ANYTHING HEREIN
TO THE CONTRARY NOTWITHSTANDING, THE REPAYMENT OF THE OBLIGATIONS
EVIDENCED BY THIS NOTE, THE LIENS AND SECURITY INTERESTS SECURING
THE OBLIGATIONS EVIDENCED BY THIS NOTE, THE EXERCISE OF ANY RIGHT
OR REMEDY WITH RESPECT THERETO, AND CERTAIN OF THE RIGHTS OF THE
HOLDER HEREOF ARE SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR
AND SUBORDINATION AGREEMENT DATED AS OF MARCH 12, 2007 (AS AMENDED,
RESTATED, SUPPLEMENTED, OR OTHERWISE MODIFIED FROM TIME TO TIME,
THE “INTERCREDITOR AGREEMENT”), BY AND BETWEEN WELLS
FARGO FOOTHILL, INC., AS SENIOR AGENT, AND NEWCASTLE PARTNERS,
L.P., AS SUBORDINATED CREDITOR. IN THE EVENT OF ANY CONFLICT
BETWEEN THE TERMS OF THE INTERCREDITOR AGREEMENT AND THIS NOTE, THE
TERMS OF THE INTERCREDITOR AGREEMENT SHALL GOVERN AND
CONTROL.
AMENDED AND RESTATED
CONVERTIBLE PROMISSORY NOTE
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$10,000,000
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March 12, 2007
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FOR VALUE
RECEIVED, each of the undersigned, BELL INDUSTRIES, INC., a
California corporation (the “Maker” or
“Company”) and BELL INDUSTRIES, INC., a Minnesota
corporation (together with Maker, referred to herein collectively
as the “Obligors”), hereby jointly and severally
promise to pay to the order of Newcastle Partners, L.P. a Texas
limited partnership, or its assigns (the “Payee”), at
such place as the Payee may designate in writing, the principal sum
of Ten Million ($10,000,000), or such other amount as shall equal
the outstanding principal amount hereof, under the terms set forth
herein. Capitalized terms used but not defined herein shall have
the respective meanings given to such terms in the Purchase
Agreement, dated as of January 31, 2007 (the “Purchase
Agreement”), between the Maker and the Payee.
1.
Interest . Except as otherwise provided herein, the unpaid
principal balance hereof from time to time outstanding shall bear
interest from January 31, 2007 at the rate of eight percent
(8%) per annum, subject to adjustment as provided for in
Section 6. Interest shall accrue on the outstanding unpaid
principal amount (as increased pursuant to Section 2(a) below)
until such principal amount is paid (or converted as provided
herein) from January 31, 2007. Interest on this Note shall be
computed on the basis of a 365-day year.
2.
Payment of Interest and Principal . Except as otherwise
provided herein (including, without limitation, Sections 5 and
6 hereof), and subject to any default hereunder, the principal and
interest hereof is payable as follows:
(a) Interest
shall be paid in kind and shall accrete as additional principal on
this Note on the applicable interest payment date; provided that,
following January 31, 2008, if both (i) Maker’s senior
lenders (including Agent, in the event that the Senior Credit
Agreement remains in effect) consent in writing to the payment of
cash interest and (ii) the Current Market Price at the date of
election (which shall be on or following January 31, 2008) is
at least 200% of the Conversion Price, interest on the then
outstanding principal balance of this Note may be paid in cash at
the election of Maker; provided further that, if such election to
pay cash interest is made,
the interest
rate set forth in Section 1 hereof shall be increased to the
lesser of (a) sixteen percent (16%) or (b) the highest lawful
interest rate permitted by applicable law; and provided further
that any accrued interest as of the date of such election shall
accrete as additional principal on this Note as of such election
date. Interest shall be payable in arrears on December 31,
March 31, June 30 and September 30 of each year,
beginning March 31, 2007. All references herein to the
“principal” of this Note shall include all interest
accreted thereon as additional principal pursuant to the foregoing
sentence.
(b) The
entire outstanding principal amount of the Note together with all
accrued but unpaid interest shall be due in cash on
January 31, 2017 (the “Maturity Date”) from the
Obligors.
(c) On and
following January 31, 2010, so long as the Current Market
Price (determined on the date of prepayment) is greater than 150%
of the Conversion Price and the Shareholder Approval shall have
been received, the Maker will have right of early prepayment of
this Note at an amount equal to 105% of the aggregate outstanding
principal on this Note. For the purposes of this Note, the
“Current Market Price” on any date means the average of
the daily Closing Prices per share of Common Stock for all Trading
Days included in 90 consecutive calendar days preceding the date in
question. For purposes of the foregoing, (i) the
“Closing Price” shall be the last reported sales price
or, if no such reported sale takes place on any particular date,
the average of the reported closing bid and asked prices on the
principal exchange (or on NASDAQ) on which the Common Stock is
listed (or if the Common Stock is not so listed, the average of the
closing bid and asked prices furnished by any two members of the
National Association of Securities Dealers as selected by Payee for
such purpose) on the date in question and (ii) “Trading
Days” shall mean any day on which the market on which the
Common Stock is then traded is open for trading. Any such
prepayment under this Section 2(c) shall be on 30 days advance
notice to Payee.
3.
Conversion at the Option of Payee .
(a) At any
time while any portion of the principal or interest of this Note is
outstanding, the Payee may give the Maker written notice of its
intention to convert all or any portion of the outstanding
principal and/or accrued but unpaid interest on this Note into such
number of shares of the Maker’s common stock (the
“Common Stock”), equal to the amount to be converted
divided by the Conversion Price in effect at such time. Upon
receipt of the Payee’s written notice, the Maker shall cause
certificates representing those shares to be delivered to Payee
within three business days of Maker’s receipt of such notice.
The person or persons entitled to receive the shares of Common
Stock issuable upon a conversion of this Note shall be treated for
all purposes as the record holder or holders of such shares of
Common Stock on the date the applicable conversion notice is
given.
(b) The
“Conversion Price” shall be $3.81, subject to any
adjustment. The Conversion Price shall be adjusted proportionally
for any subsequent stock dividend or split, stock combination or
other similar recapitalization, reclassification or reorganization
of or affecting Maker’s Common Stock. In addition, the
Conversion Price shall also be appropriately adjusted in the event
that Maker issues shares of Common Stock (or issues securities,
including warrants or similar rights, entitling holders to
exercise, convert or exchange into, or otherwise subscribe for,
shares of Common Stock) at a price per share less than the Current
Market Price as
of the date of
such issuance, as follows: the new Conversion Price shall be
reduced to equal (x) the prevailing Conversion Price (i.e.,
prior to any adjustment hereunder) multiplied by (y) the
quotient obtained by dividing (a) the Market Value Share
Number by (b) the total number of shares of Common Stock that
would be outstanding after giving effect to the exercise,
conversion or exchange of any rights or other derivative Company
securities outstanding (determined pro forma for the applicable
issuance giving rise to the adjustment in the Conversion Price
hereunder). For purposes of the foregoing, the “Market Value
Share Number” shall equal the sum of (i) the total
number of shares of Common Stock that would be outstanding after
giving effect to the exercise, conversion or exchange of any rights
or other derivative Company securities outstanding (determined
prior to the applicable issuance giving rise to the adjustment in
the Conversion Price) plus (ii) the quotient obtained by dividing
(A) the aggregate consideration received by the Company in the
applicable issuance (or, in the case of the issuance of any rights
or other derivative Company securities giving rise to the
adjustment in the Conversion Price hereunder, such aggregate
consideration to be received upon the exercise, conversion or
exchange of any such rights or derivative Company securities) by
(B) the Current Market Price.
(c) In case
of a Change of Control, instead of receiving shares of
Maker’s Common Stock upon conversion of this Note, Payee
shall have the right thereafter to receive the kind and amount of
shares of stock and other securities, cash and property which the
Payee would have owned or have been entitled to receive immediately
after such Change of Control had the same portion of this Note been
converted immediately prior to the effective date of such Change of
Control and, in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in
this Section with respect to the rights and interests thereafter of
the Payee, to the end that the provisions set forth in this Section
shall thereafter correspondingly be made applicable, as nearly as
may reasonably be, in relation to any shares of stock and other
securities, cash and property thereafter deliverable in connection
with this Note. The provisions of this subsection shall similarly
apply to successive Changes of Control.
(d) “Change
of Control” means that the Maker shall, directly or
indirectly, in one or more related transactions,
(i) consolidate or merge with or into (whether or not the
Maker is the surviving corporation) another person, (ii) sell,
assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Maker to
another person, (iii) allow another person to make a purchase,
tender or exchange offer that is accepted by the holders of more
than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock held by the person or persons making or
party to, or associated or affiliated with the persons making or
party to, such purchase, tender or exchange offer), or
(iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization,
recapitalization or spin-off) with another person whereby such
other person acquires more than 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the
other person or other persons making or party to, or associated or
affiliated with the other persons making or party to, such stock
purchase agreement or other business combination); provided,
however, that a transaction in which Newcastle Partners, L.P. or
any of its affiliates is the acquiring party shall not be deemed to
constitute a Change of Control.
(e) No
fractional shares of Maker’s Common Stock shall be issued
upon conversion of the Note. In lieu of any fractional shares to
which Payee would otherwise be entitled, the Maker shall pay cash
equal to the product of such fraction multiplied by the average of
the closing prices of the Common Stock on the American Stock
Exchange (or the exchange on which Maker’s Common Stock
trades for the five consecutive trading days immediately preceding
the date of the conversion.
(f) In the
event of an adjustment to the Conversion Price, the Maker shall
promptly deliver to the Payee a certificate, signed by its Chief
Financial Officer, setting forth the new Conversion Price and a
calculation in reasonable detail of the adjustment to the
Conversion Price.
(g) The Maker
shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of this Note;
provided that the Maker shall not be required to pay any tax that
may be payable in respect of any issuance of Common Stock to any
person other than the Payee or with respect to any income tax due
by the Payee with respect to such Common Stock.
4.
Redemption Upon Change of Control . No sooner than
15 days nor later than 10 days prior to the consummation
of a Change of Control, the Maker shall deliver written notice of
such Change of Control to the Payee (a “Change of Control
Notice”). At any time during the period beginning after the
Payee’s receipt of a Change of Control Notice and ending on
the date of the consummation of such Change of Control, the Payee
may require the Maker to redeem all or any portion of this Note by
delivering written notice thereof (a “Change of Control
Redemption Notice”) to the Maker, which Change of Control
Redemption Notice shall indicate the portion of the outstanding
principal amount of this Note that the Payee is electing to redeem.
The portion of this Note subject to redemption pursuant to this
Section 4 shall be redeemed by the Maker at a price equal to
110% of the principal amount being redeemed, plus accrued but
unpaid interest on such principal amount (the “Change of
Control Redemption Price”). Redemptions required by this
Section 4 shall be made on the date of the consummation of the
Change of Control and shall have priority to payments to
shareholders of the Maker in connection with such Change of
Control. Notwithstanding anything to the contrary in this
Section 4, until the Change of Control Redemption Price is
paid in full, the principal amount submitted for redemption under
this Section 4 (together with any accrued but unpaid interest
thereon) may be converted, in whole or in part, by the Payee into
Common Stock pursuant to Section 3.
5.
Conversion On Maturity Date . On the Maturity Date, in lieu
of receiving the payment required by Section 2(b), the Payee
may elect to have Maker issue to the Payee a certificate
representing such number of shares of Common Stock as is equal to
the quotient obtained by dividing the entire principal amount of
this Note then outstanding, plus all accrued but unpaid interest
thereon, by the Conversion Price in effect at such time, in full
satisfaction of this Note (the “Maturity Date
Conversion”). The applicable provisions of Section 3
shall apply with equal force to the Maturity Date Conversion. In
the event that the Shareholder Approval has not then been obtained,
Payee may elect to receive both (1) such number of shares as
the Maker shall be permitted to issue under exchange rules in the
absence of a shareholder vote and (2) cash in lieu of any
remaining principal balance.
6.
Condition to Issuance of Share
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