sc13da504670032_06132008.htm

0000921895-08-001800.txt : 20080617 0000921895-08-001800.hdr.sgml : 20080617 20080617154638 ACCESSION NUMBER: 0000921895-08-001800 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20080617 DATE AS OF CHANGE: 20080617 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BELL INDUSTRIES INC /NEW/ CENTRAL INDEX KEY: 0000945489 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 952039211 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-52973 FILM NUMBER: 08903173 BUSINESS ADDRESS: STREET 1: 1960 E GRAND AVENUE SUITE 560 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3105632355 MAIL ADDRESS: STREET 1: 1960 E GRAND AVENUE SUITE 560 CITY: EL SEGUDON STATE: CA ZIP: 90245 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA BELL INDUSTRIES INC DATE OF NAME CHANGE: 19950519 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NEWCASTLE PARTNERS L P CENTRAL INDEX KEY: 0000932334 IRS NUMBER: 752574953 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 200 CRESCENT COURT STREET 2: STE 1400 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 214-661-7474 MAIL ADDRESS: STREET 1: 200 CRESCENT COURT STREET 2: STE 1400 CITY: DALLAS STATE: TX ZIP: 75201 SC 13D/A 1 sc13da504670032_06132008.htm sc13da504670032_06132008.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

§ 240.13d-2(a)

(Amendment No. 5)1

Bell Industries, Inc.

(Name of Issuer)

COMMON STOCK

(Title of Class of Securities)

078 107 109

(CUSIP Number)

STEVEN WOLOSKY, ESQ.

OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP

Park Avenue Tower

65 East 55th Street

New York, New York 10022

(212) 451-2300

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

June 13, 2008

(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ¨.

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See § 240.13d-7 for other parties to whom copies are to be sent.

_______________

1 The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP NO. 078 107 109

1	NAME OF REPORTING PERSON Newcastle Partners, L.P.
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION Texas
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 26,428,526 (1)
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 26,428,526 (1)
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 26,428,526 (1)
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 76.6%
14	TYPE OF REPORTING PERSON PN

(1)	Consists of (a) 25,863,426 shares into which a convertible subordinated note due January 31, 2017 held by Newcastle Partners, L.P. is convertible within 60 days from the date hereof, and (b) 565,100 shares owned directly by Newcastle Partners, L.P.

CUSIP NO. 078 107 109

1	NAME OF REPORTING PERSON Newcastle Capital Group, L.L.C.
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION Texas
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 26,428,526 (1)
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 26,428,526 (1)
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 26,428,526 (1)
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 76.6%
14	TYPE OF REPORTING PERSON OO

(1)	Consists of (a) 25,863,426 shares into which a convertible subordinated note due January 31, 2017 held by Newcastle Partners, L.P. is convertible within 60 days from the date hereof, and (b) 565,100 shares owned directly by Newcastle Partners, L.P.

CUSIP NO. 078 107 109

1	NAME OF REPORTING PERSON Newcastle Capital Management, L.P.
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION Texas
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 26,428,526 (1)
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 26,428,526 (1)
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 26,428,526 (1)
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 76.6%
14	TYPE OF REPORTING PERSON PN

(1)	Consists of (a) 25,863,426 shares into which a convertible subordinated note due January 31, 2017 held by Newcastle Partners, L.P. is convertible within 60 days from the date hereof, and (b) 565,100 shares owned directly by Newcastle Partners, L.P.

CUSIP NO. 078 107 109

1	NAME OF REPORTING PERSON Mark E. Schwarz
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS OO, PF
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A.
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 26,468,526 (1)
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 26,468,526 (1)
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 26,468,526 (1)
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 76.6%
14	TYPE OF REPORTING PERSON IN

(1)

Consists of (a) 25,863,426 shares into which a convertible subordinated note due January 31, 2017 held by Newcastle Partners, L.P. is convertible within 60 days from the date hereof, (b) 565,100 shares owned directly by Newcastle Partners, L.P., (c) 10,000 shares owned directly by Mr. Schwarz and (d) 30,000 shares underlying options held by Mr. Schwarz that are exercisable within 60 days from the date hereof.

CUSIP NO. 078 107 109

1	NAME OF REPORTING PERSON Clinton J. Coleman
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A.
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 0
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 0
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0%
14	TYPE OF REPORTING PERSON IN

CUSIP NO. 078 107 109

The following constitutes Amendment No. 5 (“Amendment No. 5”) to the Schedule 13D filed by the undersigned on June 26, 2003. This Amendment No. 5 amends the Schedule 13D as specifically set forth.

Item 3 is hereby amended in its entirety to read as follows:

Item 3.

Source and Amount of Funds or Other Consideration

As of June 13, 2008, NP had invested (a) $1,111,465 (inclusive of brokerage commissions) in shares of Common Stock, and (b) an additional $11,137,321 (representing $10,000,000 initial principal amount and an additional $1,137,321 in paid in kind interest as of June 12, 2008) in the Convertible Note (as defined and described in Item 6 hereof), which is convertible into shares of Common Stock. The source of the foregoing funds was the working capital of NP. Neither NCG nor NCM directly owns any shares of Common Stock.

As of June 13, 2008, Mark E. Schwarz had invested $20,000 in shares of Common Stock (10,000 shares acquired pursuant to the exercise of stock options) and directly owned options exercisable within 60 days from the date hereof into 30,000 shares of Common Stock, which options were granted to him as consideration for his service as a director of the Issuer.

Clinton J. Coleman does not currently beneficially own any shares of Common Stock.

Items 5(a) (b) and (c) are hereby amended in their entirety to read as follows:

Item 5.

Interest in Securities of the Issuer

Item 5(a). As of June 13, 2008, NP beneficially owned 26,428,526 shares of Common Stock (consisting of (i) 565,100 shares of Common Stock held directly by NP, and (ii) 25,863,426 shares issuable to NP upon conversion of the Convertible Note within 60 days from the date hereof), representing 76.6% of the Issuer’s outstanding shares of Common Stock. The percentage ownership was calculated by dividing (i) the 26,428,526 shares of Common Stock beneficially owned by NP by (ii) the sum of (A) 8,650,224 shares of Common Stock outstanding as of June 13, 2008 as set forth in the Waiver Agreement (as defined and described in Item 6 hereof) and (B) 25,863,426 shares issuable to NP upon conversion of the Convertible Note within 60 days from the date hereof.

NP may not convert the indebtedness underlying the Convertible Note 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 the Issuer are then convertible or exercisable, exceed the maximum number of authorized shares of Common Stock under the Issuer’s existing Articles of Incorporation . Pursuant to the terms of the Convertible Note, the Issuer is required to seek the approval of its shareholders to increase its authorized shares to permit full conversion of the current $11,137,321 principal balance of the Convertible Note. Upon obtaining such approval from the Issuer’s shareholders, the Convertible Note is expected to be convertible into at least an additional 29,823,179 shares of Common Stock (such number of shares representing the difference between the total number of shares issuable in respect of the current $11,137,321 outstanding principal amount of the Convertible Note at the Conversion Price (as defined in Item 6 hereof), less 25,863,426 shares (which 25,863,426 shares represents the difference between (x) the Issuer’s current 35,000,000 authorized shares of Common Stock and (y) the Issuer’s current outstanding shares of Common Stock plus shares underlying vested options as reported in the Issuer’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008). At such time as when the Convertible Note becomes fully convertible and assuming there has been no change in the number of shares of Common Stock outstanding, NP shall be deemed to beneficially own an aggregate of at least 56,251,705 shares of Common Stock or 87.4% of the Issuer’s outstanding shares of Common Stock.

CUSIP NO. 078 107 109

In addition, since the Convertible Note provides for interest to be paid in kind at the rate of 4% per annum (subject to upward adjustment in certain circumstances, as further described in Item 6 hereof) as principal as of each interest quarterly payment date, the number of shares of Common Stock into which the Convertible Note is convertible will increase and accordingly the shares beneficially owned by NP in respect of the Convertible Note will increase over time to the extent the shareholders have voted in favor of an increase in the number of authorized shares of Common Stock.

As of June 13, 2008, each of NCM (as the general partner of NP), NCG (as the general partner of NCM), and Mark E. Schwarz (as managing member of NCG), may be deemed to beneficially own the shares of Common Stock beneficially owned by NP. In addition, Mr. Schwarz directly owns (1) 10,000 shares of Common Stock and (2) options to purchase 30,000 shares of Common Stock that are exercisable within 60 days from the date hereof, which, together with the shares of Common Stock beneficially held by NP, represent approximately 76.6% of the Issuer’s outstanding shares of Common Stock.

Currently, Clinton J. Coleman does not beneficially own any shares of Common Stock.

Item 5(b). By virtue of his position with NP, NCM and NCG, Mr. Schwarz has the sole power to vote and dispose of the shares of Common Stock owned by NP reported in this Statement.

The filing of this Statement shall not be construed as an admission that any of NCM, NCG, Mr. Schwarz or Mr. Coleman is for the purposes of Section 13(d) or 13(g) of the Act the beneficial owner of any of the 26,428,526 shares of Common Stock beneficially owned by NP. Pursuant to Rule 13d-4 under the Act, NCM, NCG, Mr. Schwarz and Mr. Coleman each disclaims all such beneficial ownership.

Item 5(c). On June 13, 2008, the Issuer further amended and restated the Convertible Note as described in Item 6 hereof.

Item 6 is hereby amended in its entirety to read as follows:

Item 6.

Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer

On January 31, 2007, NP purchased a convertible subordinated pay-in-kind promissory note (as amended and restated on March 12, 2007 and further amended and restated on June 13, 2008, the “Convertible Note”) in the original principal amount of $10,000,000 from the Issuer in a private placement pursuant to a purchase agreement dated as of January 31, 2007 between the Issuer and NP (the “Purchase Agreement”). The outstanding principal balance and/or accrued but unpaid interest on the Convertible Note is convertible at any time by NP into shares of Common Stock at a conversion price (as amended, the “Conversion Price”), subject to adjustment. The Convertible Note accrues interest at a per annum interest rate, subject to adjustment in certain circumstances, which interest accretes as principal on the Convertible Note as of each quarterly interest payment date. In connection with the execution of the Waiver Agreement between NP and the Issuer (as described below) and the corresponding amendment and restatement of the Convertible Note on June 13, 2008, the Conversion Price was reduced to $.20 (from $3.81) per share of Common Stock (subject to adjustment), the Convertible Note’s interest rate was reduced to 4% (from 8%) per annum (subject to adjustment as described below) and the principal balance of the Convertible Note was restated at $11,137,321 (consisting of the original principal amount plus paid in kind interest as of June 12, 2008).

CUSIP NO. 078 107 109

The Convertible Note is scheduled to mature on January 31, 2017. The Issuer has the right to prepay the Convertible Note on and following January 31, 2010 in an amount equal to 105% of the outstanding principal on the Convertible Note so long as the weighted average market price of the Common Stock for all trading days in the preceding 90 consecutive day period is greater than 200% of the Conversion Price. The Issuer also has the option (subject to the consent of the Issuer’s senior lenders) to pay interest on the outstanding principal balance of the Convertible Note in cash at the lesser of (i) 8% per annum or (ii) the highest lawful interest rate permitted by applicable laws following January 31, 2009 if the weighted average market price of the Common Stock for all trading days in the preceding 90 consecutive day period is greater than 200% of the Conversion Price. The Convertible Note cannot be converted 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 the Issuer are then convertible or exercisable, exceed the maximum number of authorized shares of Common Stock under the Issuer’s existing Articles of Incorporation. Pursuant to the terms of the Convertible Note, the Issuer is required to seek the approval of its shareholders to increase its number of authorized shares to permit full conversion of the principal balance of the Convertible Note. If the approval is not received at the Issuer’s 2008 annual meeting of shareholders, the interest rate on the portion of the principal balance on the Convertible Note that cannot be converted by virtue of the foregoing restriction shall be increased to the lesser of (i) 14% per annum or (ii) the highest lawful interest rate permitted by applicable law. In addition, upon the occurrence and during the continuance of an event of default under the Convertible Note, the interest rate under the Convertible Note shall be increased to the lesser of (i) 16% per annum or (ii) the highest lawful interest rate permitted by applicable law. The Convertible Note contains representations, warranties and covenants (including financial covenants) customary for transactions of this nature. In connection with the amendment and restatement of the Convertible Note, the covenants of the Issuer in the Convertible Note were amended. The foregoing summary description is qualified in its entirety by reference to the actual terms of the Convertible Note. A copy of the Convertible Note is filed herewith as Exhibit 99.7 and is incorporated herein by reference.

CUSIP NO. 078 107 109

At the time of original issuance of the Convertible Note, the Issuer, NP and the agent for the Issuer’s senior lenders agreed that the Issuer could grant a second priority lien on the Issuer’s real and personal property (the “Second Lien”) to NP to secure the Issuer’s obligations under the Convertible Note. On March 12, 2007, the Issuer granted the Second Lien to NP pursuant to a security agreement (the “Security Agreement”) between the Issuer, Bell Industries, Inc., a Minnesota corporation and a wholly owned subsidiary of the Issuer (“Bell Minnesota”), and NP dated March 12, 2007. In addition, at such time, the Issuer granted to NP a security interest in certain intellectual property pursuant to ancillary collateral documentation. In connection with such transactions, NP and the agent for the Issuer’s senior lenders entered into an intercreditor and subordination agreement (as amended from time to time, the “Intercreditor Agreement”) providing for the subordination of the Convertible Note indebtedness to certain indebtedness under facilities provided by the Issuer’s senior lenders. In connection with the execution of the Waiver and Amendment Agreement as of June 13, 2008 (the “Waiver Agreement”) by and between the Issuer, Bell Minnesota, and NP, the agent for the Issuer’s senior lenders and NP entered into the First Amendment to Intercreditor Agreement as of June 13, 2008 (the “First Amendment to Intercreditor Agreement”). The summary description of the Security Agreement, the Intercreditor Agreement and the First Amendment to Intercreditor Agreement is qualified in its entirety by reference to the actual terms of such agreements. Copies of each of the Security Agreement, the Intercreditor Agreement and the First Amendment to Intercreditor Agreement are filed herewith as Exhibit 99.5, Exhibit 99.6 and Exhibit 99.8, respectively, and are incorporated herein by reference.

Under the Purchase Agreement, in connection with the original purchase of the Convertible Note, the Issuer granted NP certain governance and other rights relating to the Issuer subject to NP beneficially owning at least 5% of the Issuer’s outstanding shares of Common Stock. These rights include, but are not limited to, the following:

·	The right to designate two (2) individuals as members of the Board of Directors;

·	Representation by NP designees on all standing committees on which representation is permitted under applicable SEC or exchange rules;

·	Exemption from the advance notice requirements for director nominations and shareholder proposals contained in the Issuer’s Bylaws; and

·	Pre-emptive rights to acquire additional securities of the Issuer in the event of any proposed issuance of securities.

In addition, the Issuer agreed under the Purchase Agreement to exempt future NP transactions from interested shareholder voting requirements under the Issuer’s Articles of Incorporation and from any shareholder rights plan or similar defense mechanisms that may be adopted by the Issuer in the future. The Purchase Agreement contains customary representations and warranties and indemnities in NP’s favor. The foregoing summary description of the Purchase Agreement is qualified in its entirety by reference to the actual terms of such agreement. A copy of the Purchase Agreement is filed herewith as Exhibit 99.3 and is incorporated herein by reference.

Pursuant to NP’s rights under the Purchase Agreement, Mr. Coleman was appointed to the Board of Directors of the Issuer (with Mr. Schwarz already then serving). In addition, Mr. Coleman currently serves as the Issuer’s Interim Chief Executive Officer.

CUSIP NO. 078 107 109

In connection with the purchase of the Convertible Note, the Issuer and NP also entered into a Registration Rights Agreement as of January 27, 2007 (the “Registration Rights Agreement”) pursuant to which NP was granted demand and piggyback registration rights in respect of shares of Common Stock issued or issuable under the Convertible Note. The foregoing summary description of the Registration Rights Agreement is qualified in its entirety by reference to the actual terms of such agreement. A copy of the Registration Rights Agreement is filed herewith as Exhibit 99.4 and is incorporated herein by reference.

On June 13, 2008, the Issuer, Bell Minnesota, and NP entered into the Waiver Agreement in connection with the sale by the Issuer of the assets of its Skytel business to Velocita Wireless, LLC. Under the Waiver Agreement, NP agreed to consent to the sale of the Skytel business and to a specified future transaction under consideration by the Issuer (which transactions would otherwise be prohibited by covenants contained in the Convertible Note). NP also agreed to permit the Issuer to repay the Convertible Note in full at 105% of the aggregate outstanding principal under the Convertible Note plus accrued and unpaid interest thereon for a period of 90 days following the date of execution of the Waiver Agreement (during which period NP has agreed not to convert the Convertible Note). In connection with the execution of the Waiver Agreement and the amendment and restatement of the Convertible Note, NP and the agent for the Issuer’s senior lenders also entered into the First Amendment to Intercreditor Agreement to permit NP to purchase the senior lenders’ interest in the Issuer’s senior credit facility under certain circumstances.

Under the Waiver Agreement, the Issuer, Bell Minnesota, and NP also agreed that, so long as either (a) NP owns greater than 50% of the shares of Common Stock outstanding (which includes all shares of Common Stock issuable upon the conversion of the Convertible Note) or (b) greater than 50% of the initial principal amount of the Convertible Note remains outstanding, at NP’s election, the Issuer will provide that NP’s designees constitute 50% of the then outstanding current members of the Issuer’s Board of Directors (or, if the number of members of the Board of Directors is an odd integer, a number equal to the lowest integer that is greater than 50% of the then outstanding members). The foregoing rights are in addition to any rights in favor of NP set forth in the Purchase Agreement or under law. The foregoing summary description of the Waiver Agreement is qualified in its entirety by reference to the actual terms of such agreement. A copy of the Waiver Agreement is filed herewith as Exhibit 99.9 and is incorporated herein by reference.

Item 7 is hereby amended in its entirety to read as follows:

Item 7.

Material to be Filed as Exhibits

Exhibit 99.1	Joint Filing Agreement dated June 25, 2003 among Newcastle Partners, L.P., Newcastle Capital Group, L.L.C., Newcastle Capital Management, L.P. and Mark E. Schwarz (previously filed).

Exhibit 99.2	Joint Filing Agreement dated February 5, 2007 among Newcastle Partners, L.P., Newcastle Capital Group, L.L.C., Newcastle Capital Management, L.P., Mark E. Schwarz and Clinton J. Coleman (previously filed).

CUSIP NO. 078 107 109


Exhibit 99.3	Purchase Agreement dated as of January 31, 2007 between Bell Industries, Inc. and Newcastle Partners, L.P. (previously filed).

Exhibit 99.4	Registration Rights Agreement dated as of January 27, 2007 between Bell Industries, Inc. and Newcastle Partners, L.P. (previously filed).

Exhibit 99.5	Security Agreement dated as of March 12, 2007 between Bell Industries, Inc., Bell Industries Inc. (a Minnesota corporation) and Newcastle Partners, L.P. (previously filed).

Exhibit 99.6	Intercreditor and Subordination Agreement dated as of March 12, 2007 by and between Newcastle Partners, L.P. and Wells Fargo Foothill, Inc. (previously filed).

Exhibit 99.7	Second Amended and Restated Convertible Promissory Note issued by Bell Industries, Inc. and Bell Industries Inc. (a Minnesota corporation), originally issued on January 31, 2007 and amended and restated on March 12, 2007 and as further amended and restated on June 13, 2008.

Exhibit 99.8	First Amendment to Intercreditor and Subordination Agreement dated as of June 13, 2008 by and between Newcastle Partners, L.P. and Wells Fargo Foothill, Inc.

Exhibit 99.9	Waiver and Amendment Agreement dated as of June 13, 2008 by and between Newcastle Partners, L.P., Bell Industries, Inc. and Bell Industries, Inc. (a Minnesota corporation).

CUSIP NO. 078 107 109

SIGNATURES

After due inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: June 17, 2007	NEWCASTLE PARTNERS, L.P.

	By:	Newcastle Capital Management, L.P., its general partner

	By:	Newcastle Capital Group, L.L.C., its general partner

	By:	/s/ Mark E. Schwarz
		Mark E. Schwarz, Managing Member

	NEWCASTLE CAPITAL MANAGEMENT, L.P.

	By:	Newcastle Capital Group, L.L.C., its general partner

	By:	/s/ Mark E. Schwarz
		Mark E. Schwarz, Managing Member

	NEWCASTLE CAPITAL GROUP, L.L.C.

	By:	/s/ Mark E. Schwarz
		Mark E. Schwarz, Managing Member

	/s/ Mark E. Schwarz
	Mark E. Schwarz

	/s/ Clinton J. Coleman
	Clinton J. Coleman

EX-99.7 2 ex997sc13da504670032_061308.htm ex997sc13da504670032_061308.htm

Exhibit 99.7

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

$11,137,321

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 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 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 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 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 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.

“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” means the Indebtedness owed by Maker to GE Commercial Distribution Finance Corporation or Deutsche Financial Services Corporation in connection with those certain Agreements for Wholesale Financing entered into prior to the Closing Date by and between Parent, on the one hand, and GE Commercial Distribution Finance Corporation or Deutsch Financial Services Corporation, on the other hand.

“Lenders” means, individually and collectively, the lenders from time to time party to the Senior Credit Agreement.

“Lien” means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, irrespective of whether (a) such interest is based on the common law, statute, or contract, (b) such interest is recorded or perfected, and (c) such interest is contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances. Without limiting the generality of the foregoing, the term “Lien” includes the Lien or security interest arising from a mortgage, deed of trust, encumbrance, notice of Lien, levy or assessment, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also includes reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting real property.

“Loan Documents” means this Note, the Waiver and Amendment Agreement, and any other agreement previously or in the future entered into by the Company or any of its subsidiaries and the Payee in connection with this Note or in connection with the amended and restated convertible promissory note dated March 12, 2007 in the original principal amount of $10,000,000.

“Material Adverse Change” means (a) a material adverse change in the business, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, (b) a material impairment of the Company and its subsidiaries ability to perform their obligations under the Loan Documents to which they are parties or of the Payee’s ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of the Payee’s Liens with respect to the Collateral as a result of an action or failure to act on the part of the Company or any of its subsidiaries.

“Net Debt” means, as of the date of determination, the total Indebtedness of the Borrowers minus the total cash and cash equivalents of the Borrowers, each determined on a consolidated basis in accordance with GAAP.

“Obligations” means (a) all loans, debts, principal, interest (including any interest that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding) owing by Borrowers to the Payee pursuant to the Loan Documents, and (b) all liabilities, guaranties, covenants, and duties of any kind and description owing by Borrowers to the Payee pursuant to the Loan Documents.

“Paid in Full” means the payment in full in cash of all Senior Debt and the termination of all commitments of the holders of the Senior Debt to extend further credit to Borrowers, or, in the case of Senior Debt consisting of contingent obligations in respect of letters of credit, hedging obligations, bank product obligations, or other reimbursement obligations, the setting apart of cash sufficient to discharge such portion of the Senior Debt in an account for the exclusive benefit of the holders thereof, in which account such holders shall be granted a first priority perfected security interest in a manner reasonably acceptable to such holders.

“Permitted Dispositions” means (a) sales or other dispositions of equipment that is substantially worn, damaged, or obsolete in the ordinary course of business, (b) sales of inventory to buyers in the ordinary course of business, (c) the use or transfer of money or cash equivalents in a manner that is not prohibited by the terms of this Note or the other Loan Documents, (d) the licensing, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business, and (e) transfers or dispositions not in excess of $500,000 for fair value and other than to any affiliate of the Company.

“Permitted Investments” means (a) Investments in cash and cash equivalents, (b) Investments in negotiable instruments for collection, (c) advances made in connection with purchases of goods or services in the ordinary course of business, (d) Investments received in settlement of amounts due to a Borrower effected in the ordinary course of business or owing to a Borrower as a result of insolvency proceedings involving an account debtor or upon the foreclosure or enforcement of any Lien in favor of a Borrower, and (e) loans or advances or the repayment of loans or advances from one Borrower to another Borrower.

“Permitted Liens” means (a) Liens held by Payee, (b) Liens for unpaid taxes, assessments, or other governmental charges or levies that either (i) are not yet delinquent, or (ii) do not have priority over the Payees’s Liens and the underlying taxes, assessments, or charges or levies are the subject of Permitted Protests, (c) judgment Liens that do not otherwise constitute an Event of Default under this Note, (d) the interests of lessors under operating leases, (e) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness, so long as (i) such Lien attaches only to the asset purchased or acquired and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the asset purchased or acquired or any Refinancing Indebtedness in respect thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens on amounts deposited in connection with obtaining worker’s compensation or other unemployment insurance, (h) Liens on amounts deposited in connection with the making or entering into of bids, tenders, or leases in the ordinary course of business and not in connection with the borrowing of money, (i) Liens on amounts deposited as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business, (j) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof; (k) Liens held by the holders of the Senior Debt; and (l) Liens in respect of GE Debt and the IBM Debt.

“Permitted Protest” means the right of a Borrower to protest any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Company’s or its subsidiaries’ books and records in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by a Borrower, as applicable, in good faith, and (c) Payee is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Payee’s Liens.

“Permitted Purchase Money Indebtedness” means Indebtedness (other than the Obligations, but including obligations under Capital Leases), incurred at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof in an aggregate principal amount outstanding at any one time not in excess of $5,000,000.

“Person” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.

“Refinancing Indebtedness” means refinancings, renewals, or extensions of Indebtedness so long as: (a) the terms and conditions of such refinancings, renewals, or extensions do not, in Payee’s reasonable judgment, materially impair the prospects of repayment of the Obligations by Borrowers or materially impair Borrowers’ creditworthiness, (b) such refinancings, renewals, or extensions do not result in a material increase in the principal amount of the Indebtedness so refinanced, renewed, or extended, (c) such refinancings, renewals, or extensions do not result in a material increase in the interest rate with respect to the Indebtedness so refinanced, renewed, or extended, (d) such refinancings, renewals, or extensions do not result in a material shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are materially more burdensome or restrictive to Borrowers, (e) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension must include subordination terms and conditions that are at least as favorable to the Payee and the Lenders as those that were applicable to the refinanced, renewed, or extended Indebtedness, and (f) the Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable on account of the Obligations other than those Persons which were obligated with respect to the Indebtedness that was refinanced, renewed, or extended.

“Security Agreement” means that certain Security Agreement, dated as of March 12, 2007 and certain related agreements made by the Borrowers to grant Payee a security interest in the assets of Borrowers.

“Senior Credit Agreement” means that certain Credit Agreement, dated as of January 31, 2007, by and among Borrowers, the lenders party thereto from time to time, and Agent, as amended, restated, supplemented, or otherwise modified from time to time.

“Senior Debt” means all obligations (whether now outstanding or hereafter incurred, contingent or non-contingent, liquidated or unliquidated, or primary or secondary) of Borrowers in respect of (a) principal under the Senior Credit Agreement or any other Senior Loan Document (or any refinancing agreement entered into with respect thereto), (b) all interest and premium, if any, in respect of the Indebtedness referred to in clause (a) above, (c) all fees (including attorneys fees) and expenses payable pursuant to any Senior Loan Document (or a refinancing agreement entered into with respect thereto), (d) all other Obligations (as defined in the Senior Credit Agreement) or other payment obligations (including costs, expenses, letter of credit reimbursement obligations, hedging obligations, bank product obligations, or otherwise) of Borrowers to Agent or Lenders under or arising pursuant to any Senior Loan Document (or to third persons under provisions of a refinancing agreement entered into with respect thereto), including contingent reimbursement obligations with respect to outstanding letters of credit, all costs and expenses incurred by Agent or any Lender in connection with its or their enforcement of any rights or remedies under the Senior Loan Documents, including, by way of example, attorneys fees, court costs, appraisal and consulting fees, auctioneer fees, rent, storage, insurance premiums, and like items, and irrespective of whether allowable as a claim against Borrowers in any Insolvency Proceeding, (e) post-petition interest on the Indebtedness referred to in clauses (a) through (d) above, at the rate provided for in the instrument or agreements evidencing such Indebtedness, accruing subsequent to the commencement of an Insolvency Proceeding (whether or not such interest is allowed as a claim in such Insolvency Proceeding), and (f) any refinancings, renewals, or extensions of the Indebtedness referred to in clauses (a) through (e) above.

“Senior Loan Documents” means the Senior Credit Agreement and the other Loan Documents (as defined in the Senior Credit Agreement), each as amended, restated supplemented, or otherwise modified from time to time, including any agreement extending the maturity of, consolidating, or otherwise restructuring (including adding subsidiaries of Borrowers thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender, or group and whether or not increasing the amount of Indebtedness that may be incurred thereunder.

“SkyTel Disposition” means the sale transaction contemplated by the Skytel Sale Agreements.

“SkyTel EBITDA” means, with respect to any fiscal period, Company’s 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, in each case, to the extent attributable to the results of operations of the SkyTel business which is being sold pursuant to the Skytel Sale Agreements and determined on a consolidated basis in accordance with GAAP.

“SkyTel Sale Agreements” means the Asset Purchase Agreement, dated as of March 30, 2008 and as amended by Amendment No. 1 to the Asset Purchase Agreement dated as of June 13, 2008, by and between Maker and Velocita Wireless LLC, and any and all other documents entered into to give effect thereto.

“Waiver and Amendment Agreement” means that certain Waiver and Amendment Agreement entered into as of June 13, 2008 by and between the Obligors and Newcastle Partners, L.P.

10. Affirmative Covenants. Each Obligor covenants and agrees that, until termination of all of the Obligations, the Obligors will and will cause their respective subsidiaries to:

(a) Compliance with Applicable Laws. Comply in all respects with the requirements of all applicable statutes, laws, rules, regulations and orders of any governmental authority, except where contested in good faith and by proper proceedings, other than statutes, laws, rules, regulations and orders the noncompliance with which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(b) Licenses. Obtain and maintain all licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or to the conduct of its business, except where the failure to maintain such license, permits, franchises or other governmental authorizations, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(c) Financial Reporting. Deliver to Payee each of the financial statements, reports, or other items set forth on Schedule 10(c) hereto at the times specified therein. In addition, the Company agrees that no subsidiary of the Company will have a fiscal year different from that of the Company.

(d) Inspection. Permit Payee and its duly authorized representatives or agents to visit any of its properties and inspect any of its assets or books and records, to examine and make copies of its books and records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers and employees at such reasonable times and intervals as Payee or any such Lender may designate and, so long as no Default or Event of Default exists, with reasonable prior notice to such Obligor.

(e) Taxes. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrowers, their subsidiaries, or any of their respective assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrowers will and will cause their subsidiaries to make timely payment or deposit of all tax payments and withholding taxes required of them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Payee with proof satisfactory to Payee indicating that the applicable Borrower or subsidiary of a Borrower has made such payments or deposits.

(f) Insurance.

(i) At Borrowers’ expense, maintain insurance respecting their and their subsidiaries’ assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrowers also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Payee. Borrowers shall deliver copies of all such policies to Payee with an endorsement naming Payee as the sole loss payee (under a satisfactory lender’s loss payable endorsement) or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Payee in the event of cancellation of the policy for any reason whatsoever.

(ii) The Company shall give Payee prompt notice of any loss exceeding $250,000 covered by such insurance. So long as no Event of Default has occurred and is continuing, Borrowers shall have the exclusive right to adjust any losses payable under any such insurance policies which are less than $250,000. Following the occurrence and during the continuation of an Event of Default, Payee shall have the exclusive right to adjust any losses payable under any such insurance policies, without any liability to Borrowers whatsoever in respect of such adjustments. In the case of any losses payable under such insurance exceeding $250,000, Payee shall have the exclusive right to adjust any losses payable under any such insurance policies after consulting with the Company regarding such adjustment, without any liability to a Borrower whatsoever in respect of such adjustments; provided, however, that the failure of Payee to so consult with the Company shall not result in a breach by Payee of this Note

(iii) For so long as the Obligations (as defined in the Senior Credit Agreement) remain outstanding, the Obligors shall not be required to take any action under this Section 10(f) which conflicts with the Senior Credit Agreement.

(g) Accounting System. Maintain a system of accounting that enables Borrowers to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Payee. Borrowers also shall keep a reporting system that shows all additions, sales, claims, returns, and allowances with respect to their and their subsidiaries’ sales.

(h) Maintenance of Existence. Do all things necessary to preserve and keep in full force and effect its existence as a corporation in the jurisdiction of its incorporation and in each jurisdiction in which the nature of their respective activities and of their respective properties (both owned and lease) makes such qualification necessary, except for those jurisdictions in which failure to be qualified and in good standing would not have a Material Adverse Change.

(i) Environmental.

(i) Use its commercially reasonable efforts to keep any property either owned or operated by any Borrower or any subsidiary of a Borrower free of any liens in favor of a governmental authority for environmental liabilities or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such environmental liens, and

(ii) Use its commercially reasonable efforts to comply, in all material respects, with environmental laws and provide to Payee documentation of such compliance which Payee reasonably requests.

(j) Formation of Subsidiaries. At the time that any Borrower forms any direct or indirect subsidiary or acquires any direct or indirect subsidiary after the Closing Date, such Borrower shall (a) cause such new subsidiary to provide to Payee a guaranty in a form reasonably satisfactory to Payee (or, if such guaranty has already been provided, then provide to Payee a joinder to the guaranty) and a joinder to the Loan Documents, together with such other security documents (including mortgages with respect to any real property of such new subsidiary), as well as appropriate financing statements (and with respect to all property subject to a mortgage, fixture filings), all in form and substance satisfactory to Payee (including being sufficient to grant Payee a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired subsidiary), provided that for so long as Senior Debt remains outstanding, upon the granting of any guaranty pursuant to the terms hereof, Obligors shall also cause a guaranty to be provided in favor of the Agent with respect of the holders of the Senior Debt, (b) provide to Payee a pledge agreement and appropriate certificates and powers or financing statements, hypothecating all of the direct or beneficial ownership interest in such new subsidiary, in form and substance satisfactory to Payee, and (c) provide to Payee all other documentation, including one or more opinions of counsel satisfactory to Payee, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above (including policies of title insurance or other documentation with respect to all property subject to a mortgage). Any document, agreement, or instrument executed or issued pursuant to this paragraph shall be a Loan Document.

(k) Further Assurances. Except to the extent prohibited by the Senior Loan Documents, Borrowers shall execute or deliver to Payee, and shall cause their subsidiaries to execute or deliver to Payee, any and all financing statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, mortgages, deeds of trust, opinions of counsel, and all other documents (collectively, the “Additional Documents”) that Payee may request in form and substance reasonably satisfactory to Payee, to create, perfect, and continue perfected or to better perfect the Payee’s Liens in all of the properties and assets of Borrowers and their subsidiaries (whether now owned or hereafter arising or acquired, tangible or intangible, real or personal), to create and perfect Liens in favor of Payee in any real property acquired by Borrowers or their subsidiaries after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Borrowers authorize Payee to execute any such Additional Documents in Borrowers’ or their subsidiaries’ names, as applicable, and authorizes Payee to file such executed Additional Documents in any appropriate filing office.

(l) Copyrights. Maintain the registration of each of its copyrights with the United States Copyright Office.

(m) In the case of the Maker, solicit the requisite approval of its shareholders at the 2008 Annual Meeting of Shareholders (and any subsequent meeting if necessary) to the amendment to the Maker’s Articles of Incorporation in order to effect the increase to its authorized shares of Common Stock to permit the full convertibility of this Note.

11. Negative Covenants. Each Obligor covenants and agrees that, until termination of all of the Obligations, the Obligors will not and will not permit any of their respective subsidiaries to do any of the following:

(a) Indebtedness. Create, incur, assume, suffer to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness except the following:

(i) Senior Debt under Senior Credit Agreement in an aggregate principal amount not to exceed $10.5 million;

(ii) Indebtedness for borrowed money that is not secured by a Lien on any assets, property or capital stock owned by the Company or any of its subsidiaries in an aggregate amount not to exceed $500,000;

(iii) Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of such Indebtedness;

(iv) endorsement of instruments or other payment items for deposit;

(v) Indebtedness composing Permitted Investments;

(vi) Indebtedness that is subject to a subordination agreement that has been approved in writing by Payee or otherwise subordinate to the Obligations as a matter of law;

(vii) Accounts payable and related accrued liabilities incurred in the ordinary course of business consistent with past practice; and

(viii) GE Debt and IBM Debt in an aggregate amount not to exceed $5,000,000 at any one time.

(b) Liens. Create, incur, assume or permit to exist any Lien on or with respect to any of its assets or property of any character, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens.

(c) Material Asset Sales. Sell, lease, transfer, license or otherwise dispose of any of its assets or property including securities (collectively, a “Transfer”), whether now owned or hereafter acquired, except Permitted Dispositions.

(d) Mergers, Etc. (i) enter into any merger, consolidation, reorganization, or recapitalization, other than any transaction constituting a Change of Control; provided that the foregoing carveout shall not apply if Payee elects to require a redemption of the Note under Section 4 but the cash funds then legally available to Maker are insufficient to pay in full the Change of Control Redemption Price, (ii) reclassify its capital stock, (iii) liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), (iv) suspend or go out of a substantial portion of its or their business, or (v) change any Borrower’s name, organizational identification number, state of organization or organizational identity; provided, however, that a Borrower may change its name upon at least 15 days prior written notice to Payee of such change and so long as such Borrower provides any financing statements necessary to perfect and continue perfected the Payee’s Liens.

(e) Prepayments and Amendments. Except in connection with Refinancing Indebtedness permitted by this Note or as otherwise set forth in the Waiver and Amendment Agreement, make any payment on account of Indebtedness that has been contractually subordinated in right of payment if such payment is not permitted at such time under the subordination terms and conditions.

(f) Distributions. Make any distribution or declare or pay any dividends (in cash or other property, other than common stock) on, or purchase, acquire, redeem, or retire any of any Borrower’s stock, of any class, whether now or hereafter outstanding.

(g) Investments. Except for Permitted Investments, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that a Borrower shall not have Permitted Investments in deposit accounts or securities accounts in an aggregate amount in excess of $100,000 at any one time unless such Borrower and the applicable securities intermediary or bank have entered into a control agreement with Payee governing such Permitted Investments in order to perfect (and further establish) the Payee’s Liens in such Permitted Investments.

(h) Inactive Subsidiaries. Permit any of the inactive subsidiaries to own any assets, incur any liabilities, or engage in any business activity.

12. Financial Covenants. Bell California, on a consolidated basis, covenants and agrees that, until termination of all of the Obligations, the Obligors will not and will not permit any of their respective subsidiaries to do any of the following:

(a) Minimum Adjusted EBITDA. As of any date of determination from and after April 1, 2008, if Borrowers do not have Net Debt in an amount less than $4,000,000 at all times during the most recently completed fiscal quarter, then Borrowers shall not fail to achieve Adjusted EBITDA, measured on a quarter-end basis, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto (and the failure to do so shall be deemed an Event of Default):

Applicable Amount	Applicable Period
$(1,234,000)	For the 3 month period ending March 31, 2008
$(1,246,000)	For the 6 month period ending June 30, 2008
$(200,000)	For the 9 month period ending September 30, 2008
$(839,000)	For the 12 month period ending December 31, 2008
$(750,000)	For the 12 month period ending March 31, 2009
$(500,000)	For the 12 month period ending June 30, 2009
$(150,000)	For the 12 month period ending September 30, 2009
$150,000	For the 12 month period ending December 31, 2009
$350,000	For the 12 month period ending March 31, 2010
$550,000	For the 12 month period ending June 30, 2010
$750,000	For the 12 month period ending September 30, 2010
$950,000	For the 12 month period ending December 31, 2010 and for each 12 month period ending as of the last day of each fiscal quarter thereafter

(b) Capital Expenditures. Make Capital Expenditures in any fiscal year in excess of the amount set forth in the following table for the applicable period without the prior written consent of Payee:

Fiscal Year 2008	Fiscal Year 2009	Fiscal Year 2010 and thereafter
$2,400,000	$1,500,000	$1,500,000

13. Default. The occurrence of any one or more of the following events shall constitute an event of default (each, an “Event of Default”), upon which Payee may declare the entire principal amount of this Note, together with all accrued but unpaid interest, to be immediately due and payable in cash:

(a) The Obligors shall fail to make any payment of principal (including, but not limited to, upon any conversion pursuant to Section 5 hereof or the maturity of the Note) and/or accrued but unpaid interest (at the applicable rate) on the Note when due and payable, and such failure, in the case of any interest payment, shall continue for a period of at least five business days.

(b) The Obligors shall fail to perform or observe any covenant or other agreement contained in any of Sections 11 and 12 of this Note or Section 6 of the Security Agreement;

(c) The Obligors shall be in material default of any term or provision of this Note (other than any such term that is the subject of another provision of this Section 13, in which event such other provision of this Section 13 shall govern), the Purchase Agreement, the Registration Rights Agreement (as that term is defined in the Purchase Agreement), the Security Agreement, the Senior Loan Agreement and the Waiver and Amendment Agreement, and such failure shall continue through 15 days after Payee gives written notice of such material default to Maker.

(d) Any representation or warranty of the Maker contained in this Note shall have been false in any material respect on the Closing Date.

(e) Maker or any of its subsidiaries shall (i)(A) fail to make any payment when due under the terms of any bond, debenture, note or other evidence of indebtedness, including the Senior Debt, to be paid by such Person (excluding this Note but including any other evidence of indebtedness of Maker or any of its subsidiaries to the Payee) and such failure shall continue beyond any period of grace provided with respect thereto, or (B) default in the observance or performance of any other agreement, term or condition contained in any such bond, debenture, note or other evidence of indebtedness, and (ii) in each case, the effect of such failure or default is to cause, or permit the holder or holders thereof to cause, indebtedness in an aggregate amount of one million dollars ($1,000,000) or more to become due prior to its stated date of maturity, unless such acceleration shall have been rescinded and such failure to pay cured within thirty (30) days from the date of such acceleration.

(f) A final judgment or order for the payment of money in excess of one million dollars ($1,000,000) (exclusive of amounts covered by insurance issued by an insurer not an affiliate of Maker) shall be rendered against the Maker or any of its subsidiaries and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed, or any judgment, writ, assessment, warrant of attachment, or execution or similar process shall be issued or levied against a substantial part of the property of the Maker or any of its subsidiaries and such judgment, writ, or similar process shall not be released, stayed, vacated or otherwise dismissed within thirty (30) days after issue or levy.

(g) If any Obligor or any subsidiary of an Obligor is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs.

(h) If a binding arbitration or final judgment or order renders that (i) any Obligor is in default of the SkyTel Sale Agreements that causes an order for the payment of greater than five hundred thousand ($500,000), or (ii) any Obligor must pay an indemnity claim of greater than five hundred thousand ($500,000) under the SkyTel Sale Agreements, and such claim shall remain undischarged for a period of thirty (30) days.

(i) Any Liens of Payee in any of the assets of Maker or its subsidiaries shall cease to be or shall not be valid and perfected Liens or the Maker or any subsidiary shall assert that such Liens are not valid and perfected Liens.

(j) The Maker or any of its subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar federal, foreign or state law for the relief of debtors (collectively, “Bankruptcy Law”), (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (iv) makes a general assignment for the benefit of its creditors or (v) admits in writing that it is generally unable to pay its debts as they become due.

(k) A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (i) is for relief against the Maker or any of its subsidiaries in an involuntary case, (ii) appoints a Custodian of the Maker or any of its subsidiaries or (iii) orders the liquidation of the Maker or any of its subsidiaries.

Without limiting the above, the Maker acknowledges that payments (including but not limited to upon conversion of this Note) on the various scheduled due dates are of essence and that any failure to timely make any applicable payment of the principal or interest (within any permitted grace period) permits Payee to declare this Note immediately due in cash in its entirety without any prior notice of any kind to Maker, except for the specific notices provided above. Upon the occurrence and during the continuance of an event of default, the interest rate under this Note shall be increased to the lesser of (a) sixteen percent (16%) or (b) the highest lawful interest rate permitted by applicable law. In the event that such event of default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the interest as calculated and unpaid at such increased rate during the continuance of such event of default shall continue to apply to the extent relating to the days after the occurrence of such event of default through and including the date of cure of such event of default.

14. Applicable Law; Forum. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF. EACH OF PAYEE AND MAKER CONSENTS TO SUBMIT TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF TEXAS, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, AGREES THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT, AND AGREES NOT TO BRING ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE IN ANY OTHER COURT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES NOT TO ASSERT IN ANY ACTION OR PROCEEDING ARISING OUT OF RELATING TO THIS NOTE THAT THE VENUE IS IMPROPER, AND WAIVES ANY DEFENSE OF INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND, SURETY OR OTHER SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO.

15. Waivers. The Maker hereby waives presentment for payment, notice of dishonor, protest and notice of payment and all other demands and notices of any kind in connection with the enforcement of this Note. Any provision of this Note may be amended, waived or modified upon the written consent of Maker and Payee. No failure or delay on the part of the Payee in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege.

16. Effect of Shareholder Vote. No term of this Note shall be modified or voided as a result of any vote of the Company’s shareholders (or failure to obtain any such vote) unless the approval of the Company’s shareholders is required by state law to make such term of this Note effective.

17. No Setoffs. The Maker shall pay (and, if applicable, this Note shall automatically accrete in respect of) principal and interest under the Note without any deduction for any setoff or counterclaim.

18. Costs of Collection. If this Note is not paid when due, the Maker shall pay Payee’s reasonable costs of collection, including reasonable attorneys’ fees.

19. Notices. Whenever notice is required to be given under this Note, such notice shall be given in accordance with Section 7.7 of the Purchase Agreement.

20. Transferability. This Note shall be transferable by Payee. Neither this Note, nor any obligations hereunder, shall be assignable by Maker without Payee’s express written consent.

21. Inspection Rights. The Holder and its representatives shall have the right, at any time during normal business hours, upon reasonable prior notice, to visit and inspect the properties of Maker and its corporate, financial and operating records, and make abstracts therefrom.

22. Severability. The invalidity, illegality or unenforceability of one or more of the provisions of this Note in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Note in such jurisdiction or the validity, legality or enforceability of this Note, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. Payee does not agree or intend to contract for, charge, collect, take, reserve or receive any amount in the nature of interest or otherwise which would in any way or event (including demand, prepayment or acceleration) cause Payee to collect more on its loan that the maximum amount Payee would be permitted to charge or collect by federal law or the law of the State of Texas (as applicable). Any such excess interest shall instead of anything to the contrary, be applied first to reduce the outstanding principal balance of this Note, and when the principal balance has been paid in full, be refunded to Maker.

23. This Note is a replacement, consolidation, amendment and restatement of the amended and restated convertible promissory note by Maker to Payee dated March 12, 2007 in the original principal amount of $10,000,000 (the “Prior Note”) and IS NOT A NOVATION. Maker shall also pay, and this Note shall also evidence, any and all unpaid interests on all outstanding principal pursuant to the Prior Note, and at the interest rate specified therein, for which this Note has been issued as replacement therefor. Payee confirms that the representations and warranties made in Section 4 of the Purchase Agreement are true and correct as of the date hereof with respect to this Note and the securities underlying this Note.

(SIGNATURE PAGE FOLLOWS)

IN WITNESS WHEREOF, the undersigned Obligors have hereunto affixed their signatures.

BELL INDUSTRIES, INC., a California corporation

By	/s/ Kevin Thimjon
Its	President & CEO

BELL INDUSTRIES, INC., a Minnesota corporation

By	/s/ Kevin Thimjon
Its	EVP & CEO

EX-99.8 3 ex998sc13da504670032_061308.htm ex998sc13da504670032_061308.htm

Exhibit 99.8

FIRST AMENDMENT TO

INTERCREDITOR AND SUBORDINATION AGREEMENT

This FIRST AMENDMENT TO INTERCREDITOR AND SUBORDINATION AGREEMENT (this "Amendment") is made and entered into effective as of June 13, 2008 (the "Effective Date") between Wells Fargo Foothill, Inc., a California corporation, as agent for the Senior Lenders (“Senior Agent”) and Newcastle Partners, L.P., a Texas limited partnership ("Subordinated Creditor").

R E C I T A L S:

A. The parties entered into an Intercreditor and Subordination Agreement (the “Agreement”) dated as of March 12, 2007.

B. Subordinated Creditor has requested that the Agreement be amended in certain respects, and Senior Agent is willing to comply with such request subject to the terms and provisions of this Amendment.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 Terms Defined. Unless otherwise defined in this Amendment, each capitalized term used in this Amendment has the meaning given to such term in the Agreement (as amended by this Amendment).

ARTICLE 2

AMENDMENTS

Section 2.1 Amendments. Effective as of the Effective Date:

(a) The definition of “Subordinated Creditor Agreements” appearing in Section 1 of the Agreement shall be amended by replacing the words “the Note (as defined in the Subordinated Creditor Agreements)” with the words “the Newcastle Note”.

(b) Section 2(a) of the Agreement shall be amended by replacing the words “the Note (as defined in the Subordinated Creditor Agreements)” with the words “the Newcastle Note”.

“30. Buyout. Notwithstanding anything to the contrary set forth in this Agreement and without prejudice to the enforcement of the Senior Creditor Remedies, Subordinated Creditor, for itself, and Senior Agent, on behalf of itself and the Senior Lenders, agree that:

(a) Subordinated Creditor shall have the right, by giving written notice (a “Committed Buy-Out Notice”) to the Senior Agent, for the benefit of Senior Agent and the Senior Lenders, to acquire on the date that is 5 Business Days after the date of Senior Agent’s receipt of such Committed Buy-Out Notice, from Senior Agent and the Senior Lenders all (but not less than all) of the right, title and interest of Senior Agent and the Senior Lenders in and to the Senior Creditor Indebtedness and the Loan Documents; and

(b) upon the receipt by the Senior Agent of the Committed Buy-Out Notice, Subordinated Creditor irrevocably shall be committed to acquire, within 5 Business Days following such receipt (the “Purchase Date”), from the Senior Agent and the Senior Lenders all (but not less than all) of the right, title, and interest of Senior Agent and the Senior Lenders in and to the Senior Creditor Indebtedness and the Loan Documents by paying to the Senior Agent, for the benefit of Senior Agent and the Senior Lenders, in cash a purchase price (the “Purchase Price”) equal to (subject to this Agreement) the sum of:

(i) 100% of the outstanding balance with respect to the Advances, including, without limitation, principal, interest accrued and unpaid thereon, and any unpaid fees and premiums (including, without limitation, any prepayment premiums), to the extent earned or due and payable in accordance with the Senior Creditor Agreements (it being understood that any prepayment premiums would be earned and due and payable on the Purchase Date),

(ii) any un-reimbursed obligations in respect of Letters of Credit owing to Senior Agent and the Senior Lenders (which may be satisfied by providing cash collateral for the reimbursement obligations in respect of undrawn Letters of Credit in an amount equal to 105% thereof),

(iii) any un-reimbursed obligations in respect of Bank Product Obligations owing to the Bank Product Provider (which may be satisfied by providing cash collateral for such Bank Product Obligations in an amount equal to the Bank Product Reserve established in respect thereof in accordance with the Senior Creditor Agreements), and

(iv) all expenses to the extent earned or due and payable in accordance with the Senior Creditor Agreements (including the reimbursement of extraordinary expenses, attorneys fees, financial examination expenses and appraisal fees);

whereupon Senior Agent and the Senior Lenders shall assign to Subordinated Creditor, without any representation, recourse, or warranty whatsoever, their right, title, and interest with respect to the Senior Creditor Indebtedness and the Loan Documents.”

ARTICLE 3

MISCELLANEOUS

Section 3.1 Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLIED TO CONTRACTS TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK.

Section 3.2 Counterparts. This Amendment may be executed in any number of counterparts, all of which when taken together shall constitute one agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.

Section 3.3 Agreement remains in Effect. Except as expressly provided herein, all terms and provisions of the Agreement shall remain unchanged and in full force and effect and are hereby ratified and confirmed.

Section 3.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.

Section 3.5 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Senior Agent, Senior Lenders and Subordinated Creditor and their respective successors and assigns.

Section 3.6 Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers effective as of the date first above written.

	WELLS FARGO FOOTHILL, INC.,
	a California corporation, as Senior Agent

	By:		/s/ Daniel Whitwer
	Name:		Daniel Whitwer
	Title:		Vice President

	NEWCASTLE PARTNERS, L.P.,
	a Texas limited partnership, as Subordinated Creditor

	By:	/s/ Evan Stone
	Name:	Evan Stone
	Title:	General Counsel of Newcastle Capital Management, Co., its General Partner

EX-99.9 4 ex999sc13da504670032_061308.htm ex999sc13da504670032_061308.htm

Exhibit 99.9

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 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 of Class A Common Stock and 2,500 shares of Class B Common Stock, $100.00 par value per share, of which 3,000 shares of Class A Common Stock and 2,047 shares of Class B Common Stock are issued and outstanding, all of which are owned by Bell California. Except as set forth in Bell California’s current, quarterly, annual and other periodic filings, including the exhibits thereto (the “SEC Reports”) with the U.S. Securities and Exchange Commission (the “Commission”), there are no outstanding options, warrants or other rights to acquire any of the Company’s capital stock, or securities convertible, exercisable or exchangeable for the Company’s capital stock or for securities themselves convertible, exercisable or exchangeable for the Company’s capital stock (together, “Convertible Securities”). Except as set forth in the SEC Reports, the Company has no agreement or commitment to sell or issue any shares of capital stock or Convertible Securities. All issued and outstanding shares of the Company’s capital stock (i) have been duly authorized and validly issued, (ii) are fully paid and nonassessable, (iii) subject to the rights of Noteholder, are free from any preemptive and cumulative voting rights and (iv) were issued pursuant to an effective registration statement filed with the Commission and applicable state securities authorities or pursuant to valid exemptions under federal and state securities laws. Except as set forth in the SEC Reports, there are no outstanding rights of first refusal or proxy or shareholder agreements of any kind relating to any of the Company’s securities to which the Company or any of its executive officers and directors is a party or as to which the Company otherwise has knowledge. When issued in compliance with the provisions of the Amended Note, and subject to any required amendment to Bell California’s Articles of Incorporation to increase the authorized shares thereto in order to satisfy the conversion provisions of the Amended Note (the “Articles Amendment”), as the case may be, the shares issuable thereunder will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that such shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed.

5.3 Authorization; Binding Obligations. All corporate action on the part of the Company, its officers and directors (including a special committee of independent directors) necessary for the authorization of the 2008 Transaction Documents and the performance of all obligations of the Company hereunder and thereunder, including the authorization, sale, issuance and delivery of shares of Common Stock upon the conversion of the Amended Note, as the case maybe, has been taken, and no further corporate action is required to be taken, subject to the Articles Amendment. The 2008 Transaction Documents, when duly executed and delivered by the Company, will be legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms. The issuance of shares of Common Stock upon conversion of the Amended Note is not and will not be subject to any preemptive rights or rights of first refusal. The Amended Note upon its execution and issuance under Section 2.2 hereof (including Bell California’s obligation to issue shares of Common Stock upon conversion of any or all principal amounts thereunder), shall continue to be a valid and binding obligation of the Company, enforceable against the Company in accordance with their terms. The security interests granted by the Company to Noteholder pursuant to the Security Agreements continue to be a valid and enforceable security interests in the Collateral (as defined in the Security Agreement) in favor of Noteholder securing all obligations of the Company under the Amended Note.

5.4 No Violation or Conflicts. The execution and delivery of, and the performance of and compliance with the transactions contemplated by, the 2008 Transaction Documents, and the issuance of shares of common stock upon conversion of the Amended Note, as the case may be, will not, with or without the passage of time or giving of notice or both, result in any material violation of law or agreement, or be in conflict with or constitute a default under any such material term, or result in the creation of any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any subsidiary or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company or any subsidiary, the business or operations of the Company or any subsidiary or any of the assets or properties of the Company or any subsidiary.

5.5 Governmental Consents. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement.

SECTION 6. GOVERNANCE

6.1 Following issuance of the Amended Note, so long as either (a) at any time, Noteholder beneficially owns greater than 50% (which shall be deemed to include, for the avoidance of doubt, all shares of Common Stock issuable upon the conversion of the Amended Note) of the shares of Common Stock outstanding or (b) greater than 50% of the initial principal amount of the Amended Note remains outstanding, Bell California agrees to appoint to its Board of Directors at any time in Noteholder’s discretion, and subject to the requirements of applicable federal and California law (including but not limited to Rule 14f-1 promulgated pursuant to the Securities Exchange Act of 1934, as amended), such number of director designees of Noteholder (each, a Designee) such that Designees constitute 50% of the then outstanding current members of Bell California’s Board of Directors (or, if the number of members of the Board of Directors is an odd integer, such number of Designees shall be the lowest integer that is greater than 50% of the then outstanding members), and Noteholder shall have the right in its sole discretion to designate to Bell any replacement for any Designee, including to designate to Bell any director to fill any vacancy created by the removal, death, retirement or disqualification (or other cause) of any Designee. The parties hereto agree and acknowledge that Clinton Coleman and Mark Schwarz are Designees of Noteholder. Subject to the provisions of Section 6.7(c) of the Note Purchase Agreement (as defined below), Bell California agrees to take any and all action necessary to ensure that promptly following any change in the size of Bell California’s Board of Directors and/or the election or appointment of any additional members to Bell California’s Board of Directors, Bell California is in compliance with the foregoing sentence. For the avoidance of doubt, for purposes of the provisions of this Section 6.1 only, during the Prepayment Period, Noteholder shall not be deemed to beneficially own Common Stock issuable upon conversion of the Amended Note, as the case may be.

6.2 The rights set forth in Section 6.1 hereof shall be in addition to the rights set forth in Section 6.7 of that certain Purchase Agreement dated January 31, 2007 between Bell California and Noteholder (the “Note Purchase Agreement”), all of which rights remain in full force and effect. 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, the rights set forth in Section 6.1 shall terminate.

SECTION 7. MISCELLANEOUS

7.1 Governing Law. This Agreement shall be governed by the laws of the State of Texas, without regard to conflicts of law principles. EACH OF THE PARTIES TO THIS AGREEMENT CONSENTS TO SUBMIT TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF TEXAS, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AGREES THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT, AND AGREES NOT TO BRING ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY OTHER COURT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES NOT TO ASSERT IN ANY ACTION OR PROCEEDING ARISING OUT OF RELATING TO THIS AGREEMENT THAT THE VENUE IS IMPROPER, AND WAIVES ANY DEFENSE OF INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND, SURETY OR OTHER SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO.

7.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of, and be binding upon, and be enforceable by each person who shall be a holder of the Note (or the Amended Note, as applicable). The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Noteholder. The Noteholder may assign some or all of its rights hereunder without the consent of the Company in connection with a transfer by the Noteholder of the Note (or Amended Note, as applicable); provided that any such assignee or transferee shall be subject to the provisions herein as a Noteholder.

7.3 Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and no party shall be liable or bound to the other in any manner by any representations, warranties, covenants and agreements, except as specifically set forth herein and therein. Notwithstanding the foregoing, the parties understand and agree that, other than with respect to the Note (which shall be superseded by the Amended Note), the agreements executed by the parties in connection with the Note Purchase Agreement (including but not limited to the Note Purchase Agreement and the Registration Rights Agreement), and all rights thereunder, shall remain effective.

7.4 Severability. The invalidity, illegality or unenforceability of one or more of the provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

7.5 Amendment and Waiver. This Agreement may be amended or modified, and any provision hereunder may be waived, only upon the written consent of the Company and the Noteholder.

7.6 Notices. All notices, requests, consents and other communications hereunder shall be made in writing and shall be deemed given (i) when made if made by hand delivery, (ii) one business day after being deposited with an overnight courier if made by courier guaranteeing overnight delivery, (iii) on the date indicated on the notice of receipt if made by first-class mail, return receipt requested or (iv) on the date of confirmation of receipt of transmission by facsimile, addressed as follows:

(a) if to the Company, at

Bell Industries, Inc.

8888 Keystone Crossing

Suite 1700

Indianapolis, Indiana 46240

Facsimile: (317) 715-6816

Attention: Chief Financial Officer

with a copy to:

Manatt, Phelps & Phillips, LLP

11355 West Olympic Boulevard

Los Angeles, CA 90064

Facsimile: (310) 914-5712

Attention: Mark Kelson, Esq.

(b) if to the Noteholder, in care of:

Newcastle Partners, L.P.

200 Crescent Court, Suite 1400

Dallas, TX 75201

Facsimile: (214) 661-7475

Attention: Evan D. Stone, Esq.

with a copy to:

Olshan Grundman Frome Rosenzweig & Wolosky LLP

Park Avenue Tower

65 East 55th Street

New York, NY 10022

Attn: Steve Wolosky, Esq.

7.7 Indemnification by the Company. The Company agrees to indemnify and hold the Noteholder harmless against any loss, liability, damage or expense (including reasonable legal fees and costs) that the Noteholder shall suffer, sustain or become subject to as a result of or in connection with the breach by the Company of any representation, warranty, covenant or agreement of the Company contained in any of the 2008 Transaction Documents; provided, however, that no indemnification shall be required hereunder for the gross negligence or willful misconduct of the Noteholder or breach by the Noteholder of any of the representations and warranties set forth in Section 6 hereof. In case any such action is brought against the Noteholder, the Company will be entitled to participate in and assume the defense thereof with counsel reasonably satisfactory to the Noteholder, and after notice from the Company to the Noteholder of its election to assume the defense thereof, the Company shall not be responsible for any legal or other expenses subsequently incurred by the Noteholder in connection with the defense thereof; provided, that if the Noteholder shall have reasonably concluded that there may be one or more legal defenses available to the Noteholder which conflict in any material respect with those available to the Company, the Company shall not have the right to assume the defense of such action on behalf of the Noteholder and the Company shall reimburse the Noteholder for that portion of the fees and expenses of one counsel retained by the Noteholder.

7.8 Release. In consideration of the agreements of Noteholder contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Company, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Noteholder and its successors and assigns, predecessors, subsidiaries, partners (including limited partners), directors, officers, attorneys, employees, agents and other representatives (all such other Persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”), of and from all claims, demands, actions, causes of action, suits, and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a “Claim” and collectively, “Claims”) of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Company or any of its successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Agreement and relating to (a) the transactions contemplated by the Note or the Amended Note or actions taken by Releasees in connection therewith (including but not limited to the negotiation and execution of the Note or the Amended Note) or (b) Noteholder’s capacity as a creditor or stockholder of the Company. The foregoing release shall not apply with respect to violations or breaches of any state or federal securities laws unrelated to the transactions contemplated by the Note or the Amended Note (it being understood that the foregoing release shall not release Releasees in respect of breaches of representations under the Note or the Amended Note), or fraud or willful misconduct committed by any Releasee.

7.9 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, to enable the full conversion of the Amended Note.

7.10 Expenses. The Company agrees to pay or reimburse the Noteholder for its reasonable legal fees and expenses incurred by Noteholder in connection with the negotiation and execution of the 2008 Transaction Documents and any and all expenses that Noteholder may incur after the date hereof in connection with the granting of any waiver with respect to, the modification of any of the terms or provisions of, or the enforcement of any of the 2008 Transaction Documents.

7.11 Titles and Subtitles. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

7.12 Counterparts. This Agreement may be delivered via facsimile or other means of electronic communication, and may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have hereunto affixed their signatures.

Bell Industries, Inc.,		Newcastle Partners, L.P.
a California corporation		By: Newcastle Capital Management, L.P. its General Partner

By	/s/ Kevin Thimjon	By	/s/ Evan Stone

Its	President & CFO	Its	General Counsel

Bell Industries, Inc.,
a Minnesota corporation


By	/s/ Kevin Thimjon

Its	EVP & CFO