WAIVER AND AMENDMENT AGREEMENT

Exhibit 10.3

WAIVER AND AMENDMENT AGREEMENT

      THIS WAIVER AND AMENDMENT AGREEMENT (the “Agreement”) is entered into as of the 13th day of June, 2008, by and between Bell Industries, Inc., a California corporation (“Bell California”), and Bell Industries, Inc., a Minnesota Corporation (“Bell Minnesota, and together with Bell California, the “Company”), on the one hand, and Newcastle Partners, L.P., a Texas limited partnership (the “Noteholder”), on the other hand.

      WHEREAS , the Company issued to Noteholder a $10,000,000 convertible promissory note on January 31, 2007, which note was amended and restated on March 12, 2007 (the convertible promissory note, as amended, the “Note”);

      WHEREAS , the Company and Noteholder entered into a Security Agreement dated March 12, 2007 (the “Security Agreement”) and certain related agreements granting Noteholder a security interest in the Collateral (as defined in the Security Agreement) to secure the Company’s obligations under the Note;

      WHEREAS , the Company has previously entered into an Asset Purchase Agreement with Velocita Wireless LLC, which agreement is set forth hereto as Exhibit A (the “Asset Purchase Agreement”) to sell certain material assets of the Company, and the consummation of the transactions contemplated thereby by the Company would constitute a breach of, inter alia, Sections 10(c) and 11 of the Note and a breach of the Security Agreement, respectively (collectively, the “Defaults”) but for the execution of this Agreement;

      WHEREAS , the Company is also considering future transactions;

      WHEREAS , the Company seeks a forbearance and waiver from Noteholder under the Note and the Security Agreement with respect to the transactions contemplated by the Asset Purchase Agreement and for certain of such future transactions;

      WHEREAS , the Company also seeks an additional waiver under the Note that would permit the Company, for a period of ninety (90) days following the date hereof, to prepay all outstanding amounts owing under the Note without penalty or premium;

      WHEREAS , in consideration of the granting of the foregoing waiver, forbearance and limited prepayment right, and for the other benefits the Company is receiving under this Agreement, the Company proposes to enter into, upon the consummation of the transactions set forth in the Asset Purchase Agreement a certain Amended Note (as hereinafter defined, the form of which is set forth hereto as Exhibit B); and

      WHEREAS , the Board of Directors of the Company has formed a special committee consisting of directors unaffiliated with Noteholder for the purpose of reviewing, negotiating and approving the terms of this Agreement and the Amended Note on behalf of the Company.

      NOW, THEREFORE , in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. WAIVER AND FORBEARANCE

      1.1 Subject to the conditions set forth in Section 2.1, Noteholder hereby grants the Company a waiver of the Defaults for the limited purpose of permitting the Company to consummate all of the transactions under and contemplated by the Asset Purchase Agreement (the “Transaction Waiver”). The Transaction Waiver shall not be effective until each of the conditions in Section 2.1 hereof have been fulfilled.

      1.2 The Company represents, warrants, acknowledges and agrees that the Transaction Waiver shall be required in order for the Company to consummate the transactions set forth in the Asset Purchase Agreement.

      1.3 The Transaction Waiver is not a continuing waiver of Sections 10(c) and 11 of the Note (or the Amended Note) or any other provisions of the Note (or the Amended Note), or any provisions of the Security Agreement, and shall apply solely in respect of the transactions expressly set forth in the Asset Purchase Agreement. For the avoidance of doubt, the Transaction Waiver shall not apply to any amendment, modification or waiver of the Asset Purchase Agreement or in respect of any transactions contemplated by any Asset Purchase Agreement as amended, modified or waived.

      1.4 The Transaction Waiver shall be revoked in the event the Company breaches (or determines to breach at or prior to the closing under the Asset Purchase Agreement) any of its other obligations under this Agreement.

SECTION 2. AMENDMENT OF FOOTHILL FACILITY AND AMENDMENT OF NOTE

      2.1 The effectiveness of the Transaction Waiver described in Section 1 shall be subject to the following conditions set forth in Sections 2.1(a), (b) and (c) below:

	(a)		The Company shall have received consent from Wells Fargo Foothill, Inc. (including any successor or assignee, “Foothill”) under the Company’s financing agreements with Foothill for the actions contemplated in this Agreement, to the extent such consent is required thereunder.
	(b)		Noteholder shall have entered into an amendment of the Intercreditor and Subordination Agreement dated as of January 31, 2007 with Foothill, as amended, restated, supplemented, or otherwise modified from time to time (the “Intercreditor Agreement”), which amendment shall provide Noteholder with the right to purchase Foothill’s entire interest in the Company’s financing agreements with Foothill substantially upon the terms set forth in the amendment to the Intercreditor Agreement attached hereto.
	(c)		Compliance with the covenant set forth in Section 2.2 below.

      2.2 Concurrently with the consummation of the transactions under the Asset Purchase Agreement and upon execution of this Agreement, the Company shall issue to Noteholder an amended Note on substantially the terms set forth on Exhibit B hereto (the “Amended Note”),

which Amended Note, when executed, shall amend and supersede the existing Note. Upon issuance of the Amended Note, the existing Note shall be returned to the Company and shall be cancelled. The Amended Note, upon issuance, shall be subject to the terms of Section 3 hereto. For the avoidance of doubt, the parties hereto agree that in the event that the transactions contemplated by the Asset Purchase Agreement are not consummated, then the Company shall have no obligation to issue the Amended Note.

      2.3 Upon issuance of the Amended Note hereunder, the Company acknowledges and agrees that (i) all references to the “Note” under the prior transaction and security agreements (including the Security Agreement) (collectively, the “Security Agreements”) executed by the Company and Noteholder shall be deemed to refer to the Amended Note and (ii) all references to “Registrable Shares” under the Registration Rights Agreement dated January 31, 2007 entered into by the Company and Noteholder (and any other agreement or instrument executed in connection therewith where such term applies) shall be deemed to include all shares issuable under the Amended Note. The foregoing supersedes any contrary or inconsistent provision in documents executed by the parties.

SECTION 3. LIMITED PREPAYMENT RIGHT

      3.1 Notwithstanding anything to the contrary set forth herein or in the Amended Note, the Noteholder hereby agrees that, for a period of ninety (90) days following the date hereof (the “Prepayment Period”) (i) the Company shall have the right to prepay all amounts outstanding under the Amended Note at 105% (the “Applicable Prepayment Premium Rate”) of the aggregate outstanding principal under the Amended Note, plus accrued but unpaid interest thereon and (ii) the Noteholder shall not have the right to convert the Amended Note into the Company’s Common Stock pursuant to the provisions therein. The foregoing shall operate as a limited waiver of any contrary provisions set forth in the Amended Note. Upon expiration of the Prepayment Period, the Company’s prepayment right as set forth herein and this limited waiver of the prepayment restriction shall terminate, and the Company’s rights with respect to prepayment shall be solely as set forth in the Amended Note .

      3.2 Noteholder agrees that, during the Prepayment Period, Noteholder shall (i) if proceeds from the issuance of securities are used to prepay Noteholder in full, waive any pre-emptive right it has to acquire any of the Company’s securities triggered by such issuance and (ii) cooperate with the Company in the Company’s efforts to obtain permanent debt financing in replacement of the financing under the Amended Note (the “Replacement Financing”). Noteholder and its representatives shall use commercially reasonable efforts to facilitate the closing of any such Replacement Financing during the Prepayment Period, including execution of customary payoff letters and lien releases.

SECTION 4. ADDITIONAL WAIVER.

Subject to the conditions set forth on Schedule A to this Agreement, Noteholder hereby grants the Company a waiver of breaches under Sections 11(c) and 13 of the Amended Note and breaches under the Security Agreement (the “Additional Transaction Defaults”) for the limited purpose of permitting the Company to consummate a potential sale of the assets set forth Schedule A (the “Additional Transaction Waiver”). The Additional Transaction Waiver shall

not be effective unless and until each of the conditions on Schedule A have been fulfilled. The Additional Transaction Waiver is not a continuing waiver of Sections 11(c) and 13 of the Amended Note or any other provisions of the Amended Note, or any provisions of the Security Agreement, and shall apply solely in respect of a sale of the assets set forth on Schedule A which is undertaken in manner consistent with the conditions set forth on Schedule A. The Company represents, warrants, acknowledges and agrees that the Additional Transaction Waiver shall be required in order for the Company to consummate the disposal of the assets set forth on Schedule A.

SECTION 5. REPRESENTATIONS AND WARRANTIES.

The Company makes the following representations and warranties to the Noteholder, each of which Noteholder has relied upon in entering into this Agreement:

      5.1 Organization, Good Standing and Qualification . Bell California and Bell Minnesota are corporations duly organized, validly existing and in good standing under the laws of the State of California and the State of Minnesota, respectively. The Company has all requisite corporate power and authority to own and operate its respective properties and assets and to carry on its respective business as presently conducted and as presently proposed to be conducted. The Company has all requisite corporate power and authority to execute and deliver this Agreement and all other agreements or instruments delivered or deliverable in connection herewith (collectively, the “2008 Transaction Documents”) including but not limited to the Amended Note when executed and to carry out the provisions of the 2008 Transaction Documents. Each of the Company and their respective subsidiaries are duly qualified and is authorized to do business and is in good standing in each jurisdiction in which the nature of its respective activities and of its respective properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to be so qualified would not have a material adverse effect on the Company or its business, taken as a whole.

      5.2 Capitalization . Bell California is authorized to issue 35,000,000 shares of Common Stock, of which 8,650,224 shares are issued and outstanding as of the date hereof, and 1,000,000 shares of preferred stock, of which no shares are issued and outstanding as of the date hereof. Bell Minnesota is authorized to issue 5,000 shares o