Exhibit 4.1
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. THIS NOTE AND
THE SECURITIES UNDERLYING THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT AS OTHERWISE AGREED
BY MAKER, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO MAKER
THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
SECOND AMENDED AND RESTATED
CONVERTIBLE PROMISSORY NOTE
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| $11,137,321 |
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June 13, 2008 |
FOR VALUE RECEIVED, each of the
undersigned, BELL INDUSTRIES, INC., a California corporation (the
“Maker” or the “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 $11,137,321 (Eleven
Million One Hundred Thirty Seven Thousand Three Hundred Twenty One
Dollars), 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, unless the
provisions of this Note indicate otherwise. This Second Amended and
Restated Convertible Promissory Note is referred to herein as the
“Note”.
1. Interest . Except as
otherwise provided herein, the unpaid principal balance hereof from
time to time outstanding shall bear interest from the date hereof
at the rate of four percent (4%) per annum unless otherwise
provided in this Note. 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 the date hereof. 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, Section 5 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, 2009, if the Current Market Price at the date of
election (which shall be on or following January 31, 2009) is
at least 200% of the Conversion Price (as defined in
Section 3(b)), 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) eight percent (8%) 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. 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 200% of the
Conversion Price, 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 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 Financial Industry
Regulatory Authority (FINRA) 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
2
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 $0.20 per share of Common Stock, 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.
Notwithstanding the foregoing, there shall be no adjustment in the
Conversion Price pursuant to this Section 3(b) in connection with
shares of Common Stock (or issues of securities, including warrants
or similar rights, entitling holders to exercise, convert or
exchange into, or otherwise subscribe for, shares of Common Stock:
(i) issuable or issued to employees, consultants or directors
of the Maker (or any subsidiary thereof) in an aggregate amount
representing not more than 40% of the shares of Common Stock
outstanding on the date hereof and pursuant to a stock option plan
or other equity incentive plan approved by the Board of Directors
of Maker or (ii) issuable or issued in connection with bona
fide acquisitions, mergers, strategic transactions, joint ventures
or similar transactions, the terms of which are approved by the
Board of Directors of Maker.
(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
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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 principal exchange on which the
Common Stock is listed (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.
(h) Notwithstanding anything to
the contrary contained in this Note, in no event shall this Note be
converted by Payee into a number of shares of Common Stock which,
when added together with any other outstanding shares of Common
Stock and any shares of Common Stock into which derivative
securities of Maker are then convertible or exercisable, exceed the
maximum number of authorized shares of Common Stock of Maker under
its existing Certificate of Incorporation; provided that, following
Maker’s 2008 Annual Meeting of Stockholders, if the
convertibility of this Note would be limited in any respect by the
foregoing restriction (assuming for this purpose that Payee then
elected to convert the entire principal balance of the Note but
without any obligation of Payee to actually convert all or any
portion of
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the
Note), the interest rate on the Excess Outstanding Principal
Balance for purposes of Section 1 shall be increased to the
lesser of (i) 14% per annum or (ii) the highest lawful
interest rate permitted by applicable law. For purposes the
foregoing, the “Excess Outstanding Principal Balance”
shall mean the principal balance of the Note, determined as of the
first day of every calendar quarter, in excess of the Convertible
Principal Balance, and “Convertible Principal Balance”
means the principal balance of the Note, determined as of the first
day of every calendar quarter, that converts into a number of
shares of Common Stock which, when added together with any other
then outstanding shares of Common Stock and any shares of Common
Stock into which any then outstanding derivative securities of
Maker (including but not limited to all options, warrants,
convertible securities and other securities) are convertible or
exercisable, results in the precise number of authorized shares of
Common Stock of Maker. Maker agrees to seek an amendment to its
Certificate of Incorporation at the 2008 Annual Meeting of
Stockholders (and any subsequent meeting if necessary) to increase
its authorized shares of Common Stock to permit the full
convertibility of this Note such that the foregoing restriction
would not apply.
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 day immediately
preceding 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. If the cash funds of Maker
then legally available for payment of the Change of Control
Redemption Price are insufficient to pay in full the Change of
Control Redemption Price, those funds which are legally available
will be used to redeem the maximum portion of this Note subject to
redemption, with the remaining portion of the Note remaining
outstanding and entitled to the rights and benefits provided for
herein.
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
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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. Representations of the
Obligors . In order to induce the Payee to enter into this
Note, each Obligor makes the following representations and
warranties to the Payee which shall be true, correct, and complete,
in all material respects, as of the date hereof and such
representations and warranties shall survive the execution and
delivery of this Note:
(a) Each Obligor is duly
organized and existing and in good standing under the laws of the
jurisdiction of its organization and qualified to do business in
any state where the failure to be so qualified reasonably could be
expected to result in a Material Adverse Change. Each Obligor and
its subsidiaries have all requisite power and authority, and has
all material governmental licenses, authorizations, consents and
approvals necessary, to own its assets and to carry on its business
as now conducted, and is qualified to do business in, and is in
good standing in, every jurisdiction where such qualification is
required, except where failure to have such power, authority,
licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse
Change.
(b) The execution, delivery, and
performance by such of this Note and the Loan Documents to which it
is a party have been duly authorized by all necessary action on the
part of each Obligor.
(c) The execution, delivery, and
performance by each Obligor of this Note and the other Loan
Documents to which it is a party do not and will not
(i) violate any provision of federal, state, or local law or
regulation applicable to any Obligor, the bylaws or articles of
incorporation of any Obligor, or any order, judgment, or decree of
any court or other governmental authority binding on any Obligor,
(ii) conflict with, result in a breach of, or constitute (with
due notice or lapse of time or both) a default under any material
contract of any Obligor or any subsidiary thereof,
(iii) result in or require the creation or imposition of any
Lien of any nature whatsoever upon any properties or assets of any
Obligor or any subsidiary thereof, other than Permitted Liens, or
(iv) require any approval of any Obligor’s interestholders or
any approval or consent of any person under any material contract
of any Obligor or any subsidiary thereof, other than consents or
approvals that have been obtained and that are still in force and
effect, or as contemplated by Section 3(h) of this Note.
(d) This Note and the other Loan
Documents to which each Obligor is a party, and all other documents
contemplated hereby and thereby, when executed and delivered by
such Obligor will be the legally valid and binding obligations of
such Obligor, enforceable against such Obligor in accordance with
their respective terms.
(e) No Material Adverse
Change . All financial statements relating to Obligors and
their subsidiaries that have been delivered by Obligors to the
Payee have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes
and being subject to year-end audit adjustments) and present fairly
in all material respects, Obligors’ and their
subsidiaries’ financial condition as of the date thereof and
results of operations for the period then ended. Except for
information otherwise known to Payee, there
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has not
been a Material Adverse Change with respect to Obligors and their
subsidiaries since March 31, 2008.
(f) SkyTel Sale . The
SkyTel Sale Agreements comply with, and the transactions thereunder
have been consummated in accordance with, all applicable laws.
Except for the consent of the Federal Communications Communication
to transfer the wireless spectrum licenses that are subject to the
SkyTel Sale Agreements, the execution, delivery, and performance by
the Company of the SkyTel Sale Agreements do not and will not
require any material registration with, consent, or approval of, or
notice to, or other action with or by any governmental authority,
other than consents or approvals that have been obtained and that
are still in full force and effect.
7. Dividends . If, at
any time while any portion of the principal or interest on the Note
is outstanding, Maker declares a distribution in cash, property
(including securities) or a combination thereof, whether by way of
dividend or otherwise, with respect to its Common Stock, the Payee
shall participate pro rata in such distribution on an as-converted
basis with holders of Maker’s Common Stock.
8. Security;
Subordination . THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED
BY A SECURITY AGREEMENT EXECUTED BY THE OBLIGORS IN FAVOR OF PAYEE.
ADDITIONAL RIGHTS OF THE PAYEE ARE SET FORTH IN THE SECURITY
AGREEMENT. This Note will rank senior to all existing and future
secured or unsecured indebtedness of Maker; provided that,
notwithstanding anything to the contrary, the Indebtedness
evidenced by this Note is hereby expressly subordinated in the
manner set forth in the Intercreditor Agreement.
9. Certain Defined Terms
. The following terms in this Note shall have the meanings
specified below. Any terms in this Section 9 that are not
specified below or otherwise defined in this Note or in Purchase
Agreement shall have the meaning ascribed thereto in the California
Uniform Commercial Code, as in effect from time to time (the
“ Code ”).
“Adjusted EBITDA”
means, with respect to any fiscal period, the Company’s and
its’ subsidiaries’ consolidated net earnings (or loss),
minus extraordinary gains and interest income, plus interest
expense, income taxes, depreciation and amortization, and all
non-cash charges for such period, and excluding (x) any SkyTel
EBITDA included in the calculation thereof and (y) any gain or
loss resulting from the consummation of the SkyTel Disposition in
the calculation thereof, in each case, determined on a consolidated
basis in accordance with GAAP.
“ Agent ” means
Wells Fargo Foothill, Inc., in its capacity as the arranger and
administrative agent for the Lenders, together with its successors
and assigns, if any, in such capacity.
“ Borrowers ”
means, individually and collectively, jointly and severally, Bell
Industries, Inc., a California corporation, and Bell Industries,
Inc., a Minnesota corporation, and any subsidiaries thereof.
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“Capital
Expenditures” means, with respect to any entity for any
period, the aggregate of all expenditures by such entity and its
subsidiaries during such period that are capital expenditures as
determined in accordance with GAAP, whether such expenditures are
paid in cash or financed.
“Capital Lease”
means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
“Closing Date”
The date that this Second Amended and Restated Promissory Note is
executed.
“ IBM Debt ” means
Indebtedness owed by Maker to International Business Machines
Corporation (“IBM”) in connection with those certain
Agreements for Wholesale Financing entered into prior to the
Closing Date by and between Maker, on the one hand, and IBM, on the
other hand.
“ Indebtedness ”
means (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations in respect
of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations as a lessee
under capital leases, (d) all obligations or liabilities of
others secured by a Lien on any asset of a Person or its
subsidiaries, irrespective of whether such obligation or liability
is assumed, (e) all obligations to pay the deferred purchase
price of assets (other than trade payables incurred in the ordinary
course of business and repayable in accordance with customary trade
practices), (f) all obligations owing under hedge agreements,
and (g) any obligation guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made,
discounted, or sold with recourse) any obligation of any other
Person that constitutes Indebtedness under any of clauses
(a) through (f) above.
“ Insolvency Proceeding
” means any proceeding commenced by or against any Person
under any provision of title 11 of the United States Code (as in
effect from time to time) or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions
generally with creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
“ Investment ”
means, with respect to any Person, any investment by such Person in
any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding
(a) commission, travel, and similar advances to officers and
employees of such Person made in the ordinary course of business,
and (b) bona fide Accounts arising in the ordinary course of
business consistent with past practice), purchases or other
acquisitions of Indebtedness, capital stock, or all or
substantially all of the assets of such other Person (or of any
division or business line of such other Person), and any other
items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.
“ GE Debt
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