SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
CELLSTAR CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
[CELLSTAR CORPORATION LOGO]
To CellStar Corporation Stockholders:
You are cordially invited to attend the Annual Meeting of
Stockholders of CellStar Corporation (the "Company") to be held at
the Omni Dallas Hotel Park West, 1590 LBJ Freeway, Dallas, Texas, on
February 12, 2002, at 10:00 a.m., Dallas time.
The attached Notice of Annual Meeting and Proxy Statement fully
describe the formal business to be transacted at the annual meeting,
which includes (1) the election of one Class III director of the
Company, (2) approval of the exchange, for each $1,000 principal
amount of the Company's currently outstanding 5% Convertible
Subordinated Notes due 2002 (the "Existing Subordinated Notes"), of
approximately (i) $366.67 in cash and (ii) at the holder's election,
one of the following options for all Existing Subordinated Notes held
by such holder: (a) $400.94 principal amount of 12% Senior
Subordinated Notes due February 2007 (the "Senior Notes") or (b)
$320.75 principal amount of Senior Notes and $80.19 principal amount
of 5% Senior Subordinated Convertible Notes due November 2002 (the
"Senior Convertible Notes") or (c) $400.94 principal amount of Senior
Convertible Notes and (3) approval of an amendment to the Company's
Amended and Restated Certificate of Incorporation to effect a one-
for-five reverse stock split of the outstanding shares of Common
Stock. In addition, we will review with you the affairs and progress
of the Company during the past fiscal year.
We are asking you to approve the exchange offer because we believe
the exchange offer is in the best interests of the Company and its
stockholders. The Existing Subordinated Notes mature in 2002 and
became a current liability of the Company in October 2001, adversely
affecting our balance sheet and our ability to finance our
operations. Therefore, a refinancing of the notes is necessary. We
have explored various alternatives to refinance the notes and believe
that the exchange offer represents the best means available to
refinance the notes and remain a viable company. The exchange offer
will improve our balance sheet by reducing our outstanding
indebtedness. We believe that any improvement in the Company's
balance sheet as a result of the exchange offer would give the
Company enhanced access to the capital markets and expand our
opportunities for future growth.
We are asking you to approve the proposed amendment to the
Company's Certificate of Incorporation to permit the Company to meet
the minimum trading price requirement of the NASDAQ National Market
System. While the Company believes that the reverse stock split
effected by the proposed amendment to the Company's Certificate of
Incorporation will cause the Company's common stock to meet the
minimum trading price requirements, there is no guarantee that the
minimum trading price requirements will initially be satisfied or, if
initially satisfied, that the minimum trading price requirements will
continue to be satisfied.
Directors and officers of the Company will be present to help host
the annual meeting and to respond to any questions that our
stockholders may have. I hope you will be able to attend.
The Company's Board of Directors believes that a favorable vote on
each of the matters to be considered at the annual meeting is in the
best interests of the Company and its stockholders and unanimously
recommends a vote "FOR" each such matter. Accordingly, we urge you to
review the accompanying material carefully and to return the enclosed
Proxy promptly.
Please sign, date and return the enclosed Proxy without delay. If
you attend the annual meeting, you may vote in person even if you
have previously mailed a Proxy.
I look forward to seeing you at the annual meeting.
Sincerely,
Terry S. Parker
Chief Executive Officer
[LETTERHEAD OF WORLD HEADQUARTERS]
CELLSTAR CORPORATION
1730 Briercroft Court
Carrollton, Texas 75006
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 12, 2002
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of CellStar Corporation, a Delaware corporation (the "Company"),
will be held at the Omni Dallas Hotel Park West, 1590 LBJ Freeway, Dallas,
Texas, on February 12, 2002, at 10:00 a.m., Dallas time, for the following
purposes:
(1) To elect one Class III director for a term expiring in 2004;
(2) To consider and approve the exchange, for each $1,000 principal amount
of the Company's currently outstanding 5% Convertible Subordinated Notes due
2002, of approximately (i) $366.67 in cash and (ii) at the holder's election,
one of the following options for all Existing Subordinated Notes held by such
holder: (a) $400.94 principal amount of 12% Senior Subordinated Notes due
February 2007 (the "Senior Notes") or (b) $320.75 principal amount of Senior
Notes and $80.19 principal amount of 5% Senior Subordinated Convertible Notes
due November 2002 (the "Senior Convertible Notes") or (c) $400.94 principal
amount of Senior Convertible Notes;
(3) To consider and act upon a proposal to amend the Company's Amended and
Restated Certificate of Incorporation to effect a one-for-five reverse stock
split of the outstanding shares of the Company's Common Stock; and
(4) To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The close of business on January 8, 2002, has been fixed by the Company's
Board of Directors as the record date for determining stockholders entitled to
notice of and to vote at the Meeting or any adjournment or adjournments
thereof. For a period of at least ten days prior to the Meeting, a complete
list of stockholders entitled to vote at the Meeting will be open to the
examination of any stockholder during ordinary business hours at the Company's
offices located at 1730 Briercroft Court, Carrollton, Texas 75006.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
PROXIES FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS
REQUESTED BY THEM.
By Order of the Board of Directors,
[SIGNATURE OF ELAINE FLUD RODRIGUEZ]
Elaine Flud Rodriguez
Senior Vice President, Secretary
and General Counsel
Carrollton, Texas
January 14, 2002
CELLSTAR CORPORATION
1730 Briercroft Court
Carrollton, Texas 75006
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held February 12, 2002
This Proxy Statement is furnished in connection with the solicitation of
proxies ("Proxies") by the Board of Directors of CellStar Corporation (the
"Company" or "CellStar") for use at the Annual Meeting of Stockholders (the
"Meeting") of the Company to be held at the Omni Dallas Hotel Park West, 1590
LBJ Freeway, Dallas, Texas, on February 12, 2002, at 10:00 a.m., Dallas time,
or at such other time and place to which the Meeting may be adjourned. The
date on which this Proxy Statement and accompanying Proxy are intended to
first be sent or given to stockholders is January 14, 2002.
All shares represented by valid Proxies, unless the stockholder specifies
otherwise, will be voted (i) FOR the election of the person named under
"Proposal I--Election of Director" as a nominee for election as a Class III
director, (ii) FOR the approval of the exchange (the "Exchange Offer"), for
each $1,000 principal amount of our currently outstanding 5% Convertible
Subordinated Notes due 2002 (the "Existing Subordinated Notes") of
approximately (i) $366.67 in cash and (ii) at the holder's election, one of
the following options for all Existing Notes held by such holder: (a) $400.94
principal amount of 12% Senior Subordinated Notes due February 2007 (the
"Senior Notes") or (b) $320.75 principal amount of Senior Notes and $80.19
principal amount of 5% Senior Subordinated Convertible Notes due November 2002
(the "Senior Convertible Notes") or (c) $400.94 principal amount of Senior
Convertible Notes and (iii) FOR the approval of an amendment to the Company's
Certificate of Incorporation (the "Certificate of Incorporation") to effect a
one-for-five reverse stock split of the outstanding shares of the Company's
Common Stock (the "Reverse Split"). The Board of Directors knows of no other
business to be presented at the Meeting. If any other business is properly
presented, the persons named in the enclosed Proxy have authority to vote on
such matters in accordance with such persons' discretion. Where a stockholder
has appropriately specified how a Proxy is to be voted, it will be voted
accordingly.
A stockholder executing a Proxy retains the right to revoke it at any time
prior to exercise at the Meeting. A Proxy may be revoked by delivery of
written notice of revocation to the Secretary of the Company, by execution and
delivery of a later Proxy, or by voting the shares in person at the Meeting.
Record Date and Voting Securities
The record date for determining the stockholders entitled to notice of and
to vote at the Meeting and any postponements and adjournments thereof was the
close of business on January 8, 2002 (the "Record Date"), at which time the
Company had issued and outstanding 60,142,221 shares of Common Stock. Common
Stock is the only class of outstanding voting securities of the Company.
Quorum and Voting
The presence at the Meeting, in person or by Proxy, of the holders of at
least a majority of the outstanding shares of Common Stock as of the Record
Date is necessary to constitute a quorum for the conduct of business at the
Meeting. Each share of Common Stock represented at the Meeting in person or by
Proxy will be counted toward a quorum. If a quorum is not present, the Meeting
may be adjourned from time to time until a quorum is obtained. Each share of
Common Stock is entitled to one vote with respect to all matters (including
election of director) presented for stockholder vote at the Meeting.
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To be elected, the nominee for election as a Class III Director must receive
the affirmative vote of the holders of a plurality of the shares of Common
Stock present or represented at the Meeting. Votes may be cast in favor or
withheld with respect to the nominee. Votes that are withheld will be counted
toward the determination of whether a quorum exists, but will be excluded
entirely from the tabulation of votes for election of the specified nominee
and, therefore, will not affect the outcome of the vote on such proposal.
Approval of the proposal to approve the Exchange Offer requires the
affirmative vote of a majority of the shares of Common Stock present or
represented and entitled to vote at the Meeting. Abstentions may be specified
on such proposal and will have the same effect as a vote against such
proposal.
Approval of the proposal to amend the Certificate of Incorporation to effect
the Reverse Split requires the affirmative vote of the holders of a majority
of the outstanding shares of Common Stock as of the Record Date. Abstentions
may be specified on such proposal and will have the same effect as a vote
against such proposal.
"Broker non-votes" (i.e., shares held by brokers or nominees as to which the
brokers have no discretionary power to vote on a particular matter and have
received no instructions from the persons entitled to vote such shares), if
any, will be counted as present for purposes of determining the presence of a
quorum. However, for purposes of determining the outcome of any matter as to
which the broker has indicated on the Proxy that it does not have
discretionary authority to vote, those shares will be treated as not entitled
to vote with respect to that matter. Therefore, with respect to the approval
of Proposal II, which requires the affirmative vote of a majority of the
shares present or represented and entitled to vote on the proposal at the
Meeting, broker non-votes will be excluded from the tabulation and will have
no effect on Proposal II. With respect to the approval of Proposal III, which
requires the affirmative vote of a majority of the outstanding shares, broker
non-votes will have the same effect as a vote against Proposal III. Broker
non-votes will have no effect on Proposal I.
PROPOSAL I
ELECTION OF DIRECTOR
The Company's Certificate of Incorporation provides for a Board of Directors
divided into three classes, as nearly equal in number as possible, with the
term of office of one class expiring each year at the Company's Annual Meeting
of Stockholders. Each class of directors is elected for a term of three years,
except in the case of elections to fill vacancies or newly created
directorships.
There is one Class III director to be elected for a term expiring at the
Company's Annual Meeting of Stockholders in 2004 or until his successor has
been elected and qualified. It is intended that the name of the nominee
indicated below will be placed in nomination and that the persons named in the
Proxy will vote for his election. The nominee has indicated his willingness to
serve as a member of the Board of Directors if elected; however, in case the
nominee shall become unavailable for election to the Board of Directors for
any reason not currently known or contemplated, the persons named in the Proxy
will have discretionary authority to vote the Proxy for a substitute. Proxies
cannot be voted for more than one nominee.
Information concerning the nominee proposed by the Board of Directors for
election as a Class III director, along with information concerning the
current Class I and Class II directors, whose terms of office will continue
after the Meeting, is set forth below.
The nominee for election as a Class III director is as follows:
Class III Nominee--Term Expiring in 2004
Name Age Current Position
---- --- ----------------
Terry S. Parker....................... 56 Chief Executive Officer
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The current directors whose terms will expire after 2001 are as follows:
Class I Director--Term Expiring in 2002
Name Age Current Position
---- --- ----------------
Dale V. Kesler........................ 62 Director
Class II Directors--Terms Expiring in 2003
Name Age Current Position
---- --- ----------------
James L. Johnson...................................... 74 Chairman of the Board
John L. ("J.L.") Jackson.............................. 69 Director
Jere W. Thompson...................................... 69 Director
Alan H. Goldfield, a Class III director and the Chairman of the Board, Chief
Executive Officer and founder of the Company, retired on July 5, 2001. The
Board has not yet filled the vacancy created by Mr. Goldfield's recent
retirement. On March 10, 2000, Sheldon I. Stein, a Class I director, resigned
from the Company's Board.
Set forth below is a description of the backgrounds of each of the directors
of the Company.
Terry S. Parker has served as Chief Executive Officer of the Company since
July 2001, as a director of the Company since March 1995 and as President and
Chief Operating Officer of the Company from March 1995 through July 1996. Mr.
Parker served as Senior Vice President of GTE Corporation and President of
GTE's Personal Communications Services, GTE's wireless division, from October
1993 until he joined the Company. From 1991 to 1993, Mr. Parker served as
President of GTE Telecommunications Products and Services. Before 1991, Mr.
Parker served as President of GTE Mobile Communications. Mr. Parker served on
the Board of Directors for Nucentrix Corporation from 1998 until 2001, the
Board of Directors of Highway Master Communications, Inc. from 1995 to 2000,
the Board of Directors of Illinois Superconductor Corporation from 1998 to
2000, the Board of Directors of Equalnet Corporation from 1996 to 1999, and
the Board of Directors of Telenetics Corporation from May 2000 to March 2001.
Mr Parker also served as the President and Chief Executive Officer of
Telenetics from September 2000 until March 2001. Mr. Parker served on the
Audit Committee of CellStar's Board of Directors until January 2000, when
CellStar's Board of Directors restructured the composition and duties of the
Audit Committee.
Dale V. Kesler has served as a director of the Company since March 1999. Mr.
Kesler retired as an active partner of the professional accounting firm of
Arthur Andersen LLP in 1996 and served as the Managing Partner of Arthur
Andersen's Dallas/Fort Worth office from 1983 to 1994. Mr. Kesler was
responsible for strategic planning on a world-wide basis for the Audit and
Business Advisory practices of Arthur Andersen in 1982 and 1983 and served as
the head of the Audit Practice in the firm's Dallas office from 1973 to 1982.
Mr. Kesler also serves on the Board of Directors of Elcor Corporation, New
Millennium Homes, Resource Services, Inc., and Triad Hospitals, Inc. Mr.
Kesler currently serves as Chairman of the Audit Committee of CellStar's Board
of Directors. Mr. Kesler served on the Nominating Committee from January 2000
until September 2001 and on the Compensation Committee of CellStar's Board of
Directors from March 1999 until January 2000.
James L. Johnson has served as the non-executive Chairman of the Board of
Directors since July 2001 and as a director of the Company since March 1994.
Mr. Johnson has been Chairman Emeritus of GTE Corporation since May 1992 and
served as GTE's Chairman and Chief Executive Officer from April 1988 to April
1992. Mr. Johnson began his career with Southwestern Associated Telephone
Company (the predecessor company of GTE Central) in 1949. He was a member of
GTE's Board of Directors from 1985 to May 1999 and a member of the Board of
Directors of Finova Group Incorporated (formerly GTE Financial) until 2001. He
is currently a director of Harte Hanks Communications, Inc., M.O.N.Y (Mutual
of New York, Inc.) and Walter Industries Incorporated. Mr. Johnson is also
past Chairman of the United States Telephone Association. Mr. Johnson
currently serves on the Audit, Nominating and Compensation Committees of
CellStar's Board of Directors.
John L. ("J.L.") Jackson has served as a director of the Company since March
1999. Mr. Jackson served as Chairman and Chief Executive Officer of Global
Industrial Technologies, Inc. (formerly, INDRESCO) from 1993
3
to 1998. Before joining Global Industrial Technologies, Mr. Jackson was
engaged in private executive business consulting from 1987 to 1993. From 1983
to 1987, Mr. Jackson served as a Director and as the President and Chief
Operating Officer of Diamond Shamrock Corporation and was Executive Vice
President of Diamond Shamrock and President of its then newly-formed coal unit
from 1979 to 1983. Mr. Jackson has served on numerous Board of Directors,
including the Fourth District Federal Reserve Bank of Cleveland, First
Republic Bank, American Federal Bank, Hadsen Energy Resources and National
Gypsum Company. Mr. Jackson currently serves as Chairman of the Compensation
Committee of CellStar's Board of Directors and also serves on the Audit
Committee of CellStar's Board of Directors. Mr. Jackson served on the
Nominating Committee of CellStar's Board of Directors from January 2000 until
September 2001.
Jere W. Thompson has served as a director of the Company since October 1999.
Mr. Thompson served as President and Chief Executive Officer of The Southland
Corporation from 1986 to 1991. Mr. Thompson joined Southland in 1954 and was
made Vice President of store operations in 1962. He became Southland's
President in 1973 and was elected to Southland's Board of Directors in 1961.
Mr. Thompson was engaged in private business consulting from 1991 to 1996 when
he became the President of The Williamsburg Corporation. Mr. Thompson serves
on the Board of Directors and is the former Chairman of The National Center
for Policy Analysis. He is also a member and former Chairman of The
Development Board and the College and Graduate School of Business Foundation
Advisory Council for The University of Texas at Austin. Mr. Thompson currently
serves as Chairman of the Nominating Committee of CellStar's Board of
Directors and also serves on the Compensation Committee of Cellstar's Board of
Directors.
The Board of Directors recommends a vote FOR the election of the nominee for
Class III Director named above.
MEETINGS OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of the Board of
Directors. The Board meets on a regularly scheduled basis during the Company's
fiscal year to review significant developments affecting the Company and to
act on matters requiring Board approval. It also holds special meetings when
an important matter requires Board action between scheduled meetings. The
Board of Directors met nine times and acted by unanimous written consent three
times during the 2000 fiscal year. During the 2000 fiscal year, each member of
the Board participated in at least 75% of all Board and applicable committee
meetings held during the period for which he was a director.
The Board of Directors has established Audit, Compensation and Nominating
Committees to devote attention to specific subjects and to assist it in the
discharge of its responsibilities. The functions of those committees, their
current members and the number of meetings held during the 2000 fiscal year
are described below.
Compensation Committee. The Board of Directors has a standing Compensation
Committee, which has the power to oversee and recommend to the Board the
compensation policies of the Company and the specific compensation of the
Company's executives. The Compensation Committee also has the power to
administer the 1993 Amended and Restated Long-Term Incentive Plan (the "1993
Plan"), the Amended and Restated Annual Incentive Compensation Plan and the
1994 Amended and Restated Non-Employee Director Nonqualified Stock Option Plan
(the "Directors' Plan"). Messrs. Jackson, Johnson and Thompson are the current
members of the Compensation Committee. Mr. Jackson serves as Chairman of the
Compensation Committee. Mr. Kesler served as a member of the Compensation
Committee from March 1999 until January 2000. The Compensation Committee met
one time and acted by unanimous consent one time during the 2000 fiscal year.
During fiscal 1999, the Compensation Committee delegated to an Employee
Stock Option Committee comprised of Richard M. Gozia, then-President and Chief
Operating Officer of the Company, and Alan H. Goldfield, then-Chairman and
Chief Executive Officer of the Company, certain authority to grant options to
purchase up to 10,000 shares of Common Stock under the 1993 Plan to non-
executive employees of the
4
Company. Mr. Gozia resigned as a member of the Employee Stock Option Committee
in April 1999. In 2000, the Board of Directors terminated the Employee Stock
Option Committee in favor of a new arrangement for the granting and issuance
of stock options under the 1993 Plan to non-executive officers of the Company.
This new arrangement provides for a specified number of options (as
recommended by the Compensation Committee to the Board) to be made available
to each of the Company's regions, which options may be dispensed at the
discretion of the regional management as approved by the Chief Executive
Officer to eligible non-executive employees within that region during the
course of the fiscal year. In the event the regional management dispenses its
entire allotment of options before the end of the fiscal year, the
Compensation Committee may, but is not obligated to, allocate an additional
number of options to the region for distribution to non-executive employees
within that region. The Employee Stock Option Committee did not meet and acted
by unanimous written consent three times during the 2000 fiscal year.
Nominating Committee. In fiscal 2000, the Board of Directors had a
Governance and Nominating Committee that was charged with the responsibility
to (i) evaluate and select candidates to fill vacancies on the Board of
Directors, (ii) consider director nominees presented by stockholders, (iii)
review the performance of current directors, and (iv) evaluate and seek to
improve Board processes, including the setting of agendas, the conduct of
Board meetings and the flow of information from Company officers to the
directors. Messrs. Jackson, Kesler and Johnson served as the members of the
Governance and Nominating Committee during fiscal 2000. Mr. Jackson served as
Chairman of the Governance and Nominating Committee during fiscal 2000. The
Governance and Nominating Committee met two times and did not act by unanimous
written consent in fiscal 2000. In September 2001, the Governance and
Nominating Committee's responsibilities were reduced to include the
responsibility of (i) evaluating and selecting candidates to fill vacancies on
the Board of Directors and (ii) considering director nominees presented by
stockholders, and the name of the committee was changed to the Nominating
Committee to reflect this change in responsibility. At that time, the
composition of the Nominating Committee was reduced to two members, Messrs.
Thompson and Johnson, and Mr. Thompson was made the Chairman of the Nominating
Committee.
The Company's Certificate of Incorporation provides that a stockholder may
nominate a person for election to the Board of Directors at a meeting of the
Company's stockholders only if written notice of such nomination(s) (a
"Stockholder's Notice") is received by the Secretary of the Company no less
than 60 days prior to the meeting; provided, however, that, in the event that
less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, the Stockholder's Notice must be
received by the Company no later than the close of business on the tenth day
following the first to occur of the date on which such notice was mailed or
the date that public disclosure of the date of the meeting was made. The
Certificate of Incorporation requires that the Stockholder's Notice include:
(i) the name, business address, and residence address of the nominating
stockholder; (ii) a representation that the nominating stockholder is a holder
of record of shares of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person
or persons specified in the notice; (iii) the name, age, business address and
residence address and principal occupation of the nominee; (iv) a description
of all arrangements or understandings between the nominating stockholder and
such nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination is being made by the nominating stockholder;
(v) any other information relating to the nominating stockholder and such
nominee that is required to be disclosed in a proxy statement or Schedule 13D
filing; and (vi) the consent of such nominee to serve as a director of the
Company if elected.
Audit Committee. The Board of Directors has a standing Audit Committee,
which has been charged with certain powers and duties including, among others,
authority to (i) recommend to the Board the appointment of the firm selected
to be independent certified public accountants for the Company and monitor the
performance of such firm; (ii) review and approve the scope of the annual
audit and evaluate with the independent certified public accountants the
Company's annual audit and annual consolidated financial statements; (iii)
review with management the status of internal accounting controls and internal
audit procedures and results; (iv) evaluate problem areas having a potential
financial impact on the Company that may be brought to the Committee's
attention by management, the independent certified public accountants or the
Board; and (v) evaluate the public financial reporting documents of the
Company. The Audit Committee is required to have at least three members,
5
at least two of whom are independent directors. Messrs. Kesler, Johnson and
Jackson are the current members of the Audit Committee. Mr. Kesler was
appointed to serve as Chairman of the Audit Committee in September 2001. Mr.
Johnson served as Chairman of the Audit Committee during all of fiscal 2000
and in fiscal 2001 until Mr. Kesler became Chairman of the Audit Committee.
Messrs. Parker and Sheldon I. Stein also served as members of the Audit
Committee during the 2000 fiscal year but resigned their Committee positions
in January 2000. The Audit Committee met five times during the 2000 fiscal
year. The Board of Directors has concluded that each member of the Audit
Committee is an "independent director" as defined in Rule 4200(a)(15) of the
listing standards of the National Association of Securities Dealers.
Report of the Audit Committee of the Board of Directors
The Board of Directors adopted a formal written charter for the Audit
Committee on September 27, 1999, and subsequently amended and restated the
Audit Committee charter on January 21, 2000, in accordance with the listing
standards of the National Association of Securities Dealers and the
regulations of the Securities and Exchange Commission regarding audit
committees. The Audit Committee's amended and restated charter is attached as
Appendix A to this Proxy Statement.
In fulfilling its responsibilities as set forth in its charter, the Audit
Committee reviewed and discussed with management the Company's audited
financial statements for the fiscal year ended November 30, 2000. The Audit
Committee also discussed with the Company's independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended by Statement on Auditing
Standards No. 90, Audit Committee Communications.
The Audit Committee received the written disclosures and the letter from the
Company's independent accountants required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, and discussed
with the independent accountants their independence from the Company.
The Audit Committee reviewed and discussed with internal audit services the
audit scope and plan for fiscal 2001, significant audit findings during the
year and management's response thereto.
Based on these reviews and discussions and in reliance thereon, the Audit
Committee recommended to the Board of Directors that the audited financial
statements for the fiscal year ended November 30, 2000 be included in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30,
2000 for filing with the Securities and Exchange Commission, and the Board of
Directors approved the recommendation.
James L. Johnson
Dale V. Kesler
John L. ("J.L.") Jackson
Principal Accountant Fees
The following table summarizes the fees paid or payable to KPMG LLP for
services rendered for the fiscal year ended November 30, 2000.
Audit Fees............................................. $1,043,335
Financial Information Systems Design and Implementation
Fees.................................................. --
All Other Fees:
Tax Fees............................................. $552,280
Other Fees........................................... 425,787 978,067
-------- ----------
$2,021,402
==========
The Audit Committee has considered whether the provision of financial
information systems design and implementation services and other non-audit
services is compatible with maintaining the principal accountant's
independence.
6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the number of
shares of Common Stock beneficially owned as of November 30, 2001, by (i) each
person known by the Company to beneficially own more than five percent (5%) of
the outstanding shares of Common Stock; (ii) the Company's Chief Executive
Officer and each of the Company's four other most highly compensated executive
officers who were serving as such on November 30, 2001 (based on salary and
bonus earned during fiscal 2001) (collectively, the "Named Executive
Officers"); (iii) each director and nominee for director of the Company; and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially owned
by them.
Amount and
Nature of Percent
Beneficial of
Name of Beneficial Owner or Group Ownership Class
--------------------------------- ---------- -------
Alan H. Goldfield(1)................................ 21,076,110(2) 36.0
Lord, Abbet & Co.(3)................................ 4,651,032(4) 7.7
Fuller & Thaler Asset Management, Inc.(5)(6)........ 3,656,700(7)(8) 6.1
Terry S. Parker(9)(10).............................. 278,750(11)(12) *
A.S. Horng(9)....................................... 3,000,708(13) 5.0
Dale H. Allardyce(9)................................ 296,667(14) *
Austin P. Young(15)................................. 210,000(16) *
Elaine Flud Rodriguez(9)............................ 171,032(17) *
James L. Johnson(9)................................. 51,250(11)(18) *
Dale V. Kesler(9)................................... 16,000(11)(19) *
John L. ("J.L.") Jackson(9)......................... 25,000(11)(19) *
Jere W. Thompson(9)................................. 17,200(11)(19) *
Current Directors and Executive Officers as a
Group.............................................. 4,189,388(20) 7.0
--------
* Less than 1%.
(1) The address for Mr. Goldfield is 1850 Turbeville Road, Denton, Texas
76210. Mr. Goldfield retired from his services as a director and officer
of the Company in July 2001.
(2) Includes 17,706,110 shares held jointly with Mr. Goldfield's wife. Also
includes 2,370,000 shares that are subject to a revocable (upon 90 days
written notice) proxy granted to Mr. Goldfield by Mr. A.S. Horng, which
proxy gives Mr. Goldfield the right to vote such shares. Also includes
1,000,000 shares subject to options granted under the 1993 Plan, which
options are exercisable within 60 days.
(3) The address for Lord, Abbet & Co. is 90 Hudson Street, Jersey City, New
Jersey 07302.
(4) Based on a Schedule 13G/A filed with the Securities and Exchange
Commission on January 19, 2001, by Lord, Abbet & Co., Lord, Abbet & Co.
reported sole voting power and sole dispositive power with respect to all
4,651,032 shares.
(5) The address for Fuller & Thaler Asset Management, Inc., is 411 Borel
Avenue, Suite 402, San Mateo, California 94402.
(6) The address for Mr. Russell J. Fuller is 411 Borel Avenue, Suite 402, San
Mateo, California 94402.
(7) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 13, 2001, by Fuller & Thaler Asset Management, Inc. and
Russell J. Fuller, Fuller & Thaler Asset Management, Inc. reported sole
voting power with respect to 2,745,700 shares and sole dispositive power
with respect to all 3,656,700 shares.
(8) Russell J. Fuller has investment authority over assets held by Fuller &
Thaler Asset Management, Inc.
(9) The address for such individual is 1730 Briercroft Court, Carrollton,
Texas 75006.
(10) Mr. Parker was appointed as Chief Executive Officer of the Company in
July 2001.
(11) Includes 7,500 shares subject to options granted under the Directors'
Plan, which options are exercisable within 60 days.
7
(12) Includes 271,250 shares subject to options granted under the 1993 Plan,
which options are exercisable within 60 days.
(13) Includes 2,370,000 shares that are subject to a revocable (upon 90 days
written notice) proxy to vote such shares held by Alan H. Goldfield. Also
includes 630,708 shares subject to options granted under the 1993 Plan,
which options are exercisable within 60 days.
(14) Includes 266,667 shares subject to options granted under the 1993 Plan,
which options are exercisable within 60 days.
(15) The address for Mr. Young is 6200 Arnot, Houston, Texas 77007. Mr. Young
retired from the Company as of December 31, 2001.
(16) Includes 200,000 shares subject to options granted under the 1993 Plan,
which options are exercisable within 60 days.
(17) Includes 165,432 shares subject to options granted under the 1993 Plan,
which options are exercisable within 60 days.
(18) Includes 28,750 shares subject to options granted under the 1993 Plan,
which options are exercisable within 60 days.
(19) Includes 7,500 shares subject to options granted under the 1993 Plan,
which options are exercisable within 60 days.
(20) Includes shares subject to options held by directors and executive
officers named in the table and more fully described in footnotes 11
through 19 above, and 36,251 shares subject to options granted under the
1993 Plan to executive officers not named in the table, which options are
exercisable within 60 days.
8
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation
paid to the Named Executive Officers and two former executive officers for
each of the Company's last three fiscal years.
Long Term Compensation
Annual Compensation Awards
------------------------------ -----------------------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Salary Bonus Compensation Award(s) Options/SARs Compensation
Position Year ($) ($) ($) ($) (#)(1)(2) ($)
--------- ---- ------- ------ ------------ ---------- ------------ ------------
Alan H. Goldfield(3).... 2001 634,770 -- (4) 342,364(5) -- -- 4,312,090(6)
Chairman of the Board 2000 850,000 -- -- -- 100,000 50,975(7)
and Chief Executive 1999 850,000 -- -- -- -- 32,461(7)
Officer
A.S. Horng.............. 2001 800,133 -- (4) -- -- -- 1,539(8)
Chairman, Chief 2000 800,103 66,675 -- -- 451,414 --
Executive
Officer and General 1999 796,897 66,162 25,388(9) -- 100,000 --
Manager of CellStar
(Asia) Corporation
Ltd.
Dale H. Allardyce....... 2001 400,000 -- (4) 44,837(10) -- 500,000 2,070(7)
President and Chief 2000 400,000 -- 172,674(10) -- -- 2,070(7)
Operating Officer 1999(11) 17,375 -- -- -- 200,000 --
Austin P. Young......... 2001(12) 350,000 -- (4) 14,955(10) -- 375,000 5,148(7)
Senior Vice President, 2000 350,000 -- 1,913(10) -- -- 4,999(7)
Chief Financial Officer 1999 24,006 -- -- -- 150,000 --
and Treasurer
Daniel T. Bogar(13)..... 2001 -- -- -- -- -- --
Senior Vice President-- 2000 278,760 48,750 -- -- 154,627 338(6)
Americas Region 1999 295,000 -- -- -- 100,000 823(6)
Timothy L. Maretti(13).. 2001 -- -- -- -- -- --
Senior Vice President-- 2000 244,941 -- -- -- 19,280 131,242(14)
Brazilian Region 1999 295,000 -- -- -- 50,000 1,402(7)
Elaine Flud Rodriguez... 2001 265,000 -- (4) -- -- 75,000 835(7)
Senior Vice President, 2000 250,000 10,000 -- -- 56,362 500(7)
Secretary and General 1999 150,000 -- -- -- 10,000 410(7)
Counsel
--------
(1) Reflects options to acquire shares of Common Stock. The Company has not
granted stock appreciation rights.
(2) All figures in this column reflect an adjustment for the Company's two-
for-one Common Stock split that was effected in the form of a stock
dividend in June 1998.
(3) Mr. Goldfield retired from his services as a director and officer of the
Company in July 2001.
(4) To be based on a combination of achievement of targeted net income and
return on capital employed at a country, region, and consolidated level
and is subject to approval by the Compensation Commitee of the Board of
Directors following completion of the fiscal 2001 audit.
(5) Consists of a consulting payment paid by the Company.
(6) Consists of a $4,250,000 severance payment and $62,090 in insurance
premiums paid by the Company to Mr. Goldfield.
(7) Consists of insurance premiums paid by the Company.
(8) Consists of a Company matching contribution to its Hong Kong retirement
plan.
(9) Represents amounts paid or reimbursed by the Company to Mr. Horng as an
annual housing allowance. See "Executive Compensation--Employment
Contracts and Termination of Employment and Change in Control
Arrangements."
9
(10) Consists of relocation expenses paid or reimbursed by the Company.
(11) Mr. Allardyce became the Company's President and Chief Operating Officer
in November 1999.
(12) Mr. Young became the Company's Senior Vice President, Chief Financial
Officer and Treasurer in November 1999 and resigned from such offices as
of December 11, 2001 and retired from the Company as of December 31,
2001. Robert Kaiser, age 48, became the Company's Senior Vice President,
Chief Financial Officer and Treasurer as of December 12, 2001.
(13) Mr. Bogar and Mr. Maretti resigned from the Company in July 2000.
(14) Consists of a $130,769 severance payment and $473 in insurance premiums
paid by the Company to Mr. Maretti.
Option Grants During 2001 Fiscal Year
The following table provides information related to options granted to the
Named Executive Officers and two former highly compensated executive officers
during the fiscal year ended November 30, 2001.
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants Option Term(1)
----------------------------------------------------- -----------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price
Name Granted(#)(2) Fiscal Year ($/Sh)(3) Expiration Date 5% ($) 10% ($)
---- ------------- ------------ --------- ---------------- ------- ---------
Alan H. Goldfield(4).... -- -- -- -- -- --
A.S. Horng.............. -- -- -- -- -- --
Dale H. Allardyce(5).... 500,000 17.13 1.875 January 25, 2011 589,385 1,493,499
Austin P. Young(5)...... 375,000 12.84 1.875 January 25, 2011 442,038 1,120,124
Daniel T. Bogar(6)...... -- -- -- -- -- --
Timothy L. Maretti(6)... -- -- -- -- -- --
Elaine Flud Rodriguez... 75,000 2.57 1.875 January 25, 2011 88,408 224,025
--------
(1) The potential realizable value portion of the table illustrates value that
might be realized upon exercise of the options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of
employment, nontransferability or vesting over periods of up to ten years.
(2) Reflects options to acquire shares of Common Stock. The Company has not
granted stock appreciation rights. The options become exercisable with
respect to 25% of the shares covered thereby on each of the first four
anniversaries of the date of grant. In the event of a "change of control"
(as defined in the 1993 Amended and Restated Long-Term Incentive Plan (the
"1993 Plan")) of the Company, any unexercisable portion of the options
will become immediately exercisable.
(3) The exercise price is equal to the fair market value of the Common Stock
on the date of grant. The option exercise price may be paid as follows:
(a) in cash or by certified check, bank draft or money order payable to
the order of the Company; (b) with Common Stock (including restricted
stock), valued at its fair market value on the date of exercise; (c) by
delivery to the Company or its designated agent of an executed irrevocable
option exercise form together with irrevocable instructions from the
optionee to a broker or dealer, reasonably acceptable to the Company, to
sell certain of the shares of Common Stock purchased upon exercise of the
stock option or to pledge such shares as collateral for a loan and
promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price; and/or (d) in any other form of
valid consideration that is acceptable to the Compensation Committee in
its sole discretion.
(4) Mr. Goldfield retired from his services as a director and officer of the
Company in July 2001.
(5) Each of Messrs. Allardyce and Young joined the Company in November 1999
and received options to acquire 200,000 and 150,000 shares of the
Company's Common Stock, respectively. Mr. Young retired from the Company
as of December 31, 2001.
(6) Each of Messrs. Bogar and Maretti resigned their respective positions with
the Company in July 2000.
10
Option Exercises During 2001 Fiscal Year and Fiscal Year End Option Values
The following table provides information related to options exercised by the
Named Executive Officers and two former highly compensated executive officers
during the fiscal year ended November 30, 2001 and the number and value of
options held on November 30, 2001. The Company does not have any outstanding
stock appreciation rights.
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Options/SARs the-Money Options/SARs
Acquired on Value at FY-End (#) at FY-End ($)(1)
Exercise Realized -------------------------- -------------------------
Name (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Alan H. Goldfield(3).... -- -- 925,000 125,000 -- --
A.S. Horng.............. -- -- 517,854 338,560 -- --
Dale H. Allardyce(4).... -- -- 100,000 600,000 -- --
Austin P. Young(4)...... -- -- 75,000 450,000 -- --
Daniel T. Bogar(5)...... -- -- -- (6) -- -- --
Timothy L. Maretti(5)... -- -- -- (6) -- -- --
Elaine Flud Rodriguez... -- -- 126,341 126,021 -- --
--------
(1) The closing price for the Company's Common Stock as reported by the
NASDAQ/National Market System on November 30, 2001 (the last trading day
of fiscal 2001) was $0.88. Value is calculated on the basis of the
difference between the option exercise price and $0.88 multiplied by the
number of shares of Common Stock underlying the option.
(2) Value is calculated based on the difference between the option exercise
price and the closing market price of the Common Stock on the date of
exercise multiplied by the number of shares to which the exercise related.
(3) Mr. Goldfield retired from his services as a director and officer of the
Company in July 2001. Because Mr. Goldfield continued to serve the Company
as a consultant after his retirement, his stock options did not expire in
connection with his retirement.
(4) Each of Messrs. Allardyce and Young joined the Company in November 1999
and received options to acquire 200,000 and 150,000 shares of the
Company's Common Stock, respectively. Mr. Young retired from the Company
as of December 31, 2001.
(5) Each of Messrs. Bogar and Maretti resigned their respective positions with
the Company in July 2000.
(6) Pursuant to the 1993 Plan, all options granted to Messrs. Bogar and
Maretti expired as of August 20, 2000 and August 5, 2000, respectively,
which was the 30th day following the date of their respective
resignations.
Compensation of Directors
During the fiscal year ended November 30, 2000, each director of the Company
who was not an officer or other employee of the Company (an "Independent
Director") received an annual retainer fee of $25,000, plus $1,500 for each
meeting of the Board of Directors or committee of the Board of Directors that
he attended and $750 for each telephonic Board of Directors or committee
meeting that he attended. In addition, to the extent that any committee
meeting is held on the same day as a full Board of Directors meeting or
another committee meeting, only one $1,500 or $750 fee (as applicable) will be
paid. Beginning in January 2000, the Company began paying a per diem fee of
$1,500 to each Independent Director for each day such director performs
additional services for the Company at the request of the Chief Executive
Officer. The Company paid no such per diem fees during the fiscal year ended
November 30, 2000 and paid $15,000 in per diem fees to Mr. Kesler for the
fiscal year ended November 30, 2001.
In July 2001, Mr. Johnson was elected Chairman of the Board of Directors and
the Company entered into an agreement with Mr. Johnson whereby he would
receive annual compensation of $250,000 for serving as non-executive Chairman
of the Board of Directors, in addition to whatever compensation and expense
reimbursement he is entitled as an Independent Director. Mr. Johnson received
$101,042 for his services as Chairman during fiscal 2001.
11
Pursuant to the Directors' Plan, each Independent Director automatically
receives an option (the "Initial Option") to purchase 7,500 shares of Common
Stock upon becoming an Independent Director. Also beginning in fiscal 1998, in
addition to the Initial Option, each Independent Director receives an annual
grant pursuant to the 1993 Plan of an option (the "Annual Option") to purchase
5,000 shares of Common Stock, which option will be automatically granted on
the date of the first full Board of Directors meeting following the end of
each fiscal year. The Annual Option will vest with respect to 25% of the
shares covered thereby on each anniversary of the date of grant and will
expire ten years following the date of grant. The exercise price of all
options granted to Independent Directors must be equal to the fair market
value of the Company's Common Stock on the date of grant.
Directors who are also employees of the Company receive no additional
compensation for serving as directors. All directors of the Company are
entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to, and attendance at, meetings of the Board of
Directors or committees thereof.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
The Company has entered into employment agreements (collectively, the
"Employment Agreements" or individually, an "Employment Agreement") with Mr.
Parker, Mr. Horng, Mr. Kaiser, Mr. Allardyce, Mr. Young and Ms. Rodriguez
(collectively, the "Executives" and individually, an "Executive"), effective
July 5, 2001, January 22, 1998, December 12, 2001, November 12, 1999, November
5, 1999 and January 21, 2000, respectively. Mr. Goldfield's Employment
Agreement was terminated in July 2001 in connection with Mr. Goldfield's
retirement, and a separation agreement and a consulting agreement were entered
into by the Company and Mr. Goldfield. See "Executive Compensation--Separation
Agreement and Release and Consulting Agreement with Mr. Goldfield" below. Mr.
Young's Employment Agreement was terminated as of December 31, 2001 and a
separation agreement and release were entered into by the Company and Mr.
Young providing for Mr. Young to receive the severance payments required by
his employment agreement. The Employment Agreements of Messrs. Parker, Horng,
Kaiser, Allardyce, and Young and Ms. Rodriguez provide for annual base
salaries of $850,000, $800,000, $450,000, $400,000, $350,000 and $250,000,
respectively, subject to increase by the Compensation Committee of the Board
of Directors. Mr. Kaiser will also receive a signing bonus of $300,000. Each
of the Employment Agreements also provides that the Executive is eligible to
receive an annual bonus.
The Company is obligated under the Employment Agreements to provide to
Messrs. Horng and Kaiser (i) life insurance policies with face amounts of
$4,000,000 and $1,500,000, respectively, and (ii) disability insurance
policies with annual disability benefits of $300,000 and $200,000,
respectively, until attainment of age 65. In addition, the Company is
obligated to pay or reimburse Mr. Horng for all medical and dental expenses
incurred by him or his spouse or dependents. The Company has in place
insurance to cover a portion of such expenses. Each Executive is eligible to
participate in the life, health and disability insurance programs customarily
made available to employees of the Company.
Each of the Employment Agreements has an initial term of four years, except
that of Mr. Horng, which has a term of five years. All of the Employment
Agreements are subject to earlier termination as follows: (i) by the Company
(a) due to the disability of the Executive, (b) for "cause" or (c) "without
cause"; or (ii) by the Executive (a) upon a material breach by the Company of
the Employment Agreement ("Company Breach"), (b) within twelve months of a
"change in control" or (c) without "good reason" (i.e., for any reason other
than Company Breach). If any of the Executives terminates his or her
employment due to Company Breach or if any of them is terminated by the
Company "without cause," he or she will be entitled to receive his or her
accrued but unpaid base salary and annual incentive payments through the date
of termination plus an amount equal to the product of (i)(a) his or her base
salary plus (b) the amount of his or her annual incentive payments for the
preceding year divided by 365 and (ii) multiplied by (a) with respect to the
employees other than Mr. Horng, the lesser of (x) 720 or (y) the greater of
the number of days remaining in the term of his or her employment or 365 or
(b) with respect to Mr. Horng only, the number of days remaining in the term
of his Employment Agreement. In the event of termination of employment after a
"change in control," each of the Executives will be entitled to receive an
amount equal to $100 less than three times his or her "annualized includable
compensation for the base period" (as defined in Section 280G of the Internal
Revenue Code) or such lesser amount that is the maximum payment permitted by
the Internal Revenue Code that does not constitute an "excess parachute
payment."
12
Under the Employment Agreements, a termination will be deemed to be "without
cause" if it is for any reason other than due to the disability of the
Executive or for "cause." Under the Employment Agreements, a termination will
generally be considered to be for "cause" if it is due to the Executive's (i)
continued unsatisfactory job performance after written warning or, in the
cases of Messrs. Horng and Kaiser, gross incompetence or, in the cases of
Messrs. Parker and Allardyce, willful failure to perform his duties, (ii)
misconduct (gross misconduct in the case of Mr. Horng) that causes or is
likely to cause material economic harm to, or material discredit to the
reputation of, the Company or its affiliated entities, (iii) failure to follow
the directions of senior management or the Board of Directors of the Company,
(iv) conviction of or a plea of nolo contendre to a felony involving moral
turpitude or the entry of an order by any federal or state regulatory agency
prohibiting the Executive from participating in the affairs of the Company, or
(v) any other material breach of his Employment Agreement that is not cured
within thirty days (sixty days in the case of Mr. Horng) after receipt of
written notice from the Company specifying the breach.
For purposes of the Employment Agreements, a "change in control" will be
deemed to occur upon the occurrence of any of the following: (1) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Common
Stock would be converted into cash, securities or other property, other than a
merger of the Company in which the holders of the Common Stock immediately
prior to the merger have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger; (2) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company; (3)
any approval by the stockholders of the Company of any plan or proposal for
the liquidation or dissolution of the Company; (4) the cessation of control
(by virtue of their not constituting a majority of directors) of the Board of
Directors by the Continuing Directors (as defined in the Employment
Agreements); (5) except with respect to the Employment Agreements of Messrs.
Parker and Kaiser, the acquisition of beneficial ownership of 15% of the
voting power of the Company's outstanding voting securities by any person or
group who beneficially owned less than 10% of such voting power on the date of
the Employment Agreement, the acquisition of beneficial ownership of an
additional 5% of the voting power of the Company's outstanding voting
securities by any person or group who beneficially owned at least 10% of such
voting power on the date of the Employment Agreement, in each case subject to
certain exceptions; or (6) subject to applicable law, in a Chapter 11
bankruptcy proceeding, the appointment of a trustee or the conversion of a
case involving the Company to a case under Chapter 7 of the United States
Bankruptcy Code. In addition, the Employment Agreements of Messrs. Horng,
Allardyce and Young and Ms. Rodriguez each provides that a "change in control"
will be deemed to occur (subject to certain exceptions) upon the execution by
the Company and a stockholder of a contract that by its terms grants such
stockholder (in its, his or her capacity as a stockholder) or such
stockholder's affiliate, including, without limitation, such stockholder's
nominee to the Board of Directors (in its, his or her capacity as an affiliate
of such stockholder), the right to veto or block decisions or actions of the
Board of Directors. For purposes of the Employment Agreements, the
consummation of the Exchange Offer will not cause a "change in control" to
occur.
The Employment Agreements also provide that the Executives will be
indemnified by the Company to the extent provided in the Company's Certificate
of Incorporation or bylaws as of the date of the Employment Agreement and to
the fullest extent permitted by changes to Delaware law, except that the
rights of Mr. Horng to indemnification are to the fullest extent permitted by
law. The Employment Agreements of all Executives include non-competition and
confidentiality provisions.
Separation Agreement and Release and Consulting Agreement with Mr. Goldfield
Separation Agreement and Release. The Company has entered into a Separation
Agreement and Release (the "Separation Agreement") with Mr. Goldfield
effective July 5, 2001 (the "Termination Date"). Under the Separation
Agreement, Mr. Goldfield resigned all of his director and officer positions
with the Company and its affiliates effective as of the Termination Date. The
Separation Agreement also terminated the employment agreement between Mr.
Goldfield and the Company. Mr. Goldfield waived all of his rights to further
employment, compensation, benefits, and other remuneration from the Company,
other than under the Separation Agreement and the consulting agreement (the
"Consulting Agreement") entered into between the Company and Mr. Goldfield as
of the Termination Date. See "Consulting Agreement" below. Mr. Goldfield also
released the
13
Company and its affiliates, representatives, employees, and agents from
liability existing on the Termination Date arising out of Mr. Goldfield's
employment agreement, employment or separation of employment with the Company.
Mr. Goldfield also agreed to cooperate with reasonable requests by the Company
for his assistance at the Company's expense. To the extent Mr. Goldfield's
cooperation relates to matters other than those services to be provided by Mr.
Goldfield under the Consulting Agreement and litigation or proceedings to
which Mr. Goldfield is a named party, the Company agreed to pay Mr. Goldfield
the greater of $1,000 per day or the highest per day amount then being paid to
directors of the Company for services other than services provided as a
director of the Company, plus expenses.
In return, the Company agreed to the following:
. To pay Mr. Goldfield $4,250,000.
. To pay Mr. Goldfield any amount due to Mr. Goldfield under the Company's
annual incentive plan, prorated through the Termination Date.
. To provide medical and dental benefits equivalent to the greatest of
such benefits afforded by the Company to any of its employees based in
the United States; such benefits to extend to Mr. and Mrs. Goldfield for
their lives.
. To allow Mr. Goldfield the use of, and all rights of the Company
pertaining to, the suite at Texas Stadium owned by the Company. All
rights to renew the lease of or purchase the Texas Stadium suite are not
transferable by Mr. Goldfield and will revert to the Company if not
exercised by Mr. Goldfield. Mr. Goldfield is responsible for all
expenses related to the suite after the Termination Date.
. To transfer to Mr. Goldfield all tickets to Dallas Cowboys games at
Texas Stadium purchased by the Company prior to the Termination Date.
. The separation of Mr. Goldfield from the Company will not constitute a
"Termination of Service" under the 1993 Plan until the Consulting
Agreement is no longer in effect.
. The Company would reimburse to Mr. Goldfield the reasonable fees and
expenses of one counsel to Mr. Goldfield in connection with Mr.
Goldfield's entry into the Separation Agreement.
. Until July 5, 2006, the Company will provide Mr. Goldfield with a term
life insurance policy in a face amount of $5,000,000 if he qualifies
under normal insurance underwriting standards.
. Until July 5, 2006, the Company will provide Mr. Goldfield with a
disability insurance policy that will pay Mr. Goldfield a $300,000
annual disability benefit until age 65 if he qualifies under normal
insurance underwriting standards.
. The Company released Mr. Goldfield from all claims arising out of his
job performance for the Company, so long as he acted in good faith and
in a manner he reasonably thought to be in, or not opposed to, the best
interests of the Company and he had no reasonable cause to believe his
conduct was illegal.
. The Company agreed to continue to indemnify Mr. Goldfield against claims
based on his service to the Company to the maximum extent of coverage
available to any former employee. This indemnification is in addition to
any other rights of indemnification available to Mr. Goldfield.
Consulting Agreement. The Company has entered into the Consulting Agreement
with Mr. Goldfield under which the Company has engaged Mr. Goldfield to
perform such services for the Company as are mutually agreeable to Mr.
Goldfield and the Chief Executive Officer of the Company. Under the Consulting
Agreement, Mr. Goldfield has the honorary title of "Chairman Emeritus" of the
Company but is not a director, officer or employee of the Company and has no
authority to act on behalf of the Company. The Company is obligated to pay Mr.
Goldfield $35,147 twice per month through November 2001. The Company will also
pay Mr. Goldfield 5% of net earnings from specified new lines of business
conducted by the Company in the People's Republic of China, Hong Kong, Korea,
Japan, Taiwan, Singapore, Malaysia and the Philippines (the "Earnout"). The
maximum amount of Earnout payments the Company is obligated to make under the
Consulting Agreement is $15,000,000. The new business lines covered by the
Earnout include the sale of prepaid calling cards, the sale of specified
paging and long distance services, the sale of "Tai Chi box" services and
products and the sale of personal digital assistants and digital cameras.
14
The Consulting Agreement terminates on the earlier of November 30, 2006, a
termination of Mr. Goldfield for cause by the Company, the death of Mr.
Goldfield, written notice of termination by either party as a result of the
disability of Mr. Goldfield or voluntary termination by Mr. Goldfield upon not
less than 30 days prior written notice. Under the Consulting Agreement, a
termination will generally be considered for "cause" if its is due to Mr.
Goldfield's (i) willful gross misconduct, (ii) conviction of a felony, (iii)
breach of his covenants of confidentiality and non-competition set forth in
the Consulting Agreement or (iv) violation of the Foreign Corrupt Practices
Act. In the event of termination due to the death or disability of Mr.
Goldfield, the Company must still pay the Earnout through November 30, 2006.
The Consulting Agreement also includes non-competition and confidentiality
provisions. The non-competition provision is effective until the later of July
5, 2003 or the date the Consulting Agreement is terminated.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
General. Subject to existing contractual obligations, the Compensation
Committee of the Board of Directors is primarily responsible for the Company's
executive compensation policies and practices, and administers executive
awards under the Company's 1993 Plan and the Amended and Restated Annual
Incentive Compensation Plan (the "Incentive Plan"). The Compensation Committee
is currently composed of Messrs. J.L. Jackson (Chairman), James L. Johnson and
Jere W. Thompson. Mr. Kesler served on the Compensation Committee from March
1999 until January 2000.
Compensation Philosophy. The Company's reward to stockholders through
executive compensation philosophy reflects its belief that the compensation of
executives (i) should be linked to achievement of the Company's business and
strategic goals; (ii) should be aligned with the interests of stockholders
through awards of stock options and other stock-based compensation; (iii)
should recognize individual contributions, as well as overall business
results; and (iv) should have the ultimate result of attracting, motivating
and retaining highly-talented executives for the Company. To achieve these
objectives, the Company's current compensation program consists of the
following elements:
. Base salary
. Annual incentive compensation, the receipt of which is based on (i) the
financial performance of the Company and its divisions from year to year
and/or (ii) significant individual contributions
. Long-term incentive compensation, primarily in the form of stock options
Chief Executive Officer's Fiscal 2000 Compensation. Although Mr. Goldfield
retired as the Company's Chairman and Chief Executive Officer in July 2001,
his compensation is addressed below because Mr. Goldfield served as the
Company's Chief Executive Officer during fiscal 2000. The structure of Mr.
Goldfield's fiscal 2000 compensation was based in large part on competitive
and comparable compensation for the position of responsibility as reviewed and
recommended by an outside consulting firm hired by the Company. In accordance
with such recommendations, the Company entered into an employment agreement
with Mr. Goldfield, effective December 1, 1994. Such agreement provides for an
annual base salary of $850,000 or such greater amount as may be recommended by
the Compensation Committee. In addition, such agreement provides that Mr.
Goldfield is eligible for an annual bonus pursuant to an incentive plan
recommended by the Compensation Committee. Mr. Goldfield's base salary was not
raised from the $850,000 amount provided for in 1994; however, during fiscal
2000, Mr. Goldfield was eligible to receive a cash bonus under the Incentive
Plan of up to 100% of his base salary (the "Maximum Bonus"), subject to
achievement by the Company of an earnings threshold recommended by the
Compensation Committee. The percentage of the Maximum Bonus that Mr. Goldfield
was eligible to receive was based on a range of earnings per share targets
recommended by the Compensation Committee. Because the Company did not achieve
the specified earnings per share target, Mr. Goldfield did not receive a bonus
in fiscal 2000. Thus, a significant percentage of Mr. Goldfield's fiscal 2000
compensation was tied to performance of the Company. The Compensation
Committee believes that the structure of Mr. Goldfield's compensation, with
its strong emphasis on Company performance, was in the best interests of the
Company's
15
stockholders because it more closely aligned the interests of Mr. Goldfield
and the Company's stockholders. Mr. Goldfield was awarded a grant of options
to purchase 100,000 shares of Common Stock under the 1993 Plan in January
2000.
In fiscal 1999, the Company commissioned a new compensation survey to review
its compensation practices in light of the practices of certain of its
competitors and industry peers. The report, delivered in January 2000,
confirmed that the range of cash compensation, bonus awards and option grants
to executives and managers of the Company are competitive and that the
thresholds and performance targets set by management of the Company are
generally consistent with those of its peers and competitors.
Compensation of Other Executive Officers. In the fiscal year ended November
30, 2000, the compensation package received by the other executives of the
Company consisted of base salary, stock options and bonus awards. Each element
is consistent with the compensation philosophy set forth above, and the
determinations of the Compensation Committee regarding the appropriate form
and level of executive compensation were based in part on the recommendations
of management. Such recommendations reflected each individual's level of
responsibility and experience and the assessment by the Compensation Committee
of the individual's contribution to the success of the Company's business.
The Compensation Committee continues to place its emphasis on compensation
that would more closely align the executives' interests with the stockholders'
interests. Therefore, as with the Chief Executive Officer, a significant
percentage of each executive's total compensation opportunity was tied to
performance of the Company and individual achievement through bonus
eligibility, based on a combination of (i) individual performance and (ii)
Company performance, and stock option awards.
Subject to achievement by the Company of an earnings threshold specified by
the Compensation Committee, certain of the Company's executives are eligible
to receive incentive bonuses under the Incentive Plan ranging from 33% to 100%
of their base salaries. The percentage of the bonus amount awarded is based in
part on a range of targets established by the Compensation Committee involving
the Company's earnings per share, return on capital employed and operating
income generated.
In granting stock options to the Company's executives, the Compensation
Committee, with the input of management, considered each executive's current
and future ability to impact achievement of strategic goals and objectives, as
well as internal equity within the executive's peer group. The Compensation
Committee believes this emphasis on equity compensation is in the best
interests of the Company's stockholders because it more closely aligns the
interests of the executives and the Company's stockholders for both near and
long-term. All options granted during fiscal 2000 to the Company's executives
were granted at the fair market value on the date of grant. All of such
options vest at a rate of 25% per year, beginning on the first anniversary of
the date of grant. See "Executive Compensation--Option Grants During Fiscal
2000." Therefore, an executive will receive full benefits from the option
grant only if the Company's stock price appreciates and only if the executive
remains with the Company for the full term of vesting.
Internal Revenue Code Section 162(m). In August 1993, as part of the Omnibus
Budget Reconciliation Act of 1993, Section 162(m) of the Internal Revenue Code
(the "Code") was enacted, which section provides for an annual one million
dollar limitation (the "Deduction Limitation") on the deduction that an
employer may claim for compensation of certain executives. Section 162(m) of
the Code provides an exception to the Deduction Limitation for certain
performance-based compensation, and it is the intent of the Compensation
Committee to qualify executive compensation for such exception to the extent
necessary, feasible and in the best interests of the Company.
John L. ("J.L.") Jackson
James L. Johnson
Jere W. Thompson
16
Comparative Performance Graph
The following chart compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return on the stocks
comprising The Nasdaq Market Value Index (the "Nasdaq Index") and the
Electronics Wholesale Index over the period commencing November 29, 1996 and
ending November 30, 2001. The comparison assumes $100 was invested on November
29, 1996 in the Company's Common Stock and in each of the foregoing indices
and assumes reinvestment of dividends. The stock performance graph is not
necessarily indicative of future price performance.
COMPARISION OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES, PEER GROUPS,
INDUSTRY INDEXES AND/OR BROAD MARKETS
FISCAL YEAR ENDING
-----------------------------------------------------------------------------------------------
COMPANY/INDEX/MARKET 11/29/1996 11/28/1997 11/30/1998 11/30/1999 11/30/2000 11/30/2001
CellStar Corp. 100.00 331.92 165.16 247.74 42.49 22.58
Electronics Wholesale 100.00 113.97 94.00 105.83 86.58 82.03
NASDAQ Market Index 100.00 124.21 153.54 251.47 208.84 156.28
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons
who own more than 10% of a registered class of the Company's equity
securities, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Such persons are
required by regulations of the Securities and Exchange Commission ("SEC") to
furnish the Company with copies of all Section 16(a) reports that they file.
To the Company's knowledge, based solely on its review of the copies of such
reports received by it with respect to fiscal 2001, or written representations
from certain reporting persons, all of the Company's directors, officers and
holders of more than 10% of a registered class of the Company's equity
securities have, with respect to fiscal 2001, timely filed all reports
required by Section 16(a) of the Exchange Act.
17
PROPOSAL II
APPROVAL OF THE EXCHANGE OFFER
The Exchange Offer is being submitted for approval by the stockholders of
the Company at the meeting because the rules of the NASDAQ National Market
System, upon which market the Company's outstanding Common Stock is qualified
for quotation, require stockholder approval of (i) the issuance or potential
issuance of securities that may result in a change of control of the issuer
under the rules of the NASDAQ National Market System and (ii) the issuance of
common stock or securities convertible into common stock other than in a
public offering, at a price less than the greater of book or market value if
such common stock has or would have upon issuance voting power equal to or in
excess of 20% of the voting power outstanding before such issuance. Because
Common Stock will be issuable upon the conversion of the Senior Convertible
Notes and because the total number of shares issuable may result in a change
of control of the Company, may exceed 20% of the voting power outstanding and
may be issued at a price less than the greater of book or market value, the
Company is seeking stockholder approval of the issuance of Common Stock in
connection with the Exchange Offer.
Terms of the Exchange Offer
In the Exchange Offer, the Company will offer to exchange Existing
Subordinated Notes for cash and either Senior Notes, Senior Convertible Notes
or a combination of Senior Notes and Senior Convertible Notes. As of
January 14, 2002, there were $150,000,000 aggregate principal amount of
Existing Subordinated Notes outstanding, and the Company is offering to
acquire all of the outstanding Existing Notes and pay approximately $366.67 in
cash and issue either approximately $400.94 principal amount of Senior Notes
or approximately $320.75 principal amount of Senior Notes and approximately
$80.19 principal amount of Senior Convertible Notes or approximately $400.94
Senior Convertible Notes for each $1,000 principal amount of Existing
Subordinated Notes surrendered in the Exchange Offer. The Company will also
pay accrued and unpaid interest up to the date of acceptance on Existing
Subordinated Notes accepted by the Company for exchange. Existing Subordinated
Notes may be tendered only in increments of $1,000 principal amount.
Consummation of the Exchange Offer will be subject to the satisfaction of the
conditions described below in "Conditions to the Exchange Offer."
The Company may amend or terminate the Exchange Offer and not accept any
Notes if any of the events described below in "Conditions to the Exchange
Offer" should occur. In addition, the Company may amend or extend the Exchange
Offer in its discretion.
The Company expects the Senior Notes and Senior Convertible Notes to trade
in the over-the-counter market and, along with the shares of Common Stock
issuable upon conversion of the Senior Convertible Notes, they will be freely
tradeable, unless the holder is considered an affiliate of the Company, as
that term is defined in the Securities Act.
The cash to be paid in connection with the Exchange Offer will come from
internally generated funds and borrowings.
Effect of the Exchange Offer upon Existing Stockholders
The following table summarizes the difference between (i) the number of
shares of Common Stock outstanding as of November 30, 2001 and those issuable
upon conversion of the Senior Convertible Notes issuable in the Exchange Offer
and (ii) the percentage ownership interest of existing stockholders and the
holders of Senior Convertible Notes, determined as if all shares of Common
Stock issuable upon conversion had been issued, assuming the exchange of a
maximum of $60,142,000 in principal amount of Senior Convertible Notes in the
Exchange Offer. All of the numbers in the table below and the related
footnotes have been adjusted to give effect to the Reverse Split as if the
Reverse Split had occurred on November 30, 2001.
Number of
Shares(1) Percent(1)
---------- ----------
Current Stockholders(2)................................ 12,028,444 50%
Exchange Offer Participants............................ 12,028,400 50%
Total................................................ 24,056,844 100%
--------
(1) Assumes no exercise or conversion of existing outstanding convertible
securities, including options to purchase approximately 1,380,926 shares
of Common Stock that were outstanding as of November 30, 2001 and
outstanding Existing Subordinated Notes that are not exchanged in the
Exchange Offer. Also excludes shares of Common Stock issuable upon
conversion of Senior Convertible Notes that may be issued in the Exchange
Offer.
(2) Represents only the holdings of existing shareholders as of November 30,
2001; does not include shares, if any, which may be acquired through the
participation of existing shareholders in the Exchange Offer.
18
Conditions to the Exchange Offer
The Exchange Offer is conditioned upon the exchange of a minimum principal
amount of $135,000,000 of Existing Subordinated Notes, representing 90% in
principal amount of the outstanding Existing Subordinated Notes, the approval
of the Exchange Offer by the Company's stockholders and the consent of the
agent and lenders holding at least 66 2/3% of the commitments under the
Company's revolving credit facility. The Company also requires stockholder
approval to amend its Certificate of Incorporation to effect the Reverse Split
described below in Proposal Three, although the Exchange Offer is not
conditioned upon stockholder approval of the amendment to effect the Reverse
Stock Split. Notwithstanding any other provision of the Exchange Offer, the
Company is not required to accept any Existing Subordinated Notes for exchange
or to issue Senior Notes or Senior Convertible Notes or pay any cash in
exchange for Existing Subordinated Notes, and the Company may terminate or
amend the Exchange Offer if, at any time before the expiration date of the
Exchange Offer, any of the conditions described above is not satisfied or any
of the following events occurs:
. the Exchange Offer is determined to violate any applicable law or any
applicable interpretation of the staff of the SEC;
. an action or proceeding is pending or threatened in any court or by any
governmental agency or third party that might materially impair the
Company's ability to proceed with the Exchange Offer;
. any material adverse development occurs in any existing legal action or
proceeding involving the Company or any of the Company's subsidiaries;
. any action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of the Exchange Offer or otherwise relating in any
manner to the Exchange Offer is instituted or threatened;
. any order, stay, judgment or decree is issued by any court, government,
governmental authority or other regulatory or administrative authority
and is in effect, or any statute, rule, regulation, governmental order
or injunction shall have been proposed, enacted, enforced or deemed
applicable to the Exchange Offer, any of which would or might restrain,
prohibit or delay completion of the Exchange Offer or impair the
contemplated benefits of the Exchange Offer to the Company;
. any of the following occurs and the adverse effect of such occurrence
shall, in the Company's reasonable judgment, be continuing:
. any general suspension of trading in, or limitation on prices for,
securities on any national securities exchange or in the over-the-
counter market in the United States;
. any extraordinary or material adverse change in U.S. financial
markets generally, including, without limitation, a decline of at
least twenty percent in either the Dow Jones Average of Industrial
Stocks or the Standard & Poor's 500 Index from the date of the final
prospectus;
. a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States;
. any limitation, whether or not mandatory, by any governmental entity
on, or any other event that would reasonably be expected to
materially adversely affect, the extension of credit by banks or
other lending institutions;
. a commencement of a war or other national or international calamity
directly or indirectly involving the United States, which would
reasonably be expected to affect materially and adversely, or to
delay materially, the completion of the Exchange Offer; or
. if any of the situations described above existed at the time of
commencement of the Exchange Offer and that situation deteriorates
materially after commencement of the Exchange Offer;
. any tender or exchange offer, other than the Exchange Offer, with
respect to some or all of the Company's outstanding Common Stock or any
merger, acquisition or other business combination proposal involving the
Company shall have been proposed, announced or made by any person or
entity;
. any event or events occur that have resulted or may result, in the
Company's reasonable judgment, in an adverse change in the Company's
business condition, income, operations, stock ownership or prospects;
19
. as the term "group" is used in Section 13(d)(3) of the Exchange Act;
. any person, entity or group acquires more than five percent of
the Company's outstanding shares of Common Stock, other than a
person, entity or group which had publicly disclosed such
ownership with the SEC prior to January 14, 2002;
. any such person, entity or group which had publicly disclosed
such ownership prior to such date shall acquire additional Common
Stock constituting more than two percent of the outstanding
shares;
. the Nasdaq National Market System does not approve the listing of
the shares of Common Stock issuable upon the conversion of the
Senior Convertible Notes issued in the Exchange Offer; or
. any stop order shall be threatened or in effect with respect to the
qualifications of one or both of the indentures for the Senior Notes
or the Senior Convertible Notes under the Trust Indenture Act of
1939.
If any of the above events occur, the Company reserves the right, in its
sole discretion:
. to terminate the Exchange Offer and promptly return all tendered
Existing Subordinated Notes to tendering Existing Subordinated Note
holders;
. to extend the Exchange Offer and, subject to certain withdrawal rights,
retain all tendered Existing Subordinated Notes until the extended
Exchange Offer expires;
. to amend the terms of the Exchange Offer; or
. to waive the unsatisfied condition and, subject to any requirement to
extend the period of time during which the Exchange Offer is open,
complete the Exchange Offer.
The above conditions are for the Company's sole benefit. The Company may
assert these conditions with respect to the Exchange Offer regardless of the
circumstances giving rise to them. The Company may waive any condition in
whole or in part at any time prior to the expiration of the Exchange Offer in
the Company's discretion. The Company's failure to exercise its rights under
any of the above conditions does not represent a waiver of these rights. Each
right is an ongoing right which may be asserted at any time. Any determination
by the Company concerning the above conditions will be final and binding upon
all parties.
Description of the Existing Subordinated Notes
On October 14, 1997, the Company completed the sale of $150,000,000
aggregate principal amount of 5% Convertible Subordinated Notes due October
15, 2002. The Existing Subordinated Notes are general, unsecured subordinated
obligations of the Company and are convertible into shares of Common Stock at
any time prior to the close of business on the maturity date, unless
previously redeemed or repurchased. The conversion price is $27.668 per share
(equivalent to a conversion rate of 36.14 shares per $1,000 principal amount
of Existing Subordinated Notes), subject to certain adjustments.
The Existing Subordinated Notes mature on October 15, 2002, unless earlier
redeemed at the option of the Company or repurchased at the option of the
holder upon a change of control of the Company, as determined under the
indenture that governs the Existing Subordinated Notes. Interest on the
Existing Subordinated Notes is payable semi-annually on April 15 and October
15 of each year. Interest payments commenced on April 15, 1998. The Company
has the option to redeem the Existing Subordinated Notes, in whole or in part,
at any time. The Company used the proceeds from the sale of the Existing
Subordinated Notes to repay certain indebtedness and for working capital and
other general corporate purposes.
Background and Reasons for the Exchange Offer
The Company does not currently believe that it will be able to refinance or
pay off the Existing Subordinated Notes when they mature in October 2002. The
Company experienced significant losses in fiscal 2000. These losses, combined
with current adverse capital market and economic conditions and an overall
weakness in the telecommunications industry, have adversely affected the
Company's ability to refinance the Existing Subordinated Notes. The Existing
Subordinated Notes became a current liability in October 2001, which will
further adversely affected the Company's balance sheet and its ability to
finance its operations.
20
For several months, management and its financial advisor, Dresdner Kleinwort
Wasserstein, Inc. ("Dresdner Kleinwort Wasserstein"), have been examining
alternatives to address the need to refinance the Existing Subordinated Notes.
Management and Dresdner Kleinwort Wasserstein believe that it is not feasible
at this time for the Company to effect such a refinancing by raising new money
through the issuance of equity or debt securities on terms that would be
acceptable to the Company.
Since March 2001, management and Dresdner Kleinwort Wasserstein have held
informal discussions with Stark Investments, LP, and since September 2001 with
Creedon Capital and Northwestern Mutual Life, which collectively hold
approximately 73% of the outstanding principal amount of the Existing
Subordinated Notes. As a result of these negotiations and the considerations
described in the previous paragraphs, the Company believes the terms of the
Exchange Offer are in noteholders' and stockholders' best interests and will
improve the Company's opportunities for success. However, no fairness opinion
has been obtained as to the terms of the Exchange Offer.
The Exchange Offer will improve the Company's balance sheet by reducing its
outstanding indebtedness. The Company believes that improving its balance
sheet will provide it with enhanced access to the capital markets and expand
its opportunities for future growth.
If the Exchange Offer is not completed and the Company is unable to
otherwise refinance or pay off the Existing Subordinated Notes, the Company
faces the possibility of bankruptcy when the Existing Subordinated Notes
become due in October 2002, or possibly earlier, the consequence of which
could be liquidation or reorganization of the Company.
On September 28, 2001, the Company entered into a new $60 million revolving
credit facility which was subsequently increased to $85 million by an
amendment on October 12, 2001. This credit facility has a term of five years,
and provides greater flexibility in funding foreign operations, a more
extensive borrowing base, and more flexible financial covenants. The revolving
credit facility has an interest rate of prime plus 1% and is secured by
substantially all of the Company's assets. The Company expects to borrow funds
under the revolving credit facility to pay a portion of the cash to be paid in
exchange for the Existing Subordinated Notes. The revolving credit facility
has an interest rate of prime plus 1% and is secured by substantially all of
the Company's assets. The revolving credit facility requires the Company to
refinance the Existing Subordinated Notes or exchange or extend the maturity
of at least $120 million of the Existing Subordinated Notes by April 2002 in a
manner satisfactory to the lender. Failure to do so could result in default
under the revolving credit facility, which could cause bankruptcy, liquidation
or reorganization of the Company.
During the twelve months ended January 9, 2002, the price of the Common
Stock ranged from a low closing price of $0.76 per share to a high closing
price of $2.58 per share. On January 9, 2002, the last sales price of the
Common Stock was $0.80 per share and on January 11, 2002, the average of the
bid and asked prices of the Existing Subordinated Notes was $625.00 per $1,000
principal amount.
Management believes that the benefits of the Exchange Offer will outweigh
the potential significant dilution of the interests of the Company's present
stockholders resulting from the Exchange Offer (see "Effect of the Exchange
Offer upon Existing Stockholders" above). For these reasons, the Board of
Directors of the Company believes that the issuance of additional shares of
Common Stock in the Exchange Offer is in the best interests of the present
stockholders of the Company and should be approved.
21
Comparison of Existing Subordinated Notes to Senior Notes and Senior
Convertible Notes
Existing Subordinated Notes
Senior Notes Senior Convertible
Notes
Issuer......... CellStar CellStar CellStar
Corporation Corporation Corporation
Notes $150,000,000 Up to $60,142,000 Up to $60,142,000
Offered........ aggregate principal aggregate principal aggregate principal
amount of 5% amount of 12% amount of 5% Senior
Convertible Senior Subordinated Subordinated
Subordinated Notes Notes due 2007. Convertible Notes
due 2002 issued due November 2002.
under an indenture
between CellStar
and The Bank of New
York, as trustee.
Interest Payable in cash on
Payment April 15 and Payable on August 15 Payable on August 15,
Dates.......... October 15 of each and February 15 of 2002.
year. each year.
Interest....... 5% per annum in 12% per annum in 5% per annum
cash. cash. payable in cash or
Common Stock, at
the option of
CellStar.
Maturity....... October 15, 2002. January 15, 2007 November 30, 2002
Conversion..... Convertible into None. Each $1,000 in
CellStar Common principal amount of
Stock at $27.668 Senior Convertible
per share, subject Notes will be
to adjustment. convertible into
1,000 shares of
CellStar Common
Stock, subject to
adjustment. The
holder of Senior
Convertible Notes
can elect to
convert at any time
prior to maturity.
At maturity, the
Senior Convertible
Notes are
mandatorily
converted into
Common Stock if
CellStar is not in
default on any
indebtedness. The
Company cannot
force conversion
until such default
has been cured.
Redemption..... The Senior Notes None.
The Existing will be subject to
Subordinated Notes redemption at
are redeemable, in CellStar's option,
whole or in part, at any time at a
at the option of price of 100% of
CellStar, at 101% par.
of the principal
amount plus accrued
and unpaid
interest.
Change of In the event of a In the event of a None.
Control........ change of control, change of control,
holders of the holders of the
Existing Senior Notes will
Subordinated Notes have the right to
will have the right require the Company
to require CellStar to repurchase their
to repurchase their Senior Notes in
Existing whole or in part at
Subordinated Notes a price of 101% of
in whole or in part their principal
at a price of 101% amount.
of the principal
amount thereof plus
accrued and unpaid
interest.
22
Existing Senior Convertible
Subordinated Notes Senior Notes Notes
Ranking........ The Existing The Senior Notes The Senior
Subordinated Notes will constitute Convertible Notes
constitute general, general unsecured will constitute
unsecured obligations of general unsecured
obligations of CellStar and will obligations of
CellStar and are be subordinated in CellStar and will
subordinated in right of payment to be subordinated in
right of payment to CellStar's right of payment to
all of CellStar's revolving credit CellStar's
existing and future facility and all revolving credit
senior other existing and facility and all
indebtedness. The future senior other existing and
Existing indebtedness, and future senior
Subordinated Notes senior in right of indebtedness, and
will also be payment to all senior in right of
subordinate in subordinated payment to all
right of payment to indebtedness, subordinated
the Senior Notes including the indebtedness,
and Senior Existing including the
Convertible Notes. Subordinated Notes. Existing
In addition, The Senior Notes Subordinated Notes.
because CellStar's rank equally with The Senior
operations are the Senior Convertible Notes
conducted Convertible Notes. rank equally with
the Senior Notes.
exclusively through
CellStar's
operating
subsidiaries,
claims of creditors
of such
subsidiaries will
have priority with
respect to the
assets and earnings
of such
subsidiaries over
the claims of our
creditors,
including holders
of the Existing
Subordinated Notes.
At January 8, 2002,
CellStar had
$16,100,000 of
senior indebtedness
outstanding and at
November 30, 2001,
CellStar's
subsidiaries had
$285,200,000 of
trade payables and
other indebtedness
outstanding. We
expect to borrow
$30.0 million under
the revolving
credit facility to
fund the cash
portion of the
Exchange Offer
consideration. Our
revolving credit
facility provides
for maximum
borrowings of
$85,000,000. At
January 8, 2002, we
had available
$65,800,000 of the
$85,000,000
borrowing capacity.
The Existing
Subordinated Notes
indenture does not
limit the amount of
additional
indebtedness that
CellStar or its
subsidiaries can
create, incur,
assume or
guarantee.
Accrued
Interest....... CellStar will pay Not applicable. Not Applicable.
accrued and unpaid
interest up to the
date of acceptance
on the Existing
Subordinated Notes
we accept for
exchange.
23
Existing Subordinated Notes
Senior Notes Senior Convertible
Notes
Negative None. The Senior Notes None.
Covenants...... Indenture will
contain covenants
that limit
additional
indebtedness,
investments, loans
and advances,
restricted
payments, liens,
sale-lease back
transactions,
mergers, sale of
assets, etc. and
disposition of
proceeds of asset
sales
Listing........ The Existing The Senior Notes The Senior
Subordinated Notes are expected to Convertible Notes
trade in the over- trade in the over- are expected to
the-counter the-counter trade in the over-
market. market. the-counter
market.
Listing of the Common Stock for Trading
The Common Stock is listed for quotation on the Nasdaq National Market under
the symbol "CLST." The Company has applied for listing on the Nasdaq National
Market of the shares of Common Stock issuable upon the conversion of the
Senior Convertible Notes issued in the Exchange Offer.
United States Federal Income Tax Consequences to the Company
The following discussion is a general description of possible United States
Federal income tax consequences to the Company that may result from the
Exchange Offer. The actual United States Federal income tax effect may vary
depending upon circumstances in existence at the time these taxes are
determined.
Treatment of Possible Cancellation of Indebtedness Income. If the fair
market value of the Senior Notes and Senior Convertible Notes and cash to be
issued by the Company in the Exchange Offer (excluding amounts paid with
respect to accrued but unpaid interest) is less than the adjusted issue price
of Existing Subordinated Notes exchanged therefor, the Company will recognize
cancellation of indebtedness income. If the Company recognizes cancellation of
indebtedness income in connection with the Exchange Offer and, immediately
before the date of the Exchange Offer, either (i) the Company is "solvent"
(i.e., the fair market value of the Company's assets exceeds the amount of its
liabilities), then the Company will include all cancellation of indebtedness
income in its income for Federal income tax purposes, or (ii) the Company is
insolvent, then the Company will exclude from its income for Federal income
tax purposes an amount of cancellation of indebtedness income up to the amount
by which the Company was insolvent immediately before the discharge. If the
Company excludes cancellation of indebtedness income from its income as
described above, the Company will be required to reduce certain of its tax
attributes, including net operating loss and foreign tax credit carryovers and
the Company's tax basis in its assets, by an amount equal to the amount of the
cancellation of indebtedness income that is excluded from the Company's
income.
Limitation on Use of Net Operating Loss Carryovers. On August 31, 2001, the
Company had net operating loss and foreign tax credit carryovers of
approximately $60 million and $1.3 million, respectively, for U.S. Federal
income tax purposes that are available to reduce future Federal income tax. To
the extent not used, the net operating loss and foreign tax credit carryovers
expire in varying amount beginning in 2018 and 2002, respectively.
The Company's ability to use its net operating loss and foreign tax credit
carryovers to reduce future U.S. Federal income tax, if any, may be limited
because the Company may be deemed to have undergone an "ownership change"
(i.e., a more than fifty percentage point change in the ownership of the
Company's stock) in connection with the Exchange Offer and certain previous
transactions involving transfers of the Company's stock. A corporation that
undergoes an ownership change is subject to limitations on the amount of its
net
24
operating loss and foreign tax credit carryovers that may be used to offset
its Federal income tax following the ownership change. In addition, the use of
certain other deductions attributable to events occurring in periods before an
ownership change that are claimed within a five year period after the
ownership change may also be limited (such "built-in deductions," together
with net operating loss carryovers, are collectively known as "pre-change
losses"). As a result, the Company's ability to use pre-change losses and
foreign tax credits may be subject to a limitation and may result in
accelerated or additional tax payments which, with respect to taxable periods
after December, 2001, could have a material adverse impact in the Company's
consolidated financial position or results of operations. At this time,
management does not believe it will be necessary to provide an additional
valuation allowance against the Company's ability to realize net operating
loss and foreign tax credit carryovers upon the consummation of the proposed
transactions.
Unaudited Pro Forma Condensed Consolidated Financial Information
The following unaudited pro forma condensed consolidated balance sheet and
statements of operations have been derived by the application of pro forma
adjustments to the historical consolidated balance sheet at August 31, 2001
and statements of operations for the year ended November 30, 2000 and the nine
months ended August 31, 2001.
The unaudited pro forma condensed consolidated statements of operations for
the fiscal year ended November 30, 2000 and the nine months ended August 31,
2001 give effect to the Exchange Offer as if it had occurred at the beginning
of the earliest period presented and assumes all Existing Subordinated Notes
are exchanged for $9.2 million principal amount of Senior Notes, $50.9 million
principal amount of Senior Convertible Notes and $55.0 million in cash. The
unaudited pro forma condensed consolidated balance sheet as of August 31, 2001
gives effect to the Exchange Offer as if it had occurred on August 31, 2001.
The following unaudited pro forma consolidated financial information gives
effect to the Exchange Offer and related adjustments, where indicated,
assuming that 100% of the maximum principal amount of Existing Notes being
currently outstanding are tendered and exchanged pursuant to the Exchange
Offer. The pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable under the
circumstances. The Company has accounted for the exchange as a troubled debt
restructuring due to the Company's current and prospective financial situation
and the concessions the Existing Noteholders will make in accepting the
Exchange Offer.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma condensed consolidated balance sheet and statements of
operations should not be considered indicative of actual results that would
have been achieved had the Exchange Offer been consummated on the dates or for
the periods indicated and do not purport to indicate balance sheet data or
results of operations as of any future date or for any future period. The
unaudited pro forma condensed consolidated balance sheet and statements of
operations should be read in conjunction with the Company's historical
consolidated financial statements and related notes incorporated by reference
into this Proxy Statement.
25
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of August 31, 2001
(Dollars in thousands, except per share data)
Pro Forma(a)
---------------------------------
Historical Adjustments Results
---------- ----------- -------
Assets
------
Cash and cash equivalents.................. $ 57,158 (14,836)(b) 42,322
Restricted cash............................ 40,615 -- 40,615
Accounts receivable, net................... 199,395 -- 199,395
Inventories................................ 195,409 -- 195,409
Deferred income tax assets................. 32,074 (8,583)(c) 23,491
Prepaid expenses........................... 22,765 -- 22,765
-------- -------- -------
Total current assets..................... 547,416 (23,419) 523,997
Property and equipment, net.................. 20,068 -- 20,068
Goodwill, net................................ 22,523 -- 22,523
Deferred income tax assets................... 14,314 -- 14,314
Other assets................................. 6,538 (994)(d) 5,544
-------- -------- -------
Total assets............................. $610,859 (24,413) 586,446
======== ======== =======
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable........................... $193,932 -- 193,932
Notes payable.............................. 50,912 45,000 (e) 95,912
Senior subordinated convertible notes
payable................................... -- 53,445 (f) 53,445
Accrued expenses........................... 27,309 (2,836)(g) 24,473
Income taxes payable....................... 673 -- 673
Deferred income tax liabilities............ 1,421 -- 1,421
-------- -------- -------
Total current liabilities................ 274,247 95,609 369,856
Long-term debt............................. 150,000 (135,280)(h) 14,720
-------- -------- -------
Total liabilities............................ 424,247 (39,671) 384,576
-------- -------- -------
Stockholders' Equity:
Preferred stock............................ -- -- --
Common stock............................... 602 -- 602
Additional paid-in capital................. 81,944 -- 81,944
Accumulated other comprehensive loss....... (12,421) -- (12,421)
Retained earnings.......................... 116,487 15,258 (i) 131,745
-------- -------- -------
Total stockholders' equity................... 186,612 15,258 201,870
-------- -------- -------
Total liabilities and stockholders' equity... $610,859 (24,413) 586,446
======== ======== =======
26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended August 31, 2001
(Dollars in thousands, except per share data)
Pro Forma(a)
----------------------
Historical Adjustments Results
---------- ----------- ---------
Revenues................................... $1,828,533 -- 1,828,533
Cost of sales.............................. 1,728,404 -- 1,728,404
---------- ----- ---------
Gross profit............................... 100,129 -- 100,129
Operating expenses:
Selling, general and administrative
expenses................................ 80,856 -- 80,856
Separation agreement..................... 5,680 -- 5,680
Restructuring charge..................... 750 -- 750
---------- ----- ---------
Operating income........................... 12,843 -- 12,843
Other income (expense):
Interest expense......................... (12,497) 4,410(j) (8,087)
Equity in loss of affiliated companies,
net..................................... (822) -- (822)
Gain on sale of assets................... 933 -- 933
Impairment of investment................. (2,215) -- (2,215)
Other, net............................... 4,349 (375)(k) 3,974
---------- ----- ---------
Total other income (expense)............... (10,252) 4,035 (6,217)
---------- ----- ---------
Income before income taxes................. 2,591 4,035 6,626
Provision for income taxes................. 648 1,717(l) 2,365
---------- ----- ---------
Net income................................. $ 1,943 2,318 4,261
========== ===== =========
Net income per share:
Basic.................................... $ 0.03 0.07
Diluted.................................. $ 0.03 0.07
Weighted average number of shares:
Basic.................................... 60,142 60,142
Diluted.................................. 60,150 60,150
27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended November 30, 2000
(Dollars in thousands, except per share data)
Pro Forma(a)
----------------------------------
Historical Adjustments Results
---------- ----------- ---------
Revenues................................... $2,475,682 -- 2,475,682
Cost of sales.............................. 2,364,197 -- 2,364,197
---------- ----- ---------
Gross profit............................... 111,485 -- 111,485
Operating expenses:
Selling, general and administrative
expenses................................ 169,232 -- 169,232
Impairment of assets..................... 12,339 -- 12,339
Restructuring charge..................... (157) -- (157)
---------- ----- ---------
Operating income (loss).................... (69,929) -- (69,929)
Other income (expense):
Interest expense......................... (19,113) 5,880 (j) (13,233)
Equity in income (loss) of affiliated
companies, net.......................... (1,805) -- (1,805)
Gain on sale of assets................... 6,200 -- 6,200
Other, net............................... 932 (500)(k) 432
---------- ----- ---------
Total other income (expense)............... (13,786) 5,380 (8,406)
---------- ----- ---------
Income (loss) before income taxes.......... (83,715) 5,380 (78,335)
Provision (benefit) for income taxes....... (20,756) 2,289 (1) (18,467)
---------- ----- ---------
Net income (loss).......................... $ (62,959) 3,091 (59,868)
========== ===== =========
Net income (loss) per share:
Basic.................................... $ (1.05) (1.00)
Diluted.................................. $ (1.05) (1.00)
Weighted average number of shares:
Basic.................................... 60,131 60,131
Diluted.................................. 60,131 60,131
28
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
(a) Reflects the pro forma presentation assuming 100% of the principal amount
of Existing Subordinated Notes currently outstanding are tendered and
exchanged for $9.2 million principal amount Senior Notes, $50.9 million
principal amount Senior Convertible Notes and $55.0 million in cash
pursuant to the Exchange Offer. The Senior Convertible Notes are
mandatorily convertible into 50,900,000 shares of common stock on November
30, 2002.
(b) Reflects the following cash payments (in thousands):
Payment of accrued interest...................................... $ 2,836
Payment on Existing Subordinated Notes from existing cash
balances........................................................ 10,000
Payment of estimated costs of Exchange........................... 2,000
-------
$14,836
=======
(c) Represents utilization of net operating loss carryforwards for income
taxes on the gain resulting from the Exchange Offer.
(d) Reflects removal of unamortized debt issuance costs related to the
Existing Subordinated Notes.
(e) Reflects borrowings under the Company's existing bank facility and
proposed new foreign facility.
(f) Reflects $50.9 million principal amount of new Senior Convertible Notes
issued in conjunction with the Exchange Offer and future interest payable
of $2,545,000.
(g) Payment of interest accrued from April 15, 2001 (latest interest payment
date through August 31, 2001).
(h) Reflects $9.2 million principal amount of new Senior Notes issued in
conjunction with the Exchange Offer and future interest payable of
$5,520,000.
(i) Reflects the gain recorded in the Exchange of Existing Subordinated Notes
calculated as follows (dollars in thousands):
Carrying value of Existing Subordinated Notes:
Principal amount............................................... $150,000
Unamortized debt issuance costs................................ (994)
Cash paid pursuant to the Exchange offer....................... (55,000)
--------
Total carrying value, net of cash payments................... 94,006
--------
Future cash payments (principal and interest):
Senior Convertible Notes....................................... (53,445)
Senior Notes................................................... (14,720)
Estimated debt issuance costs.................................. (2,000)
--------
Total future cash payments................................... (70,165)
--------
Gain on Exchange........................................... 23,841
Income taxes (36% of gain)....................................... (8,583)
--------
Gain, net of taxes......................................... $ 15,258
========
The amount of the actual gain on the Exchange of Existing Subordinated
Notes will be determined based on the combination of the Senior Convertible
Notes and the Senior Notes actually issued. In addition, the pro forma debt
restructuring, as computed above, results in no future interest expense
recognition for the New Senior Notes and Senior Convertible Notes in
accordance with Statement of Financial Accounting Standards No. 15,
Accounting by Debtors and Creditors for Troubled Debt Restructurings. The
amount of interest expense that may be recorded as a result of the debt
restructuring will depend on the combination of Senior Notes and Senior
Convertible Notes actually issued.
29
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION--(Continued)
(j) Reflects net change in interest expense resulting from the Exchange Offer
as follows (dollars in thousands):
Nine Months
Ended Year Ended
August 31, November 30,
2001 2000
----------- ------------
Elimination of interest effect of Existing
Subordinated Notes:
Interest on Existing Subordinated Notes.......... $5,625 7,500
Amortization of debt issuance costs.............. 726 968
------ ------
6,351 8,468
Interest effect of indebtedness related to the
Exchange Offer:
Interest on additional borrowings under bank
facilities (based on current rates of borrowings
available to the Company)....................... (1,941) (2,588)
------ ------
Net decrease in interest........................... $4,410 5,880
====== ======
(k) Reflects interest foregone (5% assumed annual interest rate) on existing
cash balances used to make payments under the Exchange Offer.
(l) Reflects the income tax effect of the above adjustments.
30
No Dissenter's Rights
Neither the Certificate of Incorporation or Bylaws of the Company nor the
laws of the State of Delaware require that appraisal rights be available to
stockholders that do not vote to approve the issuance of Common Stock in the
Exchange Offer.
Required Vote
The vote required to approve the Exchange Offer, in accordance with the laws
of the State of Delaware and the rules of Nasdaq applicable to companies with
securities listed thereon, is the affirmative vote of the holders of a
majority of shares present in person or represented by Proxy at the Meeting,
provided that a quorum is present at the Meeting.
The Board of Directors recommends a vote FOR the proposal to approve the
Exchange Offer.
PROPOSAL THREE
APPROVAL OF CHARTER AMENDMENT TO EFFECT REVERSE SPLIT
The Board of Directors has adopted, and proposes that the stockholders of
the Company approve, the amendment to the Certificate of Incorporation of the
Company, which would effect a one-for-five reverse split of the outstanding
shares of Common Stock (the "Reverse Split"). The par value of the Common
Stock will remain $0.01 per share and the number of shares of Common Stock
authorized to be issued will remain at 200,000,000. Approval of the Reverse
Split will also authorize the Board of Directors in its discretion to abandon
and not effect the Reverse Split at any point.
Purpose and Effect of the Proposed Amendment
The Board of Directors proposes the Reverse Split for stockholder approval
primarily to facilitate the listing of the Common Stock on the NASDAQ National
Market System. One criteria for listing on the NASDAQ National Market System
is that the applicant's common share trading price must be at least $1.00 per
share. The per share price of the Company's Common Stock does not currently
meet the minimum trading price requirement of the NASDAQ National Market
System. The Company believes the completion of the Reverse Split will cause
the trading price of the Common Stock to increase above the minimum trading
price requirement of the NASDAQ National Market System. There can be no
assurance, however, that the Reverse Split will result in any change in the
price of the Company's Common Stock or that, if the price of the Company's
Common Stock does increase as a result of the Reverse Split, such increase
will be sufficient to allow the Company to comply with the listing
requirements of the NASDAQ National Market System.
If the Common Stock were delisted, it would then be eligible for quotation
on the OTC Bulletin Board maintained by NASDAQ, another over-the-counter
quotation system or the "pink sheets" maintained by the National Quotation
Bureau, Inc. If that occurred, the liquidity and marketability of shares of
the Common Stock would be decreased, and therefore stockholders of the Company
might find it more difficult to buy or sell Common Stock at a price they
believe to be favorable. Additionally, an investor may find it more difficult
to obtain quotations as to the market value of the Common Stock, or the
quotations might not accurately reflect the fair market value of the Common
Stock.
31
As a part of the Reverse Split, the Company's surplus would be increased as
a result of maintaining the par value of the Common Stock at $0.01 per share
but decreasing the number of issued shares of the Company. Under the Delaware
General Corporation Law, a corporation is permitted to purchase its own shares
of capital stock or to declare dividends only to the extent that the
corporation has an amount of surplus equal to or greater than the amount of
the stock redemption or dividend. Under the Delaware General Corporation Law,
the "surplus" of a corporation is defined as the excess of the net assets of a
corporation less the stated capital of a corporation. The "stated capital" of
a corporation is equal to the number of issued shares of the corporation
multiplied by the par value of the shares. The "net assets" of a corporation
is the total assets minus the total liabilities of a corporation. Because the
number of issued shares of the Company will decrease as a result of the
Reverse Split but the par value will remain the same, the stated capital of
the Company will necessarily decrease. The amount by which the stated capital
decreases will be considered additional surplus of the Company. Despite the
increase in the amount of surplus that would be caused by the split, the
Company at this time has no plans, other than in connection with the
redemption of fractional shares created by the Reverse Split as described
below, to redeem its shares of Common Stock or have any other distributions,
other than cash dividends that may be paid from time to time.
The number of authorized shares of Common Stock, which currently is
200,000,000, will not be reduced as a result of the Reverse Split.
Consequently, the number of authorized but unissued shares of Common Stock
will increase as a result of the Reverse Split. If the Reverse Split and the
Exchange Offer had been effected as of January 9, 2002, and all participants
in the Exchange Offer elected to receive only Senior Convertible Notes and all
Senior Convertible Notes were converted as of January 9, 2002,
24,056,844 shares of Common Stock would have been outstanding, and
175,943,156 shares of Common Stock would have been available for future
issuance. If the Reverse Split and the Exchange Offer had been effected as of
January 9, 2002, and no participants in the Exchange Offer elected to receive
Senior Convertible Notes, 12,028,422 shares of Common Stock would have been
outstanding, and 187,971,578 shares of Common Stock would have been available
for future issuance.
Authorized but unissued shares of Common Stock may be issued at such times,
for such purposes and for such consideration as the Board of Directors may
determine to be appropriate. Except for the proposals set forth in this Proxy
Statement, no further authorization by vote of the stockholders will be
solicited for the issuance of the additional shares of Common Stock, except as
might be required by law, regulatory authorities or rules of NASDAQ or any
stock exchange on which the Company's shares may then be listed. Under the
rules applicable to the Company as a NASDAQ National Market System issuer, the
Company is required to obtain stockholder approval of any transaction (a)
other than a public offering, in which 20% or more of the then outstanding
Common Stock (before giving effect to the transaction) would be issued, or (b)
that will result in a change of control of the Company, although in
appropriate circumstances, the application of such rule could be waived. In
addition, the Delaware General Corporation Law, which governs the actions of
the Company generally requires stockholder approval for the Company to issue
shares in connection with a merger or consolidation with another entity. The
stockholders do not have any right to purchase or subscribe for any part of
any new or additional issuance of the Company's securities. The issuance of
such authorized but unissued shares may have the effect of diluting the
earnings per share and book value per share of outstanding Common Stock.
Another potential effect of the increase in the number of authorized but
unissued shares of Common Stock is that the interests of the existing
shareholders in the Company could be diluted substantially, by way of
ownership percentage and voting power, though the issuance of authorized but
unissued shares of Common Stock (but subject to compliance with the NASDAQ
National Market System rules set forth above), without stockholder approval.
Although not a factor in the decision of the Board of Directors to propose the
Reverse Split, the increased number of authorized and unissued shares of
Common Stock could be used by the Board of Directors as an anti-takeover
defense, to raise capital in the future, to finance future acquisitions, to
retire debt or to compensate employees, all without further stockholder
action. The Company currently has no plans, arrangements or understandings
regarding future issuances of Common Stock except in connection with the
Existing Subordinated Notes, the Senior Convertible Notes, the Company's stock
option plans and the Company's shareholder rights plan.
The approval of the Reverse Split is independent of the proposal to approve
the Exchange Offer discussed above and may be implemented if the requisite
vote is achieved, whether or not such other proposal is approved.
32
Effect of Reverse Split
Because the number of issued shares of the Company would decrease but the
par value would remain the same after the Reverse Split, the Company's stated
capital would decrease by approximately $481,138, and the Company's surplus
account would increase by a corresponding amount. This change in the Company's
capital accounts would be reflected in the Company's financial statements,
along with a notation of the change in outstanding shares of Common Stock, as
a result of the Reverse Split.
The proposed Reverse Split will not affect any stockholder's proportionate
equity interest in the Company, except for those stockholders who would
receive cash in lieu of fractional shares. Holders of Common Stock will
continue to be entitled to receive such dividends as may be declared by the
Board of Directors. Outstanding stock options and the total number of shares
authorized for issuance under the Company's stock plans will be
proportionately adjusted to reflect the Reverse Split if it is effected. The
Company's reporting obligations under the Securities Exchange Act of 1934, as
amended, will not be affected by the Reverse Split.
There were no shares of Preferred Stock issued on the Record Date. As of the
Record Date, all 45,000 shares of Preferred Stock designated as Series A
Preferred Stock were reserved for issuance under the Company's Rights
Agreement, dated as of December 30, 1996, with Mellon Investor Services,
L.L.C. (formerly known as ChaseMellon Shareholder Services L.L.C.), as rights
agent (the "Rights Agreement"). The Company is not conducting a reverse split
of any Preferred Stock since no shares of Preferred Stock have been issued.
However, the number of rights under the Rights Agreement associated with each
share of Common Stock shall be increased by a factor of five.
If the amendment is approved by the stockholders and the board determines to
implement the Reverse Split, the Company will file a certificate of amendment
to its Certificate of Incorporation with the Secretary of State of the State
of Delaware. The proposed amendment would become effective as stated therein
and, without further action of the Company or its stockholders, every five
shares of Common Stock outstanding would automatically be deemed to represent
one share.
Exchange of Certificates; No Fractional Shares
No fractional shares of Common Stock will be issued in connection with the
proposed Reverse Split. Assuming the approval of the Reverse Split, a
stockholder who would otherwise be entitled to receive a fractional share of
Common Stock will receive, in lieu thereof, cash in a proportional amount
equal to the closing price of the Common Stock on the NASDAQ National Market
System on the date of this proxy statement.
The Company will appoint Mellon Investor Services, L.L.C., as exchange agent
in connection with the Reverse Split. As soon as practicable after the
effective date of the Reverse Split, holders of Common Stock will be notified
and requested to surrender to the exchange agent any certificate(s)
representing outstanding shares of Common Stock in exchange for certificate(s)
representing the reduced number of shares of Common Stock that will result
from the Reverse Split, together with cash in lieu of any fractional share.
The Company's stock records will be adjusted to reflect the shares held by
each holder of Common Stock after the Reverse Split. On the effective date,
each certificate representing shares of Common Stock will be deemed for all
purposes to represent the reduced number of shares of Common Stock that will
result from the Reverse Split, whether or not the certificates representing
the outstanding Common Stock are surrendered for exchange. The Company will
deposit with the exchange agent, as soon as practicable after the effective
date, cash in an amount equal to the value of the estimated aggregate number
of fractional shares that will result from the Reverse Split. Any portion of
the cash deposited with the exchange agent to pay for fractional shares that
is held by the exchange agent six months after the effective date will be
returned to the Company, on demand. Thereafter, holders of shares eligible for
this cash settlement for fractional shares would be paid directly by the
Company. The Company intends to use cash it holds to make the payments in lieu
of fractional shares. As of December 20, 2001, there were approximately 295
stockholders of record. The Company does not anticipate this number to change
materially as a result of the Reverse Split.
33
No Dissenter's Rights
Neither the Certificate of Incorporation or bylaws of the Company nor the
laws of the State of Delaware require that appraisal rights be available to
stockholders that do not vote to approve the Reverse Split.
Resales of Restricted Securities
The proposed amendment will not affect the transferability of shares of
Common Stock or any present restriction on the sale thereof. Therefore, for
purposes of determining the relevant holding period as prescribed by Rule 144
under the Securities Act of 1933, as amended, the shares of Common Stock to be
issued to each stockholder after the effective date will be deemed to have
been acquired on the date on which the stockholder acquired the shares of
Common Stock held immediately prior to the effective date.
United States Federal Income Tax Consequences
The following is a summary of the material United States federal income tax
consequences relating to the Reverse Split. This discussion does not purport
to address all aspects of United States federal income taxation that may be
relevant to particular stockholders in light of their personal circumstances
or the effect of any applicable state, local or foreign tax laws. The
discussion is not, and should not be relied on as, a comprehensive analysis of
the tax issues arising from or relating to the proposed amendment.
Accordingly, stockholders are urged to consult their personal tax advisors for
an analysis of the effect of the Reverse Split on their respective tax
situations, including consequences under applicable state, local or foreign
tax laws.
This discussion is based upon provisions of the Code, the Treasury
Regulations, and judicial and administrative interpretations of the Code and
Treasury Regulations, all as in effect as of the date hereof, and all of which
are subject to change (possibly on a retroactive basis) or different
interpretation. There can be no assurance that the Internal Revenue Service
(the "Service") will not challenge one or more of the tax consequences
described herein. We have not obtained, nor do we intend to obtain, a ruling
from the Service with respect to the United States federal income tax
consequences of the Reverse Split.
The Reverse Split will be deemed to be a tax-free recapitalization to the
Company and its stockholders to the extent that outstanding shares of Common
Stock are exchanged for a reduced number of shares of Common Stock. Therefore,
neither the Company nor its stockholders will recognize any gain or loss for
federal income tax purposes as a result thereof. However, if a stockholder
receives cash in lieu of any fractional share interest in the Common Stock,
the stockholder will be treated as having received the cash in redemption of
his or her fractional share interest. Depending on the stockholder's retained
stock interest, this cash redemption will be treated as either (a) a dividend
to the extent of the Company's current and accumulated earnings and profits
with any excess first applied against the stockholder's adjusted tax basis
allocable to the fractional share interest and the remainder treated as gain
from the sale or exchange of the fractional share interest or (b) gain or loss
from the sale or exchange of the fractional share interest in an amount equal
to the difference, if any, between the cash received and the stockholder's tax
basis allocable to the fractional share interest.
The shares of Common Stock to be issued to each stockholder will have an
aggregate tax basis, for computing gain or loss, equal to the aggregate tax
basis of the shares of Common Stock held by the stockholder immediately prior
to the effective date, less any tax basis allocable to the fractional share
interest redeemed (if any) to the extent the redemption is treated as a sale
or exchange under the preceding paragraph. A stockholder's holding period for
the shares of Common Stock to be issued will include the holding period for
shares of Common Stock exchanged therefor, provided, that the outstanding
shares of Common Stock are held by the stockholder as capital assets on the
effective date of the Reverse Split.
Amendment
If the Reverse Split is approved, the Certificate of Incorporation, as
amended, will be amended by deleting paragraph (a) of Article Four in its
entirety and inserting in its place the following:
"ARTICLE 4. Description and Authorization of Stock.
(a) Stock Authorization. The total number of shares of capital stock that
the Corporation shall have authority to issue is 205,000,000 shares, which
shall consist of (i) 200,000,000 shares of Common Stock, par
34
value $0.01 per share (the "Common Stock") and (ii) 5,000,000 shares of
Preferred Stock, par value $0.01 per share (the "Preferred Stock").
Simultaneously with the effective date of this amendment (the "Effective
Date"), each five shares of the Company's Common Stock issued and outstanding
immediately prior to the Effective Date (the "Old Common Stock") shall
automatically and without any action on the part of the holder thereof be
combined, pursuant to a reverse stock split, into one share of Common Stock,
par value $0.01 per share (the "New Common Stock"), subject to the treatment
of fractional share interests as described below. Each holder of a certificate
or certificates which immediately prior to the Effective Date represented
outstanding shares of Old Common Stock (the "Old Certificates", whether one or
more) shall be entitled to receive upon surrender of such Old Certificates to
the Company's transfer agent for cancellation, a certificate or certificates
(the "New Certificates", whether one or more) representing the number of whole
shares of the New Common Stock into which and for which the shares of the Old
Common Stock formerly represented by the Old Certificates so surrendered are
combined under the terms hereof. From and after the Effective Date, Old
Certificates shall represent only the right to receive New Certificates
pursuant to the provisions hereof. No certificate or scrip representing
fractional share interests in New Common Stock will be issued, and no
fractional share interest will entitle the holder thereof to vote, or to any
rights of a stockholder of the Company. The Corporation shall issue to each
stockholder of the Corporation otherwise entitled to receive a fractional
share of Common Stock, cash in an amount equal to the product obtained by
multiplying the fraction by the closing price for the Common Stock on the
NASDAQ National Market System on the date that this amendment is filed with
the Secretary of State of the State of Delaware in lieu of a fractional share
of Common Stock. If more than one Old Certificate shall be surrendered at one
time for the account of the same stockholder, the number of full shares of New
Common Stock for which New Certificates shall be issued shall be computed on
the basis of the aggregate number of shares represented by the Old
Certificates so surrendered. In the event that the Company's transfer agent
determines that a holder of Old Certificates has not tendered all his
certificates for exchange, the transfer agent shall carry forward any
fractional share until all certificates of that holder have been presented for
exchange such that payment for fractional shares to any one person shall not
exceed the value of one share. If any New Certificate is to be issued in a
name other than that in which the Old Certificates surrendered for exchange
are issued, the Old Certificates so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person or persons requesting
the exchange shall affix any requisite stock transfer tax stamps to the Old
Certificates surrendered, or provide funds for their purchase, or establish to
the satisfaction of the transfer agent that the taxes are not payable.
Required Vote
In accordance with the laws of the State of Delaware, the affirmative vote
of the holders of a majority of the shares of Common Stock outstanding and
entitled to vote on the Record Date is required to approve the Reverse Split.
Approval of the Reverse Split will also authorize the Board of Directors to,
at any point and in its discretion, abandon and not effect the Reverse Split.
The Board of Directors recommends a vote FOR approval of the amendment to
effect the Reverse Split.
35
CERTAIN TRANSACTIONS
In May 2000, CellStar (Asia) Corporation Limited ("CellStar Asia") loaned
$320,503 to Mr. A.S. Horng, Chairman and Chief Executive Officer of CellStar
Asia, at an interest rate of 6%. CellStar Asia made the loan to Mr. Horng to
assist with the payment of taxes. Mr. Horng repaid the loan in September 2000.
In connection with its initial public offering in December 1993, the Company
bought from Mr. Goldfield, its then Chief Executive Officer, a jet aircraft at
book value and agreed that he would have the right to buy the aircraft back at
its then current book value if the Company decided to sell it. In January
2001, the Company sold the aircraft to Mr. Goldfield for its book value, which
was $2,236,718.
In July 2001, the Company entered into the Separation Agreement and the
Consulting Agreement with Mr. Goldfield. See "Executive Compensation;
Separation Agreement and Release and Consulting Agreement with Mr. Goldfield."
INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of its Audit Committee, has
appointed KPMG LLP as the independent auditors of the Company for the fiscal
year ending November 30, 2001. KPMG LLP served as the Company's independent
certified public accountants for the fiscal year ended November 30, 2000, and
has reported on the Company's consolidated financial statements for such year.
Representatives of KPMG LLP are expected to be present at the Meeting with the
opportunity to make a statement if they so desire and to be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proposals on matters appropriate for
stockholder action at subsequent annual meetings of the Company consistent
with Rule 14a-8 promulgated under the Exchange Act and the Company's
Certificate of Incorporation. Under SEC proxy rules, the Company is required
to provide the following information based on the assumption that the date for
the Company's next annual meeting after the Meeting will be within thirty (30)
days of the first anniversary of the date of the Meeting: any appropriate
proposal submitted by a stockholder of the Company and intended to be
presented at the 2002 annual meeting of stockholders to be held after the
Meeting must be received by the Company by September 16, 2002, to be
considered for inclusion in the Company's proxy statement and related proxy
for the 2002 annual meeting. The Company anticipates that it will have its
next annual meeting after the Meeting no later than November 30, 2002. If that
annual meeting is outside the 30 day period referred to above, then proposals
submitted by a stockholder for inclusion in the Company's proxy statement and
related proxy must be received a reasonable time before the Company prints and
mails its proxy materials.
Also, a stockholder proposal intended to be presented at the next annual
meeting after the Meeting but not included in the Company's proxy statement
for such meeting, must be received by the Company at least 60 days in advance
of the date of that meeting or, if the public announcement of the meeting is
less than 70 days before the date of the meeting, on or before the tenth day
following the date on which the meeting is first publicly announced. According
to the Company's Certificate of Incorporation, a stockholder proposal received
outside of this time period will be considered untimely. Management named in
the Company's proxy form for the annual meeting will then have discretionary
authority to vote shares represented by such proxies on the stockholder
proposal, if presented at the meeting, without including information about the
proposal in the Company's proxy materials. Even if a stockholder makes a
timely notification, management named in the Company's proxy form for the
annual meeting may still exercise discretionary voting authority under
circumstances consistent with the proxy rules of the SEC.
The Company will inform you of any changes of the dates above in a timely
manner and will provide notice of the new dates in a quarterly report on Form
10-Q.
36
The procedure for nominating a person for election to serve as a director is
set forth under "Meetings of Directors and Committees--Nominating Committee."
Any stockholder proposal must provide the information required by the
Company's bylaws and Certificate of Incorporation and comply with any
applicable laws and regulations. All submissions should be made to the
Secretary of the Company at the Company's principal offices at 1730 Briercroft
Court, Carrollton, Texas 75006.
OTHER BUSINESS
The Board of Directors knows of no matters other than those described herein
that will be presented for consideration at the Meeting. However, should any
other matter properly come before the Meeting or any adjournment thereof, it
is the intention of the persons named in the accompanying Proxy to exercise
their discretionary authority to vote in accordance with their best judgment.
DOCUMENTS INCORPORATED BY REFERENCE
Accompanying this Proxy Statement are copies of the Company's Annual Report
on Form 10-K/A Amendment No. 2 for the fiscal year ended November 30, 2000
filed with the SEC on July 6, 2001 (the "Annual Report"), the Company's
Quarterly Report on Form 10-Q/A for the quarterly period ended February 28,
2001 filed with the SEC on July 6, 2001, the Company's Quarterly Report on
Form 10-Q/A for the quarterly period ended May 31, 2001 filed with the SEC on
October 22, 2001, and the Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended August 31, 2001 filed with the SEC on January 10, 2002.
The Annual Report and such quarterly reports are not to be deemed a part of
this Proxy Statement and do not form any part of the material for the
solicitation of Proxies, other than the sections of the Annual Report entitled
"Supplementary Financial Information," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure," and
"Quantitative and Qualitative Disclosures About Market Risk," and the
Company's consolidated financial statements included in the Annual Report and
such quarterly reports, each of which is incorporated herein by reference.
MISCELLANEOUS
The entire cost of soliciting Proxies, including the costs of preparing,
printing and mailing this Proxy Statement and accompanying materials to
stockholders, will be borne by the Company. In addition to solicitation by
mail, directors, officers and employees of the Company may solicit Proxies
personally or by telephone or otherwise, without additional compensation.
MacKenzie Partners, Inc. ("MacKenzie") will assist the Company in the
solicitation of Proxies. The Company estimates that it will pay approximately
$15,000 in fees, plus expenses and disbursements, to MacKenzie for its proxy
solicitation services. The Company may also make arrangements with brokerage
houses and other custodians, nominees and fiduciaries for forwarding of
solicitation materials to the beneficial owners of shares of Common Stock held
by such persons, and the Company may reimburse such brokerage houses and other
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
By Order of the Board of Directors,
[SIGNATURE OF ELAINE FLUD RODRIGUEZ]
[SIGNATURE OF ELAINE FLUD RODRIGUEZ]
Elaine Flud Rodriguez
Senior Vice President, Secretary and
General Counsel
January 14, 2002
37
APPENDIX A
CELLSTAR CORPORATION
AUDIT COMMITTEE CHARTER
The Audit Committee (the "Committee") of CellStar Corporation (the
"Company") is a committee of the Board of Directors. Its primary function is
to assist the Board of Directors in fulfilling its oversight responsibilities
by reviewing (i) the financial information which will be provided to the
shareholders, potential shareholders, the investment community and others;
(ii) reviewing areas of potential significant financial risk to the Company
including the systems of internal controls which management and the Board of
Directors have established; (iii) monitoring the independence and performance
of the Company's independent accountants and internal audit function; and (iv)
reporting on all such matters to the Board of Directors.
In meeting its responsibilities, the Committee is expected to:
Meetings and Memberships
1. Provide an open avenue of communication between the internal auditor, the
independent accountant and the Board of Directors, including meeting with the
internal auditor, the independent accountant and management in separate
executive sessions to discuss any matters that the Committee or any of these
persons believe should be discussed privately with the Committee.
2. The Committee should meet privately in executive session at least
annually with internal audit services and the independent auditors to discuss
any matters that the Committee believes should be discussed.
3. The Committee shall have at least three members, who shall serve at the
pleasure of the Board of Directors. All members shall be outside directors,
and at least two of the members shall be independent directors. An
"independent director" is a person whose only nontrivial connection to the
Company is that person's directorship. An independent director must also meet
the qualifications of an "outside director." All members of the Committee
shall be financially literate and able to read and understand fundamental
financial statements. At lease one member of the Committee shall have
accounting or related financial management experience. An "outside director"
is
(i) a person who is an independent director, or
(ii) a person who
(a) is not employed by the Company or any of its affiliates for the
current year or any of the past three years,
(b) is not a former employee of the Company who receives compensation
for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year,
(c) has not been an officer of the Company,
(d) does not receive remuneration from the Company, either directly
or indirectly, in any capacity other than as a director, as set forth
in 26 C.F.R. Section 1.162-27(e)(3)(i), promulgated under Section 162
(m) of the Internal Revenue Code of 1986, as amended,
(e) is not a member of the immediate family of an individual who is,
or has been in any of the past three years, employed by CellStar or any
of its affiliates as an executive officer,
(f) is not a partner in, or a controlling shareholder or an executive
officer of, any for-profit business organization to which CellStar
made, or from which CellStar received, payments (other than those
arising solely from investments in CellStar's securities) that exceeded
5% of CellStar's or the business organization's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the
past three years,
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(g) is not employed as an executive of another entity where any of
CellStar's executives serve on that entity's compensation committee,
and
(h) does not have a relationship that, in the opinion of CellStar's
Board of Directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.
Immediate family includes a person's spouse, parents, children,
siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, and anyone who resides in that person's
home.
General
1. Review and update the Committee's charter annually.
2. Inquire of management, the internal auditor and the independent
accountant about significant risks or exposures and assess the steps
management has taken to minimize such risk to the Company.
3. Consider with management and the independent accountant the rationale for
employing audit firms other than the principal independent accountant.
4. Consider and review with management, the independent accountant and the
internal auditor:
a. The adequacy of the Company's internal controls, including the
adequacy of controls and security for management information systems and
other information technology.
b. Any related significant findings and recommendations of the
independent accountant and internal audit together with management's
responses thereto.
5. Review filings with the SEC and other published documents containing the
Company's financial statements and consider whether the information contained
in these documents is consistent with the information contained in the
financial statements.
6. Review the Company's policies relating to compliance with laws and
regulations; the Company's code of conduct; ethics; officers' expense
accounts, perquisites, and use of corporate assets; conflict of interest and
the investigation of misconduct or fraud. Determine the extent to which the
planned audit scope of the internal auditor and independent accountant can be
relied on to detect fraud.
7. Review legal and regulatory matters that may have a material impact on
the financial statements, the Company's related compliance policies and
programs and reports received from regulators.
8. Report actions of the Committee to the Board of Directors with such
recommendations as the Committee may deem appropriate.
9. The Committee shall meet at least four times per year or more frequently
as circumstances require. The Committee may ask members of management or
others to attend the meeting and provide pertinent information as necessary.
10. The Committee shall have the power to conduct or authorize
investigations into any matters within the Committee's scope of
responsibilities. The Committee shall be empowered to retain independent
counsel, accountants or others to assist it in the conduct of any
investigation.
11. The Committee will perform such other functions as assigned by law, the
Company's charter or bylaws, or the Board of Directors.
12. Annually, prepare a report to the shareholders as required by the
Securities and Exchange Commission. The report should be signed by the Chair
of the Committee and included in the Company's annual Proxy Statement. State
the Company's Audit Committee has adopted a written charter.
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13. Provide a report of the Committee's activities to the Board at regular
intervals.
14. The Committee members and the Committee chairman shall be designated by
the full Board of Directors upon the recommendation of the Nominating
Committee of the Board of Directors. The duties and responsibilities of a
member of the Committee are in addition to those duties set out for a member
of the Board of Directors. In carrying out these responsibilities, the Audit
Committee believes its policies and procedures should remain flexible in order
that it can best react to changing conditions and environment and to assure
the Board of Directors and shareholders that the Company accounting practices
are in accordance with all requirements and are of the highest quality.
Management
1. Review Management's Discussion and Analysis (MD&A) included in Form 10-K.
2. Review with management the Company's policies and controls, including
reporting controls over derivative transactions, including Foreign Currency
exposures and hedging activities.
Management and Independent Accountant
1. Review quarterly results and related public release with management and
independent accountant prior to release. Review with management, the
independent accountant and the internal auditor Form 10-Q before it is filed
with the SEC.
2. Review with management and the Company's independent public accountants
the applicability and impact of any new pronouncements (or exposure drafts)
issued by the Financial Accounting Standards Board or other applicable
regulatory agencies.
Independent Accountant and Internal Auditor
1. Review with the internal auditor and independent accountant the
appropriateness, not just the acceptability, of accounting principles and
financial disclosure practices used or proposed by the Company and the related
degree of aggressiveness or conservatism of its accounting principles and
underlying estimates.
Independent Accountant
1. Confirm with the independent accountant their ultimate accountability to
the Board of Directors and the Audit Committee, as representatives of the
shareholders. Select and recommend to the Board of Directors the independent
accountant to be proposed for shareholder approval, approve the compensation
of the independent accountant, review and evaluate the independent accountant,
and recommend to the Board of Directors the discharge of the independent
accountant.
2. Take action, or recommend that the full Board of Directors take action,
to oversee the independence of the independent accountant by, among other
things, (i) receiving from the independent accountant a formal written
statement delineating all relationships between the accountant and the
Company, consistent with Independence Standards Board Standard 1, and (ii)
actively engaging in a dialogue with the accountant with respect to any
disclosed relationships or services that may impact the objectivity and
independence of the accountant.
3. Review scope of work planned by the independent accountant for the annual
audit.
4. Review with the independent accountant at the completion of the annual
examination:
a. The Company's annual financial statements and related footnotes to
establish that the organization's financial statements constitute a full
and meaningful report to its shareholders and creditors.
A-3
b. The independent accountant's audit of the financial statements and his
or her report thereon.
c. Any significant changes required in the independent accountant's audit
plan.
d. Any serious difficulties or disputes with management encountered
during the course of the audit.
e. Other matters related to the conduct of the audit which are to be
communicated to the Committee under generally accepted auditing standards
or any other concerns.
f. The Company's compliance with its loan agreements.
g. The existence of significant estimates and the rationale behind those
estimates as well as any significant changes in such estimates.
h. All fees paid to the auditors for the previous fiscal year.
i. Any significant transactions that were not a normal part of the
Company's business.
j. Any change in accounting principles.
k. Any prior period adjustments.
l. The initial reporting of any signification loss or gain contingency
(or significant change in the magnitude of any contingency).
m. The "Management Letter" from the independent accountants.
Internal Auditor
1. Review and concur in the appointment, replacement, reassignment or
dismissal of the Director of Audit Services.
2. Confirm and assure the independence of the internal auditor.
3. Review with the Director of Audit Services the audit scope and plan,
including the coordination of audit effort between the internal auditor and
the independent accountant, to assure completeness of coverage, reduction of
redundant efforts and the effective use of audit resources.
4. Consider and review with management and the internal auditor:
a. Significant findings during the year and management's responses
thereto.
b. Any difficulties encountered in the course of their audits, including
any restrictions on the scope of their work or access to required
information.
c. Any changes required in the planned scope of their audit plan.
d. The internal auditing department budget and staffing.
e. The internal audit department charter.
f. The internal auditor's compliance with the Institute of Internal
Auditors Standards for the Professional Practice of Internal Audits.
A-4
APPENDIX B
PROXY
CELLSTAR CORPORATION
1730 Briercroft Court
Carrollton, Texas 75006
This Proxy is Solicited on Behalf of the Board of Directors.
The undersigned hereby appoints Terry S. Parker and Elaine Flud Rodriguez as
Proxies, each with the power to act without the other and to appoint his or her
substitute, and hereby authorizes them to represent and to vote, as designated
on the other side, all the shares of common stock of CellStar Corporation held
of record by the undersigned on January 8, 2002 at the Annual Meeting of
Stockholders of the Company to be held on February 12, 2002 or any adjournment
thereof.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR Proposal Numbers 1, 2 and 3. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on other side)
FOLD AND DETACH HERE
[X] Indicate
your vote
as shown
in this
example
Statement delivered with this Proxy.
1. Proposal to elect Terry S. Parker as a director for a term expiring in 2004
or until his successor is elected and qualified.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Proposal to approve the Exchange Offer.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to approve the amendment of CellStar's Certificate of Incorporation
to effect a one-for-five reverse stock split of the outstanding shares of
CellStar common stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Proxies are authorized to vote,
in their discretion, upon such
other business as may properly come
before the meeting.
Dated:_______________________, 2002
___________________________________
Signature
___________________________________
Signature if held jointly
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by the President or
other authorized officer. If a
partnership, please sign in
partnership name by an authorized
person.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
B-2