EXHIBIT 10.3
EXHIBIT A
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Terms of Net Earnings Calculation
The following is the replacement Exhibit A referred to in the
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Consulting Agreement (the "Agreement") dated as of July 5, 2001, by and between
CellStar Corporation (the "Company") and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("Consultant"). This
Exhibit A supercedes the Exhibit A previously attached to the Agreement. All
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capitalized terms used but not defined in this Exhibit A shall either have the
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meanings assigned to them in the Agreement or, if such terms are not defined in
the Agreement, shall refer to line items on the Company's consolidated statement
of operations prepared in accordance with GAAP (defined below). When used in the
numbered paragraphs below, the term, "Company" shall mean the Company and all
direct and indirect subsidiaries of the Company. The headings of the numbered
paragraphs below are included solely for convenience of reference and shall not
control the meaning of any of the provisions of this Exhibit A.
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Section 6(b) of the Agreement provides that the Company shall pay
Consultant five (5) percent of the Net Earnings that the Company generates
during the Term (subject to Sections 4 and 5 of the Agreement). Except as
specifically provided otherwise herein, Net Earnings shall be calculated by
subtracting the costs and expenses described in paragraphs 2 through 10 below
from New Business Line Revenues (defined below), all in accordance with U.S.
generally accepted accounting principles applied on a consistent basis by the
Company, except for changes required by U.S. generally accepted accounting
principles ("GAAP"), and amounts due under Section 6(b) of the Agreement shall
be paid as set forth below:
1. Revenues. Revenues from New Business Lines shall include only those
amounts, if any, that (a) would properly be classified as "Revenues" in
the Company's consolidated statement of operations and (b) are
recognized as revenues from the sale or rental by the Company of
products or the provision by the Company of services, as the case may
be, within a New Business Line. Such revenues are referred to herein as
"New Business Line Revenues."
2. Cost of Sales. Cost of Sales shall include only those costs and
expenses incurred by the Company that (a) would properly be classified
as "Cost of Sales" in the Company's consolidated statement of
operations and (b) are directly associated or identifiable with New
Business Line Revenues. If only a portion of a cost or expense that
would otherwise be included in Cost of Sales is directly associated or
identifiable with New Business Line Revenues, the Company shall include
in the calculation of Net Earnings only that portion of such cost or
expense that is directly associated or identifiable with New Business
Line Revenues.
3. Selling, General and Administrative Expenses other than Bad Debt
Expenses and Depreciation and Amortization Expenses. Only the
Allocated Portion (defined below) of all Selling, General and
Administrative Expenses incurred by CellStar International
Corporation/Asia
("CellStar Asia") and its direct and indirect subsidiaries other than
all Parent Management Fees (defined below), Bad Debt Expenses (defined
below) and Depreciation and Amortization Expenses (defined below)
shall be included in the calculation of Net Earnings. "Allocated
Portion" shall mean the quotient determined by dividing all New
Business Line Revenues for the relevant time period by the total
revenues of CellStar Asia and its direct and indirect subsidiaries for
the same time period. All Parent Management Fees, Bad Debt Expenses
and Depreciation and Amortization Expenses shall be included in the
calculation of Net Earnings only as provided in paragraphs 4, 5 and 6
below.
4. Parent Management Fees. The Allocated Portion of the total operating
expenses, administrative, management, information technology and other
service fees, license and maintenance fees and royalties charged by
CellStar Ltd. or its successors to CellStar Asia and its direct and
indirect subsidiaries under Consulting and Technical Assistance
Agreements and License Agreements or similar agreements (the "Parent
Management Fees") for the relevant period will be included in the
calculation of Net Earnings.
5. Bad Debt Expenses. Only those bad debt expenses of the Company
("Bad Debt Expenses") that are directly associated or identifiable
with New Business Lines shall be included in the calculation of Net
Earnings. If only a portion of a Bad Debt Expense is directly
associated or identifiable with New Business Lines, then the Company
shall include in the calculation of Net Earnings only that portion of
such Bad Debt Expense that is directly associated or identifiable with
New Business Lines. If a Bad Debt Expense is included in the
calculation of Net Earnings and all or a portion of the account
receivable included in such Bad Debt Expense is subsequently collected
by the Company at any time during the Term, then such portion of the
account receivable included in such Bad Debt Expense that was
subsequently collected shall be recognized as revenues for the period
during which it was collected, and Net Earnings from prior periods
shall not be recalculated to reflect the collection of such accounts
receivable.
6. Depreciation and Amortization Expenses. Depreciation and amortization
expenses, including without limitation any impairment charges,
incurred by CellStar Asia and its direct and indirect subsidiaries
("Depreciation and Amortization Expenses") shall be calculated in
accordance with GAAP on those assets that are directly associated or
identifiable with New Business Lines conducted by the Company, and
such Depreciation and Amortization Expenses shall be included in the
calculation of Net Earnings. If the depreciation or amortization
expense is on an asset only a portion of which is directly associated
or identifiable with a New Business Line, then the Company shall
include in the calculation of Net Earnings that portion of such
depreciation or amortization expense that is equal to that portion of
the asset that is directly associated or identifiable with a New
Business Line.
7. Interest Expense. Interest expense shall be calculated by applying the
Company's Weighted Average Interest Rate (defined below) to the amount
of the investment the Company has made to
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support New Business Lines, which shall include, without limitation,
loans, advances, equity investments, capital expenditures and the
amount of Adjusted Working Capital (defined below) that supports New
Business Lines. In any event, interest expense attributable to
investments made to support the Company's operations in the United
States shall not be included in the calculation of Net Earnings.
"Weighted Average Interest Rate" shall mean the rate of interest per
annum determined by calculating the Company's weighted average rate of
interest per annum during the relevant time period based on the
amounts included as "notes payable" and/or "debt" on the Company's
balance sheet. "Adjusted Working Capital" shall mean the dollar
amounts of (a) inventory, plus (b) accounts receivable, minus (c)
accounts payable for the relevant time periods, but cannot in any
event be a negative number.
8. Extraordinary Items. Those items that would properly be classified as
extraordinary items under GAAP shall be excluded from the calculation
of Net Earnings unless such items are directly associated or
identifiable with New Business Lines, in which case the portion of
such items that is directly associated or identifiable with New
Business Lines shall be included in the calculation of Net Earnings.
9. Currency Exchange and Hedging Transactions. Gains, income, losses and
expenses from currency exchange and hedging transactions shall be
included in the calculation of Net Earnings only if such items are
directly associated or identifiable with New Business Lines. If only a
portion of any gain, income, loss or expense is directly associated or
identifiable with a New Business Line, then the Company shall include
in the calculation of Net Earnings only that portion of such gain,
income, loss or expense that is directly associated or identifiable
with a New Business Line.
10. Income Taxes. The amount of taxes that shall be included in Provision
for Income Taxes shall be determined by multiplying (a) the earnings
before taxes from New Business Lines calculated in accordance with the
procedures set forth in paragraphs 1 through 9 of this Exhibit A, by
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(b) the applicable statutory tax rate(s) for the entity that
recognized such earnings before taxes from New Business Lines.
11. Payment of Amounts to Consultant. The payment of all amounts due to
Consultant under Section 6(b) of the Agreement shall be calculated and
made as follows:
a. Quarterly Calculation and Payment. The Company shall, on or
before the date the Company issues a press release
announcing quarterly earnings after the end of each fiscal
quarter (other than the Company's fourth fiscal quarter)
during the Term but in no event later than forty-five (45)
days after the end of such fiscal quarter, calculate the Net
Earnings (if any) for such quarter and send Consultant a
copy of such calculation, along with a Company check payable
to Consultant in an amount equal to seventy-five (75)
percent of five (5) percent of the Net Earnings (if any) for
such fiscal quarter (a "Quarterly Payment"). The remaining
twenty-five (25) percent of the five (5) percent of the Net
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Earnings (the "Withheld Quarterly Amount") shall be withheld
by the Company pending a determination of Net Earnings under
paragraph 11.b after the end of the fiscal year with respect
to which the Quarterly Payment is made.
b. Annual Calculation and Payment. The Company shall, on
or before the date the Company issues a press release
announcing annual earnings after the end of each fiscal
year during the Term, but in no event later than ninety (90)
days after the end of such fiscal year, calculate the Net
Earnings (if any) for such fiscal year and send Consultant a
copy of such calculation (an "Annual Net Earnings
Statement"). If the amount due Consultant under Section 6(b)
of the Agreement for such fiscal year exceeds the total
amount of the Quarterly Payments the Company previously paid
to Consultant with respect to such fiscal year, then the
Company shall include with such Annual Net Earnings
Statement a Company check payable to Consultant in an amount
equal to such excess plus any interest that Consultant may
be due as provided below in this paragraph 11.b. The Company
shall pay Consultant interest on a Withheld Quarterly Amount
only if Net Earnings for the fiscal year with respect to
which the Withheld Quarterly Amount was withheld exceeds Net
Earnings for the fiscal quarter for which the Withheld
Quarterly Amount was withheld. Any such interest shall
accrue at the Weighted Average Interest Rate from the date
the related Quarterly Payment was due.
If the aggregate Quarterly Payments for any fiscal year
exceed the amount due Consultant under Section 6(b) of the
Agreement for such fiscal year, then the Company shall
include in such Annual Net Earnings Statement a calculation
of such excess. Consultant shall be required to repay to the
Company the amount of any such excess, plus any interest
determined as set forth below in this paragraph 11.b and set
forth on such Annual Net Earnings Statement, within ten (10)
days after receiving such Annual Net Earnings Statement
(subject to Consultant exercising his right to dispute the
Annual Net Earnings Statement pursuant to paragraph 12 of
this Exhibit A). Consultant shall pay the Company interest
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on a Quarterly Payment only if the Company has no Net
Earnings for the fiscal year with respect to which the
Quarterly Payment was made. Any such interest shall accrue
at the Weighted Average Interest Rate from the date the
Company paid the Quarterly Payment.
12. Procedure to Dispute Calculation of Net Earnings. Consultant shall be
entitled to challenge the Company's calculation of Net Earnings in an
Annual Net Earnings Statement by following the procedure set forth in
this paragraph 12. Consultant shall not be entitled to challenge the
Company's quarterly calculation of Net Earnings under paragraph 11.a
of this Exhibit A. During the Term, Consultant shall have reasonable
access to the books and records of the Company. If Consultant desires
to dispute an Annual Net Earnings Statement, Consultant shall notify
Company of his objections within thirty (30) days after delivery of
the Annual Net Earnings Statement and shall set forth in reasonable
detail in such notice the reason for Consultant's objections. If
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Consultant fails to deliver such notice within such time period,
Consultant shall be deemed to have accepted such Annual Net Earnings
Statement and shall not be entitled to dispute such Annual Net
Earnings Statement. If Consultant timely delivers such notice, Company
and Consultant shall endeavor in good faith to resolve their dispute
over the Annual Net Earnings Statement within thirty (30) days after
Company's receipt of Consultant's notice. If they are unable to
resolve their disputes within such thirty (30) day dispute resolution
period, any disputes will be resolved by a panel of accountants, with
the Company selecting an accounting firm of national reputation and
standing within twenty (20) days after the conclusion of such thirty
(30) day dispute resolution period, Consultant selecting an accounting
firm of national reputation and standing within twenty (20) days after
the conclusion of such thirty (30) day dispute resolution period and
such two accounting firms then selecting a third accounting firm
within ten (10) days after the end of such twenty (20) day selection
period. The panel of accounting firms shall decide the dispute and
issue a written summary of its decision within ninety (90) days after
all accounting firms included in such panel have been selected. The
Company and Consultant shall cooperate with each other and the panel
of accounting firms in the panel's resolution of the dispute,
including without limitation, allowing Consultant and the panel of
accountants reasonable access to the books and records of the Company.
The decision of the panel of accountants shall be final and binding on
the Company and Consultant. Any party shall make any further payment
required to comply with such decision within ten (10) business days
after such decision is rendered. If the Company's calculation of Net
Earnings is more than three (3) percent less than the correct
calculation of the amount of Net Earnings, the Company shall pay all
costs and expenses of the panel of accountants under this paragraph 12
and all reasonable costs and expenses incurred by Consultant in
challenging such Net Earnings Calculation (whether or not a panel is
selected). Otherwise, Consultant shall pay all costs and expenses of
the panel of accountants under this paragraph 12.
13. Miscellaneous. If the Company defers the recognition of New Business
Line Revenues or accelerates the recognition of expenses included in
the calculation of Net Earnings in a manner that is not in accordance
with GAAP, then such deferral of New Business Line Revenues or
acceleration of expenses shall be ignored for purposes of calculating
Net Earnings under this Exhibit A. In no event shall any item be
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included in the calculation of Net Earnings more than once.
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IN WITNESS WHEREOF, the undersigned acknowledge and agree as of
September 14, 2001 to the terms and conditions set forth on this Exhibit A to
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the Consulting Agreement dated as of July 5, 2001, by and between CellStar
Corporation and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.
Consultant:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
The Company:
CELLSTAR CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Title: Senior Vice President and General Counsel
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