were sent back to CellStar's warehouse from the Communication Centers (vii) Credits/returns related to Inventory Items (viii) Credits/returns of Inventory Items that do not require shipment (damaged goods that are non-returnable to the vendor, shrinkage, miscounted inventory, receiving discrepancies, etc.) (ix) Any other inventory management and tracking information reasonably requested by MCI and agreed to by CellStar. (f) Upon five (5) business days advance notice, MCI or its representatives shall have the right to conduct an audit and review, at reasonable hours and on CellStar premises (no more often than quarterly), of the books and records of CellStar as they pertain to amounts owed under this Agreement, Inventory Items, Co-op, MDF, special incentives and similar rebates, and the net actual cost of Products purchased under this Agreement (in order to verify the cost plus a factor pricing set forth in Section 4 hereof). MCI shall bear the costs of such audits unless the auditors find a variance of two percent (2%) or greater in the amounts invoiced to MCI whereupon such overcharges shall be refunded to MCI with interest at the prime rate. In the event of such an overcharge, CellStar shall pay the reasonable costs associated with the audit. Any undercharges shall be paid by MCI. 18. LIMITED WARRANTIES AND REMEDIES. (a) CellStar warrants its title to the Products sold by it and warrants to MCI that its Products are free of defects of workmanship or material and are in conformity with applicable specifications and descriptions set out in the printed publications of CellStar or the manufacturer. 16 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. The limited warranty provided by the manufacturers of Wireless Handsets and OEM Accessory Products shall accompany such Products. A copy of the limited warranty which will accompany each non-OEM Accessory Product and which will be extended by CellStar to ultimate purchasers for use is attached hereto as Exhibit D. CellStar extends to MCI the same such warranties it extends to - --------- ultimate purchasers for use, subject to the conditions stated hereinafter in this Section 18. No claim shall be maintained hereunder unless the facts giving rise to it are discovered within the warranty period of the Product and written notice thereof given to CellStar within thirty (30) days of discovery. The sole and exclusive liability of CellStar for breach of warranty shall be to refund the purchase price of, or at its option, to replace or repair the Product or part concerned FOB its service facility or such other places as CellStar may designate. (b) The warranty period for the Products shall be as follows: (i) All non-OEM batteries: Two (2) year warranty (subject to requirement for proof of purchase after one year). (ii) All other non-OEM accessories: Lifetime warranty (subject to requirement for proof of purchase after one year). (iii) All OEM accessories: Manufacturers' warranty passes through to MCI. CellStar provides no additional warranty. (iv) All Wireless Handsets: Manufacturers' warranty passes through to MCI. CellStar provides no additional warranty. (c) The foregoing sets forth the sole and exclusive remedy of MCI for claims (except as to title) based on defect in or failure of Products, whether the claim is in contract, tort (including negligence), strict liability or otherwise, and however instituted. Upon expiration of the warranty period, all such liability shall terminate. Except as set forth in Section 23, the foregoing warranties are exclusive and in lieu of all other warranties, whether written, oral, implied or statutory. NO IMPLIED OR STATUTORY WARRANTY OF MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE SHALL APPLY. 19. TRADEMARK LICENSE. CellStar grants to MCI the nonexclusive right to use CellStar's trade names and trademarks set forth on Exhibit E in marketing --------- CellStar's Products during the term hereof. MCI agrees to designate the Product properly and depict marks accurately. 20. TERM. This Agreement shall be for an initial term of two (2) years, commencing on the date hereof unless otherwise terminated pursuant to the terms hereof. 21. TERMINATION. (a) Either party my terminate this Agreement immediately upon written notice to the other party if (i) the other party is in default of any material obligations hereunder, and, if curable, such party has failed to cure such default within thirty (30) days after receipt of such written notice; (ii) the other party violates any international, federal, state, provincial or local law relating 17 to or affecting this Agreement; or (iii) the other party becomes insolvent, makes a general assignment for the benefit of its creditors, files or does not object to the filing of any petition in bankruptcy or insolvency in any federal or state proceeding, has a receiver or trustee appointed over all or any substantial part of its property or undertakes or is subject to similar actions. (b) During the initial term hereof, MCI shall additionally have the right to terminate this Agreement at any time following eighteen (18) months from the effective date hereof in the event CellStar breaches any of the terms of the Non-Competition Agreement of even date herewith between the parties, notwithstanding the fact that such Non-Competition Agreement will have already terminated according to its own terms. (c) In the event of a material breach of the Interim Services Agreement and expiration of any applicable cure period, as such material breaches and cure periods are defined in the Interim Services Agreement, MCI shall have the right to terminate this Agreement immediately. (d) MCI shall have the right to terminate this Agreement upon thirty (30) days prior written notice if: (i) shrinkage of Inventory Items exceeds eight percent (8%) of total Inventory Items under the control of CellStar in any given month (other than fulfillment, collateral, and promotional materials for which CellStar already has a five percent (5%) shrinkage allowance); or (ii) shrinkage of Inventory Items exceeds five percent (5%) of total Inventory Items under the control of CellStar in a second month (other than fulfillment, collateral, and promotional materials for which CellStar already has a five percent (5%) shrinkage allowance) provided that MCI has given CellStar a written warning that shrinkage of Inventory Items exceeded five percent (5%) of total Inventory Items under the control of CellStar in one previous month during the term of the Agreement. 22. CONFIDENTIALITY OF INFORMATION. (a) CellStar agrees that all information related to the Services, whether received orally, in print, or electronically, including but not limited to MCI data and business information inputted, received, reported or generated by CellStar, or stored in any CellStar computer system under the terms of this Agreement, shall be received by CellStar in strict confidence. MCI agrees that all information related to all amounts due and payable under the terms of this Agreement, including but not limited to Product Prices and Service Fees and such other information that CellStar may, from time to time designate as confidential, whether received orally, in print, or electronically, shall be received by MCI in strict confidence. All such information shall be deemed to be "Confidential Information". (b) Each party agrees that it shall use such Confidential Information for the purposes of and only in the performance of this Agreement, and that it shall not make copies of any such Confidential Information or any part thereof except to the extent otherwise expressly permitted by this Agreement or by the owner of the information ("Owner"). The party receiving the Confidential Information ("Recipient") shall not disclose any Confidential Information to any third party without the express written consent of the Owner other than to its employees, consultants and 18 agents, and its Affiliates' employees, consultants and agents, who have a need to know to perform under this Agreement, and who are bound to protect the received Confidential Information from unauthorized use and disclosure under the terms of a written agreement or corporate policy, provided that in any case, the Recipient shall be liable for any breaches of confidentiality by any of them. The Recipient shall protect the Confidential Information using the same degree of care used to protect Recipient's own confidential or proprietary information of like importance, but in any case using no less than a reasonable degree of care. The Recipient shall return Confidential Information and any copies thereof to the Owner at the completion or termination of this Agreement, or at such earlier date as the Owner may desire. (c) If the Recipient is required by law, regulation or court order to disclose any Confidential Information, the Recipient will promptly notify the Owner in writing prior to making any such disclosure in order to facilitate the Owner seeking a protective order or other appropriate remedy from the proper authority. The Recipient agrees to cooperate with the Owner in seeking such order or other remedy. The Recipient further agrees that if the Owner is not successful in precluding the requesting legal body from requiring the disclosure of the Confidential Information, it will furnish only that portion of the Confidential Information which is legally required and will exercise all reasonable efforts to obtain reliable assurances that confidential treatment will be accorded the Confidential Information. (d) The Recipient acknowledges that the Confidential Information constitutes unique, valuable and special trade secret and business information of the Owner, and that disclosure may cause irreparable injury to the Owner. Accordingly, the parties acknowledge and agree that the remedy at law for any breach of the covenants contained in this Agreement may be inadequate, and in recognition, agrees that the Owner, shall, in addition, be entitled to seek injunctive relief without bond including reasonable attorneys' fees and other court costs and expenses, in the event of a breach or threatened breach of any of the provisions of this Agreement, which relief shall be in addition to and not in derogation of any other remedies which may be available to the Owner as a result of such breach. (e) Notwithstanding the foregoing, the restrictions set forth in this Section on use and disclosure of Confidential Information shall not apply to information that: (a) was publicly known at the time of Owner's communication thereof to Recipient; (b) becomes publicly known through no fault of Recipient subsequent to the time of Owner's communication thereof to Recipient; (c) is received from a third party free to disclose it to Recipient; (d) was in Recipient's possession free of any obligation of confidence at the time of Owner's communication thereof to Recipient; (e) is developed by Recipient independently of and without reference to any of Owner's Confidential Information or other information that Owner disclosed in confidence to any third party ; (f) is rightfully obtained by Recipient from third parties authorized to make such disclosure without restriction; (g) is identified by Owner as no longer proprietary or confidential; or (h) is lawfully required to be disclosed to any governmental agency or judicial body or is otherwise required to be disclosed by law. 19 23. INDEMNIFICATION AND INSURANCE. (a) Patent and Copyright Indemnification. CellStar agrees to defend, at its expense, any claims or suits against MCI based upon a claim that any Products furnished hereunder directly infringes a U.S. patent or copyright and to pay costs and damages finally awarded in any such suit, provided that CellStar is notified promptly in writing of the suit and at CellStar's request and at its expense is given control of said claim and all requested assistance for defense of same. If the use or sale of any Products furnished hereunder is enjoined as a result of such suit, CellStar at its option and at no expense to MCI, shall obtain for MCI the right to use or sell said Products or shall substitute an equivalent Product reasonably acceptable to MCI, and extend this indemnity thereto or shall accept the return of the Products and reimburse MCI the purchase price therefor, less a reasonable charge for reasonable wear and tear. This indemnity does not extend to any suit based upon any infringement or alleged infringement of any patent or copyright by the alteration of any Products furnished by CellStar or by the combination of any Products furnished by CellStar and other elements, nor does it extend to any products of MCI's design or formula. The foregoing states the entire liability of CellStar for patent or copyright infringement. IN NO EVENT SHALL CELLSTAR BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS EXCEPT AS OTHERWISE SET FORTH HEREIN. (b) Other CellStar Indemnification. CellStar shall indemnify and hold MCI, its officers, directors, employees, affiliates (including their officers, directors and employees), and agents (the "MCI Indemnified Parties") harmless from any liabilities, claims, losses and expenses, including without limitation, interest, penalties, consequential damages and all reasonable attorneys' fees including in-house counsel fees, accountants, and other experts, that may be incurred by MCI as a result of or arising out of claims made: (i) by any third party for injury to persons, including death, and damage to property, including theft, resulting from CellStar's negligent acts or omissions; (ii) by any third party for injury to persons, including death, and damage to property, resulting from any material supplied or used by CellStar in a defective and unreasonably dangerous condition; (iii) under Worker's Compensation, or similar employer- employee liability acts, against MCI by persons provided by CellStar; and (iv) any claim for infringement of any U.S. trademark or copyright by reason of use of CellStar's trademarks in connection with the Products. If any MCI Indemnified Party makes an indemnification request to CellStar, the MCI Indemnified Party shall permit CellStar to defend or settle at its own expense, any action or claim against the MCI Indemnified Party for which CellStar is responsible under this provision; provided that (i) any such settlement or disposition shall impose no obligation whatsoever on the MCI Indemnified Party that is not wholly discharged or dischargeable by CellStar, and imposes no conditions or obligations on the MCI Indemnified Party other than the payment of monies that are readily measurable for purposes of determining the monetary indemnification or reimbursement obligations of CellStar and (ii) CellStar will be capable of fully performing its obligations pursuant to such settlement or disposition, including the financial capacity to pay when due all sums it is obligated to pay pursuant to such settlement or disposition. The MCI Indemnified Party shall notify CellStar promptly of any claim 20 for which CellStar is responsible and shall cooperate with CellStar in every commercially reasonable way to facilitate defense of any such claim; provided that the MCI Indemnified Party's failure to notify CellStar shall not diminish CellStar's obligations under this Section unless CellStar is materially prejudiced as a result of such failure. (c) MCI Indemnification. MCI shall indemnify and hold CellStar, its officers, directors, employees, affiliates (including their officers, directors and employees), and agents (the "CellStar Indemnified Parties") harmless from any liabilities, claims, losses and expenses, including without limitation, interest, penalties, consequential damages and all reasonable attorneys' fees including in-house counsel fees, accountants, and other experts, that may be incurred by CellStar as a result of or arising out of claims made: (i) by any third party for injury to persons, including death, and damage to property, including theft, resulting from MCI's negligent acts or omissions; (ii) by any third party for injury to persons, including death, and damage to property, resulting from any material supplied by MCI in a defective and unreasonably dangerous condition; and (iii) under Worker's Compensation, or similar employer- employee liability acts, against CellStar by persons provided by MCI. If any CellStar Indemnified Party makes an indemnification request to MCI, the CellStar Indemnified Party shall permit MCI to defend or settle at its own expense, any action or claim against the CellStar Indemnified Party for which MCI is responsible under this provision; provided that (i) any such settlement or disposition shall impose no obligation whatsoever on the CellStar Indemnified Party that is not wholly discharged or dischargeable by MCI, and imposes no conditions or obligations on the CellStar Indemnified Party other than the payment of monies that are readily measurable for purposes of determining the monetary indemnification or reimbursement obligations of MCI and (ii) MCI will be capable of fully performing its obligations pursuant to such settlement or disposition, including the financial capacity to pay when due all sums it is obligated to pay pursuant to such settlement or disposition. The CellStar Indemnified Party shall notify MCI promptly of any claim for which MCI is responsible and shall cooperate with MCI in every commercially reasonable way to facilitate defense of any such claim; provided that the CellStar Indemnified Party's failure to notify MCI shall not diminish MCI's obligations under this Section 23 unless MCI is materially prejudiced as a result of such failure. (d) Insurance Requirements. During the term of this Agreement, CellStar shall maintain insurance of the kinds and in the amounts specified below with insurers of recognized responsibility, licensed to do business in the State(s) where the work is being performed, and having either: an A.M. Best's rating of A8, a Standard & Poor's (S&P) rating of AA, or a Moody's rating of Aa2. (i) In accordance with the above, CellStar shall maintain the following insurance coverages: (1) Workers' Compensation insurance as required by the State(s) in which the contract is to be performed; (2) Employer's Liability insurance with limits of not less 21 than [CONFIDENTIAL MATERIAL REDACTED] per occurrence; (3) Comprehensive or Commercial General Liability Insurance, on an Occurrence Basis, including but not limited to (premises-operations, broad form property damage in addition to that covered by Section 23(d)(5) below, contractual liability, independent contractors, personal injury) with limits of no less than $10,000,000 combined single limit for each occurrence; and (4) Automobile Liability, Comprehensive Form, with limits of at lease $1,000,000 combined single limit for each occurrence. (5) Bailee Liability Insurance, with limits of at least the full replacement value of all Inventory Items physically located at CellStar's warehouse at any given time. (ii) THE REQUIRED MINIMUM LIMITS OF COVERAGE SHOWN ABOVE, HOWEVER, WILL NOT IN ANY WAY RESTRICT OR DIMINISH CELLSTAR'S LIABILITY UNDER THIS AGREEMENT. (iii) CellStar's insurers shall waive all rights of recovery against MCI for any injuries to persons or damage to property in the execution of work performed under this Agreement. (iv) CellStar's insurance shall be considered primary and not excess or contributing with any other applicable insurance. (v) All policies (excluding Workers' Compensation) shall name MCI, its subsidiaries and affiliates, as additional insureds as respects work performed under this Agreement and all coverage shall include MCI property. CellStar will submit to MCI a standard "Accord" insurance certificate (or comparable form acceptable to MCI) signed by an authorized representative of such insurance company(ies), certifying that the insurance coverage(s) required hereunder are in effect for the purposes of this Agreement. Said insurance certificate shall certify that no material alteration, modification or termination of such coverage(s) shall be effective without at least 30 days advance written notice to MCI. 24. FORCE MAJEURE. If the performance of this Agreement, or of any obligation hereunder, is prevented, restricted or interfered with by reason of acts of God, wars, revolution, civil commotion, acts of public enemies, blockage or embargo, strikes, acts of the Government in its sovereign capacity, interruptions of transportation, material default of any carrier or supplier, or any other extraordinary and unexpected circumstance beyond the control and without the fault or 22 negligence of the performing party, upon giving prompt notice to the other, but in no event to exceed more than ten (10) days after the performing party's learning of such event or after the date when the performing party reasonably should have known of event, the performing party shall be excused from such performance on a day-to-day basis to the extent of such prevention, restriction or interference with (and the other party shall likewise be excused from payment for all services not performed); provided, however, that the performing party shall use its best efforts to avoid or remove such causes of non-performance and both parties shall proceed whenever such causes are removed or cease. 25. COMPLIANCE WITH LAWS. Each of the parties shall comply with the provisions of all applicable federal, state, county and local laws, ordinances, regulations and codes including but not limited to compliance with the Federal Communications Commission's Rules and Regulations, and, irrespective of whether a specification is furnished, if equipment, services or containers furnished hereunder by CellStar are required to be constructed, packaged, labeled or registered in a prescribed manner, CellStar shall comply with applicable federal, state or local law. If MCI exports Products outside the United States, MCI shall be responsible for complying with all U.S. export laws and regulations and with all laws and regulations, including, but not limited to, permission to connect, packaging and instruction, in the countries to which Products have been exported. Each party shall indemnify and hold harmless the other from and against all liabilities, claims, costs, losses, damages (including, without limitation, any indirect, special, consequential, incidental or punitive damages), and expenses (including attorneys' fees and allocated in-house legal expenses) arising out of breach of this Section. 26. ASSIGNMENT. The rights and obligations under this Agreement may not be assigned without, in each instance, the prior written consent of the non- assigning party. 27. GOVERNING LAW. This Agreement, including all matters relating to the validity, construction, performance and enforcement thereof, shall be governed by the laws of the State of New York without giving effect to its principles of conflicts of law. 28. RELATIONSHIP OF PARTIES. (a) The relationship of the parties under this Agreement shall be, and shall at all times remain, one of independent contractors and not that of franchisor and franchisee, joint venturers, partners , principal and agent, employees, or any other relationship, and neither party shall have the rights to bind or obligate the other. (b) All persons furnished by the parties in performance of the Services hereunder shall be considered solely that party's employees or agents; and that party shall be responsible for compliance with all laws, rules, and regulations involving, but not limited to, employment of labor, hours of labor, working conditions, payment of wages and payment of taxes, such as unemployment, social security and other payroll taxes, including applicable contributions from such persons when required by law. In addition, CellStar shall not improperly influence any MCI employee in any manner that would cause such MCI employee to violate MCI's Code of Employee Conduct involving 23 conflicts of interest regarding acceptance of vendor gifts and gratuities (as such MCI's Code of Employee Conduct is updated from time to time and provided to CellStar by MCI). (c) Each party shall be solely responsible for all reporting and payment obligations relating to FICA, income tax, unemployment compensation and workers compensation withholdings, and other employer related obligations of a similar nature with respect to their own employees. (d) Each party shall be solely responsible to the other for all acts and omissions of its employees and agents assigned by such party for the performance of its obligations hereunder. 29. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, together with the Interim Services Agreement and the Asset Purchase Agreement, constitutes the entire Agreement between the parties and supersede any prior or contemporaneous oral or written representations with regard to the subject matter hereof. This Agreement may not be modified or amended except by a writing signed by both parties. No waiver of any provision hereof shall be effective unless in writing signed by the party alleged to have waived such provision. Any single waiver shall not operate to waive subsequent or other defaults. 30. SEVERABILITY. If any provision of this Agreement is contrary to, prohibited by or held invalid by any law, rule, order or regulation of any government or by the final determination of any state or Federal court, such invalidity shall not effect the enforceability of any of the provisions not held to be invalid. 31. NOTICES. All notices, requests, demands or other communications required or permitted hereunder shall be in writing, shall be deemed delivered (i) on the date of delivery when delivered by hand, (ii) on the date of transmission when sent by telex, electronic mail or facsimile transmission during normal business hours with telephone confirmation of receipt, (iii) one (1) day after dispatch when sent by overnight courier maintaining records of receipt, or (iv) three (3) days after dispatch when sent by registered mail, postage prepaid, return receipt requested, all addressed as follows (or at such other addresses as shall be given in writing by either Party to the other): If to MCI: MCI Telecommunications Corporation 1200 South Hayes Street Arlington, VA 22202 Attention: Terry Macko Segment Marketing Vice President Fax: (703) 415-6789 With a copy to: 24 MCI Telecommunications Corporation 1200 South Hayes Street Arlington, VA 22202 Attention: Lanese Jorgensen, Esq. Senior Attorney Law & Public Policy Fax: (703) 415-7102 If to CellStar: CellStar, Ltd. 1730 Briercroft Court Carrollton, TX 75006 Attention: Alan H. Goldfield Chairman and CEO Fax: (972) 323-1589 With a copy to: CellStar, Ltd. 1730 Briercroft Court Carrollton, TX 75006 Attention: General Counsel Fax: (972) 466-5030 With an additional copy to : CellStar, Ltd. 1730 Briercroft Court Carrollton, TX 75006 Attention: Chief Financial Officer Fax: (972) 466-0288 32. DISPUTE RESOLUTION PROCEDURES. (a) Other than a dispute under Section 4(j) herein, for which the provisions thereof shall govern, in the event of any disagreement regarding performance under or interpretation of this Agreement, the parties shall attempt to reach a negotiated resolution. If such a dispute remains unresolved for a period of thirty (30) days after one party has provided written notice of the dispute to the other, then each party shall designate an officer of appropriate authority to resolve the dispute, in accordance with Section 32(b) below. (b) Any dispute arising out of or related to this Agreement (including any dispute 25 arising under Section 4(j) herein), which cannot be resolved by negotiation under Section 32(a) above, shall be settled by binding arbitration in accordance with the J.A.M.S./ENDISPUTE Arbitration Rules and Procedures ("Endispute Rules"), as amended by this Agreement. The costs of arbitration, including the fees and expenses of the arbitrator, shall be shared equally by the parties unless the arbitration award provides otherwise. Each party shall bear the cost of preparing and presenting its case. The parties agree that this provision and the Arbitrator's authority to grant relief shall be subject to the United States Arbitration Act, 9 U.S.C. 1-16 et seq. ("USAA"), the provisions of this Agreement, and the ABA-AAA Code of Ethics for Arbitrators in Commercial Disputes. The parties agree that the arbitrator shall have no power or authority to make awards or issue orders of any kind except as expressly permitted by this Agreement, and in no event shall the arbitrator have the authority to make any award that provides for punitive or exemplary damages. The Arbitrator's decision shall follow the plain meaning of the relevant documents, and shall be final and binding. The award may be confirmed and enforced in any court of competent jurisdiction. All post-award proceedings shall be governed by the USAA. 33. WAIVER OF CERTAIN REMEDIES. Notwithstanding any provision of this Agreement, neither party shall be liable for any indirect, special, consequential, incidental or punitive damages arising out of this Agreement, even if advised of the possibility of such damages; provided, that this shall not limit the liability of the indemnifying party to indemnify the indemnified party with respect to claims brought by third parties against the indemnified party as provided for in this Agreement. 34. SURVIVAL. The respective obligations of the parties under this Agreement that by their nature would continue beyond the termination, cancellation or expiration, shall survive any termination, cancellation or expiration, including, but not limited to, obligations to insure and indemnify, insure and maintain confidentiality, deliver and have the opportunity to inspect and accept goods under existing Purchase Orders, and provide continued availability of warranty support and services. 35. PARAGRAPH HEADINGS. The headings of the paragraphs are inserted for convenience of reference only and are not intended to affect the meaning or interpretation of this Agreement. 36. ORDER OF PRECEDENCE. This Agreement and all Exhibits are intended to be read consistently and as a whole. Nonetheless, in the event of any ambiguity, inconsistency or conflict between the terms of the Agreement and an Exhibit hereto, the terms and conditions of the Agreement shall control. 37. COUNTERPARTS. This Agreement may be signed in one or more counterparts each of which shall be deemed to be an original but together shall constitute one instrument. 26 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in duplicate by their duly authorized representatives. CELLSTAR, LTD. MCI TELECOMMUNICATIONS By NATIONAL AUTO CENTER, INC. CORPORATION General Partner By: /s/ Richard M. Gozia By: /s/ Victoria Harker -------------------------------- -------------------------------- Name: Name: ------------------------------ ------------------------------ Its: Executive Vice President Its: Vice President of Finance ------------------------------- ------------------------------- 27 EXHIBIT A ACCESSORY PRODUCTS AND PRICES ----------------------------- [REDACTED] Motorola Application -------- W033020 All W051019 All W061020 Flip W061019 TT250 E26-1-120 650 E8R-1-020 All W8K3020 Flip E8S-3-019 TT250 E8S-3-120 650 HFK-5-020 All above SNN4589P Slim Nickle Metal Batt. Nokia ----- E03-3-213 636/638 E03-3-042 232 W051213 636/638 W051027 232 E26-1-213 636/638 E06-1-042 232 E8R-1-042 232 E8S-1-213 636/638 E8S-3-042 232 E8S-3213 636 BBT6LP 636/Slim Nickle Metal Batt. BTH8SMP 232/Slim Nickle Metal Batt. E061043 2120 NEC --- W031025 810 W051025 810 W061025 810 E8R-1-025 810 W8K1025 810 Misc. Accessories ----------------- E8M-1-079 All handheld E8B-1-110 All Trans. 28 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. [REDACTED] E01-1-050 Any 3 Watt E01-1-055 Any 3 Watt B01-1-070 Any 3 Watt HLN9033 Leather Case (Two-Way Radio) B016063 Connector (Mot. Attache Phone) 29 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT B WIRELESS HANDSETS AND PRICES ---------------------------- [REDACTED] Motorola -------- TT250 550 ProPak 650 Lite II ProPak Lite II Standard Attache with battery Lunch Box with battery Nokia ----- 636/638 232 (includes all colors) NEC --- 810 TWO WAY RADIOS -------------- Motorola Sprint CS10 Accessory --------- HLN9034 Cs.w/Loop HLN8240 Belt Clip HLN8371 Desk Chgr HLN3987 Int. Elim. HNN9044 Battery Pack HTN9026 3h Desk Chgr HTN8232 10h Desk Ch HAD9742 Stub Ant. 30 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. EXHIBIT C SERVICES AND FEES ----------------- 1. WAREHOUSE, DISTRIBUTION AND FULFILLMENT SERVICES. (a) Services Regarding Inventory Items. The services to be performed hereunder by CellStar regarding Inventory Items shall include the receiving, handling, storage, assembly (if requested), shipping, and reporting as described herein of the Inventory Items listed on Attachment A of various vendors (the ------------ "MCI Vendors"). CellStar shall warehouse the Inventory Items at its warehouse facility located at 1728 Briercroft Court, Carrollton, Texas 75006, or such other warehouse facilities as shall be approved in writing by MCI from time to time (the "Warehouse"). (b) Fulfillment Services. The services to be performed hereunder by CellStar include the assembly (if requested), packaging (if requested), programming (if requested), shipping, returns processing and other fulfillment services relating to the Products and the Inventory Items. (c) Availability. The Services provided by CellStar hereunder shall be available eight (8) hours per day during normal business hours, five days per week, fifty-two weeks per year unless otherwise mutually agreed upon by the parties (excluding New Years Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, the day after Thanksgiving, and Christmas). (d) Maintenance. CellStar agrees to maintain its warehouse in a clean, orderly, and safe condition; to maintain all equipment used by it in the performance of its services hereunder in a clean, proper, and safe operating condition; and to maintain the grounds around the warehouse in a safe, neat and presentable manner. (e) Record keeping. CellStar shall maintain, in accordance with generally accepted accounting principles and practices, such records as may be necessary to adequately reflect the accuracy of CellStar's charges and invoices for reimbursement under the Agreement. 2. COMPENSATION. In consideration for the Services to be performed hereunder, MCI shall pay CellStar Service Fees as set forth on Attachment B, as ------------ invoiced by CellStar in accordance with Section 4 of the Agreement. 3. SAFEKEEPING/TITLE. CellStar shall exercise all commercially reasonable care for the safekeeping and safe handling of all Inventory Items provided to CellStar by MCI pursuant to this Agreement, including, but not limited to placing pagers, prepaid calling cards, movie tickets and other valuable items in a segregated, locked area. Title to the Inventory Items shall at all times remain with MCI. 31 4. OPERATIONS METHODS AND PROCEDURES. (a) Receiving of Shipments. CellStar shall scan or otherwise enter Inventory Items into CellStar's inventory management and order processing system within one full business day of actual receipt of shipment. Product receipt shall follow the procedures outlined in Attachment C. ------------ (b) Performance of Services. CellStar shall perform the Services in accordance with its standard and operating procedures as such may be changed from time to time, including those procedures outlined in Attachment C. ------------ 5. IN-BOUND FREIGHT CHARGES. CellStar and MCI understand that MCI Vendors will be providing in-bound freight shipments of Inventory Items to CellStar at no charge to CellStar. 6. DAMAGED ITEMS. (a) In-bound Freight Damage. CellStar shall not be liable for shipments of Inventory Items until they have been received and accepted at the Warehouse. CellStar will assist MCI in filing and resolving any freight claims for these shipments and shall retain all packaging and shipping materials until the claim is settled unless otherwise directed by MCI. (b) Out-bound Freight Damage and Warehouse Damage. Subject to the allowance for shrinkage contained in Section 11(c) of this Agreement, the risk of loss, damage, or destruction of the Products and Inventory Items shall be borne by CellStar from the time the shipments are received and accepted at the Warehouse until the goods are delivered to and accepted by MCI at the Sam's Club location. (c) Definition of Damaged Products. Unless otherwise stated in Section 12, Products and Inventory Items shall be considered damaged when the actual unit has been marred in any manner, including, but not limited to, scratched, dented, water stained or stained by any other substance, crushed, punctured, and/or when the item has obvious damage detected by rattling sound. Any Inventory Items that is not resalable as a new product, due to any visual defects or obvious internal damage, shall be considered damaged. 7. INSURANCE. (a) In-bound Shipment. CellStar shall not be responsible for insuring in-bound shipments of Inventory Items, nor shall it be responsible for any loss or damage incurred during such shipment. However, CellStar will assist MCI in filing and resolving any freight claims. (b) Warehouse Inventory. CellStar shall insure, and provide proof of insurance to MCI, naming MCI as beneficiary, the full replacement value of the Inventory Items stored in the Warehouse at any time. CellStar shall also maintain property and liability insurance as set forth 32 in Section 23 of this Agreement. In addition, CellStar will promptly notify MCI in writing of any claims filed that relate in whole or in part to any Inventory Items. With respect to any such claims disputed in whole or in part by the insurance carrier, CellStar will notify MCI of the dispute, provide MCI with such information as may be requested by MCI in writing and shall not settle such claims (insofar as they relate to the Inventory Items) for less than the full value thereof without the written approval of MCI. (c) Out-bound Shipment. Unless otherwise stated in the Agreement, CellStar shall insure at MCI's cost all out-bound freight shipments for the full replacement value of the Products and Inventory Items being transported to any Communication Center. 8. WAREHOUSE ACCESS. MCI shall have access to the warehouse during CellStar's normal working hours, upon two (2) hours prior notice to CellStar, for the purpose of inspecting Inventory Items, evaluating damaged Inventory Items, performing Inventory Item counts and other reasonable requirements. 33 ATTACHMENT A INVENTORY ITEMS MCI PAGERS PART NUMBER DESCRIPTION FREQUENCY COV BPNXA86BLK002 PRONTO BLACK 929.8625 L BBFXA86BLK002 BRAVO BLACK 929.8625 L BBFXA58BLK002 BRAVO BLACK 929.5875 R/N BUXXA86BLK002 ULTRA BLACK 929.8625 L BUXXA86TTL002 ULTRA TEAL 929.8625 L BUXXA86CIC002 ULTRA CRAN 929.8625 L BUXXA86BBL002 ULTRA BLUE 929.8625 L BUXXA58BLK002 ULTRA BLACK 929.5875 R/N BAGXA86BLK002 ADVISOR BLACK 929.8625 L BAGXA58BLK002 ADVISOR BLACK 929.5875 R/N BAGXA86BLK002S ADVISOR BLACK 929.8625 L SPORTS BAGXA58BLK002S ADVISOR BLACK 929.5875 R/N SPORTS BUXRE70BLK002 ULTRA BLACK 158.7000 L BUXRE10BLK002 ULTRA BLACK 158.1000 L BUXRD84BLK002 ULTRA BLACK 152.8400 L BPNXA96BLK002 PRONTO BLACK 929.9625 L BPNXA73BLK002 PRONTO BLACK 929.7375 L BBFXA96BLK002 BRAVO BLACK 929.9625 L BBFXA96TTL002 BRAVO TEAL 929.9625 L BBFXA96CIC002 BRAVO CRAN 929.9625 L BBFXA96BBL002 BRAVO BLUE 929.9625 L 34 PART NUMBER DESCRIPTION FREQUENCY COV BBFXA86TTL002 BRAVO TEAL 929.8625 L BBFXA86CIC02 BRAVO CRAN 929.8625 L BBFXA86BBL002 BRAVO BLUE 929.8625 L BBFXA73BLK002 BRAVO BLACK 929.7375 L BBFXA73TTL002 BRAVO TEAL 929.7375 L BBFXA73CIC002 BRAVO CRAN 929.7375 L BBFXA73BBL002 BRAVO BLUE 929.7375 L BUXXA96BLK002 ULTRA BLACK 929.9625 L BUXXA96TTL002 ULTRA TEAL 929.9625 L BUXXA96CIC002 ULTRA CRAN 929.9625 L BUXXA96BBL002 ULTRA BLUE 929.9625 L BUXXA73BLK002 ULTRA BLACK 929.7375 L BUXXA73TTL002 ULTRA TEAL 929.7375 L BUXXA73CIC002 ULTRA CRAN 929.7375 L BUXXA73BBL002 ULTRA BLUE 929.7375 L BAGXA96BLK002 ADVISOR BLACK 929.9625 L BAGXA73BLK002 ADVISOR BLACK 929.7375 L BAGXA96BLK002S ADVISOR BLACK 929.9625 L SPORTS BAGXA73BLK002S ADVISOR BLACK 929.7375 L SPORTS BUXRD45BIL002 ULTRA BLACK 454.4500 L BUXXA63BLK002 ULTRA BLACK 929.6375 L BUXRE78BLK002 ULTRA BLACK 929.7875 L BUXXA61BLK002 ULTRA BLACK 929.6125 L 35 PREPAID CALLING CARDS Holiday Card 30 Unit Holiday Card 15 Unit Collectors' Independence Day 4 30 Units Collectors' Independence Day 4 30 Units (Promotional Cards) UNITED ARTIST THEATERS PROMOTIONAL MOVIE TICKETS FULFILLMENT, COLLATERAL AND PROMOTIONAL MATERIALS Including, but not limited to: User Guide and Terms & Conditions Warranty Cards Box Sleeves Alpha Paging Software Sweepstakes Cards Paging Correspondence Maps Sports Paging Brochures Other Brochures Other Promotional Materials Sales Aids Long Distance Welcome Letters Buckslips Greeter Flyers Other Collateral Materials 36 ATTACHMENT B SERVICE FEES Service Price Per Unit/Product ------- ---------------------- Assembly: Private Label Packaging of Pagers [REDACTED] (Individual packaging of pagers approved and requested by MCI) Order Fulfillment: A negotiated flat fee per order processed [REDACTED] and shipped to each "ship to" address, including but not limited to the following aspects of Inventory Item handling and management: *Receiving *Scanning in ESN's *Storage *Picking, Packing and Prepping for Shipping *Freight Processing *Scanning Out ESN's *Reporting Returns Processing (For Inventory Items Only): MCI Pager Returns Handling Fee [REDACTED] 1-800-Number Fulfillment (OEM Accessories available through a transparent phone catalog sales system, based on credit card purchases only.) The Service Fee shall be in the form of a margin split with MCI: [REDACTED] to CellStar and [REDACTED] to MCI. CellStar shall receive the first [REDACTED] of margin on the total purchase prior to MCI receiving its [REDACTED] share. If CellStar's [REDACTED] share constitutes less than [REDACTED], CellStar is entitled to collect that total amount only and 37 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. MCI shall not owe CellStar the difference between that amount and [REDACTED]. (For example, on a [REDACTED] item the split would be [REDACTED] CellStar/[REDACTED] MCI, on an [REDACTED] item the split would be [REDACTED] CellStar/[REDACTED] MCI, and on a [REDACTED] item the split would be [REDACTED] CellStar/[REDACTED] MCI.) All such credits owed to MCI shall be issued in accordance with the provisions of Section 4(i) of the Agreement. 38 __________ "[REDACTED]" indicates confidential portions omitted and filed separately with the Commission. ATTACHMENT C I. INVENTORY ITEM RECEIVING PROCEDURES 1. Vendors and MCI shall create notification procedures reasonably acceptable to CellStar regarding shipments of Inventory Items into the Warehouse. 2. MCI and/or MCI vendors shall provide CellStar the following information: (a) MCI Purchase Order number (b) Vendor shipping reference number (c) Number of pieces and weight and dimensions of shipment (d) Loading address (e) Name and telephone number of contact person (f) Hours of operation (g) Description of item (including SKU number) (h) Cost of good 3. CellStar shall accept Inventory Items and verify bills of lading for correct address, pallet and box/piece counts. Any discrepancies such as shortages, overages or any damage to the Inventory Items shall be notated on the bill of lading and signed by the receiving personnel. 4. CellStar shall verify Inventory Items against the MCI vendor's pack list and note any discrepancies. A receiving exception report shall be completed describing any discrepancies, including missing and/or damaged Inventory Items and forward to MCI within two (2) business days of CellStar's receipt of shipment. 5. CellStar agrees to return any damaged Inventory Items to the MCI vendor in accordance with instructions to be provided by MCI. 6. Within one (1) business day following receipt at CellStar's warehouse, CellStar shall enter the serial numbers for all incoming pagers into CellStar's inventory management system and generate the reports required pursuant to the terms of this Agreement. 39 ATTACHMENT C (CONTINUED) II. MCI PAGER RETURN PROGRAM MCI Kiosk Policy - 30 day returns/exchange policy is in effect at the kiosk level. - MCI will establish a policy for the kiosks to return pagers. - The kiosks will call CellStar for a return authorization ("RA") for return of the pagers. MCI Agreement with PageNet - PageNet will take all pagers back. PageNet and MCI have agreed to appropriate crediting terms and charges for such returns. MCI Return to CellStar - Pagers will be returned to CellStar twice a month or as otherwise determined by MCI. CellStar Responsibilities - CellStar will verify the pagers received against the RA issued to the kiosks. - CellStar is responsible for sorting MCI pagers contained in each return shipment from other returned items in the same shipment (including CellStar pagers sold to customers by CellStar prior to the closing of the Asset Purchase Agreement). No triage will be performed. - CellStar will sort pagers by SKU or serial number. - CellStar will post credit by SKU or serial number through the system to the kiosk and within the system to the MCI Inventory Item Inventory Return Branch Plant (as defined in the Interim Services Agreement). - CellStar will return pagers to PageNet twice a month or as otherwise determined by MCI. - CellStar will provide PageNet with advance notice of such returns and cooperate with PageNet's return procedures. - CellStar will issue a return to PageNet which will relieve MCI's Inventory and establish a receivable in MCI's records against PageNet for the return credit. - CellStar will track such returns in accordance with other procedures that are mutually agreed upon in writing by the parties. - Within two (2) business days of shipment to PageNet, CellStar will provide closed loop reporting which includes MCI pagers to be received by SKU, MCI pagers actually received by SKU, MCI pagers waiting to be shipped to PageNet by SKU, and MCI pagers shipped to PageNet by SKU. CellStar Charges - CellStar will charge MCI a $0.25 handling fee for each MCI pager that is returned 40 to CellStar. - CellStar will charge MCI for the actual freight costs (including insurance) incurred to return the MCI pagers to PageNet. 41 EXHIBIT D LIMITED WARRANTY FOR NON-OEM ACCESSORY PRODUCTS ----------------------------------------------- - -------------------------------------------------------------------------------- LIMITED WARRANTY CellStar extends this limited warranty directly to you, the original end-user purchaser of its products, provided your purchase was made in Canada, the United States or Latin America. If you sell or otherwise transfer the product, warranty coverage automatically terminates. If any part of your CellStar product (except for batteries) was defective in material or workmanship on the date of purchase, return it with proof of purchase to the place of purchase (in the U.S. only) and CellStar will, at its option, either repair or replace it with a new or rebuilt part at no charge to you for parts or labor. If any part of your CellStar battery was defective in material or workmanship on the date of purchase, return it with proof of purchase within 2 years of the date of purchase to the place of purchase (in the U.S. only) and CellStar will, at its option, either repair or replace it with a new or rebuilt part at no charge to you for parts or labor. LIMITATIONS. This limited warranty does not cover products which have been improperly installed, repaired or maintained or which have been subjected to misuse, abuse, accident, physical damage, abnormal operation or handling, neglect, exposure to fire, water or excessive changes in climate or temperature; or operation outside of published maximum ratings and/or acts of God; cosmetic items; products on which warranty stickers or product serial numbers have been removed, altered or rendered illegible; inadequate signal reception by the antenna; or the cost of installation, removal or reinstallation. THIS LIMITED WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND EXCLUDES ALL LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR ANY CAUSE WHATSOEVER. Some states and countries do not allow limitations on implied warranty durations, or the exclusion or limitation of incidental or consequential damages, so that the above limitation or exclusion may not apply to you. This warranty gives you specific legal rights, and you may also have other rights which vary from state to state and from country to country. EXCLUSION AND DISCLAIMER OF ANY AND ALL EXPRESS AND IMPLIED WARRANTIES BY MCI. This accessory is not manufactured by MCI but is supplied to MCI by CellStar. Therefore, MCI MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THIS ACCESSORY. However, this accessory is covered by CellStar's limited warranty. - -------------------------------------------------------------------------------- 42 - -------------------------------------------------------------------------------- Please fill out and return this postage paid card to put your accessory product limited warranty in effect. (See package insert for specific warranty information.) Name: ------------------------------------------------------------ Street Address: -------------------------------------------------- City: State: Zip: -------------------------- -------------- ------ Location of Purchase: -------------------------------------------- Part Number: Date of Purchase: ------------------- --------------- MCI - -------------------------------------------------------------------------------- 43 EXHIBIT E TRADEMARKS ---------- Essentials/TM/ CellStar/R/ 44 EX-21.1 5 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.2 LIST OF SUBSIDIARIES OF CELLSTAR CORPORATION --------------------------------------------
NAME OF SUBSIDIARY INCORPORATION TRADENAMES USED - ------------------ ------------- --------------- National Auto Center, Inc. Texas National Auto Cellular PC Cellular TelStar Communication Center CellStar Cellular Accessories CMart CellStar Air Services, Inc. Delaware None NAC Holdings, Inc. Nevada None CellStar Fulfillment, Inc. Delaware None CellStar International Corporation/Asia Delaware None CellStar International Corporation/S.A. Delaware None Audiomex Export Corporation Delaware None CellStar Ltd. Texas Limited Partnership National Auto Cellular PC Cellular Communication Center CellStar interACT/CS Pacific Bell Mobile Services Fulfullment CellStar Fulfillment, Ltd. Texas Limited Partnership None A & S Air Service, Inc. Delaware None CellStar West, Inc. Delaware None CellStar (Asia) Corporation LTD Hong Kong None
JURISDICTION OF NAME OF SUBSIDIARY INCORPORATION TRADENAMES USED - ------------------ ------------- --------------- CellStar Pacific PTE LTD Singapore None CellStar Singapore PTE LTD Singapore None CellStar S.A. Argentina Servicell CellStar International Telefonia Celular, Ltda. Brazil Cellular Express CellStar Celular Chile S.A. Chile Servicell CellStar Celular S.A. Venezuela None CellStar Industria da Telefonia da Amazonia LTD Brazil None CellStar de Colombia, Ltda. Colombia Cellular Express Servicell CellStar Ecuador S.A. Ecuador None CellStar (UK) Limited United Kingdom None Celular Express S.A. de C.V. Mexico None Celular Express Management S.A. de C.V. Mexico None CellStar Philippines, Inc. Philippines None CellStar Amtel Sdn Bhd. Malaysia None CellStar (Taiwan) Co., Ltd. Taiwan None CellStar Telecommunication Service Company Hong Kong None Shanghai CellStar International Trading Company, LTD China None
EX-23.1 6 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors and Stockholders CellStar Corporation: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-87754 and 333-23381) of CellStar Corporation of our report dated January 31, 1997, relating to the consolidated balance sheets of CellStar Corporation and subsidiaries as of November 30, 1996, and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended November 30, 1996, which report appears in the November 30, 1996 annual report on Form 10-K, as amended by Form 10-K/A, Amendment No. 1, of CellStar Corporation. /s/ KPMG PEAT MARWICK LLP Dallas, Texas July 9, 1997 -----END PRIVACY-ENHANCED MESSAGE-----