Exhibit 10.10
AMENDMENT No. 3 TO
DISTRIBUTION AND FULFILLMENT SERVICES AGREEMENT
This Amendment No. 3 to Distribution and Fulfillment Services Agreement
(this "Amendment 3") is effective as of October 9, 2002 ("Amendment 3 Effective
Date"), by and between Cricket Communications, Inc., successor in interest to
Chase Telecommunications, Inc., a Delaware corporation ("Cricket"), and
CellStar, Ltd., a Texas limited partnership ("CellStar").
WITNESSETH:
WHEREAS, Cricket and CellStar are parties to that certain Distribution and
Fulfillment Services Agreement, effective as of December 22, 1999 ("Distribution
Agreement"), as amended by Amendment No. 1 ("Amendment 1"), effective as of
September 21, 2001, and as extended by letter dated January 15, 2002 ("Letter
Agreement"), and amended by Amendment No. 2, as amended ("Amendment 2") to
Distribution and Fulfillment Services Agreement, effective as of April 30, 2002,
(collectively, the Distribution Agreement, Amendment 1, Letter Agreement and
Amendment 2, shall be referred to herein as the "Agreement"), pursuant to which
CellStar provides distribution, fulfillment and logistics services to facilitate
the sale and distribution of mobile phone handsets and accessories to Cricket
and its customers; and
WHEREAS, the parties desire to amend the Agreement to contemplate changes
in the extension of credit, the supply of Products to CellStar, and the Xxxx and
Hold procedures in Amendment 1;
NOW, THEREFORE, in consideration of mutual covenants herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. The capitalized terms used herein shall have the
same meaning as set forth in the Agreement, unless otherwise defined herein.
SECTION 2. Credit Terms. CellStar agrees to extend credit to Cricket for
purchases of Products, payment of fees for Services, and any other fees or
amounts due to CellStar in an amount not to exceed [*] Dollars
(US$[*]) at any one time (the "Credit Limit"), such sums to be due and
payable by Cricket net thirty (30) days after the date of the invoice, less any
amounts disputed in good faith by Cricket within such thirty (30) day period.
CellStar shall promptly issue such invoices following CellStar's shipment of
Product.
The parties agree to meet on a weekly basis by telephone to discuss
Cricket's financial condition, progress towards debt restructuring, and the
status of then current business transactions between the parties, including
inventory and accounts receivable balances, etc. In addition, Cricket will
provide information on, and weekly verification of, the consolidated cash
balance of each of Leap Wireless International, Inc., and its subsidiaries, on a
consolidated basis, ("Leap"), and for Cricket and its subsidiaries, on a
combined basis, (each, a "Cash Balance"). If either the Leap Cash Balance is
less than $[*], or the Cricket Cash Balance is less than $[*], then the parties
agree to discuss in more detail the financial condition of Cricket. If either
the Leap Cash Balance is less than $[*], or the Cricket Cash Balance is less
than $[*], then Cricket agrees (i) to meet in person with CellStar to provide
details on the current financial and operating condition of Cricket, and (ii)
that
THIS AGREEMENT HAS CONFIDENTIAL PORTIONS OMITTED, WHICH PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH BRACKETS ([*]).
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CellStar may immediately adjust Cricket's Credit Limit to equal the outstanding
accounts payable balance owed to Cricket from CellStar, which resulting Credit
Limit shall not exceed $[*] at any time. For each week that Leap's Cash Balance
or Cricket's Cash Balance is less than $[*] or $[*] respectively, the amount of
outstanding accounts payable to Cricket from CellStar as of the close of
business each Friday during such period shall become Cricket's Credit Limit for
the immediately following week. CellStar agrees that all information pertaining
to Cricket, Leap and their respective finances discussed during such meetings
shall constitute "Information" to be kept confidential pursuant to the Mutual
Nondisclosure Agreement between the parties dated effective March 4, 2002.
SECTION 3. Payments Following Execution of this Amendment 3. Promptly
following the execution of this Amendment 3, Cricket agrees to payoff its
current account with CellStar as such amount is set forth in the attached
Exhibit F (the "Payoff Amount"). Promptly following CellStar's receipt of the
Payoff Amount, CellStar agrees to pay Nokia in full for all unpaid purchases of
Products by CellStar from Nokia, as such amounts are set forth in the attached
Exhibit G. Cricket agrees to purchase Nokia handset Products first from
CellStar, to the extent that CellStar has such Products in CellStar's current
inventory, and, second from Nokia, on a Product-by-Product basis.
SECTION 4. Credits Due to Cricket; Application to Audiovox Handset
Products. The parties agree that current credits due to Cricket from CellStar
are $[*] (the "Current Credit") as set forth in the attached Exhibit H. The
Current Credit shall be allocated to pay for sums due to CellStar for a portion
of the current inventory of handset Products, as follows:
Cost per Fee per Cost plus
Manufacturer Model Quantity Unit Unit Free per Unit Extended Cost
Audiovox PCX1110XL [*] $ [*] $ [*] $ [*] $ [*]
Nokia 5170i [*] $ [*] $ [*] $ [*] $ [*]
Total $ [*]
The balance due CellStar after application of the Current Credit shall be added
to Cricket's account. The Audiovox and Nokia Product referenced above shall
immediately become Consignment Product (as defined below) subject to the terms
and conditions of this Amendment 3. When the quantity of Audiovox Product Model
No. PCX1110XL in stock at CellStar reaches 5,000 units, CellStar shall promptly
give notice to Cricket and to Audiovox, and order Audiovox to fulfill the
current outstanding purchase order for an additional 5,000 units of Audiovox
handset Products.
Going forward, CellStar agrees to promptly issue a credit memo to Cricket for
all future credits as they accrue, including without limitation, credits for
Cricket's payments under Section 9 of the Distribution Agreement for Products
that have been returned to CellStar (the "Dealer Subsidy Credit").
SECTION 5. Supply of Products to CellStar; Motorola Products. Unless
otherwise agreed by the parties and except for Motorola wireless handsets and
related accessories (the "Motorola Products") and the Audiovox Product currently
on order, Cricket shall be responsible for providing all future Products
("Consignment Products") to CellStar by Cricket's placement of purchase orders
directly with the applicable Manufacturers with instructions to ship such
Consignment Products directly to CellStar. Notwithstanding this Section 5,
Cricket may require CellStar to purchase Product inventory from Manufacturers
other than Motorola. All Product purchases by CellStar from the Manufacturers
shall be applied against the Inventory Limit (as defined in Section 6) until
sold by CellStar. CellStar will
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purchase Consignment Products from Cricket at the full original purchase price
thereof, such amounts to be paid by CellStar to Cricket thirty- (30) days after
such purchase transaction. Initially, the frequency of CellStar's purchases of
Consignment Products will occur twice per month, but shall be adjusted as
circumstances warrant to facilitate the efficient and effective servicing of the
Dealer channel by CellStar. Cricket may require CellStar to credit amounts due
to Cricket's account with CellStar as such amounts become due in lieu of
CellStar actually transmitting funds to Cricket, whereupon CellStar shall
reflect such credits on CellStar's invoices to Cricket. Section 4 of the
Distribution Agreement is amended such that title to Consignment Products shall
remain in Cricket until sold to CellStar pursuant to this Section, whereupon
title and risk of loss shall transfer to CellStar.
Neither CellStar, nor its creditors or lenders, shall retain or claim any
ownership interest or security interest in or lien or encumbrance on any
Consignment Products or any other Products for which title has transferred to
Cricket under the terms of the Agreement and specifically disclaim and waive any
such security interest whether arising by presumption or operation of law.
CellStar agrees to provide and execute any documents required to perfect
Cricket's or Cricket's lenders' security interest in such Consignment Products,
including without limitation, such UCC-1 forms as required by the jurisdiction
in which such Consignment Products are stored by CellStar prior to shipment.
SECTION 6. Exhaustion of Current Inventory. With respect to handset
Products in CellStar's inventory on the Amendment 3 Effective Date, Cricket
agrees to order the shipment of such Products first from CellStar until its
inventory is depleted before Cricket requires CellStar to ship such Products
from Consignment Product inventory. Notwithstanding the provisions of this
Section 6, Cricket need not first exhaust every model in the current CellStar
inventory of existing handset Products before requiring the shipment from
Consignment Products of a different handset Product, subject to the Inventory
Limit. Notwithstanding Cricket Forecasts, once the current inventory level is
reduced, then beginning November 15, 2002, CellStar shall not be obligated to
maintain an inventory of CellStar owned Cricket Product of more than $[*] of
handset Products in the aggregate, of which no more than $[*] in the aggregate
can be handset Product other than Motorola handset Product (the "Inventory
Limit"). If the level of CellStar owned inventory of handset Product exceeds the
Inventory Limit as of November 15, 2002, then such excess Product shall be
immediately subject to the Xxxx and Hold procedures on a "first in, first out"
basis. For purposes of clarification, "CellStar owned Cricket Product" includes
only that Product to which CellStar has title pursuant to the Agreement, and
does not include any Xxxx and Hold Products or Consignment Products.
SECTION 7. Segregation of Consignment Products. CellStar shall store all
Consignment Products in CellStar's warehouse facilities in a secure location,
and shall segregate, identify and designate such Consignment Products as owned
by Cricket, including without limitation: (i) designating all Consignment
Products as Cricket property in CellStar's inventory records, including computer
database; (ii) maintaining the Consignment Product in an identifiable and
segregated fashion so as to permit Cricket or others to easily and accurately
identify the Consignment Products owned by Cricket, and (iii) segregating
tracking of the Consignment Product inventory so as to permit CellStar to
generate separate sales and inventory reports, provided, however, that both
parties recognize that such segregation will not require CellStar to maintain a
separate area dedicated only to Consignment Product.
SECTION 8. Insurance and Risk of Loss.
(a) CellStar shall bear all risk of casualty loss with respect to
Consignment Product while such Product remains in CellStar's custody and
control. CellStar shall, at its sole cost and expense, maintain casualty loss
insurance for Consignment Product pursuant to the limits set forth in subsection
(b) below. CellStar shall add Cricket as an additional insured under the
casualty loss insurance policies to the extent of Cricket's interests therein
that cover the Consignment Products and shall provide Cricket with a
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certificate of insurance that identifies Cricket as an additional insured under
such policy. Cricket shall not be under any obligation to inspect any of the
Consignment Products for conformity or to accept or reject such goods until such
time as the Consignment Products are delivered to Cricket or its designees.
CellStar shall not pledge nor encumber any of the Consignment Products, and
shall neither cause nor permit any lien or encumbrance on any Consignment
Products.
(b) The risk of loss for Consignment Product shall be limited as follows:
(i) For handsets and accessories: the replacement cost at the time
of the loss plus the cost of the delivery of goods to the
designated warehouse;
(ii) For obsolete handset Products or for identically unavailable
handset or accessory Products: the replacement cost of "like
kind and quality" Products plus the cost of the delivery of such
Products to the designated warehouse; and.
(iii) For handsets or accessories originally purchased as Consignment
Product by Cricket at a significant discount under the then
existing market price: the replacement cost of the Consignment
Product at the time of the loss plus the cost of the delivery of
such Product to the designated warehouse.
(c) All Consignment Product will be insured at replacement cost valued the
date of the loss unless such alternate valuation is approved by the insurance
underwriters of the CellStar insurance coverage. In all cases, Cricket will
cooperate with CellStar and CellStar's insurance carrier to verify its claims.
SECTION 9. Inclusive Services Fee for Consignment Handset Products. The
Inclusive Services Fee for all handset Products shall be $[*]/Product.
SECTION 10. Handset Pricing. The second sentence of Section 3 in the
Distribution Agreement shall be amended and restated as follows: "Handsets sold
by CellStar to Cricket, or to customers of Cricket for and on behalf of Cricket,
shall be sold at prices not to exceed the prices set forth on Exhibit E hereto,
as amended from time to time by mutual agreement." Attached is the most current
handset Product pricing which shall supplement the current Exhibit E to the
Agreement.
SECTION 11. Examination. Upon the giving of not less than one business day
advance written notice to CellStar, Cricket shall be entitled to periodic and
reasonable access to CellStar facilities during normal business hours to confirm
that the process referred to above is adhered to by CellStar in connection with
the Consignment Products.
SECTION 12. Storage Fees. During the period such Consignment Products are
stored in CellStar facilities CellStar shall have the right, at its discretion,
to charge reasonable fees for costs associated with labeling and warehousing the
Consignment Products. Such fees shall equal (i) [*] cents ($[*]) for labels
applied to each handset or accessory constituting Consignment Products, which
fee shall be invoiced to Cricket when required to maintain inventory control;
and (ii) [*] cents ($[*]) storage fee per month for each Consignment Product
(handset and accessory) stored by CellStar in its facilities; provided, however,
that such storage fee shall not be charged to Cricket until sixty (60) days
after the date such Consignment Product is received by CellStar. No Consignment
Product can be stored at CellStar's facilities for more than six (6) months from
the date first received by CellStar. All Consignment Product in CellStar's
facilities for more than six (6) months shall be shipped by CellStar to
Cricket's designated location at the end of such six (6) month period.
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SECTION 13. Xxxx and Hold Procedures. The provisions of Amendment 1,
including without limitation, the terms of the Xxxx and Hold Letter attached
thereto, shall henceforth apply only to non-Consignment Products and shall be
deemed of no further force or effect as of the Amendment 3 Effective Date with
respect to Consignment Products. This Amendment 3 shall not affect the
application of Amendment 1 as it pertains to any Products purchased by CellStar
for Cricket before or after the Amendment 3 Effective Date.
SECTION 14. Agreement Term; Current Business Levels. The term of the
Agreement shall be deemed extended through January 31, 2003, unless extended or
otherwise amended by the parties in writing. Cricket agrees to continue doing
business with CellStar in the same manner as it does today through January 31,
2003, provided that CellStar is not in material breach of the Agreement.
CellStar acknowledges that Cricket will continue to use Advantage Advisory
Services, Inc. for distribution of Nokia Products at current levels through
January 31, 2003. If CellStar refuses for any reason to sell Product to a
designated customer or Dealer, then Cricket may make any other arrangements
necessary to distribute Products to such customer or Dealer. If Cricket or
CellStar decide not to continue this Agreement beyond its expiration, then
Cricket and CellStar agree to make reasonable commercial efforts to gradually
wind up CellStar's distribution of Products during the two month period ending
on March 31, 2003 pursuant to the terms and conditions of this Agreement. At the
end of the two month period, all remaining Product shall be shipped at Cricket's
expense to a location designated by Cricket. CellStar shall submit a final
invoice for such Product and all associated fees and outstanding amounts due and
owing, which invoice shall be paid by Cricket within thirty- (30) days of the
date of such invoice.
SECTION 15. Dealers/Distributors Handset Returns. Dealers and distributors
of Cricket ("Dealers") will be allowed to return handset Products purchased from
CellStar (A & B Stock) back to CellStar for credit at the price at which it was
originally purchased. All returned inventory will be invoiced to Cricket upon
receipt at the current Acquisition Cost of the returned Product. At the end of
each month, CellStar will credit to Cricket the difference between the
Acquisition Cost of returned Product as invoiced to Cricket and the credit
issued to the Dealer for such returned Product. Returned Product shall become
part of the Xxxx and Hold Product inventory upon issuance of an invoice therefor
by CellStar. CellStar will ship returned B Stock Product to Trillium at their
Coppell, Texas location, or as otherwise instructed by Cricket. If Cricket
requests the returned B Stock Product to be shipped to a location other than
Trillium at their Coppell, Texas location, then Cricket shall pay CellStar the
cost of such shipment.
SECTION 16. All Other Provisions of Agreement Unaffected. Except as
specifically modified by this Amendment 3, all other terms and conditions
contained in the Agreement, as previously amended and extended, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hand to this
Amendment by their duly authorized representatives.
CELLSTAR, LTD. CRICKET COMMUNICATIONS, INC.
By: National Auto Center, Inc.,
Its General Partner
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxx XxXxxxx
--------------------------- -------------------------
Name: Xxxxxx Xxxxxx Name: Xxx XxXxxxx
Title: Chief Financial Officer Title: VP Sales and Marketing
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EXHIBIT E
(Supplement)
Current Handset Pricing
Handset Price
Audiovox PCX1110XL [$* ]
Audiovox PCX1110XL - Costco [$* ]
Kyocera 2035 [$* ]
Kyocera 2235 [$* ]
LG 2300 [$* ]
Motorola v.120c [$* ]
Motorola v.120x [$* ]
Motorola v.120x - Costco [$* ]
Motorola v.60 [$* ]
Nokia 5170I [$* ]
Nokia 5185I [$* ]
Nokia 6370 [$* ]
Nokia 8270 [$* ]
Qualcomm 1960 [$* ]
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EXHIBIT F
CellStar Accounts Receivable from Cricket
As of 10-02-02
Invoice/Voucher Date Regular Consignment Total
CELSTAR0819/0825 [*] [*] [*]
CELSTAR0902-0908 [*] ([*]) ([*])
CELSTAR0909-0915 [*] ([*]) ([*])
CELSTAR081502 [*] [*] [*]
CELSTAR0916-0922 [*] [*] [*]
CELSTAR0923-1001 [*] - [*]
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Total Balance - Prior to Payment [*] [*] [*]
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Less 10/2/02 Payment ([*]) ([*]) ([*])
-------------------------------------------------------
Total Outstanding Balance [*] ([*]) [*]
=======================================================
Amount to be paid to Cell Star by Cricket $ [*]
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been separately filed with the Securities and Exchange Commission.
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EXHIBIT G
CellStar Accounts Payable to Nokia
Total CellStar - Cricket related accounts payable owed to Nokia on 10/4/02
Nokia statement - 9-27-02 $ [*]
Less: Items paid by CellStar 9-27-02, check [*]
Invoice 220260122 ([*])
Invoice 220254468 [*]
Less: Freight credit for Invoice 220263355 [*]
Less: Invoice 220221927 - POD required [*]
Total deductions [*]
Net owed by CellStar to Nokia $ [*]
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been separately filed with the Securities and Exchange Commission.
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EXHIBIT H
Current Credit
Pass through credit - Nokia $ [*]
May dealer return subsidies [*]
June dealer return subsidies [*]
July dealer return subsidies [*]
August dealer return subsidies [*]
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TOTAL $ [*]
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been separately filed with the Securities and Exchange Commission.
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