<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
------------------------
MILGRAY ELECTRONICS, INC.
(NAME OF SUBJECT COMPANY)
------------------------
BELL INDUSTRIES, INC.
ME ACQUISITION, INC.
(BIDDERS)
COMMON STOCK, PAR VALUE $0.25 PER SHARE
(TITLE OF CLASS OF SECURITIES)
599751 10 4
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
TRACY A. EDWARDS
11812 SAN VICENTE BOULEVARD
LOS ANGELES, CALIFORNIA 90049-5022
(310) 826-2355
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
------------------------
WITH A COPY TO:
ANDREW W. GROSS, ESQ.
IRELL & MANELLA LLP
1800 AVENUE OF THE STARS, SUITE 600
LOS ANGELES, CALIFORNIA 90067-4276
TELEPHONE: (310) 277-1010
CALCULATION OF FILING FEE
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Transaction valuation* Amount of Filing fee**
- ---------------------------------------- ----------------------------------------
$100,039,810 $20,008
</TABLE>
* For purposes of calculating the filing fee only. This calculation assumes the
purchase of 6,773,176 shares of Common Stock, $.25 par value per share, of
Milgray Electronics, Inc. at $14.77 net per share in cash.
** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent
of the aggregate value of cash offered by ME Acquisition, Inc. for such
number of shares.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
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Amount Previously Paid: Not Form or Registration No.: Not
applicable. applicable.
Filing Party: Not applicable. Date Filed: Not applicable.
</TABLE>
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CUSIP NO. 599751 10 4 14D-1 Page 2 of 539 Pages
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1. NAMES OF REPORTING PERSON
S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Bell Industries, Inc.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
(a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCES OF FUNDS (SEE INSTRUCTIONS)
BK
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(e) or 2(f)
[ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
California
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,742,064 (See Section 11 of the Offer to Purchase dated December 4, 1996
filed as Exhibit (a)(1) hereto)
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8. [ ] CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 7 EXCLUDES CERTAIN SHARES
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 7
55.2%
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10. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
HC and CO
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</TABLE>
2
<PAGE> 3
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CUSIP NO. 599751 10 4 14D-1 Page 3 of 539 Pages
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11. NAMES OF REPORTING PERSON
S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ME Acquisition, Inc.
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12. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
(a) [X]
(b) [ ]
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13. SEC USE ONLY
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14. SOURCES OF FUNDS (SEE INSTRUCTIONS)
AF
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15. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(e) or 2(f)
[ ]
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16. CITIZENSHIP OR PLACE OF ORGANIZATION
New York
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17. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,742,064 (See Section 11 of the Offer to Purchase dated December 4, 1996
filed as Exhibit (a)(1) hereto)
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18. [ ] CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 7 EXCLUDES CERTAIN SHARES
- ---------------------------------------------------------------------------------------------
19. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 7
55.2%
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20. TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
CO
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</TABLE>
3
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This Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") also
constitutes a Statement on Schedule 13D with respect to the acquisition by ME
Acquisition, Inc. and Bell Industries, Inc. of beneficial ownership of the
shares of Common Stock referred to on the cover hereof. The item numbers and
responses thereto below are in accordance with the requirements of Schedule
14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Milgray Electronics, Inc., a New
York corporation (the "Company"). The address of the Company's principal
executive offices is 77 Schmitt Boulevard, Farmingdale, New York 11725.
(b) This Schedule 14D-1 relates to the offer by ME Acquisition, Inc.
("Purchaser"), a New York corporation and direct wholly owned subsidiary of Bell
Industries, Inc. ("Parent"), a California corporation, to purchase all
outstanding shares of common stock, $0.25 par value per share (the "Shares"), of
the Company, upon the terms and subject to the conditions set forth in the Offer
to Purchase dated December 4, 1996 (the "Offer to Purchase") and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, constitute the "Offer") at a purchase price of $14.77 per Share, net to
the seller in cash. At November 26, 1996, 6,773,176 Shares were outstanding. The
information set forth under "INTRODUCTION" in the Offer to Purchase annexed
hereto as Exhibit (a)(1) is incorporated herein by reference.
(c) The information set forth under "THE TENDER OFFER -- Price Range of
Shares; Dividends" in the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) This Schedule 14D-1 is being filed by Purchaser and Parent.
The information set forth under "INTRODUCTION" and "THE TENDER OFFER -- Certain
Information Concerning Purchaser and Parent" in the Offer to Purchase and
Schedule I thereto is incorporated herein by reference.
(e)-(f) During the last five years, none of Purchaser or Parent, or any
persons controlling Purchaser, or, to the best knowledge of Purchaser or Parent,
any of the persons listed on Schedule I to the Offer to Purchase (i) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which any such
person was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, Federal or State securities
laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth under "INTRODUCTION," "THE TENDER
OFFER -- Certain Information Concerning the Company," "-- Certain Information
Concerning Purchaser and Parent," "-- Background of the Offer; Contacts with the
Company" and "-- Purpose of the Offer; Plans for the Company; Merger Agreement;
Tender Agreement" in the Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth under "INTRODUCTION" and "THE TENDER
OFFER -- Source and Amount of Funds" in the Offer to Purchase is incorporated
herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under "INTRODUCTION," "THE TENDER
OFFER -- Background of the Offer; Contacts with the Company" and "-- Purpose of
the Offer; Plans for the Company; Merger Agreement; Tender Agreement" in the
Offer to Purchase is incorporated herein by reference.
4
<PAGE> 5
(f)-(g) The information set forth under "INTRODUCTION" and "THE TENDER
OFFER -- Effect of the Offer on the Market for the Shares; NNM Quotation and
Exchange Act Registration" in the Offer to Purchase is incorporated herein by
reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth under "THE TENDER OFFER -- Purpose of the
Offer; Plans for the Company; Merger Agreement; Tender Agreement" in the Offer
to Purchase is incorporated herein by reference.
(b) Not applicable.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth under "INTRODUCTION," "THE TENDER
OFFER -- Background of the Offer; Contacts with the Company" and "-- Purpose of
the Offer; Plans for the Company; Merger Agreement; Tender Agreement" in the
Offer to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "THE TENDER OFFER -- Fees and Expenses" in
the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth under "THE TENDER OFFER -- Certain Information
Concerning Purchaser and Parent" in the Offer to Purchase is incorporated herein
by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) The information set forth under "INTRODUCTION" and "THE TENDER
OFFER -- Regulatory Approvals; State Takeover Laws" in the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth under "THE TENDER OFFER -- Effect of the
Offer on the Market for the Shares; NNM Quotation and Exchange Act Registration"
in the Offer to Purchase is incorporated herein by reference.
(e) The information set forth under "THE TENDER OFFER -- Regulatory
Approvals; State Takeover Laws" in the Offer to Purchase is incorporated herein
by reference.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
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(a)(1) Offer to Purchase dated December 4, 1996.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
</TABLE>
5
<PAGE> 6
<TABLE>
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(a)(7) Text of joint Press Release issued by Parent and the Company on November 27,
1996.
(a)(8) Form of Summary Advertisement, dated December 4, 1996.
(a)(9) Letter to shareholders of the Company, dated December 4, 1996.
(b) Commitment Letter, dated October 2, 1996, from Union Bank of California, N.A.
to Parent (as supplemented by that certain letter agreement between Union
Bank of California, N.A. and Parent dated November 13, 1996).
(c)(1) Agreement and Plan of Merger, dated as of November 26, 1996, by and among
Parent, Purchaser and the Company.
(c)(2) Tender Agreement, dated as of November 26, 1996, by and among Parent,
Purchaser and Herbert S. Davidson.
(c)(3) Employment Agreement by and between Parent and Herbert S. Davidson, dated as
of November 26, 1996.
(c)(4) Employment Agreement by and between Parent and Richard Hyman, dated as of
November 26, 1996.
(c)(5) Employment Agreement by and among Parent, the Company and John Tortorici,
dated as of November 26, 1996.
(c)(6) Employment Agreement by and among Parent, the Company and Gary Adams, dated
as of November 26, 1996.
(c)(7) Employment Agreement by and among Parent, the Company and Andrew Epstein,
dated as of November 26, 1996.
(c)(8) Employment Agreement by and among Parent, the Company and James Darren
O'Donnell, dated as of November 26, 1996.
(c)(9) Employment Agreement by and among Parent, the Company and Steven Sokoloff,
dated as of November 26, 1996.
(c)(10) Employment Agreement by and among Parent, the Company and Elliot Schnabel,
dated as of November 26, 1996.
(c)(11) Employment Agreement by and among Parent, the Company and Thomas Woolf, dated
as of November 26, 1996.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
6
<PAGE> 7
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct
and agree that this Statement may be filed collectively with ME Acquisition,
Inc.
Dated: December 4, 1996
BELL INDUSTRIES, INC.
By: /s/ TRACY A. EDWARDS
------------------------------------
Name: Tracy A. Edwards
Title: Vice President
7
<PAGE> 8
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct
and agree that this Statement may be filed collectively with Bell Industries,
Inc.
Dated: December 4, 1996
ME ACQUISITION, INC.
By: /s/ TRACY A. EDWARDS
------------------------------------
Name: Tracy A. Edwards
Title: Vice President
8
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
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(a)(1) Offer to Purchase dated December 4, 1996.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
(a)(7) Text of joint Press Release issued by Parent and the Company on November 27,
1996.
(a)(8) Form of Summary Advertisement, dated December 4, 1996.
(a)(9) Letter to shareholders of the Company, dated December 4, 1996.
(b) Commitment Letter, dated October 2, 1996, from Union Bank of California, N.A.
to Parent (as supplemented by that certain letter agreement between Union
Bank of California, N.A. and Parent dated November 13, 1996).
(c)(1) Agreement and Plan of Merger, dated as of November 26, 1996, by and among
Parent, Purchaser and the Company.
(c)(2) Tender Agreement, dated as of November 26, 1996, by and among Parent,
Purchaser and Herbert S. Davidson.
(c)(3) Employment Agreement by and between Parent and Herbert S. Davidson, dated as
of November 26, 1996.
(c)(4) Employment Agreement by and between Parent and Richard Hyman, dated as of
November 26, 1996.
(c)(5) Employment Agreement by and among Parent, the Company and John Tortorici,
dated as of November 26, 1996.
(c)(6) Employment Agreement by and among Parent, the Company and Gary Adams, dated
as of November 26, 1996.
(c)(7) Employment Agreement by and among Parent, the Company and Andrew Epstein,
dated as of November 26, 1996.
(c)(8) Employment Agreement by and among Parent, the Company and James Darren
O'Donnell, dated as of November 26, 1996.
(c)(9) Employment Agreement by and among Parent, the Company and Steven Sokoloff,
dated as of November 26, 1996.
(c)(10) Employment Agreement by and among Parent, the Company and Elliot Schnabel,
dated as of November 26, 1996.
(c)(11) Employment Agreement by and among Parent, the Company and Thomas Woolf, dated
as of November 26, 1996.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
9
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
MILGRAY ELECTRONICS, INC.
AT
$14.77 NET PER SHARE IN CASH
BY
ME ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY
OF
BELL INDUSTRIES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON TUESDAY, JANUARY 7, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES WHICH, WHEN ADDED TO THE SHARES OWNED BY BELL INDUSTRIES, INC.
("PARENT"), ME ACQUISITION, INC. ("PURCHASER") AND THEIR AFFILIATES,
CONSTITUTES AT LEAST 66 2/3% OF THE SHARES OUTSTANDING (THE "MINIMUM
CONDITION") AND (2) PARENT AND PURCHASER HAVING COMPLETED THE BANK
FINANCING ARRANGEMENTS DESCRIBED IN SECTION 9 (THE "FINANCING
CONDITION"). PARENT AND PURCHASER MAY TERMINATE THE OFFER IF
EITHER THE MINIMUM CONDITION OR THE FINANCING CONDITION IS NOT
SATISFIED. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND
CONDITIONS. SEE SECTION 14.
THE BOARD OF DIRECTORS OF MILGRAY ELECTRONICS, INC. (THE "COMPANY") UNANIMOUSLY
HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER (AS HEREINAFTER DEFINED)
IS FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY,
AS A GROUP, AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS, AS A GROUP,
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER
(PROVIDED THAT SUCH SHAREHOLDERS SHOULD CONSULT WITH THEIR
FINANCIAL OR TAX ADVISERS PRIOR TO TENDERING THEIR SHARES IN THE
OFFER OR VOTING TO APPROVE THE MERGER). THE SHARES ARE LISTED
FOR TRADING ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"MGRY." SEE SECTION 6.
PARENT AND PURCHASER HAVE ENTERED INTO THE TENDER AGREEMENT (THE "TENDER
AGREEMENT") WITH HERBERT S. DAVIDSON, A DIRECTOR, CHIEF EXECUTIVE OFFICER AND
PRESIDENT OF THE COMPANY (THE "SELLING SHAREHOLDER"), PURSUANT TO WHICH,
AMONG OTHER THINGS, THE SELLING SHAREHOLDER HAS AGREED TO TENDER AND
SELL IN THE OFFER, UPON THE TERMS AND SUBJECT TO THE CONDITIONS
THEREOF, 3,742,064 SHARES BENEFICIALLY OWNED BY THE SELLING
SHAREHOLDER (OR APPROXIMATELY 55.2% OF THE COMPANY'S OUTSTANDING
SHARES). SEE SECTION 11.
------------------------
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
shares of common stock, par value $.25 per share, of the Company (the "Shares")
should either (i) complete and sign the Letter of Transmittal (or a facsimile
thereof) in accordance with the instructions in the Letter of Transmittal and
mail or deliver it together with the certificate(s) evidencing tendered Shares,
and any other required documents, to the Depositary or tender such Shares
pursuant to the procedures for book-entry transfer set forth in Section 3 or
(ii) request such shareholder's broker, dealer, commercial bank, trust company
or other nominee to effect the transaction for such shareholder. A shareholder
whose Shares are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if such shareholder desires to tender such
Shares.
A shareholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply with
the procedures for book-entry transfer described in this Offer to Purchase on a
timely basis, may tender such Shares by following the procedures for guaranteed
delivery set forth in Section 3.
Questions and requests for assistance, or for additional copies of this
Offer to Purchase, the Letter of Transmittal or other tender offer materials,
may be directed to the Information Agent at its address and telephone number set
forth on the back cover of this Offer to Purchase. A shareholder may also
contact brokers, dealers, commercial banks and trust companies for assistance
concerning the Offer.
------------------------
December 4, 1996
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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INTRODUCTION............................................................................ 2
THE TENDER OFFER........................................................................ 3
1. Terms of the Offer...................................................... 3
2. Acceptance for Payment and Payment for Shares........................... 5
3. Procedures for Tendering Shares......................................... 6
4. Withdrawal Rights....................................................... 8
5. Certain Federal Income Tax Consequences................................. 8
6. Price Range of Shares; Dividends........................................ 9
7. Certain Information Concerning the Company.............................. 9
8. Certain Information Concerning Purchaser and Parent..................... 11
9. Source and Amount of Funds.............................................. 14
10. Background of the Offer; Contacts with the Company...................... 15
11. Purpose of the Offer; Plans for the Company; Merger Agreement; Tender
Agreement............................................................... 17
12. Dividends and Distributions; Changes in Stock........................... 28
13. Effect of the Offer on the Market for the Shares; NNM Quotation and
Exchange Act Registration............................................... 28
14. Conditions of the Offer................................................. 29
15. Regulatory Approvals; State Takeover Laws............................... 30
16. Fees and Expenses....................................................... 32
17. Miscellaneous........................................................... 33
Schedule I Information Concerning the Directors and Executive Officers of Parent
and Purchaser........................................................... A-1
Schedule II Certain Information About Purchaser and Parent Required by New York
Law..................................................................... B-1
</TABLE>
<PAGE> 3
To the Holders of Common Stock of Milgray Electronics, Inc.:
INTRODUCTION
ME Acquisition, Inc. ("Purchaser"), a New York corporation and wholly owned
subsidiary of Bell Industries, Inc. ("Parent"), a California corporation, hereby
offers to purchase all outstanding shares of common stock, par value $0.25 per
share (the "Shares"), of Milgray Electronics, Inc., a New York corporation (the
"Company"), at a price of $14.77 per Share, net to the seller in cash, without
interest thereon (the "Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer").
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to the
Offer. Purchaser will pay all charges and expenses of Harris Trust Company of
New York, as Depositary (the "Depositary"), and MacKenzie Partners, Inc., as
Information Agent (the "Information Agent"), incurred in connection with the
Offer. See Section 16.
The Offer is conditioned upon, among other things, (1) there having been
validly tendered and not withdrawn prior to the expiration of the Offer at least
4,515,451 Shares, which represents at least 66 2/3% of the Shares outstanding
(the "Minimum Condition") and (2) Parent and Purchaser having completed the bank
financing arrangements described in Section 9 (the "Financing Condition").
Assuming the purchase by the Purchaser of the 3,742,064 Shares beneficially
owned by the Selling Shareholder (as hereinafter defined), Purchaser will need
to purchase an additional 773,387 Shares to satisfy the Minimum Condition. Under
the terms of the Merger Agreement (as hereinafter defined), Parent and Purchaser
may not waive the Minimum Condition without the consent of the Company, and
Parent and Purchaser may terminate the Merger Agreement if the Minimum Condition
is not satisfied.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") HAS, BY UNANIMOUS VOTE,
APPROVED EACH OF THE OFFER AND THE MERGER (AS HEREINAFTER DEFINED), HAS
DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY'S SHAREHOLDERS, AS A GROUP, AND UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS, AS A GROUP, ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT
TO THE OFFER (PROVIDED THAT SUCH SHAREHOLDERS SHOULD CONSULT WITH THEIR
FINANCIAL OR TAX ADVISERS PRIOR TO TENDERING THEIR SHARES IN THE OFFER OR VOTING
TO APPROVE THE MERGER).
The Company has advised Parent that Mesirow Financial, Inc. ("Mesirow") has
delivered to the Board its opinion to the effect that as of November 26, 1996,
the $14.77 per share cash consideration to be received by shareholders of the
Company pursuant to the Offer and the Merger is fair to the shareholders of the
Company from a financial point of view. A copy of the opinion of Mesirow, which
sets forth the factors considered and the assumptions made by Mesirow, is
contained in the Company's Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") which is being mailed to the Company's shareholders
herewith.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 26, 1996 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company. The Merger Agreement provides that, among other things, as soon
as practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement and in
accordance with the relevant provisions of the New York Business Corporation Law
("New York Law"), Purchaser will be merged with and into the Company (the
"Merger"). Following consummation of the Merger, the Company will continue as
the surviving corporation (the "Surviving Corporation") and will be a wholly
owned subsidiary of Parent. At the effective time of the Merger (the "Effective
Time"), each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held in the treasury of the Company or owned by
Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent or
Shares held by dissenting shareholders who perfect their appraisal rights under
Section 623 of the New York Law) will be converted into the right to receive the
Offer Price, without interest (the "Merger Consideration"). The Merger Agreement
is more fully described in Section 11.
The Merger Agreement provides that, promptly upon the purchase of and
payment for any Shares (including without limitation all Shares subject to the
Tender Agreement) by Purchaser or any other
2
<PAGE> 4
subsidiary of Parent pursuant to the Offer, Parent will be entitled to designate
such number of directors, rounded to the nearest whole number, on the Board as
is equal to the product of the total number of directors on the Board (which
immediately prior to such calculation, will not consist of more than five
directors) multiplied by the ratio of the aggregate number of Shares
beneficially owned by Parent, Purchaser and their affiliates to the total number
of Shares outstanding. In the Merger Agreement, the Company has agreed to take
all actions necessary to cause Parent's designees to be elected or appointed to
the Board, including without limitation securing the resignations of incumbent
directors.
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including, if required by law, the approval and adoption of
the Merger Agreement by the requisite vote of the shareholders of the Company.
See Section 1. Under New York Law, except as otherwise described below, the
Merger contemplated by the Merger Agreement must be approved by the affirmative
vote of 66 2/3% of the Shares entitled to vote on a proposal to approve the
Merger at a duly convened meeting of the shareholders of the Company. However,
under New York Law, if Purchaser acquires, pursuant to the Offer or otherwise,
at least 90% of the then outstanding Shares, the parties will be able to cause
the Merger under the Merger Agreement to become effective without the approval
of the Company's shareholders.
In the event that Parent, Purchaser or any permitted assignee of Purchaser
acquires at least 90% of the then outstanding Shares, Parent, Purchaser and the
Company have agreed to take, at the request of Parent and subject to the
conditions of the Merger Agreement, all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without approval of the Company's shareholders. See Section 11. If,
however, Purchaser does not acquire at least 90% of the then outstanding Shares
and a vote of the Company's shareholders is required under New York Law, a
significantly longer period of time will be required to effect the Merger.
Concurrently with the execution of the Merger Agreement, Mr. Herbert S.
Davidson, a director, Chief Executive Officer and President of the Company (the
"Selling Shareholder"), entered into the Tender Agreement, dated as of November
26, 1996, with Parent and Purchaser (the "Tender Agreement"). The Selling
Shareholder beneficially owns 3,742,064 Shares which are currently subject to
the Tender Agreement, representing approximately 55.2% of the outstanding
Shares. Pursuant to the Tender Agreement, the Selling Shareholder has agreed,
among other things, to validly tender and sell in the Offer all such Shares
which are owned of record or beneficially by him prior to the Expiration Date
(as hereinafter defined) and vote such Shares in favor of the Merger, in each
case upon the terms and subject to the conditions set forth in the Tender
Agreement. The Tender Agreement is more fully described in Section 11.
The Company has informed Purchaser that, as of November 26, 1996 there were
6,773,176 Shares issued and outstanding and 43,726 Shares issued and held in the
treasury of the Company, and that there were no outstanding options, warrants or
other rights to acquire Shares. As a result, as of such date, the Minimum
Condition would be satisfied if Purchaser acquired 773,387 Shares from
shareholders other than the Selling Shareholder, given that pursuant to the
Tender Agreement the Selling Shareholder has agreed to tender the 3,742,064
Shares beneficially owned by him.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
THE TENDER OFFER
1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of the
Offer (including without limitation the Minimum Condition, the Financing
Condition and, if the Offer is extended or amended, the terms and conditions of
any extension or amendment), Purchaser will accept for payment and pay for all
Shares validly tendered prior to the Expiration Date (as hereinafter defined)
and not withdrawn in accordance with Section 4. The term "Expiration Date" means
5:00 p.m., New York City time, on Tuesday, January 7, 1997, unless and until
Purchaser, in its sole discretion (but subject to the terms of the Merger
Agreement), will have extended the period of time during which the Offer is
open, in which event the term "Expiration Date" will mean the latest time and
date at which the Offer, as so extended by Purchaser, will expire. See Section
11.
3
<PAGE> 5
Purchaser expressly reserves the right, in its sole discretion (but subject
to the terms of the Merger Agreement), at any time and from time to time, to
extend for any reason the period of time during which the Offer is open,
including the occurrence of any of the events specified in Section 14, by giving
oral or written notice of such extension to the Depositary. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering shareholder to withdraw its
Shares. See Section 4.
Subject to the applicable regulations of the Securities and Exchange
Commission (the "Commission"), Purchaser expressly reserves the right, in its
sole discretion (but subject to the terms of the Merger Agreement), at any time
and from time to time, (i) to delay acceptance for payment of, or, regardless of
whether such Shares were theretofore accepted for payment, payment for, any
Shares pending receipt of any regulatory approval specified in Section 15 or in
order to comply in whole or in part with any other applicable law, (ii) to
terminate the Offer and not accept for payment any Shares if any of the
conditions referred to in Section 14 has not been satisfied or upon the
occurrence of any of the events specified in Section 14 and (iii) to waive any
condition or otherwise amend the Offer in any respect by giving oral or written
notice of such delay, termination, waiver or amendment to the Depositary and by
making a public announcement thereof.
The Merger Agreement provides that, without the consent of the Company,
Purchaser will not decrease the Offer Price, decrease the number of Shares
sought, change the form of consideration to be paid in the Offer, amend or waive
the Minimum Condition, or amend any other condition of the Offer in any manner
adverse to the shareholders (other than with respect to insignificant changes or
amendments), except that if on the initial scheduled Expiration Date of the
Offer (as it may be extended) all conditions to the Offer will not have been
satisfied or waived, the Offer may be extended from time to time until February
6, 1997; provided, however, that Purchaser may extend the Offer without the
Company's consent until February 28, 1997 if the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), has not expired or terminated by February 6, 1997. In addition, the
Merger Agreement provides that without the consent of the Company, the Offer
Price may be increased and the Offer may be extended to the extent required by
law in connection with such an increase in the Offer Price. Purchaser will
terminate the Offer upon any termination of the Merger Agreement pursuant to the
terms thereof.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), requires Purchaser to pay the
consideration offered or return the Shares tendered promptly after the
termination or withdrawal of the Offer, and (ii) Purchaser may not delay
acceptance for payment of, or payment for (except as provided in clause (i) of
the first sentence of the second preceding paragraph), any Shares if any of the
conditions referred to in Section 14 has not been satisfied or upon the
occurrence of any of the events specified in Section 14 without extending the
period of time during which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d)
and 14e-l under the Exchange Act, which require that material changes be
promptly disseminated to shareholders in a manner reasonably designed to inform
them of such changes) and without limiting the manner in which Purchaser may
choose to make any public announcement, Purchaser will have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules 14d-4(c),
14d-6(d) and 14e-1 under the Exchange Act.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to decrease the number of Shares being sought or
to increase or decrease the consideration being offered in the Offer, such
decrease in the number of Shares being sought or such increase or decrease in
the consideration
4
<PAGE> 6
being offered will be applicable to all shareholders whose Shares are accepted
for payment pursuant to the Offer and, if at the time notice of any such
decrease in the number of Shares being sought or such increase or decrease in
the consideration being offered is first published, sent or given to holders of
such Shares, the Offer is scheduled to expire at any time earlier than the
period ending on the tenth business day from and including the date that such
notice is first so published, sent or given, the Offer will be extended at least
until the expiration of such ten business day period. For purposes of the Offer,
a "business day" means any day other than a Saturday, Sunday or Federal holiday
and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York
City time.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase, the related Letter of Transmittal, and other
relevant materials, will be mailed to record holders of Shares whose names
appear on the Company's shareholder list and will be furnished, for subsequent
transmittal to beneficial owners of Shares, to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), Purchaser
will purchase, by accepting for payment, and will pay for, all Shares validly
tendered prior to the Expiration Date (and not properly withdrawn in accordance
with Section 4) promptly after the later to occur of (i) the Expiration Date and
(ii) the satisfaction or waiver of the conditions set forth in Section 14.
Subject to applicable rules of the Commission and the terms of the Merger
Agreement, Purchaser expressly reserves the right, in its discretion, to delay
acceptance for payment of, or payment for, Shares pending receipt of any
regulatory approvals specified in Section 15. See Section 15.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) the certificates
evidencing such Shares (the "Share Certificates") or timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Shares, if such
procedure is available, into the Depositary's account at The Depository Trust
Company or the Philadelphia Depository Trust Company (each, a "Book-Entry
Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities")
pursuant to the procedures set forth in Section 3, (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, or an
Agent's Message (as defined below) in connection with a book-entry transfer of
Shares and (iii) any other documents required by the Letter of Transmittal.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, tendered Shares if, as and when Purchaser gives
oral or written notice to the Depositary of Purchaser's acceptance of such
Shares for payment. Payment for Shares accepted pursuant to the Offer will be
made by deposit of the purchase price therefor with the Depositary, which will
act as agent for tendering shareholders for the purpose of receiving payments
from Purchaser and transmitting payments to such tendering shareholders. Under
no circumstances will interest on the purchase price for Shares be paid by
Purchaser, regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
shareholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure
set forth in Section 3, such Shares will be credited to an account maintained at
such Book-Entry Transfer Facility), as promptly as practicable following the
expiration, termination or withdrawal of the Offer.
If, prior to the Expiration Date, Purchaser increases the consideration to
be paid per Share pursuant to the Offer, Purchaser will pay such increased
consideration for all such Shares purchased pursuant to the Offer, whether or
not such Shares were tendered prior to such increase in consideration.
5
<PAGE> 7
Purchaser reserves the right to transfer or assign, in whole at any time,
or in part from time to time, to one or more of its affiliates, the right to
purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve Purchaser of its obligations
under the Offer and will in no way prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
3. PROCEDURES FOR TENDERING SHARES.
Valid Tender of Shares. In order for Shares to be validly tendered pursuant
to the Offer, the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer of Shares, and any
other required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either (i) the Share Certificates evidencing tendered Shares
must be received by the Depositary at one of such addresses or Shares must be
tendered pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, in each case prior
to the Expiration Date, or (ii) the tendering shareholder must comply with the
guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at a Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, including pursuant to a Book-Entry Transfer Facility's Automated
Tender Offer Program ("ATOP") procedures, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees, or an Agent's
Message in connection with a book-entry transfer, and any other required
documents, must, in any case, be transmitted to and received by the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date or the tendering shareholder must comply with the
guaranteed delivery procedures described below. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgement from the participant in such Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce such agreement
against such participant.
Signature Guarantee. Signatures on all Letters of Transmittal must be
guaranteed by a participant in the Security Transfer Agents Medallion Program or
the New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program (each, an "Eligible Institution"), unless the Shares
tendered thereby are tendered (i) by a registered holder of Shares who has not
completed the box entitled "Special Payment Instructions" on the Letter of
Transmittal, or (ii) for the account of an Eligible Institution. See Instruction
1 of the Letter of Transmittal.
If a Share Certificate is registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made, or a Share
Certificate not accepted for payment or not tendered is to be returned, to a
person other than the registered holder(s), then the Share Certificate must be
endorsed or
6
<PAGE> 8
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear on the Share Certificate, with the
signature(s) on such Share Certificate or stock powers guaranteed as described
above. See Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all the
following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) in the case of a guarantee of Shares, the Share Certificates for
all tendered Shares, in proper form for transfer, or a Book-Entry
Confirmation, together with a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) with any required
signature guarantee (or an Agent's Message in connection with a book-entry
transfer) and any other documents required by such Letter of Transmittal,
are received by the Depositary within three National Association of
Securities Dealers, Inc. ("NASD") Automated Quotation System National
Market ("NNM") trading days after the date of execution of the Notice of
Guaranteed Delivery.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Offer will, in all cases, be made only after timely receipt by
the Depositary of (i) the Share Certificates evidencing such Shares, or a
Book-Entry Confirmation of the delivery of such Shares, if available, (ii) a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof), or an Agent's Message in connection with a book-entry
transfer, and (iii) any other documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by Purchaser, in its sole discretion, whose determination will be
final and binding on all parties. Purchaser reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right, in its sole discretion, to waive any of the conditions of the
Offer or any defect or irregularity in any tender with respect to Shares of any
particular shareholder, whether or not similar defects or irregularities are
waived in the case of other shareholders. No tender of Shares will be deemed to
have been validly made until all defects and irregularities have been cured or
waived.
Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. None of Parent, Purchaser, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification.
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Shares tendered by such
shareholder and accepted for payment by Purchaser (and any and all non-cash
dividends, distributions, rights, other Shares, or other securities issued or
issuable in respect of such Shares on or after November 26, 1996). All such
proxies will be considered coupled with an interest in the tendered Shares. This
appointment will be effective if, when, and only to the extent that Purchaser
accepts such Shares for payment pursuant to the Offer. Upon such
7
<PAGE> 9
acceptance for payment, all prior proxies given by such shareholder with respect
to such Shares and other securities will, without further action, be revoked,
and no subsequent proxies may be given (or, if given, will not be effective).
The designees of Purchaser will, with respect to the Shares and other securities
for which the appointment is effective, be empowered to exercise all voting and
other rights of such shareholder as they in their sole discretion may deem
proper at any annual, special, adjourned or postponed meeting of the Company's
shareholders, by written consent or otherwise, and Purchaser reserves the right
to require that, in order for Shares or other securities to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares
Purchaser must be able to exercise full voting rights with respect to such
Shares, except as otherwise limited by applicable New York Law.
TO PREVENT FEDERAL INCOME TAX BACKUP WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH SHAREHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH SHAREHOLDER IS NOT
SUBJECT TO FEDERAL INCOME TAX BACKUP WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH
RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY
PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF
TRANSMITTAL.
Purchaser's acceptance for payment of Shares tendered pursuant to the Offer
will constitute a binding agreement between the tendering shareholder and
Purchaser upon the terms and subject to the conditions of the Offer.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after February 1, 1997.
If Purchaser extends the Offer, is delayed in its acceptance for payment of
Shares or is unable to accept Shares for payment pursuant to the Offer for any
reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as described in this Section 4.
Any such delay will be by an extension of the Offer to the extent required by
law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If Share Certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such Share Certificates, the serial numbers shown on such Share
Certificates must be submitted to the Depositary and the signature(s) on the
notice of withdrawal must be guaranteed by an Eligible Institution, unless such
Shares have been tendered for the account of an Eligible Institution. If Shares
have been tendered pursuant to the procedure for book-entry transfer as set
forth in Section 3, any notice of withdrawal must also specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Parent, Purchaser, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or will incur any liability for failure to give any such notification.
Any Shares properly withdrawn will thereafter be deemed to not have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash for Shares
pursuant to the Offer or in the Merger will be a taxable transaction for Federal
income tax purposes and may also be a taxable
8
<PAGE> 10
transaction under applicable state, local or foreign tax laws. In general, a
shareholder will recognize gain or loss for Federal income tax purposes equal to
the difference between the amount of cash received in exchange for the Shares
sold and the shareholder's adjusted tax basis in such Shares. Assuming the
Shares constitute capital assets in the hands of the shareholder, such gain or
loss will be capital gain or loss and will be long term capital gain or loss if
the holder has held the Shares for more than one year at the time of the sale.
Gain or loss will be calculated separately for each block of Shares tendered
pursuant to the Offer.
The foregoing discussion may not be applicable to certain types of
shareholders, including shareholders who acquired Shares pursuant to the
exercise of stock options or otherwise as compensation, individuals who are not
citizens or residents of the United States and foreign corporations, or entities
that are otherwise subject to special tax treatment under the Internal Revenue
Code of 1986, as amended.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. SHAREHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISERS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are quoted on the NNM under
the symbol "MGRY." The following table sets forth, for the quarters indicated,
the high and low bid quotations per Share on the NNM as reported in publicly
available sources for each of the quarters indicated.
<TABLE>
<CAPTION>
MARKET PRICES
---------------
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1994:
First quarter.............................................................. $ 7.37 $ 5.44
Second quarter............................................................. 7.94 6.31
Third quarter.............................................................. 8.50 7.37
Fourth quarter............................................................. 7.75 6.62
FISCAL YEAR ENDED SEPTEMBER 30, 1995:
First quarter.............................................................. 7.12 5.87
Second quarter............................................................. 7.87 6.00
Third quarter.............................................................. 13.69 6.00
Fourth quarter............................................................. 16.50 11.12
FISCAL YEAR ENDED SEPTEMBER 30, 1996:
First quarter.............................................................. 15.50 9.75
Second quarter............................................................. 11.87 8.62
Third quarter.............................................................. 13.50 9.00
Fourth quarter............................................................. 12.75 9.75
</TABLE>
On November 26, 1996, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the reported closing
sales price of the Shares on the NNM was $13.63 per Share. On December 3, 1996,
the last full trading day prior to the date of this Offer to Purchase, the
reported closing sales price of the Shares on the NNM was $14.50 per Share.
Shareholders are urged to obtain a current market quotation for the Shares.
No dividends were paid by the Company during the above periods. The Merger
Agreement prohibits the Company from declaring or paying any dividend or
distribution on the Shares. In addition, the Company's financing arrangement
with its bank presently prohibits the payment of cash dividends.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company contained in this Offer to Purchase, including financial
information, has been taken from or based upon publicly available documents and
records on file with the Commission and other public sources. Neither Parent nor
Purchaser assumes any responsibility for the accuracy or completeness of the
information concerning the Company contained in such documents and records or
for any failure by the Company to disclose events
9
<PAGE> 11
which may have occurred or may affect the significance or accuracy of any such
information but which are unknown to Parent or Purchaser.
The Company is a New York corporation and its principal executive offices
are located at 77 Schmitt Boulevard, Farmingdale, New York 11735. The telephone
number of the Company at such offices is (516) 420-9800. The Company is a
distributor of electronic components, computer products and wire products
produced by a large number of manufacturers. The Company's sales are made to
more than 10,000 customers, located principally in the United States, Canada and
Western Europe. The Company's operations are presently conducted from its
principal offices in Farmingdale, New York, as well as from twenty-eight other
locations in the United States and Canada.
Financial Information. Set forth below is certain financial information
relating to the Company and its subsidiaries which has been excerpted or derived
from the audited financial statements contained in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1995 (the "Company Form
10-K") and from the unaudited financial statements contained in the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996, in
each case filed by the Company with the Commission. More comprehensive financial
information is included in such reports and other documents filed by the Company
with the Commission. The financial information that follows is qualified in its
entirety by reference to those reports and other documents, including the
financial statements and related notes contained therein. The Company Form 10-K
and other documents may be examined and copies may be obtained from the offices
of the Commission in the manner set forth below.
MILGRAY ELECTRONICS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
------------------- SEPTEMBER 30,
JUNE 30, JULY 2, ------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................................... $212,990 $175,078 $239,519 $181,844 $150,295
-------- -------- -------- -------- --------
Costs and expenses:
Cost of sales............................... 167,914 134,938 183,457 140,079 114,749
Selling, general and administrative......... 32,241 28,442 39,292 31,001 26,679
Interest.................................... 1,945 1,281 1,816 1,111 944
-------- -------- -------- -------- --------
Total costs and expenses.................. 202,100 164,661 224,565 172,191 142,372
-------- -------- -------- -------- --------
Income before income taxes.................. 10,890 10,417 14,954 9,653 7,923
Income taxes................................ 4,247 3,897 5,638 3,460 2,775
-------- -------- -------- -------- --------
Net income.................................. $ 6,643 $ 6,520 $ 9,316 $ 6,193 $ 5,148
======== ======== ======== ======== ========
Earnings per share.......................... $ 0.98 $ 0.97 $ 1.38 $ 0.93 $ 0.78
======== ======== ======== ======== ========
Weighted average common shares
outstanding............................... 6,773 6,745 6,752 6,695 6,589
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ----------------------------
1996 1995 1994 1993
----------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Total current assets................................... $ 101,433 $ 97,548 $66,755 $59,982
Total assets........................................... 105,629 101,278 70,444 63,100
Total current liabilities.............................. 26,087 31,888 19,396 23,468
Total long-term liabilities............................ 35,142 31,633 22,733 17,971
Total shareholders' equity............................. 44,070 37,427 27,998 21,349
</TABLE>
The Company has also issued a press release stating that, for its fiscal
year ended September 30, 1996, it had net sales of $275.4 million and net income
of $8.6 million, or $1.27 per share.
The Company is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons in
transactions with the Company and other matters is required to be disclosed in
proxy statements distributed to the Company's shareholders and filed with the
Commission. These reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
also should be available for inspection and copying at prescribed rates at the
following regional offices of the Commission: Seven World Trade Center, New
York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of this material may also be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549. Reports, proxy statements and other
information concerning the Company should also be available for inspection at
the offices of the NASD, Reports Section, 1735 K Street, N.W., Washington, D.C.
20006. Except as otherwise noted in this Offer to Purchase, all of the
information with respect to the Company and its affiliates set forth in this
Offer to Purchase has been derived from publicly available information.
8. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT.
Purchaser. Purchaser is a newly incorporated New York corporation. All of
the issued and outstanding shares of capital stock of Purchaser are beneficially
owned by Parent. The principal executive offices of Purchaser are located at
11812 San Vicente Boulevard, Los Angeles, California 90049-5022. The telephone
number of Purchaser at such offices is (310) 826-2355. Purchaser has not
conducted any business other than in connection with the Offer, the Merger
Agreement and the Tender Agreement.
Parent. Parent is a California corporation. The principal executive offices
of Parent are located at 11812 San Vicente Boulevard, Los Angeles, California
90049-5022. The telephone number of Parent at such offices is (310) 826-2355.
Parent is primarily a national distributor of electronic components. In
addition, Parent distributes graphic imaging and recreational-related products.
The Electronics Group (79% of 1995 sales) includes one of the nation's largest
electronic components distributors. The group sells semiconductors, passive and
electromechanical components, connectors, and personal computers, software and
related accessories. The group also manufactures high-precision, close-tolerance
products for the computer industry. The Graphics and Electronic Imaging Group
(13% of 1995 sales) distributes electronic imaging equipment, film, plates,
chemicals and related supplies throughout the western United States to the
advertising and printing industries. After-market products for the recreational
vehicle, motorcycle, mobile home, snowmobile, and marine industries are
distributed by the Recreational Products Group (8% of 1995 sales).
Parent is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning Parent's directors and officers,
their remuneration, stock options granted to them, the principal holders of
Parent's securities, any material interests of such persons in transactions with
Parent and other matters is required to be disclosed in proxy statements
distributed to Parent's shareholders and filed with the Commission. These
reports, proxy statements and other
11
<PAGE> 13
information should be available for inspection and copies may be obtained from
the Commission in the same manner as set forth for the Company in Section 7.
Parent's Common Stock is listed on the New York Stock Exchange, Inc. ("NYSE")
under the symbol "BI", and reports, proxy statements and other information
concerning Parent also should be available for inspection at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
Set forth below are certain financial information with respect to Parent
and its subsidiaries for Parent's last three fiscal years, excerpted or derived
from audited financial statements presented in Parent's 1995 Annual Report to
Shareholders and from the unaudited financial statements contained in Parent's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996,
in each case filed by Parent with the Commission. More comprehensive financial
information is included in such reports and other documents filed by Parent with
the Commission. The financial information summary set forth below is qualified
in its entirety by reference to those reports and other documents which have
been filed with the Commission and all the financial information and related
notes contained therein.
Certain additional information regarding Parent and Purchaser required by
New York Law is set forth in Schedule II hereto.
12
<PAGE> 14
BELL INDUSTRIES, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30,
------------------- ------------ ------------ -------------------
1996 1995 1995 1994 1994 1993
-------- -------- ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales.............................. $464,065 $417,159 $564,325 $255,372 $451,153 $365,323
Income from continuing operations, net
of taxes(1).......................... 12,180 11,062 14,971 5,309 9,075 5,005
Net income (loss)...................... 12,180 11,062 14,971 5,619 9,075 (5,025)
Capital expenditures................... 6,294 3,796 5,019 1,375 2,562 5,744
Depreciation and amortization.......... 4,595 4,299 5,940 2,891 5,574 5,735
FINANCIAL POSITION
Working capital........................ 142,050 127,976 136,227 116,118 107,455 97,710
Total assets........................... 251,362 220,269 233,882 200,367 184,713 175,272
Long-term liabilities.................. 43,377 40,758 43,490 40,936 39,972 47,569
Shareholders' equity................... 133,409 113,646 117,569 101,770 95,553 86,288
SHARE AND PER SHARE DATA(2)
Income from continuing operations, net
of taxes............................. $1.61 $1.49 2.01 .73 1.25 .70
Net income (loss)...................... $1.61 $1.49 2.01 .77 1.25 (.70)
Cash dividends declared................ -- -- -- -- -- .20
Shareholders' equity................... 17.96 15.74 16.23 14.20 13.43 12.16
Market price -- high................... 23.25 25.63 25.63 22.88 19.75 14.00
Market price -- low.................... 15.00 18.63 18.63 15.75 13.38 9.25
Weighted average common shares
outstanding(000's)................... 7,567 7,437 7,450 7,324 7,250 7,160
FINANCIAL RATIOS
Current ratio.......................... 2.9 2.9 2.9 3.0 3.2 3.4
Return on average shareholders'
equity............................... 12.9% 13.7% 13.7% 11.3% 10.0% (5.6)%
Long-term liabilities to total
capitalization....................... 24.5% 26.4% 27.0% 28.7% 29.5% 35.5%
</TABLE>
- ---------------
(1) Includes before-tax gain on sale of division ($3,050) and before-tax
provision for lease commitment ($2,800) in 1995.
(2) Adjusted to give effect to 5% stock dividends declared in May 1996, May 1995
and October 1994, and a 4% stock dividend declared in July 1993 (excluding
cash dividend and market price data).
(3) During the six month period ended December 31, 1994, the Company changed its
year end from June 30 to December 31.
The name, citizenship, business address, principal occupation or
employment, five-year employment history and age for each of the directors and
executive officers of Purchaser and Parent are set forth in Schedule I hereto.
Except as described in this Offer to Purchase, (i) none of Purchaser,
Parent or, to the best knowledge of Purchaser and Parent, any of the persons
listed in Schedule I to this Offer to Purchase or any associate or
majority-owned subsidiary of Purchaser, Parent or any of the persons so listed
beneficially owns or has any right to acquire, directly or indirectly, any
Shares and (ii) none of Purchaser, Parent or, to the best knowledge
13
<PAGE> 15
of Purchaser and Parent, any of the persons or entities referred to above nor
any director, executive officer or subsidiary of any of the foregoing has
effected any transaction in the Shares during the past 60 days.
Except as provided in the Merger Agreement, the Tender Agreement and as
otherwise described in this Offer to Purchase, none of Purchaser, Parent or, to
the best knowledge of Purchaser and Parent, any of the persons listed in
Schedule I to this Offer to Purchase, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies. Except as set forth in this Offer to Purchase, since October 1, 1993,
none of Purchaser, Parent or, to the best knowledge of Purchaser and Parent, any
of the persons listed on Schedule I hereto, has had any business relationship or
transaction with the Company or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulations of
the Commission applicable to the Offer. Except as set forth in this Offer to
Purchase, since October 1, 1993, there have been no contacts, negotiations or
transactions between any of Purchaser, Parent, or any of their respective
subsidiaries, or, to the best knowledge of Purchaser and Parent, any of the
persons listed in Schedule I to this Offer to Purchase, on the one hand, and the
Company or its affiliates, on the other hand, concerning a merger, consolidation
or acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by
Purchaser and Parent to consummate the Offer and the Merger and to pay related
fees and expenses (inclusive of estimated expenses of the Company) is estimated
to be approximately $5.2 million. Purchaser will obtain all of such funds in the
form of equity or debt from Parent.
Parent will obtain all of the required funds from credit facilities. Parent
has received a commitment letter dated October 2, 1996 (as supplemented by that
certain letter agreement dated November 13, 1996, the "Bank Commitment Letter")
from Union Bank of California, N.A. ("Union Bank") to provide senior secured
term loan facilities and senior secured revolving credit facilities for up to
$250 million (i) to finance the purchase of the Shares pursuant to the Offer and
the Merger and to pay certain related fees and expenses related to the Offer and
the Merger, (ii) to refinance certain existing debt of Parent and, after
consummation of the Merger, the Company and (iii) for working capital and
general corporate purposes of Parent and its subsidiaries. Consummation of that
financing is subject to, among other things, the receipt of required consents,
the absence of material adverse conditions and the negotiation, execution and
delivery of definitive documentation consistent with the Bank Commitment Letter
and the related term sheet. There can be no assurance that the terms described
in the Bank Commitment Letter will be contained in the definitive agreements or
that the definitive agreements will not contain additional provisions.
The Bank Commitment Letter and the related term sheet attached provide for
credit facilities relating to the Offer consisting of a tender loan (the "Tender
Loan") of up to $175 million, which will mature on the earlier of the effective
date of the Merger or seventy five days after the purchase of and payment for
Shares in the Offer, a $50 million term loan facility (the "Term Loan") and a
$200 million revolving credit facility (the "Revolving Credit Facility"), which
will be available from time to time on and after the effective date of the
Merger. Each of the Term Loan and Revolving Credit Facility matures in five
years. Parent has agreed to assist Union Bank in syndicating the Tender Loan,
the Term Loan and the Revolving Credit Facility (collectively, the
"Facilities").
The Facilities will be guaranteed by each of Parent's domestic subsidiaries
(including, from and after the consummation of the Merger, the Company and its
subsidiaries). The loans under the Facilities and the guarantees will be secured
by (i) all of the shares of capital stock of all of Parent's subsidiaries
(except the stock of the Company and its subsidiaries during the period from the
purchase of and payment for Shares pursuant to the Offer and the consummation of
the Merger) and (ii) all accounts receivable and inventory of Parent and its
subsidiary guarantors.
14
<PAGE> 16
Until the date of the delivery of financial statements for the period
ending December 31, 1996, the Facilities will bear interest, depending on the
interest rate pricing option selected by Parent, at a rate equal to the
reserve-adjusted LIBOR Rate plus a sliding scale margin of up to 1.5% per annum,
based on leverage coverage (determined as of the date of the purchase of and
payment for Shares pursuant to the Offer), or the Base Rate (the reserve
adjusted LIBOR Rate and the Base Rate being collectively referred to as the
"Alternate Base Rate"). Thereafter, outstanding amounts under the Facilities
will bear interest, depending on the interest rate pricing option selected by
Parent, at the Alternate Base Rate plus a sliding scale margin of up to 1.5% per
annum, based on leverage coverage (determined for the most recent trailing four
fiscal quarters) for loans effected pursuant to the Facilities and as to which
the reserve-adjusted LIBOR Rate option has been selected by Parent. After the
occurrence and during the continuation of an event of default, interest will
accrue at a rate equal to the rate on loans bearing interest at the Base Rate
plus an additional two percentage points per annum and will be payable on
demand. A commitment fee on the undrawn amount of the Facilities will be payable
at a sliding rate of 0.25% to 0.375%, depending on leverage.
It is anticipated that the indebtedness incurred by Parent under such loans
will be repaid from funds generated internally by Parent and its subsidiaries
(including, after the Merger, if consummated, funds generated by the Company and
its subsidiaries), through an offering of Parent's capital stock, through
additional borrowings, through application of proceeds of dispositions or
through a combination of two or more such sources. No final decisions have been
made concerning the method Parent will use to repay such indebtedness. Such
decisions when made will be based upon Parent's review from time to time of the
advisability of particular actions, as well as on prevailing interest rates and
financial and other economic and market conditions.
The margin regulations promulgated by the Federal Reserve Board place
restrictions on the amount of credit that may be extended for the purposes of
purchasing margin stock (including the Shares) if the credit is secured directly
or indirectly by margin stock. The Purchaser believes the financing of the
acquisition of the Shares will be in full compliance with margin regulations, as
applicable.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. Information set
forth below regarding the Company, or discussions to which representatives of
Parent and Purchaser were not participants, was provided by the Company.
As part of its on-going strategic efforts to expand its business during the
past few years, Parent had considered several strategies, including the possible
combination with a comparable distributor of electronic components and related
products. Several distributors were identified although contacts between Parent
and these distributors were limited and informal. In May 1994, a meeting was
arranged between certain officers of Parent and the Company to discuss the
possibility of a combination. On May 18, 1994, Theodore Williams, Chairman and
Chief Executive Officer, Bruce M. Jaffe, then President and Chief Operating
Officer, Tracy A. Edwards, Vice President and Chief Financial Officer, of Parent
met with Herbert Davidson, a director, Chief Executive Officer and President,
and Richard Hyman, a director, Executive Vice President and Chief Operating
Officer, of the Company. During this meeting, Mr. Davidson stated that although
the Company was not for sale, he was interested in discussing the merits of a
strategic combination with Parent. Mr. Davidson indicated that he was not
opposed to further discussions to explore the potential benefits of a strategic
combination with Parent, although he believed that the benefits thereof might be
limited at that time. Accordingly, during the summer of 1994, Mr. Hyman visited
with Mr. Williams and Mr. Jaffe to discuss further the background and history of
Parent and the Company and the prospects of a combination under mutually
agreeable terms. However, following these conversations, the Company indicated
that it was not interested in pursuing a strategic combination with Parent at
that time.
To assist its strategic efforts to expand its business, Parent retained
Peers & Co. (together with its agents, "Peers"), beginning in January 1995, to
assist Parent in initiating, negotiating and completing mergers with or
acquisitions of distributors of electronic components and related products.
Since its engagement Peers and Parent have evaluated a number of such
distributors, including the Company. Peers contacted a number of these
distributors on Parent's behalf.
15
<PAGE> 17
On July 25, 1995, Peers wrote a letter to Mr. Davidson expressing Parent's
belief that the Company and Parent were a strong strategic fit and that Parent
desired to explore the combination of the Company and Parent. In early August,
Peers spoke to Mr. Davidson who stated that the Company was not for sale but
that he was not opposed to a meeting sometime in the future.
On August 31, 1995, Parent announced that it had made a proposal to merge
with Sterling Electronics Corporation ("Sterling"). On September 19, 1995,
Sterling announced it had rejected Parent's proposal. During October through
January, Parent had discussions with other electrical distributors regarding a
combination with Parent through a merger or acquisition.
In February 1996, Parent requested that Peers contact the Company to
attempt to re-open discussions regarding a combination with Parent. On February
22 and 28 and March 3, 1996, a Peers representative spoke with Mr. Hyman to
discuss a combination of Parent and the Company involving an exchange of stock.
Mr. Hyman indicated he would discuss the concept with Mr. Davidson. During the
conversations, the concept of the Company's shareholders receiving a premium
over the current market price of the Shares was discussed, but a specific price
or exchange ratio was not proposed.
On March 11, 1996, Mr. Hyman called Peers to state that Parent's proposal
to exchange stock was not of sufficient interest to warrant a meeting. Mr. Hyman
said that the Company was concerned that a transaction involving an exchange of
stock might have uncertainty as to value. Furthermore, Mr. Hyman stated that,
although Parent had previously made oral indications of an interest to combine,
the Company had never received a written proposal from Parent. On March 14,
1996, Peers had a discussion with Mr. Hyman to further explore the Company's
reasons for declining to meet. Peers discussed the Company's reasons for
declining a meeting with Parent's senior management.
Over the next ten days, Parent discussed ways to address the Company's
concerns and the feasibility of making a cash offer to acquire the Company's
common stock, including preliminary discussions with banks about providing
necessary financing.
On March 25, 1996, Parent sent a written proposal to the Company proposing
to acquire the Company for cash by paying to all of the Company's shareholders a
price of $13.50 per Share in cash, which offer represented an approximately 44%
premium over the closing stock price of the Company's common stock on March 25,
1996 of $9.375 per Share.
Over the next three weeks, conversations took place between representatives
of the Company and Parent which resulted in the Company's representatives
indicating they were willing to meet to further discuss Parent's proposal.
On April 16, 1996, Messrs. Williams and Jaffe and a Peers representative
met with Messrs. Davidson and Hyman to discuss Parent's proposal. At that
meeting, the Company's representatives said they believed the Company was worth
more than Parent's proposal. Additionally, such representations stated that
there were several issues relating to a combination which needed to be
discussed, explained and resolved, among which were how the business operations
of the two entities would be combined, future operational efficiencies which
might be realized and continuity of employment for key executives of the
Company.
On April 17, 1996, Parent sent a revised proposal to the Company which
increased the offer to approximately $100 million for all of the Company's
outstanding Shares, or $14.77 per Share, which represented an approximately 34%
premium over the closing stock price of the Company's common stock on April 16,
1996 of $11.00 per share. In early May 1996, Mr. Davidson called Mr. Williams to
state that the Company was prepared to enter into further discussions regarding
combining with Parent.
During the next several months, a series of discussions were held between
representatives of the Company and Parent to develop the specific terms of an
acquisition of the Company. These discussions included meetings in New York and
Los Angeles between Parent's and the Company's senior management. On August 21
and 22, 1996, Messrs. Williams and Jaffe met with Messrs. Davidson and Hyman to
discuss the proposed terms of Parent's acquisition offer. During these meetings,
the purchase price of $14.77 per Share was confirmed and terms of proposed
employment agreements for key management of the Company were
16
<PAGE> 18
reviewed and agreed upon in principle. Additionally, counsel for Parent and for
the Company had a meeting and numerous telephone conversations regarding
specific terms of an acquisition agreement and the employment agreements and the
preparation of necessary documentation.
On October 31 and November 1, 1996, representatives of Parent and the
Company held a series of due diligence meetings in New York. Discussion between
representatives of Parent and the Company regarding details of the Merger
Agreement, the Tender Agreement and related matters continued during the next
several weeks. On November 20, 1996, Mr. Hyman met with representatives of
Parent and Purchaser in Los Angeles, California to discuss the Company's
financial results during the fiscal quarter which will end December 31, 1996. On
November 26, 1996, the terms of the proposed transaction and related merger
agreement were presented to and reviewed by the Board. Mesirow made
presentations to the Board and delivered its opinion that, as of November 26,
1996, the $14.77 per Share cash consideration to be received by shareholders of
the Company pursuant to the Offer and the Merger is fair to the shareholders of
the Company from a financial point of view. The full Board then discussed the
proposed Merger Agreement and reviewed proposed resolutions related to the
transaction.
After discussion and further analysis, the Company's Board unanimously
decided to proceed with the sale of the Company and to accept Parent's proposal,
and it then approved the Merger Agreement and the transactions contemplated
thereby and unanimously recommended that the shareholders of the Company, as a
group, accept the Offer and tender their Shares pursuant thereto (provided that
such shareholders should consult with their financial or tax advisers prior to
tendering their Shares in the Offer or voting to approve the Merger). With
respect to the Merger, the Board unanimously recommended that, if a shareholder
vote is required by applicable law, the shareholders of the Company, as a group,
vote in favor of approval and adoption of the Merger Agreement and the Merger
(provided that shareholders should consult with their financial or tax advisers
prior to voting to approve the Merger).
On November 26, 1996, Parent, Purchaser and the Selling Shareholder
executed and delivered the Tender Agreement, and Parent, Purchaser and the
Company executed and delivered the Merger Agreement. On November 27, 1996,
Parent and the Company issued a joint press release announcing the execution of
the Merger Agreement and the Tender Agreement. Purchaser commenced the Offer on
December 4, 1996.
11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; MERGER AGREEMENT; TENDER
AGREEMENT.
PURPOSE OF THE OFFER. The purpose of the Offer, the Merger, the Merger
Agreement and the Tender Agreement is to enable Parent to acquire control of the
Board and the entire equity interest in the Company. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of Parent. The Offer
is being made pursuant to the Merger Agreement.
PLANS FOR THE COMPANY. As promptly as practicable following the purchase of
and payment for Shares under the Offer, (x) Parent intends (i) to exercise its
right under the Merger Agreement to designate such number of directors for the
Board as it is then entitled to designate and (ii) in the event Purchaser
acquires at least 90% of the then outstanding Shares, to cause a "short form"
merger of Purchaser and the Company under New York Law and (y) in the event
Purchaser acquires less than 90% of the then outstanding Shares, the Company
intends to cause a special meeting of the Company's stockholders to be held to
vote upon the Merger. It is Purchaser's expectation that those individuals so
elected or appointed to the Board will not receive any compensation for services
rendered in such capacity.
It is expected that, initially following the Merger, except as set forth
below, the business and operations of the Company will be conducted in a manner
substantially similar to how they are conducted currently. However, Parent will
continue to evaluate the business and operations of the Company during the
pendency of the Offer and after the consummation of the Offer and the Merger and
will take such further actions as it deems appropriate under the circumstances
then existing. Following the Merger, Parent plans to investigate combining its
existing distribution business, or segments thereof, with the Company, and where
feasible or practicable, to combine such business, or segments thereof.
17
<PAGE> 19
MERGER AGREEMENT. THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE
MERGER AGREEMENT. THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE MERGER AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE AND
A COPY OF WHICH HAS BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE SCHEDULE
14D-1. THE MERGER AGREEMENT MAY BE EXAMINED AND COPIES MAY BE OBTAINED AT THE
PLACE AND IN THE MANNER SET FORTH IN SECTION 8 OF THIS OFFER TO PURCHASE.
The Offer. The Merger Agreement provides that Purchaser will commence the
Offer and that, upon the terms and subject to the prior satisfaction or waiver
of the conditions of the Offer, Purchaser will accept for payment and pay for
Shares tendered as soon as practicable after it is legally permitted to do so
under applicable law; provided, however, that Purchaser will not, without the
written consent of the Company, accept for payment and pay for any Shares prior
to January 7, 1997. The Merger Agreement provides that, without the written
consent of the Company, Purchaser will not decrease the Offer Price, decrease
the number of Shares sought, change the form of the consideration to be paid in
the Offer, amend or waive the Minimum Condition, or amend any other condition of
the Offer in any manner adverse to the holders of Shares (other than with
respect to insignificant changes or amendments) except that if on the initial
scheduled expiration date of the Offer (as it may be extended) all conditions of
the Offer have not been satisfied or waived, the Offer may be extended from time
to time until February 6, 1996 without the consent of the Company; provided,
however, that, notwithstanding the foregoing, Purchaser may extend the Offer
without the Company's consent until February 28, 1997 if the waiting period
under the HSR Act has not expired or terminated by February 6, 1997. In
addition, the Merger Agreement provides that, without the consent of the
Company, the Offer Price may be increased and the Offer may be extended to the
extent required by law in connection with such an increase.
The Merger. The Merger Agreement provides that subject to the terms and
conditions thereof, and pursuant to New York Law, at the Effective Time
Purchaser will be merged with and into the Company. As a result of the Merger,
the separate corporate existence of Purchaser will cease and the Company will
continue as the Surviving Corporation.
The respective obligations of Parent and Purchaser, on the one hand, and
the Company, on the other hand, to effect the Merger are subject to the
conditions that: (i) all authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by, any
Federal, state, local or foreign governmental or regulatory authority necessary
for the consummation of the Merger and the transactions contemplated by the
Merger Agreement will have been filed, occurred or been obtained and will be in
effect at the Effective Time; (ii) no temporary restraining order, preliminary
injunction or permanent injunction or other order precluding, restraining,
enjoining, preventing or prohibiting the consummation of the Merger will have
been issued by any Federal, state or foreign court or other governmental or
regulatory authority and remain in effect; (iii) no Federal, state, local or
foreign statute, rule or regulation will have been enacted which prohibits the
consummation of the Merger or would make the consummation of the Merger illegal;
and (iv) the Merger Agreement will have been approved and adopted by the
affirmative vote required of the shareholders of the Company, if required
pursuant to the Company's articles of incorporation and applicable New York Law
in order to consummate the Merger. In addition, the obligations of the Company
to effect the Merger are also subject to the satisfaction or waiver, on or prior
to the date of the closing of the Merger (the "Closing Date"), of the additional
condition that Parent, Purchaser or their affiliates will have purchased Shares
(including without limitation the Shares subject to the Tender Agreement)
pursuant to the Offer.
The Merger Agreement provides that at the Effective Time, each issued and
outstanding Share (other than Shares that are owned by the Company as treasury
stock and any Shares owned by Parent, Purchaser or any other wholly owned
subsidiary of Parent) will be converted into the right to receive the Offer
Price, without interest.
Pursuant to the Merger Agreement, each issued and outstanding share of
common stock, no par value, of Purchaser will be converted into one fully paid
and non-assessable share of common stock of the Surviving Corporation.
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The Company's Board of Directors. The Merger Agreement provides that
promptly upon the purchase of and payment for any Shares (including without
limitation all Shares subject to the Tender Agreement) by Purchaser or any other
subsidiary of Parent pursuant to the Offer, Parent will be entitled to designate
such number of directors, rounded to the nearest whole number, on the Board as
is equal to the product of the total number of directors then serving on the
Board (which, immediately prior to such calculation, may not consist of more
than five directors) multiplied by the ratio of the aggregate number of Shares
beneficially owned by Parent, Purchaser and any of their affiliates to the total
number of Shares then outstanding. The Company must, upon request of Purchaser,
take all action necessary to cause Parent's designees to be elected or appointed
to the Board, including without limitation securing the resignations of such
number of its incumbent directors as is necessary to enable Parent's designees
to be so elected or appointed to the Board, and must cause Parent's designees to
be so elected or appointed. It is Purchaser's expectation that those individuals
so elected or appointed to the Board will not receive any compensation for
services rendered in such capacity. At such time, the Company will also cause
persons designated by Parent to constitute the same percentage (rounded to the
nearest whole number) as is on the Board of (i) each committee of the Board,
(ii) each board of directors (or similar body) of each subsidiary of the Company
and (iii) each committee (or similar body) of each such board.
The Merger Agreement further provides that the Company will promptly take
all actions required pursuant to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder, including mailing to shareholders as part of the
Company's Schedule 14D-9 the information required by such Section 14(f) and Rule
14f-1, as is necessary to enable Parent's designees to be elected to the Board.
From and after the time, if any, that Parent's designees constitute a majority
of the Board, any amendment of the Merger Agreement, any termination of the
Merger Agreement by the Company, any extension of time for performance of any of
the obligations of Parent or Purchaser thereunder, any waiver of any condition
or any of the Company's rights thereunder or other action by the Company
thereunder (other than as specifically provided in the Merger Agreement) may be
effected only if the action is approved by a majority of the directors of the
Company then in office who were directors of the Company on the date of the
Merger Agreement; provided that if there will be no such directors, such actions
may be effected by majority vote of the entire Board.
Shareholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger: (i) duly call,
give notice of, convene and hold a special meeting of its shareholders (the
"Special Meeting") as soon as practicable following the acceptance for payment
and purchase of Shares by Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the Merger Agreement; (ii) prepare and file
with the Commission a preliminary proxy or information statement relating to the
Merger and the Merger Agreement and use its reasonable efforts (x) to obtain and
furnish the information required to be included by the Commission in the Company
Proxy Statement (as defined below) and, after consultation with Parent, to
respond promptly to any comments made by the Commission with respect to the
preliminary proxy or information statement and cause a definitive proxy or
information statement (the "Company Proxy Statement") to be mailed to its
shareholders and (y) to obtain the necessary approvals of the Merger and the
Merger Agreement by its shareholders; and (iii) include in the Company Proxy
Statement the recommendation of the Board that shareholders of the Company, as a
group, vote in favor of the approval of the Merger and the adoption of the
Merger Agreement (provided that shareholders should consult with their financial
or tax advisers prior to voting to approve the Merger) unless, in the opinion of
the Board after consultation with independent counsel, the inclusion of such
recommendation would be inconsistent with its fiduciary duties under applicable
law. Purchaser has agreed that it will, and will cause any of its permitted
assignees to, vote all of the Shares then owned by it which are entitled to vote
in favor of the approval of the Merger and the adoption of the Merger Agreement.
The Merger Agreement provides that in the event Purchaser acquires at least
90% of the outstanding Shares, the parties will take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without approval of the Company
shareholders.
Interim Operations. In the Merger Agreement, the Company has agreed that,
except as expressly contemplated therein or as agreed in writing by Parent,
after November 26, 1996, and prior to the time the directors of the Purchaser
have been elected to the Board (the "Board Reorganization"), that the business
of
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<PAGE> 21
the Company and its subsidiaries will be carried on in the usual, regular and
ordinary course, in substantially the same manner as previously conducted.
Pursuant to the Merger Agreement, without limiting the generality of the
foregoing, and except as otherwise expressly provided in the Merger Agreement,
prior to the Board Reorganization, neither the Company nor any its subsidiaries
will, without the prior written consent of Parent or Purchaser:
(i) (a) declare, set aside or pay any dividends on or make other
distributions in respect of any shares of its capital stock, (b) split,
combine or reclassify any shares of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for any shares of its capital stock or (c) propose to do any
of the foregoing;
(ii) issue, pledge, deliver, sell or transfer or authorize or propose
the issuance, pledge, delivery, sale or transfer of, or repurchase, redeem
or otherwise acquire, directly or indirectly, or propose the repurchase,
redemption or other acquisition of, any shares of capital stock of any
class of the Company or its subsidiaries, or any options, warrants or other
rights exercisable for or securities convertible into or exchangeable for,
any such shares (or enter into any agreements, arrangements, plans or
understandings with respect to any of the foregoing);
(iii) propose or adopt any amendment to its or their articles of
incorporation or bylaws (or similar charter documents);
(iv) transfer, sell, lease, license, mortgage or otherwise dispose of
or encumber any material assets, or enter into any commitment to do any of
the foregoing, other than in the ordinary and usual course of business,
consistent with past practice;
(v) incur, become subject to, or agree to incur any debt for borrowed
money or incur or become subject to any obligation or liability (absolute
or contingent), except current liabilities incurred, monies borrowed under
the Company's current bank loan agreement, and obligations under contracts
entered into, in the ordinary course of business consistent with prior
practice, and the Company will not pay or be liable for prepayment or other
penalties in connection with the early retirement of any Company
indebtedness for borrowed money;
(vi) make any change in the compensation payable or to become payable
to any of its officers, directors, branch managers, marketing managers,
agents or consultants, enter into or amend any employment, severance,
termination or other agreement or make any loans to any of its officers,
directors, branch managers, marketing managers, agents or consultants or
make any change in its existing borrowing or lending arrangements for or on
behalf of any of such persons, whether contingent on consummation of the
Offer, the Merger or otherwise; provided, however, that the foregoing shall
not prohibit the Company or any of its subsidiaries from increasing the
compensation payable to any branch manager or marketing manager after three
days' advance written notice to Parent's Chief Executive Officer or
President;
(vii) (a) pay, agree to pay or make any accrual or arrangement for
payment of any pension, retirement allowance or other employee benefit
pursuant to any existing plan, agreement or arrangement to any officer,
director or employee except in the ordinary course of business and
consistent with past practice; (b) pay or agree to pay or make any accrual
or arrangement for payment to any employees of the Company or any of its
subsidiaries of any amount relating to unused vacation days; (c) commit
itself or themselves to adopt or pay, grant, issue, accelerate or accrue
salary or other payments or benefits pursuant to any pension,
profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or any employment or consulting agreement with or
for the benefit of any director, officer, employee, agent or consultant,
whether past or present; or (d) amend in any material respect any such
existing plan, agreement or arrangement; provided, however, that the
foregoing shall not prohibit the Company or any of its subsidiaries from
(i) accruing or paying any bonus payable for the fiscal year ended
September 30, 1996 determined in a manner consistent with past practice and
in any event not to exceed the bonus paid for the fiscal year ended
September 30, 1995
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<PAGE> 22
or (ii) providing for the deferral until calendar year 1997 of compensation
earned in, and accrued on the Company's consolidated financial statements
for, the fiscal year ended September 30, 1996; and
(viii) (a) enter into, amend or terminate any agreements, commitments
or contracts which, individually or in the aggregate, are material to the
financial condition, business, assets, properties, prospects or results of
operations of the Company and its subsidiaries taken as a whole, or waive,
release, assign or relinquish any material rights or claims thereunder,
except in the ordinary course of business, consistent with past practice;
(b) discharge or satisfy any lien or encumbrance or payment of any
obligation or liability (absolute or contingent) other than current
liabilities in the ordinary course of business; (c) cancel or agree to
cancel any material debts or claims, except in each case in the ordinary
course of business; (d) waive any rights of substantial value; (e) pay,
discharge, satisfy or settle any litigation or other claims, liabilities or
obligations (absolute, accrued, asserted, unasserted, contingent or
otherwise) involving the payment by the Company or any of its subsidiaries
of more than $50,000; (f) make any equity investments in third parties; (g)
incur, pay, or be subject to any material obligation to make any payment
of, or in respect of, any tax on or before the Effective Time, except in
the ordinary course of business consistent with past practice, settle any
material audit, make or change any material tax election or file any
amended tax returns, or agree to extend or waive any statute of limitations
on the assessment or collection of taxes; (h) adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
subsidiaries (other than the Merger) or otherwise make any material change
in the conduct of the business or operations of the Company and its
subsidiaries taken as a whole; or (i) agree in writing or otherwise to take
any of the foregoing actions or any other action which would constitute a
Material Adverse Effect (as hereinafter defined) in any of the items and
matters covered by the representations and warranties of the Company in the
Merger Agreement, or make any representation or warranty of the Company in
the Merger Agreement materially inaccurate in any respect.
In addition, except as expressly provided in the Merger Agreement, prior to
the Board Reorganization, the Company and each of its subsidiaries will:
(i) (a) properly prepare and file all material reports or tax returns
required to be filed with any governmental or regulatory authorities with
respect to its business, operations or affairs, and (b) pay in full and
when due all taxes indicated on such tax returns or otherwise levied or
assessed upon the Company, its subsidiaries or any of their assets and
properties unless such taxes are being contested in good faith by
appropriate proceedings and reasonable reserves therefor have been
established in accordance with generally accepted accounting principles,
consistently applied; and
(ii) (a) report on a regular basis, at reasonable times, to a
representative designated by Parent regarding material operational matters
and financial matters (including monthly unaudited financial information);
(b) promptly and regularly notify Parent of any material change in the
normal course or operation of its business or its properties and of any
material development in the business or operations of the Company and its
subsidiaries (including without limitation any Material Adverse Effect or
any governmental or third party claims, complaints, investigations or
hearings, or communications indicating that the same may be forthcoming or
contemplated); and (c) cooperate with Parent and its affiliates and
representatives in arranging for an orderly transition in connection with
the transfer of control of the Company.
As used in the Merger Agreement, a "Material Adverse Effect" means any
event, circumstance, condition, development or occurrence causing, resulting in
or having a material adverse effect on the financial condition, business,
assets, properties, prospects or results of operations of the Company and its
subsidiaries taken as a whole.
No Solicitation. In the Merger Agreement, the Company has agreed that the
Company and its subsidiaries and affiliates will not, and will use their
reasonable efforts to ensure that their respective officers, directors,
employees, investment bankers, attorneys, accountants and other representatives
and agents do not, directly or indirectly, initiate, solicit, encourage or
participate in, or provide any information to any person concerning, or take any
action to facilitate the making of, any offer or proposal which constitutes or
is
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<PAGE> 23
reasonably likely to lead to any Acquisition Proposal (as hereinafter defined)
of the Company or any subsidiary or affiliate or an inquiry with respect
thereto. The Company has agreed and will cause its subsidiaries and affiliates,
and their respective officers, directors, employees, investment bankers,
attorneys, accountants and other agents to, immediately cease and cause to be
terminated all existing activities, discussions and negotiations, if any, with
any parties conducted heretofore with respect to such matters. Nonetheless, the
Company may, directly or indirectly, provide access and furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to an appropriate confidentiality
agreement, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal (x) if such entity
or group has submitted a bona fide written proposal to the Board relating to any
such transaction and (y) if, in the opinion of the Board, after consultation
with independent legal counsel to the Company, the failure to provide such
information or access or to engage in such discussions or negotiations would be
inconsistent with their fiduciary duties under applicable law.
The Company is required to promptly notify Parent and Purchaser of any such
offers, proposals or Acquisition Proposals (including without limitation the
terms and conditions thereof and the identity of the person making it), and is
further required to keep Parent apprised of all developments with respect to any
such Acquisition Proposal. The Company is further required to give Parent
written notice of any Acquisition Proposal that the Company intends to accept as
an Acceptable Offer in accordance with the terms of the Merger Agreement at
least two business days prior to accepting such offer or otherwise entering into
any agreement or understanding with respect thereto. Any modification of an
Acquisition Proposal constitutes a new Acquisition Proposal for purposes of the
described provisions of the Merger Agreement.
Nothing in the Merger Agreement prohibits the Company or its Board from (a)
taking and disclosing to the Company's shareholders a position with respect to a
tender offer by a third party pursuant to Rules 14d-9 and 14e-2 under the
Exchange Act, or (b) making such disclosure to the Company's shareholders which,
in the opinion of the Board, after consultation with independent legal counsel
to the Company, may be required under applicable law. "Acquisition Proposal"
when used in connection with any person means any tender or exchange offer
involving such person, any proposal for a merger, consolidation or other
business combination involving such person or any subsidiary of such person, any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the business or assets of, such person or any
subsidiary of such person, any proposal or offer with respect to any
recapitalization or restructuring with respect to such person or any subsidiary
of such person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such person, or any subsidiary
of such person; provided, however, that, as used in the Merger Agreement, the
term "Acquisition Proposal" does not apply to (i) any transaction of the type
described in Section 6.1(d) of the Merger Agreement involving Parent, Purchaser
or their affiliates. "Acceptable Offer" means an executed written offer for an
Acquisition Proposal received by the Company (i) in which the offeror
demonstrates proof reasonably satisfactory to the Company's Board of Directors
of its financial capability and authority to consummate the transactions
contemplated by such offer (including without limitation the payments required
by Section 9.1(b) of the Merger Agreement) and (ii) which provides for (x) net
cash proceeds to the Company or all of its shareholders (in addition to amounts
paid pursuant to clause (i) above) in an amount greater than that provided for
under the Merger Agreement, at a per Share purchase price greater than that
contained thereunder (or, in the event such amount has been increased by Parent
in the Merger Agreement, such greater amount) or (y) the issuance of publicly
traded stock as the consideration payable to the Company or all of its
shareholders (in addition to amounts paid pursuant to clause (i) above) which
has an established market value in excess of the per Share purchase price
contained herein (or, in the event such amount has been increased by Parent in
the Merger Agreement, such greater amount).
Directors' and Officers' Indemnification. (a) The bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the bylaws of the Company on November 26, 1996 and shall not be
amended, repealed or otherwise modified from such date until six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who on or at any time prior to the
22
<PAGE> 24
Effective Time were directors, officers, employees or agents of the Company,
unless such modification is required by law.
(b) For six years after the earlier of (i) the date on which the designees
of Parent have been elected to the Board pursuant to the Merger Agreement and
constitute a majority of the members thereof and (ii) the Effective Time, Parent
will, or will cause the Surviving Corporation to, indemnify, defend and hold
harmless the present and former officers, directors, employees and agents of the
Company and its subsidiaries (each, an "Indemnified Party") against all losses,
claims, damages, liabilities, fees and expenses (including reasonable fees and
disbursements of counsel and judgments, fines, losses, claims, liabilities and
amounts paid in settlement (provided that any such settlement is effected with
the prior written consent of Parent or the Surviving Corporation, which consent
shall not be unreasonably withheld)) arising out of actions or omissions
occurring at or prior to the Effective Time (including without limitation
matters arising out of or pertaining to the transactions contemplated by the
Merger Agreement) to the full extent permitted under New York Law or the
Company's articles of incorporation or bylaws, in each case as in effect at
November 26, 1996, including provisions therein relating to the advancement of
expenses incurred in the defense of any action or suit; provided, that in the
event any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until disposition of any and all such claims; and provided, further, that any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under New York Law, the Company's
articles of incorporation or bylaws or the written indemnification agreements
referred to below, as the case may be, will be made by independent counsel
mutually acceptable to Parent and the Indemnified Party.
(c) In addition, Parent and the Surviving Corporation shall honor and
fulfill in all respects the obligations of the Company pursuant to certain
indemnification agreements with the Company's directors and officers.
(d) The Company's directors' and officers' liability insurance as presently
in effect (including without limitation all coverages and terms thereunder)
shall be maintained by Parent or the Surviving Corporation through the Effective
Time. As of the Effective Time, Parent shall, or shall cause the Surviving
Corporation to, purchase and pay for run-off coverage (i.e., coverage for an
extended reporting period) for a six-year term, covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy with coverages and terms substantially similar to those now applicable
under the Company's present directors' and officers' liability insurance policy.
Benefit Plans and Certain Contracts and Employment Arrangements. It is
Parent's current intention to cause the Company to provide its employees for at
least two years following the Effective Time in general with employee benefit
arrangements providing welfare benefits substantially comparable in the
aggregate to those provided by the Company as of the date of the Merger
Agreement, except for any changes thereto that may be required by law, provided,
that Parent has retained the right to amend, modify or terminate any employee
benefit policy or arrangement maintained by the Company to the extent not
prohibited by the terms thereof or by applicable law.
Simultaneously with the execution of the Merger Agreement, Parent entered
into employment agreements with the Selling Shareholder and Richard Hyman and
Parent and the Company entered into employment agreements with John Tortorici,
Elliott Schnabel, Thomas Woolf, Gary Adams, Steven Sokoloff, James Darren
O'Donnell and Andrew Epstein (collectively, with Mr. Hyman, the "Key Officers"),
such agreements to be effective as of the Effective Time. The Selling
Shareholder's employment agreement provides that the Selling Shareholder will be
employed for a one year term as Vice Chairman of the Board and an Assistant
Secretary of Parent at a salary of $100,000 per year, with automatic one year
extensions at a nominal salary (to be set by Parent) sufficient to enable the
Selling Shareholder to participate in Parent's medical insurance plan. Mr.
Hyman's employment agreement provides that Mr. Hyman will be employed for a five
year term as President of the Company and Executive Vice
President -- Electronics Distribution Group of Parent at a base salary of
$400,000 per year plus a guaranteed minimum incentive bonus of $135,000 per
year. Mr. Tortorici's employment agreement provides that Mr. Tortorici will be
employed for a three year term as Vice President -- Finance and Treasurer of the
Company at a base salary of $175,000 per year plus a
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<PAGE> 25
guaranteed minimum incentive bonus of $70,000 per year. Mr. Schnabel's
employment agreement provides that Mr. Schnabel will be employed for a three
year term as Regional Vice President -- Sales of the Company at a base salary of
$200,000 per year plus a guaranteed minimum incentive bonus of $80,000 per year.
Mr. Woolf's employment agreement provides that Mr. Woolf will be employed for a
three year term as Regional Vice President -- Sales of the Company at a base
salary of $175,000 per year plus a guaranteed minimum incentive bonus of $56,000
per year. Mr. Adams' employment agreement provides that Mr. Adams will be
employed for a three year term as Regional Vice President -- Sales of the
Company at a base salary of $150,000 per year plus a guaranteed minimum
incentive bonus of $61,000 per year. Mr. Sokoloff's employment agreement
provides that Mr. Sokoloff will be employed for a three year term as Vice
President -- Marketing (semiconductors, computer products and displays) of the
Company at a base salary of $250,000 per year plus a guaranteed minimum
incentive bonus of $94,000 per year. Mr. O'Donnell's employment agreement
provides that Mr. O'Donnell will be employed for a three year term as Vice
President--Marketing (passives, electromechanical and power supplies) of the
Company at a base salary of $225,000 per year plus a guaranteed minimum
incentive bonus of $75,000 per year. Mr. Epstein's employment agreement provides
that Mr. Epstein will be employed for a three year term as Vice
President -- Operations of the Company at a base salary of $175,000 per year
plus a guaranteed minimum incentive bonus of $66,000 per year. In addition, each
of the Key Officers will be awarded options to acquire 10,000 shares of common
stock of Parent (25,000 shares in the case of Mr. Hyman) under Parent's stock
option plans pursuant to a stock option agreement to be entered into upon
effectiveness of their respective employment agreements. Each Key Officer will
also be entitled to participate in all of Parent's employee benefit plans listed
in Parent's employee handbook, as the same may change from time to time, and, in
addition, to participate on the same terms as senior Parent executives in any
benefit plans available to members of Parent's management (whether or not listed
in the employee handbook).
Election of Directors. Parent will, immediately after the Effective Time,
cause the Selling Shareholder to be elected to Parent's Board of Directors.
Representations and Warranties. The Company has made customary
representations and warranties to Parent and Purchaser with respect to, among
other things, its organization and qualification, subsidiaries, capitalization,
authority, consents and approvals, the Company's Commission reports, financial
statements, undisclosed liabilities, certain changes, taxes, litigation,
employee benefit plans, environmental liability, compliance with applicable
laws, material contracts, patents, trademarks, trade names, copyrights and
registrations, insurance, opinion of financial advisor, vote required,
information supplied, the Company's proxy statement, certain matters with
respect to New York Law, Company stock options, inventory, customers and
suppliers and backlog. In addition, the Company represented to Parent and the
Purchaser that the Board, at a meeting duly called and held, has (i) determined
that the Merger Agreement and the transactions contemplated thereby, including
the Offer and the Merger, are fair to, and in the best interests of, the
shareholders of the Company, as a group, (ii) approved the Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger, in
all respects and that such approval constitutes approval of the Offer, the
Merger Agreement and the Merger for purposes of Sections 902 and 912 of the New
York Business Corporation Law and similar statutes of other states that might be
deemed applicable.
Termination; Expenses. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after shareholder approval thereof:
(i) by mutual consent of the Board of Directors of Parent and the
Board;
(ii) by either the Board of Directors of Parent or the Board: (a)(i)
if all conditions to the Offer shall not have been satisfied or waived
within the relevant time periods specified in Section 1.1(a) of the Merger
Agreement, (ii) if all such conditions to the Offer have been so satisfied
or waived and the Purchaser shall not have accepted for purchase and
purchased all Shares validly tendered and not withdrawn prior to the
Expiration Date within ten (10) business days following such Expiration
Date, or (iii) if the Merger will not have been consummated on or prior to
May 31, 1997; provided, however, that the right to terminate the Merger
Agreement as described in this clause (a) will not be available to any
party whose failure to fulfill any material obligation under the Merger
Agreement has been the cause of,
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<PAGE> 26
or resulted in, the failure of the Offer or the Merger, as applicable, to
be consummated on or prior to the applicable date(s); or (b) if a court of
competent jurisdiction or other governmental or regulatory authority will
have issued an order, decree or ruling or taken any other action (which
order, decree, ruling or other action the parties hereto will use their
reasonable efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the
Merger Agreement and such order, decree, ruling or other action will have
become final and non-appealable;
(iii) by the Board: (a) if, prior to the purchase of Shares by Parent,
Purchaser or their affiliates pursuant to the Offer, the Company will have
(A) accepted an Acceptable Offer in compliance with the terms of Section
6.1 of the Merger Agreement and (B) paid or caused to be paid the expenses
payable to Parent provided for in Section 9.1(b) of the Merger Agreement;
or (b) if, prior to the purchase of the Shares pursuant to the Offer,
Parent or Purchaser breaches or fails in any material respect to perform or
comply with any of its material covenants and agreements contained therein
or breaches its representations and warranties in any material respect; or
(c) if Parent, Purchaser or any of their affiliates will have failed to
commence the Offer on or prior to five business days following the date of
the initial public announcement of the Offer other than due to an
occurrence that if occurring after the commencement of the Offer would
result in a failure to satisfy any of the conditions described in Section
14 of this Offer to Purchase; provided that the Company may not terminate
the Merger Agreement as described in this clause (c) if the Company is in
material breach of the Merger Agreement; or (d) if prior to the purchase of
Shares pursuant to the Offer, there shall have been instituted, pending or
threatened any action, suit or proceeding which challenges, seeks to make
illegal, prohibits, or makes illegal the acceptance for payment, payment
for or purchase of Shares or the consummation of the Offer or the Merger
and which, in the opinion of independent counsel acceptable to the parties
(consent not to be unreasonably withheld), has reasonable possibility of
success;
(iv) by the Board of Directors of Parent: (a) if, due to an occurrence
that if occurring after the commencement of the Offer would result in a
failure to satisfy any of the conditions described in Section 14 of this
Offer to Purchase, Parent, Purchaser or any of their affiliates will have
failed to commence the Offer on or prior to December 4, 1996; provided that
Parent and Purchaser may not terminate the Merger Agreement as described in
this clause (a) if Parent or Purchaser (x) is in material breach of the
Merger Agreement or (y) has not exercised such right by the close of
business, Los Angeles time, on the fifth business day following December 4,
1996; (b) if Parent or Purchaser is not in material breach of the Merger
Agreement and prior to the purchase of Shares pursuant to the Offer, the
Company will have received an Acceptable Offer and the Board will have
withdrawn, modified or changed (including by amendment of the Schedule
14D-9) in a manner adverse to Parent or Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger or will
have recommended an Acquisition Proposal; provided, however that if the
Company's Board of Directors modifies or changes its recommendation of the
Offer, this Agreement or the Merger to either express no opinion and remain
neutral with respect thereto, or to provide that it is unable to take a
position with respect thereto, such modification or change will not be
deemed to be adverse to Parent or Purchaser for purposes of this clause
(b); (c) if Parent or Purchaser, as the case may be, will have terminated
the Offer, or the Offer will have expired without Parent or Purchaser, as
the case may be, purchasing any Shares thereunder, provided that Parent and
Purchaser may not terminate the Merger Agreement as described in this
clause (c) if (x) it or the Purchaser has failed to purchase the Shares in
the Offer in violation of the material terms thereof or (y) Parent or
Purchaser has not exercised such right by the close of business on or
before the fifth business day following the termination or expiration of
the Offer in accordance with its terms; or (d) if, prior to the purchase of
the Shares pursuant to the Offer, the Company breaches or fails in any
material respect to perform or comply with any of its material covenants
and agreements contained in the Merger Agreement or breaches its
representations and warranties in any material respect.
If (i) the Board terminates the Merger Agreement because the Company has
accepted an Acceptable Offer under certain conditions prior to the purchase of
Shares under the Offer, (ii) the Board of Directors of Parent terminates the
Merger Agreement if the Company has received an Acceptable Offer and withdrawn
or adversely changed its recommendation of the transaction under certain
circumstances, or (iii) the Board of
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Directors of Parent terminates the Merger Agreement if Parent, Purchaser or any
of their affiliates will have failed to commence the Offer by December 4, 1996
under certain circumstances or if Parent or Purchaser will have terminated the
Offer or the Offer will have expired without Parent or Purchaser purchasing any
Shares under certain conditions, in each case due to (x) a material breach of
the representations and warranties of the Company set forth in the Merger
Agreement or (y) a material breach of, or failure to perform or comply with, any
material obligation, agreement or covenant contained in the Merger Agreement,
including but not limited to the covenants by the Company, then in any such case
as described in clause (i), (ii) or (iii) the Company shall be required to
reimburse Parent for all of its fees and expenses incurred in connection with
the Offer and the Merger Agreement and the transactions contemplated thereby.
Any such amounts must be paid by the Company concurrently with the termination
of the Merger Agreement in the case of a termination referred to in clause (i)
and otherwise not later than two business days after termination of the Merger
Agreement (or, if later, after Parent provides reasonable documentation to the
Company of the amount of such fees and expenses). Any such fees and expenses not
paid when due shall accrue interest at the rate of ten percent per annum from
the due date until paid in full.
If (i) the Board of Directors of the Company terminates the Merger
Agreement prior to the purchase of any Shares pursuant to the Offer because
Parent or Purchaser breaches or fails in any material respect to perform or
comply with any of its material covenants and agreements contained in the Merger
Agreement or breaches its representations and warranties contained therein in
any material respect or (ii) Parent is unable to obtain the financing necessary
to satisfy the Financing Condition (other than because of (a) the occurrence of
any event that would result in a failure to satisfy any of the conditions of the
Offer (see Section 14) (and for this purpose only, disregarding the provisos to
the condition set forth in paragraph (d) of Section 14), or (ii) the occurrence
of a Material Adverse Effect with respect to Parent and its consolidated
subsidiaries, whether such event or Material Adverse Effect occurs before or
after commencement of the Offer), then Parent shall be required to reimburse the
Company for all of its fees and expenses incurred in connection with the Offer
and the Merger Agreement and the transactions contemplated thereby, such
reimbursement to occur not later than two business days after termination of the
Merger Agreement (or, if later, after the Company provides reasonable
documentation to Parent of the amount of such fees and expenses). Any such fees
and expenses not paid when due shall accrue interest at the rate of ten percent
per annum from the due date until paid in full.
TENDER AGREEMENT. THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE
TENDER AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE TENDER AGREEMENT WHICH IS INCORPORATED HEREIN BY REFERENCE AND
COPIES OF WHICH HAVE BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE
SCHEDULE 14D-1. THE TENDER AGREEMENT MAY BE EXAMINED AND COPIES MAY BE OBTAINED
AT THE PLACE AND IN THE MANNER AS SET FORTH IN SECTION 8 OF THIS OFFER TO
PURCHASE.
Tender of Shares. Concurrently with the execution of the Merger Agreement,
Parent, Purchaser and the Selling Shareholder entered into the Tender Agreement.
Upon the terms and subject to the conditions of such agreement, the Selling
Shareholder has agreed (i) to validly tender or cause the record owner of any
Shares beneficially owned by the Selling Shareholder to tender all such Shares
pursuant to the Offer not later than December 10, 1996 or, with respect to any
Shares acquired directly or indirectly, or otherwise beneficially owned, by the
Selling Shareholder in any capacity after November 26, 1996 and prior to the
termination of the Tender Agreement, whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or exchangeable
securities, or by means of a purchase, dividend, distribution, gift, bequest,
inheritance or as a successor-in-interest in any capacity (including a fiduciary
capacity) or otherwise ("After-Acquired Shares") within one business day
following the acquisition thereof, and (ii) not to withdraw any Shares so
tendered without the prior written consent of Parent. The Selling Shareholder
has agreed that Purchaser's obligation to accept for payment and pay for the
Shares in the Offer is subject to the terms and conditions of the Offer.
Non-Competition; Nondisclosure. The Selling Shareholder has agreed that for
a period of three years from the date of the sale of the Shares, or, if longer,
while the Selling Shareholder is a director, officer or employee of Parent or
Purchaser, he will not compete with the Company or solicit employees or
customers of the Company, and that he will not disclose trade secrets or other
confidential information of the Company.
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Notwithstanding the foregoing, at any time after the initial three year period,
the Selling Shareholder may compete with the Company or solicit employees of the
Company with the express written consent of Parent, which will not be
unreasonably withheld.
Voting. The Selling Shareholder has agreed that (for so long as the Merger
Agreement is in effect), at any meeting of the holders of the Shares, however
called, or in connection with any written consent of the holders of the Shares,
he will vote (or cause to be voted) his Shares (a) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
of the terms thereof and each of the other actions contemplated by the Merger
Agreement and the Tender Agreement and any actions required in furtherance
thereof; (b) against any action or agreement that would result in a breach in
any respect of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement or the Tender Agreement;
and (c) except as otherwise agreed to in writing in advance by Parent, against
any of the following actions or agreements (other than the Merger Agreement or
the transactions contemplated thereby): (i) any action or agreement that is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone or attempt to discourage or adversely affect the Merger, the Offer and
the transactions contemplated by the Tender Agreement and the Merger Agreement;
(ii) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company and its subsidiaries; (iii) a
sale, lease or transfer of a material amount of assets of the Company or its
subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries; (iv) any change in the management or the
Board, except as specifically contemplated by the Merger Agreement; (v) any
change in the present capitalization or dividend policy of the Company; (vi) any
amendment of the Company's articles of incorporation or bylaws; or (vii) any
other material change in the Company's corporate structure or business. Any such
vote or consent shall be given in accordance with such procedures relating
thereto as shall ensure that it is duly counted for purposes of determining that
a quorum is present and for purposes of recording the results of such vote or
consent. Notwithstanding anything to the contrary contained in the Tender
Agreement, the Selling Shareholder will be free to act in his capacity as a
member of the Board and an officer and to discharge his fiduciary duties as
such.
Other Covenants, Representations, Warranties. In connection with the Tender
Agreement, the Selling Shareholder has made certain representations, warranties
and covenants, including without limitation with respect to ownership of Shares,
the Selling Shareholder's power and authority to enter into and perform his
obligations under the Tender Agreement, the receipt of requisite governmental
consents and approvals, absence of conflicts, absence of liens and encumbrances
on and in respect of the Selling Shareholder's Shares, restrictions on the
transfer of the Selling Shareholder's Shares, reliance by Parent, finder's fees,
no solicitation, non-competition, nondisclosure, notice of additional shares and
the solicitation of acquisition proposals.
Vote Required to Approve Merger. New York Law provides that the adoption of
any plan of merger or consolidation by the Company requires the approval of the
Board and the affirmative vote of at least 66 2/3% of all outstanding shares
entitled to vote thereon (including the votes of any Shares owned by Parent and
Purchaser that have voting rights at such time), if the "short form" merger
procedure described below is not available. The Board has authorized and
approved the Offer and the Merger; consequently, the only additional action of
the Company that may be necessary to effect the Merger is approval by such
shareholders at a meeting of the Company's shareholders convened for that
purpose (the "Shareholders' Meeting") if the short-form merger procedure
described below is not available. New York Law also provides that the Merger
will not require the approval of the Company's shareholders, and can be adopted
by Purchaser's Board of Directors, if Purchaser owns at least 90% of the
outstanding Shares. Accordingly, if, as a result of the Offer or otherwise,
Purchaser acquires or controls the voting power of at least 90% of the
outstanding Shares, Purchaser could, and intends to, effect the Merger without
the Shareholders' Meeting and without approval by shareholders of the Company.
If, however, Purchaser does not acquire at least 90% of the then outstanding
Shares pursuant to the Offer or otherwise and a vote of the Company's
shareholders is required under New York Law, a significantly longer period of
time will be required to effect the Merger. Even if the Minimum Condition is
satisfied, Purchaser will not necessarily be able to purchase sufficient Shares
in the Tender Offer in order to be able to use the "short form" merger
procedures described above.
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The Commission has adopted Rule 13e-3 under the Exchange Act which is
applicable to certain "going private" transactions and which may under certain
circumstances be applicable to the Merger or another business combination
following the purchase of Shares pursuant to the Offer in which Purchaser seeks
to acquire the remaining Shares not held by it. Purchaser believes, however,
that Rule 13e-3 will not be applicable to the Merger because it is anticipated
that the Merger will be effected within one year following consummation of the
Offer. Rule 13e-3 requires, among other things, that certain financial
information concerning the Company and certain information relating to the
fairness of the proposed transaction and the consideration offered to minority
shareholders in such transaction, be filed with the Commission and disclosed to
shareholders prior to consummation of the transaction.
Appraisal Rights. Notwithstanding anything in the Merger Agreement to the
contrary, any issued and outstanding Shares held by persons who object to the
Merger and comply with all the provisions of New York Law concerning the right
of holders of Shares to dissent from the merger and require appraisal of their
Shares (each, a "Dissenting Shareholder") will not be converted into the right
to receive the Offer Price, without interest, pursuant to the Merger Agreement
but will become the right to receive such consideration as may be determined to
be due to such Dissenting Shareholder pursuant to New York Law; provided,
however that the Shares outstanding immediately prior to the Effective Time and
held by a Dissenting Shareholder who will, after the Effective Time, fail to
perfect his right to appraisal, withdraw his demand for appraisal, or lose his
right of appraisal, in any case pursuant to Section 623 of the New York Law,
will be deemed to be converted as of the Effective Time into the right to
receive the Offer Price, payable to the holder thereof, without interest. The
Company will give Parent (i) prompt notice of any written demands for appraisal
of the Shares received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to any such demands. The Company will
not, without the prior written consent of Parent, voluntarily make any payment
with respect to, or settle, offer to settle or otherwise negotiate, any such
demands.
12. DIVIDENDS AND DISTRIBUTIONS; CHANGES IN STOCK. As described above, the
Merger Agreement provides that the Company will not, and will not cause or
permit any of its subsidiaries to, (a) declare, set aside or pay any dividends
on or make other distributions in respect of any shares of its capital stock,
(b) split, combine or reclassify any shares of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for any shares of its capital stock or (c) propose to do any of the
foregoing.
13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NNM QUOTATION AND
EXCHANGE ACT REGISTRATION. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
will reduce the number of holders of Shares, which could adversely affect the
liquidity and market value of the remaining Shares held by the public.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NASD for continued inclusion
on the NNM. The NASD requires that an issuer have at least 100,000 publicly held
shares, held by at least 300 shareholders, with a market value of at least
$200,000, have total assets of at least $2 million and have capital and surplus
(total shareholders' equity) of at least $1 million. If the NNM were to cease to
publish quotations for the Shares, it is possible that the Shares would continue
to trade in the over-the-counter market and that price or other quotations would
be reported by other sources. The extent of the public market for such Shares
and the availability of such quotations would depend, however, upon such factors
as the number of shareholders and/or the aggregate market value of such
securities remaining at such time, the interest in maintaining a market in the
Shares on the part of securities firms, the possible termination of registration
under the Exchange Act as described below, and other factors. Purchaser cannot
predict whether the reduction in the number of Shares that might otherwise trade
publicly would have an adverse or beneficial effect on the market price for, or
marketability of, the Shares or whether it would cause future market prices to
be greater or lesser than the Offer Price.
The Shares are currently "margin securities," as such term is defined under
the margin regulations of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), which has the effect, among other things, of
allowing brokers to extend credit on the collateral of such securities.
Depending upon factors similar to those described above regarding listing and
market quotations, following the Offer it is
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possible that the Shares might no longer constitute "margin securities" for
purposes of the margin regulations of the Federal Reserve Board, in which event
such Shares could no longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application of the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders of the Shares. The termination of registration of
the Shares under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of Shares and to the
Commission and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy statement in connection with shareholders' meetings pursuant
to Section 14(a), no longer applicable to the Shares. In addition, "affiliates"
of the Company and persons holding "restricted securities" of the Company may be
deprived of the ability to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act.
If registration of the Shares under the Exchange Act were terminated, the
Shares would no longer be "margin securities" or be eligible for NNM reporting.
Parent intends to seek to cause the Company to terminate the registration
of the Shares under the Exchange Act as soon after consummation of the Offer as
the requirements for termination of the registration of the Shares are met.
14. CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the
Offer, and in addition to (and not in limitation of) Purchaser's rights to
extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Merger Agreement), Purchaser will not be required to accept
for payment or, subject to any applicable rules and regulations of the
Commission, including Rule 14e-1(c) under the Exchange Act (relating to
Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered Shares, and may terminate the Offer as to any Shares not then
paid for, if (i) the applicable waiting period under the HSR Act has not expired
or terminated, (ii) the Minimum Condition has not been satisfied or waived,
(iii) the Financing Condition has not been satisfied or waived, or (iv) at any
time on or after November 26, 1996 and before the time for payment of any such
Shares, any of the following events will occur or will be determined by
Purchaser to have occurred:
(a) there will have been instituted, pending or threatened any action,
proceeding, application, claim or suit, or any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted,
proposed, issued or applicable to the Offer or the Merger by any domestic
or foreign Federal, state or local governmental regulatory or
administrative agency or authority or court or legislative body or
commission which directly or indirectly (1) challenges, seeks to make
illegal, prohibits or makes illegal, or imposes any material limitations
on, Parent's or Purchaser's ownership or operation (or that of any of their
respective subsidiaries or affiliates) of all or a material portion of the
businesses or assets of them or of the Company or its subsidiaries, or
compels Parent or Purchaser or their respective subsidiaries and affiliates
to dispose of or hold separate any material portion of the business or
assets of the Company or Parent and their respective subsidiaries, in each
case taken as a whole, (2) challenges, seeks to make illegal, prohibits or
makes illegal the acceptance for payment, payment for or purchase of Shares
or the consummation of the Offer or the Merger, (3) results in the delay in
or restricts the ability of Purchaser, or renders Purchaser unable, to
accept for payment, pay for or purchase some or all of the Shares, (4)
imposes material limitations on the ability of Parent or Purchaser to
exercise full rights of ownership of the Shares, including without
limitation the right to vote the Shares purchased by it on all matters
presented to the Company's shareholders, (5) seeks to obtain or obtains
material damages or otherwise directly or indirectly relates to the
transactions contemplated by the Offer or the Merger, (6) seeks to require
divestiture by Parent, Purchaser or any of their respective subsidiaries or
affiliates of any Shares, or (7) could otherwise have a Material Adverse
Effect, provided that Parent will have used reasonable efforts to cause any
such judgment, order or injunction to be vacated or lifted;
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(b) there will have occurred (1) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States
(whether or not mandatory), (2) a commencement of a war, armed hostilities
or other international or national calamity directly or indirectly
involving the United States, (3) any limitation (whether or not mandatory)
by any foreign or United States governmental authority on the extension of
credit by banks or other financial institutions, or (4) in the case of any
of the foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof;
(c) the representations and warranties of the Company set forth in the
Merger Agreement will not be true and correct in any material respect when
made or at and as of the date of consummation of the Offer as though made
on or as of such date, except (i) for changes specifically permitted by the
Merger Agreement, and (ii) those representations and warranties that
address matters only as of a particular date are true and correct as of
such date, or the Company will have breached or failed in any material
respect to perform or comply with any material obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with
by it;
(d) any change in the financial condition, business, assets,
properties, prospects or results of operations of the Company and its
subsidiaries taken as a whole that would constitute a Material Adverse
Effect will have occurred, or there will be any event, condition,
occurrence or development of a state of circumstances or facts which
individually or in the aggregate causes, results in or could cause or
result in such a Material Adverse Effect; provided, however, that any
decrease in net sales or net income before taxes (including, without
limitation, losses) of the Company and its subsidiaries on a consolidated
basis that may have occurred at any time subsequent to September 30, 1996
(whether before, on or after November 26, 1996) shall not alone be deemed
to constitute, or to cause or result in, or be a factor in the
determination of, a Material Adverse Effect; and provided further that the
potential loss of certain product lines disclosed by the Company to Parent
and Purchaser shall not be deemed to constitute, or to cause or result in,
a Material Adverse Effect;
(e) the Merger Agreement will have been terminated in accordance with
its terms;
(f) any person or group will have entered into a definitive agreement
or agreement in principle with the Company with respect to an Acquisition
Proposal or other business combination with the Company;
(g) the Board will have withdrawn, modified or changed (including by
amendment of the Schedule 14D-9) in a manner adverse to Parent or Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the
Merger or will have recommended an Acquisition Proposal; provided, however,
that if the Board modifies or changes its recommendation of the Offer, the
Merger Agreement or the Merger to either express its opinion and remain
neutral with respect thereto, or to provide that it is unable to take a
position with respect thereto, such modification or change will not be
deemed to be adverse to Parent or Purchaser for purposes of this paragraph
(g);
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser giving rise to such condition) makes it inadvisable to proceed with
the Offer or with such acceptance of Shares for payment or payments.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be waived by Parent or Purchaser, in whole or in part at any time and
from time to time in the sole discretion of Parent or Purchaser. The failure by
Parent or Purchaser at any time to exercise any of the foregoing rights will not
be deemed a waiver of any such right and each such right will be deemed an
ongoing right which may be asserted at any time and from time to time.
15. REGULATORY APPROVALS; STATE TAKEOVER LAWS.
General. Except as otherwise disclosed herein, based on a review of
publicly available information filed by the Company with the Commission, neither
Purchaser nor Parent is aware of (i) any license or regulatory permit that
appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by the acquisition of Shares
by Purchaser pursuant to the Offer or the Merger or
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(ii) any approval or other action by any governmental, administrative or
regulatory agency or authority, domestic or foreign, that would be required for
the acquisition or ownership of Shares by Purchaser as contemplated herein.
Should any such approval or other action be required, Purchaser currently
contemplates that such approval or action would be sought. While Purchaser does
not currently intend to delay the acceptance for payment of Shares tendered
pursuant to the Offer pending the outcome of any such matter, there can be no
assurance that any such approval or action, if needed, would be obtained or
would be obtained without substantial conditions or that adverse consequences
might not result to the business of the Company, Purchaser or Parent or that
certain parts of the businesses of the Company, Purchaser or Parent might not
have to be disposed of in the event that such approvals were not obtained or any
other actions were not taken. Purchaser's obligation under the Offer to accept
for payment and pay for Shares is subject to certain conditions. See Section 14.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission ("FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Shares by Purchaser pursuant to the Offer is
subject to the HSR Act requirements.
Under the provisions of the HSR Act applicable to the purchase of Shares
pursuant to the Offer, such purchase may not be made until the expiration of a
15-calendar day waiting period following the required filing under the HSR Act
by Parent, which Parent made on December 3, 1996. Accordingly, the waiting
period under the HSR Act will expire at 11:59 P.M., New York City time, on
December 18, 1996, unless early termination of the waiting period is granted or
Parent receives a request for additional information of documentary material
prior thereto. Pursuant to the HSR Act, Parent has requested early termination
of the waiting period applicable to the Offer. There can be no assurances,
however, that the 15-day HSR Act waiting period will be terminated early. If
either the FTC or the Antitrust Division were to request additional information
or documentary material from Parent, the waiting period would expire at 11:59
P.M., New York City time, on the tenth calendar day after the date of
substantial compliance by Parent with such request. Thereafter, the waiting
period could be extended only by court order or by consent of Parent. If the
acquisition of Shares is delayed pursuant to a request by the FTC or the
Antitrust Division for additional information or documentary material pursuant
to the HSR Act, the purchase of and payment for Shares pursuant to the Offer
will be deferred until ten days after the request is substantially complied with
unless the waiting period is terminated sooner by the FTC or the Antitrust
Division. See Section 2. Except by court order, only one extension of such
waiting period pursuant to a request for additional information is authorized by
the rules promulgated under the HSR Act. Although the Company is required to
file certain information and documentary material with the Antitrust Division
and the FTC in connection with the Offer, neither the Company's failure to make
such filings nor a request to the Company from the Antitrust Division or the FTC
for additional information or documentary material will extend the waiting
period.
No separate HSR Act requirements with respect to the Merger, the Merger
Agreement and the Tender Agreement will apply if the 15-day waiting period
relating to the Offer (as described above) has expired or been terminated.
However, if the Offer is withdrawn or if the filing relating to the Offer is
withdrawn prior to the expiration or termination of the 15-day waiting period
relating to the Offer, and the Merger Agreement is not terminated, the
acquisition of Shares under the Merger pursuant to the Merger Agreement may not
be consummated until 30 calendar days after receipt by the Antitrust Division
and the FTC of the Notification and Report Forms of both Parent and the Company
unless the 30-day period is earlier terminated by the Antitrust Division and the
FTC. Within such 30-day period, the Antitrust Division or the FTC may request
additional information or documentary materials from Parent and/or the Company,
in which event the acquisition of Shares pursuant to the Merger may not be
consummated until 20 calendar days after such requests are substantially
complied with by both Parent and the Company. Thereafter, the waiting periods
may be extended only by court order or by consent.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after Purchaser's
purchase of Shares, either the Antitrust Division or the FTC could take such
action under
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the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the acquisition of Shares pursuant to the Offer or
seeking divestiture of Shares acquired by Purchaser or divestiture of
substantial assets of Parent, the Company or any of their respective
subsidiaries. Private parties may also bring legal action under the antitrust
laws under certain circumstances. Based upon an examination of publicly
available information relating to the businesses in which Parent and its
subsidiaries and the Company and its subsidiaries are involved, Parent and
Purchaser believe that the Offer will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Offer on
antitrust grounds will not be made or, if a challenge is made, what the result
will be.
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive offices or places of business in such states. In
Edgar v. MITE Corp., the Supreme Court of the United States held that the
Illinois Business Takeover Act, which involved state securities laws that made
the takeover of certain corporations more difficult, imposed a substantial
burden on interstate commerce and therefore was unconstitutional. In CTS Corp.
v. Dynamics Corp. of America, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions.
The Company is incorporated under the laws of the State of New York.
Section 912 of the New York Law prohibits certain "business combinations"
(defined to include mergers and consolidations) involving a New York corporation
that qualifies as a "resident domestic corporation" (which includes the Company)
and an "interested shareholder" (defined generally as a person who is the
beneficial owner of 20% or more of the outstanding voting stock of such New York
corporation) for a period of five years following the date on which such
interested shareholder became such (such date, a "stock acquisition date")
unless such business combination or the purchase of stock made by such
interested shareholder is approved by the board of directors of such New York
corporation prior to such interested shareholder's stock acquisition date or
certain other statutory conditions have been met. At a meeting on November 26,
1996, the Board of Directors of the Company approved the Merger Agreement, the
Merger, the Offer and Purchaser's purchase of Shares pursuant to the Offer.
Accordingly, the provisions of Section 912 of the New York Law have been
satisfied with respect to the Offer and the Merger and such provisions will not
delay the consummation of the Merger. Article 16 of the New York Law also
requires a bidder for shares of a New York corporation to file a registration
statement with the attorney general and satisfy certain disclosure requirements.
Parent and the Purchaser have filed such a registration statement and this Offer
to Purchase sets forth the information required to be disclosed pursuant to
Article 16.
Except for compliance with Section 912 and Article 16 of the New York Law
described above, neither Purchaser nor Parent has currently complied with any
state takeover statute or regulation. Purchaser reserves the right to challenge
the applicability or validity of any state law purportedly applicable to the
Offer or the Merger and nothing in this Offer to Purchaser or any action taken
in connection with the Offer or the Merger is intended as a waiver of such
right. If it is asserted that any state takeover statute is applicable to the
Offer or the Merger and an appropriate court does not determine that it is
inapplicable or invalid as applied to the Offer or the Merger, Purchaser might
be required to file certain information with, or to receive approvals from, the
relevant state authorities, and Purchaser might be unable to accept for payment
or pay for Shares tendered pursuant to the Offer, or be delayed in consummating
the Offer or the Merger. In such case, Purchaser may not be obliged to accept
for payment or pay for any Shares tendered pursuant to the Offer.
16. FEES AND EXPENSES. Except as set forth below, neither Parent nor
Purchaser will pay any fees or commissions to any broker, dealer or other person
for soliciting tenders of Shares pursuant to the Offer.
Peers has provided certain financial advisory services to Parent and
Purchaser in connection with the Offer and the Merger. As compensation for
Peers' services as financial advisor, Parent pays Peers a retainer fee of $5,000
per month and will pay Peers a transaction fee of $1,100,000 upon the
consummation of the Merger. The monthly retainer fee will not be credited
against the transaction fee. In addition, Parent has
32
<PAGE> 34
agreed to reimburse Peers for all reasonable out-of-pocket expenses incurred by
Peers in connection with its role as financial advisor, and Parent has agreed to
indemnify Peers and certain related persons against certain liabilities and
expenses in connection with its role as financial advisor. In addition, Parent
will pay directly (i) all expenses relating to the preparation, printing,
filing, mailing and publishing of all Offer materials, (ii) all fees and
expenses of the Depositary and the Information Agent referred to in this Offer
to Purchase, (iii) all advertising charges in connection with the Offer,
including those of any public relations firm or other person or entity rendering
services in connection therewith, and (iv) all fees, if any, payable to dealers
(including Peers), and banks and trust companies as reimbursement for their
customary mailing and handling expenses incurred in forwarding the Offer
materials to their customers. All payments to be made by Parent pursuant to the
agreement with Peers will be made promptly against delivery to Parent of
statements therefor, which will be rendered on a quarterly basis; provided,
however that the transaction fee will be payable only upon closing of the
Merger. Parent will be liable for the foregoing payments (other than the
transaction fee payable to Peers) whether or not the Offer is commenced,
withdrawn, terminated or canceled prior to the purchase of any Shares or whether
Purchaser or any of its affiliates acquires any Shares pursuant to the Offer or
whether Peers withdraws from its engagement.
Purchaser has retained MacKenzie Partners, Inc. to act as the Information
Agent in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, facsimile, telegraph and personal interviews and may
request brokers, dealers and other nominee shareholders to forward materials
relating to the Offer to beneficial owners of Shares. The Information Agent will
receive reasonable and customary compensation for its services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the Federal securities laws.
In addition, Harris Trust Company of New York has been retained as the
Depositary. The Depositary has not been retained to make solicitations or
recommendations in its role as Depositary. The Depositary will receive
reasonable and customary compensation for its services, will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection therewith, including certain
liabilities under the Federal securities laws. Brokers, dealers, commercial
banks and trust companies will be reimbursed by Purchaser for customary mailing
and handling expenses incurred by them in forwarding offering materials to their
customers.
17. MISCELLANEOUS. Purchaser is not aware of any jurisdiction where the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of the
Shares pursuant thereto, Purchaser will make a good faith effort to comply with
such state statute. If, after such good faith effort, Purchaser cannot comply
with any such state statute, the Offer will not be made to (nor will tenders be
accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer will be deemed to be made on
behalf of Purchaser by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR PURCHASER NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Parent and Purchaser have filed with the Commission the Schedule 14D-1,
together with exhibits, pursuant to Rule 14d-3 of the General Rules and
Regulations under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-1
and any amendments thereto, including exhibits, may be inspected at, and copies
may be obtained from, the same places and in the same manner as set forth in
Section 8 (except that they will not be available at the regional offices of the
Commission).
ME Acquisition, Inc.
December 4, 1996
33
<PAGE> 35
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT AND PURCHASER
1. Directors and Executive Officers of Parent. Set forth below is the name,
current business address, citizenship and the present principal occupation or
employment and material occupations, positions, offices or employments for the
past five years of each director and executive officer of Parent. Unless
otherwise indicated, each person identified below is employed by Parent or its
affiliates, and has been employed by Parent or its affiliates, in positions of
increasing responsibility, for the past five years. The principal address of
Parent and, unless otherwise indicated below, the current business address for
each individual listed below is 11812 San Vicente Boulevard, Los Angeles,
California 90049-5022. Each such person is a citizen of the United States.
Directors are identified by an asterisk.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS; AGE
- ------------------------- ------------------------------------------------------------------
<S> <C>
Theodore Williams*....... Chairman and Chief Executive Officer (1970-Present); President
(1970-1995). In addition, Mr. Williams has served as President of
Purchaser since November 1996. Mr. Williams is 76 years old.
Gordon Graham*........... President and Chief Operating Officer since November 1996. In
addition, Mr. Graham served as Senior Vice President of Parent
from 1986 to November 1996. Mr. Graham is 62 years old.
Paul F. Doucette......... Senior Vice President since 1988. Mr. Doucette is 50 years old.
Tracy A. Edwards......... Vice President and Chief Financial Officer since 1991. In
addition, Mr. Edwards has served as Vice President and Treasurer
of Purchaser since November 1996. Mr. Edwards is 39 years old.
D. J. Hough.............. Vice President since 1984. Mr. Hough is 59 years old.
Stephen A. Weeks......... Treasurer (1994-Present); various accounting management positions
(1985-1994). Mr. Weeks is 46 years old.
Anthony L. Craig*........ President and Chief Executive Officer of Global Knowledge Network
(1996-Present), 29 Sawyer Road, Waltham, Massachusetts 02154; Vice
President of Digital Equipment Corporation (1993-1996), 111
Powdermill Road, Maynard, Massachusetts 01754; Senior Vice
President of Oracle Systems Corp. (1992-1993), 5000 Oracle Road,
Redwood Shores, California 94065; Chief Executive Officer of C3
Inc. (1990-1992), 19886 Ashburn Road, Ashburn, Virginia 20147. Mr.
Craig is 50 years old.
John J. Cost*............ Secretary (1987-Present); currently of counsel, and prior to 1995
partner, at Irell & Manella LLP, 333 So. Hope Street, Suite 3300,
Los Angeles, California 90071. In addition, Mr. Cost has been
Secretary of Purchaser since November 1996. Mr. Cost is 62 years
old.
Milton Rosenberg*........ Private investor and consultant to high technology companies, P.O.
Box 9655, Rancho Santa Fe, California 92067. Member of Board of
Directors of M.R.V. Communications, Woodland Hills, California.
Mr. Rosenberg is 73 years old.
Charles S. Troy*......... President and Chief Executive Officer of E&S Ring Management
Corporation (more than five years), 5721 W. Slauson Avenue, Suite
200, Culver City, California 90230. Mr. Troy is 52 years old.
</TABLE>
A-1
<PAGE> 36
2. Directors and Executive Officers of Purchaser. Set forth below is the
name, current business address, citizenship and the present principal occupation
or employment and material occupations, positions, offices or employments for
the past five years of each director and executive officer of Purchaser. The
principal address of Purchaser and the current business address for each
individual listed below, unless otherwise indicated, is 11812 San Vicente
Boulevard, Los Angeles, California 90049-5022. Each such person is a citizen of
the United States. Directors are identified by an asterisk.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS; AGE
- ------------------------- ------------------------------------------------------------------
<S> <C>
Theodore Williams*....... Please see "Directors and Executive Officers of Parent."
John J. Cost*............ Please see "Directors and Executive Officers of Parent."
Tracy A. Edwards......... Please see "Directors and Executive Officers of Parent."
</TABLE>
A-2
<PAGE> 37
SCHEDULE II
CERTAIN INFORMATION ABOUT PURCHASER AND PARENT REQUIRED
BY NEW YORK LAW
INFORMATION ABOUT PURCHASER
Purchaser was incorporated under the laws of the State of New York on
November 13, 1996. Purchaser has not conducted any business since its
incorporation other than in connection with the Offer, the Merger Agreement and
the Tender Agreement. Accordingly, Purchaser has not engaged in any significant
community activities nor has Purchaser made any significant charitable,
cultural, educational or civic contributions.
Except for the directors and executive officers of Purchaser set forth in
Schedule I, Purchaser has no employees. Accordingly, Purchaser has no existing
pension plans, profit-sharing plans or savings plans, has not provided any
educational opportunities or relocation adjustments to its employees, and has
had no labor or employment related claims or disputes, and is not involved in
any pending legal or administrative proceedings.
INFORMATION ABOUT PARENT
Effective June 30, 1995, a plan was adopted to change the state of
incorporation of Parent from Delaware to California. The following is a
description of the potential impact on New York residents of Parent's plans and
proposals, existing pension plans, profit-sharing plans and savings plans,
educational opportunities or relocation adjustments provided to its employees,
pending litigation and labor or employment related claims or disputes, and
community activities, charitable, cultural, educational or civic contributions:
a. POTENTIAL IMPACT ON NEW YORK RESIDENTS OF PARENT'S PLANS AND PROPOSALS
It is expected that, initially following the Merger, except as set forth
below, the business and operations of the Company will be conducted in a manner
substantially similar to how they are conducted currently. However, Parent will
continue to evaluate the business and operations of the Company during the
pendency of the Offer and after the consummation of the Offer and the Merger and
will take such further actions as it deems appropriate under the circumstances
then existing. Following the Merger, Parent plans to investigate combining its
existing distribution business, or segments thereof, with the Company, and where
feasible or practicable, to combine such business, or segments thereof. Because
no decision has yet been made by Parent whether to merge or otherwise combine
such business, any potential effect on facilities and offices of the Company
located in the State of New York cannot be predicted at this time. Parent
intends to review the Company's policies with respect to community activities,
charitable, cultural, educational and civic contributions and employment
practices.
b. PENSION PLANS, PROFIT-SHARING PLANS AND OTHER BENEFITS
Parent sponsors various benefits plans for its employees and non-employee
directors. Parent's executive compensation program is composed of base salary,
annual incentive cash bonuses based on Parent earnings and long-term incentive
compensation in the form of stock options. In the aggregate Parent's benefits
plans cover substantially all employees of Parent. Parent is obligated
separately to provide certain executives with post-retirement life and medical
insurance benefits at least equal to the benefits in effect on the date of their
retirement.
(i) STOCK OPTION PLANS
Parent sponsors stock option plans in which all employees of Parent may
participate. For example, under Parent's 1990 Stock Option and Incentive Plan,
500,000 shares of Parent common stock are available for purchase by employees
exercising rights granted under the plan. Under Parent's 1994 Stock Option Plan,
an additional 500,000 shares of Parent common stock are authorized for issuance
to employees of Parent. Incentive and non-qualified stock options, stock
appreciation rights and restricted stock may be granted under each such stock
option plan. As of December 31, 1995, an aggregate of 493,094 shares of Parent
common stock were available for future issuance under the described stock option
plans, and stock options were exercisable with respect to 100,239 shares of such
stock.
B-1
<PAGE> 38
(ii) EMPLOYEES' STOCK PURCHASE PLAN
Under the Bell Industries' Employees' Stock Purchase Plan (the "ESPP"),
which was adopted in June 1994, 750,000 shares of Parent common stock are
authorized for future issuance to eligible employees of Parent at a purchase
price of 85% of the stock's fair market value.
(iii) EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
In 1973, Parent established the Bell Industries' Employees' Savings and
Profit Sharing Plan (the "PSP"), as a qualified, trusteed, savings and profit
sharing plan for eligible employees. Employees must contribute at least one
percent (1%) of their annual compensation to participate in the PSP, provided
that Parent will match a certain portion of each employee's contribution to the
PSP. The amount of Bell's contribution to the PSP varies each year, and is
determined by the Board of Directors of Parent (the "Board") in its sole
discretion. During the fiscal year ended December 31, 1995, Bell contributed
$1,000,000 to the PSP. The PSP will continue until terminated by the Board.
(iv) EXECUTIVE DEFERRED INCOME AND PENSION PLAN
In July 1993, Parent adopted the Executive Deferred Income and Pension Plan
(the "EDP"). Each officer of Parent and such other highly compensated employees
as the Board may designate are eligible to participate in the EDP. Each
participant may elect for deferral a percentage (not more than ten percent
(10%)) of his or her salary. Parent matches the amount of the chosen deferral.
Such deferred sums bear interest at a rate equal to the Lehman Brothers Long
T-Bond index. If a plan participant dies while employed, his or her beneficiary
is entitled to receive all accrued EDP benefits. If a plan participant
voluntarily resigns or is terminated before reaching age 62, his or her EDP
benefits are adjusted.
(v) NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Non-Employee Directors' Stock Option Plan (the "Directors' Plan"),
adopted in May 1996, is a non-discretionary stock option plan applicable to all
non-employee directors of Parent. The Directors' Plan is designed to attract and
retain non-employee directors, to align their long-term compensation with
shareholders' long-term interests and previously to enable such directors to
qualify as "disinterested persons" under former Exchange Act Rule 16b-3 for
purposes of administering the Company's other stock option plans. An aggregate
of 150,000 authorized shares of Parent common stock, no par value, are available
for issuance under the Directors' Plan. The exercise price on each optioned
share is its fair market value on the grant date. Each non-employee director is
entitled to receive, upon appointment as director, options to purchase 10,000
shares of Parent common stock. Thereafter, on each anniversary of a non-employee
director's re-election to the Board, Parent will grant him or her options to
purchase 1,000 additional shares of Parent common stock. The described options
are exercisable in the manner determined by the Board, provided that such
options cannot be exercised for at least six months after the grant date and
must be exercised no later than the termination of a director's association with
Parent or the fifth anniversary of the grant date. The Directors' Plan replaced
a directors' retirement plan that was terminated in January 1996 as to all but
two persons, under which annual retirement benefits were payable to non-employee
directors, age sixty-five or over, who had served as director for at least ten
years.
c. PENDING PROCEEDINGS
There are no pending legal or administrative proceedings (other than
routine and immaterial litigation) to which Parent or a subsidiary of Parent is
a party or its property is subject.
d. LABOR AND EMPLOYEE RELATIONS
Parent believes that its labor and employment relations with its employees
are generally good. There have been no violations by Parent of the Federal
National Labor Relations Act, Occupational Safety and Health Act of 1970, Fair
Labor Standards Act or Employee Retirement and Income Security Act, as amended,
finally adjudicated or settled within five years of the commencement of the
Offer.
B-2
<PAGE> 39
e. EDUCATIONAL OPPORTUNITIES
Parent provides educational assistance to eligible employees who pursue
programs of study that are related to the employees' field of work.
f. RELOCATION ADJUSTMENTS
Parent may reimburse certain job applicants, new employees and current
employees for certain travel and relocation expenses.
g. CHARITABLE AND CIVIC ACTIVITIES
Consistent with Parent's commitment to responsible community involvement,
Parent supports a variety of charitable foundations, particularly in communities
in which Parent operates facilities or has offices. Additionally, Parent
supports higher education by making contributions and matching gifts to certain
accredited institutions of higher education, college associations and other
educational organizations.
B-3
<PAGE> 40
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the Shares
and any other required documents should be sent by each shareholder of the
Company or his or her broker, dealer, commercial bank, trust company or other
nominee to the Depositary as follows:
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Wall Street Station 77 Water Street, 4th Floor Receive Window
P.O. Box 1010 New York, NY 10005 77 Water Street, 5th Floor
New York, NY 10268-1010 New York, NY
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 701-7636
(212) 701-7637
Confirm by Telephone:
(212) 701-7624
</TABLE>
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or
other tender offer materials may be directed to the Information Agent at its
telephone number and address listed below. You may also contact your broker,
dealer, commercial bank or trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
Banks and Brokers Call Collect (212) 929-5500
All Others Call Toll-Free (800) 322-2885
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
MILGRAY ELECTRONICS, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED DECEMBER 4, 1996
BY
ME ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY
OF
BELL INDUSTRIES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY 7, 1997, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Wall Street Station 77 Water Street, 4th Floor Receive Window
P.O. Box 1010 New York, NY 10005 77 Water Street, 5th Floor
New York, NY 10268-1010 New York, NY
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 701-7636
(212) 701-7637
Confirm by Telephone:
(212) 701-7624
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by shareholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia
Depository Trust Company ("PDTC") (each, a "Book-Entry Transfer Facility" and
collectively, the "Book-Entry Transfer Facilities") pursuant to the book-entry
transfer procedure described in Section 3 of the Offer to Purchase (as defined
below). Although delivery of shares may be effected through book-entry transfer
into the Depositary's account at a Book-Entry Transfer Facility pursuant to such
Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP")
procedures, a Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's Message
(as defined in Section 3 of the Offer to Purchase) in connection with a
book-entry transfer, and any other required documents must in each case be
received by the Depositary at one of its addresses set forth above on or prior
to the Expiration Date (as defined in Section 1 of the Offer to Purchase), or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Shareholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary on or prior to the
Expiration Date or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis and who wish to tender their Shares must do so
pursuant to the guaranteed delivery procedure described in Section 3 of the
Offer to Purchase. See Instruction 2.
<PAGE> 2
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________________________________
Check Box of Applicable Book-Entry Transfer Facility:
(check one) [ ] DTC [ ] PDTC
Account Number ____________________ Transaction Code Number ____________________
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): __________________________________________
Window Ticket No. (if any): _______________________________________________
Date of Execution of Notice of Guaranteed Delivery: _______________________
Name of Institution which Guaranteed Delivery: ____________________________
If Delivered by Book-Entry Transfer, Check Box of Book-Entry Transfer
Facility:
(check one) [ ] DTC [ ] PDTC
Account Number ____________________ Transaction Code Number ____________________
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
(ATTACH ADDITIONAL LIST, IF NECESSARY)
-----------------------------------------------
TOTAL NUMBER OF
SHARES
NAME(S) AND ADDRESS(ES) OF HOLDER(S) SHARE EVIDENCED NUMBER OF
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE BY SHARE SHARES
APPEAR(S) ON SHARE CERTIFICATE(S)) NUMBER(S)* CERTIFICATE(S)* TENDERED**
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Total
Shares
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by shareholders delivering Shares by book-entry
transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by
each Share Certificate delivered to the Depositary are being tendered
hereby. See Instruction 4.
- --------------------------------------------------------------------------------
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to ME Acquisition, Inc. ("Purchaser"), a New
York corporation and wholly owned subsidiary of Bell Industries, Inc., a
California corporation, the above-described shares of common stock, $.25 par
value per share (the "Shares") of Milgray Electronics, Inc., a New York
corporation (the "Company"), pursuant to Purchaser's offer to purchase all
outstanding Shares, at $14.77 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
December 4, 1996 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, as amended from time to
time, together constitute the "Offer"). The undersigned understands that
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer (including, if the
Offer is extended or amended, the terms and conditions of such extension or
amendment), the undersigned hereby sells, assigns and transfers to, or upon the
order of, Purchaser all right, title and interest in and to all the Shares that
are being tendered hereby and all dividends, distributions (including, without
limitation, distributions of additional Shares) and rights declared, paid or
distributed in respect of such Shares on or after November 26, 1996
(collectively, "Distributions"), and irrevocably appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares and all Distributions, with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (i) deliver Share Certificates evidencing such Shares and all Distributions,
or transfer ownership of such Shares and all Distributions on the account books
maintained by a Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
Purchaser, (ii) present such Shares and all Distributions for transfer on the
books of the Company and (iii) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares and all Distributions, all in
accordance with the terms of the Offer.
<PAGE> 4
The undersigned hereby irrevocably appoints Theodore Williams and Tracy A.
Edwards, and each of them, as the attorneys and proxies of the undersigned, each
with full power of substitution, to vote in such manner as each such attorney
and proxy or his substitute shall, in his sole discretion, deem proper and
otherwise act (by written consent or otherwise) with respect to all the Shares
tendered hereby which have been accepted for payment by Purchaser prior to the
time of such vote or other action and all Shares and other securities issued in
Distributions in respect of such Shares, which the undersigned is entitled to
vote at any meeting of shareholders of the Company (whether annual or special
and whether or not an adjourned or postponed meeting) or consent in lieu of any
such meeting or otherwise and Purchaser reserves the right to require that, in
order for Shares or other securities to be deemed validly tendered, immediately
upon Purchaser's acceptance for payment of such Shares Purchaser must be able to
exercise full voting rights with respect to such Shares, except as otherwise
limited by applicable New York law. This proxy and power of attorney is coupled
with an interest in the Shares tendered hereby, is irrevocable and is granted in
consideration of, and is effective upon, the acceptance for payment of such
Shares by Purchaser in accordance with the terms of the Offer. Such acceptance
for payment shall revoke all other proxies and powers of attorney granted by the
undersigned at any time with respect to such Shares (and all Shares and other
securities issued in Distributions in respect of such Shares), and no subsequent
proxy or power of attorney shall be given or written consent executed (and if
given or executed, shall not be effective) by the undersigned with respect
thereto. The undersigned understands that, in order for Shares to be deemed
validly tendered, immediately upon Purchaser's acceptance of such Shares for
payment, Purchaser must be able to exercise full voting and other rights with
respect to such Shares, including, without limitation, voting at any meeting of
the Company's shareholders then scheduled.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions, and that when such Shares are accepted
for payment by Purchaser, Purchaser will acquire good, marketable and
unencumbered title thereto and to all Distributions, free and clear of all
liens, restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim or proxy, and the tender
complies with Rule 14e-4 under the Securities Exchange Act of 1934, as amended.
The undersigned, upon request, shall execute and deliver all additional
documents deemed by the Depositary or Purchaser to be necessary or desirable to
complete the sale, assignment and transfer of the Shares tendered hereby and all
Distributions. In addition, the undersigned shall remit and transfer promptly to
the Depositary for the account of Purchaser all Distributions in respect of the
Shares tendered hereby, accompanied by appropriate documentation of transfer,
and, pending such remittance and transfer or appropriate assurance thereof,
Purchaser shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby or deduct from such purchase price, the amount or value of such
Distribution as determined by Purchaser in its sole discretion. The undersigned
understands that tenders of Shares pursuant to any one of the procedures
described in Section 3 of the Offer to Purchase and in the instructions hereto
will constitute the undersigned's acceptance of the terms and conditions of the
Offer. Purchaser's acceptance of such Shares for payment will constitute a
binding agreement between the undersigned and Purchaser upon the terms and
subject to the conditions of the Offer.
<PAGE> 5
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered, in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares purchased
and return all Share Certificates evidencing Shares not purchased or not
tendered in the name(s) of, and mail such check and Share Certificates (and
accompanying documents, as appropriate) to, the person(s) so indicated. The
undersigned recognizes that Purchaser has no obligation, pursuant to the Special
Payment Instructions, to transfer any Shares from the name of the registered
holder(s) thereof if Purchaser does not purchase any of the Shares tendered
hereby.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, trustees in bankruptcy, legal representatives, successors and assigns
of the undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
- ---------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 5, 6 and 7)
To be completed ONLY if the check for
the purchase price of Shares
purchased or Share Certificates
evidencing Shares not tendered or not
purchased are to be issued in the
name of someone other than the
undersigned.
Issue: [ ] Check
[ ] Share Certificate(s) to:
Name: ______________________________________
(Please Print)
Address:____________________________________
____________________________________
(Include Zip Code)
____________________________________
TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 ON
REVERSE SIDE)
- ---------------------------------------------------------
- ---------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7)
To be completed ONLY if the check for
the purchase price of Shares
purchased or Share Certificates
evidencing Shares not tendered or not
purchased are to be mailed to someone
other than the undersigned, or to the
undersigned at an address other than
that shown under "Description of
Shares Tendered."
Issue: [ ] Check
[ ] Share Certificate(s) to:
Name: ______________________________________
(Please Print)
Address:____________________________________
____________________________________
(Include Zip Code)
- ---------------------------------------------------------
<PAGE> 6
- --------------------------------------------------------------------------------
IMPORTANT
SHAREHOLDERS: SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
X ________________________________________________________________________
Signature(s) of Holders(s)
Dated: __________, 199_
(Must be signed by registered holder(s) exactly as name(s) appear(s)
on Share Certificates or on a security position listing or by a person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please
provide the following information. See Instruction 5.)
Name(s):
--------------------------------------------------------------------------
(Please Print)
Capacity (full title):
--------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
--------------------------------------------------------------------------
Tax Identification or
Social Security No.:
--------------------------------------------------------------------------
(See Substitute Form W-9 below)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY. PLACE MEDALLION GUARANTEE IN SPACE
BELOW.
Authorized Signature: ____________________________________________________
Name: ____________________________________________________________________
(Please Print)
Capacity or Title: _______________________________________________________
Name of Firm:
--------------------------------------------------------------------------
Address:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.:
--------------------------------------------------------------------------
Dated: ______, 199_
- --------------------------------------------------------------------------------
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most banks, savings and loans associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program (each an "Eligible Institution"). No signature
guarantee is required on this Letter of Transmittal (a) if this Letter of
Transmittal is signed by the registered holder(s) (which term, for purposes of
this document, shall include any participant in a Book-Entry Transfer Facility
whose name appears on a security position listing as the owner of Shares) of
Shares tendered herewith, unless such holder(s) has completed the box entitled
"Special Payment Instructions" above, or (b) if such Shares are tendered for the
account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter
of Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer (other than by
Agent's Message) pursuant to the procedure set forth in Section 3 of the Offer
to Purchase. Share Certificates evidencing all physically tendered Shares, or a
confirmation of a book-entry transfer into the Depositary's account at a
Book-Entry Transfer Facility of all Shares delivered by book-entry transfer, as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees, or an Agent's Message
in connection with a book-entry transfer, and any other documents required by
this Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth on the reverse hereof on or prior to the Expiration Date (as
defined in Section 1 of the Offer to Purchase). If Share Certificates are
forwarded to the Depositary in multiple deliveries, a properly completed and
duly executed Letter of Transmittal (or an Agent's Message in connection with a
book-entry transfer) must accompany each such delivery. Shareholders whose Share
Certificates are not immediately available, who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis may tender their Shares pursuant to the guaranteed
delivery procedure described in Section 3 of the Offer to Purchase. Pursuant to
such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, must be
received by the Depositary prior to the Expiration Date; and (iii) the Share
Certificates evidencing all physically delivered Shares in proper form for
transfer by delivery, or a confirmation of a book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility of all Shares delivered
by book-entry transfer, in each case together with a Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer, and any other documents required by this Letter of Transmittal, must
be received by the Depositary within three National Association of Securities
Dealers, Inc. Automated Quotation System National Market trading days after the
date of execution of such Notice of Guaranteed Delivery, all as described in
Section 3 of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND
THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY
IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or a facsimile hereof), or by causing an Agent's Message to be sent in
connection with a book-entry transfer, all tendering shareholders waive any
right to receive any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER). If fewer than all the Shares evidenced by any Share
Certificate delivered to the Depositary herewith are to be tendered hereby, fill
in the number of Shares which are to be tendered in the box entitled "Number of
Shares Tendered." In such cases, new Share Certificate(s) evidencing the
remainder of the Shares that were evidenced by the Share Certificates delivered
to the Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" above, as soon as practicable after the expiration or termination
of the Offer. All Shares evidenced by Share Certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
<PAGE> 8
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal. If any of the Shares tendered
hereby are registered in the names of different holders, it will be necessary to
complete, sign and submit as many separate Letters of Transmittal as there are
different registrations of such Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution. If this Letter of Transmittal is signed by a person
other than the registered holder(s) of the Shares tendered hereby, the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction,
Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the Share Certificates
evidencing the Shares tendered hereby.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered" above, the appropriate boxes on the
reverse of this Letter of Transmittal must be completed.
8. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Information Agent at its
address or telephone numbers set forth below. Additional copies of the Offer to
Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be obtained from the Information Agent or from brokers, dealers, commercial
banks or trust companies.
<PAGE> 9
9. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires
that a holder tendering Shares pursuant to the Offer must provide the Depositary
with such holder's correct Taxpayer Identification Number ("TIN"), which, in the
case of a holder who is an individual, is his or her social security number. If
the Depositary is not provided with the correct TIN or an adequate basis for an
exemption, such holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, backup withholding at the rate of 31% may be
imposed upon the gross proceeds resulting from the Offer. If such withholding
results in an overpayment of taxes, a refund may be obtained.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the "Substitute Form W-9" set forth herein,
which requires a holder to certify that the TIN provided is correct (or that
such holder is awaiting a TIN) and that (i) the holder has not been notified by
the Internal Revenue Service that such holder is subject to backup withholding
as a result of a failure to report all interest or dividends or (ii) the
Internal Revenue Service has notified the holder that such holder is no longer
subject to backup withholding.
Exempt holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. To prevent possible erroneous backup withholding, an exempt holder
should enter its correct TIN in Part 1 of Substitute Form W-9, write "Exempt" in
Part 2 of such form, and sign and date the form. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions. In order for a nonresident alien or
foreign entity to qualify as exempt, such person must submit a completed Form
W-8, "Certificate of Foreign Status." Such forms may be obtained from the
Depositary.
If the Shares are held in more than one name or are not in the same name of
the actual owner, consult the W-9 Guidelines for information on which TIN to
report.
If you do not have a TIN, consult the W-9 Guidelines for instructions on
applying for a TIN, write "Applied For" in the space for the TIN in Part 1 of
the Substitute Form W-9, and sign and date the Substitute Form W-9 and the
Certificate of Awaiting Taxpayer Identification Number set forth herein. If you
do not provide your TIN to the Depositary within 60 days, backup withholding
will begin and continue until you furnish your TIN to the Depositary. NOTE:
WRITING "APPLIED FOR" ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR A TIN
OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the Shareholder should
promptly notify the Depositary. The Shareholder will then be instructed as to
the steps that must be taken in order to replace the certificate(s). This Letter
of Transmittal and related documents cannot be processed until the procedures
for replacing lost or destroyed certificate(s) have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND
SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER (INCLUDING AN AGENT'S
MESSAGE) AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY
EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR
PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
<PAGE> 10
<TABLE>
<S> <C>
TO BE COMPLETED BY ALL TENDERING REGISTERED HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------------
PAYOR'S NAME: HARRIS TRUST COMPANY OF NEW YORK
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
SUBSTITUTE PART 1 -- PLEASE TIN ______________________________
PROVIDE YOUR TIN
FORM W-9 IN THE BOX AT
RIGHT AND CERTIFY Social Security Number
Department of the BY SIGNING AND OR
Treasury Internal DATING BELOW Employer Identification Number
Revenue Service
----------------------------------------------------------
Payee's Request for
Taxpayer PART 2 -- FOR PART 3 -- CERTIFICATION -- UNDER THE
Identification PAYEES EXEMPT PENALTIES OF PERJURY, I CERTIFY THAT
Number (TIN) FROM BACKUP (1) The number shown on this form is
WITHHOLDING (SEE my correct TIN (or I am waiting for
INSTRUCTIONS) a number to be issued to me),
(2) I am not subject to backup
withholding because: (a) I am exempt
from backup withholding, or (b) I have
not been notified by the Internal
Revenue Service (the "IRS") that I am
subject to backup withholding as a
result of a failure to report all
interest or dividends, or (c) the IRS
has notified me that I am no longer
subject to backup withholding, and (3)
any other information provided on this
form is true and correct.
</TABLE>
You must cross out all of item (2) (clauses (a) through (c))
above if you have been notified by the IRS that you are
currently subject to backup withholding because of
under-reporting interest or dividends on your tax return and
you have not been notified by the IRS that you are no longer
subject to backup withholding.
--------------------------- ---------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR"
IN PART 1 OF THE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and that I mailed or delivered an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail
or deliver an application in the near future.) I understand that if I do not
provide a taxpayer identification number to the Payor within 60 days, the
Payor is required to withhold 31 percent of all cash payments made to me
thereafter until I provide a number.
___________________________________________________ _______________, 199___
Signature Date
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 11
THE INFORMATION AGENT FOR THE OFFER IS:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
(800) 322-2885
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
MILGRAY ELECTRONICS, INC.
BY
ME ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY
OF
BELL INDUSTRIES, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined below) (i) if certificates
("Shares Certificates") evidencing shares of common stock, par value $.25 per
share (the "Shares"), of Milgray Electronics, Inc., a New York corporation (the
"Company"), are not immediately available, (ii) if Share Certificates and all
other required documents cannot be delivered to Harris Trust Company of New
York, as Depositary (the "Depositary"), on or prior to the Expiration Date (as
defined in Section 1 of the Offer to Purchase (as defined below)) or (iii) if
the procedure for delivery by book-entry transfer cannot be completed on a
timely basis. This Notice of Guaranteed Delivery may be delivered by hand or
mail or transmitted by telegram or facsimile transmission to the Depositary. See
Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Wall Street Station 77 Water Street, 4th Floor Receive Window
P.O. Box 1010 New York, NY 10005 77 Water Street, 5th Floor
New York, NY 10268-1010 New York, NY
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 701-7636
(212) 701-7637
Confirm by Telephone:
(212) 701-7624
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Guarantee on the reverse side must be completed.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to ME Acquisition, Inc., a New York
corporation and wholly owned subsidiary of Bell Industries, Inc., a California
corporation, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated December 4, 1996 (the "Offer to Purchase"), and the related
Letter of Transmittal (which, as amended from time to time, together constitute
the "Offer"), receipt of each of which is hereby acknowledged, the aggregate
number of Shares specified below pursuant to the guaranteed delivery procedures
described in Section 3 of the Offer to Purchase.
<TABLE>
<S> <C>
Number of Shares: ___________________________ Name(s) of Record Holder(s):
Certificate Nos. (if available): ____________ _______________________________
_____________________________________________ _______________________________
(Please Print)
Check ONE box if Shares will be tendered by Address(es): __________________
book-entry transfer: _______________________________
[ ] The Depository Trust Company (Zip Code)
[ ] Philadelphia Depository Trust Company
Area Code and Tel. No.: _______
Account Number: _____________________________ Signature(s): _________________
Dated: ______________________________________ _______________________________
</TABLE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in the Security Transfer Agents Medallion
Program or the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program, hereby guarantees to deliver to the
Depositary either the certificates representing the Shares tendered hereby, in
proper form for transfer, or a Book-Entry Confirmation (as defined in Section 2
of the Offer to Purchase) of a transfer of such Shares, in any such case
together with a properly completed and duly executed Letter of Transmittal, or a
manually signed facsimile thereof, with any required signature guarantees, or an
Agent's Message (as defined in Section 3 of the Offer to Purchase) in connection
with a book-entry transfer, and any other documents required by the Letter of
Transmittal within three National Association of Securities Dealers, Inc.
Automated Quotation System National Market trading days after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary (or an Agent's Message in connection
with a book-entry transfer of shares) within the time period shown herein.
Failure to do so could result in financial loss to such Eligible Institution.
<TABLE>
<S> <C>
Name of Firm: ___________________________ _______________________________
(Authorized Signature)
Address: ________________________________ Title: ________________________
_________________________________________
(Zip Code) Date: _________________________
Area Code and Tel. No.: _________________
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. SHARE CERTIFICATES
SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
2
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
MILGRAY ELECTRONICS, INC.
AT $14.77 NET PER SHARE
BY
ME ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY
OF
BELL INDUSTRIES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JANUARY 7, 1997, UNLESS THE OFFER IS EXTENDED.
December 4, 1996
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
ME Acquisition, Inc. ("Purchaser"), a New York corporation and wholly owned
subsidiary of Bell Industries, Inc., a California corporation, hereby offers to
purchase all outstanding shares of common stock, $.25 par value per share (the
"Shares"), of Milgray Electronics, Inc., a New York corporation (the "Company"),
at a price of $14.77 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in Purchaser's Offer to Purchase, dated
December 4, 1996 (the "Offer to Purchase"), and the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer") enclosed herewith. Please furnish copies of the enclosed materials to
those of your clients for whose accounts you hold Shares in your name or in the
name of your nominee.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer a number of
Shares which, when added to the Shares owned by Parent, Purchaser and their
affiliates, constitutes at least 66 2/3% of the outstanding Shares and (ii)
Parent and Purchaser having completed the financing arrangements described in
Section 9 of the Offer to Purchase. The Offer is also subject to other terms and
conditions. See Section 14 of the Offer to Purchase.
Enclosed for your information and use are copies of the following
documents:
1. Offer to Purchase, dated December 4, 1996;
2. Letter of Transmittal to be used by holders of Shares in accepting the
Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents are not immediately available or
cannot be delivered to Harris Trust Company of New York, as depositary
(the "Depositary"), or if the procedures for book-entry transfer cannot
be completed, by the Expiration Date (as defined in the Offer to
Purchase);
4. A letter to shareholders of the Company from Herbert S. Davidson, a
director, Chief Executive Officer and President of the Company, together
with a Solicitation/Recommendation Statement on Schedule 14D-9 filed
with the Securities and Exchange Commission by the Company;
5. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to
the Offer;
<PAGE> 2
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JANUARY 7, 1997, UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of certificates
evidencing such Shares (or a confirmation of a book-entry transfer of such
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities (as defined in the Offer to Purchase)), a Letter of Transmittal (or
facsimile thereof) properly completed and duly executed, or an Agent's Message
(as defined in the Offer to Purchase) in connection with a book-entry transfer
of Shares, and any other required documents in accordance with the instructions
contained in the Letter of Transmittal.
If a holder of Shares wishes to tender Shares, but cannot deliver such
holder's certificates or other required documents, or cannot comply with the
procedure for book-entry transfer, prior to the expiration of the Offer, a
tender of Shares may be effected by following the guaranteed delivery procedure
described in Section 3 of the Offer to Purchase.
Purchaser will not pay any fees or commissions to any broker, dealer or
other person (other than the Depositary and the Information Agent as described
in the Offer) in connection with the solicitation of tenders of Shares pursuant
to the Offer. However, Purchaser will reimburse you for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials to
your clients. Purchaser will pay or cause to be paid any stock transfer taxes
payable with respect to the transfer of Shares to it, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If Purchaser becomes aware
of any valid state statute prohibiting the making of the Offer or the acceptance
of Shares pursuant thereto, Purchaser will make a good faith effort to comply
with such state statute. If, after such good faith effort, Purchaser cannot
comply with such state statute, the Offer will not be made to (nor will tenders
be accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
Any inquiries you may have with respect to the Offer should be addressed to
the Information Agent at its address and telephone numbers as set forth on the
back cover page of the Offer to Purchase.
Requests for copies of the enclosed materials may also be directed to the
Information Agent.
Very truly yours,
MACKENZIE PARTNERS, INC.
2
<PAGE> 3
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE
INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THEM,
OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN
THE ENCLOSED DOCUMENTS AND THE STATEMENTS EXPRESSLY CONTAINED THEREIN.
3
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
MILGRAY ELECTRONICS, INC.
AT
$14.77 NET PER SHARE
BY
ME ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY
OF
BELL INDUSTRIES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON JANUARY 7, 1997, UNLESS THE OFFER IS EXTENDED
December 4, 1996
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated December 4,
1996 (the "Offer to Purchase"), and a related Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer") in connection with
the Offer by ME Acquisition, Inc. ("Purchaser"), a New York corporation and
wholly owned subsidiary of Bell Industries, Inc. ("Parent"), a California
corporation, to purchase all outstanding shares of common stock, $.25 par value
per share (the "Shares"), of Milgray Electronics, Inc., a New York corporation
(the "Company"), at a price of $14.77 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer.
We are the holder of record of Shares held by us for your account. A tender
of such shares can be made only by us as the holder of record and pursuant to
your instructions. The Letter of Transmittal is furnished to you for your
information only and cannot be used by you to tender Shares held by us for your
account.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $14.77 per Share, net to the seller in cash.
2. The Offer is being made for all outstanding Shares.
3. The Board of Directors of the Company unanimously has determined that
each of the Offer and the Merger (as defined in the Offer to Purchase)
is fair to, and in the best interests of, the shareholders of the
Company, as a group, and recommends that shareholders, as a group,
accept the Offer and tender their Shares pursuant to the Offer; provided
that shareholders should check with their financial or tax advisers
prior to tendering their Shares in the Offer.
4. The Offer and withdrawal rights will expire at 5:00 p.m., New York City
time, on January 7, 1997, unless the Offer is extended.
5. The Offer is conditioned upon, among other things, (i) there being
validly tendered and not withdrawn prior to the expiration of the Offer
at least 4,515,451 Shares, which represents at least 66 2/3% of the
Shares outstanding (the "Minimum Condition") and (ii) Parent and
Purchaser having completed the bank financing arrangements described in
Section 9 of the Offer to Purchase (the
<PAGE> 2
"Financing Condition"). Parent and Purchaser may terminate the Offer if
either the Minimum Condition or the Financing Condition is not
satisfied. The Offer is also subject to other terms and conditions. See
Section 14 of the Offer to Purchase.
6. Parent and Purchaser have entered into the Tender Agreement with Herbert
S. Davidson, a director, Chief Executive Officer and President of the
Company (the "Selling Shareholder"), pursuant to which, among other
things, the Selling Shareholder has agreed to tender and sell in the
Offer, and upon the terms and subject to the conditions thereof,
3,742,064 Shares owned by the Selling Shareholder (or approximately
55.2% of the Company's outstanding Shares).
7. Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, stock transfer taxes with respect to the purchase
of Shares by Purchaser pursuant to the Offer. However, federal income
tax backup withholding at the rate of 31% may be imposed on the gross
proceeds resulting from the Offer, unless an exemption is provided or
unless the required taxpayer identification information is provided. See
Instruction 9 to the Letter of Transmittal.
8. Notwithstanding any other provision of the Offer, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made
only after timely receipt by Harris Trust Company of New York, as
Depositary (the "Depositary"), of (a) certificates for Shares pursuant
to the procedures set forth in Section 3 of the Offer to Purchase or
timely Book-Entry Conformation (as defined in the Offer to Purchase)
with respect to such Shares; (b) the Letter of Transmittal (or a
manually signed facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or an Agent's Message
(as defined in Section 3 of the Offer to Purchase) in connection with a
book-entry transfer of Shares; and (c) any other documents required by
the Letter of Transmittal. Accordingly, payment may not be made to all
tendering shareholders at the same time depending upon when certificates
representing Shares or confirmations for book-entry transfer of such
Shares into the Depositary's account (including an Agent's Message) are
actually received by the Depositary.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS
SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR
BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If Purchaser becomes aware
of any valid state statute prohibiting the making of the Offer or the acceptance
of Shares pursuant thereto, Purchaser will make a good faith effort to comply
with such state statute. If, after such good faith effort, Purchaser cannot
comply with such state statute, the Offer will not be made to (nor will tenders
be accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
<PAGE> 3
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated December 4, 1996, and the related Letter of Transmittal
(which, as amended from time to time, together constitute the "Offer"), in
connection with the offer by ME Acquisition, Inc., a New York corporation and
wholly owned subsidiary of Bell Industries, Inc., a California corporation, to
purchase all outstanding shares of common stock, $.25 par value per share (the
"Shares"), of Milgray Electronics, Inc., a New York corporation.
This will instruct you to, or to instruct your nominee to, tender the
number of Shares indicated below (or, if no number is indicated below, all
Shares) that are held for the account of the undersigned, upon the terms and
subject to the conditions set forth in the Offer.
SIGN HERE
- ------------------------------------
Number of Shares to be Tendered:
__________ Shares*
- ------------------------------------
------------------------------------
------------------------------------
Signature(s)
------------------------------------
Please type or print name(s)
Dated: ____________, 199_ ------------------------------------
------------------------------------
Please type or print address
------------------------------------
Area Code and Telephone Number
------------------------------------
Taxpayer Identification or
Social Security Number
- ---------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYOR--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by one
hyphen: i.e., 00-0000000. The table below will help determine the number to give
the payor.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- ----------------------------------------------------------
GIVE THE GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF -- NUMBER OF --
- ---------------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 6. A valid trust, estate, The legal entity (Do not
or pension trust furnish the identifying
2. Two or more individuals The actual owner of number of the personal
(joint account) the account or, if representative or trustee
combined funds, the unless the legal entity
first individual on itself is not designated
the account(1) in the account title(4)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor-trustee(1) 7. Corporate account The corporation
trust account (grantor is
also trustee) 8. Association, club, The organization
religious, charitable,
educational or other
b. So-called trust account that The actual owner(1) tax-exempt organization
is not a legal or valid The partnership
trust under State law 9. Partnership account
The broker or nominee
5. Sole proprietorship account The owner(3) 10. A broker or registered
nominee
The public entity
11. Account with the
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district or prison) that
receives agricultural
program payments
- ---------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Show the name of the owner.
4 List first and circle the name of the valid trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempt from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under Section 501(a), or an individual
retirement plan, or a custodial account under 403(b)(7).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality thereof.
- - A dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - A trust exempt from tax under Section 644 or described in Section 4947.
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A foreign central bank of issue.
- - Payments made to a middleman known in the investment community as a nominee
or listed in the most recent publication of the American Society of
Corporate Secretaries, Inc., Nominee List.
- - A futures commission merchant registered with the Commodity Futures Trading
Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payor's trade or business and you have
not provided your correct taxpayer identification number to the payor.
- - Payments of tax-exempt interest (including exempt interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments of tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid by you.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYOR, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYOR, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N, and the regulations thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payors who must
report the payments to IRS. IRS uses the numbers for identification purposes.
Payors must be given the numbers whether or not recipients are required to file
tax returns. Payors must generally withhold 20% of certain taxable payments to a
payee who does not furnish a taxpayer identification number to a payor. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payor, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN PAYMENTS.--If you fail to include properly on your
tax return certain items reported to the IRS such failure will be treated as
being due to negligence and will be subject to a penalty of 5% on any portion of
an under payment of tax attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
[BELL INDUSTRIES LETTERHEAD]
Contacts: BELL INDUSTRIES, INC. MILGRAY ELECTRONICS, INC.
Gordon Graham Richard Hyman
President and Executive Vice President and
Chief Operating Officer Chief Operating Officer
Tracy A. Edwards John Tortorici
Vice President and Vice President -
Chief Financial Officer Finance and Treasurer
(310) 826-2355 (516) 420-9800
http://www.bellind.com
FOR IMMEDIATE RELEASE
BELL INDUSTRIES TO ACQUIRE MILGRAY ELECTRONICS
FOR $100 MILLION
COMBINED SALES OF THE TWO COMPANIES ARE
RUNNING AT AN ANNUAL RATE EXCEEDING $900 MILLION
Los Angeles, California and Farmingdale, New York - November 27, 1996 - Bell
Industries, Inc. (NYSE,PSE:BI) and Milgray Electronics, Inc. (NASDAQ-MGRY)
announced today that they have signed a merger agreement for Bell to acquire
Milgray for $14.77 per share in cash, or approximately $100 million.
Bell Industries, based in Los Angeles, California, and Milgray Electronics,
headquartered in Farmingdale, New York, distribute electronic components
throughout the United States. Milgray also has three sales facilities in
Canada. Respectively, Bell and Milgray are the sixth and tenth largest
publicly-traded industrial distributors of electronic components in the U.S.
For the four quarters ended September 30, 1996, Bell had sales of $611 million
and net income of $16.1 million, or $2.13 per share. Milgray, for the same four
quarter period, had sales of $275 million and net income of $8.6 million.
On a pro forma basis, assuming the transaction had occurred on October 1, 1995,
the combined sales during the four quarters ended September 30, 1996, would
have been $887 million, with net income of $18 million, or $2.37 per share of
Bell stock. The pro forma earnings include adjustments for interest expense on
the acquisition debt to be incurred by Bell and amortization of goodwill
arising from the transaction. Based on reported operating results over the last
six months, the combined annualized revenues of the two companies exceed
$900 million.
Theodore Williams, chairman and chief executive officer of Bell, said that the
acquisition of Milgray should produce important benefits, including economies
of scale, resulting from a higher sales base, and increased capabilities to
serve the needs of Bell's and Milgray's many customers and suppliers.
<PAGE> 2
"We are delighted with this opportunity to acquire a company of Milgray's
quality and capabilities. Bell and Milgray, while operating in many of the same
markets, have different customer bases and, in many cases, complementary,
rather than competitive, product lines" Williams stated. "We believe these
distinctive market profiles provide a tremendous opportunity to leverage the
capabilities of each of the sales organizations of the two companies.
Additionally, Bell will gain entry into the New York, Kansas City and Canadian
markets, where Milgray has an established presence."
Commenting on the merger agreement, Milgray's chairman, Herbert S. Davidson,
said: "We believe that this transaction presents superior value to our
shareholders. Given the combined size and expertise of Bell and Milgray, our
customers, suppliers and employees should be well served by this transaction.
In an industry like ours that is rapidly expanding, a company has to have
growth and critical mass to stay in the game."
Under the proposed agreement, Davidson will be named to Bell's board of
directors and serve as vice chairman. Richard Hyman, Milgray's executive vice
president, will become president of Milgray and executive vice president of
Bell's Electronic Distribution Group. Milgray's management team and selling
organization will be retained. It is anticipated that the senior management of
the two companies will be integrated, although the electronics distribution
organizations of both companies will continue to operate independently
following completion of the transaction.
The merger agreement is subject to customary closing conditions, including the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act and the receipt of financing by Bell. Bell has received a commitment letter
from Union Bank of California under which a $250 million credit facility will
be established. Receipt of such financing is conditioned upon, among other
things, execution of definitive loan documents.
Bell will initiate a cash tender offer for Milgray's shares within five
business days and has concurrently entered into a tender agreement with
Davidson, Milgray's majority shareholder, who beneficially owns approximately
55 percent of Milgray's common stock. The tender will be subject to customary
conditions, including the tender of at least 66 2/3 percent of Milgray's
outstanding shares. Since Davidson has agreed to tender his shares, Bell needs
to acquire less than 12 percent of the outstanding shares in the tender offer
from other holders in order to satisfy this condition. The tender offer will be
followed by a second-step cash merger at the same price. Bell expects to
complete the acquisition in early 1997.
Bell Industries distributes products for the electronics, computer, graphics
and other industrial markets. Milgray distributes electronic components and
computer products for the industrial market.
# # #
<PAGE> 1
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN
OFFER TO SELL SHARES. THE OFFER IS MADE SOLELY BY THE OFFER TO PURCHASE
DATED DECEMBER 4, 1996 AND THE RELATED LETTER OF TRANSMITTAL, AND IS
BEING MADE TO ALL HOLDERS OF SHARES. PURCHASER IS NOT AWARE OF ANY
STATE WHERE THE MAKING OF THE OFFER IS PROHIBITED BY ADMINISTRATIVE
OR JUDICIAL ACTION PURSUANT TO ANY VALID STATE STATUTE. IF PURCHASER
BECOMES AWARE OF ANY VALID STATE STATUTE PROHIBITING THE MAKING
OF THE OFFER OR THE ACCEPTANCE OF SHARES PURSUANT THERETO,
PURCHASER WILL MAKE A GOOD FAITH EFFORT TO COMPLY WITH SUCH
STATE STATUTE. IF, AFTER SUCH GOOD FAITH EFFORT, PURCHASER
CANNOT COMPLY WITH SUCH STATE STATUTE, THE OFFER WILL NOT
BE MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON
BEHALF OF) THE HOLDERS OF SHARES IN SUCH STATE. IN
ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR
OTHER LAWS REQUIRE THE OFFER TO BE MADE BY A
LICENSED BROKER OR DEALER, THE OFFER SHALL BE
DEEMED TO BE MADE ON BEHALF OF PURCHASER BY
ONE OR MORE REGISTERED BROKERS OR DEALERS
LICENSED UNDER THE LAWS OF SUCH
JURISDICTION.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
MILGRAY ELECTRONICS, INC.
at
$14.77 NET PER SHARE
by
ME Acquisition, Inc.
a wholly owned subsidiary of
Bell Industries, Inc.
ME Acquisition, Inc., a New York corporation ("Purchaser") and wholly
owned subsidiary of Bell Industries, Inc. ("Parent"), a California corporation,
is offering to purchase all outstanding shares of common stock, par value $.25
per share (the "Shares"), of Milgray Electronics, Inc., a New York corporation
(the "Company"), at a price of $14.77 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated December 4, 1996 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer"). Following the Offer, Purchaser intends to effect the Merger described
below.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON TUESDAY, JANUARY 7, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
<PAGE> 2
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING
VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER
THAT NUMBER OF SHARES WHICH WOULD REPRESENT, WHEN ADDED TO THE SHARES OWNED BY
PURCHASER AND ITS AFFILIATES, AT LEAST 662/3% OF ALL OUTSTANDING SHARES (THE
"MINIMUM CONDITION") AND (2) PURCHASER HAVING COMPLETED THE BANK FINANCING
ARRANGEMENTS DESCRIBED IN THE OFFER TO PURCHASE (THE "FINANCING CONDITION").
PARENT AND PURCHASER MAY TERMINATE THE OFFER IF EITHER THE MINIMUM CONDITION OR
THE FINANCING CONDITION IS NOT SATISFIED. THE OFFER IS ALSO SUBJECT TO OTHER
TERMS AND CONDITIONS.
The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of November 26, 1996 (the "Merger Agreement"), among Parent, Purchaser
and the Company. The Merger Agreement provides that, among other things, as soon
as practicable following the satisfaction or waiver of the conditions set forth
in the Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger"). Following consummation of the Merger, the Company will continue as
the surviving corporation and will be a wholly owned subsidiary of Parent. At
the effective time of the Merger (the "Effective Time"), each Share issued and
outstanding immediately prior to the Effective Time (other than Shares held in
the treasury of the Company or owned by Purchaser, Parent or any direct or
indirect wholly owned subsidiary of Parent) will be cancelled and converted
automatically into the right to receive $14.77 in cash, or any higher price that
may be paid per Share in the Offer, without interest. In connection with the
Merger Agreement, Parent and Purchaser have entered into a Tender Agreement with
Mr. Herbert S. Davidson, a director, Chief Executive Officer and President of
the Company (the "Selling Shareholder"), pursuant to which, among other things,
the Selling Shareholder has agreed to tender and sell in the Offer, upon the
terms and subject to the conditions thereof, 3,742,064 Shares owned by the
Selling Shareholder (or approximately 55.2% of the Company's outstanding
shares).
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY HAS DETERMINED THAT
EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
SHAREHOLDERS OF THE COMPANY, AS A GROUP, AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS, AS A GROUP, ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO
THE OFFER (PROVIDED THAT SHAREHOLDERS SHOULD CONSULT WITH THEIR FINANCIAL OR TAX
ADVISERS PRIOR TO TENDERING THEIR SHARES IN THE OFFER OR VOTING TO APPROVE THE
MERGER). For purposes of the Offer, Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not withdrawn
if, as and when Purchaser gives oral or written notice to Harris Trust Company
of New York (the "Depositary") of Purchaser's acceptance of such Shares for
payment pursuant to the Offer. Upon the terms and subject to the conditions of
the Offer, payment for Shares accepted for payment pursuant to the Offer will be
made by deposit of the purchase price therefor with the Depositary, which will
act as agent for tendering shareholders for the purpose of receiving payments
from Purchaser and transmitting such payments to tendering shareholders whose
Shares have been accepted for payment. Under no circumstances will interest on
the purchase price for Shares be paid, regardless of any delay in making such
payment. In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) the certificates evidencing such Shares (the "Share Certificates") or
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at one of the Book-Entry Transfer Facilities (as defined in
Section 2 of the Offer to Purchase) pursuant to the procedures set forth in
Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined in Section 3 of the
Offer to Purchase) in connection with a book-entry transfer, and (iii) any other
documents required under the Letter of Transmittal.
Purchaser expressly reserves the right, in its sole discretion (but
subject to the terms and conditions of the Merger Agreement), at any time and
from time to time, to extend for any reason the period of time during which the
Offer is open, including the occurrence of any of the events specified in
Section 14 of the Offer to Purchase, by giving oral or written notice of such
extension to the Depositary. Any such extension will be followed as promptly as
practicable by public announcement thereof. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the rights of tendering shareholders to withdraw their Shares.
Tenders of Shares made pursuant to the Offer are irrevocable except
that such Shares may be withdrawn at any time prior to 5:00 p.m., New York City
time, on Tuesday, January 7, 1997 (or the latest time and date at which the
Offer, if extended by Purchaser, shall expire) and, unless theretofore accepted
for payment by Purchaser pursuant to the Offer, may also be withdrawn at any
time after February 1, 1997. For a withdrawal to be effective, a written,
telegraphic or facsimile transmission notice of withdrawal must be timely
received by the Depositary at one of its addresses set forth on the back cover
of the Offer to Purchase. Any such notice of withdrawal must specify the name of
the person who tendered the Shares to be withdrawn, the number of Shares to be
withdrawn and the name of the registered holder, if different from that of the
person who tendered such Shares. If Share Certificates evidencing Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, then,
prior to the physical release of such Share Certificates, the serial
<PAGE> 3
numbers shown on such Share Certificates must be submitted to the Depositary and
the signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution (as defined in Section 3 of the Offer to Purchase), unless such
Shares have been tendered for the account of an Eligible Institution. If Shares
have been tendered pursuant to the procedure for book-entry transfer as set
forth in Section 3 of the Offer to Purchase, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares. All questions as to the form and
validity (including time of receipt) of any notice of withdrawal will be
determined by Purchaser, in its sole discretion, whose determination will be
final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's shareholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. The Offer to Purchase and the related Letter of Transmittal
will be mailed to record holders of Shares whose names appear on the Company's
shareholder list and will be furnished to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose nominees,
appear on the shareholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
Questions and requests for assistance or for additional copies of the
Offer to Purchase and the related Letter of Transmittal and other tender offer
materials may be directed to the Information Agent as set forth below, and
copies will be furnished promptly at Purchaser's expense. No fees or commissions
will be paid to brokers, dealers or other persons for soliciting tenders of
Shares pursuant to the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
December 4, 1996
<PAGE> 1
LOGO
December 4, 1996
To Our Shareholders:
I am pleased to inform you that Milgray Electronics, Inc. ("Milgray"),
Bell Industries, Inc. ("Bell") and ME Acquisition, Inc. ("Purchaser"), a
wholly owned subsidiary of Bell Industries, Inc., have entered into an
Agreement and Plan of Merger dated as of November 26, 1996 pursuant to which
Purchaser has commenced a cash tender offer (the "Offer") to purchase all of
the outstanding shares of Milgray common stock (the "Shares") for $14.77 per
share. Under the Merger Agreement, the Offer will be followed by a merger of
Purchaser into Milgray (the "Merger") in which any remaining Shares of
Milgray common stock (other than Shares as to which appraisal rights have
been properly exercised and perfected) will be converted into the right to
receive $14.77 per share in cash, without interest.
Your Board of Directors has unanimously determined that the Offer and
the Merger are fair to and in the best interests of the Company's
shareholders, as a group, and unanimously recommends that shareholders accept
the Offer and tender their Shares pursuant to the Offer, provided that each
shareholder should consult with his or her financial or tax adviser regarding
the impact thereof on such shareholder prior to tendering his or her Shares
in the Offer or voting to approve the Merger.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that is being filed today with the Securities and Exchange Commission,
including, among other things, the opinion of Mesirow Financial, Inc., the
financial adviser retained by Milgray, that the consideration to be received
by holders of Milgray common stock in the Offer and the Merger is fair to
such holders from a financial point of view.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase, dated December 4, 1996, of Purchaser,
together with related materials, including a Letter of Transmittal to be used
for tendering your Shares. These documents set forth the terms and conditions
of the Offer and the Merger and provide instructions as to how to tender your
Shares. We urge you to read the enclosed material carefully.
Sincerely,
/s/ Herbert S. Davidson
Herbert S. Davidson, President
and Chief Executive Officer
<PAGE> 1
[UNION BANK OF CALIFORNIA LETTERHEAD]
October 2, 1996
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049
Attention: Mr. Tracy Edwards
Chief Financial Officer
Re: Bank Facility for Acquisition
of EL PASO
Gentlemen:
You have advised us that Bell Industries, Inc. ("you" or
"Company") will form a new subsidiary ("Merger Sub") for the purpose of
acquiring (the "Acquisition") all of the outstanding capital stock (the
"Shares") of a corporation you have referred to as "EL PASO". We understand that
the Acquisition will be accomplished through a tender offer (the "Tender Offer")
by Merger Sub for up to 100% of the Shares at a price not to exceed $14.77 per
Share followed by a merger (the "Merger") of Merger Sub with and into EL PASO in
which EL PASO will be the surviving corporation, and in which any Shares not
tendered in the Tender Offer will be cancelled in exchange for cash
consideration not exceeding $14.77 per Share (except that Shares held by persons
who exercise rights to dissent from the Merger and demand appraisal of their
Shares pursuant to Section 623 of the New York Business Corporation Law (the
"NYBCL") shall receive such consideration as may be due to them under the
NYBCL). We further understand that the Tender Offer will be conditioned on,
among other things, the tender and purchase of at least 66-2/3% of the
outstanding shares of stock of EL PASO on a fully diluted basis, the number of
Shares required to permit Merger Sub to cause the Merger to occur (the "Minimum
Shares"). Upon the consummation of the Merger, EL PASO will be wholly-owned by
Company.
<PAGE> 2
Bell Industries, Inc.
October 2, 1996
Page 2
We understand that you are presently engaged in discussions
with the owner of a majority of the Shares ("Majority Owner") with the objective
that Company and Majority Owner would enter into an agreement to tender shares
pursuant to which Majority Owner would agree to tender his Shares in the Tender
Offer (the "Tender Agreement"). We understand that Company will not commence the
Tender Offer until after the Tender Agreement has been executed.
Union Bank of California, N.A. ("UBOC") is pleased to confirm
its commitment to provide all of the up to $250,000,000 of senior bank credit
facilities (the "Bank Facilities") described in the Summary of Terms attached
hereto as Annex A (the "Term Sheet"). UBOC intends to arrange for other banks,
financial institutions and other "accredited investors" (as defined in SEC
regulations; each such bank, financial institution and accredited investor,
including UBOC, being a "Lender" and, collectively, the "Lenders") to provide a
portion of the Bank Facilities, and UBOC will act as agent for the Lenders (in
such capacity, the "Agent"). Certain of the terms of each of the Bank Facilities
are set forth in the Term Sheet. All terms defined in the Term Sheet shall have
the same meanings when used herein.
We have reviewed certain historical and pro forma financial
statements of Company and EL PASO and have met with representatives of Company
regarding the transactions contemplated hereby, and we are pleased to advise you
that the results of our due diligence investigation of EL PASO and Company to
date are satisfactory. However, neither we nor our counsel have had the
opportunity to complete the due diligence efforts necessary to substantiate the
premises upon which our commitment is based. Accordingly, UBOC's commitment to
provide the financings described in this letter is subject to our satisfaction,
upon completion of our due diligence, with the business, operations, properties,
assets, liabilities (whether contractual or otherwise, and including without
limitation environmental liabilities), condition (financial or otherwise) or
prospects of EL PASO. In the event that our continuing review of EL PASO
discloses information relating to conditions or events not previously disclosed
to us or relating to new information or additional developments concerning
conditions or events previously disclosed to us which we believe may have a
material adverse effect on the business, operations, properties, assets,
liabilities, condition (financial or otherwise) or prospects of EL PASO, we may,
in our sole discretion, suggest alternative financing amounts or structures that
ensure adequate protection for the Lenders or decline to participate in the
proposed financing. In addition, UBOC's commitment is subject to the accuracy
and completeness of the Information and the Projections described in the
immediately succeeding paragraph, our satisfaction with the structure of the
Acquisition, and the satisfaction of the conditions to be set forth in the
definitive documentation relating to the Bank Facilities, including without
limitation those conditions set forth in the Term Sheet.
<PAGE> 3
Bell Industries, Inc.
October 2, 1996
Page 3
Company hereby represents that, based on its review and
analysis, to its knowledge (a) all information, other than Projections (as
defined below), which has been or is hereafter made available to UBOC or the
other Lenders by Company or EL PASO or any of their representatives (to the
extent Company is aware of such information made available by EL PASO or its
representatives) in connection with the transactions contemplated hereby (the
"Information") has been reviewed and analyzed by Company in connection with the
performance of its own due diligence and, as supplemented as contemplated by the
next sentence, is (or will be, in the case of Information made available after
the date hereof) complete and correct in all material respects and does not (or
will not, as the case may be) contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained therein
not materially misleading in light of the circumstances under which such
statements were or are made, and (b) all financial projections concerning EL
PASO that have been or are hereafter made available to UBOC or the other Lenders
by Company or EL PASO or any of their representatives (to the extent Company is
aware of such financial projections made available by EL PASO or its
representatives) in connection with the transactions contemplated hereby (the
"Projections") have been (or will be, in the case of Projections made available
after the date hereof) prepared in good faith based upon reasonable assumptions.
Company agrees to supplement the Information and the Projections from time to
time until the closing date so that the representation and warranty in the
preceding sentence is correct on the closing date. In arranging and syndicating
the Bank Facilities, UBOC will be using and relying on the Information and the
Projections without independent verification thereof. The representations and
covenants contained in this paragraph shall remain effective until a definitive
financing agreement is executed and thereafter the disclosure representations
contained herein shall be superseded by those contained in such definitive
financing agreement.
Company shall pay the reasonable costs and expenses (including
the reasonable fees and expenses of counsel to UBOC, reasonable professional
fees of consultants and other experts and reasonable, documented out-of-pocket
expenses of UBOC, including without limitation syndication expenses) arising in
connection with the preparation, execution and delivery of this letter and the
definitive financing agreements and the syndication of the Bank Facilities,
whether or not the definitive financing agreements are executed. Company further
agrees, to the extent permitted by applicable law, to indemnify and hold
harmless each of the Lenders (including UBOC) and each director, officer,
employee, agent, attorney and affiliate thereof (each an "indemnified person")
from and against any losses, claims, damages, liabilities or other expenses to
which a Lender or such indemnified persons may become subject, insofar as such
losses, claims, damages, liabilities (or actions or other proceedings commenced
or threatened in respect thereof) or other expenses arise out of or in any way
relate to or result from the actions of
<PAGE> 4
Bell Industries, Inc.
October 2, 1996
Page 4
Company or EL PASO or any of their respective affiliates in connection with the
Acquisition, any of the statements contained in this letter or relating to the
extension of the financing contemplated by this letter, or any use or intended
use of the proceeds of any of the loans and other extensions of credit
contemplated by this letter, and to reimburse each of the Lenders and each
indemnified person for any reasonable legal or other expenses incurred in
connection with investigating, defending or participating in any such
investigation, litigation or other proceeding (whether or not any such
investigation, litigation or other proceeding involves claims made between
Company or any third party and such Lender or any such indemnified person, and
whether or not such Lender or any such indemnified person is a party to any
investigation, litigation or proceeding out of which any such expenses arise);
PROVIDED, HOWEVER, that the indemnity contained herein shall not apply to the
extent that such losses, claims, damages, liabilities or other expenses result
from the gross negligence or willful misconduct of such Lender or indemnified
person. The obligations to indemnify each Lender and such indemnified persons
and to pay such legal and other expenses shall remain effective until the
effectiveness of a definitive financing agreement and thereafter the
indemnification and expense reimbursement obligations contained herein shall be
superseded by those contained in such definitive financing agreement. Neither
UBOC nor any other Lender shall be responsible or liable to any other party or
any other person for consequential damages which may be alleged as a result of
this letter. The foregoing provisions of this paragraph shall be in addition to
any rights that any Lender or any indemnified person may have at common law or
otherwise.
This letter and the Term Sheet are confidential and shall not
be disclosed by you to any person other than your accountants, attorneys and, to
the extent approved by UBOC, other advisors. After this letter has been accepted
by you, it and the Term Sheet may also be disclosed to EL PASO and its
accountants, attorneys and financial advisors (other than commercial banks and
their affiliates). In each case such disclosure shall be only on a confidential
basis and in connection with the Acquisition and the related transactions
contemplated herein, and each such accountant, attorney and financial advisor
shall agree to abide by this confidentiality agreement. Additionally, you may
make such disclosures of this letter and the Term Sheet as are required by law
or judicial process or as may be required or appropriate in response to any
summons or subpoena or in connection with any litigation; PROVIDED that you will
use your best efforts to notify us of any such disclosure prior to making such
disclosure.
In the event you accept this commitment letter, you agree to
pay to UBOC the following fees, in addition to those set forth in the Term
Sheet:
<PAGE> 5
Bell Industries, Inc.
October 2, 1996
Page 5
1. A financing fee equal to .90% of the aggregate principal
amount of the Bank Facilities, such fee to be payable on the Closing Date; a
portion of such financing fee may be distributed by us to the other Lenders if
we elect to do so in our sole discretion;
2. (a) In the event the EL PASO Acquisition is not consummated
on or before March 31, 1997, you shall pay UBOC a work fee of $100,000 payable
on the earlier of the date the EL PASO Acquisition is abandoned by you or March
31, 1997, provided that such work fee shall not be payable unless you commence
the Tender Offer or publicly announce your intention to commence the Tender
Offer; or (b) in the event the EL PASO Acquisition is consummated on or before
March 31, 1997 and the financing contemplated by the Term Sheet is not utilized
in connection therewith, you shall pay UBOC an alternative fee equal to
$350,000, all payable on the date the EL PASO Acquisition is consummated; and
3. An annual administrative fee of $50,000, such fee to be
payable in arrears on the first anniversary of the Closing Date and annually in
arrears thereafter.
UBOC reserves the right to allocate, in whole or in part, the
fees payable under this letter to one or more of its affiliates.
Our offer will terminate at 5:00 P.M. October 4, 1996, unless
at or before that time you sign and return an enclosed counterpart of this
letter. Our commitment will automatically expire at 5:00 P.M. on the date that
is 30 days after the date of your acceptance of this commitment letter unless
you advise us in writing prior to such date that the Tender Agreement has been
executed by the parties thereto. The Bank Facilities referred to herein shall in
no event be available unless the Tender Offer has been consummated on or prior
to December 31, 1996.
This letter agreement shall be governed by and construed in
accordance with the internal laws of the State of California. This letter
agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 6
Bell Industries, Inc.
October 2, 1996
Page 6
We appreciate having been given the opportunity by you to be
involved in this transaction.
Very truly yours,
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Robert Peterson
-------------------------------
Title: Vice President
----------------------------
AGREED AND ACCEPTED
this 2 day of October, 1996
---
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
----------------------------
Title: Vice President
-------------------------
<PAGE> 7
ANNEX A
BELL INDUSTRIES, INC.
SUMMARY OF TERMS
BANK FACILITIES
The following summarizes selected terms of senior bank facilities to be
utilized in connection with the proposed acquisition of EL PASO by BELL
INDUSTRIES, INC. This Summary of Terms is intended merely as an outline of
certain of the material terms of such bank facilities. It does not include
descriptions of all of the terms, conditions and other provisions that are to be
contained in the definitive documentation relating to such bank facilities and
it is not intended to limit the scope of discussion and negotiation of any
matters not inconsistent with the specific matters set forth herein.
I. THE BANK FACILITIES
Borrower: Bell Industries, Inc. ("Company").
Lenders: Union Bank of California, N.A. ("UBOC") and, if UBOC
so elects, a syndicate of banks, financial institutions
and other accredited investors (the "Lenders").
Agent for the UBOC (in such capacity, the "Agent").
Lenders:
Type and Amount: The Bank Facilities shall consist of (a) a Tender Loan
made on the Closing Date (as defined below) in the
principal amount of up to $175,000,000 which Tender
Loan shall be due on the earlier of the Merger Date
(as defined below) and 75 days after the Closing Date;
(b) a five-year Term Loan made on the Merger Date in
the original principal amount of $50,000,000 and (c) a
five-year Revolving Credit Facility available from time
to time on and after the Merger Date in the maximum
amount of $200,000,000.
A-1
<PAGE> 8
Quarterly amortization of the Term Loan will be required,
commencing on March 31, 1997, resulting in aggregate
annual amounts as follows:
Year Aggregate Annual Amortization
---- -----------------------------
1 $ 7,500,000
2 7,500,000
3 10,000,000
4 12,500,000
5 12,500,000
-----------
$50,000,000
The Revolving Credit Facility shall not reduce in maximum
amount (other than pursuant to the provisions described
under the heading ("Mandatory Prepayments and
Commitment Reductions") but borrowings thereunder shall be
subject to a borrowing base. Letters of credit may be
issued up to a sublimit of $15 million ($6 million if the
proposed acquisition in Ontario, California (the "Ontario
Acquisition") is not consummated).
EL PASO Acquisition: The Bank Facilities shall be available to fund the
purchase (the "EL PASO Acquisition") of all of the shares
of capital stock of Milgray Electronics, Inc., a New York
corporation ("EL PASO"). The EL PASO Acquisition shall be
consummated by a tender offer (the "Tender Offer") by a
subsidiary of Company ("Merger Sub") at a price not
exceeding $14.77 per share of EL PASO common stock (the
purchase of such shares pursuant to the Tender Offer being
made on the Closing Date) followed by a merger (the
"Merger") of such subsidiary with and into EL PASO on a
date not later than 75 days after the Closing Date (the
"Merger Date") in which each share of EL PASO not
purchased in the Tender Offer shall be converted into the
right to receive not more than $14.77 (except that Shares
held by persons who exercise rights to dissent from the
Merger and demand appraisal of their shares pursuant to
Section 623 of the New York Business Corporation Law (the
"NYBCL") shall receive such consideration as may be due to
them under the NYBCL. The aggregate purchase price of all
shares of EL PASO whether acquired in the Tender Offer,
the Merger or otherwise shall not exceed $101 million. The
Tender Offer shall be conditioned upon, among other
things, the tender and purchase of at least 66-2/3% of the
outstanding shares of stock of EL PASO on a fully diluted
basis, the number of shares of EL PASO required to permit
Company to cause the Merger to occur (the "Minimum
Shares").
Use of Proceeds: The proceeds of the Tender Loan shall be made available
on the
A-2
<PAGE> 9
date on or before December 31, 1996 (the "Closing Date") that
the conditions set forth in Part II below are satisfied and
shall be used as follows:
1. To pay the consideration for the EL PASO Acquisition in
an aggregate amount not exceeding $101,000,000;
2. To refinance the existing insurance company indebtedness
of Company (together with make-whole payments) of
approximately $25 million and to repay its existing bank
debt; and
3. To pay fees and expenses in connection with the EL PASO
Acquisition and the related financings in an aggregate
maximum amount of approximately $6 million.
The proceeds of the Term Loan and the Revolving Credit Facility
shall be made available, subject to the conditions set forth in
Part II below, on the Merger Date (which shall, if at least 90%
of the outstanding shares of stock of EL PASO is tendered
pursuant to the Tender Offer, be the Closing Date) and shall be
used as follows:
1. To refinance the Tender Loan;
2. To refinance the existing bank indebtedness of EL PASO;
and
3. To pay additional consideration for the EL PASO
Acquisition and related fees and expenses not exceeding
(when added to the amounts paid on the Closing Date) the
respective maximum amounts set forth in clauses 1 and 3
of the first paragraph of this heading.
The revolving facility will also be available to provide for the
working capital requirements and general corporate purposes of
Company and its subsidiaries and, subject to the sublimit
referred to above, to issue standby letters of credit to support
workers' compensation contingencies, certain industrial revenue
bond financings and for other corporate purposes to be agreed
upon.
Guarantors: All domestic subsidiaries of Company (including from and after
the Merger Date EL PASO and its domestic subsidiaries).
Security: All extensions of credit to Company and all guaranties of
subsidiaries of Company will be secured by all accounts
A-3
<PAGE> 10
receivable and inventory of Company and the subsidiary
Guarantors, including a pledge of 100% of the stock of all
subsidiaries of Company (except the stock of EL PASO during the
period from the Closing Date to the Merger Date).
The foregoing security shall be released at such time as Company
maintains a Leverage Ratio (as defined under "Interest Rates"
below) of not more than 2.00 to 1.00 for four consecutive fiscal
quarters.
To effect such liens securing the Bank Facilities, Company and
the subsidiary Guarantors shall execute and deliver to the Agent
all security agreements, financing statements, and other
documents and instruments as are necessary to grant a first
priority perfected security interest in and lien upon all such
property of Company and the subsidiary Guarantors, subject to
customary permitted liens to be agreed upon.
Negative pledge on all assets of Company and its subsidiaries,
subject to exceptions to be agreed upon.
Borrowing Base: Loans made under the revolving credit facility shall not exceed
the sum of 85% of Eligible Receivables (to be defined) plus 50%
of Eligible Inventory (to be defined).
Interest Rates: All amounts outstanding under the Bank Facilities shall bear
interest, at Company's option, (y) until the date of the
delivery of financial statements for the period ending December
31, 1996 at a rate equal to the reserve-adjusted LIBOR Rate plus
the rate per annum applicable to the Leverage Ratio (as defined
below) as of the Closing Date, or the Base Rate and (z)
thereafter as determined by reference to the ratio (the
"Leverage Ratio") of the total funded indebtedness (to be
defined) of Company and its subsidiaries to EBITDA (to be
defined) of Company and its subsidiaries (on a pro forma basis
giving effect to the EL PASO Acquisition) for the most recent
trailing four fiscal quarters for which financial statements are
available, as follows:
A-4
<PAGE> 11
Reserve Adjusted Base Rate
Leverage Ratio LIBOR Rate plus plus
-------------- ---------------- ---------
greater than or equal
to 3.5 to 1.00 1.50% per annum 0%
less than 3.5 but
greater than or
equal to 3.0
to 1.00 1.25% 0%
less than 3.0 but
greater than or
equal to
2.25 to 1.00 1.00% 0%
less than 2.25 but
greater than or
equal to
1.5 to 1.00 .75% 0%
less than 1.5
to 1.00 .50% 0%
As used herein, the terms "Base Rate" and "reserve
adjusted LIBOR Rate" shall have meanings customary
and appropriate for financings of this type, and
the basis for calculating accrued interest and the
interest periods for loans bearing interest at the
reserve adjusted LIBOR Rate ("LIBOR Loans") shall
be customary and appropriate for financings of this
type. After the occurrence and during the
continuation of an event of default, interest shall
accrue at a rate equal to the rate on loans bearing
interest at the Base Rate plus an additional two
percentage points (2.00%) per annum and shall be
payable on demand.
Interest Payments: Quarterly for Base Rate Loans; on the last day of
selected interest periods (which shall be 1, 2,
3 and 6 months) for LIBOR Loans (and at the end of
every three months, in the case of interest periods
of longer than three months); and upon prepayment,
in each case payable in arrears and computed on the
basis of a 360-day year in the case of LIBOR Rate
loans and a 365-day year in the case of Base Rate
loans.
Interest Rate Protection: Within 90 days after the Closing Date, Company will
obtain interest rate protection to be mutually
agreed between Company and UBOC, such arrangements
to remain in effect through a date mutually agreed
between Company and UBOC, and shall thereafter be
maintained until such time as the Leverage Ratio
is reduced below an amount to be determined.
Letter of Credit Fee: The standby letter of credit fee shall be a
percentage equal to the applicable margin for LIBOR
Loans under the Bank Facilities, which shall be
shared by all Lenders, and an additional 0.25% per
annum, which shall be retained by Agent as issuer of
the letter of credit (provided that so long as no
Default or Event of Default is continuing, such
additional fee shall not be payable in respect of
the letter of credit issued in connection with the
Ontario Acquisition), in each case based upon the
applicable percentage multiplied by the amount
available from time to time for drawing
A-5
<PAGE> 12
under such letter of credit. Fees with respect to
commercial letters of credit shall be UBOC's customary
fees for such letters of credit.
Commitment Fees: Commitment fees equal to (y) 0.375% per annum times the
daily average unused portion of the Bank Facilities
(reduced by the amount of letters of credit issued and
outstanding) shall accrue during such times as the
Leverage Ratio is greater than or equal to 3.00 to 1.00
or (z) 0.25% per annum times the daily average unused
portion of the Bank Facilities (as so reduced) shall
accrue during such times as the Leverage Ratio is less
than 3.00 to 1.00 and in either case shall be computed
on the basis of a 360-day year and payable quarterly in
arrears and upon the maturity or termination of the Bank
Facilities.
Voluntary Prepayments The Bank Facilities may be prepaid in whole or in part
and Commitment without premium or penalty (LIBOR Loans prepayable only
Reductions: on the last days of related interest periods) and the
Lenders' commitments relative thereto reduced or
terminated upon such notice and in such amounts as may
be agreed upon. Voluntary reductions of the Bank
Facilities shall be applied first to prepay the term
loans in inverse order of maturity and thereafter to
reduce the amount of the revolving credit facility.
Mandatory Prepayments Company shall prepay the loans, and/or the commitments
and Commitment Reduc- under the Bank Facilities shall be reduced, in amounts
tions: equal to:
Asset Sale Proceeds: the net after-tax cash proceeds of
the sale or other disposition of any property or assets
of Company or any of its subsidiaries, other than (a)
net cash proceeds of sales or other dispositions of
inventory in the ordinary course of business (b) net
cash proceeds that are reinvested in similar assets
within 180 days after the receipt thereof; and (c) an
amount not exceeding $5 million per fiscal year, in each
case payable no later than the third business day
following the date of receipt;
Proceeds of Equity Offerings: 100% of the net cash
proceeds received from the issuance of equity securities
of Company or any of its subsidiaries (excluding (a)
proceeds from the exercise of stock options, (b) cash of
corporations acquired by Company or its subsidiaries in
exchange for equity securities of Company, (c) proceeds
of the sale of stock pursuant to stock purchase plans,
and (d) proceeds from the exercise of warrants issued in
connection with Company's existing senior notes), in
each case payable no later than the third business day
following the date of receipt; and
A-6
<PAGE> 13
Proceeds of Debt Issuances: 100% of the net cash proceeds
received from certain issuances of debt securities by
Company or any of its subsidiaries, in each case payable
no later than the third business day following the date of
receipt;
All such amounts shall be applied first to prepay the term
loans in inverse order of maturity and thereafter to
reduce the amount of the revolving credit facility.
Representations and Customary and appropriate, including without limitation
Warranties: due organization and authorization, enforceability,
financial condition, no material adverse changes, title to
properties, liens, litigation, payment of taxes, no
material adverse agreements, compliance with laws,
employee benefit liabilities, environmental liabilities,
perfection and priority of liens securing the Bank
Facilities, full disclosure, and the accuracy of all
representations and warranties in the Definitive
Acquisition Documents (as defined below under the heading
"Acquisition Structure and Documentation").
Covenants: Customary and appropriate affirmative and negative
covenants, including but not limited to limitations on
other indebtedness, liens, investments, guarantees,
restricted junior payments (dividends, share redemptions
or purchases and payments on subordinated debt), mergers
and acquisitions, sales of assets (exceeding $5,000,000
per fiscal year), capital expenditures, leases,
transactions with affiliates, conduct of business and
other provisions customary and appropriate for financings
of this type, including exceptions and baskets to be
mutually agreed upon. Notwithstanding the $5,000,000
basket set forth above, from and after the Closing Date,
Company shall not sell, and shall not permit Merger Sub to
sell, any Shares of EL PASO unless (a) such sale is for
cash at fair market value, and (b) after giving effect to
such sale, Merger Sub continues to own not less than
66-2/3% of the outstanding Shares of EL PASO on a
fully-diluted basis.
Acquisitions shall be permitted so long as (x) the
aggregate cash consideration paid and indebtedness assumed
in such acquisitions does not exceed (i) $25,000,000 for
any single acquisition or related series of acquisitions
or (ii) $50,000,000 for all acquisitions made during the
term of the Bank Facilities (provided that during the
first 12 months following the Merger, the aggregate cash
consideration paid and indebtedness assumed in such
acquisitions shall not exceed $15,000,000), (y) after
giving effect to each acquisition, Company shall be in
compliance with all financial performance covenants on a
pro forma basis and
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<PAGE> 14
(z) business acquired shall be in the same line of
business as Company and its subsidiaries (materiality
standard to be discussed).
Financial performance covenants will include a minimum
fixed charge coverage test (measuring EBITDA less
capital expenditures to the sum of dividends, interest
expense, scheduled principal repayments and income taxes
on a trailing rolling four quarters basis), a minimum
interest coverage test (measuring EBITDA to interest
expense on a trailing rolling four quarters basis), and
a maximum leverage test (measuring total debt to EBITDA
on a trailing rolling four quarters basis).
Events of Default: Customary and appropriate (subject to customary and
appropriate grace periods), including without limitation
failure to make payments when due, defaults under other
agreements or instruments of indebtedness, prior to the
Merger either party to the merger agreement stating its
intention not to proceed with the Merger, noncompliance
with covenants, breaches of representations and
warranties, bankruptcy, judgments in excess of specified
amounts, invalidity of guaranties, impairment of
security interests in collateral, and "changes of
control" (to be defined in a mutually agreed upon
manner).
II. CONDITIONS TO LOANS
Certain Conditions Conditions precedent to the funding of the Tender Loan
Precedent to Tender will include, without limitation, the following:
Loan:
1. Satisfactory Documentation. The definitive
documentation evidencing the Bank Facilities (the
"Definitive Financing Documents") shall be prepared
by counsel to UBOC and shall be in form and
substance satisfactory to the Agent and the Lenders.
2. Corporate Structure, etc. The corporate, capital
and ownership structure of Company and its
subsidiaries (including EL PASO and its
subsidiaries) shall be satisfactory to the Agent and
the Lenders in all respects.
3. Acquisition Structure and Documentation. The
structure utilized to consummate the EL PASO
Acquisition (including the Tender Offer and the
Merger) and the definitive documentation including
the Agreement and Plan of Merger relating thereto
(the "Definitive Acquisition Documents") shall be in
form and substance satisfactory to
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<PAGE> 15
the Agent and the Lenders, and the Definitive Acquisition Documents
shall be executed and in full force and effect.
4. Consummation of Tender Offer. Concurrently, Company shall have acquired
not less than the Minimum Shares pursuant to the Tender Offer, and all
other aspects of the Tender Offer shall have been consummated pursuant
to the Definitive Acquisition Documents, no provision of which shall
have been amended, supplemented, waived or otherwise modified in any
material respect without the prior written consent of the Agent and the
Lenders which consent shall not be unreasonably withheld; there shall be
no material litigation pending which challenges the EL PASO Acquisition
or the Merger.
5. Discharge of Existing Debt. Concurrently, the existing bank
indebtedness of Company and its subsidiaries and the existing insurance
company indebtedness of Company shall have been repaid in full, all
commitments relating thereto shall have been terminated, and all liens
or security interests related thereto shall have been terminated or
released, in each case on terms satisfactory to the Agent and the
Lenders, and no other existing indebtedness of Company or its
subsidiaries shall remain outstanding.
6. Certain Approvals and Agreements. All governmental and third party
approvals necessary in order to consummate the EL PASO Acquisition and
the financings contemplated thereby and to continue operations of the
business of Company and its subsidiaries shall have been obtained and be
in full force and effect, and all applicable waiting periods shall have
expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse
conditions on the Acquisition or the financing thereof.
7. Transaction Expenses. The Agent shall have received satisfactory
evidence that the fees and expenses to be incurred in connection with
the Acquisition and the related financings will not exceed $6 million in
the aggregate.
8. Security. The Agent, for the benefit of the Lenders, shall have been
granted on the Closing Date a perfected security interest in all assets
to the extent described above under the heading "Security".
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<PAGE> 16
9. Closing Balance Sheet; Minimum Net Worth. The Lenders shall
have received a proforma balance sheet of Company and its
subsidiaries as of the end of the prior month after giving
effect to the EL PASO Acquisition, the financings contemplated
hereby and appropriate closing adjustments and such proforma
balance sheet shall indicate a consolidated net worth of not
less than $120 million.
10. No Material Adverse Change. Since June 30, 1996, there shall
have occurred no material adverse change in the business,
operations, properties, assets, liabilities, condition
(financial or otherwise) or prospects of Company and its
subsidiaries, taken as a whole and since June 30, 1996, there
shall have occurred no material adverse change in the business,
operations, properties, assets, liabilities, condition
(financial or otherwise) or prospects of EL PASO and its
subsidiaries, taken as a whole.
11. Due Diligence. The results of UBOC's continuing financial,
legal, tax and accounting due diligence investigations with
respect to EL PASO and its subsidiaries, the EL PASO
Acquisition and the other transactions contemplated hereby
shall be satisfactory in all respects to UBOC, and any
supplemental business or financial due diligence that UBOC
reasonably determines has become necessary shall not have
disclosed information not previously disclosed to UBOC which
causes the results of such diligences not to be satisfactory in
all material respects to UBOC. UBOC shall also have received
any information reasonably necessary to conduct its continuing
due diligence and shall have an opportunity to meet with the
management of EL PASO and to visit its principal facilities.
UBOC shall also have received a copy of the fairness opinion
rendered to the board of directors of EL PASO in connection with
the Tender and the Merger.
12. Solvency. The Agent and the Lenders shall have received a
certificate of the chief financial officer of Company, in form
and substance satisfactory to the Agent and the Lenders,
supporting the conclusions that, after giving effect to the
Acquisition and the related transactions contemplated hereby,
Company will not be insolvent or be rendered insolvent by the
indebtedness incurred in connection therewith, or will not be
left with unreasonably small capital with which to engage in
its businesses, or
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<PAGE> 17
will not have incurred debts beyond its ability to
pay such debts as they mature.
13. Collateral Audit. The Agent shall have conducted
an audit of the accounts receivable and inventory
of Company, EL PASO and their subsidiaries and
shall have obtained an appraisal of such inventory;
and such audit and appraisal shall be satisfactory
to the Agent and the Lenders.
14. Customary Closing Documents. All documents
required to be delivered under the Definitive
Financing Documents, including customary legal
opinions, corporate records, documents from public
officials and officers' certificates, shall have
been delivered.
Certain Conditions Conditions precedent to the funding of the Term Loan and
to Term Loan the availability of the Revolving Credit Facility will
and Revolving include, without limitation, the following:
Credit Facility:
1. Consummation of Merger. The Merger shall
have been consummated.
2. Repayment of Tender Loan. Concurrently, the Tender
Loan shall have been paid in full with proceeds of
the Term Loan and a borrowing under the Revolving
Credit Facility.
3. Existing EL PASO Debt. The existing bank
indebtedness of EL PASO and its subsidiaries shall
have been paid in full, all commitments relating
thereto shall have been terminated, and all liens
or security interests related thereto shall have
been terminated or released, in each case on terms
satisfactory to the Agent and the Lenders, and no
other existing indebtedness of EL PASO or its
subsidiaries shall remain outstanding other than
certain mortgage indebtedness and equipment
financing indebtedness not exceeding $1,000,000 in
the aggregate, which shall remain outstanding on
terms and conditions satisfactory to the Agent and
the Lenders.
4. Guaranties and Security. The Agent, for the
benefit of the Lenders, shall have received the
guaranties of EL PASO and its domestic subsidiaries
described under the heading "Guarantors" and shall
have been granted a perfected security interest in
all assets of such Guarantors to the extent
described above under the heading "Security".
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<PAGE> 18
5. Customary Closing Documents. All documents required to
be delivered under the Definitive Financing Documents,
including customary legal opinions, corporate records,
documents from public officials and officers'
certificates, shall have been delivered.
Conditions to All The conditions to all borrowings will include
Borrowings: requirements relating to prior written notice of
borrowing, the accuracy of representations and
warranties, and the absence of any default or potential
event of default, and will otherwise be customary and
appropriate for financings of this type.
III. MISCELLANEOUS
Syndication: A syndicate of financial institutions will be arranged
by UBOC. Company shall, and shall use its best efforts
to cause EL PASO to, cooperate with UBOC in the
syndication of the Bank Facilities (such cooperation to
include, without limitation, participating in meetings
with the Lenders and assisting in the preparation of a
Confidential Information Memorandum and other materials
to be used in connection with such syndication) and
shall provide and cause their respective advisors to
provide all information reasonably deemed necessary by
UBOC to successfully complete such syndication.
The Lenders may assign all or, in an amount of not less
than $5 million (or such lesser amount as may constitute
the assigning Lender's entire commitment), any part of
their shares of the Bank Facilities to their affiliates,
to other Lenders, or to one or more banks or other
entities that are eligible assignees (to be defined in
the Definitive Financing Documents) which are acceptable
to Company and the Agent, such consent not to be
unreasonably withheld, and upon such assignment any such
affiliate, bank of entity shall become a Lender for all
purposes of the Definitive Financing Documents; PROVIDED
that assignments made to affiliates and other Lenders
shall not be subject to the $5 million minimum
assignment requirement. Assignment shall require payment
of a $2,500 processing fee to the Agent, it being
understood that Company shall have no obligation with
respect to such fee. The Lenders will have the right to
sell participations, subject to customary limitations on
voting rights, in their shares of the Bank Facilities.
Requisite Lenders: Requisite Lenders shall mean Lenders holding in the
aggregate more than 66-2/3% of the commitments under
the Bank Facilities.
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<PAGE> 19
Taxes, Reserve All payments are to be made free and clear of any present or
Requirements & future taxes (other than franchise taxes and taxes on
Indemnities: overall net income), imposts, assessments, withholdings, or
other deductions whatsoever. Foreign Lenders shall furnish
to the Agent (for delivery to Company) appropriate
certificates or other evidence of exemption from U.S. federal
income tax withholding.
Company shall indemnify the Lenders against all increased
costs of capital resulting from reserve requirements or
otherwise imposed, in each case subject to customary
increased costs, capital adequacy and similar provisions.
Expenses: Company shall pay the reasonable and itemized fees and
expenses of counsel to UBOC, all out-of-pocket expenses of
UBOC and all syndication expenses.
Governing Law and Company will submit to the non-exclusive jurisdiction and
Jurisdiction: venue of the federal and state courts of the State of
California and will waive any right to trial by jury.
California law shall govern the Definitive Loan Documents.
UBOC's Counsel: O'Melveny & Myers LLP.
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<PAGE> 20
[Union Bank of California Letterhead]
November 13, 1996
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049
Attention: Mr. Tracy Edwards
Chief Financial Officer
Re: Bank Facility for Acquisition
of EL PASO
-----------------------------
Gentlemen:
Reference is made to the letter (the "Commitment Letter")
dated October 2, 1996 from Union Bank of California, N.A. to you describing our
commitment (the "Commitment") to provide certain senior bank credit facilities
described in the Summary of Terms attached to and made a part of the Commitment
Letter. Capitalized terms not otherwise defined herein shall have the
definitions set forth in the Commitment Letter.
Notwithstanding anything to the contrary contained in the
Commitment letter we hereby extend our Commitment until January 31, 1997, such
extension to be conditioned upon the Tender Agreement being executed by all
parties thereto no later than December 25, 1996.
This letter agreement shall be governed by and construed in
accordance with the internal laws of the State of California. This letter
agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument.
[Remainder of page intentionally left blank]
<PAGE> 21
We appreciate having been given the opportunity by you to be
involved in this transaction.
Very truly yours,
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Robert Peterson
--------------------------
Title: Vice President
-----------------------
AGREED AND ACCEPTED
this 15 day of November, 1996
--
BELL INDUSTRIES, INC.
By:/s/ Tracy A. Edwards
---------------------
Title: Vice President
------------------
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BELL INDUSTRIES, INC.,
a California corporation,
ME ACQUISITION, INC.,
a New York corporation,
AND
MILGRAY ELECTRONICS, INC.,
a New York corporation
DATED AS OF NOVEMBER 26, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I THE OFFER AND MERGER.................................................................. 2
1.1 The Offer............................................................................. 2
1.2 Company Actions....................................................................... 4
1.3 Directors............................................................................. 5
1.4 The Merger............................................................................ 6
1.5 Effective Time........................................................................ 7
1.6 Closing............................................................................... 7
1.7 Directors and Officers of the Surviving Corporation................................... 7
1.8 Shareholders' Meeting................................................................. 8
1.9 Merger Without Approval of Company Shareholders....................................... 8
ARTICLE II CONVERSION OF SHARES............................................................................ 9
2.1 Conversion of Capital Stock........................................................... 9
2.2 Exchange of Certificates.............................................................. 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY........................................................................................ 11
3.1 Organization and Qualification; Subsidiaries.......................................... 11
3.2 Capitalization........................................................................ 12
3.3 Authority............................................................................. 13
3.4 Consents and Approvals; No Violation.................................................. 14
3.5 Company SEC Reports................................................................... 15
3.6 Financial Statements.................................................................. 15
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
3.7 Absence of Undisclosed Liabilities.................................................... 16
3.8 Absence of Certain Changes............................................................ 16
3.9 Taxes................................................................................. 17
3.10 Litigation............................................................................ 18
3.11 Employee Benefit Plans; ERISA......................................................... 18
3.12 Environmental Liability............................................................... 19
3.13 Compliance with Applicable Laws....................................................... 19
3.14 Material Contracts.................................................................... 20
3.15 Patents, Marks, Trade Names, Etc...................................................... 21
3.16 Insurance............................................................................. 21
3.17 Opinion of Financial Advisor.......................................................... 21
3.18 Vote Required......................................................................... 21
3.19 Information Supplied; Company Proxy Statement......................................... 22
3.20 Company Stock Options................................................................. 22
3.21 Inventory............................................................................. 22
3.22 Major Customers and Suppliers; Backlog................................................ 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER........................................................................... 23
4.1 Organization.......................................................................... 23
4.2 Authority Relative to this Agreement.................................................. 23
4.3 Consent and Approvals; No Violation................................................... 23
4.4 Information Supplied.................................................................. 24
4.5 Financing............................................................................. 24
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
4.6 Purchaser's Operations................................................................ 25
4.7 No Shares Owned by Parent, Purchaser or Affiliates.................................... 25
4.8 Capitalization........................................................................ 25
ARTICLE V CONDUCT OF BUSINESS BY THE COMPANY PRIOR
TO EFFECTIVE DATE.............................................................................. 25
5.1 Ordinary Course....................................................................... 25
5.2 Dividends; Changes in Stock........................................................... 25
5.3 Issuance or Repurchase of Securities.................................................. 26
5.4 Governing Documents; Board of Directors............................................... 26
5.5 No Dispositions....................................................................... 26
5.6 Indebtedness.......................................................................... 26
5.7 Compensation.......................................................................... 26
5.8 Benefit Plans......................................................................... 27
5.9 Taxes................................................................................. 27
5.10 Consultation and Cooperation.......................................................... 27
5.11 Additional Matters.................................................................... 28
ARTICLE VI ADDITIONAL COVENANTS............................................................................ 29
6.1 No Solicitation....................................................................... 29
6.2 Access to Information; Confidentiality................................................ 31
6.3 HSR Act............................................................................... 31
6.4 Consents and Approvals................................................................ 32
6.5 Notification of Certain Matters....................................................... 32
6.6 Brokers or Finders.................................................................... 32
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
6.7 Additional Actions.................................................................... 33
6.8 Benefit Plans and Certain Contracts; Severance
Arrangements.......................................................................... 33
6.9 Directors' and Officers' Indemnification.............................................. 34
6.10 Tender Agreement; New York Law........................................................ 35
6.11 Publicity............................................................................. 36
6.12 Opinion of Company Counsel............................................................ 36
6.13 Election of Directors................................................................. 36
ARTICLE VII CONDITIONS..................................................................................... 36
7.1 Conditions to each Party's Obligations to Effect the
Merger................................................................................ 36
7.2 Additional Condition to Obligations of the Company
to Effect the Merger.................................................................. 37
ARTICLE VIII TERMINATION................................................................................... 37
8.1 Termination........................................................................... 37
8.2 Effect of Termination................................................................. 39
ARTICLE IX GENERAL PROVISIONS.............................................................................. 39
9.1 Fees and Expenses..................................................................... 39
9.2 Amendment and Modification............................................................ 40
9.3 Nonsurvival of Representations and Warranties......................................... 40
9.4 Notices............................................................................... 40
9.5 Definitions; Interpretation........................................................... 41
9.6 Counterparts.......................................................................... 42
9.7 Entire Agreement; No Third Party Beneficiaries........................................ 42
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
9.8 Severability.......................................................................... 42
9.9 Governing Law......................................................................... 42
9.10 Assignment............................................................................ 42
</TABLE>
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<PAGE> 7
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as
of November 26, 1996 by and among Bell Industries, Inc., a California
corporation ("Parent"), ME Acquisition, Inc., a New York corporation and wholly
owned subsidiary of Parent ("Purchaser"), and Milgray Electronics, Inc., a New
York corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent and Purchaser
have determined that it is advisable and in the best interests of Parent and
Purchaser to engage in a transaction whereby Parent will acquire the Company on
the terms and subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company has determined that it
is advisable and in the best interests of the Company and its shareholders to
engage in a transaction whereby Parent will acquire the Company on the terms and
subject to the conditions set forth in this Agreement; and
WHEREAS, Herbert S. Davidson, a director, Chief Executive Officer and
President of the Company (the "Shareholder"), is the beneficial owner of
3,742,064 shares of the Company Common Stock (as defined below); and
WHEREAS, as an inducement to Parent to acquire the Company, and as a
condition to Parent's willingness to enter into this Agreement, concurrently
with the execution and delivery of this Agreement, Parent, Purchaser and the
Shareholder are entering into a tender agreement (the "Tender Agreement")
pursuant to which the Shareholder has agreed to (i) tender his Shares in the
Offer (as defined below) and vote his Shares in favor of the Merger (as defined
below) and (ii) not compete with Parent, Purchaser, the Company or the Surviving
Corporation (as defined below) to the extent set forth therein, in each case
upon the terms and subject to the conditions set forth therein; and
WHEREAS, in furtherance of its acquisition of the Company, Parent
proposes to cause Purchaser to make a tender offer (as it may be amended from
time to time as permitted under this Agreement, the "Offer") to purchase all of
the issued and outstanding shares of common stock, par value $0.25 per share, of
the Company (hereinafter referred to as either the "Shares" or the "Company
Common Stock") at a price per share of Company Common Stock of $14.77, net to
the seller in cash, upon the terms and subject to the conditions set forth in
this Agreement, and the Board of Directors of the Company has adopted
resolutions approving, among other things, the Offer and the Merger and
recommending that the Company's shareholders accept the Offer, provided that
such shareholders should consult with their financial or tax advisers prior to
tendering their Shares in the Offer or voting to approve the Merger; and
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<PAGE> 8
WHEREAS, the respective Boards of Directors of Parent, Purchaser and
the Company have approved the merger (the "Merger") of Purchaser into the
Company, upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of Company Common Stock not
owned directly or indirectly by Parent or the Company, except shares of Company
Common Stock held by persons who object to the Merger and comply with all the
provisions of New York law concerning the right of holders of Company Common
Stock to dissent from the Merger and demand appraisal of their shares of Company
Common Stock ("Dissenting Shareholder"), will be converted into the right to
receive the per share consideration paid pursuant to the Offer; and
WHEREAS, the Company, Parent and Purchaser wish to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
THE OFFER AND MERGER
1.1 The Offer.
(a) As promptly as practicable (but in no event later than
five business days after the public announcement of the execution hereof),
Purchaser shall commence (within the meaning of Rule 14d-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) the Offer to purchase for
cash all of the issued and outstanding shares of Company Common Stock at a price
of $14.77 per Share, net to the seller in cash (such price, or such higher price
per Share as may be paid in the Offer, being referred to herein as the "Offer
Price"), subject to there being validly tendered and not withdrawn prior to the
expiration of the Offer that number of Shares which, together with the Shares
beneficially owned by Parent or Purchaser, represents at least 66-2/3% of the
Shares outstanding on a fully diluted basis (the "Minimum Condition") and to the
other conditions set forth in Annex A hereto. The Offer shall remain open for
tender of Shares or withdrawal of Shares previously tendered until January 7,
1997, unless previously terminated prior to such date in accordance with the
terms thereof or of this Agreement or pursuant to applicable law without any
Shares having been accepted for payment or paid for under the Offer. Purchaser
shall, on the terms and subject to the prior satisfaction or waiver of the
conditions of the Offer (including without limitation the Minimum Condition),
accept for payment and pay for Shares tendered as soon as practicable after it
is legally permitted to do so under applicable law; PROVIDED, HOWEVER, that
Purchaser will not, without the written consent of the Company, accept for
payment and pay for any Shares prior to January 7, 1997. The obligations of
Purchaser to commence the Offer and to accept for payment and to pay for any
Shares validly tendered on or prior to the expiration of the Offer and not
withdrawn shall be subject
-2-
<PAGE> 9
only to the Minimum Condition and the other conditions set forth in Annex A
hereto. The Offer shall be made by means of an offer to purchase (the "Offer to
Purchase") containing the terms set forth in this Agreement, the Minimum
Condition and the other conditions set forth in Annex A hereto. Without the
written consent of the Company, Purchaser shall not decrease the Offer Price,
decrease the number of Shares sought, change the form of consideration to be
paid in the Offer, amend or waive the Minimum Condition, or amend any other
condition of the Offer in any manner adverse to the holders of the Shares (other
than with respect to insignificant changes or amendments); PROVIDED, HOWEVER,
that if on the initial scheduled expiration date of the Offer (as it may be
extended) all conditions to the Offer shall not have been satisfied or waived,
the Offer may be extended from time to time until February 6, 1997 without the
consent of the Company; PROVIDED FURTHER, HOWEVER, that, notwithstanding the
foregoing proviso, Purchaser may extend the Offer without the Company's consent
until February 28, 1997 if the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, has not expired or terminated by
February 6, 1997. In addition, the Offer Price may be increased and the Offer
may be extended to the extent required by law in connection with such increase,
in each case without the consent of the Company. Purchaser shall terminate the
Offer upon termination of this Agreement pursuant to its terms.
(b) As soon as practicable on the date the Offer is commenced,
Parent and Purchaser shall file with the United States Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer (together with all amendments and supplements thereto and including
the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will include, as
exhibits, the Offer to Purchase and a form of letter of transmittal and summary
advertisement (collectively, together with any amendments and supplements
thereto, the "Offer Documents") with respect to the Offer. The Offer Documents
will comply in all material respects with the provisions of applicable Federal
securities laws and, on the date filed with the SEC and on the date first
published, sent or given to the Company's shareholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that no representation is made by Parent or Purchaser with respect to
information supplied by the Company for inclusion in the Offer Documents. Each
of the Parent and Purchaser further agrees to take all steps necessary to cause
the Offer Documents to be filed with the SEC and to be disseminated to holders
of Shares, in each case as and to the extent required by applicable Federal
securities laws. Each of Parent and Purchaser, on the one hand, and the Company,
on the other hand, agrees promptly to correct any information provided by it for
use in the Offer Documents if and to the extent that it shall have become false
and misleading in any material respect and Purchaser further agrees to take all
steps necessary to cause the Offer Documents as so corrected to be filed with
the SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable Federal securities laws. The Company and its
counsel shall be given the opportunity to review the Schedule 14D-1 before it is
filed with the SEC. In addition, Parent and Purchaser agree to provide the
Company and its counsel
-3-
<PAGE> 10
in writing with any comments Parent, Purchaser or their counsel may receive from
time to time from the SEC or its staff with respect to the Offer Documents
promptly after the receipt of such comments.
1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer
and represents that the Board of Directors, at a meeting duly called and held on
the date or dates on which the relevant parties entered into this Agreement and
the Tender Agreement, has unanimously (i) determined that each of the Offer, the
Merger and the transactions contemplated thereby is fair to and in the best
interests of the Company's shareholders, as a group (other than Parent and
Purchaser), provided that each shareholder should consult with his financial or
tax advisor regarding the impact thereof on such shareholder; (ii) approved this
Agreement and the transactions contemplated hereby (including without limitation
(x) the acquisition of the Company by Parent or any of its affiliates, and any
purchase of Shares in connection therewith, by means of this Agreement, the
Offer, the Merger, and/or any other transactions pursuant to this Agreement
conducted to effectuate the acquisition of the Company by Parent or its
affiliates in accordance with this Agreement ("Other Transactions") and (y) any
other transactions contemplated hereby and by the foregoing clause (x); (iii)
resolved to recommend that the shareholders of the Company, as a group, accept
the Offer, tender their Shares thereunder to Purchaser and approve and adopt
this Agreement and the Merger, PROVIDED, HOWEVER, that shareholders should
consult with their financial or tax advisers prior to tendering their Shares in
the Offer or voting to approve the Merger and PROVIDED FURTHER that such
recommendation may be withdrawn, modified or amended if, in the opinion of the
Board of Directors of the Company, after consultation with independent legal
counsel to the Company, the failure to take such action would be inconsistent
with their fiduciary duties under applicable law, and any such withdrawal,
modification or amendment of the recommendation will not be deemed a breach of
this Agreement; and (iv) adopted resolutions approving all of the actions and
transactions referenced herein and such approval constitutes approval of the
Offer, this Agreement and the Merger for purposes of (A) Sections 902 and 912 of
the New York Business Corporation Law (the "NYBCL") and similar provisions of
any other similar state statutes that might be deemed applicable to the
transactions contemplated hereby.
(b) Concurrently with the commencement of the Offer, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto, and
including the exhibits thereto, the "Schedule 14D-9") which shall, subject to
the fiduciary duties of the Company's Board of Directors under applicable law
and the provisions of this Agreement, contain the statements referred to in
Section 1.2(a) hereof. In connection with making such recommendations, the
Company may include a statement to the effect that the Company's shareholders
should consult with their financial or tax advisers prior to tendering their
Shares in the Offer or voting to approve the Merger. The Schedule 14D-9 will
comply in all material respects with the provisions of applicable Federal
securities laws and, on the date filed with the SEC and on the date first
published, sent
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or given to the Company's shareholders, shall not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or Purchaser for inclusion in the Schedule 14D-9. The Company further
agrees to take all steps necessary to cause the Schedule 14D-9 to be filed with
the SEC and to be disseminated to holders of Shares, in each case as and to the
extent required by applicable Federal securities laws. Each of the Company, on
the one hand, and Parent and Purchaser, on the other hand, agrees promptly to
correct any information provided by it for use in the Schedule 14D-9 if and to
the extent that it shall have become false and misleading in any material
respect and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated
to holders of the Shares, in each case as and to the extent required by
applicable Federal securities laws. Parent and its counsel shall be given the
opportunity to review the Schedule 14D-9 before it is filed with the SEC. In
addition, the Company agrees to provide Parent, Purchaser and their counsel in
writing any comments the Company or its counsel may receive from time to time
from the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments. The Company and its counsel will provide Parent and
its counsel with a reasonable opportunity to participate in all communications
with the SEC and its staff, including any meetings and telephone conferences
relating to the Schedule 14D-9, the Merger, this Agreement or the transactions
contemplated hereby.
(c) In connection with the Offer, the Company will promptly
furnish or cause to be furnished to Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date and those of
persons becoming record holders after such date, together with copies of all
other information in the Company's control regarding the beneficial owners of
shares of Company Common Stock that Parent may reasonably request, and shall
furnish Purchaser with such other information and assistance as Purchaser or its
agents may reasonably request in communicating the Offer to the shareholders of
the Company.
1.3 Directors.
(a) Promptly upon the purchase of and payment for any Shares
(including without limitation all Shares subject to the Tender Agreement) by
Purchaser or any other subsidiary of Parent pursuant to the Offer, Parent shall
be entitled to designate such number of directors, rounded to the nearest whole
number, on the Board of Directors of the Company as is equal to the product of
the total number of directors then serving on such Board (which, immediately
prior to such calculation, shall not consist of more than five directors)
multiplied by the ratio of the aggregate number of Shares beneficially owned by
Parent, Purchaser and any of their affiliates to the total number of Shares then
outstanding. The Company shall, upon request of Purchaser, take all action
necessary to cause Parent's designees to be elected or appointed to the
Company's Board of Directors, including without limitation securing the
resignations of
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<PAGE> 12
such number of its incumbent directors as is necessary to enable Parent's
designees to be so elected or appointed to the Company's Board, and shall cause
Parent's designees to be so elected or appointed. At such time, the Company
shall also cause persons designated by Parent to constitute the same percentage
(rounded to the nearest whole number) as is on the Company's Board of Directors
of (i) each committee of the Company's Board of Directors, (ii) each board of
directors (or similar body) of each Subsidiary (as defined below) of the Company
and (iii) each committee (or similar body) of each such board.
(b) The Company shall promptly take all actions required
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations under Section 1.3(a), including
mailing to shareholders as part of the Schedule 14D-9 the information required
by such Section 14(f) and Rule 14f-1, as is necessary to enable Parent's
designees to be elected to the Company's Board of Directors. Parent or Purchaser
shall supply the Company with any information with respect to either of them and
their nominees, officers, directors and affiliates required by such Section
14(f) and Rule 14f-1. The provisions of Section 1.3(a) are in addition to and
shall not limit any rights which Parent, Purchaser or any of their affiliates
may have as a holder or beneficial owner of Shares as a matter of law with
respect to the election of directors or otherwise.
(c) From and after the time, if any, that Parent's designees
constitute a majority of the Company's Board of Directors, any amendment of this
Agreement, any termination of this Agreement by the Company, any extension of
time for performance of any of the obligations of Parent or Purchaser hereunder,
any waiver of any condition or any of the Company's rights hereunder or other
action by the Company hereunder (other than the actions contemplated by Section
1.8 hereof) may be effected only if the action is approved by a majority of the
directors of the Company then in office who were directors of the Company on the
date hereof, which action shall be deemed to constitute the action of the Board
of Directors; PROVIDED, HOWEVER, that if there shall be no such directors, such
actions may be effected by majority vote of the entire Board of Directors of the
Company.
1.4 The Merger.
(a) Subject to the terms and conditions of this Agreement, and
pursuant to Sections of the NYBCL, at the Effective Time the Company and
Purchaser shall consummate the Merger pursuant to which (i) Purchaser shall be
merged with and into the Company and the separate corporate existence of
Purchaser shall thereupon cease, (ii) the Company shall be the successor or
surviving corporation in the Merger (the "Surviving Corporation") and shall
continue to be governed by the laws of the State of New York, and (iii) the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger.
(b) Pursuant to the Merger, (i) the certificate of
incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the certificate of
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incorporation of the Surviving Corporation until thereafter amended as provided
by applicable law and such certificate of incorporation, and (ii) the bylaws of
the Company, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Surviving Corporation until thereafter amended as provided by law,
the certificate of incorporation and such bylaws. The corporation surviving the
Merger is sometimes hereinafter referred to as the "Surviving Corporation." The
Merger shall have the effects set forth in the NYBCL.
(c) The Merger shall have the effects set forth in the NYBCL
(including, without limitation, Section 906 thereof). Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time (as
defined in Section 1.5), all the properties, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Purchaser shall become
the debts, liabilities and duties of the Surviving Corporation.
1.5 Effective Time. On the date of Closing (as defined in Section 1.6)
as soon as practicable following the satisfaction or waiver of the conditions
set forth in Article VII (or on such other date as Parent and the Company may
agree) the parties shall cause certificate of merger or other appropriate
documents (in any such case, the "Certificate of Merger") to be executed and
filed with the Department of State of the State of New York and make all other
filings and recordings or recordings required by the NYBCL in connection with
the Merger. The Merger shall become effective at the time and on the date on
which the Certificate of Merger has been duly filed with the Department of State
of the State of New York or such later time as is agreed upon by the parties and
specified in the Certificate of Merger, and such time is hereinafter referred to
as the "Effective Time." Parent and the Company agree to use their best efforts
to cause the Merger to become effective as soon as practicable following the
purchase of and payment for Shares pursuant to the Offer.
1.6 Closing. The Closing of the Merger (the "Closing") will take place
at 10:00 a.m., New York time, on a date to be specified by the parties, which
shall be no later than the second business day after satisfaction or waiver of
all of the conditions set forth in Article VII hereof (the "Closing Date"), at
the offices of the Company, 77 Schmitt Boulevard, Farmingdale, New York 11735,
unless another date or place is agreed to in writing by the parties hereto.
1.7 Directors and Officers of the Surviving Corporation. The directors
and officers of Purchaser at the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's certificate of incorporation and bylaws.
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<PAGE> 14
1.8 Shareholders' Meeting.
(a) If required by applicable law in order to consummate the
Merger, the Company, acting through its Board of Directors, shall, in accordance
with applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its shareholders (the "Special Meeting") as soon as
practicable following the acceptance for payment and purchase of Shares by
Purchaser pursuant to the Offer for the purpose of considering and taking action
upon this Agreement;
(ii) prepare and file with the SEC a preliminary
proxy or information statement relating to the Merger and this Agreement and use
its reasonable efforts (x) to obtain and furnish the information required to be
included by the SEC in the Company Proxy Statement (as defined below) and, after
consultation with Parent, to respond promptly to any comments made by the SEC
with respect to the preliminary proxy or information statement and cause a
definitive proxy or information statement (the "Company Proxy Statement") to be
mailed to its shareholders and (y) to obtain the necessary approvals of the
Merger and this Agreement by its shareholders; and
(iii) include in the Company Proxy Statement the
recommendation of the Board of Directors that shareholders of the Company, as a
group, vote in favor of the approval of the Merger and the adoption of this
Agreement (provided that shareholders should consult with their financial or tax
advisers prior to voting to approve the Merger) unless, in the opinion of the
Board of Directors after consultation with independent counsel, the inclusion of
such recommendation would be inconsistent with its fiduciary duties under
applicable law.
(b) Parent and Purchaser agree that Purchaser shall, and shall
cause any permitted assignee of Purchaser to, vote all Shares then owned by it
which are entitled to vote in favor of the approval of the Merger and the
adoption of this Agreement.
1.9 Merger Without Approval of Company Shareholders. Notwithstanding
Section 1.8 hereof, in the event that Parent, Purchaser or any permitted
assignee of Purchaser shall acquire at least 90% of the outstanding shares of
each class of capital stock of the Company, pursuant to the Offer or otherwise,
the parties hereto agree, at the request of Parent and subject to Article VII
hereof, to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without approval
of the Company shareholders, in accordance with Section 905 of the NYBCL. In
connection therewith, the Company and its Board of Directors may take all action
necessary to approve a plan of merger under Section 905 of the NYBCL, which plan
of merger shall supersede the plan of merger adopted by the Board of Directors
as contemplated by Section 1.2(a) hereof, solely to cause the Merger hereunder
to become effective without approval of the Company shareholders. If the Board
of Directors of the Company so approves a merger pursuant to Section 905,
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<PAGE> 15
Parent or Purchaser shall, and shall cause any permitted assignee to, continue
to hold not less than 90% of the issued and outstanding shares of Company Common
Stock until the consummation or abandonment of such merger.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any share of
Company Common Stock or common stock, par value $.01 per share, of Purchaser
(the "Purchaser Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share
of Purchaser Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
shares of Company Common Stock that are owned by the Company as treasury stock
and any shares of Company Common Stock owned by Parent, Purchaser or any other
wholly owned subsidiary of Parent shall be cancelled and retired and shall cease
to exist and no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Each issued and outstanding share of
Company Common Stock (other than shares to be cancelled in accordance with
Section 2.1(b)) shall be converted into the right to receive the Offer Price,
payable to the holder thereof, without interest (the "Merger Consideration"),
upon surrender of the certificate formerly representing such share of Company
Common Stock in the manner provided in Section 2.2. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor upon the surrender of such certificate in accordance with Section 2.2,
without interest.
(d) Shares of Dissenting Shareholders. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding shares of
Company Common Stock held by a Dissenting Shareholder shall not be converted as
described in Section 2.1(c) but shall become the right to receive such
consideration as may be determined to be due to such Dissenting Shareholder
pursuant to the laws of the State of New York; PROVIDED, HOWEVER, that the
shares of Company Common Stock outstanding immediately prior to the Effective
Time and held by a Dissenting Shareholder who shall, after the Effective Time,
fail to perfect his right to appraisal, withdraw his demand for appraisal or
lose his right of appraisal, in any case pursuant to Section 623 of the NYBCL,
shall be deemed to be converted as of the Effective Time into the right to
receive the Merger
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<PAGE> 16
Consideration. The Company shall give Parent (i) prompt notice of any written
demands for appraisal of shares of Company Common Stock received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to any such demands. The Company shall not, without the prior written consent of
Parent, voluntarily make any payment with respect to, or settle, offer to settle
or otherwise negotiate, any such demands.
2.2 Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust
company to act as agent for the holders of shares of Company Common Stock in
connection with the Merger (the "Paying Agent") to receive the funds to which
holders of shares of Company Common Stock shall become entitled pursuant to
Section 2.1(c). Such funds shall be invested by the Paying Agent as directed by
Parent or the Surviving Corporation.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates"),
whose Shares were converted pursuant to Section 2.1 into the right to receive
the Merger Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such other
agent or agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor the Merger Consideration for each share of Company
Common Stock formerly represented by such Certificate and the Certificate so
surrendered shall forthwith be cancelled. If payment of the Merger Consideration
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective
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<PAGE> 17
Time, the holders of Certificates evidencing ownership of shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares, except as otherwise provided for
herein or by applicable law. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be cancelled
and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following
six months after the Effective Time, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
holder of a Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser as follows:
3.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, is duly
qualified to do business as a foreign corporation and is in good standing in the
jurisdictions listed on Schedule 3.1(a), which include each jurisdiction in
which the character of the Company's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in a Material Adverse Effect (as
defined below). The Company has all requisite corporate or other power and
authority to own, use or lease its properties and to carry on its business as it
is now being conducted and as it is now proposed to be conducted. The Company
has made available to Parent and Purchaser a complete and correct copy of its
certificate of incorporation and bylaws, each as amended to date, and the
Company's certificate of incorporation and bylaws as so delivered are in full
force and effect. The Company is not in default in any respect in the
performance, observation or fulfillment of any provision of its certificate of
incorporation or bylaws.
(b) Schedule 3.1(b) lists the name and jurisdiction of
organization of each Subsidiary of the Company and the jurisdictions in which
each such Subsidiary is qualified or holds licenses to do business as a foreign
corporation as of the date hereof. Each of the Company's Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, is duly qualified to
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<PAGE> 18
do business as a foreign corporation and is in good standing in the
jurisdictions listed on Schedule 3.1(b), which include each jurisdiction in
which the character of the Company's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in a Material Adverse Effect. Each
of the Company's Subsidiaries has the requisite corporate or other power and
authority to own, use or lease its properties and to carry on its business as it
is now being conducted and as it is now proposed to be conducted. Each of such
Subsidiaries is operating in accordance with all applicable laws and regulations
of its jurisdiction of incorporation, except where the failure so to operate
would not result in a Material Adverse Effect. The Company has made available or
will make available within 10 days of the date of this Agreement, to Parent and
Purchaser a complete and correct copy of the certificate of incorporation and
bylaws (or similar charter documents) of each of the Company's Subsidiaries,
each as amended to date, and the certificate of incorporation and bylaws (or
similar charter documents) as so delivered are in full force and effect. No
Subsidiary of the Company is in default in any respect in the performance,
observation or fulfillment of any provision of its certificate of incorporation
or bylaws (or similar charter documents).
(c) For purposes of this Agreement, (i) a "Material Adverse
Effect" shall mean any event, circumstance, condition, development or occurrence
causing, resulting in or having a material adverse effect on the financial
condition, business, assets, properties, prospects or results of operations of
the Company and its Subsidiaries taken as a whole; (ii) "subsidiary" shall mean,
with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (x) at least a majority of the
securities or other interests having by their terms voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its subsidiaries, or
by such party and one or more of its subsidiaries, or (y) such party or any
other subsidiary of such party is a general partner (excluding such partnerships
where such party or any subsidiary of such party do not have a majority of the
voting interest in such partnership); (iii) "Subsidiary" shall mean any
subsidiary of the Company; and (iv) "independent legal counsel to the Company"
shall include, but not be limited to, Herschel M. Weinberg, Esq., who is a
director and secretary of the Company and of various of its Subsidiaries.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists
solely of 60,000,000 shares of the Company Common Stock. As of the date hereof,
(i) 6,773,176 shares of Company Common Stock are issued and outstanding and (ii)
43,726 shares of Company Common Stock are issued and held in the treasury of the
Company. No agreement or other document grants or imposes on any shares of the
Company Common Stock any right, preference, privilege or restriction with
respect to the transactions contemplated hereby (including, without limitation,
any rights of first refusal), other than the right to dissent from the Merger as
provided in Section 2.1(d) above. All of the issued and outstanding shares of
the Company Common Stock are duly authorized,
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<PAGE> 19
validly issued, fully paid, nonassessable and free of preemptive rights. There
are no bonds, debentures, notes or other indebtedness having general voting
rights (or convertible into securities having such rights) ("Voting Debt") of
the Company or any of its Subsidiaries issued and outstanding. Except as set
forth above and except for the transactions contemplated by this Agreement, as
of the date hereof, (i) there are no shares of capital stock of the Company
authorized, issued or outstanding and (ii) except as otherwise set forth on
Schedule 3.2(a) hereto, there are no existing options, warrants, calls,
preemptive rights, subscriptions or other rights, agreements, arrangements or
commitments of any character (including without limitation "earn-out"
arrangements) relating to the issued or unissued capital stock of the Company or
any of its Subsidiaries, obligating the Company or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of its Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests or obligations of the Company or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement, arrangement or commitment. There are no
outstanding contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Shares or the capital stock of the
Company or any Subsidiary or affiliate of the Company or to provide funds to
make any investment (in the form of a loan, capital contribution or otherwise)
in any Subsidiary or any other entity.
(b) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party with
respect to the voting of the capital stock of the Company or any of the
Subsidiaries. None of the Company or its Subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock of the Company or any of
its Subsidiaries, respectively, as a result of the transactions contemplated by
this Agreement.
(c) All of the issued and outstanding shares of capital stock
of each of the Subsidiaries of the Company are owned beneficially and of record
by the Company or a wholly owned subsidiary of the Company, free and clear of
all liens, charges, pledges, encumbrances, equities, voting restrictions, claims
and options of any nature, and all such shares have been duly authorized,
validly issued and are fully paid, nonassessable and free of preemptive rights.
The Company has not made, directly or indirectly, any material investment in,
advance to or purchase or guaranty of any obligations of, any entity other than
such Subsidiaries.
3.3 Authority.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Company's Board of Directors, and no other corporate
proceedings on the part of the Company are necessary, as a matter of law or
otherwise in order to satisfy the requirements for business combinations
contained in Section 912(c)(1) of the NYBCL. This Agreement has been
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<PAGE> 20
duly and validly executed and delivered by the Company and, assuming this
Agreement constitutes a valid and binding agreement of Parent and Purchaser, is
a valid and binding agreement of the Company, enforceable against it in
accordance with its terms, except (a) as such enforcement may be subject to
bankruptcy, insolvency or similar laws now or hereafter in effect relating to
creditors rights, and (b) as the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
(b) Except for the action contemplated by Section 1.9 hereof,
the Board of Directors of the Company has duly and validly approved and taken
all corporate action required to be taken by the Board of Directors for the
consummation of the transactions contemplated by this Agreement, including the
Offer, the Merger and the acquisition of Shares pursuant to the Offer, the
Merger, and any Other Transactions, including without limitation all matters
contemplated by Section 1.2(a)(ii) hereof. The Company represents to Parent and
Purchaser that the actions of the Board of Directors of the Company set forth in
Section 1.2(a) are all the actions of the Board of Directors of the Company
required, and are sufficient, to satisfy the requirements of Section 912(c)(1)
of the NYBCL in connection with the Offer, the Merger, the Tender Agreement and
any Other Transactions and the other matters referred to in Section 1.2(a)(ii)
above so long as this Agreement has not been terminated in accordance with its
terms.
3.4 Consents and Approvals; No Violation. The execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and the
performance by the Company of its obligations hereunder will not:
(a) subject to the obtaining of any requisite approvals of the
Company's shareholders as contemplated by Sections 1.8 and 1.9 hereof, conflict
with any provision of the Company's certificate of incorporation or bylaws or
the certificate of incorporation or bylaws (or other similar charter documents)
of any of its Subsidiaries;
(b) require any consent, approval, order, authorization or
permit of, or registration, filing or notification to, any governmental or
regulatory authority or agency (a "Governmental Entity"), except for (i) the
filing of a premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing with the SEC of (x) the Schedule 14D-9, (y) the Company
Proxy Statement relating to the approval by the Company's shareholders of this
Agreement, if such approval is required by law, and (z) such reports under
Section 13(a) of the Exchange Act as may be required in connection with this
Agreement, the Tender Agreement and the transactions contemplated hereby and
thereby, and (iii) the filing of the Certificate of Merger with the Department
of State of the State of New York;
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(c) except as disclosed on Schedule 3.4(c), result in any
violation of or the breach of or constitute a default (with notice or lapse of
time or both) under, or give rise to any right of termination, cancellation or
acceleration or guaranteed payments under or to a loss of a material benefit
under, any of the terms, conditions or provisions of any note, lease, mortgage,
license, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties or assets may be bound,
except for such violations, breaches, defaults, or rights of termination,
cancellation or acceleration, or losses as to which requisite waivers or
consents have been obtained or will be obtained prior to the Effective Time or
which, individually or in the aggregate, would not (i) result in a Material
Adverse Effect, (ii) materially impair the ability of the Company to perform its
obligations under this Agreement or (iii) prevent the consummation of any of the
transactions contemplated by this Agreement;
(d) violate the provisions of any order, writ, injunction,
judgment, decree, statute, rule or regulation applicable to the Company or any
Subsidiary, in such a manner as to (i) result in a Material Adverse Effect, (ii)
materially impair the ability of the Company to perform its obligations under
this Agreement or (iii) prevent the consummation of any of the transactions
contemplated by this Agreement; or
(e) result in the creation of any lien, charge or encumbrance
upon any shares of capital stock, properties or assets of the Company or its
Subsidiaries under any agreement or instrument to which the Company or its
Subsidiaries is a party or by which the Company or its Subsidiaries is bound.
3.5 Company SEC Reports. The Company has filed with the SEC, and has
heretofore made available to Parent and Purchaser true and complete copies of,
each form, registration statement, report, schedule, proxy or information
statement and other document (including exhibits and amendments thereto),
including without limitation its Annual Reports to Shareholders incorporated by
reference in certain of such reports, required to be filed with the SEC since
September 30, 1992 under the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act (collectively, the "Company SEC Reports"). As of the
respective dates such Company SEC Reports were filed or, if any such Company SEC
Reports were amended, as of the date such amendment was filed, each of the
Company SEC Reports, including without limitation any financial statements or
schedules included therein, (a) complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and the applicable rules and regulations promulgated thereunder, and (b)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the Subsidiaries is required to file any forms, reports
or other documents with the SEC pursuant to Section 12 or 15 of the Exchange
Act.
3.6 Financial Statements. Each of the audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company
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(including any related notes and schedules) included (or incorporated by
reference) in its Annual Reports on Form 10-K for each of the three fiscal years
ended September 30, 1993, 1994 and 1995 and its Quarterly Reports on Form 10-Q
for all interim periods during such period and subsequent thereto and the
audited consolidated financial statements of the Company (including any related
notes and schedules) for the fiscal year ended September 30, 1996 provided to
Parent and Purchaser (collectively, the "Financial Statements") have been
prepared from, and are in accordance with, the books and records of the Company
and its consolidated Subsidiaries, comply or shall comply (as the case may be)
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been or
shall be (as the case may be) prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a consistent basis
(except as may be indicated in the notes thereto and subject, in the case of
quarterly financial statements, to normal and recurring year-end adjustments)
and fairly present or shall fairly present (as the case may be), in conformity
with GAAP applied on a consistent basis (except as may be indicated in the notes
thereto), the consolidated financial position of the Company and its
Subsidiaries as of the date thereof and the consolidated results of operations
and cash flows (and changes in financial position, if any) of the Company and
its Subsidiaries for the periods presented therein (subject to normal year-end
adjustments and the absence of financial footnotes in the case of any unaudited
interim financial statements).
3.7 Absence of Undisclosed Liabilities. Except (a) as specifically
disclosed in the Company SEC Reports and (b) for liabilities and obligations
incurred in the ordinary course of business and consistent with past practice
since June 30, 1996, neither the Company nor any of its Subsidiaries has
incurred any liabilities or obligations of any nature (contingent or otherwise)
that have, or would be reasonably likely to have, a Material Adverse Effect or
would be required by GAAP to be reflected on a consolidated balance sheet of the
Company and its Subsidiaries or the notes thereto which is not so reflected. As
of the date hereof, the total amounts of principal and unpaid interest
outstanding under the Company's bank credit line do not exceed thirty seven
million dollars ($37,000,000) in the aggregate, and the long-term principal
portions thereof (including such amounts as are required to be classified as
current debt under GAAP) do not exceed thirty seven million dollars
($37,000,000).
3.8 Absence of Certain Changes. Except as disclosed in the Company SEC
Reports, since September 30, 1996 the Company and its Subsidiaries have
conducted their respective businesses only in, have not engaged in any
transaction other than according to, the ordinary and usual course, and there
has not been (a) except as set forth on Schedule 3.8(a), any Material Adverse
Effect; (b) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the capital
stock of the Company or any of its Subsidiaries; (c) any change by the Company
in accounting principles, practices or methods; (d) any labor dispute or
difficulty which is reasonably likely to result in any Material Adverse Effect,
and to the Company's knowledge no such dispute or difficulty is now threatened;
(e) any material asset sold, disposed of (except inventory sold in the ordinary
course of business), mortgaged, pledged or subjected to any lien, charge or
other encumbrance; (f)
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except as set forth on Schedule 3.8(f), any increase in the salary, bonus or
commission rate payable or which could become payable by the Company or any of
its Subsidiaries to their directors, officers, branch managers, marketing
managers, distributors, dealers or sales representatives; (g) any amendment of
any employee benefit plan; (h) any issuance, transfer, sale or pledge by the
Company or its Subsidiaries of any shares of stock or other securities or of any
commitments, options, rights or privileges under which the Company or its
Subsidiaries is or may become obligated to issue any shares of stock or other
securities; (i) any indebtedness incurred by the Company or its Subsidiaries,
except as such may have been incurred in the ordinary course of business and
consistent with past practice; (j) any loan made or agreed to be made by the
Company or its Subsidiaries, nor has the Company or its Subsidiaries become
liable or agreed to become liable as a guarantor with respect to any loan; (k)
any waiver by the Company or its Subsidiaries of any right or rights of material
value or any payment, direct or indirect, of any material debt, liability or
other obligation; or (l) except as set forth on Schedule 3.8(l), any change in
or amendment to the certificate of incorporation or bylaws (or similar charter
documents) of the Company or its Subsidiaries.
3.9 Taxes.
(a) The Company and each of its Subsidiaries have timely filed
(or have had timely filed on their behalf) or will file or cause to be timely
filed, all material Tax Returns (as defined below) required by applicable law to
be filed by any of them prior to or as of the Closing Date. All such Tax Returns
and amendments thereto are or will be true, complete and correct in all material
respects.
(b) The Company and each of its Subsidiaries have paid (or
have had paid on their behalf), or where payment is not yet due, have
established (or have had established on their behalf and for their sole benefit
and recourse), or will establish or cause to be established on or before the
Closing Date, an adequate accrual for the payment of all material Taxes (as
defined below) due with respect to any period ending prior to or as of the
Closing Date.
(c) The appropriate Tax Returns of the Company and/or any of
its Subsidiaries have been examined by (i) the Internal Revenue Service for all
periods up to and including September 30, 1994 and (ii) the Taxing Authorities
other than the Internal Revenue Service for the periods and jurisdictions shown
in Schedule 3.9(c). Except as disclosed on Schedule 3.9(c), no Audit (as defined
below) by a Tax Authority (as defined below) is pending or threatened with
respect to any Tax Returns filed by, or Taxes due from, the Company or any
Subsidiary. No issue has been raised by any Tax Authority in any Audit of the
Company or any of its Subsidiaries that if raised with respect to any other
period not so audited could be expected to result in a material proposed
deficiency for any period not so audited. No material deficiency or adjustment
for any Taxes has been threatened, proposed, asserted or assessed against the
Company or any of its Subsidiaries. There are no liens for Taxes upon the assets
of the Company or any of its Subsidiaries, except liens for current Taxes not
yet due.
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<PAGE> 24
(d) Except as disclosed on Schedule 3.9(d), neither the Company
nor any of its Subsidiaries has given or been requested to give any waiver of
statutes of limitations relating to the payment of Taxes or have executed powers
of attorney with respect to Tax matters, which will be outstanding as of the
Closing Date.
(e) Schedule 3.9(e) sets forth all material tax sharing, tax
indemnity, or similar agreements to which the Company or its Subsidiaries are a
party to, is bound by, or has any obligation or liability for Taxes.
(f) As used in this Agreement, (i) "Audit" shall mean any
audit, assessment of Taxes, other examination by any Tax Authority, proceeding
or appeal of such proceeding relating to Taxes; (ii) "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), including any
interest, additions to tax, or penalties applicable thereto; (iii) "Tax
Authority" shall mean the Internal Revenue Service and any other domestic or
foreign governmental authority responsible for the administration of any Taxes;
and (iv) "Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax Return relating to Taxes.
3.10 Litigation. Except as disclosed in Schedule 3.10, there is no
suit, claim, action, proceeding or investigation pending or, to the Company's
knowledge, threatened against or affecting the Company, any Subsidiaries of the
Company or any of the directors or officers of the Company or any of its
Subsidiaries in their capacity as such that, individually or in the aggregate,
allege damages of $100,000 or more. Neither the Company nor any of its
Subsidiaries, nor any officer, director or employee of the Company or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other governmental or regulatory
authority from engaging in or continuing any conduct or practice in connection
with the business, assets or properties of the Company or such Subsidiary nor,
to the knowledge of the Company, is the Company, any Subsidiary or any officer,
director or employee of the Company or its Subsidiaries under investigation by
any Governmental Entity related to the conduct of the Company's business. There
is not in existence any order, judgment or decree of any court or other tribunal
or other agency enjoining or requiring the Company or any of its Subsidiaries to
take any action of any kind with respect to its business, assets or properties.
3.11 Employee Benefit Plans; ERISA. All "employee benefit plans" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), maintained or contributed to by the Company and its
Subsidiaries are in compliance with the applicable provisions of ERISA and the
Internal Revenue Code of 1986, as amended (the "Code"), except for instances of
non-compliance that individually or in the aggregate would not have a Material
Adverse Effect on the Company. Schedule 3.11 contains a true and complete list
of each employment, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance or termination pay, hospitalization or other
medical, life or other insurance,
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<PAGE> 25
supplemental unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to or
required to be contributed to by the Company or by any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with the
Company would be deemed a "single employer" within the meaning of section
4001(b)(1) of ERISA, for the benefit of any employee or former employee of the
Company or any ERISA Affiliate whether formal or informal and whether legally
binding or not (the "Plans"), other than salary, bonus and commission
arrangements with the Company's or any of its Subsidiaries' sales personnel.
Schedule 3.11 identifies each of the Plans that is an "employee welfare benefit
plan" or "employee pension benefit plan" as such terms are defined in sections
3(1) and 3(2) of the ERISA (such plans being hereinafter referred to
collectively as the "ERISA Plans"). Neither the Company nor any ERISA Affiliate
has any formal plan or commitment, whether legally binding or not, to create any
additional Plan or modify or change any existing Plan that would affect any
employee or terminated employee of the Company or any ERISA Affiliate.
3.12 Environmental Liability. (a) Except as publicly disclosed by
the Company, (i) the Company and each of its Subsidiaries is in material
compliance with all applicable federal, state and local laws and regulations
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) (collectively, "Environmental Laws"), except for
non-compliance that individually or in the aggregate would not have a Material
Adverse Effect on the Company, which compliance includes, but is not limited to,
the possession by the Company and its Subsidiaries of all material permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof; (ii) neither the Company
nor any of its Subsidiaries has received written notice of, or, to the best
knowledge of the Company, is the subject of, any action, cause of action, claim,
investigation, demand or notice by any person or entity alleging liability under
or non-compliance with any Environmental Law (an "Environmental Claim") that
individually or in the aggregate would have a Material Adverse Effect on the
Company; and (iii) to the best knowledge of the Company, there are no
circumstances that are reasonably likely to prevent or interfere with such
material compliance in the future.
(b) Except as publicly disclosed by the Company, there are no
Environmental Claims which individually or in the aggregate would have a
Material Adverse Effect on the Company that are pending or, to the best
knowledge of the Company, threatened against the Company or any of its
Subsidiaries or, to the best knowledge of the Company, against any person or
entity whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
3.13 Compliance with Applicable Laws. The Company and each of its
Subsidiaries hold all material licenses, permits and authorizations necessary
for the lawful conduct of its respective businesses, as now conducted, and such
businesses are
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not being, and the Company has not received any notice from any authority or
person that such businesses have been or are being, conducted in violation of
any law, ordinance or regulation, including without limitation any law,
ordinance or regulation relating to (a) the protection of the environment, or
(b) occupational health and safety, except for possible violations which either
singly or in the aggregate have not resulted and in the future will not result
in a Material Adverse Effect.
3.14 Material Contracts. Schedule 3.14 hereto sets forth a true and
correct list of any and all agreements, contracts, purchase or installment
agreements, indentures, leases, mortgages, licenses, plans, arrangements,
commitments (whether written or oral) and instruments (collectively,
"contracts") that, to the knowledge of the Company, are deemed by management of
the Company to be material to the Company and its Subsidiaries (the "Material
Contracts"), including without limitation the following types of contracts to
which the Company or any of its Subsidiaries is a party:
(a) any franchise contract with a manufacturer or supplier of
electronic or computer components from which the Company purchased (on an
annualized basis for the past twelve months), products which accounted for more
than 5% of the Company's total sales during such period;
(b) any contract for the employment of any officer, employee,
consultant or other person or entity on a full-time, part-time, consulting or
other basis (excluding independent sales representatives), including any
severance or other termination provisions with respect to such employment;
(c) any contract which provides for volume or other price
rebates between the Company or its Subsidiaries and any customer thereof which
represented more than $250,000 of sales by the Company in either of the fiscal
year ended September 30, 1996;
(d) any contract with a term of at least six months which
provides for the provision of "value added" services by the Company or any of
its Subsidiaries and which provides for annual payments to the Company or any of
its Subsidiaries of $250,000 or more;
(e) any noncompetition agreement, other than customary
agreements with employees who are not officers, directors or key employees, or
any other contract that in any way restricts the Company or any of its
Subsidiaries from carrying on their business any place in the world; and
(f) any contract with the Company and any of its Subsidiaries
or any of their affiliates or with any officers, directors or key employees of
the Company or any of its Subsidiaries.
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True and complete copies of each written Material Contract, or form thereof and
true and complete written summaries of each oral Material Contract have been
made available to Parent and Purchaser by the Company prior to the date hereof.
3.15 Patents, Marks, Trade Names, Etc.
The present operations of the Company and its Subsidiaries requires no
intellectual property rights other than those intellectual property rights
listed on Schedule 3.15 and rights granted to the Company and its Subsidiaries
pursuant to agreements or licenses listed on Schedule 3.15. No claims have been
asserted by any person as to the use of any such intellectual property by the
Company or its Subsidiaries. No claim adverse to the interests of the Company
and its Subsidiaries in any of the intellectual property listed in these
Schedules has been asserted or threatened and no basis exists for any such
claim. The Company's and its Subsidiaries' business does not infringe on, or
misappropriate, any intellectual property or right owned by, or belonging to,
any other person, and the Company and its Subsidiaries do not have any material
liability for any past infringement or misappropriation. "Intellectual
property," as used herein, means domestic or foreign patents, patent
applications, registered and unregistered trademarks and service marks,
registered and unregistered copyrights, computer programs, trade secrets and
proprietary information.
3.16 Insurance. Schedule 3.16(a) lists each of the insurance
policies relating to the Company or any of its Subsidiaries which are currently
in effect. The Company has provided Parent and Purchaser with a true, complete
and correct copy of each such policy or the binder therefor. With respect to
each such insurance policy or binder none of the Company, any of its
Subsidiaries or any other party to the policy is in breach or default thereunder
(including with respect to the payment of premiums or the giving of notices),
and the Company does not know of any occurrence or any event which (with notice
or the lapse of time or both) would constitute such a breach or default or
permit termination, modification or acceleration under the policy, except for
such breaches or defaults which, individually or in the aggregate, would not
result in a Material Adverse Effect. Schedule 3.16(b) describes any
self-insurance arrangements affecting the Company or any of its Subsidiaries.
The insurance policies listed on Schedule 3.16(a) include all policies which are
required in connection with the operation of the businesses of the Company and
its Subsidiaries as currently conducted by applicable laws and all agreements
relating to the Company and its Subsidiaries.
3.17 Opinion of Financial Advisor. The Company has received, and
delivered to Parent a copy of, the opinion of Mesirow Financial, Inc., the
Company's financial advisor ("Mesirow"), to the effect that the consideration to
be received by the Company's shareholders in the Offer and the Merger, is fair
to the Company and the Company's shareholders from a financial point of view.
3.18 Vote Required. If Parent, Purchaser or any permitted assignee
thereof acquires and holds shares of Company Common Stock constituting at least
90% of all of the issued and outstanding shares of Company Common Stock, no vote
of the holders of
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the Company Common Stock shall be required to approve this Agreement or the
transactions contemplated hereby. Otherwise, the Merger contemplated by this
Agreement must be approved by the affirmative vote of at least 66-2/3% of the
outstanding Shares entitled to vote on a proposal to approve the Merger at a
duly convened special or regular meeting of the shareholders of the Company.
3.19 Information Supplied; Company Proxy Statement. None of the
information supplied or to be supplied by the Company for inclusion in the Offer
Documents will, at the date such Offer Documents are filed with the SEC and the
date they are disseminated to the Company's shareholders, contain any untrue
statement of a material fact regarding the Company or will omit to state any
material fact regarding the Company required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances in which
they are made, not misleading. The Company Proxy Statement (and any amendment or
supplement thereto) will, at the date mailed to the Company shareholders and at
the time of the Special Meeting, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they are made, not misleading. The Company Proxy Statement will comply
in all material respects with the Exchange Act and the rules and regulations
thereunder. With respect to the Offer Documents and the Company Proxy Statement,
no representation is made by the Company with respect to statements made therein
based on information supplied in writing by Parent or Purchaser for inclusion
therein.
3.20 Company Stock Options. There are no plans, arrangements or
understandings of the Company and its Subsidiaries which provides for the option
or right (an "Option") by any employee, director or officer of the Company or
any of its Subsidiaries or any other person to acquire Shares or other
securities of the Company and there are no outstanding Options.
3.21 Inventory. The values at which inventories are carried on the
Financial Statements reflect the inventory valuation policy of the Company
consistent with its past practice and in accordance with GAAP, consistently
applied.
3.22 Major Customers and Suppliers; Backlog. Schedule 3.22 sets
forth the name of each of the top fifty (50) customers and top twenty (20)
product lines of the Company and in its Subsidiaries (on a consolidated basis),
in each case ranked by revenue, for each of the calendar years ended December
31, 1994 and 1995 and the nine-month period ended September 30, 1996. Except as
set forth in Schedule 3.22, since September 30, 1995, there has not been, or as
a result of the Merger there is not presently anticipated to be, any material
adverse change in relations with any of the major suppliers of the Company and
its Subsidiaries which, individually or in the aggregate, would have a Material
Adverse Effect. The Company has provided to Parent and Purchaser true, correct
and accurate summaries of all unfilled sales orders as of September 30, 1996 for
(a) the Company and each of its Subsidiaries (separately considered) and (b)
each product line of the Company and its Subsidiaries that accounted
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for at least five percent (5%) of the consolidated sales of the Company and its
Subsidiaries for the fiscal year ended September 30, 1996.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND
PURCHASER
Parent and Purchaser represent and warrant to the Company as follows:
4.1 Organization. Each of Parent and Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and has the requisite corporate power
to carry on its business. Purchaser has made available to the Company a complete
and correct copy of its certificate of incorporation and bylaws, each as amended
to date and as in full force and effect. Purchaser is not in default in any
material respect in the performance, observation or fulfillment of any provision
of its certificate of incorporation or bylaws.
4.2 Authority Relative to this Agreement. Each of Parent and
Purchaser has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby on the part of Parent and Purchaser have been
duly and validly authorized by the Boards of Directors of Parent and of
Purchaser and by Parent as the sole shareholder of Purchaser and no other
corporate proceedings on the part of Parent and Purchaser are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby,
except as contemplated hereby. This Agreement has been duly and validly executed
and delivered by Parent and Purchaser and, assuming this Agreement constitutes a
valid and binding obligation of the Company and the requisite approval of the
Company's shareholders has been obtained, this Agreement constitutes a valid and
binding agreement of both Parent and Purchaser, enforceable against each of them
in accordance with its terms, except (a) as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights, and (b) as the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.3 Consent and Approvals; No Violation. Neither the execution and
delivery of this Agreement by Parent and Purchaser, nor the consummation of the
transactions contemplated hereby, will:
(a) conflict with any provision of the articles of
incorporation or bylaws of Parent or the certificate of incorporation or bylaws
of Purchaser;
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(b) require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
except (i) the filing of a premerger notification and report form under the HSR
Act, (ii) the filing with the SEC of (x) the Schedule 14D-1, (y) the Company
Proxy Statement relating to the approval by the Company's shareholders of the
Agreement as contemplated by Section 1.8 of the Agreement, if such approval is
required by law, and (z) such reports under Section 13(a) of the Exchange Act as
may be required in connection with this Agreement, the Tender Agreement and the
transactions contemplated hereby and thereby, (iii) the filing of the
Certificate of Merger with the Department of State of the State of New York,
(iv) the filing of a registration statement by Purchaser with the New York
attorney general and the satisfaction of certain disclosure requirements under
Article 16 of the NYBCL, and (v) except to the extent that consents are required
from, or early repayment would be required to, the Company's current lenders in
connection with the financing contemplated by Section 4.5, where the failure to
obtain such consents, approvals, authorizations or permits or the failure to
make such filings or notifications would not have a material adverse effect on
the financial condition, business, properties or results of operations of Parent
and its subsidiaries, taken as a whole;
(c) except as disclosed to the Company in writing by Parent or
Purchaser, conflict with, result in the breach of or constitute a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any material note, lease, mortgage,
license, agreement or other instrument or obligation to which Parent or
Purchaser is a party or by which Parent or Purchaser or any of their respective
assets may be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents have
been obtained or which, in the aggregate, would not have a material adverse
effect on the financial condition, business, properties or results of operations
of Parent and its subsidiaries, taken as a whole; or
(d) conflict with or violate the provisions of any order, writ,
injunction, judgment, decree, statute, rule or regulation applicable to Parent
or Purchaser in such a manner as to result in a material adverse effect on the
financial condition, business, properties or results of operations of Parent and
its subsidiaries, taken as a whole.
4.4 Information Supplied. None of the information supplied or to be
supplied by Parent or Purchaser expressly for inclusion in the Company Proxy
Statement or the Schedule 14D-9 will, at the date mailed to the Company's
shareholders and at the time of the Special Meeting, contain any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they are made, not misleading.
4.5 Financing. Parent has received a commitment letter (the
"Commitment Letter") from Union Bank of California, N.A. in which such bank has
agreed, subject to the terms and conditions set forth in the Commitment Letter,
to provide a senior secured
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credit facility for Parent aggregating $250.0 million for purposes of the Offer
and the Merger and related transactions and to provide for Parent's working
capital requirements. A copy of the Commitment Letter has been provided to the
Company. Notwithstanding the foregoing, Purchaser's receipt of such financing on
the terms and conditions set forth in the Commitment Letter (the "Financing
Condition") is a condition to Purchaser's obligation to consummate the Tender
Offer.
4.6 Purchaser's Operations. The Purchaser was formed solely for the
purpose of engaging in the transactions contemplated hereby and has not engaged
in any business activities or conducted any operations other than in connection
with the transactions contemplated hereby.
4.7 No Shares Owned by Parent, Purchaser or Affiliates. As of the
date hereof, neither Parent nor Purchaser nor any of their affiliates owns any
Shares.
4.8 Capitalization. The authorized capital stock of Purchaser
consists of 1,000 shares of common stock, all of which have been duly and
validly issued and are held of record and beneficially by Parent.
ARTICLE V
CONDUCT OF BUSINESS BY THE COMPANY
PRIOR TO EFFECTIVE DATE
The Company agrees that, except (i) as expressly contemplated by this
Agreement, or (ii) as agreed in writing by Parent, after the date hereof, and
prior to the time the directors of the Purchaser have been elected to the Board
of Directors of the Company pursuant to Section 1.3, as follows:
5.1 Ordinary Course. The Company and each of its Subsidiaries shall
carry on their respective businesses in the usual, regular and ordinary course,
in substantially the same manner as heretofore conducted, and use their
reasonable efforts consistent with past practice and policies to preserve intact
their present business organizations, keep available the services of their
present officers and employees and preserve their existing relationships with
customers, suppliers, lessors, lessees, creditors and others having business
dealings with them. The Company will continue to maintain a standard system of
accounting established and administered in accordance with GAAP.
5.2 Dividends; Changes in Stock. The Company shall not, and shall
not cause or permit any of its Subsidiaries to, (a) declare, set aside or pay
any dividends on or make other distributions in respect of any shares of its
capital stock, (b) split, combine or reclassify any shares of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any shares of its capital stock or (c) propose to
do any of the foregoing.
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5.3 Issuance or Repurchase of Securities. The Company shall not,
and shall not cause or permit any of its Subsidiaries to, issue, pledge,
deliver, sell or transfer or authorize or propose the issuance, pledge,
delivery, sale or transfer of, or repurchase, redeem or otherwise acquire
directly or indirectly, or propose the repurchase, redemption or other
acquisition of, any shares of capital stock of any class of the Company or its
Subsidiaries, or any options, warrants or other rights exercisable for or
securities convertible into or exchangeable for, any such shares (or enter into
any agreements, arrangements, plans or understandings with respect to any of the
foregoing), other than pursuant to the exercise of outstanding Options pursuant
to the terms thereof as of the date hereof.
5.4 Governing Documents; Board of Directors. The Company shall not,
and shall not cause or permit any of its Subsidiaries to, propose or adopt any
amendment to its or their certificate of incorporation or bylaws (or similar
charter documents) or take any action to alter the size or composition of its
Board of Directors, except as specifically contemplated by Section 1.3(a)
hereof.
5.5 No Dispositions. The Company shall not, and shall not cause or
permit any of its Subsidiaries to, transfer, sell, lease, license, mortgage or
otherwise dispose of or encumber any material assets, or enter into any
commitment to do any of the foregoing, other than in the ordinary and usual
course of business, consistent with past practice.
5.6 Indebtedness.
(a) The Company shall not, and shall not cause or permit any of
its Subsidiaries to, incur, become subject to, or agree to incur any debt for
borrowed money or incur or become subject to any other material obligation or
liability (absolute or contingent), except current liabilities incurred, monies
borrowed under the Company's current bank loan agreement and obligations under
contracts entered into, in the ordinary course of business consistent with prior
practice.
(b) The Company shall not pay or be liable for prepayment or
other penalties in connection with the early retirement of any Company
indebtedness for borrowed money.
5.7 Compensation. The Company shall not, and shall not cause or
permit any of its Subsidiaries to, make any change in the compensation payable
or to become payable to any of its officers, directors, branch managers,
marketing managers, agents or consultants, enter into or amend any employment,
severance, termination or other agreement or make any loans to any of its
officers, directors, branch managers, marketing managers, agents or consultants
or make any change in its existing borrowing or lending arrangements for or on
behalf of any of such persons, whether contingent on consummation of the Offer,
the Merger or otherwise; provided, however, that the foregoing shall not
prohibit the Company or any of its Subsidiaries from increasing the
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compensation payable to any branch manager or marketing manager after three
days' advance written notice to Parent's Chief Executive Officer or President.
5.8 Benefit Plans. The Company shall not, and shall not cause or
permit any of its Subsidiaries to (a) pay, agree to pay or make any accrual or
arrangement for payment of any pension, retirement allowance or other employee
benefit pursuant to any existing plan, agreement or arrangement to any officer,
director or employee except in the ordinary course of business and consistent
with past practice or as permitted by this Agreement; (b) pay or agree to pay or
make any accrual or arrangement for payment to any employees of the Company or
any of its Subsidiaries of any amount relating to unused vacation days; (c)
commit itself or themselves to adopt or pay, grant, issue, accelerate or accrue
salary or other payments or benefits pursuant to any pension, profit-sharing,
bonus, extra compensation, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or any
employment or consulting agreement with or for the benefit of any director,
officer, employee, agent or consultant, whether past or present; or (d) amend in
any material respect any such existing plan, agreement or arrangement; PROVIDED,
HOWEVER, that nothing contained in this Section 5.8 shall prohibit the Company
or any of its Subsidiaries from (i) accruing or paying any bonus payable for the
fiscal year ended September 30, 1996 determined in a manner consistent with past
practice and in any event not to exceed the bonus paid for the fiscal year ended
September 30, 1995 or (ii) providing for the deferral until calendar year 1997
of compensation earned in, and accrued on the Company's consolidated financial
statements for, the fiscal year ended September 30, 1996.
5.9 Taxes. The Company and each of its Subsidiaries shall (i)
properly prepare and file all material reports or Tax Returns required by the
Company or any Subsidiary to be filed with any governmental or regulatory
authorities with respect to its business, operations, or affairs, and (ii) pay
in full and when due all Taxes indicated on such Tax Returns or otherwise levied
or assessed upon the Company, its Subsidiaries or any of their assets and
properties unless such Taxes are being contested in good faith by appropriate
proceedings and reasonable reserves therefor have been established in accordance
with GAAP. The preparation of any such Tax Returns filed by the Company shall be
subject to the timely review and approval of Parent, which approval shall not be
unreasonably withheld.
5.10 Consultation and Cooperation. The Company and each of its
Subsidiaries shall (i) report on a regular basis, at reasonable times, to a
representative designated by Parent regarding material operational matters and
financial matters (including monthly unaudited financial information); (ii)
promptly and regularly notify Parent of any material change in the normal course
or operation of its business or its properties and of any material development
in the business or operations of the Company or any of its Subsidiaries
(including without limitation any Material Adverse Effect or any governmental or
third party claims, complaints, investigations or hearings, or communications
indicating that the same may be forthcoming or contemplated); and (iii)
cooperate with Parent and its affiliates and representatives in arranging for an
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orderly transition in connection with the transfer of control of the Company,
including without limitation arranging meetings among the Company, its vendors,
suppliers and customers and the Chief Executive Officer, President, Sales
Manager for the electronics distribution division and Chief Financial Officer of
Parent (and such other officers and employees of Parent as Parent may request,
subject to the Company's approval, not to be unreasonably withheld), accompanied
by an appropriate representative of the Company.
5.11 Additional Matters. The Company shall not, and shall not cause
or permit any of its Subsidiaries to:
(a) enter into, amend or terminate any agreements, commitments
or contracts which, individually or in the aggregate, are material to the
financial condition, business, assets, properties, prospects or results of
operations of the Company and its Subsidiaries taken as a whole, or waive,
release, assign or relinquish any material rights or claims thereunder, except
in the ordinary course of business, consistent with past practice;
(b) discharge or satisfy any lien or encumbrance or payment of
any obligation or liability (absolute or contingent) other than current
liabilities in the ordinary course of business;
(c) cancel or agree to cancel any material debts or claims,
except in each case in the ordinary course of business;
(d) waive any rights of substantial value;
(e) pay, discharge, satisfy or settle any litigation or other
claims, liabilities or obligations (absolute, accrued, asserted, unasserted,
contingent or otherwise) involving the payment by the Company or any of its
Subsidiaries of more than $50,000;
(f) make any equity investments in third parties;
(g) (i) incur, pay, or be subject to any material obligation to
make any payment of, or in respect of, any Tax on or before the Effective Time,
except in the ordinary course of business consistent with past practice, (ii)
settle any material Audit, make or change any material Tax election or file any
amended Tax Returns, or (iii) agree to extend or waive any statute of
limitations on the assessment or collection of Tax;
(h) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries (other than the Merger)
or otherwise make any material change in the conduct of the business or
operations of the Company and its Subsidiaries taken as a whole; or
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(i) agree in writing or otherwise to take any of the foregoing
actions or any other action which would constitute a Material Adverse Effect in
any of the items and matters covered by the representations and warranties of
the Company set forth in Article III, or make any representation or warranty of
the Company in this Agreement materially inaccurate in any respect.
ARTICLE VI
ADDITIONAL COVENANTS
6.1 No Solicitation.
(a) The Company and its Subsidiaries and affiliates will not,
and the Company and its Subsidiaries and affiliates will use their reasonable
efforts to ensure that their respective officers, directors, employees,
investment bankers, attorneys, accountants and other representatives and agents
do not, directly or indirectly, initiate, solicit, encourage or participate in,
or provide any information to any Person (as defined below) concerning, or take
any action to facilitate the making of, any offer or proposal which constitutes
or is reasonably likely to lead to any Acquisition Proposal (as defined below)
of the Company or any Subsidiary or affiliate or an inquiry with respect
thereto. The Company shall, and shall cause its Subsidiaries and affiliates, and
their respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, immediately cease and cause to be terminated
all existing activities, discussions and negotiations, if any, with any parties
conducted heretofore with respect to any of the foregoing. Notwithstanding the
foregoing, the Company may, directly or indirectly, provide access and furnish
information concerning its business, properties or assets to any corporation,
partnership, person or other entity or group pursuant to an appropriate
confidentiality agreement, and may negotiate and participate in discussions and
negotiations with such entity or group concerning an Acquisition Proposal (x) if
such entity or group has submitted a bona fide written proposal to the Board of
Directors of the Company relating to any such transaction and (y) if, in the
opinion of the Board of Directors of the Company, after consultation with
independent legal counsel to the Company, the failure to provide such
information or access or to engage in such discussions or negotiations would be
inconsistent with their fiduciary duties under applicable law.
(b) The Company shall promptly notify Parent and Purchaser of
any such offers, proposals or Acquisition Proposals (including without
limitation the terms and conditions thereof and the identity of the Person
making it), and will keep Parent apprised of all developments with respect to
any such Acquisition Proposal. The Company shall give Parent written notice (an
"Intent Notice") of any Acquisition Proposal that the Company intends to accept
as an Acceptable Offer (as defined below) in accordance with the terms hereof at
least two business days prior to accepting such offer or otherwise entering into
any agreement or understanding with respect thereto.
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For purposes hereof, any modification of an Acquisition Proposal shall
constitute a new Acquisition Proposal.
(c) Nothing contained in this Section 6.1 shall prohibit the
Company or its Board of Directors from (i) taking and disclosing to the
Company's shareholders a position with respect to a tender offer by a third
party pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or
(ii) making such disclosure to the Company's shareholders which, in the opinion
of the Board of Directors of the Company, after consultation with independent
legal counsel to the Company, may be required under applicable law.
(d) As used in this Agreement, "Acquisition Proposal" when used
in connection with any Person shall mean any tender or exchange offer involving
such Person, any proposal for a merger, consolidation or other business
combination involving such Person or any subsidiary of such Person, any proposal
or offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the business or assets of, such Person or any subsidiary
of such Person, any proposal or offer with respect to any recapitalization or
restructuring with respect to such Person or any subsidiary of such Person or
any proposal or offer with respect to any other transaction similar to any of
the foregoing with respect to such Person, or any subsidiary of such Person;
PROVIDED, HOWEVER, that, as used in this Agreement, the term "Acquisition
Proposal" shall not apply to (i) any transaction of the type described in this
subsection (d) involving Parent, Purchaser or their affiliates. As used in this
Agreement, "Person" shall mean any corporation, partnership, person or other
entity or group (including the Company and its affiliates and representatives,
but excluding Parent or any of its affiliates or representatives).
(e) As used in this Agreement, "Acceptable Offer" shall mean an
executed written offer for an Acquisition Proposal received by the Company in
accordance with Section 6.1 hereof (i) in which the offeror demonstrates proof
reasonably satisfactory to the Company's Board of Directors of its financial
capability and authority to consummate the transactions contemplated by such
offer (including without limitation the payments required by Section 9.1(b)
hereof); and (ii) which provides for (x) net cash proceeds to the Company or all
of its shareholders (in addition to amounts paid pursuant to clause (i) above)
in an amount greater than that provided for hereunder, at a per Share purchase
price greater than that contained herein (or, in the event such amount has been
increased by Parent hereunder, such greater amount) or (y) the issuance of
publicly traded stock as the consideration payable to the Company or all of it
shareholders (in addition to amounts paid pursuant to clause (i) above) which
has an established market value in excess of the per Share purchase price
contained herein (or, in the event such amount has been increased by Parent
hereunder, such greater amount).
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6.2 Access to Information; Confidentiality.
(a) Between the date of this Agreement and the Effective Time,
upon reasonable notice the Company shall (and shall cause each of its
Subsidiaries to) (i) give Parent, Purchaser and their respective officers,
employees, accountants, counsel, financing sources and other agents and
representatives full access to all plants, offices, warehouses and other
facilities and to all contracts, internal reports, data processing files and
records, Federal, state, local and foreign tax returns and records, commitments,
books, records and affairs of the Company and its Subsidiaries, whether located
on the premises of the Company or one of its Subsidiaries or at another
location; (ii) furnish promptly to Parent a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of Federal securities laws or regulations;
(iii) permit Parent and Purchaser to make such inspections as they may require;
(iv) cause its officers and the officers of its Subsidiaries to furnish Parent
and Purchaser such financial, operating, technical and product data and other
information with respect to the business and properties of the Company and its
Subsidiaries as Parent and Purchaser from time to time may request, including
without limitation financial statements and schedules; (v) allow the Chief
Executive Officer, President, Sales Manager for the electronics distribution
division and Chief Financial Officer of Parent (and such other officers and
employees of Parent as Parent may request, subject to the Company's approval,
not to be unreasonably withheld), accompanied by an appropriate representative
of the Company, the opportunity to interview such employees, vendors, customers,
sales representatives, distributors and other personnel of the Company with the
Company's prior written consent, which consent shall not be unreasonably
withheld; and (vi) assist and cooperate with Parent and Purchaser in the
development of integration plans for implementation by Parent and the Surviving
Corporation following the Effective Time; PROVIDED, HOWEVER, that no
investigation pursuant to this Section 6.2 shall affect or be deemed to modify
any representation or warranty made by the Company herein. Until the Effective
Time, materials furnished to Parent pursuant to this Section 6.2 may be used by
Parent for strategic and integration planning purposes relating to accomplishing
the transactions contemplated hereby.
(b) Until Parent or Purchaser acquires Shares pursuant to the
Offer, Parent and Purchaser shall continue to be bound by the terms of that
certain confidentiality letter agreement between Parent and the Company dated
September 17, 1996.
6.3 HSR Act. The Company and Parent shall take all reasonable
actions necessary to file as soon as practicable notifications under the HSR Act
and to respond as promptly as practicable to any inquiries received from the
Federal Trade Commission and the Antitrust Divisions of the Department of
Justice for additional information or documentation and to respond as promptly
as practicable to all inquiries and requests received from any state attorney
general or other Governmental Entity in connection with antitrust matters.
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6.4 Consents and Approvals. Each of the Company, Parent and
Purchaser will take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on it with respect to this Agreement and
the transactions contemplated hereby (which actions shall include without
limitation furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other Governmental Entity) and
will promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon any of them or any of their respective
subsidiaries in connection with this Agreement and the transactions contemplated
hereby. Each of the Company, Parent and Purchaser will, and will cause its
respective subsidiaries to, take all reasonable actions necessary to obtain (and
will cooperate with each other in obtaining) any consent, authorization, order
or approval of, or any exemption by, any Governmental Entity or other public or
private third party required to be obtained or made by Parent, Purchaser, the
Company or any of their respective subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement.
6.5 Notification of Certain Matters. The Company will give prompt
notice to Parent, and Parent and Purchaser will give prompt notice to the
Company, of (a) any notice of default received by either of them or any of their
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time under any material instrument or material agreement to which either of
them, or any of their subsidiaries, is a party or by which either is bound,
which default would, if not remedied, result in a Material Adverse Effect or
which would render materially incomplete or untrue any representation made
herein, (b) any suit, action or proceeding instituted or, to the knowledge of
any of them, threatened against or affecting any of them subsequent to the date
of this Agreement and prior to the Effective Time which, if adversely
determined, would have a material adverse effect on the financial condition or
results of operations of Parent or Purchaser or result in a Material Adverse
Effect in the Company and its Subsidiaries or which would render materially
incorrect any representation made herein and (c) any material breach of the
Company's, or Parent's or Purchaser's, as the case may be, covenants hereunder
or the occurrence of any event that is reasonably likely to cause any of its
representations and warranties hereunder to become incomplete or untrue in any
material respect.
6.6 Brokers or Finders. Each of Parent and the Company represents,
as to itself, its subsidiaries and its affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any brokers' or finders' fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Peers & Co. and Mesirow and Carl Marks & Co., Inc. whose fees and expenses will
be paid by Parent and the Company, respectively, in accordance with the
agreements with such firms (copies of which have been delivered by each of the
Company and Parent to the other prior to the date of this Agreement), and Parent
and Company each agrees to indemnify and hold the other harmless from and
against any and all claims, liabilities or obligations with respect to any other
fees, commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its affiliates.
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6.7 Additional Actions. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, to consummate and make
effective the Merger and the other transactions contemplated by this Agreement,
subject, however, to the appropriate vote of shareholders of the Company
required so to vote as described in Section 3.18 hereof. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities and
franchises of either of Purchaser or the Company, the proper officers and
directors of each corporation which is a party to this Agreement shall take all
such necessary action.
6.8 Benefit Plans and Certain Contracts; Severance Arrangements.
(a) Parent hereby agrees to cause the Surviving Corporation to
pay, in accordance with their terms as in effect on the date hereof, without
offset, deduction, counterclaim, interruption or deferment (other than as
required by applicable law) all amounts due and payable under the terms of all
written employment contracts, agreements, plans, policies and commitments of the
Company and its Subsidiaries with or with respect to its current or former
employees, officers and directors as such contracts, agreements, plans, policies
and commitments are described on Schedule 3.14 hereto and in the Company SEC
Reports filed on or before the date of this Agreement (other than any such
contracts, agreements, plans, policies or commitments to the extent that such
arrangements provide benefits that relate to severance or termination which are
addressed in Section 6.8(b) below) to the extent such amounts are vested on or
prior to the date of this Agreement or will become vested as a result of the
transactions contemplated hereby. It is Parent's current intention to cause the
Surviving Corporation to provide its employees for at least two years following
the Effective Time employee benefit plans providing welfare benefits
substantially comparable in the aggregate to those provided to employees
generally by the Company as of the date of this Agreement, except for any
changes thereto that may be required by law. Such welfare benefit plans shall
(i) recognize expenses and claims that were incurred by the Company's employees
in the year in which the Effective Time occurs and recognized for purposes of
computing deductible amounts and copayments under the Company's plans as of the
Effective Time and (ii) provide coverage for pre-existing health conditions to
the extent covered under the applicable plans or programs of the Company as of
the Effective Time. In addition, employees of the Surviving Corporation shall
receive credit for their prior service with the Company and its Subsidiaries for
eligibility and vesting purposes and for vacation accrual purposes.
(b) Contemporaneously with the execution of this Agreement,
Parent and/or the Company, as applicable, shall enter into employment agreements
with each officer and key employee of the Company identified on Schedule
6.8(b)(1) hereto in substantially the forms set forth in Exhibit 6.8(b).
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(c) Notwithstanding anything to the contrary contained above,
the Surviving Corporation shall be permitted to amend, modify, supplement or
terminate any Plan, policy, agreement, commitment or other arrangement to the
extent not prohibited by the terms thereof or by applicable law.
(d) Nothing contained in this Agreement (other than as
specifically provided in any employment agreement entered into pursuant to
Section 6.8(b)), including without limitation this Section 6.8, shall confer on
any person not a party to this Agreement, or constitute or be evidence of any
agreement or understanding, express or implied, that any person has a right to
be employed as an employee of or consultant to Parent or the Surviving
Corporation for any period of time or at any specific rate of compensation.
6.9 Directors' and Officers' Indemnification.
(a) The bylaws of the Surviving Corporation shall contain the
provisions with respect to indemnification set forth in the bylaws of the
Company on the date hereof, which provisions shall not be amended, repealed or
otherwise modified from the date hereof up to a date which is six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who on or at any time prior to the Effective Time were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) For six years after the earlier of (i) the date on which
the designees of Parent have been elected to the Board of Directors of the
Company pursuant to Section 1.3 hereof and constitute a majority of the members
thereof and (ii) the Effective Time, Parent shall, or shall cause the Surviving
Corporation to, indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its Subsidiaries
(each an "Indemnified Party") against all losses, claims, damages, liabilities,
fees and expenses (including reasonable fees and disbursements of counsel and
judgments, fines, losses, claims, liabilities and amounts paid in settlement
(provided that any such settlement is effected with the prior written consent of
Parent or the Surviving Corporation, which consent shall not be unreasonably
withheld)) arising out of actions or omissions occurring at or prior to the
Effective Time (including without limitation matters arising out of or
pertaining to the transactions contemplated by this Agreement) to the full
extent permitted under New York law, or the Company's certificate of
incorporation or bylaws, in each case as in effect at the date hereof, including
provisions therein relating to the advancement of expenses incurred in the
defense of any action or suit; PROVIDED, HOWEVER, that in the event any claim or
claims are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims; and PROVIDED FURTHER, that any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under New York law or the
Company's certificate of incorporation or bylaws or agreements referred to in
Section 6.9(c), as the case may be, shall be made by independent counsel
mutually acceptable to Parent and the Indemnified Party; and
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PROVIDED FURTHER that nothing herein shall impair any rights or obligations of
any present or former directors or officers of the Company.
(c) In addition, Parent and the Surviving Corporation shall
honor and fulfill in all respects the obligations of the Company pursuant to
indemnification agreements with the Company's directors and officers existing at
or within five (5) business days after the date hereof which are listed on
Schedule 6.9(c) hereto in the forms which have been delivered to Parent and
Purchaser at the time of or prior to the delivery by the Company of an executed
copy of this Agreement.
(d) The Company's directors' and officers' liability insurance
as presently in effect (including without limitation all coverages and terms
thereunder) shall be maintained through the Effective Time. As of the Effective
Time, Parent shall, or shall cause the Surviving Corporation to, purchase and
pay for run-off coverage (i.e., coverage for an extended reporting period) for a
six-year term, covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy with coverages and terms
substantially similar to those now applicable under the Company's present
directors' and officers' liability insurance policy. The parties hereto
acknowledge and agree that the remedy at law for any breach of the obligations
under this Section is and will be insufficient and inadequate and that the
persons having rights to coverage under the Company's Directors' and Officers'
Liability Insurance Policy pursuant to this Section 6.9 ("Covered Persons"), in
addition to any remedies at law, shall be entitled to equitable relief. Without
limiting any remedies Covered Persons may otherwise have hereunder or under
applicable law, in the event of nonperformance of any obligation under this
Section, the Covered Persons shall have, in addition to any other rights at law
or equity, the right to specific performance.
(e) The rights under this Section 6.9 are contingent upon the
occurrence of, and shall survive the consummation of, the Merger at the
Effective Time, are intended to benefit the Company, the Surviving Corporation
and each Indemnified Party, shall be binding on all successors and assigns of
Parent and the Surviving Corporation and shall be enforceable by each
Indemnified Party.
6.10 Tender Agreement; New York Law. Unless this Agreement has been
terminated in accordance with its terms, the Company shall not (a) take any
action which, in the reasonable judgment of Parent, would impede, interfere with
or attempt to discourage the transactions contemplated by this Agreement or the
Tender Agreement, or (b) amend, revoke, withdraw or modify the approval of the
Purchaser's acquisition of the Company Common Stock, the Merger and the other
transactions contemplated hereby so as to render the restrictions of Section 912
of the NYBCL applicable to the Merger as a result of the failure to satisfy the
requirements of Section 912(c)(1) thereof or make Section 905 unavailable for
the Merger; PROVIDED, HOWEVER, that any of the above actions may be taken if, in
the opinion of the Board of Directors of the Company after consultation with
independent legal counsel to the Company, the failure to take such action would
be inconsistent with their fiduciary duties under applicable law; and
PROVIDED FURTHER that the Company may not take any such action if this Agreement
has
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been terminated pursuant to Section 8.1(c)(i) hereof unless Parent has been paid
the expenses contemplated by Section 9.1 hereof.
6.11 Publicity. So long as this Agreement is in effect and subject
to Section 6.1 hereof, neither the Company, Parent nor any of their respective
affiliates shall issue or cause the publication of any press release or other
announcement with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by any listing agreement with a
national securities exchange.
6.12 Opinion of Company Counsel. The Company shall deliver to
Parent, concurrently with the execution and delivery of this Agreement, the
opinion of Herschel M. Weinberg, counsel for the Company, in substantially the
form set forth in Exhibit 6.12 attached hereto.
6.13 Election of Directors. Parent will, immediately after the
Effective Time, cause its Board of Directors to be expanded by one member and
the Shareholder will thereupon be elected to Parent's Board of Directors.
ARTICLE VII
CONDITIONS
7.1 Conditions to each Party's Obligations to Effect the Merger.
The respective obligations of the parties to effect the Merger shall be subject
to the satisfaction or waiver, on or prior to the Closing Date, of the following
conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expiration of
waiting periods imposed by, any Federal, state, local or foreign governmental or
regulatory authority necessary for the consummation of the Merger and the
transactions contemplated by this Agreement shall have been filed, occurred or
been obtained and shall be in effect at the Effective Time.
(b) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order precluding, restraining,
enjoining, preventing or prohibiting the consummation of the Merger shall have
been issued by any Federal, state or foreign court or other governmental or
regulatory authority and remain in effect.
(c) Statutes. No Federal, state, local or foreign statute, rule
or regulation shall have been enacted which prohibits the consummation of the
Merger or would make the consummation of the Merger illegal.
(d) Shareholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote required by the shareholders of the
Company, if
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required pursuant to the Company's certificate of incorporation and applicable
New York law, in order to consummate the Merger.
7.2 Additional Condition to Obligations of the Company to Effect
the Merger. The obligations of the Company to effect the Merger shall be subject
to the satisfaction or waiver, on or prior to the Closing Date, of the
additional condition that Parent, Purchaser or their affiliates shall have
purchased Shares (including without limitation the Shares subject to the Tender
Agreement) pursuant to the Offer.
ARTICLE VIII
TERMINATION
8.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
shareholder approval thereof:
(a) By Mutual Consent. By mutual consent of the Board of
Directors of Parent and the Board of Directors of the Company.
(b) By Parent and Purchaser, or the Company. By either the
Board of Directors of Parent or the Board of Directors of the Company:
(i) (x) if all conditions to the Offer shall not have been
satisfied or waived within the relevant time periods specified in Section
1.1(a), (y) if all such conditions to the Offer have been so satisfied or waived
and the Purchaser shall not have accepted for purchase and purchased all Shares
validly tendered and not withdrawn prior to the Expiration Date within ten (10)
business days following such Expiration Date, or (z) if the Merger shall not
have been consummated on or prior to May 31, 1997; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 8.1(b)(i) shall not be
available to any party whose failure to fulfill any material obligation under
this Agreement has been the cause of, or resulted in, the failure of the Offer
or the Merger, as applicable, to be consummated on or prior to the applicable
date(s); or
(ii) if a court of competent jurisdiction or other
governmental or regulatory authority shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other action
the parties hereto shall use their reasonable efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and non-appealable.
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(c) By the Company. By the Board of Directors of the Company:
(i) if, prior to the purchase of Shares by Parent,
Purchaser or their affiliates pursuant to the Offer, the Company shall have (A)
accepted an Acceptable Offer in compliance with the terms of Section 6.1 hereof
and (B) paid or caused to be paid the fees provided for in Section 9.1(b)
hereof; or
(ii) if, prior to the purchase of Shares pursuant to the
Offer, Parent or Purchaser breaches or fails in any material respect to perform
or comply with any of its material covenants and agreements contained herein or
breaches its representations and warranties in any material respect;
(iii) if Parent, Purchaser or any of their affiliates
shall have failed to commence the Offer on or prior to five business days
following the date of the initial public announcement of the Offer (the "Offer
Deadline") other than due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A hereto; PROVIDED that the Company may not
terminate this Agreement pursuant to this Section 8.1(c)(iii) if the Company is
in material breach of this Agreement; or
(iv) if prior to the purchase of Shares pursuant to the
Offer, there shall have been instituted, pending or threatened any action, suit
or proceeding which challenges, seeks to make illegal, prohibits, or makes
illegal the acceptance for payment, payment for or purchase of Shares or the
consummation of the Offer or the Merger and which, in the opinion of independent
counsel acceptable to the parties (consent not to be unreasonably withheld), has
reasonable possibility of success.
(d) By Parent and Purchaser. By the Board of Directors of
Parent:
(i) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A hereto, Parent, Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to the Offer
Deadline; PROVIDED that Parent and Purchaser may not terminate this Agreement
pursuant to this Section 8.1(d)(i) if Parent or Purchaser (x) is in material
breach of this Agreement or (y) has not exercised such right by the close of
business on or before the fifth business day following the Offer Deadline; or
(ii) if Parent or Purchaser is not in material breach of
the Agreement and prior to the purchase of shares of Company Common Stock
pursuant to the Offer, the Company shall have received an Acceptable Offer and
the Board of Directors of the Company shall have withdrawn, or modified or
changed (including by amendment of the Schedule 14D-9) in a manner adverse to
Parent or Purchaser its approval or recommendation of the Offer, this Agreement
or the Merger or shall have recommended an Acquisition Proposal, PROVIDED,
HOWEVER, that if the Company's Board of Directors modifies or changes its
recommendation of the Offer, this Agreement or the
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Merger to either express no opinion and remain neutral with respect thereto, or
to provide that it is unable to take a position with respect thereto, such
modification or change shall not be deemed to be adverse to Parent or Purchaser
for purposes of this Section 8.1(d)(ii); or
(iii) if Parent or Purchaser, as the case may be,
shall have terminated the Offer, or the Offer shall have expired without Parent
or Purchaser, as the case may be, purchasing any shares of Company Common Stock
thereunder, provided that Parent or Purchaser may not terminate this Agreement
pursuant to this Section 8.1(d)(iii) if (x) it or the Purchaser has failed to
purchase shares of Company Common Stock in the Offer in violation of the
material terms thereof or (y) Parent or Purchaser has not exercised such right
by the close of business on or before the fifth business day following the
termination or expiration of the Offer in accordance with its terms; or
(iv) if, prior to the purchase of Company Common
Stock pursuant to the Offer, the Company breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein or breaches its representations and warranties in any material
respect.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1 above, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void and there shall be no liability or obligation on the part
of Parent and Purchaser, or either of them, or the Company, or their respective
officers, directors or employees, except (a) for fraud or for material breach of
this Agreement and (b) as set forth in this Section 8.2, Sections 6.2(b), 6.10,
6.11 and 9.1 hereof and, to the extent that, and for so long as, Parent's
designees to the Company's Board of Directors pursuant to Section 1.3 hereof
constitute at least a majority of the members of such Board of Directors,
Section 6.9(b) hereof.
ARTICLE IX
GENERAL PROVISIONS
9.1 Fees and Expenses.
(a) Except as contemplated by this Agreement, including
Section 9.1(b) hereof, all costs and expenses incurred in connection with this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such expenses.
(b) If (i) the Board of Directors of the Company shall
terminate this Agreement pursuant to Section 8.1(c)(i) hereof, (ii) the Board of
Directors of Parent shall terminate this Agreement pursuant to Section
8.1(d)(ii) hereof, or (iii) the Board of Directors of Parent shall fail to
commence the Offer or shall terminate this Agreement
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pursuant to Section 8.1(d) due to (x) a material breach of the representations
and warranties of the Company set forth in this Agreement or (y) a material
breach of, or failure to perform or comply with, any material obligation,
agreement or covenant contained in this Agreement, including but not limited to
the covenants contained in Article V hereof, by the Company, then in any such
case as described in clause (i), (ii) or (iii), the Company shall reimburse
Parent for all of its fees and expenses incurred in connection with the Offer
and the Merger Agreement and the transactions contemplated thereby. Any such
amounts must be paid by the Company concurrently with the termination of the
Merger Agreement in the case of a termination referred to in clause (i) and
otherwise not later than two business days after termination of the Merger
Agreement (or, if later, after Parent provides reasonable documentation to the
Company of the amount of such fees and expenses). Any such fees and expenses not
paid when due shall accrue interest at the rate of ten percent per annum from
the due date until paid in full.
(c) If (i) the Board of Directors of the Company shall
terminate this Agreement pursuant to Section 8.1(c)(ii) or (iii) hereof, or (ii)
Parent is unable to obtain the financing necessary to satisfy the Financing
Condition (other than because of the occurrence of any event that would result
in a failure to satisfy any of the conditions set forth in Annex A hereto (and
for this purpose only, disregarding the provisos to the condition set forth in
paragraph (d) of Annex A), or because of a Material Adverse Effect with respect
to Parent and its consolidated subsidiaries, whether such event or Material
Adverse Effect occurs before or after commencement of the Offer), then Parent
shall reimburse the Company for all of its fees and expenses incurred in
connection with the Offer and the Merger Agreement and the transactions
contemplated thereby, such reimbursement to occur not later than two business
days after termination of the Merger Agreement (or, if later, after the Company
provides reasonable documentation to Parent of the amount of such fees and
expenses). Any such fees and expenses not paid when due shall accrue interest at
the rate of ten percent per annum from the due date until paid in full.
9.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the shareholders of the Company contemplated
hereby, by written agreement of the parties hereto, by action taken by their
respective Boards of Directors (which in the case of the Company shall include
approvals as contemplated in Section 1.3(c) hereof), at any time prior to the
Closing Date with respect to any of the terms contained herein; PROVIDED,
HOWEVER, that after the approval of this Agreement by the shareholders of the
Company, no such amendment, modification or supplement shall reduce or change
the Merger Consideration.
9.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
9.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile transmission
(which
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is confirmed), telex or delivery by an overnight express courier service
(delivery, postage or freight charges prepaid), or on the fourth day following
deposit in the United States mail (if sent by registered or certified mail,
return receipt requested, delivery, postage or freight charges prepaid),
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Purchaser, to:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Telecopy No. (310) 447-3265
Attention: Tracy A. Edwards
Vice President and Chief
Financial Officer
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Telecopy No. (310) 203-7199
Attention: Andrew W. Gross, Esq.
(b) if to the Company, to:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Telecopy No. (516) 752-9221
Attention: Herbert S. Davidson
with a copy to:
Herschel M. Weinberg, Esq.
110 East 59th Street, 23rd Floor
New York, New York 10022
Telecopy No. (212) 223-4911
9.5 Definitions; Interpretation. As used in this Agreement, the term
"affiliate(s)" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act. When a reference is made in this Agreement to an Article, Section, Exhibit
or Schedule, such reference shall be to an Article, Section, Exhibit or
Schedule to this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The
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table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.7 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein and therein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.9 hereof, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder; PROVIDED, HOWEVER, that the officers and key employees of
the Company identified on Schedule 6.8(b) shall have such rights as are
specified in the employment agreements entered into by them pursuant to Section
6.8(b).
9.8 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
9.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York (without giving effect to the
principles of conflicts of law thereof).
9.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by, the parties and their respective successors
and assigns.
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<PAGE> 49
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
MILGRAY ELECTRONICS, INC. BELL INDUSTRIES, INC.
/s/ Richard Hyman /s/ Theodore Williams
- ---------------------------------- --------------------------------------
Name: Richard Hyman Name: Theodore Williams
Title: Executive Vice President Title: Chairman and
Chief Executive Officer
ME ACQUISITION, INC.
/s/ Theodore Williams
--------------------------------------
Name: Theodore Williams
Title: President
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<PAGE> 50
ANNEX A
CONDITIONS TO THE TENDER OFFER
Notwithstanding any other provisions of the Offer, and in addition to
(and not in limitation of) Purchaser's rights to extend and amend the Offer at
any time in its sole discretion (subject to the provisions of the Merger
Agreement), Purchaser shall not be required to accept for payment or, subject to
any applicable rules and regulations of the SEC, including Rule 14e-1(c) under
the Exchange Act (relating to Purchaser's obligation to pay for or return
tendered Shares promptly after termination or withdrawal of the Offer), pay for,
and may delay the acceptance for payment of or, subject to the restriction
referred to above, the payment for, any tendered Shares, and may terminate the
Offer as to any Shares not then paid for, if (i) the applicable waiting period
under the HSR Act has not expired or terminated, (ii) the Minimum Condition has
not been satisfied or waived, (iii) the Financing Condition has not been
satisfied or waived, or (iv) at any time on or after November 26, 1996 and
before the time for payment of any such Shares, any of the following events
shall occur or shall be determined by Purchaser to have occurred:
(a) there shall have been instituted, pending or threatened
any action, proceeding, application, claim or suit, or any statute,
rule, regulation, judgment, order or injunction promulgated, entered,
enforced, enacted, proposed, issued or applicable to the Offer or the
Merger by any domestic or foreign Federal, state or local governmental
regulatory or administrative agency or authority or court or
legislative body or commission which directly or indirectly (1)
challenges, seeks to make illegal, prohibits or makes illegal, or
imposes any material limitations on, Parent's or Purchaser's ownership
or operation (or that of any of their respective subsidiaries or
affiliates) of all or a material portion of the businesses or assets of
them or of the Company or its Subsidiaries, or compels Parent or
Purchaser or their respective subsidiaries and affiliates to dispose of
or hold separate any material portion of the business or assets of the
Company or Parent and their respective subsidiaries, in each case taken
as a whole, (2) challenges, seeks to make illegal, prohibits or makes
illegal the acceptance for payment, payment for or purchase of Shares
or the consummation of the Offer or the Merger, (3) results in the
delay in or restricts the ability of Purchaser, or renders Purchaser
unable, to accept for payment, pay for or purchase some or all of the
Shares, (4) imposes material limitations on the ability of Parent or
Purchaser to exercise full rights of ownership of the Shares, including
without limitation the right to vote the Shares purchased by it on all
matters presented to the Company's shareholders, (5) seeks to obtain or
obtains material damages or otherwise directly or indirectly relates to
the transactions contemplated by the Offer or the Merger, (6) seeks to
require divestiture by Parent, Purchaser or any of their respective
subsidiaries or affiliates of any Shares, or (7) could otherwise have a
Material Adverse Effect, provided that Parent shall have used
reasonable efforts to cause any such judgment, order or injunction to
be vacated or lifted;
A-1
<PAGE> 51
(b) there shall have occurred (1) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (2) a commencement of a war,
armed hostilities or other international or national calamity directly
or indirectly involving the United States, (3) any limitation (whether
or not mandatory) by any foreign or United States governmental
authority on the extension of credit by banks or other financial
institutions, or (4) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material acceleration or
worsening thereof;
(c) the representations and warranties of the Company set
forth in the Merger Agreement shall not be true and correct in any
material respect when made or at and as of the date of consummation of
the Offer as though made on or as of such date, except (i) for changes
specifically permitted by the Merger Agreement, and (ii) those
representations and warranties that address matters only as of a
particular date are true and correct as of such date, or the Company
shall have breached or failed in any material respect to perform or
comply with any material obligation, agreement or covenant required by
the Merger Agreement to be performed or complied with by it;
(d) any change in the financial condition, business, assets,
properties, prospects or results of operations of the Company and its
Subsidiaries taken as a whole that would constitute a Material Adverse
Effect shall have occurred, or there shall be any event, condition,
occurrence or development of a state of circumstances or facts which
individually or in the aggregate causes, results in or could cause or
result in such a Material Adverse Effect; PROVIDED, HOWEVER, that any
decrease in net sales or net income before taxes (including, without
limitation, losses) of the Company and its Subsidiaries on a
consolidated basis that may have occurred at any time subsequent to
September 30, 1996 (whether before, on or after the date of the Merger
Agreement) shall not be deemed to constitute, or to cause or result in,
or be a factor in the determination of, a Material Adverse Effect; and
PROVIDED FURTHER that the occurrence of any possible material adverse
change disclosed in Schedule 3.22 shall not be deemed to constitute, or
to cause or result in, a Material Adverse Effect;
(e) the Merger Agreement shall have been terminated in
accordance with its terms;
(f) any person or group shall have entered into a definitive
agreement or agreement in principle with the Company with respect to an
Acquisition Proposal or other business combination with the Company;
and
(g) the Company's Board of Directors shall have withdrawn,
or modified or changed (including by amendment of the Schedule 14D-9)
in a manner adverse to Parent or Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger or
shall have recommended an
A-2
<PAGE> 52
Acquisition Proposal, PROVIDED, HOWEVER, that if the Company's Board of
Directors modifies or changes its recommendation of the Offer, the
Merger Agreement or the Merger to either express its opinion and remain
neutral with respect thereto, or to provide that it is unable to take a
position with respect thereto, such modification or change shall not be
deemed to be adverse to Parent or Purchaser for purposes of this
paragraph (h);
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser giving rise to such condition) makes it inadvisable to proceed with
the Offer or with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of Parent and
Purchaser and may be waived by Parent or Purchaser, in whole or in part at any
time and from time to time in the sole discretion of Parent or Purchaser. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
A-3
<PAGE> 53
EXHIBIT 6.8(b)-(i)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Herbert S. Davidson (the "Executive") and Bell
Industries, Inc., a California corporation (the "Company"), to be effective as
of the effective date of the Merger (as defined below) with reference to the
following facts:
A. Executive is currently a director, Chief Executive Officer and
President of Milgray Electronics, Inc., a New York corporation ("Milgray");
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Company
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger by having him serve as Vice Chairman of the Board and an
Assistant Secretary of the Company; and
D. Executive is willing to accept employment by the Company on the
terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice Chairman of the Board and an Assistant Secretary of the
Company, such employment to commence on the effective date of the Merger.
Executive shall be entitled to an office and access to secretarial services at
Milgray's executive offices during the Term of this Agreement comparable to
those Executive presently has at Milgray. Executive's duties under this
Agreement are to be performed on Long Island in New York State. Executive shall
devote such time to performance of his services as Vice Chairman of the Board
and an Assistant Secretary of the Company as Executive and the Company shall
mutually agree from time to time.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of one (1) year, unless sooner
terminated as hereafter provided.
<PAGE> 54
Thereafter, this Agreement will automatically renew for annual one year periods,
unless both parties mutually agree to the contrary.
3. COMPENSATION
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a salary of
$100,000 per year during the first year of his employment hereunder (the "Base
Salary"). Executive's Base Salary in any subsequent year of employment under
this Agreement shall be a nominal amount to be set by the Company, it being
understood that such amount shall be sufficient to enable Executive to
participate in the Company's medical insurance plan. Executive's Base Salary
shall be payable in substantially equal bi-weekly installments and reduced on a
pro rata basis for any fraction of a year or month during which Executive is not
so employed. Executive shall be entitled to reimbursement for all amounts
reasonably expended on behalf of the Company, subject to verification similar to
that required of and provided by the Company's other senior executives. The
Company shall deduct from Executive's gross compensation appropriate amounts for
standard employee deductions (e.g., income tax withholding, social security and
state disability insurance) and any other amounts authorized for deduction by
Executive. At all such times as Executive may be a member of the Company's Board
of Directors, Executive will be deemed to be an "employee director".
4. INDEMNIFICATION
Executive shall be indemnified by the Company to the full extent
permitted by law in respect of his actions as an officer or director of the
Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
shall enter into an Indemnification Agreement with Executive in the form
attached as Exhibit 4.
5. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
5.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
5.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean conviction of Executive by, or a plea of guilty in, a court of competent
jurisdiction of a felony or other major crime (a plea of nolo contendere shall
be deemed a conviction).
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<PAGE> 55
5.3 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
6. NONDISCLOSURE
Both during and after Executive's employment with the Company,
Executive shall keep secret all confidential matters of the Company not in the
public domain and will not disclose them to anyone outside of the Company.
7. MISCELLANEOUS
7.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
7.2 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
7.3 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
7.4 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
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<PAGE> 56
7.5 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
7.6 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
7.7 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Herbert S. Davidson
c/o Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
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7.8 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
7.9 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
7.10 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BELL INDUSTRIES, INC.
By:____________________________
Name:
Title:
HERBERT S. DAVIDSON
_______________________________
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Bell Industries, Inc., a California corporation (the "Corporation"), and
Herbert S. Davidson (the "Indemnitee"), a Director and/or Officer of the
Corporation.
WHEREAS, it is essential to the Corporation to retain and
attract as Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
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(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled; and, if the Indemnitee is a Director, based upon any of the
exceptions set forth in clauses (i) through (iv) of Article Tenth of
this Corporation's Articles of Incorporation;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
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For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the requisite legal authority to make such a decision,
which decision has become final and from which no appeal or other review
proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
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9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
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EXHIBIT 6.8(b)-(ii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Richard Hyman (the "Executive") and Bell
Industries, Inc., a California corporation (the "Company"), to be effective as
of the effective date of the Merger (as defined below) with reference to the
following facts:
A. Executive is currently employed as Executive Vice President,
Vice President--Sales/Marketing and Chief Operating Officer of Milgray
Electronics, Inc., a New York corporation ("Milgray");
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Company
(the "Merger");
C. The Company wishes to ensure the continued services of
Executive after the Merger by having him serve as Executive Vice
President--Electronics Distribution Group of the Company and President of
Milgray; and
D. Executive is willing to accept employment by the Company and
Milgray on the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as President of Milgray and Executive Vice
President--Electronics Distribution Group of Bell performing the functions of
principal executive officer in charge of a significant segment of the Company's
business - i.e., the business presently being conducted by Milgray, such
employment to commence on the effective date of the Merger. Executive shall
report to the President of the Company, and subject to the directions of the
Board of Directors of Milgray and/or the President of the Company, shall have
general supervision, direction and control of the business, officers and
employees of Milgray and its subsidiaries; provided, however, that Executive
shall not be required to undertake duties not commensurate with his position as
President of Milgray and Executive Vice President--Electronics Distribution
Group of Bell. Notwithstanding anything contained in the preceding sentence,
Executive acknowledges that, following the Merger, the Company plans to
investigate combining its existing
<PAGE> 64
distribution business, or segments thereof, with those of Milgray, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a result of such combination, the Company may change the exact nature of
Executive's responsibilities (but not Executive's job title), but in no event
will Executive be required to accept job responsibilities in an area outside of
his current expertise or to act in less than an executive capacity; moreover,
Executive's status and position in the Company (or its successor) organization
chart (i.e., the status and position of the person to whom Executive reports and
the class of employees who report to Executive) shall be similar to other Vice
Presidents of the Company with responsibilities similar to those of Executive.
Any such change in responsibility will not constitute a breach of this Agreement
by the Company. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and Milgray and
shall not be engaged in any other duties which interfere with the performance of
his duties hereunder. Executive shall be entitled to an office, secretarial help
and other accommodations and amenities comparable to those Executive presently
has at Milgray.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than sixty days in any twelve-month period
or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of five (5) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $400,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year of the Company
shall be $135,000. For the initial year of this Agreement, such bonus shall be
prorated from the Effective Date and
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the bonus for any other partial year shall be similarly prorated. Any such bonus
earned by Executive shall be paid at the same time that annual incentive bonuses
for the Company's other senior executive officers are paid in accordance with
the Company's policies as in effect from time to time (but in no event will the
guaranteed minimum bonus be paid later than 30 days after the end of the
Company's fiscal year, with the remainder, if any, to be paid within 90 days
after the end of the Company's fiscal year).
3.3 Additional Benefits
Executive shall be entitled to participate in all of the Company's
employee benefit plans as listed in the Company's employee handbook, as the same
may change from time to time, and, in addition, to participate on the same terms
as senior Company executives in any benefit plans available to members of the
Company's management (whether or not listed in the employee handbook). Among
other things, Executive shall be entitled to participate in the Company's Health
Care Benefits Program, 401(k) Plan, Stock Purchase Plan, Stock Option Plan,
Short-term and Long-term Disability Programs and the Company's Executive Medical
Plan, which provides coverage for all medical expenses not otherwise covered by
the basic policy, up to $25,000. If any health, medical or disability plan or
program existing at the time of commencement of Executive's employment pursuant
to this Agreement is terminated or the benefits thereunder reduced, the Company
shall provide Executive with benefits similar to those in existence at the time
of commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to
Executive in consideration of the services to be rendered hereunder, the Company
shall grant to Executive options to acquire 25,000 shares of Company's common
stock at an exercise price equal to the closing price on the Effective Date. The
options shall vest in 10%, 20%, 30% and 40% increments, respectively, on the
first, second, third and fourth anniversaries of this Agreement. In addition,
all of the options will vest if (i) the Company terminates this agreement other
than for Cause (as defined in Section 6.2) or (ii) the Executive terminates this
Agreement for Good Reason (as defined in Section 6.3(B)). The options shall
remain exercisable for a period of five (5) years from the date of grant. The
specific terms of the above-referenced option shall be as set forth in a
separate option agreement in the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to participate
in the Company's stock option programs, although Executive understands that any
grants under such programs are completely discretionary with the Compensation
Committee of the Company's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company and Milgray, subject to verification similar
to that required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's and
Milgray's business.
5. INDEMNIFICATION
Executive shall be indemnified by the Company to the full extent
permitted by law in respect of his actions as an officer or director of the
Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
shall enter into an Indemnification Agreement with Executive in the form
attached as Exhibit 5.
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6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the
following events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in
writing to termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this
Agreement, "Cause" shall mean (i) material breach by Executive of this Agreement
or material failure by Executive to perform his duties under this Agreement
(other than by reason of Executive's Total Disability) followed by (a) written
notice from the Company to Executive specifying such material failure or such
material breach, plus (b) Executive not having cured the breach within thirty
days of actual receipt of notice or, if the breach is not capable of cure within
thirty days, Executive not having taken reasonable steps toward curing such
material failure or material breach within thirty days of his actual receipt of
such notice and diligently continuing to cure such material breach as
expeditiously as practicable, or (ii) conviction of Executive by, or a plea of
guilty in, a court of competent jurisdiction of a felony or other major crime (a
plea of nolo contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially
breaches any of its obligations, or any material violation by the Company of
Executive's rights, under this Agreement followed by (i) written notice from
Executive specifying such material breach or violation, plus (ii) the Company
not having cured the breach within thirty days of actual receipt of notice or,
if the breach is not capable of cure within thirty days, the Company not having
taken reasonable steps toward curing such material breach or failure within
thirty days of actual receipt of such notice and diligently continuing to cure
such material breach as expeditiously as practicable (the foregoing being
referred to as "Good Reason"), Executive will have the right at Executive's
election to terminate his employment hereunder by sending notice to the Company
of his election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts
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described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments
payable for the remaining term of this Agreement; provided, however, that should
Executive elect to become employed by a competitor of the Company after
termination (whether as an officer, director, employee, consultant or
otherwise), the Company may offset against the amounts it owes Executive all
compensation derived from such competitive employment. Executive agrees to
notify the Company within five (5) business days of being employed by a
competitor of the Company and to provide the Company with such documentation as
the Company may reasonably request (including, but not limited to, copies of his
Forms W-2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
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7.2 Termination by the Company because of Executive's
Total Disability. If the Company terminates Executive's employment hereunder
because of Executive's Total Disability, Executive shall be entitled to receive
from the Company for the full balance of the Term of this Agreement regular
bi-weekly payments equal to 75% of Executive's regular bi-weekly Base Salary
payment plus guaranteed bonus. This amount shall be reduced by all benefits
provided to Executive under any Company disability plan or plans. Executive
agrees to participate in such plan(s) to as full an extent and amount as
permitted under such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after two
years, and elected to receive his remaining three years of pay under this
Agreement in a lump sum, and one year later wanted to work for a competitor, the
Executive could do so if he repaid the Company two-thirds of the amount he
received as
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severance (3 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 2 years to be repaid to
the Company in exchange for a release from the non-compete). The Company may, at
any time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products referred to in the first sentence of this
Section 8.1 or from the sale of any of such products in connection with such
employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Richard Hyman
22 Bondsburry Lane
Melville, New York 11747
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Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BELL INDUSTRIES, INC.
By:
----------------------------
Name:
Title:
RICHARD HYMAN
-------------------------------
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Richard Hyman (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders
have adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994
Stock Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used
but not defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is
to the advantage and best interest of the Company and its stockholders to grant
an Incentive Stock Option to the Participant covering 25,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an
incentive stock option under Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 25,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then
<PAGE> 75
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
10% 10%
20% 30%
30% 60%
40% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 4th
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to
Section 5 hereof, this Option shall become immediately exercisable in full, if
(i) the Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option
shall be by means of a written notice of exercise delivered to the Company,
specifying the number of shares to be purchased and accompanied by payment to
the Company of the full purchase price of the shares to be purchased either (i)
in cash or by certified or cashier's check payable to the order of the Company,
or (ii) by delivery of shares of Common Stock already owned by, and in the
possession of, the Participant. Shares of Common Stock used to satisfy any
portion of the exercise price of this Option shall be valued at their fair
market value determined (in accordance with Section 4 below) as of the close of
the business day immediately preceding the date of exercise. This Option may not
be exercised for a fraction of a share and no partial exercise of this Option
may be for less than (i) one hundred (100) shares or (ii) the total number of
shares then eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death,
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by his or her transferee by will or the laws of descent or distribution, and not
otherwise, regardless of any community property interest therein of the spouse
of the Participant or such spouse's successors in interest. If the spouse of the
Participant shall have acquired a community property interest in this Option,
the Participant, or the Participant's permitted successors in interest, may
exercise the Option on behalf of the spouse of the Participant or such spouse's
successors in interest.
Except in the event of the Participant's death or permanent
disability, the Option may not be exercised prior to the date six months from
the date hereof.
4. Fair Market Value of Common Stock. The fair market value of a
share of Company Common Stock shall be determined for purposes of this Agreement
by reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries
for any reason other than the Participant's death or permanent disability
(within the meaning of Section 22(e) (3) of the Code), the Participant's Option
shall be exercisable for a period of three (3) months after the date the
Participant ceases to be an employee of the Company or such subsidiary (unless
by its terms it sooner expires) to the extent exercisable on the date of such
cessation of employment and shall thereafter expire and be void and of no
further force or effect. A leave of absence approved in writing by the Committee
shall not be deemed a termination of employment for the purposes of this
paragraph 5, but no Option may be exercised during any such leave of absence,
except during the first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
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<PAGE> 77
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky" laws (whether by registration or
qualification or satisfaction of exemption conditions), all applicable listing
requirements of any principal securities exchange on which shares of the same
class are then listed and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery. The Company shall
use its best efforts and take all necessary or appropriate actions to assure
that such full compliance on the part of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with
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<PAGE> 78
appropriate adjustments as to number and kind of shares and prices; (iii) the
continuance of the Plan by such successor corporation in which event this Option
shall remain in full effect under the terms so provided; or (iv) the payment of
an amount in cash or stock, or any combination thereof, in lieu of and in
complete satisfaction of this Option.
Adjustments under this paragraph 8 shall be made by the
Committee, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares of
stock shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
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Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Richard Hyman
22 Bondsburry Lane
Melville, New York 11747
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 80
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
-------
BELL INDUSTRIES, INC.
BY:
---------------------------
PARTICIPANT
-----------
------------------------------
Richard Hyman
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
------------------------------
NAME:
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<PAGE> 81
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Bell Industries, Inc., a California corporation (the "Corporation"), and
Richard Hyman (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited
to, expenses of investigations, judicial or administrative proceedings
or appeals, damages, judgments, fines, amounts paid in settlement by or
on behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 82
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the
limitations set forth in Section 3, Corporation will pay on behalf of the
Indemnitee all Expenses actually and reasonably incurred by Indemnitee because
of any claim or claims made against him in a Proceeding by reason of the fact
that he is or was a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated
under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee
under an insurance policy, except in respect of any excess beyond the
amount of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding
adversely to the Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal profit or advantage to which he
was not legally entitled;
(e) resulting from a claim decided in a Proceeding
adversely to the Indemnitee for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of Corporation within
the meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of
the Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 83
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right
to be indemnified under this Agreement, shall give to Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to Corporation shall be
given at its principal office and shall be directed to the President (or such
other address as Corporation shall designate in writing to the Indemnitee);
notice shall be deemed received if sent by prepaid mail properly addressed, the
date of such notice being the date postmarked. In addition, the Indemnitee shall
give Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall
be deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 84
10. Applicable Law. This Agreement shall be governed by and
construed in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon
the Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under
this Agreement shall continue as to Indemnitee even though he may have ceased to
be a Director and/or Officer and shall inure to the benefit of the heirs and
personal representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By: By:
----------------------- -------------------
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<PAGE> 85
EXHIBIT 6.8(b)-(iii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between John Tortorici (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Vice President-Finance and
Treasurer of the Company with executive responsibilities in the financial and
administrative areas;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company
on the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice President--Finance and Treasurer. Executive shall report
to the President of the Company, and subject to the directions of the President,
shall be responsible for performing various executive functions in the financial
and administrative areas similar or relating to the functions presently
performed by Executive at the Company; provided, however, that Executive shall
not be required to undertake duties not commensurate with his position as Vice
President--Finance and Treasurer of the Company. Notwithstanding anything
contained in the preceding sentence, Executive acknowledges that, following the
Merger, the Guarantor plans to investigate combining its existing distribution
business, or segments thereof, with those of the Company, and where feasible or
practicable, to combine such business, or segments thereof, and that as a result
of such combination, the Company may change the exact nature of Executive's
responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less
<PAGE> 86
than an executive capacity; moreover, Executive's status and position in the
Company (or its successor) organization chart (i.e., the status and position of
the person to whom Executive reports and the class of employees who report to
Executive) shall be similar to other Vice Presidents of the Company and/or the
Guarantor with responsibilities similar to those of Executive. Any such change
in responsibility will not constitute a breach of this Agreement by the Company
or the Guarantor. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and shall not be
engaged in any other duties which interfere with the performance of his duties
hereunder. Executive shall be entitled to an office, secretarial help and other
accommodations and amenities comparable to those Executive presently has at the
Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than forty days in any twelve-month period
or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $175,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $70,000.
For the initial year of this Agreement, such bonus shall be prorated from the
Effective Date and the bonus for any partial year shall be similarly prorated.
Any such bonus earned by Executive shall be paid at the same time that annual
incentive bonuses for the Company's other senior executive officers are paid in
accordance with the Company's policies as in effect from time to time (but in no
event will the guaranteed minimum bonus be paid later than 30
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<PAGE> 87
days after the end of the Company's fiscal year, with the remainder, if any, to
be paid within 90 days after the end of the Company's fiscal year).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the
Guarantor's stock option programs, although Executive understands that any
grants under such programs are completely discretionary with the Compensation
Committee of the Guarantor's Board of Directors.
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
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3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
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6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good Reason
by Executive
(A) By the Company. Notwithstanding any other provision
of this Agreement, the Company shall have the right to terminate Executive's
employment with the Company without Cause at any time, and upon such termination
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
(B) By Executive. If the Company materially breaches any
of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a
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Total Disability involving Executive, his employment may be terminated by
written notice by the Company to Executive. In the event of Executive's death
during the term of this Agreement, the persons designated by Executive (or if
Executive does not make such a designation, then Executive's estate) shall be
entitled to receive his Base Salary plus guaranteed bonus provided for Executive
in this Agreement for a period of twelve months following Executive's death
(regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
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7.3 Voluntary Termination by Executive or Termination by the
Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products
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referred to in the first sentence of this Section 8.1 or from the sale of any of
such products in connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and after
Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
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9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Mr. John Tortorici
12 Lorenz Drive
Valhalla, New York 10595
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Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By:____________________________
Name:
Title:
BELL INDUSTRIES, INC.
By:____________________________
Name:
Title:
_______________________________
John Tortorici
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and John Tortorici (the "Participant").
RECITALS
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right
and option (the "Option") to purchase, on the terms and conditions hereinafter
set forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase all of the shares that the
Participant is entitled to purchase in such installment period, then
<PAGE> 97
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company of
the full purchase price of the shares to be purchased either (i) in cash or by
certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a
share of Company Common Stock shall be determined for purposes of this Agreement
by reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities
Laws and Exchange Rules. No shares issuable upon the exercise of this Option
shall be issued and delivered unless and until there shall have been full
compliance with all applicable requirements of the Securities Act of 1933, as
amended, and all applicable state securities
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or "Blue Sky" laws (whether by registration or qualification or satisfaction of
exemption conditions), all applicable listing requirements of any principal
securities exchange on which shares of the same class are then listed and any
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full
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<PAGE> 100
effect under the terms so provided; or (iv) the payment of an amount in cash or
stock, or any combination thereof, in lieu of and in complete satisfaction of
this Option.
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock
Certificate. Neither the Participant nor any other person legally entitled to
exercise this Option shall be entitled to any of the rights or privileges of a
shareholder of the Company in respect of any shares issuable upon any exercise
of this Option unless and until a certificate or certificates representing such
shares shall have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained
herein shall be construed as agreement by the Company, express or implied, to
employ Participant or contract for Participant's services, to restrict the
Company's right to discharge Participant or cease contracting for Participant's
services or to modify, extend or otherwise affect in any manner whatsoever the
terms of any employment agreement or contract for services which may exist
between the Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is
subject to, and the Company and the Participant agree to be bound by, all of the
terms and conditions of the Plan, as the same shall be amended from time to time
in accordance with the terms thereof, but no such amendment shall adversely
affect the Participant's rights under this Option without the prior written
consent of the Participant.
13. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be
given or sent pursuant to the terms of this Agreement shall be sufficiently
given or served hereunder to any party when transmitted by registered or
certified mail, postage prepaid, addressed to the party to be served as follows:
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(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Mr. John Tortorici
12 Lorenz Drive
Valhalla, New York 10595
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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15. Execution. This Option has been granted, executed and
delivered the day and year first above written at Los Angeles, California, and
the interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:______________________
PARTICIPANT
_________________________
John Tortorici
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
_________________________
NAME:
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and John
Tortorici (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the
right of the Corporation or otherwise and whether of a civil, criminal,
administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
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(c) The terms "Director" and "Officer" shall include Indemnitee's
service at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise as well as a Director and/or Officer of the
Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from paying
as indemnity;
(b) for which payment is actually made to the Indemnitee under an
insurance policy, except in respect of any excess beyond the amount of
payment under such insurance;
(c) for which payment the Indemnitee is indemnified by Corporation
otherwise than pursuant to this Agreement and payment is actually made
to the Indemnitee except in respect of any excess beyond the amount of
the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely to
the Indemnitee based upon or attributable to the Indemnitee gaining in
fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely to
the Indemnitee for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of Corporation within the meaning
of Section 16(b) or 16(c) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any state statutory law or
common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:_______________________
GUARANTOR
By:_______________________
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EXHIBIT 6.8(b)-(iv)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Gary Adams (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Regional Vice President--Sales of
the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Regional Vice President--Sales. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for supervising sales activities of branches assigned to
Executive and related matters, including profit and loss for assigned branches
and region, customer relations and agreements with significant customers and
performing other functions similar to the functions presently performed by
Executive at the Company connected with the foregoing; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Regional Vice President--Sales of the Company. Notwithstanding
anything contained in the preceding sentence, Executive acknowledges that,
following the Merger, the Guarantor plans to investigate combining its existing
distribution business, or segments thereof, with those of the Company, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a result of such combination, the Company may change the exact nature of
Executive's
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responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less than an executive capacity; moreover, Executive's
status and position in the Company (or its successor) organization chart (i.e.,
the status and position of the person to whom Executive reports and the class of
employees who report to Executive) shall be similar to other Vice Presidents of
the Company and/or the Guarantor with responsibilities similar to those of
Executive. Any such change in responsibility will not constitute a breach of
this Agreement by the Company or the Guarantor. During the term of this
Agreement, Executive shall devote his full business time and attention to the
business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed in Orlando,
Florida and Executive shall not be required to travel or be assigned away from
this location more than one hundred days in any twelve-month period or more than
five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $150,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $61,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly
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installments within 30 days following the end of each calendar quarter, and (ii)
if the annual incentive bonus earned by Executive for any year shall exceed the
Minimum Bonus paid for such year, such excess shall be paid to Executive at the
same time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the Guarantor's stock
option programs, although Executive understands that any grants under such
programs are completely discretionary with the Compensation Committee of the
Guarantor's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the
following events:
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6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in
writing to termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this
Agreement, "Cause" shall mean (i) material breach by Executive of this Agreement
or material failure by Executive to perform his duties under this Agreement
(other than by reason of Executive's Total Disability) followed by (a) written
notice from the Company to Executive specifying such material failure or such
material breach, plus (b) Executive not having cured the breach within thirty
days of actual receipt of notice or, if the breach is not capable of cure within
thirty days, Executive not having taken reasonable steps toward curing such
material failure or material breach within thirty days of his actual receipt of
such notice and diligently continuing to cure such material breach as
expeditiously as practicable, or (ii) conviction of Executive by, or a plea of
guilty in, a court of competent jurisdiction of a felony or other major crime (a
plea of nolo contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
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6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of
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Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
7.3 Voluntary Termination by Executive or Termination by the
Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company
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in exchange for a release from the non-compete). The Company may, at any time
and from time to time, attach an annex to this Agreement specifying specific
jurisdictions in which the covenant not-to-compete set forth in this Section 8.1
is applicable. Notwithstanding anything to the contrary contained in the second
sentence of this Section 8.1, Executive shall not be restricted from employment
by a manufacturer or manufacturer's sales representative which manufactures
and/or sells any products referred to in the first sentence of this Section 8.1
or from the sale of any of such products in connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and after
Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the state of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
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IF TO EXECUTIVE:
Gary Adams
74 Sweetbriar Branch
Longwood, Florida 32750
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By:____________________________
Name:
Title:
BELL INDUSTRIES, INC.
By:____________________________
Name:
Title:
________________________________
Gary Adams
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Gary Adams (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right and
option (the "Option") to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase all of the shares that the
Participant is entitled to purchase in such installment period, then
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the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject
to Section 5 hereof, this Option shall become immediately exercisable in full,
if (i) the Company terminates Participant's employment agreement (the
"Employment Agreement") dated as of ____________, 1996 other than for Cause (as
defined in the Employment Agreement) or (ii) Participant terminates the
Employment Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be
by means of a written notice of exercise delivered to the Company, specifying
the number of shares to be purchased and accompanied by payment to the Company
of the full purchase price of the shares to be purchased either (i) in cash or
by certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent
disability, the Option may not be exercised prior to the date six months from
the date hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries
for any reason other than the Participant's death or permanent disability
(within the meaning of Section 22(e) (3) of the Code), the Participant's Option
shall be exercisable for a period of three (3) months after the date the
Participant ceases to be an employee of the Company or such subsidiary (unless
by its terms it sooner expires) to the extent exercisable on the date of such
cessation of employment and shall thereafter expire and be void and of no
further force or effect. A leave of absence approved in writing by the Committee
shall not be deemed a termination of employment for the purposes of this
paragraph 5, but no Option may be exercised during any such leave of absence,
except during the first three (3) months thereof.
If the Participant dies or becomes permanently disabled while
employed by the Company or one of its subsidiaries, the Participant's Option
shall expire one (1) year after the date of such death or permanent disability
unless by its terms it sooner expires. During such period after death, such
Option may, to the extent that it remained unexercised (but exercisable by the
Participant according to such Option's terms) on the date of such death, be
exercised by the person or persons to whom the Participant's rights under the
Option shall pass by the Participant's will or by the laws of descent and
distribution.
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6. Shares to be Issued in Compliance with Federal Securities
Laws and Exchange Rules. No shares issuable upon the exercise of this Option
shall be issued and delivered unless and until there shall have been full
compliance with all applicable requirements of the Securities Act of 1933, as
amended, and all applicable state securities or "Blue Sky" laws (whether by
registration or qualification or satisfaction of exemption conditions), all
applicable listing requirements of any principal securities exchange on which
shares of the same class are then listed and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and delivery. The
Company shall use its best efforts and take all necessary or appropriate actions
to assure that such full compliance on the part of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the
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substitution therefore of a new option covering the stock of a successor
corporation, with appropriate adjustments as to number and kind of shares and
prices; (iii) the continuance of the Plan by such successor corporation in which
event this Option shall remain in full effect under the terms so provided; or
(iv) the payment of an amount in cash or stock, or any combination thereof, in
lieu of and in complete satisfaction of this Option.
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
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11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Gary Adams
74 Sweetbriar Branch
Longwood, Florida 32750
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY: _________________
PARTICIPANT
_____________________
Gary Adams
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
____________________
NAME:
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation")
Bell Industries, Inc., a California corporation (the "Guarantor"), and Gary
Adams (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
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(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:_________________________
GUARANTOR
By:_________________________
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EXHIBIT 6.8(b)-(v)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Andrew Epstein (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Vice President--Operations of the
Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice President--Operations. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for performing functions similar to the functions presently
performed by Executive at the Company, including supervision of physical
handling of inventory, management of security, quality and efficiency of the
Company's warehouses, purchasing of supplies and equipment (other than computer
equipment) and maintenance and repair of facilities; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Vice President--Operations of the Company. Notwithstanding anything
contained in the preceding sentence, Executive acknowledges that, following the
Merger, the Guarantor plans to investigate combining its existing distribution
business, or segments thereof, with those of the Company, and where feasible or
practicable, to combine such business, or segments thereof, and that as a result
of such combination, the Company may change the exact nature of Executive's
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responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less than an executive capacity; moreover, Executive's
status and position in the Company (or its successor) organization chart (i.e.,
the status and position of the person to whom Executive reports and the class of
employees who report to Executive) shall be similar to other Vice Presidents of
the Company and/or the Guarantor with responsibilities similar to those of
Executive. Any such change in responsibility will not constitute a breach of
this Agreement by the Company or the Guarantor. During the term of this
Agreement, Executive shall devote his full business time and attention to the
business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than forty days in any twelve-month period
or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $175,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $66,000.
For the initial year of this Agreement, such bonus shall be prorated from the
Effective Date and the bonus for any partial year shall be similarly prorated.
Any such bonus earned by Executive shall be paid at the same time that annual
incentive bonuses for the Company's other senior
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executive officers are paid in accordance with the Company's policies as in
effect from time to time (but in no event will the guaranteed minimum bonus be
paid later than 30 days after the end of the Company's fiscal year, with the
remainder, if any, to be paid within 90 days after the end of the Company's
fiscal year).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if (i) the Company terminates this Agreement other than for Cause (as
defined in Section 6.2) or (ii) the Executive terminates this Agreement for Good
Reason (as defined in Section 6.3(B)). The options shall remain exercisable for
a period of five (5) years from the date of grant. The specific terms of the
above-referenced option shall be as set forth in a separate option agreement in
the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to participate in the Guarantor's stock
option programs, although Executive understands that any grants under such
programs are completely discretionary with the Compensation Committee of the
Guarantor's Board of Directors.
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
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3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
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6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a
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Total Disability involving Executive, his employment may be terminated by
written notice by the Company to Executive. In the event of Executive's death
during the term of this Agreement, the persons designated by Executive (or if
Executive does not make such a designation, then Executive's estate) shall be
entitled to receive his Base Salary plus guaranteed bonus provided for Executive
in this Agreement for a period of twelve months following Executive's death
(regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause
or Termination by Executive for Good Reason. If the Company terminates
Executive's employment other than for Cause or if Executive, for Good Reason
terminates his employment, Executive shall be entitled to receive from the
Company (at Executive's election which must be exercised within 30 days of
termination), either (i) within twenty days of such election, a lump sum payment
in an amount equal to the sum of his Base Salary (plus guaranteed bonus)
payments to which Executive would be entitled under this Agreement as a
full-time employee of the Company for the balance of Executive's term of
employment under this Agreement (from the date of termination); such lump sum
payment discounted to present value using the interest rate offered at the date
of termination by The Chase Manhattan Bank, N.A., on a certificate of deposit
for a period of time equal to the remaining term of this Agreement at the date
of termination and subject to the noncompetition covenant for the then balance
of the Term as set forth in Section 8.1; or (ii) receive all Base Salary plus
guaranteed bonus payments for the remaining term of this Agreement; provided,
however, that should Executive elect to become employed by a competitor of the
Company after termination (whether as an officer, director, employee, consultant
or otherwise), the Company may offset against the amounts it owes Executive all
compensation derived from such competitive employment. Executive agrees to
notify the Company within five (5) business days of being employed by a
competitor of the Company and to provide the Company with such documentation as
the Company may reasonably request (including, but not limited to, copies of his
Forms W-2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
7.2 Termination by the Company because of
Executive's Total Disability. If the Company terminates Executive's employment
hereunder because of Executive's Total Disability, Executive shall be entitled
to receive from the Company for the full balance of the Term of this Agreement
regular bi-weekly payments equal to 75% of Executive's regular bi-weekly Base
Salary payment plus guaranteed bonus. This amount shall be reduced by all
benefits provided to Executive under any Company disability plan or plans.
Executive agrees to participate in such plan(s) to as full an extent and amount
as permitted under such plans.
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7.3 Voluntary Termination by Executive or
Termination by the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products
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referred to in the first sentence of this Section 8.1 or from the sale of any of
such products in connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
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9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Andrew Epstein
52 Rustic Gate Lane
Dix Hills, New York 11746
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Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By:____________________________
Name:
Title:
BELL INDUSTRIES, INC.
By:____________________________
Name:
Title:
_______________________________
Andrew Epstein
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Andrew Epstein (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 10,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then
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the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by means
of a written notice of exercise delivered to the Company, specifying the number
of shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased either (i) in cash or by certified
or cashier's check payable to the order of the Company, or (ii) by delivery of
shares of Common Stock already owned by, and in the possession of, the
Participant. Shares of Common Stock used to satisfy any portion of the exercise
price of this Option shall be valued at their fair market value determined (in
accordance with Section 4 below) as of the close of the business day immediately
preceding the date of exercise. This Option may not be exercised for a fraction
of a share and no partial exercise of this Option may be for less than (i) one
hundred (100) shares or (ii) the total number of shares then eligible for
exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities
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or "Blue Sky" laws (whether by registration or qualification or satisfaction of
exemption conditions), all applicable listing requirements of any principal
securities exchange on which shares of the same class are then listed and any
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
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(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Andrew Epstein
52 Rustic Gate Lane
Dix Hills, New York 11746
Any party, by written notice, may designate another address for notices to be
sent from time to time.
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY: _________________
PARTICIPANT
_____________________
Andrew Epstein
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
____________________
NAME:
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Andrew
Epstein (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
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(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the
limitations set forth in Section 3, Corporation will pay on behalf of the
Indemnitee all Expenses actually and reasonably incurred by Indemnitee because
of any claim or claims made against him in a Proceeding by reason of the fact
that he is or was a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be
obligated under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his
right to be indemnified under this Agreement, shall give to Corporation notice
in writing as soon as practicable of any claim made against him for which
indemnity will or could be sought under this Agreement. Notice to Corporation
shall be given at its principal office and shall be directed to the President
(or such other address as Corporation shall designate in writing to the
Indemnitee); notice shall be deemed received if sent by prepaid mail properly
addressed, the date of such notice being the date postmarked. In addition, the
Indemnitee shall give Corporation such information and cooperation as it may
reasonably require.
8. Saving Clause. If this Agreement or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein
shall be deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by
and construed in accordance with California law.
11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding
upon the Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification
under this Agreement shall continue as to Indemnitee even though he may have
ceased to be a Director and/or Officer and shall inure to the benefit of the
heirs and personal representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under
this Agreement shall cover Indemnitee's service as a Director and/or Officer
prior to or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of
the Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:________________________
GUARANTOR
By:________________________
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EXHIBIT 6.8(b)-(vi)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between James Darren O'Donnell (the "Executive"),
Milgray Electronics, Inc., a New York corporation (the "Company"), and Bell
Industries, Inc., a California corporation (the "Guarantor"), to be effective as
of the effective date of the Merger (as defined below) with reference to the
following facts:
A. Executive is currently employed as Vice President--Marketing
of the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of
Executive after the Merger; and
D. Executive is willing to continue his employment with the
Company on the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice President--Marketing. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for marketing, product and asset management and related matters
and performing other functions similar to the functions presently performed by
Executive at the Company with respect to passives, electromechanical and power
supplies; provided, however, that Executive shall not be required to undertake
duties not commensurate with his position as Vice President--Marketing of the
Company. Notwithstanding anything contained in the preceding sentence, Executive
acknowledges that, following the Merger, the Guarantor plans to investigate
combining its existing distribution business, or segments thereof, with those of
the Company, and where feasible or practicable, to combine such business, or
segments thereof, and that as a result of such combination, the Company may
change the exact nature of Executive's responsibilities (but not Executive's job
title), but in no event will Executive be required to accept job
responsibilities in an area
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outside of his current expertise or to act in less than an executive capacity;
moreover, Executive's status and position in the Company (or its successor)
organization chart (i.e., the status and position of the person to whom
Executive reports and the class of employees who report to Executive) shall be
similar to other Vice Presidents of the Company and/or the Guarantor with
responsibilities similar to those of Executive. Any such change in
responsibility will not constitute a breach of this Agreement by the Company or
the Guarantor. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and shall not be
engaged in any other duties which interfere with the performance of his duties
hereunder. Executive shall be entitled to an office, secretarial help and other
accommodations and amenities comparable to those Executive presently has at the
Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than seventy five days in any twelve-month
period or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $225,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $75,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly installments within 30 days
following the end of each calendar quarter, and (ii) if the
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annual incentive bonus earned by Executive for any year shall exceed the Minimum
Bonus paid for such year, such excess shall be paid to Executive at the same
time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this Agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the Guarantor's stock
option programs, although Executive understands that any grants under such
programs are completely discretionary with the Compensation Committee of the
Guarantor's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the
full extent permitted by law in respect of his actions as an officer or
director of the Company and shall be provided with such liability insurance
coverage in this connection as is provided to other Company executives. In
addition, the Company and Guarantor shall enter into an Indemnification
Agreement with Executive in the form attached as Exhibit 5.
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6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially
breaches any of its obligations, or any material violation by the Company of
Executive's rights, under this Agreement followed by (i) written notice from
Executive specifying such material breach or violation, plus (ii) the Company
not having cured the breach within thirty days of actual receipt of notice or,
if the breach is not capable of cure within thirty days, the Company not having
taken reasonable steps toward curing such material breach or failure within
thirty days of actual receipt of such notice and diligently continuing to cure
such material breach as expeditiously as practicable (the foregoing being
referred to as "Good Reason"), Executive will have the right at Executive's
election to terminate his employment hereunder by sending notice to the Company
of his election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts
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described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
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7.2 Termination by the Company because of Executive's
Total Disability. If the Company terminates Executive's employment hereunder
because of Executive's Total Disability, Executive shall be entitled to receive
from the Company for the full balance of the Term of this Agreement regular
bi-weekly payments equal to 75% of Executive's regular bi-weekly Base Salary
payment plus guaranteed bonus. This amount shall be reduced by all benefits
provided to Executive under any Company disability plan or plans. Executive
agrees to participate in such plan(s) to as full an extent and amount as
permitted under such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
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severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products referred to in the first sentence of this
Section 8.1 or from the sale of any of such products in connection with such
employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
James Darren O'Donnell
19 Jesse Way
Mt. Sinai, New York 11766
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Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By:
-------------------------------------
Name:
Title:
BELL INDUSTRIES, INC.
By:
-------------------------------------
Name:
Title:
----------------------------------------
James Darren O'Donnell
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and James Darren O'Donnell (the
"Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders
have adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994
Stock Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used
but not defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is
to the advantage and best interest of the Company and its stockholders to grant
an Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an
incentive stock option under Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 10,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then
<PAGE> 162
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company of
the full purchase price of the shares to be purchased either (i) in cash or by
certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a
share of Company Common Stock shall be determined for purposes of this Agreement
by reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws
and Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky"
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<PAGE> 164
laws (whether by registration or qualification or satisfaction of exemption
conditions), all applicable listing requirements of any principal securities
exchange on which shares of the same class are then listed and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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<PAGE> 165
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock
Certificate. Neither the Participant nor any other person legally entitled to
exercise this Option shall be entitled to any of the rights or privileges of a
shareholder of the Company in respect of any shares issuable upon any exercise
of this Option unless and until a certificate or certificates representing such
shares shall have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained
herein shall be construed as agreement by the Company, express or implied, to
employ Participant or contract for Participant's services, to restrict the
Company's right to discharge Participant or cease contracting for Participant's
services or to modify, extend or otherwise affect in any manner whatsoever the
terms of any employment agreement or contract for services which may exist
between the Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is
subject to, and the Company and the Participant agree to be bound by, all of the
terms and conditions of the Plan, as the same shall be amended from time to time
in accordance with the terms thereof, but no such amendment shall adversely
affect the Participant's rights under this Option without the prior written
consent of the Participant.
13. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be
given or sent pursuant to the terms of this Agreement shall be sufficiently
given or served hereunder to any party when transmitted by registered or
certified mail, postage prepaid, addressed to the party to be served as follows:
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(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: James Darren O'Donnell
19 Jesse Way
Mt. Sinai, New York 11766
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 167
15. Execution. This Option has been granted, executed and
delivered the day and year first above written at Los Angeles, California, and
the interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:
-------------------------------------
PARTICIPANT
----------------------------------------
NAME: James Darren O'Donnell
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
----------------------------------------
NAME:
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and James
Darren O'Donnell (the "Indemnitee"), a Director and/or Officer of the
Corporation.
WHEREAS, it is essential to the Corporation to retain and
attract as Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 169
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the
limitations set forth in Section 3, Corporation will pay on behalf of the
Indemnitee all Expenses actually and reasonably incurred by Indemnitee because
of any claim or claims made against him in a Proceeding by reason of the fact
that he is or was a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be
obligated under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable
law from paying as indemnity;
(b) for which payment is actually made to the Indemnitee
under an insurance policy, except in respect of any excess beyond the
amount of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding
adversely to the Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal profit or advantage to which he
was not legally entitled;
(e) resulting from a claim decided in a Proceeding
adversely to the Indemnitee for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of Corporation within
the meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of
the Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right
to be indemnified under this Agreement, shall give to Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to Corporation shall be
given at its principal office and shall be directed to the President (or such
other address as Corporation shall designate in writing to the Indemnitee);
notice shall be deemed received if sent by prepaid mail properly addressed, the
date of such notice being the date postmarked. In addition, the Indemnitee shall
give Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall
be deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by and
construed in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon
the Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under
this Agreement shall continue as to Indemnitee even though he may have ceased to
be a Director and/or Officer and shall inure to the benefit of the heirs and
personal representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________________ By:_____________________________________
GUARANTOR
By:_____________________________________
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EXHIBIT 6.8(b)-(vii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of November 26, 1996, by and between Steven Sokoloff (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Vice President--Marketing of the
Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby
accepts such employment as Vice President--Marketing. Executive shall report to
the President of the Company, and subject to the directions of the President,
shall be responsible for marketing, product and asset management and related
matters and performing other functions similar to the functions presently
performed by Executive at the Company with respect to semiconductors, computer
products and displays; provided, however, that Executive shall not be required
to undertake duties not commensurate with his position as Vice
President--Marketing of the Company. Notwithstanding anything contained in the
preceding sentence, Executive acknowledges that, following the Merger, the
Guarantor plans to investigate combining its existing distribution business, or
segments thereof, with those of the Company, and where feasible or practicable,
to combine such business, or segments thereof, and that as a result of such
combination, the Company may change the exact nature of Executive's
responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area
<PAGE> 173
outside of his current expertise or to act in less than an executive capacity;
moreover, Executive's status and position in the Company (or its successor)
organization chart (i.e., the status and position of the person to whom
Executive reports and the class of employees who report to Executive) shall be
similar to other Vice Presidents of the Company and/or the Guarantor with
responsibilities similar to those of Executive. Any such change in
responsibility will not constitute a breach of this Agreement by the Company or
the Guarantor. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and shall not be
engaged in any other duties which interfere with the performance of his duties
hereunder. Executive shall be entitled to an office, secretarial help and other
accommodations and amenities comparable to those Executive presently has at the
Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than seventy five days in any twelve-month
period or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $250,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $94,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly installments within 30 days
following the end of each calendar quarter, and (ii) if the
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annual incentive bonus earned by Executive for any year shall exceed the Minimum
Bonus paid for such year, such excess shall be paid to Executive at the same
time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of
compensation to Executive in consideration of the services to be rendered
hereunder, Guarantor shall grant to Executive options to acquire 10,000 shares
of Guarantor's common stock at an exercise price equal to the closing price on
the Effective Date. The options shall vest in 25%, 25% and 50% increments,
respectively, on the first, second and third anniversaries of this Agreement. In
addition, all of the options will vest if the Company terminates this Agreement
other than for Cause (as defined in Section 6.2) or if the Executive quits for
Good Reason (as defined in Section 6.3(B)). The options shall remain exercisable
for a period of five (5) years from the date of grant. The specific terms of the
above-referenced option shall be as set forth in a separate option agreement in
the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to
participate in the Guarantor's stock option programs, although Executive
understands that any grants under such programs are completely discretionary
with the Compensation Committee of the Guarantor's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the
full extent permitted by law in respect of his actions as an officer or director
of the Company and shall be provided with such liability insurance coverage in
this connection as is provided to other Company executives. In addition, the
Company and Guarantor shall enter into an Indemnification Agreement with
Executive in the form attached as Exhibit 5.
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6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the
following events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in
writing to termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this
Agreement, "Cause" shall mean (i) material breach by Executive of this Agreement
or material failure by Executive to perform his duties under this Agreement
(other than by reason of Executive's Total Disability) followed by (a) written
notice from the Company to Executive specifying such material failure or such
material breach, plus (b) Executive not having cured the breach within thirty
days of actual receipt of notice or, if the breach is not capable of cure within
thirty days, Executive not having taken reasonable steps toward curing such
material failure or material breach within thirty days of his actual receipt of
such notice and diligently continuing to cure such material breach as
expeditiously as practicable, or (ii) conviction of Executive by, or a plea of
guilty in, a court of competent jurisdiction of a felony or other major crime (a
plea of nolo contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid.
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Upon any such termination, Executive shall have the rights to receive the
amounts described in Section 7.1 and Executive shall be fully vested in all
options granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-
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2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
7.3 Voluntary Termination by Executive or Termination by the
Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without
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Cause after one year, and elected to receive his remaining two years of pay
under this Agreement in a lump sum, and one year later wanted to work for a
competitor, the Executive could do so if he repaid the Company one-half of the
amount he received as severance (2 years severance pay lump-sum, 1 year of which
was "earned" by not competing, with the portion relating to the remaining 1 year
to be repaid to the Company in exchange for a release from the non-compete). The
Company may, at any time and from time to time, attach an annex to this
Agreement specifying specific jurisdictions in which the covenant not-to-compete
set forth in this Section 8.1 is applicable. Notwithstanding anything to the
contrary contained in the second sentence of this Section 8.1, Executive shall
not be restricted from employment by a manufacturer or manufacturer's sales
representative which manufactures and/or sells any products referred to in the
first sentence of this Section 8.1 or from the sale of any of such products in
connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and after
Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
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9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect
of this Agreement (or its validity, interpretation or enforcement), the
employment relationship or the subject matter hereof shall be submitted to
binding arbitration taking place in the State of New York before a single
arbitrator in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Expenses
of the arbitration shall be apportioned between the parties by the arbitrator on
the basis of relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising
out of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any
person other than the parties and their respective successors and permitted
assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein)
constitutes the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
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9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Steven Sokoloff
5 Gaines Drive
Farmingdale, New York 11738
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction)
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that would cause the application of the laws of any jurisdiction other than the
State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by the Company and Executive. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's
obligations hereunder. Guarantor agrees that Executive may proceed directly
against Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By:
----------------------------
Name:
Title:
BELL INDUSTRIES, INC.
By:
----------------------------
Name:
Title:
-------------------------------
Steven Sokoloff
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of
this _________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Steven Sokoloff (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right
and option (the "Option") to purchase, on the terms and conditions hereinafter
set forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase all of the shares that the
Participant is entitled to purchase in such installment period, then
<PAGE> 185
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
<TABLE>
<CAPTION>
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
<S> <C> <C>
25% 25%
25% 50%
50% 100%
</TABLE>
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to
Section 5 hereof, this Option shall become immediately exercisable in full, if
(i) the Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by
means of a written notice of exercise delivered to the Company, specifying
the number of shares to be purchased and accompanied by payment to the Company
of the full purchase price of the shares to be purchased either (i) in cash or
by certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent
disability, the Option may not be exercised prior to the date six months from
the date hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while
employed by the Company or one of its subsidiaries, the Participant's Option
shall expire one (1) year after the date of such death or permanent disability
unless by its terms it sooner expires. During such period after death, such
Option may, to the extent that it remained unexercised (but exercisable by the
Participant according to such Option's terms) on the date of such death, be
exercised by the person or persons to whom the Participant's rights under the
Option shall pass by the Participant's will or by the laws of descent and
distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky"
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laws (whether by registration or qualification or satisfaction of exemption
conditions), all applicable listing requirements of any principal securities
exchange on which shares of the same class are then listed and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be
given or sent pursuant to the terms of this Agreement shall be sufficiently
given or served hereunder to any party when transmitted by registered or
certified mail, postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Steven Sokoloff
5 Gaines Drive
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Farmingdale, New York 11738
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 190
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:
-----------------------------
PARTICIPANT
--------------------------------
NAME: Steven Sokoloff
By his or her signature below, the spouse of the Participant agrees
to be bound by all of the terms and conditions of the foregoing Agreement.
NAME:
---------------------------
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Steven
Sokoloff (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by
or in the right of the Corporation or otherwise and whether of a
civil, criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not
limited to, expenses of investigations, judicial or administrative
proceedings or appeals, damages, judgments, fines, amounts paid in
settlement by or on behalf of Indemnitee, attorneys' fees and
disbursements and any expenses of establishing a right to
indemnification under this Agreement.
<PAGE> 192
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise as well as a
Director and/or Officer of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated
under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable
law from paying as indemnity;
(b) for which payment is actually made to the Indemnitee
under an insurance policy, except in respect of any excess beyond
the amount of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess
beyond the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding
adversely to the Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal profit or advantage to which
he was not legally entitled;
(e) resulting from a claim decided in a Proceeding
adversely to the Indemnitee for an accounting of profits made from
the purchase or sale by the Indemnitee of securities of Corporation
within the meaning of Section 16(b) or 16(c) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of
any state statutory law or common law; or
(f) brought about or contributed to by the dishonesty of
the Indemnitee seeking payment hereunder; however, notwithstanding
the foregoing, the Indemnitee shall be indemnified under this
Agreement as to any claims upon which suit may be brought against
him by reason of any alleged dishonesty on his part, unless it shall
be decided in a Proceeding that he committed (i) acts of active and
deliberate dishonesty (ii) with actual dishonest purpose and intent,
and (iii) which acts were material to the cause of action so
adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
GUARANTOR
By:___________________
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EXHIBIT 6.8(b)-(viii)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Elliott Schnabel (also known as Elliott
Stevens) (the "Executive"), Milgray Electronics, Inc., a New York corporation
(the "Company"), and Bell Industries, Inc., a California corporation (the
"Guarantor"), to be effective as of the effective date of the Merger (as defined
below) with reference to the following facts:
A. Executive is currently employed as Regional Vice President--Sales of
the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Regional Vice President--Sales. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for supervising sales activities of branches assigned to
Executive and related matters, including profit and loss for assigned branches
and region, customer relations and agreements with significant customers and
performing other functions similar to the functions presently performed by
Executive at the Company connected with the foregoing; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Regional Vice President--Sales of the Company. Notwithstanding
anything contained in the preceding sentence, Executive acknowledges that,
following the Merger, the Guarantor plans to investigate combining its existing
distribution business, or segments thereof, with those of the Company, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a
<PAGE> 196
result of such combination, the Company may change the exact nature of
Executive's responsibilities (but not Executive's job title), but in no event
will Executive be required to accept job responsibilities in an area outside of
his current expertise or to act in less than an executive capacity; moreover,
Executive's status and position in the Company (or its successor) organization
chart (i.e., the status and position of the person to whom Executive reports and
the class of employees who report to Executive) shall be similar to other Vice
Presidents of the Company and/or the Guarantor with responsibilities similar to
those of Executive. Any such change in responsibility will not constitute a
breach of this Agreement by the Company or the Guarantor. During the term of
this Agreement, Executive shall devote his full business time and attention to
the business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than one hundred days in any twelve-month
period or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $200,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $80,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall
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be paid as follows: (i) the Minimum Bonus shall be paid in four equal quarterly
installments within 30 days following the end of each calendar quarter, and (ii)
if the annual incentive bonus earned by Executive for any year shall exceed the
Minimum Bonus paid for such year, such excess shall be paid to Executive at the
same time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive
in consideration of the services to be rendered hereunder, Guarantor shall grant
to Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this Agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the
Guarantor's stock option programs, although Executive understands that any
grants under such programs are completely discretionary with the Compensation
Committee of the Guarantor's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
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6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid.
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Upon any such termination, Executive shall have the rights to receive the
amounts described in Section 7.1 and Executive shall be fully vested in all
options granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-
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2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
7.2 Termination by the Company because of Executive's
Total Disability. If the Company terminates Executive's employment hereunder
because of Executive's Total Disability, Executive shall be entitled to receive
from the Company for the full balance of the Term of this Agreement regular
bi-weekly payments equal to 75% of Executive's regular bi-weekly Base Salary
payment plus guaranteed bonus. This amount shall be reduced by all benefits
provided to Executive under any Company disability plan or plans. Executive
agrees to participate in such plan(s) to as full an extent and amount as
permitted under such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without
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Cause after one year, and elected to receive his remaining two years of pay
under this Agreement in a lump sum, and one year later wanted to work for a
competitor, the Executive could do so if he repaid the Company one-half of the
amount he received as severance (2 years severance pay lump-sum, 1 year of which
was "earned" by not competing, with the portion relating to the remaining 1 year
to be repaid to the Company in exchange for a release from the non-compete). The
Company may, at any time and from time to time, attach an annex to this
Agreement specifying specific jurisdictions in which the covenant not-to-compete
set forth in this Section 8.1 is applicable. Notwithstanding anything to the
contrary contained in the second sentence of this Section 8.1, Executive shall
not be restricted from employment by a manufacturer or manufacturer's sales
representative which manufactures and/or sells any products referred to in the
first sentence of this Section 8.1 or from the sale of any of such products in
connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
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9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
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9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Elliott Schnabel
605 Benton Road
East Meadow, New York 11554
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices,
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requests, demands, claims, and other communications hereunder are to be
delivered by giving notice in the manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By:____________________________
Name:
Title:
BELL INDUSTRIES, INC.
By:____________________________
Name:
Title:
________________________________
Elliott Schnabel
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Elliott Schnabel (also known as
Elliott Stevens) (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right and
option (the "Option") to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase al of the shares that the
Participant is entitled to purchase in such installment period, then
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the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
<TABLE>
<CAPTION>
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
<S> <C> <C>
25% 25%
25% 50%
50% 100%
</TABLE>
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by means
of a written notice of exercise delivered to the Company, specifying the number
of shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased either (i) in cash or by certified
or cashier's check payable to the order of the Company, or (ii) by delivery of
shares of Common Stock already owned by, and in the possession of, the
Participant. Shares of Common Stock used to satisfy any portion of the exercise
price of this Option shall be valued at their fair market value determined (in
accordance with Section 4 below) as of the close of the business day immediately
preceding the date of exercise. This Option may not be exercised for a fraction
of a share and no partial exercise of this Option may be for less than (i) one
hundred (100) shares or (ii) the total number of shares then eligible for
exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise,
regardless of any community property interest therein of the spouse of the
Participant or
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such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky"
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laws (whether by registration or qualification or satisfaction of exemption
conditions), all applicable listing requirements of any principal securities
exchange on which shares of the same class are then listed and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
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(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Elliott Schnabel
605 Benton Road
East Meadow, New York 11554
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:____________________________
PARTICIPANT
_______________________________
NAME
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
_______________________________
NAME
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Elliott
Schnabel (also known as Elliott Stevens) (the "Indemnitee"), a Director and/or
Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and
attract as Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
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(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable
law from paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
GUARANTOR
By:___________________
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EXHIBIT 6.8(b)-(ix)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Thomas Woolf (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Regional Vice President--Sales of
the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Regional Vice President--Sales. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for supervising sales activities of branches assigned to
Executive and related matters, including profit and loss for assigned branches
and region, customer relations and agreements with significant customers and
performing other functions similar to the functions presently performed by
Executive at the Company connected with the foregoing; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Regional Vice President--Sales of the Company. Notwithstanding
anything contained in the preceding sentence, Executive acknowledges that,
following the Merger, the Guarantor plans to investigate combining its existing
distribution business, or segments thereof, with those of the Company, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a result of such combination, the Company may change the exact nature of
Executive's
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responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less than an executive capacity; moreover, Executive's
status and position in the Company (or its successor) organization chart (i.e.,
the status and position of the person to whom Executive reports and the class of
employees who report to Executive) shall be similar to other Vice Presidents of
the Company and/or the Guarantor with responsibilities similar to those of
Executive. Any such change in responsibility will not constitute a breach of
this Agreement by the Company or the Guarantor. During the term of this
Agreement, Executive shall devote his full business time and attention to the
business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed in
Connecticut and Executive shall not be required to travel or be assigned away
from this location more than one hundred days in any twelve-month period or more
than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $175,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $56,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly
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installments within 30 days following the end of each calendar quarter, and (ii)
if the annual incentive bonus earned by Executive for any year shall exceed the
Minimum Bonus paid for such year, such excess shall be paid to Executive at the
same time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of
compensation to Executive in consideration of the services to be rendered
hereunder, Guarantor shall grant to Executive options to acquire 10,000 shares
of Guarantor's common stock at an exercise price equal to the closing price on
the Effective Date. The options shall vest in 25%, 25% and 50% increments,
respectively, on the first, second and third anniversaries of this Agreement. In
addition, all of the options will vest if the Company terminates this Agreement
other than for Cause (as defined in Section 6.2) or if the Executive quits for
Good Reason (as defined in Section 6.3(B)). The options shall remain exercisable
for a period of five (5) years from the date of grant. The specific terms of the
above-referenced option shall be as set forth in a separate option agreement in
the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to
participate in the Guarantor's stock option programs, although Executive
understands that any grants under such programs are completely discretionary
with the Compensation Committee of the Guarantor's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
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6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts
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described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
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7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
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severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products referred to in the first sentence of this
Section 8.1 or from the sale of any of such products in connection with such
employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
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IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Thomas Woolf
Saw Mill Road
Newtown, Connecticut 06470
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
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9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MILGRAY ELECTRONICS, INC.
By:____________________________
Name:
Title:
BELL INDUSTRIES, INC.
By:____________________________
Name:
Title:
_______________________________
Thomas Woolf
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation(the "Company"), and Thomas Woolf (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 10,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then the Participant's right to purchase any shares not
purchased in such installment period shall continue until the Expiration Date
or sooner termination of the Participant's option.
<PAGE> 230
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
<TABLE>
<CAPTION>
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
<S> <C> <C>
25% 25%
25% 50%
50% 100%
</TABLE>
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject
to Section 5 hereof, this Option shall become immediately exercisable in full,
if (i) the Company terminates Participant's employment agreement (the
"Employment Agreement") dated as of ____________, 1996 other than for Cause (as
defined in the Employment Agreement) or (ii) Participant terminates the
Employment Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by means
of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company
of the full purchase price of the shares to be purchased either (i) in cash or
by certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the Participant,
only by the Participant or, in the event a conservator, guardian or legal
representative is appointed during the Participant's lifetime to handle the
affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's
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permitted successors in interest, may exercise the Option on behalf of the
spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky" laws (whether by registration or
qualification or satisfaction of exemption conditions), all applicable listing
requirements of any principal securities exchange on which shares of the
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same class are then listed and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery. The
Company shall use its best efforts and take all necessary or appropriate actions
to assure that such full compliance on the part of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Thomas Woolf
Saw Mill Road
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<PAGE> 234
Newtown, Connecticut 06470
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 235
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:____________________________
PARTICIPANT
_______________________________
Thomas Woolf
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
_______________________________
NAME:
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<PAGE> 236
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Thomas
Woolf (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 237
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 239
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
GUARANTOR
By:___________________
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<PAGE> 240
EXHIBIT 6.12
FORM OF LEGAL OPINION
[LETTERHEAD]
November __, 1996
Bell Industries, Inc.
ME Acquisition, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049
Re: Milgray Electronics, Inc.
Dear Sirs:
I have acted as counsel to Milgray Electronics, Inc., a New York
corporation (the "Company"), in connection with the acquisition of the Company
by Bell Industries, Inc., a California corporation ("Parent") by means of a
tender offer (the "Offer") by ME Acquisition, Inc., a New York corporation
("Purchaser") for all outstanding shares of common stock, par value $.25 per
share, of the Company (the "Company Common Stock"), at $14.77 per share, net to
the seller in cash, followed by a merger (the "Merger") of Purchaser into the
Company, pursuant to an Agreement and Plan of Merger entered into as of November
26, 1996 (the "Agreement"). I am delivering this opinion to you pursuant to
section 6.12 of the Agreement. Capitalized terms used and not otherwise defined
herein shall have the meanings assigned thereto in the Agreement.
I have examined such corporate records, certificates and documents and
examined such questions of law as I have deemed necessary or desirable as a
basis for rendering this opinion. Based on the foregoing, and subject to the
qualifications set forth below, it is my opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of New York.
2. The Company is qualified as a foreign corporation and is in good
standing in each of the jurisdictions listed on Schedule 3.1(a) of the Agreement
(the "Jurisdictions"). To my knowledge, except for the Jurisdictions, there are
no jurisdictions in which the character of the Company's properties or the
nature of its business makes qualification as a foreign corporation necessary.
<PAGE> 241
Bell Industries, Inc.
ME Acquisition, Inc.
November __, 1996
Page 2
3. The Company has the requisite corporate power and authority to own,
use or lease its properties and to carry on its business as now being conducted
and as it is now proposed to be conducted.
4. To my knowledge, the Company's authorized capital stock consists
solely of 60,000,000 shares of the Company Common Stock, of which 6,773,176
shares are issued and outstanding and 43,726 shares are issued and held in the
Treasury of the Company. Also to my knowledge:
(a) All of the issued and outstanding shares of the Company
Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights.
(b) No agreement or other document grants or imposes on any
shares of the Company Common Stock any right, preference, privilege or
restriction with respect to the transactions contemplated by the
Agreement (including without limitation any rights of first refusal),
other than the right to dissent from the Merger.
(c) There are no bonds, debentures, notes or other
indebtedness having general voting rights (or convertible into
securities having such rights) ("Voting Debt") of the Company issued
and outstanding.
(d) Except as set forth in the introduction to this paragraph
4 and in subparagraphs (a) - (c) of this paragraph 4, (i) there are no
shares of capital stock of the Company authorized, issued or
outstanding and (ii) except as otherwise set forth on Schedule 3.2(a)
of the Agreement, there are no existing options, warrants, calls,
preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character (including without
limitation "earn-out" arrangements) relating to the issued or unissued
capital stock of the Company, obligating the Company to issue, transfer
or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the
Company or securities convertible into or exchangeable for such shares
or equity interests or obligations of the Company to grant, extend or
enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment.
(e) There are no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any of the Company
Common Stock or
<PAGE> 242
Bell Industries, Inc.
ME Acquisition, Inc.
November __, 1996
Page 3
the capital stock of the Company or to provide funds to make any
investment (in the form of a loan, capital contribution or otherwise)
in any subsidiary of the Company (each, a "Subsidiary") or any other
entity.
(f) There are no voting trusts or other agreements or
understandings to which the Company is a party with respect to the
voting of the capital stock of the Company or any of its Subsidiaries.
(g) The Company is not required to redeem, repurchase or
otherwise acquire shares of capital stock of the Company as a result of
the transactions contemplated by this Agreement.
(h) All of the issued and outstanding shares of capital stock
of each of the Subsidiaries are owned beneficially and of record by the
Company, free and clear of all liens, charges, pledges, encumbrances,
equities, voting restrictions, claims and options of any nature. The
Company has not made, directly or indirectly, any material investment
in, advance to or purchase or guaranty of any obligations of, any
entity other than the Subsidiaries.
5. The Company has the requisite corporate power and authority to
execute and deliver the Agreement, to carry out its obligations thereunder and
to consummate the transactions contemplated thereby. Except as described in
paragraph 10 of this opinion, all corporate action has been taken on the part of
the Company necessary for the authorization, execution and delivery of the
Agreement by the Company, the performance of all obligations of the Company
under the Agreement and the consummation of the transactions contemplated by the
Agreement (including without limitation the Company's approval of the
acquisition by Parent of beneficial ownership of shares of the Company Common
Stock), and no other corporate proceedings on the part of the Company are
necessary, as a matter of law or otherwise, including any vote of the Company's
shareholders, in order to satisfy the requirements for business combinations
contained in Section 912(c)(1) of the NYBCL.
6. Upon execution and delivery of the Agreement and assuming that the
Agreement constitutes a valid and binding agreement of Parent and Purchaser, the
Agreement is a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with the terms thereof.
<PAGE> 243
Bell Industries, Inc.
ME Acquisition, Inc.
November __, 1996
Page 4
7. The execution and delivery of the Agreement by the Company, the
performance by the Company of its obligations thereunder and the consummation of
the transactions contemplated thereby, do not and will not:
(a) subject to the obtaining of any requisite approvals of the
Company's shareholders, violate any provision of the certificate of
incorporation or bylaws of the Company;
(b) require any consent, approval, order, authorization or
permit of, or registration, filing or notification to, any Governmental
Entity, except as provided in section 3.4(b) of the Agreement;
(c) to my knowledge, except as disclosed on Schedule 3.4(c) of
the Agreement, result in any violation of or the breach of or
constitute a default (with notice or lapse of time or both) under, or
give rise to any right of termination, cancellation or acceleration or
guaranteed payments under or to a loss of a material benefit under, any
of the terms, conditions or provisions of any material note, lease,
mortgage, license or agreement which would have a Material Adverse
Effect;
(d) to my knowledge, violate the provisions of any order,
writ, injunction, judgment, decree, statute, rule or regulation
applicable to the Company, in such a manner as to materially impair the
ability of the Company to perform its obligations under the Agreement
or prevent the consummation of any of the transactions contemplated by
the Agreement; or
(e) to my knowledge, result in the creation of any lien,
charge or encumbrance upon any shares of capital stock, properties or
assets of the Company under any agreement or instrument to which the
Company is a party or by which the Company is bound (other than any
liens, charges or encumbrances that may be created as a result of the
financing by Parent of the transactions contemplated by the Agreement).
8. To my knowledge, except as disclosed on Schedule 3.10 of the
Agreement, there is no suit, claim, action, proceeding or investigation pending
or threatened against or affecting the Company or any of the directors or
officers of the Company in their capacity as such that, individually or in the
aggregate, allege damages of $100,000 or more. Also to my knowledge, neither the
Company nor any officer, director or employee of the Company, has been
permanently or temporarily enjoined by
<PAGE> 244
Bell Industries, Inc.
ME Acquisition, Inc.
November __, 1996
Page 5
any order, judgment or decree of any court or any other governmental or
regulatory authority from engaging in or continuing any conduct or practice in
connection with the business, assets or properties of the Company nor is the
Company or any officer, director or employee of the Company under investigation
by any Governmental Entity related to the conduct of the Company's business.
Finally, to my knowledge, there is not in existence any order, judgment or
decree of any court or other tribunal or other agency enjoining or requiring the
Company to take any action of any kind with respect to its business, assets or
properties.
9. To my knowledge, the Company holds all material licenses, permits
and authorizations necessary for the lawful conduct of its business as now
conducted, and to my knowledge, such business is not being, and the Company has
not received any notice from any authority or person that such business has been
or is being, conducted in violation of any law, ordinance or regulation,
including without limitation any law, ordinance or regulation relating to (a)
the protection of the environment or (b) occupational health and safety, except
for possible violations which are not material either singly or in the
aggregate.
10. If Parent, Purchaser or any permitted assignee thereof acquires and
holds shares of Company Common Stock constituting at least 90% of all of the
issued and outstanding shares of Company Common Stock, no vote of the holders of
the Company Common Stock is required to approve the Agreement or the
transactions contemplated thereby, including the Merger. Otherwise, the Merger
must be approved by the affirmative vote of at least 662/3% of the outstanding
shares entitled to vote on a proposal to approve the Merger at a duly convened
special or regular meeting of the shareholders of the Company.
The opinions expressed in paragraphs 1 and 2 with respect to good
standing are based solely upon the certificates of status and good standing
issued by the appropriate governmental agency of the State of New York and the
appropriate governmental agency of each of the Jurisdictions (copies of which
are attached hereto as Exhibit A), and no opinion is expressed herein with
respect to such matters beyond the dates as of which such certificates were
issued.
The opinions set forth above are also subject to and limited by the
following:
(a) with respect to the enforceability of the Agreement, the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
(including without limitation, New York and federal laws relating to fraudulent
transfers or
<PAGE> 245
Bell Industries, Inc.
ME Acquisition, Inc.
November __, 1996
Page 6
conveyances), and court decisions and other legal or equitable principles of
general application, relating to, limiting or affecting the enforcement of
creditors' rights generally;
(b) the discretion of any court of competent jurisdiction in awarding
equitable remedies, including but not limited to specific performance or
injunctive relief; and
(c) the effect of federal, state or local antitrust or similar laws
governing business acquisitions (other than the NYBCL, the effect of which
expressly is covered by the opinions set forth herein).
The opinions herein are limited to the applicability of New York law
and the laws of the United States, and I express no opinion whatsoever as to the
laws of any other jurisdiction.
Whenever my opinion herein with respect to the existence or
nonexistence of facts is qualified by the phrase "to my knowledge," such phrase
means that I do not have actual knowledge that the facts as stated herein are
untrue.
This opinion is rendered solely for your benefit in connection with the
Agreement and may not be relied upon in any manner for any purpose, or furnished
to, used, circulated, quoted or referred to by any person without my prior
written consent.
Very truly yours,
Herschel M. Weinberg
<PAGE> 1
TENDER AGREEMENT
This TENDER AGREEMENT (the "Agreement") is entered into as of November
26, 1996 by and among Bell Industries, Inc., a California corporation
("Parent"), ME Acquisition, Inc., a New York corporation and a wholly owned
subsidiary of Parent ("Purchaser"), and Herbert S. Davidson (the "Shareholder").
RECITALS
WHEREAS, concurrently herewith, Parent and Purchaser are entering into
an Agreement and Plan of Merger (the "Merger Agreement") with Milgray
Electronics, Inc., a New York corporation (the "Company"), pursuant to which
Parent will acquire the Company, on the terms and subject to the conditions set
forth in the Merger Agreement, by means of a tender offer by Purchaser (the
"Offer") for all outstanding shares of common stock, par value $.25 per share,
of the Company (the "Company Common Stock"), at $14.77 per share, net to the
seller in cash, followed by a merger (the "Merger") of Purchaser into the
Company (capitalized terms used herein and not otherwise defined are used as
defined in the Merger Agreement); and
WHEREAS, as of the date hereof the Shareholder beneficially owns
directly or indirectly 3,742,064 shares of Company Common Stock (the "Existing
Shares" and, with any After-Acquired Shares (as defined below), the "Shares"),
which Shares constitute approximately 55.2% of the issued and outstanding shares
of Company Common Stock; and
WHEREAS, as an inducement to Parent to acquire the Company, and as a
condition to Parent's willingness to enter into the Merger Agreement and
consummate the transactions contemplated thereby, Parent and Purchaser have
required that the Shareholder agree, and the Shareholder has agreed (i) to
tender and sell the Shares in the Offer and vote the Shares in favor of the
Merger, and (ii) not to compete with Parent, Purchaser, the Company or the
Surviving Corporation to the extent set forth herein, in each case upon the
terms and subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company has approved the Merger
Agreement, the Offer, the Merger and the transactions contemplated thereby.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, and such other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Agreement to Tender.
1.1 Tender of Shares. The Shareholder hereby agrees (a) to validly
tender (or cause the record owner of any Shares to tender) all Shares pursuant
to the Offer, not later than December 10, 1996 or, with respect to
After-Acquired Shares, within one
<PAGE> 2
business day following the acquisition thereof, and (b) not to withdraw any
Shares so tendered without the prior written consent of Parent. The Shareholder
hereby acknowledges and agrees that Purchaser's obligation to accept for payment
and pay for the Shares in the Offer is subject to the terms and conditions of
the Offer.
1.2 No Liens. The Shareholder agrees that, in connection with the
transfer of Shares to Purchaser in the Offer, he shall transfer to and
unconditionally vest in the Purchaser or Parent, as the case may be, good and
valid title to such Shares, free and clear of all claims, liens, restrictions,
security interests, pledges, limitations and encumbrances whatsoever, except
those arising hereunder.
1.3 No Purchase. Purchaser may allow the Offer to expire without
accepting for payment or paying for any Shares, as set forth in the Offer to
Purchase. If any Shares are not accepted for payment in accordance with the
terms of the Offer, they shall be returned to the Shareholder.
2. Voting. The Shareholder hereby agrees that (for as long as the
Merger Agreement is in effect), at any meeting of the holders of Company Common
Stock, however called, or in connection with any written consent of the holders
of Company Common Stock, he shall vote (or cause to be voted) the Shares (a) in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions required
in furtherance thereof and hereof; (b) against any action or agreement that
would result in a breach in any respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or this Agreement; and (c) except as otherwise agreed to in writing in
advance by Parent, against any of the following actions or agreements (other
than the Merger Agreement or the transactions contemplated thereby): (i) any
action or agreement that is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone or attempt to discourage or adversely
affect the Merger, the Offer and the transactions contemplated by this Agreement
and the Merger Agreement; (ii) any extraordinary corporate transaction, such as
a merger, consolidation or other business combination involving the Company and
its Subsidiaries; (iii) a sale, lease or transfer of a material amount of assets
of the Company and its Subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (iv) any change
in the management or Board of Directors of the Company, except as provided in
Section 1.3 of the Merger Agreement; and (v) any change in the present
capitalization or dividend policy of the Company; (vi) any amendment of the
Company's articles of incorporation or bylaws; or (vii) any other material
change in the Company's corporate structure or business. Any such vote or
consent shall be given in accordance with such procedures relating thereto as
shall ensure that it is duly counted for purposes of determining that a quorum
is present and for purposes of recording the results of such vote or consent.
Notwithstanding anything to the contrary contained in this Agreement,
Shareholder shall be free to act in his capacity as Chairman of the Board of
Directors of the Company, President and Chief Executive Officer and to discharge
his fiduciary duties as such.
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<PAGE> 3
3. Representations and Warranties. The Shareholder represents and
warrants to Parent and Purchaser as follows:
3.1 Ownership of Shares. On the date hereof, Shareholder is the record
owner of 3,010,232 of the Existing Shares, H.S. Davidson Associates, Inc., a New
York corporation wholly owned by the Shareholder, is the record owner of 731,632
of the Existing Shares, and Herbert S. Davidson, as Trustee under that certain
Trust Agreement dated May 16, 1996, owns 200 of the Existing Shares, and, on the
date hereof, such Existing Shares constitute all of the shares of Company Common
Stock owned of record and beneficially by Shareholder. Shareholder has sole
voting power, sole power of disposition and sole power to agree to all of the
matters set forth in this Agreement with respect to all of the Existing Shares,
with no limitations, qualifications or restrictions on such rights, and the
Existing Shares are the only shares of Company Common Stock over which
Shareholder has such powers or otherwise are owned of record or beneficially by
Shareholder as of the date hereof.
3.2 Power; Binding Agreement. Shareholder has the legal capacity, power
and authority to enter into and perform all of its obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Shareholder will not violate any other agreement to which the Shareholder is a
party, including without limitation any voting agreement, shareholders agreement
or voting trust. This Agreement has been duly and validly executed and delivered
by the Shareholder and constitutes a valid and binding agreement of the
Shareholder, enforceable against the Shareholder in accordance with its terms,
except that such enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights.
3.3 No Conflict. Except for filings under the HSR Act, the Exchange Act
and under Article 16 of the NYBCL, (a) no filing with, and no permit,
authorization, consent or approval of, any Federal, state or foreign public body
or authority is necessary for the execution of this Agreement by the Shareholder
and the consummation by the Shareholder of the transactions contemplated hereby
and (b) neither the execution and delivery of this Agreement by the Shareholder
nor the consummation by the Shareholder of the transactions contemplated hereby
nor compliance by the Shareholder with any of the provisions hereof shall (i)
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation to which Shareholder is a party or by which Shareholder
or any of its properties or assets may be bound or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Shareholder or any
of its properties or assets.
3.4 Encumbrances. The Shares and the certificates representing such
Shares are now, and at all times during the term hereof will be, held by
Shareholder, or by a nominee or custodian for the benefit of Shareholder, free
and clear of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements
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<PAGE> 4
or any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder.
3.5 Finder's Fees. No investment banker, broker, financial advisor,
finder or other person is entitled to a commission or fee from Parent, Purchaser
or the Company in respect of this Agreement or the transactions contemplated
hereby based upon any arrangement or agreement made by or on behalf of
Shareholder, except as otherwise specifically provided in the Merger Agreement
or arrangements or agreements made by or on behalf of Parent or Purchaser by its
authorized representatives.
3.6 Reliance by Parent. Shareholder understands and acknowledges that
Parent is entering into, and causing Purchaser to enter into, the Merger
Agreement in reliance upon the Shareholder's execution and delivery of this
Agreement and the representations, warranties and covenants of the Shareholder
set forth herein.
4. Other Covenants of the Shareholder. The Shareholder hereby covenants
and agrees as follows:
4.1 No Solicitation. The Shareholder shall not (in the capacity of a
shareholder of the Company or otherwise, including without limitation as an
officer and/or director of the Company), and he shall direct and use his best
efforts to cause his agents and representatives not to, directly or indirectly
solicit (including by way of furnishing information) or respond to any inquiries
or the making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) concerning any Acquisition Proposal, except as permitted by
Section 6.1 of the Merger Agreement. If Shareholder receives any such inquiry or
proposal with respect to the sale of Shares, then the Shareholder shall promptly
inform Parent in the same manner as set forth in Section 6.1 of the Merger
Agreement. The Shareholder shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
4.2 Non-Competition; Nondisclosure.
(a) In addition to being the controlling shareholder of the
Company, the Shareholder was a founder of the Company in 1951 and is currently
the Chief Executive Officer, Chairman of the Board and President of the Company.
Accordingly, the Shareholder recognizes and expressly acknowledges that (i) he
has developed a highly valuable expertise in the electronics distribution
business which expertise is of a special, unique and extraordinary character (as
such business is presently conducted by the Company and its Subsidiaries, the
"Company Business"); (ii) Parent and Purchaser and, after the consummation of
the transactions contemplated hereby and by the Merger Agreement, the Company
and the Surviving Corporation, would be irreparably damaged, and the substantial
investment by Parent and Purchaser in the business of the Company and the
Surviving Corporation would be materially and irreparably harmed and impaired,
if the Shareholder were to (x) engage in any activity competing with the Company
Business in violation of the terms of this Agreement as set forth in Section
4.2(b) or
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<PAGE> 5
(y) disclose in violation of this Agreement or make unauthorized use of any
confidential information concerning the Company Business; (iii) he is
voluntarily entering into this Agreement, including without limitation this
Section 4.2, with the intent that the covenants in this Section 4.2 shall be
valid and enforceable; and (iv) the terms and conditions of this Agreement and
this Section 4.2 are fair and reasonable to the Shareholder in all respects and
will not create any hardship for Shareholder.
(b) In light of the foregoing, and for and in consideration of
benefits derived directly and indirectly from this Agreement, the Shareholder
covenants and agrees as follows:
(i) for a period of three years from the date of the
sale of the Shares or, if longer, while Shareholder is an officer, director or
employee of the Parent or Purchaser (the "Noncompete Term"), Shareholder will
not, alone or as a member, employee or agent of any partnership or as an
officer, agent, employee, consultant, director, shareholder (except for passive
investments of not more than five percent (5%) of the outstanding shares of, or
any other equity interest in, any corporation or other entity), directly or
indirectly manage, operate, join, control or participate in the management,
operation or control of, or work for (as an employee, consultant, independent
contractor or otherwise) or permit the use of his name by, or be connected in
any manner with any business or activity which is in competition with the
Company Business in any town, county, parish or other municipality in any state
of the United States in which the Company Business is presently conducted and in
any town, county, parish or municipality adjacent thereto;
(ii) during the Noncompete Term, the Shareholder
shall not, directly or indirectly, solicit, induce, or attempt to solicit or
induce (x) any employee of the Company or its Subsidiaries, affiliates,
successors or assigns to terminate his or her employment relationship with the
Company or its Subsidiaries, affiliates, successors or assigns for the purpose
of associating with any competitor of the Company or its Subsidiaries,
affiliates, successors or assigns; or (y) any customer, client, vendor, supplier
or consultant then under contract to the Company or its Subsidiaries,
affiliates, successors or assigns, to terminate his, her or its relationship
with the Company or its Subsidiaries, affiliates, successors or assigns, for the
purpose of associating with any competitor of the Company or its Subsidiaries,
affiliates, successors or assigns; and
(iii) unless otherwise required by any applicable law
or rules and regulations of any national exchange, not to disclose to any person
any trade secrets or confidential information with respect to any of the
Company's trademarks, products, designs, processes, customers, suppliers or
methods of distribution; PROVIDED, HOWEVER, that such trade secrets or
confidential information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by Shareholder).
(iv) Notwithstanding the foregoing, at any time after
the initial three year portion of the Noncompete Term, the Shareholder may
engage in any
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<PAGE> 6
activities that would otherwise violate the restrictions contained in this
Section 4.2(b) with the express written consent of Parent, which will not be
unreasonably withheld.
(c) The Shareholder recognizes and acknowledges that his
expertise is of special, unique and extraordinary character and that (i) in the
event of Shareholder's failure to comply with any of the restrictions contained
in this Section 4.2, it may be impossible to measure in money the damage to
Parent, Purchaser, the Company and the Surviving Corporation and (ii) in the
event of any such failure, such persons may not have an adequate remedy at law.
It is therefore agreed that Parent, Purchaser, the Company and the Surviving
Corporation, in addition to any other rights or remedies which they may have,
shall be entitled to immediate injunctive relief to enforce such restrictions,
and specific enforcement of the provisions of this Section 4.2 in the event of
any breach or threatened breach hereof.
(d) The Shareholder further acknowledges and agrees that these
covenants are reasonable and valid in geographic and temporal scope and in all
other respects and that if any court determines that any of these covenants, or
any part thereof, is invalid or unenforceable, the remainder of these covenants
shall not thereby be effected and shall be given full effect without regard to
the invalid portions. If any court determines that any of these covenants, or
any part thereof, is unenforceable because of the duration or scope of such
provision, such court shall have the power to reduce the duration or scope of
such provision, as the case may be, and, in its reduced form, such provision
shall then be enforceable.
4.3 Restriction on Transfer, Proxies and Non-Transference. Shareholder
hereby agrees, while the Merger Agreement is in effect, and except as
specifically contemplated hereby, not to (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the offer
for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any of the Shares or any interest therein, (ii) grant any
proxies or powers of attorney, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares or (iii) take any action that
would make any representation or warranty of Shareholder contained herein untrue
or incorrect or have the effect of preventing or disabling Shareholder from
performing its obligations under this Agreement.
4.4 Notice of Additional Shares. Shareholder hereby agrees to promptly
notify Parent in writing of the number of After-Acquired Shares that may be
acquired by Shareholder, if any, after the date hereof.
4.5 Public Disclosure. The Shareholder hereby agrees that Parent and
Purchaser may publish and disclose in the Offer Documents and, if approval of
the Company's shareholders is required under applicable law, the Company Proxy
Statement (including all documents and schedules filed with the SEC) his
identity and ownership of
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<PAGE> 7
Company Common Stock and the nature of his commitments, arrangements and
understandings under this Agreement.
4.6 No Inconsistent Agreements. Shareholder shall not enter into any
agreement or understanding with any person or entity the effect of which would
be inconsistent or violative of the provisions of this Agreement.
4.7 Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5. Miscellaneous.
5.1 Fees and Expenses. All costs and expenses incurred in connection
with this Agreement and the consummation of the transactions contemplated hereby
shall be paid by the party incurring such expenses.
5.2 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement shall survive the delivery of and payment
for the Shares.
5.3 Amendment and Modification. This Agreement may be amended, modified
and supplemented in any and all respects by written agreement of the parties
hereto.
5.4 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, except that Purchaser may assign, in its sole discretion, any or all of
its rights, interests and obligations hereunder to Parent. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by, the parties and their respective successors and assigns.
5.5 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
5.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon personal delivery, facsimile transmission
(which
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<PAGE> 8
is confirmed), telex or delivery by an overnight express courier service
(delivery, postage or freight charges prepaid), or on the fourth day following
deposit in the United States mail (if sent by registered or certified mail,
return receipt requested, delivery, postage or freight charges prepaid),
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Shareholder:
c/o Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Telecopy No. (516)___-____
Attention: Herbert S. Davidson
with a copy to:
Herschel M. Weinberg, Esq.
110 East 59th Street, 23rd Floor
New York, New York 10022
Telecopy No. (212) 223-4911
If to Parent or Purchaser, to:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049
Telecopy No. (310) 447-3265
Attention: Tracy A. Edwards
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Telecopy No. (310) 203-7199
Attention: Andrew W. Gross, Esq.
5.7 Definitions; Interpretation.
(a) As used in this Agreement, (i) the term "After-Acquired
Shares" shall mean any shares of Company Common Stock acquired directly or
indirectly, or otherwise beneficially owned, by the Shareholder in any capacity
after the date hereof and prior to the termination hereof, whether upon the
exercise of options, warrants or rights, the conversion or exchange of
convertible or exchangeable securities, or by means of a purchase, dividend,
distribution, gift, bequest, inheritance or as a successor
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<PAGE> 9
in interest in any capacity (including a fiduciary capacity) or upon a stock
dividend, stock split, merger (other than as contemplated by the Merger
Agreement), recapitalization, reclassification, combination, exchange of shares
or the like of the Company Common Stock, or otherwise; (ii) the term
"affiliate(s)" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act and (ii) the phrases "beneficially own" or "beneficial ownership" with
respect to any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or understanding, whether or
not in writing (without duplicative counting of the same securities by the same
holder, securities beneficially owned by a person shall include securities
beneficially owned by all other persons with whom such Person would constitute a
"group" within the meaning of Rule 13d-5 of the Exchange Act).
(b) When a reference is made in this Agreement to Section ,
such reference shall be to a Section in this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The descriptive headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
5.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
5.9 Entire Agreement; No Third Party Beneficiaries. This Agreement (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
5.10 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
5.11 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law thereof.
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<PAGE> 10
IN WITNESS WHEREOF, Parent, Purchaser and the Shareholder have caused
this Agreement to be duly executed as of the day and year first above written.
BELL INDUSTRIES, INC.
By: /s/ Theodore Williams
----------------------------------
Name: Theodore Williams
Title: Chairman and
Chief Executive Officer
ME ACQUISITION, INC.
By: /s/ Theodore Williams
-----------------------------------
Name: Theodore Williams
Title: President
/s/ Herbert S. Davidson
- -----------------------------
Herbert S. Davidson
Address: 3295 N.W. 53rd Circle
Boca Raton, Florida 33496
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Herbert S. Davidson (the "Executive") and Bell
Industries, Inc., a California corporation (the "Company"), to be effective as
of the effective date of the Merger (as defined below) with reference to the
following facts:
A. Executive is currently a director, Chief Executive Officer and
President of Milgray Electronics, Inc., a New York corporation ("Milgray");
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Company
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger by having him serve as Vice Chairman of the Board and an
Assistant Secretary of the Company; and
D. Executive is willing to accept employment by the Company on the
terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice Chairman of the Board and an Assistant Secretary of the
Company, such employment to commence on the effective date of the Merger.
Executive shall be entitled to an office and access to secretarial services at
Milgray's executive offices during the Term of this Agreement comparable to
those Executive presently has at Milgray. Executive's duties under this
Agreement are to be performed on Long Island in New York State. Executive shall
devote such time to performance of his services as Vice Chairman of the Board
and an Assistant Secretary of the Company as Executive and the Company shall
mutually agree from time to time.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of one (1) year, unless sooner
terminated as hereafter provided.
<PAGE> 2
Thereafter, this Agreement will automatically renew for annual one year periods,
unless both parties mutually agree to the contrary.
3. COMPENSATION
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a salary of
$100,000 per year during the first year of his employment hereunder (the "Base
Salary"). Executive's Base Salary in any subsequent year of employment under
this Agreement shall be a nominal amount to be set by the Company, it being
understood that such amount shall be sufficient to enable Executive to
participate in the Company's medical insurance plan. Executive's Base Salary
shall be payable in substantially equal bi-weekly installments and reduced on a
pro rata basis for any fraction of a year or month during which Executive is not
so employed. Executive shall be entitled to reimbursement for all amounts
reasonably expended on behalf of the Company, subject to verification similar to
that required of and provided by the Company's other senior executives. The
Company shall deduct from Executive's gross compensation appropriate amounts for
standard employee deductions (e.g., income tax withholding, social security and
state disability insurance) and any other amounts authorized for deduction by
Executive. At all such times as Executive may be a member of the Company's Board
of Directors, Executive will be deemed to be an "employee director".
4. INDEMNIFICATION
Executive shall be indemnified by the Company to the full extent
permitted by law in respect of his actions as an officer or director of the
Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
shall enter into an Indemnification Agreement with Executive in the form
attached as Exhibit 4.
5. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
5.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
5.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean conviction of Executive by, or a plea of guilty in, a court of competent
jurisdiction of a felony or other major crime (a plea of nolo contendere shall
be deemed a conviction).
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<PAGE> 3
5.3 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
6. NONDISCLOSURE
Both during and after Executive's employment with the Company,
Executive shall keep secret all confidential matters of the Company not in the
public domain and will not disclose them to anyone outside of the Company.
7. MISCELLANEOUS
7.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
7.2 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
7.3 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
7.4 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
-3-
<PAGE> 4
7.5 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
7.6 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
7.7 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Herbert S. Davidson
c/o Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
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<PAGE> 5
7.8 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
7.9 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
7.10 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
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<PAGE> 6
IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
-----------------------------
Name: Tracy A. Edwards
Title: Vice President
HERBERT S. DAVIDSON
/s/ Herbert S. Davidson
---------------------------------
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<PAGE> 7
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Bell Industries, Inc., a California corporation (the "Corporation"), and
Herbert S. Davidson (the "Indemnitee"), a Director and/or Officer of the
Corporation.
WHEREAS, it is essential to the Corporation to retain and
attract as Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 8
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled; and, if the Indemnitee is a Director, based upon any of the
exceptions set forth in clauses (i) through (iv) of Article Tenth of
this Corporation's Articles of Incorporation;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
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<PAGE> 9
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the requisite legal authority to make such a decision,
which decision has become final and from which no appeal or other review
proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
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<PAGE> 10
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Richard Hyman (the "Executive") and Bell
Industries, Inc., a California corporation (the "Company"), to be effective as
of the effective date of the Merger (as defined below) with reference to the
following facts:
A. Executive is currently employed as Executive Vice President,
Vice President--Sales/Marketing and Chief Operating Officer of Milgray
Electronics, Inc., a New York corporation ("Milgray");
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Company
(the "Merger");
C. The Company wishes to ensure the continued services of
Executive after the Merger by having him serve as Executive Vice
President--Electronics Distribution Group of the Company and President of
Milgray; and
D. Executive is willing to accept employment by the Company and
Milgray on the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as President of Milgray and Executive Vice
President--Electronics Distribution Group of Bell performing the functions of
principal executive officer in charge of a significant segment of the Company's
business - i.e., the business presently being conducted by Milgray, such
employment to commence on the effective date of the Merger. Executive shall
report to the President of the Company, and subject to the directions of the
Board of Directors of Milgray and/or the President of the Company, shall have
general supervision, direction and control of the business, officers and
employees of Milgray and its subsidiaries; provided, however, that Executive
shall not be required to undertake duties not commensurate with his position as
President of Milgray and Executive Vice President--Electronics Distribution
Group of Bell. Notwithstanding anything contained in the preceding sentence,
Executive acknowledges that, following the Merger, the Company plans to
investigate combining its existing
<PAGE> 2
distribution business, or segments thereof, with those of Milgray, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a result of such combination, the Company may change the exact nature of
Executive's responsibilities (but not Executive's job title), but in no event
will Executive be required to accept job responsibilities in an area outside of
his current expertise or to act in less than an executive capacity; moreover,
Executive's status and position in the Company (or its successor) organization
chart (i.e., the status and position of the person to whom Executive reports and
the class of employees who report to Executive) shall be similar to other Vice
Presidents of the Company with responsibilities similar to those of Executive.
Any such change in responsibility will not constitute a breach of this Agreement
by the Company. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and Milgray and
shall not be engaged in any other duties which interfere with the performance of
his duties hereunder. Executive shall be entitled to an office, secretarial help
and other accommodations and amenities comparable to those Executive presently
has at Milgray.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than sixty days in any twelve-month period
or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of five (5) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $400,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year of the Company
shall be $135,000. For the initial year of this Agreement, such bonus shall be
prorated from the Effective Date and
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<PAGE> 3
the bonus for any other partial year shall be similarly prorated. Any such bonus
earned by Executive shall be paid at the same time that annual incentive bonuses
for the Company's other senior executive officers are paid in accordance with
the Company's policies as in effect from time to time (but in no event will the
guaranteed minimum bonus be paid later than 30 days after the end of the
Company's fiscal year, with the remainder, if any, to be paid within 90 days
after the end of the Company's fiscal year).
3.3 Additional Benefits
Executive shall be entitled to participate in all of the Company's
employee benefit plans as listed in the Company's employee handbook, as the same
may change from time to time, and, in addition, to participate on the same terms
as senior Company executives in any benefit plans available to members of the
Company's management (whether or not listed in the employee handbook). Among
other things, Executive shall be entitled to participate in the Company's Health
Care Benefits Program, 401(k) Plan, Stock Purchase Plan, Stock Option Plan,
Short-term and Long-term Disability Programs and the Company's Executive Medical
Plan, which provides coverage for all medical expenses not otherwise covered by
the basic policy, up to $25,000. If any health, medical or disability plan or
program existing at the time of commencement of Executive's employment pursuant
to this Agreement is terminated or the benefits thereunder reduced, the Company
shall provide Executive with benefits similar to those in existence at the time
of commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to
Executive in consideration of the services to be rendered hereunder, the Company
shall grant to Executive options to acquire 25,000 shares of Company's common
stock at an exercise price equal to the closing price on the Effective Date. The
options shall vest in 10%, 20%, 30% and 40% increments, respectively, on the
first, second, third and fourth anniversaries of this Agreement. In addition,
all of the options will vest if (i) the Company terminates this agreement other
than for Cause (as defined in Section 6.2) or (ii) the Executive terminates this
Agreement for Good Reason (as defined in Section 6.3(B)). The options shall
remain exercisable for a period of five (5) years from the date of grant. The
specific terms of the above-referenced option shall be as set forth in a
separate option agreement in the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to participate
in the Company's stock option programs, although Executive understands that any
grants under such programs are completely discretionary with the Compensation
Committee of the Company's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company and Milgray, subject to verification similar
to that required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's and
Milgray's business.
5. INDEMNIFICATION
Executive shall be indemnified by the Company to the full extent
permitted by law in respect of his actions as an officer or director of the
Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
shall enter into an Indemnification Agreement with Executive in the form
attached as Exhibit 5.
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6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the
following events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in
writing to termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this
Agreement, "Cause" shall mean (i) material breach by Executive of this Agreement
or material failure by Executive to perform his duties under this Agreement
(other than by reason of Executive's Total Disability) followed by (a) written
notice from the Company to Executive specifying such material failure or such
material breach, plus (b) Executive not having cured the breach within thirty
days of actual receipt of notice or, if the breach is not capable of cure within
thirty days, Executive not having taken reasonable steps toward curing such
material failure or material breach within thirty days of his actual receipt of
such notice and diligently continuing to cure such material breach as
expeditiously as practicable, or (ii) conviction of Executive by, or a plea of
guilty in, a court of competent jurisdiction of a felony or other major crime (a
plea of nolo contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially
breaches any of its obligations, or any material violation by the Company of
Executive's rights, under this Agreement followed by (i) written notice from
Executive specifying such material breach or violation, plus (ii) the Company
not having cured the breach within thirty days of actual receipt of notice or,
if the breach is not capable of cure within thirty days, the Company not having
taken reasonable steps toward curing such material breach or failure within
thirty days of actual receipt of such notice and diligently continuing to cure
such material breach as expeditiously as practicable (the foregoing being
referred to as "Good Reason"), Executive will have the right at Executive's
election to terminate his employment hereunder by sending notice to the Company
of his election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts
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described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments
payable for the remaining term of this Agreement; provided, however, that should
Executive elect to become employed by a competitor of the Company after
termination (whether as an officer, director, employee, consultant or
otherwise), the Company may offset against the amounts it owes Executive all
compensation derived from such competitive employment. Executive agrees to
notify the Company within five (5) business days of being employed by a
competitor of the Company and to provide the Company with such documentation as
the Company may reasonably request (including, but not limited to, copies of his
Forms W-2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
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7.2 Termination by the Company because of Executive's
Total Disability. If the Company terminates Executive's employment hereunder
because of Executive's Total Disability, Executive shall be entitled to receive
from the Company for the full balance of the Term of this Agreement regular
bi-weekly payments equal to 75% of Executive's regular bi-weekly Base Salary
payment plus guaranteed bonus. This amount shall be reduced by all benefits
provided to Executive under any Company disability plan or plans. Executive
agrees to participate in such plan(s) to as full an extent and amount as
permitted under such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after two
years, and elected to receive his remaining three years of pay under this
Agreement in a lump sum, and one year later wanted to work for a competitor, the
Executive could do so if he repaid the Company two-thirds of the amount he
received as
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severance (3 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 2 years to be repaid to
the Company in exchange for a release from the non-compete). The Company may, at
any time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products referred to in the first sentence of this
Section 8.1 or from the sale of any of such products in connection with such
employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Richard Hyman
22 Bondsburry Lane
Melville, New York 11747
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Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
----------------------------
Name: Tracy A. Edwards
Title: Vice President
RICHARD HYMAN
/s/ Richard Hyman
--------------------------------
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Richard Hyman (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders
have adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994
Stock Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used
but not defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is
to the advantage and best interest of the Company and its stockholders to grant
an Incentive Stock Option to the Participant covering 25,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an
incentive stock option under Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 25,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then
<PAGE> 13
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
10% 10%
20% 30%
30% 60%
40% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 4th
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to
Section 5 hereof, this Option shall become immediately exercisable in full, if
(i) the Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option
shall be by means of a written notice of exercise delivered to the Company,
specifying the number of shares to be purchased and accompanied by payment to
the Company of the full purchase price of the shares to be purchased either (i)
in cash or by certified or cashier's check payable to the order of the Company,
or (ii) by delivery of shares of Common Stock already owned by, and in the
possession of, the Participant. Shares of Common Stock used to satisfy any
portion of the exercise price of this Option shall be valued at their fair
market value determined (in accordance with Section 4 below) as of the close of
the business day immediately preceding the date of exercise. This Option may not
be exercised for a fraction of a share and no partial exercise of this Option
may be for less than (i) one hundred (100) shares or (ii) the total number of
shares then eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death,
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<PAGE> 14
by his or her transferee by will or the laws of descent or distribution, and not
otherwise, regardless of any community property interest therein of the spouse
of the Participant or such spouse's successors in interest. If the spouse of the
Participant shall have acquired a community property interest in this Option,
the Participant, or the Participant's permitted successors in interest, may
exercise the Option on behalf of the spouse of the Participant or such spouse's
successors in interest.
Except in the event of the Participant's death or permanent
disability, the Option may not be exercised prior to the date six months from
the date hereof.
4. Fair Market Value of Common Stock. The fair market value of a
share of Company Common Stock shall be determined for purposes of this Agreement
by reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries
for any reason other than the Participant's death or permanent disability
(within the meaning of Section 22(e) (3) of the Code), the Participant's Option
shall be exercisable for a period of three (3) months after the date the
Participant ceases to be an employee of the Company or such subsidiary (unless
by its terms it sooner expires) to the extent exercisable on the date of such
cessation of employment and shall thereafter expire and be void and of no
further force or effect. A leave of absence approved in writing by the Committee
shall not be deemed a termination of employment for the purposes of this
paragraph 5, but no Option may be exercised during any such leave of absence,
except during the first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
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<PAGE> 15
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky" laws (whether by registration or
qualification or satisfaction of exemption conditions), all applicable listing
requirements of any principal securities exchange on which shares of the same
class are then listed and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery. The Company shall
use its best efforts and take all necessary or appropriate actions to assure
that such full compliance on the part of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with
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appropriate adjustments as to number and kind of shares and prices; (iii) the
continuance of the Plan by such successor corporation in which event this Option
shall remain in full effect under the terms so provided; or (iv) the payment of
an amount in cash or stock, or any combination thereof, in lieu of and in
complete satisfaction of this Option.
Adjustments under this paragraph 8 shall be made by the
Committee, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares of
stock shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
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<PAGE> 17
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Richard Hyman
22 Bondsburry Lane
Melville, New York 11747
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 18
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
-------
BELL INDUSTRIES, INC.
BY:
---------------------------
PARTICIPANT
-----------
------------------------------
Richard Hyman
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
------------------------------
NAME:
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<PAGE> 19
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Bell Industries, Inc., a California corporation (the "Corporation"), and
Richard Hyman (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited
to, expenses of investigations, judicial or administrative proceedings
or appeals, damages, judgments, fines, amounts paid in settlement by or
on behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 20
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the
limitations set forth in Section 3, Corporation will pay on behalf of the
Indemnitee all Expenses actually and reasonably incurred by Indemnitee because
of any claim or claims made against him in a Proceeding by reason of the fact
that he is or was a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated
under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee
under an insurance policy, except in respect of any excess beyond the
amount of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding
adversely to the Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal profit or advantage to which he
was not legally entitled;
(e) resulting from a claim decided in a Proceeding
adversely to the Indemnitee for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of Corporation within
the meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of
the Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 21
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right
to be indemnified under this Agreement, shall give to Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to Corporation shall be
given at its principal office and shall be directed to the President (or such
other address as Corporation shall designate in writing to the Indemnitee);
notice shall be deemed received if sent by prepaid mail properly addressed, the
date of such notice being the date postmarked. In addition, the Indemnitee shall
give Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall
be deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 22
10. Applicable Law. This Agreement shall be governed by and
construed in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon
the Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under
this Agreement shall continue as to Indemnitee even though he may have ceased to
be a Director and/or Officer and shall inure to the benefit of the heirs and
personal representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By: By:
----------------------- -------------------
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between John Tortorici (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Vice President-Finance and
Treasurer of the Company with executive responsibilities in the financial and
administrative areas;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company
on the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice President--Finance and Treasurer. Executive shall report
to the President of the Company, and subject to the directions of the President,
shall be responsible for performing various executive functions in the financial
and administrative areas similar or relating to the functions presently
performed by Executive at the Company; provided, however, that Executive shall
not be required to undertake duties not commensurate with his position as Vice
President--Finance and Treasurer of the Company. Notwithstanding anything
contained in the preceding sentence, Executive acknowledges that, following the
Merger, the Guarantor plans to investigate combining its existing distribution
business, or segments thereof, with those of the Company, and where feasible or
practicable, to combine such business, or segments thereof, and that as a result
of such combination, the Company may change the exact nature of Executive's
responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less
<PAGE> 2
than an executive capacity; moreover, Executive's status and position in the
Company (or its successor) organization chart (i.e., the status and position of
the person to whom Executive reports and the class of employees who report to
Executive) shall be similar to other Vice Presidents of the Company and/or the
Guarantor with responsibilities similar to those of Executive. Any such change
in responsibility will not constitute a breach of this Agreement by the Company
or the Guarantor. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and shall not be
engaged in any other duties which interfere with the performance of his duties
hereunder. Executive shall be entitled to an office, secretarial help and other
accommodations and amenities comparable to those Executive presently has at the
Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than forty days in any twelve-month period
or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $175,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $70,000.
For the initial year of this Agreement, such bonus shall be prorated from the
Effective Date and the bonus for any partial year shall be similarly prorated.
Any such bonus earned by Executive shall be paid at the same time that annual
incentive bonuses for the Company's other senior executive officers are paid in
accordance with the Company's policies as in effect from time to time (but in no
event will the guaranteed minimum bonus be paid later than 30
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<PAGE> 3
days after the end of the Company's fiscal year, with the remainder, if any, to
be paid within 90 days after the end of the Company's fiscal year).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the
Guarantor's stock option programs, although Executive understands that any
grants under such programs are completely discretionary with the Compensation
Committee of the Guarantor's Board of Directors.
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
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<PAGE> 4
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
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<PAGE> 5
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good Reason
by Executive
(A) By the Company. Notwithstanding any other provision
of this Agreement, the Company shall have the right to terminate Executive's
employment with the Company without Cause at any time, and upon such termination
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
(B) By Executive. If the Company materially breaches any
of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a
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<PAGE> 6
Total Disability involving Executive, his employment may be terminated by
written notice by the Company to Executive. In the event of Executive's death
during the term of this Agreement, the persons designated by Executive (or if
Executive does not make such a designation, then Executive's estate) shall be
entitled to receive his Base Salary plus guaranteed bonus provided for Executive
in this Agreement for a period of twelve months following Executive's death
(regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
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<PAGE> 7
7.3 Voluntary Termination by Executive or Termination by the
Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products
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<PAGE> 8
referred to in the first sentence of this Section 8.1 or from the sale of any of
such products in connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and after
Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
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<PAGE> 9
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Mr. John Tortorici
12 Lorenz Drive
Valhalla, New York 10595
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<PAGE> 10
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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<PAGE> 11
IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ Richard Hyman
-------------------------------
Name: Richard Hyman
Title: Executive Vice President
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
-------------------------------
Name: Tracy A. Edwards
Title: Vice President
/s/ John Tortorici
-------------------------------
John Tortorici
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<PAGE> 12
EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and John Tortorici (the "Participant").
RECITALS
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right
and option (the "Option") to purchase, on the terms and conditions hereinafter
set forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase all of the shares that the
Participant is entitled to purchase in such installment period, then
<PAGE> 13
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company of
the full purchase price of the shares to be purchased either (i) in cash or by
certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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<PAGE> 14
such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a
share of Company Common Stock shall be determined for purposes of this Agreement
by reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities
Laws and Exchange Rules. No shares issuable upon the exercise of this Option
shall be issued and delivered unless and until there shall have been full
compliance with all applicable requirements of the Securities Act of 1933, as
amended, and all applicable state securities
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<PAGE> 15
or "Blue Sky" laws (whether by registration or qualification or satisfaction of
exemption conditions), all applicable listing requirements of any principal
securities exchange on which shares of the same class are then listed and any
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full
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<PAGE> 16
effect under the terms so provided; or (iv) the payment of an amount in cash or
stock, or any combination thereof, in lieu of and in complete satisfaction of
this Option.
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock
Certificate. Neither the Participant nor any other person legally entitled to
exercise this Option shall be entitled to any of the rights or privileges of a
shareholder of the Company in respect of any shares issuable upon any exercise
of this Option unless and until a certificate or certificates representing such
shares shall have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained
herein shall be construed as agreement by the Company, express or implied, to
employ Participant or contract for Participant's services, to restrict the
Company's right to discharge Participant or cease contracting for Participant's
services or to modify, extend or otherwise affect in any manner whatsoever the
terms of any employment agreement or contract for services which may exist
between the Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is
subject to, and the Company and the Participant agree to be bound by, all of the
terms and conditions of the Plan, as the same shall be amended from time to time
in accordance with the terms thereof, but no such amendment shall adversely
affect the Participant's rights under this Option without the prior written
consent of the Participant.
13. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be
given or sent pursuant to the terms of this Agreement shall be sufficiently
given or served hereunder to any party when transmitted by registered or
certified mail, postage prepaid, addressed to the party to be served as follows:
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<PAGE> 17
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Mr. John Tortorici
12 Lorenz Drive
Valhalla, New York 10595
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 18
15. Execution. This Option has been granted, executed and
delivered the day and year first above written at Los Angeles, California, and
the interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:______________________
PARTICIPANT
_________________________
John Tortorici
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
_________________________
NAME:
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<PAGE> 19
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and John
Tortorici (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the
right of the Corporation or otherwise and whether of a civil, criminal,
administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 20
(c) The terms "Director" and "Officer" shall include Indemnitee's
service at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise as well as a Director and/or Officer of the
Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from paying
as indemnity;
(b) for which payment is actually made to the Indemnitee under an
insurance policy, except in respect of any excess beyond the amount of
payment under such insurance;
(c) for which payment the Indemnitee is indemnified by Corporation
otherwise than pursuant to this Agreement and payment is actually made
to the Indemnitee except in respect of any excess beyond the amount of
the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely to
the Indemnitee based upon or attributable to the Indemnitee gaining in
fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely to
the Indemnitee for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of Corporation within the meaning
of Section 16(b) or 16(c) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any state statutory law or
common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 21
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 22
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:_______________________
GUARANTOR
By:_______________________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Gary Adams (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Regional Vice President--Sales of
the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Regional Vice President--Sales. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for supervising sales activities of branches assigned to
Executive and related matters, including profit and loss for assigned branches
and region, customer relations and agreements with significant customers and
performing other functions similar to the functions presently performed by
Executive at the Company connected with the foregoing; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Regional Vice President--Sales of the Company. Notwithstanding
anything contained in the preceding sentence, Executive acknowledges that,
following the Merger, the Guarantor plans to investigate combining its existing
distribution business, or segments thereof, with those of the Company, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a result of such combination, the Company may change the exact nature of
Executive's
<PAGE> 2
responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less than an executive capacity; moreover, Executive's
status and position in the Company (or its successor) organization chart (i.e.,
the status and position of the person to whom Executive reports and the class of
employees who report to Executive) shall be similar to other Vice Presidents of
the Company and/or the Guarantor with responsibilities similar to those of
Executive. Any such change in responsibility will not constitute a breach of
this Agreement by the Company or the Guarantor. During the term of this
Agreement, Executive shall devote his full business time and attention to the
business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed in Orlando,
Florida and Executive shall not be required to travel or be assigned away from
this location more than one hundred days in any twelve-month period or more than
five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $150,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $61,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly
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<PAGE> 3
installments within 30 days following the end of each calendar quarter, and (ii)
if the annual incentive bonus earned by Executive for any year shall exceed the
Minimum Bonus paid for such year, such excess shall be paid to Executive at the
same time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the Guarantor's stock
option programs, although Executive understands that any grants under such
programs are completely discretionary with the Compensation Committee of the
Guarantor's Board of Directors.
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<PAGE> 4
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the
following events:
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6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in
writing to termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this
Agreement, "Cause" shall mean (i) material breach by Executive of this Agreement
or material failure by Executive to perform his duties under this Agreement
(other than by reason of Executive's Total Disability) followed by (a) written
notice from the Company to Executive specifying such material failure or such
material breach, plus (b) Executive not having cured the breach within thirty
days of actual receipt of notice or, if the breach is not capable of cure within
thirty days, Executive not having taken reasonable steps toward curing such
material failure or material breach within thirty days of his actual receipt of
such notice and diligently continuing to cure such material breach as
expeditiously as practicable, or (ii) conviction of Executive by, or a plea of
guilty in, a court of competent jurisdiction of a felony or other major crime (a
plea of nolo contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
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6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of
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Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
7.3 Voluntary Termination by Executive or Termination by the
Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company
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in exchange for a release from the non-compete). The Company may, at any time
and from time to time, attach an annex to this Agreement specifying specific
jurisdictions in which the covenant not-to-compete set forth in this Section 8.1
is applicable. Notwithstanding anything to the contrary contained in the second
sentence of this Section 8.1, Executive shall not be restricted from employment
by a manufacturer or manufacturer's sales representative which manufactures
and/or sells any products referred to in the first sentence of this Section 8.1
or from the sale of any of such products in connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and after
Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the state of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
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IF TO EXECUTIVE:
Gary Adams
74 Sweetbriar Branch
Longwood, Florida 32750
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ Richard Hyman
-------------------------------
Name: Richard Hyman
Title: Executive Vice President
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
-------------------------------
Name: Tracy A. Edwards
Title: Vice President
/s/ Gary Adams
-------------------------------
Gary Adams
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Gary Adams (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right and
option (the "Option") to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase all of the shares that the
Participant is entitled to purchase in such installment period, then
<PAGE> 13
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject
to Section 5 hereof, this Option shall become immediately exercisable in full,
if (i) the Company terminates Participant's employment agreement (the
"Employment Agreement") dated as of ____________, 1996 other than for Cause (as
defined in the Employment Agreement) or (ii) Participant terminates the
Employment Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be
by means of a written notice of exercise delivered to the Company, specifying
the number of shares to be purchased and accompanied by payment to the Company
of the full purchase price of the shares to be purchased either (i) in cash or
by certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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<PAGE> 14
such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent
disability, the Option may not be exercised prior to the date six months from
the date hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries
for any reason other than the Participant's death or permanent disability
(within the meaning of Section 22(e) (3) of the Code), the Participant's Option
shall be exercisable for a period of three (3) months after the date the
Participant ceases to be an employee of the Company or such subsidiary (unless
by its terms it sooner expires) to the extent exercisable on the date of such
cessation of employment and shall thereafter expire and be void and of no
further force or effect. A leave of absence approved in writing by the Committee
shall not be deemed a termination of employment for the purposes of this
paragraph 5, but no Option may be exercised during any such leave of absence,
except during the first three (3) months thereof.
If the Participant dies or becomes permanently disabled while
employed by the Company or one of its subsidiaries, the Participant's Option
shall expire one (1) year after the date of such death or permanent disability
unless by its terms it sooner expires. During such period after death, such
Option may, to the extent that it remained unexercised (but exercisable by the
Participant according to such Option's terms) on the date of such death, be
exercised by the person or persons to whom the Participant's rights under the
Option shall pass by the Participant's will or by the laws of descent and
distribution.
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<PAGE> 15
6. Shares to be Issued in Compliance with Federal Securities
Laws and Exchange Rules. No shares issuable upon the exercise of this Option
shall be issued and delivered unless and until there shall have been full
compliance with all applicable requirements of the Securities Act of 1933, as
amended, and all applicable state securities or "Blue Sky" laws (whether by
registration or qualification or satisfaction of exemption conditions), all
applicable listing requirements of any principal securities exchange on which
shares of the same class are then listed and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and delivery. The
Company shall use its best efforts and take all necessary or appropriate actions
to assure that such full compliance on the part of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the
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<PAGE> 16
substitution therefore of a new option covering the stock of a successor
corporation, with appropriate adjustments as to number and kind of shares and
prices; (iii) the continuance of the Plan by such successor corporation in which
event this Option shall remain in full effect under the terms so provided; or
(iv) the payment of an amount in cash or stock, or any combination thereof, in
lieu of and in complete satisfaction of this Option.
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
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11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Gary Adams
74 Sweetbriar Branch
Longwood, Florida 32750
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY: _________________
PARTICIPANT
_____________________
Gary Adams
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
____________________
NAME:
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation")
Bell Industries, Inc., a California corporation (the "Guarantor"), and Gary
Adams (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 20
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 21
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 22
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:_________________________
GUARANTOR
By:_________________________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Andrew Epstein (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Vice President--Operations of the
Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice President--Operations. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for performing functions similar to the functions presently
performed by Executive at the Company, including supervision of physical
handling of inventory, management of security, quality and efficiency of the
Company's warehouses, purchasing of supplies and equipment (other than computer
equipment) and maintenance and repair of facilities; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Vice President--Operations of the Company. Notwithstanding anything
contained in the preceding sentence, Executive acknowledges that, following the
Merger, the Guarantor plans to investigate combining its existing distribution
business, or segments thereof, with those of the Company, and where feasible or
practicable, to combine such business, or segments thereof, and that as a result
of such combination, the Company may change the exact nature of Executive's
<PAGE> 2
responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less than an executive capacity; moreover, Executive's
status and position in the Company (or its successor) organization chart (i.e.,
the status and position of the person to whom Executive reports and the class of
employees who report to Executive) shall be similar to other Vice Presidents of
the Company and/or the Guarantor with responsibilities similar to those of
Executive. Any such change in responsibility will not constitute a breach of
this Agreement by the Company or the Guarantor. During the term of this
Agreement, Executive shall devote his full business time and attention to the
business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than forty days in any twelve-month period
or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $175,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $66,000.
For the initial year of this Agreement, such bonus shall be prorated from the
Effective Date and the bonus for any partial year shall be similarly prorated.
Any such bonus earned by Executive shall be paid at the same time that annual
incentive bonuses for the Company's other senior
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<PAGE> 3
executive officers are paid in accordance with the Company's policies as in
effect from time to time (but in no event will the guaranteed minimum bonus be
paid later than 30 days after the end of the Company's fiscal year, with the
remainder, if any, to be paid within 90 days after the end of the Company's
fiscal year).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if (i) the Company terminates this Agreement other than for Cause (as
defined in Section 6.2) or (ii) the Executive terminates this Agreement for Good
Reason (as defined in Section 6.3(B)). The options shall remain exercisable for
a period of five (5) years from the date of grant. The specific terms of the
above-referenced option shall be as set forth in a separate option agreement in
the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to participate in the Guarantor's stock
option programs, although Executive understands that any grants under such
programs are completely discretionary with the Compensation Committee of the
Guarantor's Board of Directors.
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
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<PAGE> 4
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
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<PAGE> 5
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts described in Section 7.1
and Executive shall be fully vested in all options granted to him under this
Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a
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<PAGE> 6
Total Disability involving Executive, his employment may be terminated by
written notice by the Company to Executive. In the event of Executive's death
during the term of this Agreement, the persons designated by Executive (or if
Executive does not make such a designation, then Executive's estate) shall be
entitled to receive his Base Salary plus guaranteed bonus provided for Executive
in this Agreement for a period of twelve months following Executive's death
(regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause
or Termination by Executive for Good Reason. If the Company terminates
Executive's employment other than for Cause or if Executive, for Good Reason
terminates his employment, Executive shall be entitled to receive from the
Company (at Executive's election which must be exercised within 30 days of
termination), either (i) within twenty days of such election, a lump sum payment
in an amount equal to the sum of his Base Salary (plus guaranteed bonus)
payments to which Executive would be entitled under this Agreement as a
full-time employee of the Company for the balance of Executive's term of
employment under this Agreement (from the date of termination); such lump sum
payment discounted to present value using the interest rate offered at the date
of termination by The Chase Manhattan Bank, N.A., on a certificate of deposit
for a period of time equal to the remaining term of this Agreement at the date
of termination and subject to the noncompetition covenant for the then balance
of the Term as set forth in Section 8.1; or (ii) receive all Base Salary plus
guaranteed bonus payments for the remaining term of this Agreement; provided,
however, that should Executive elect to become employed by a competitor of the
Company after termination (whether as an officer, director, employee, consultant
or otherwise), the Company may offset against the amounts it owes Executive all
compensation derived from such competitive employment. Executive agrees to
notify the Company within five (5) business days of being employed by a
competitor of the Company and to provide the Company with such documentation as
the Company may reasonably request (including, but not limited to, copies of his
Forms W-2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
7.2 Termination by the Company because of
Executive's Total Disability. If the Company terminates Executive's employment
hereunder because of Executive's Total Disability, Executive shall be entitled
to receive from the Company for the full balance of the Term of this Agreement
regular bi-weekly payments equal to 75% of Executive's regular bi-weekly Base
Salary payment plus guaranteed bonus. This amount shall be reduced by all
benefits provided to Executive under any Company disability plan or plans.
Executive agrees to participate in such plan(s) to as full an extent and amount
as permitted under such plans.
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<PAGE> 7
7.3 Voluntary Termination by Executive or
Termination by the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products
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<PAGE> 8
referred to in the first sentence of this Section 8.1 or from the sale of any of
such products in connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
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9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Andrew Epstein
52 Rustic Gate Lane
Dix Hills, New York 11746
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<PAGE> 10
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ Richard Hyman
------------------------------
Name: Richard Hyman
Title: Executive Vice President
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
-----------------------------
Name: Tracy A. Edwards
Title: Vice President
/s/ Andrew Epstein
-----------------------------
Andrew Epstein
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<PAGE> 12
EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Andrew Epstein (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 10,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then
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the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by means
of a written notice of exercise delivered to the Company, specifying the number
of shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased either (i) in cash or by certified
or cashier's check payable to the order of the Company, or (ii) by delivery of
shares of Common Stock already owned by, and in the possession of, the
Participant. Shares of Common Stock used to satisfy any portion of the exercise
price of this Option shall be valued at their fair market value determined (in
accordance with Section 4 below) as of the close of the business day immediately
preceding the date of exercise. This Option may not be exercised for a fraction
of a share and no partial exercise of this Option may be for less than (i) one
hundred (100) shares or (ii) the total number of shares then eligible for
exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities
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or "Blue Sky" laws (whether by registration or qualification or satisfaction of
exemption conditions), all applicable listing requirements of any principal
securities exchange on which shares of the same class are then listed and any
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
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(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Andrew Epstein
52 Rustic Gate Lane
Dix Hills, New York 11746
Any party, by written notice, may designate another address for notices to be
sent from time to time.
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY: _________________
PARTICIPANT
_____________________
Andrew Epstein
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
____________________
NAME:
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EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Andrew
Epstein (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
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(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the
limitations set forth in Section 3, Corporation will pay on behalf of the
Indemnitee all Expenses actually and reasonably incurred by Indemnitee because
of any claim or claims made against him in a Proceeding by reason of the fact
that he is or was a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be
obligated under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his
right to be indemnified under this Agreement, shall give to Corporation notice
in writing as soon as practicable of any claim made against him for which
indemnity will or could be sought under this Agreement. Notice to Corporation
shall be given at its principal office and shall be directed to the President
(or such other address as Corporation shall designate in writing to the
Indemnitee); notice shall be deemed received if sent by prepaid mail properly
addressed, the date of such notice being the date postmarked. In addition, the
Indemnitee shall give Corporation such information and cooperation as it may
reasonably require.
8. Saving Clause. If this Agreement or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein
shall be deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by
and construed in accordance with California law.
11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding
upon the Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification
under this Agreement shall continue as to Indemnitee even though he may have
ceased to be a Director and/or Officer and shall inure to the benefit of the
heirs and personal representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under
this Agreement shall cover Indemnitee's service as a Director and/or Officer
prior to or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of
the Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:________________________
GUARANTOR
By:________________________
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between James Darren O'Donnell (the "Executive"),
Milgray Electronics, Inc., a New York corporation (the "Company"), and Bell
Industries, Inc., a California corporation (the "Guarantor"), to be effective as
of the effective date of the Merger (as defined below) with reference to the
following facts:
A. Executive is currently employed as Vice President--Marketing
of the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of
Executive after the Merger; and
D. Executive is willing to continue his employment with the
Company on the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Vice President--Marketing. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for marketing, product and asset management and related matters
and performing other functions similar to the functions presently performed by
Executive at the Company with respect to passives, electromechanical and power
supplies; provided, however, that Executive shall not be required to undertake
duties not commensurate with his position as Vice President--Marketing of the
Company. Notwithstanding anything contained in the preceding sentence, Executive
acknowledges that, following the Merger, the Guarantor plans to investigate
combining its existing distribution business, or segments thereof, with those of
the Company, and where feasible or practicable, to combine such business, or
segments thereof, and that as a result of such combination, the Company may
change the exact nature of Executive's responsibilities (but not Executive's job
title), but in no event will Executive be required to accept job
responsibilities in an area
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outside of his current expertise or to act in less than an executive capacity;
moreover, Executive's status and position in the Company (or its successor)
organization chart (i.e., the status and position of the person to whom
Executive reports and the class of employees who report to Executive) shall be
similar to other Vice Presidents of the Company and/or the Guarantor with
responsibilities similar to those of Executive. Any such change in
responsibility will not constitute a breach of this Agreement by the Company or
the Guarantor. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and shall not be
engaged in any other duties which interfere with the performance of his duties
hereunder. Executive shall be entitled to an office, secretarial help and other
accommodations and amenities comparable to those Executive presently has at the
Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than seventy five days in any twelve-month
period or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $225,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $75,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly installments within 30 days
following the end of each calendar quarter, and (ii) if the
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annual incentive bonus earned by Executive for any year shall exceed the Minimum
Bonus paid for such year, such excess shall be paid to Executive at the same
time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive in
consideration of the services to be rendered hereunder, Guarantor shall grant to
Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this Agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the Guarantor's stock
option programs, although Executive understands that any grants under such
programs are completely discretionary with the Compensation Committee of the
Guarantor's Board of Directors.
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3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the
full extent permitted by law in respect of his actions as an officer or
director of the Company and shall be provided with such liability insurance
coverage in this connection as is provided to other Company executives. In
addition, the Company and Guarantor shall enter into an Indemnification
Agreement with Executive in the form attached as Exhibit 5.
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<PAGE> 5
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially
breaches any of its obligations, or any material violation by the Company of
Executive's rights, under this Agreement followed by (i) written notice from
Executive specifying such material breach or violation, plus (ii) the Company
not having cured the breach within thirty days of actual receipt of notice or,
if the breach is not capable of cure within thirty days, the Company not having
taken reasonable steps toward curing such material breach or failure within
thirty days of actual receipt of such notice and diligently continuing to cure
such material breach as expeditiously as practicable (the foregoing being
referred to as "Good Reason"), Executive will have the right at Executive's
election to terminate his employment hereunder by sending notice to the Company
of his election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts
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<PAGE> 6
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
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<PAGE> 7
7.2 Termination by the Company because of Executive's
Total Disability. If the Company terminates Executive's employment hereunder
because of Executive's Total Disability, Executive shall be entitled to receive
from the Company for the full balance of the Term of this Agreement regular
bi-weekly payments equal to 75% of Executive's regular bi-weekly Base Salary
payment plus guaranteed bonus. This amount shall be reduced by all benefits
provided to Executive under any Company disability plan or plans. Executive
agrees to participate in such plan(s) to as full an extent and amount as
permitted under such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
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<PAGE> 8
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products referred to in the first sentence of this
Section 8.1 or from the sale of any of such products in connection with such
employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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<PAGE> 9
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
James Darren O'Donnell
19 Jesse Way
Mt. Sinai, New York 11766
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<PAGE> 10
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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<PAGE> 11
IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ Richard Hyman
-------------------------------------
Name: Richard Hyman
Title: Executive Vice President
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
-------------------------------------
Name: Tracy A. Edwards
Title: Vice President
/s/ James Darren O'Donnell
-------------------------------------
James Darren O'Donnell
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<PAGE> 12
EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and James Darren O'Donnell (the
"Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders
have adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994
Stock Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used
but not defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is
to the advantage and best interest of the Company and its stockholders to grant
an Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an
incentive stock option under Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 10,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then
<PAGE> 13
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
25% 25%
25% 50%
50% 100%
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company of
the full purchase price of the shares to be purchased either (i) in cash or by
certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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<PAGE> 14
such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a
share of Company Common Stock shall be determined for purposes of this Agreement
by reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws
and Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky"
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<PAGE> 15
laws (whether by registration or qualification or satisfaction of exemption
conditions), all applicable listing requirements of any principal securities
exchange on which shares of the same class are then listed and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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<PAGE> 16
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock
Certificate. Neither the Participant nor any other person legally entitled to
exercise this Option shall be entitled to any of the rights or privileges of a
shareholder of the Company in respect of any shares issuable upon any exercise
of this Option unless and until a certificate or certificates representing such
shares shall have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained
herein shall be construed as agreement by the Company, express or implied, to
employ Participant or contract for Participant's services, to restrict the
Company's right to discharge Participant or cease contracting for Participant's
services or to modify, extend or otherwise affect in any manner whatsoever the
terms of any employment agreement or contract for services which may exist
between the Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is
subject to, and the Company and the Participant agree to be bound by, all of the
terms and conditions of the Plan, as the same shall be amended from time to time
in accordance with the terms thereof, but no such amendment shall adversely
affect the Participant's rights under this Option without the prior written
consent of the Participant.
13. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be
given or sent pursuant to the terms of this Agreement shall be sufficiently
given or served hereunder to any party when transmitted by registered or
certified mail, postage prepaid, addressed to the party to be served as follows:
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<PAGE> 17
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: James Darren O'Donnell
19 Jesse Way
Mt. Sinai, New York 11766
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 18
15. Execution. This Option has been granted, executed and
delivered the day and year first above written at Los Angeles, California, and
the interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:
-------------------------------------
PARTICIPANT
----------------------------------------
NAME: James Darren O'Donnell
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
----------------------------------------
NAME:
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<PAGE> 19
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and James
Darren O'Donnell (the "Indemnitee"), a Director and/or Officer of the
Corporation.
WHEREAS, it is essential to the Corporation to retain and
attract as Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 20
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the
limitations set forth in Section 3, Corporation will pay on behalf of the
Indemnitee all Expenses actually and reasonably incurred by Indemnitee because
of any claim or claims made against him in a Proceeding by reason of the fact
that he is or was a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be
obligated under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable
law from paying as indemnity;
(b) for which payment is actually made to the Indemnitee
under an insurance policy, except in respect of any excess beyond the
amount of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding
adversely to the Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal profit or advantage to which he
was not legally entitled;
(e) resulting from a claim decided in a Proceeding
adversely to the Indemnitee for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of Corporation within
the meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of
the Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 21
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right
to be indemnified under this Agreement, shall give to Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to Corporation shall be
given at its principal office and shall be directed to the President (or such
other address as Corporation shall designate in writing to the Indemnitee);
notice shall be deemed received if sent by prepaid mail properly addressed, the
date of such notice being the date postmarked. In addition, the Indemnitee shall
give Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall
be deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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10. Applicable Law. This Agreement shall be governed by and
construed in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon
the Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under
this Agreement shall continue as to Indemnitee even though he may have ceased to
be a Director and/or Officer and shall inure to the benefit of the heirs and
personal representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________________ By:_____________________________________
GUARANTOR
By:_____________________________________
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of November 26, 1996, by and between Steven Sokoloff (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Vice President--Marketing of the
Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby
accepts such employment as Vice President--Marketing. Executive shall report to
the President of the Company, and subject to the directions of the President,
shall be responsible for marketing, product and asset management and related
matters and performing other functions similar to the functions presently
performed by Executive at the Company with respect to semiconductors, computer
products and displays; provided, however, that Executive shall not be required
to undertake duties not commensurate with his position as Vice
President--Marketing of the Company. Notwithstanding anything contained in the
preceding sentence, Executive acknowledges that, following the Merger, the
Guarantor plans to investigate combining its existing distribution business, or
segments thereof, with those of the Company, and where feasible or practicable,
to combine such business, or segments thereof, and that as a result of such
combination, the Company may change the exact nature of Executive's
responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area
<PAGE> 2
outside of his current expertise or to act in less than an executive capacity;
moreover, Executive's status and position in the Company (or its successor)
organization chart (i.e., the status and position of the person to whom
Executive reports and the class of employees who report to Executive) shall be
similar to other Vice Presidents of the Company and/or the Guarantor with
responsibilities similar to those of Executive. Any such change in
responsibility will not constitute a breach of this Agreement by the Company or
the Guarantor. During the term of this Agreement, Executive shall devote his
full business time and attention to the business of the Company and shall not be
engaged in any other duties which interfere with the performance of his duties
hereunder. Executive shall be entitled to an office, secretarial help and other
accommodations and amenities comparable to those Executive presently has at the
Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than seventy five days in any twelve-month
period or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $250,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $94,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly installments within 30 days
following the end of each calendar quarter, and (ii) if the
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<PAGE> 3
annual incentive bonus earned by Executive for any year shall exceed the Minimum
Bonus paid for such year, such excess shall be paid to Executive at the same
time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of
compensation to Executive in consideration of the services to be rendered
hereunder, Guarantor shall grant to Executive options to acquire 10,000 shares
of Guarantor's common stock at an exercise price equal to the closing price on
the Effective Date. The options shall vest in 25%, 25% and 50% increments,
respectively, on the first, second and third anniversaries of this Agreement. In
addition, all of the options will vest if the Company terminates this Agreement
other than for Cause (as defined in Section 6.2) or if the Executive quits for
Good Reason (as defined in Section 6.3(B)). The options shall remain exercisable
for a period of five (5) years from the date of grant. The specific terms of the
above-referenced option shall be as set forth in a separate option agreement in
the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to
participate in the Guarantor's stock option programs, although Executive
understands that any grants under such programs are completely discretionary
with the Compensation Committee of the Guarantor's Board of Directors.
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<PAGE> 4
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the
full extent permitted by law in respect of his actions as an officer or director
of the Company and shall be provided with such liability insurance coverage in
this connection as is provided to other Company executives. In addition, the
Company and Guarantor shall enter into an Indemnification Agreement with
Executive in the form attached as Exhibit 5.
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<PAGE> 5
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the
following events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in
writing to termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this
Agreement, "Cause" shall mean (i) material breach by Executive of this Agreement
or material failure by Executive to perform his duties under this Agreement
(other than by reason of Executive's Total Disability) followed by (a) written
notice from the Company to Executive specifying such material failure or such
material breach, plus (b) Executive not having cured the breach within thirty
days of actual receipt of notice or, if the breach is not capable of cure within
thirty days, Executive not having taken reasonable steps toward curing such
material failure or material breach within thirty days of his actual receipt of
such notice and diligently continuing to cure such material breach as
expeditiously as practicable, or (ii) conviction of Executive by, or a plea of
guilty in, a court of competent jurisdiction of a felony or other major crime (a
plea of nolo contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid.
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<PAGE> 6
Upon any such termination, Executive shall have the rights to receive the
amounts described in Section 7.1 and Executive shall be fully vested in all
options granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-
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<PAGE> 7
2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
7.3 Voluntary Termination by Executive or Termination by the
Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without
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<PAGE> 8
Cause after one year, and elected to receive his remaining two years of pay
under this Agreement in a lump sum, and one year later wanted to work for a
competitor, the Executive could do so if he repaid the Company one-half of the
amount he received as severance (2 years severance pay lump-sum, 1 year of which
was "earned" by not competing, with the portion relating to the remaining 1 year
to be repaid to the Company in exchange for a release from the non-compete). The
Company may, at any time and from time to time, attach an annex to this
Agreement specifying specific jurisdictions in which the covenant not-to-compete
set forth in this Section 8.1 is applicable. Notwithstanding anything to the
contrary contained in the second sentence of this Section 8.1, Executive shall
not be restricted from employment by a manufacturer or manufacturer's sales
representative which manufactures and/or sells any products referred to in the
first sentence of this Section 8.1 or from the sale of any of such products in
connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and after
Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
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<PAGE> 9
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect
of this Agreement (or its validity, interpretation or enforcement), the
employment relationship or the subject matter hereof shall be submitted to
binding arbitration taking place in the State of New York before a single
arbitrator in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Expenses
of the arbitration shall be apportioned between the parties by the arbitrator on
the basis of relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising
out of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any
person other than the parties and their respective successors and permitted
assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein)
constitutes the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
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9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Steven Sokoloff
5 Gaines Drive
Farmingdale, New York 11738
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction)
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<PAGE> 11
that would cause the application of the laws of any jurisdiction other than the
State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by the Company and Executive. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's
obligations hereunder. Guarantor agrees that Executive may proceed directly
against Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ Richard Hyman
----------------------------
Name: Richard Hyman
Title: Executive Vice President
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
----------------------------
Name: Tracy A. Edwards
Title: Vice President
/s/ Steven Sokoloff
-------------------------------
Steven Sokoloff
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EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of
this _________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Steven Sokoloff (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected
executive and other key employees, and other persons furnishing services to the
Company or any subsidiary of the Company, as the Compensation Committee (the
"Committee") may from time to time determine, of Restricted Stock or options to
purchase shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right
and option (the "Option") to purchase, on the terms and conditions hereinafter
set forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase all of the shares that the
Participant is entitled to purchase in such installment period, then
<PAGE> 14
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
<TABLE>
<CAPTION>
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
<S> <C> <C>
25% 25%
25% 50%
50% 100%
</TABLE>
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to
Section 5 hereof, this Option shall become immediately exercisable in full, if
(i) the Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by
means of a written notice of exercise delivered to the Company, specifying
the number of shares to be purchased and accompanied by payment to the Company
of the full purchase price of the shares to be purchased either (i) in cash or
by certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
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<PAGE> 15
such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent
disability, the Option may not be exercised prior to the date six months from
the date hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while
employed by the Company or one of its subsidiaries, the Participant's Option
shall expire one (1) year after the date of such death or permanent disability
unless by its terms it sooner expires. During such period after death, such
Option may, to the extent that it remained unexercised (but exercisable by the
Participant according to such Option's terms) on the date of such death, be
exercised by the person or persons to whom the Participant's rights under the
Option shall pass by the Participant's will or by the laws of descent and
distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky"
-3-
<PAGE> 16
laws (whether by registration or qualification or satisfaction of exemption
conditions), all applicable listing requirements of any principal securities
exchange on which shares of the same class are then listed and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
-4-
<PAGE> 17
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be
given or sent pursuant to the terms of this Agreement shall be sufficiently
given or served hereunder to any party when transmitted by registered or
certified mail, postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Steven Sokoloff
5 Gaines Drive
-5-
<PAGE> 18
Farmingdale, New York 11738
Any party, by written notice, may designate another address for notices to be
sent from time to time.
-6-
<PAGE> 19
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:
----------------------------
PARTICIPANT
-------------------------------
NAME: Steven Sokoloff
By his or her signature below, the spouse of the Participant agrees
to be bound by all of the terms and conditions of the foregoing Agreement.
NAME:
--------------------------
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<PAGE> 20
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Steven
Sokoloff (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by
or in the right of the Corporation or otherwise and whether of a
civil, criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not
limited to, expenses of investigations, judicial or administrative
proceedings or appeals, damages, judgments, fines, amounts paid in
settlement by or on behalf of Indemnitee, attorneys' fees and
disbursements and any expenses of establishing a right to
indemnification under this Agreement.
<PAGE> 21
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise as well as a
Director and/or Officer of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated
under this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable
law from paying as indemnity;
(b) for which payment is actually made to the Indemnitee
under an insurance policy, except in respect of any excess beyond
the amount of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess
beyond the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding
adversely to the Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal profit or advantage to which
he was not legally entitled;
(e) resulting from a claim decided in a Proceeding
adversely to the Indemnitee for an accounting of profits made from
the purchase or sale by the Indemnitee of securities of Corporation
within the meaning of Section 16(b) or 16(c) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of
any state statutory law or common law; or
(f) brought about or contributed to by the dishonesty of
the Indemnitee seeking payment hereunder; however, notwithstanding
the foregoing, the Indemnitee shall be indemnified under this
Agreement as to any claims upon which suit may be brought against
him by reason of any alleged dishonesty on his part, unless it shall
be decided in a Proceeding that he committed (i) acts of active and
deliberate dishonesty (ii) with actual dishonest purpose and intent,
and (iii) which acts were material to the cause of action so
adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 22
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 23
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
GUARANTOR
By:___________________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Elliott Schnabel (also known as Elliott
Stevens) (the "Executive"), Milgray Electronics, Inc., a New York corporation
(the "Company"), and Bell Industries, Inc., a California corporation (the
"Guarantor"), to be effective as of the effective date of the Merger (as defined
below) with reference to the following facts:
A. Executive is currently employed as Regional Vice President--Sales of
the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Regional Vice President--Sales. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for supervising sales activities of branches assigned to
Executive and related matters, including profit and loss for assigned branches
and region, customer relations and agreements with significant customers and
performing other functions similar to the functions presently performed by
Executive at the Company connected with the foregoing; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Regional Vice President--Sales of the Company. Notwithstanding
anything contained in the preceding sentence, Executive acknowledges that,
following the Merger, the Guarantor plans to investigate combining its existing
distribution business, or segments thereof, with those of the Company, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a
<PAGE> 2
result of such combination, the Company may change the exact nature of
Executive's responsibilities (but not Executive's job title), but in no event
will Executive be required to accept job responsibilities in an area outside of
his current expertise or to act in less than an executive capacity; moreover,
Executive's status and position in the Company (or its successor) organization
chart (i.e., the status and position of the person to whom Executive reports and
the class of employees who report to Executive) shall be similar to other Vice
Presidents of the Company and/or the Guarantor with responsibilities similar to
those of Executive. Any such change in responsibility will not constitute a
breach of this Agreement by the Company or the Guarantor. During the term of
this Agreement, Executive shall devote his full business time and attention to
the business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed on Long
Island in New York State and Executive shall not be required to travel or be
assigned away from this location more than one hundred days in any twelve-month
period or more than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $200,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $80,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall
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<PAGE> 3
be paid as follows: (i) the Minimum Bonus shall be paid in four equal quarterly
installments within 30 days following the end of each calendar quarter, and (ii)
if the annual incentive bonus earned by Executive for any year shall exceed the
Minimum Bonus paid for such year, such excess shall be paid to Executive at the
same time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of compensation to Executive
in consideration of the services to be rendered hereunder, Guarantor shall grant
to Executive options to acquire 10,000 shares of Guarantor's common stock at an
exercise price equal to the closing price on the Effective Date. The options
shall vest in 25%, 25% and 50% increments, respectively, on the first, second
and third anniversaries of this Agreement. In addition, all of the options will
vest if the Company terminates this Agreement other than for Cause (as defined
in Section 6.2) or if the Executive quits for Good Reason (as defined in Section
6.3(B)). The options shall remain exercisable for a period of five (5) years
from the date of grant. The specific terms of the above-referenced option shall
be as set forth in a separate option agreement in the form annexed hereto as
Exhibit 3.4.
(B) Executive shall be entitled to participate in the
Guarantor's stock option programs, although Executive understands that any
grants under such programs are completely discretionary with the Compensation
Committee of the Guarantor's Board of Directors.
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<PAGE> 4
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
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<PAGE> 5
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid.
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<PAGE> 6
Upon any such termination, Executive shall have the rights to receive the
amounts described in Section 7.1 and Executive shall be fully vested in all
options granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-
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<PAGE> 7
2) in order to enable the Company to verify the amount of Executive's
compensation from any competitor.
7.2 Termination by the Company because of Executive's
Total Disability. If the Company terminates Executive's employment hereunder
because of Executive's Total Disability, Executive shall be entitled to receive
from the Company for the full balance of the Term of this Agreement regular
bi-weekly payments equal to 75% of Executive's regular bi-weekly Base Salary
payment plus guaranteed bonus. This amount shall be reduced by all benefits
provided to Executive under any Company disability plan or plans. Executive
agrees to participate in such plan(s) to as full an extent and amount as
permitted under such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without
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<PAGE> 8
Cause after one year, and elected to receive his remaining two years of pay
under this Agreement in a lump sum, and one year later wanted to work for a
competitor, the Executive could do so if he repaid the Company one-half of the
amount he received as severance (2 years severance pay lump-sum, 1 year of which
was "earned" by not competing, with the portion relating to the remaining 1 year
to be repaid to the Company in exchange for a release from the non-compete). The
Company may, at any time and from time to time, attach an annex to this
Agreement specifying specific jurisdictions in which the covenant not-to-compete
set forth in this Section 8.1 is applicable. Notwithstanding anything to the
contrary contained in the second sentence of this Section 8.1, Executive shall
not be restricted from employment by a manufacturer or manufacturer's sales
representative which manufactures and/or sells any products referred to in the
first sentence of this Section 8.1 or from the sale of any of such products in
connection with such employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
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<PAGE> 9
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
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<PAGE> 10
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Elliott Schnabel
605 Benton Road
East Meadow, New York 11554
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices,
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<PAGE> 11
requests, demands, claims, and other communications hereunder are to be
delivered by giving notice in the manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
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<PAGE> 12
IN WITNESS THEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ Richard Hyman
------------------------------------
Name: Richard Hyman
Title: Executive Vice President
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
------------------------------------
Name: Tracy A. Edwards
Title: Vice President
/s/ Elliott Schnabel
-------------------------------------
Elliott Schnabel
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<PAGE> 13
EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation (the "Company"), and Elliott Schnabel (also known as
Elliott Stevens) (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant the right and
option (the "Option") to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate 10,000 shares of Common Stock at the
purchase price of $___________ per share, exercisable in installment periods in
accordance with the provisions of this Agreement during a period expiring on the
5th anniversary of the date of this Agreement (the "Expiration Date") or earlier
in accordance with Section 5 hereof; provided, however, if the Participant does
not in any given installment period purchase al of the shares that the
Participant is entitled to purchase in such installment period, then
<PAGE> 14
the Participant's right to purchase any shares not purchased in such installment
period shall continue until the Expiration Date or sooner termination of the
Participant's option.
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
<TABLE>
<CAPTION>
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
<S> <C> <C>
25% 25%
25% 50%
50% 100%
</TABLE>
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject to Section
5 hereof, this Option shall become immediately exercisable in full, if (i) the
Company terminates Participant's employment agreement (the "Employment
Agreement") dated as of ____________, 1996 other than for Cause (as defined in
the Employment Agreement) or (ii) Participant terminates the Employment
Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by means
of a written notice of exercise delivered to the Company, specifying the number
of shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased either (i) in cash or by certified
or cashier's check payable to the order of the Company, or (ii) by delivery of
shares of Common Stock already owned by, and in the possession of, the
Participant. Shares of Common Stock used to satisfy any portion of the exercise
price of this Option shall be valued at their fair market value determined (in
accordance with Section 4 below) as of the close of the business day immediately
preceding the date of exercise. This Option may not be exercised for a fraction
of a share and no partial exercise of this Option may be for less than (i) one
hundred (100) shares or (ii) the total number of shares then eligible for
exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the
Participant, only by the Participant or, in the event a conservator, guardian or
legal representative is appointed during the Participant's lifetime to handle
the affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise,
regardless of any community property interest therein of the spouse of the
Participant or
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<PAGE> 15
such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's permitted successors in interest, may exercise the Option on
behalf of the spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky"
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<PAGE> 16
laws (whether by registration or qualification or satisfaction of exemption
conditions), all applicable listing requirements of any principal securities
exchange on which shares of the same class are then listed and any other
requirements of law or of any regulatory bodies having jurisdiction over such
issuance and delivery. The Company shall use its best efforts and take all
necessary or appropriate actions to assure that such full compliance on the part
of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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<PAGE> 17
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing
herein contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
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<PAGE> 18
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Elliott Schnabel
605 Benton Road
East Meadow, New York 11554
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 19
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:____________________________
PARTICIPANT
_______________________________
NAME
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
_______________________________
NAME
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<PAGE> 20
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Elliott
Schnabel (also known as Elliott Stevens) (the "Indemnitee"), a Director and/or
Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and
attract as Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and Officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 21
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable
law from paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 22
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 23
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
GUARANTOR
By:___________________
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<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
November 26, 1996, by and between Thomas Woolf (the "Executive"), Milgray
Electronics, Inc., a New York corporation (the "Company"), and Bell Industries,
Inc., a California corporation (the "Guarantor"), to be effective as of the
effective date of the Merger (as defined below) with reference to the following
facts:
A. Executive is currently employed as Regional Vice President--Sales of
the Company;
B. Pursuant to an agreement dated as of November 26, 1996, ME
Acquisition, Inc., a New York corporation and wholly owned subsidiary of the
Company ("Acquisition Sub") will make a tender offer to acquire all of the
outstanding capital stock of Milgray (the "Tender Offer"). After completion of
the Tender Offer, it is intended that Acquisition Sub will be merged with and
into Milgray, and Milgray will become a wholly-owned subsidiary of the Guarantor
(the "Merger");
C. The Company wishes to ensure the continued services of Executive
after the Merger; and
D. Executive is willing to continue his employment with the Company on
the terms and conditions hereinafter set forth.
NOW THEREFORE, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. EMPLOYMENT
1.1 Duties and Responsibilities
The Company does hereby employ Executive and Executive hereby accepts
such employment as Regional Vice President--Sales. Executive shall report to the
President of the Company, and subject to the directions of the President, shall
be responsible for supervising sales activities of branches assigned to
Executive and related matters, including profit and loss for assigned branches
and region, customer relations and agreements with significant customers and
performing other functions similar to the functions presently performed by
Executive at the Company connected with the foregoing; provided, however, that
Executive shall not be required to undertake duties not commensurate with his
position as Regional Vice President--Sales of the Company. Notwithstanding
anything contained in the preceding sentence, Executive acknowledges that,
following the Merger, the Guarantor plans to investigate combining its existing
distribution business, or segments thereof, with those of the Company, and where
feasible or practicable, to combine such business, or segments thereof, and that
as a result of such combination, the Company may change the exact nature of
Executive's
<PAGE> 2
responsibilities (but not Executive's job title), but in no event will Executive
be required to accept job responsibilities in an area outside of his current
expertise or to act in less than an executive capacity; moreover, Executive's
status and position in the Company (or its successor) organization chart (i.e.,
the status and position of the person to whom Executive reports and the class of
employees who report to Executive) shall be similar to other Vice Presidents of
the Company and/or the Guarantor with responsibilities similar to those of
Executive. Any such change in responsibility will not constitute a breach of
this Agreement by the Company or the Guarantor. During the term of this
Agreement, Executive shall devote his full business time and attention to the
business of the Company and shall not be engaged in any other duties which
interfere with the performance of his duties hereunder. Executive shall be
entitled to an office, secretarial help and other accommodations and amenities
comparable to those Executive presently has at the Company.
1.2 Place of Performance
Executive's duties under this Agreement are to be performed in
Connecticut and Executive shall not be required to travel or be assigned away
from this location more than one hundred days in any twelve-month period or more
than five consecutive days in any thirty-day period.
2. TERM
This Agreement shall be in full force and effect for a period (the
"Term") which shall commence as of the effective date of the Merger (the
"Effective Date") and shall continue for a period of three (3) years, unless
sooner terminated as hereafter provided.
3. COMPENSATION
3.1 Base Salary
As compensation for the services to be performed by Executive during
the continuance of this Agreement, the Company shall pay Executive a base salary
of $175,000 per year for each year of his employment hereunder (the "Base
Salary"). Base Salary shall be payable in substantially equal bi-weekly
installments and reduced on a pro rata basis for any fraction of a year or month
during which Executive is not so employed.
3.2 Bonus
Executive shall be entitled to earn an incentive bonus based upon
achievement of financial and other goals established from time to time by the
Company, provided that the minimum bonus for each fiscal year shall be $56,000
(the "Minimum Bonus"). For the initial year of this Agreement, such bonus shall
be prorated from the Effective Date and the bonus for any partial year shall be
similarly prorated. The incentive bonus shall be paid as follows: (i) the
Minimum Bonus shall be paid in four equal quarterly
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<PAGE> 3
installments within 30 days following the end of each calendar quarter, and (ii)
if the annual incentive bonus earned by Executive for any year shall exceed the
Minimum Bonus paid for such year, such excess shall be paid to Executive at the
same time that annual incentive bonuses for the Company's other senior executive
officers are paid in accordance with the Company's policies as in effect from
time to time (but in no event later than 60 days following the date of payment
of the last quarterly installment of Minimum Bonus).
3.3 Additional Benefits
Executive shall be entitled to participate in all of Guarantor's
employee benefit plans as listed in the Guarantor's employee handbook, as the
same may change from time to time, and, in addition, to participate on the same
terms as senior Guarantor executives in any benefit plans available to members
of the Guarantor's management (whether or not listed in the employee handbook).
Among other things, Executive shall be entitled to participate in the
Guarantor's Health Care Benefits Program, 401(k) Plan, Stock Purchase Plan,
Stock Option Plan, Short-term and Long-term Disability Programs and the
Guarantor's Executive Medical Plan, which provides coverage for all medical
expenses not otherwise covered by the basic policy, up to $25,000. If any
health, medical or disability plan or program existing at the time of
commencement of Executive's employment pursuant to this Agreement is terminated
or the benefits thereunder reduced, the Company or Guarantor shall provide
Executive with benefits similar to those in existence at the time of
commencement of Executive's employment hereunder.
3.4 Stock Options
(A) As an additional element of
compensation to Executive in consideration of the services to be rendered
hereunder, Guarantor shall grant to Executive options to acquire 10,000 shares
of Guarantor's common stock at an exercise price equal to the closing price on
the Effective Date. The options shall vest in 25%, 25% and 50% increments,
respectively, on the first, second and third anniversaries of this Agreement. In
addition, all of the options will vest if the Company terminates this Agreement
other than for Cause (as defined in Section 6.2) or if the Executive quits for
Good Reason (as defined in Section 6.3(B)). The options shall remain exercisable
for a period of five (5) years from the date of grant. The specific terms of the
above-referenced option shall be as set forth in a separate option agreement in
the form annexed hereto as Exhibit 3.4.
(B) Executive shall be entitled to
participate in the Guarantor's stock option programs, although Executive
understands that any grants under such programs are completely discretionary
with the Compensation Committee of the Guarantor's Board of Directors.
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<PAGE> 4
3.5 Reimbursements
Executive shall be entitled to reimbursement for all amounts reasonably
expended on behalf of the Company, subject to verification similar to that
required of and provided by the Company's other senior executives.
3.6 Deductions
The Company shall deduct from Executive's gross compensation
appropriate amounts for standard employee deductions (e.g., income tax
withholding, social security and state disability insurance) and any other
amounts authorized for deduction by Executive.
3.7 Disability
Except in the case of Executive's Total Disability (as defined in
Section 6.4), Executive's full compensation and benefits under this Agreement
shall be continued during any period when he is absent or unable to perform his
duties due to illness, disability or other incapacity; and Executive's inability
to perform his duties by reason of the foregoing shall not constitute a failure
to perform his obligations under this Agreement and shall not be deemed a
default by Executive hereunder. The consequences of Executive's Total Disability
is covered in Section 7.2 of this Agreement.
4. VACATION
Executive shall be entitled to four weeks of vacation in each
twelve-month period; provided, however, that no more than six weeks may be taken
during any eighteen-month period. Such vacation will accrue on a pro rata basis
from the date employment commences under this Agreement. At the end of his
employment hereunder, Executive shall be paid for any accrued but unused
vacation time. Executive agrees that he will coordinate his vacation plans and
schedules in order to prevent any undue disruption of the Company's business.
5. INDEMNIFICATION
Executive shall be indemnified by Guarantor and the Company to the full
extent permitted by law in respect of his actions as an officer or director of
the Company and shall be provided with such liability insurance coverage in this
connection as is provided to other Company executives. In addition, the Company
and Guarantor shall enter into an Indemnification Agreement with Executive in
the form attached as Exhibit 5.
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<PAGE> 5
6. TERMINATION OF EMPLOYMENT
Employment shall terminate upon the occurrence of any of the following
events:
6.1 Mutual Agreement
Whenever the Company and Executive mutually agree in writing to
termination;
6.2 Termination for Cause
At any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) material breach by Executive of this Agreement or material failure by
Executive to perform his duties under this Agreement (other than by reason of
Executive's Total Disability) followed by (a) written notice from the Company to
Executive specifying such material failure or such material breach, plus (b)
Executive not having cured the breach within thirty days of actual receipt of
notice or, if the breach is not capable of cure within thirty days, Executive
not having taken reasonable steps toward curing such material failure or
material breach within thirty days of his actual receipt of such notice and
diligently continuing to cure such material breach as expeditiously as
practicable, or (ii) conviction of Executive by, or a plea of guilty in, a court
of competent jurisdiction of a felony or other major crime (a plea of nolo
contendere shall be deemed a conviction).
6.3 Termination without Cause by the Company or for Good
Reason by Executive
(A) By the Company. Notwithstanding any other
provision of this Agreement, the Company shall have the right to terminate
Executive's employment with the Company and Milgray without Cause at any time,
and upon such termination Executive shall have the rights to receive the amounts
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
(B) By Executive. If the Company materially breaches
any of its obligations, or any material violation by the Company of Executive's
rights, under this Agreement followed by (i) written notice from Executive
specifying such material breach or violation, plus (ii) the Company not having
cured the breach within thirty days of actual receipt of notice or, if the
breach is not capable of cure within thirty days, the Company not having taken
reasonable steps toward curing such material breach or failure within thirty
days of actual receipt of such notice and diligently continuing to cure such
material breach as expeditiously as practicable (the foregoing being referred to
as "Good Reason"), Executive will have the right at Executive's election to
terminate his employment hereunder by sending notice to the Company of his
election to so terminate. Termination pursuant to this subsection will be
effective from and after the effective date of Executive's notice to the Company
terminating Executive's employment as aforesaid. Upon any such termination,
Executive shall have the rights to receive the amounts
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<PAGE> 6
described in Section 7.1 and Executive shall be fully vested in all options
granted to him under this Agreement.
6.4 Death/Disability
The death or Total Disability of Executive. For the purposes of this
Agreement, "Total Disability" shall mean the inability of Executive due to
illness or other incapacity to perform his duties hereunder in a normal manner
for a period of six months (whether or not consecutive) during any consecutive
eighteen-month period. If there shall be a Total Disability involving Executive,
his employment may be terminated by written notice by the Company to Executive.
In the event of Executive's death during the term of this Agreement, the persons
designated by Executive (or if Executive does not make such a designation, then
Executive's estate) shall be entitled to receive his Base Salary plus guaranteed
bonus provided for Executive in this Agreement for a period of twelve months
following Executive's death (regardless of the time of such death).
6.5 Voluntary Termination
Executive may terminate his employment under this Agreement at any time
upon thirty days written notice.
7. CONSEQUENCES OF TERMINATION OF EMPLOYMENT
7.1 Termination by the Company other than for Cause or
Termination by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause or if Executive, for Good Reason terminates his
employment, Executive shall be entitled to receive from the Company (at
Executive's election which must be exercised within 30 days of termination),
either (i) within twenty days of such election, a lump sum payment in an amount
equal to the sum of his Base Salary (plus guaranteed bonus) payments to which
Executive would be entitled under this Agreement as a full-time employee of the
Company for the balance of Executive's term of employment under this Agreement
(from the date of termination); such lump sum payment discounted to present
value using the interest rate offered at the date of termination by The Chase
Manhattan Bank, N.A., on a certificate of deposit for a period of time equal to
the remaining term of this Agreement at the date of termination and subject to
the noncompetition covenant for the then balance of the Term as set forth in
Section 8.1; or (ii) receive all Base Salary plus guaranteed bonus payments for
the remaining term of this Agreement; provided, however, that should Executive
elect to become employed by a competitor of the Company after termination
(whether as an officer, director, employee, consultant or otherwise), the
Company may offset against the amounts it owes Executive all compensation
derived from such competitive employment. Executive agrees to notify the Company
within five (5) business days of being employed by a competitor of the Company
and to provide the Company with such documentation as the Company may reasonably
request (including, but not limited to, copies of his Forms W-2) in order to
enable the Company to verify the amount of Executive's compensation from any
competitor.
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<PAGE> 7
7.2 Termination by the Company because of Executive's Total
Disability. If the Company terminates Executive's employment hereunder because
of Executive's Total Disability, Executive shall be entitled to receive from the
Company for the full balance of the Term of this Agreement regular bi-weekly
payments equal to 75% of Executive's regular bi-weekly Base Salary payment plus
guaranteed bonus. This amount shall be reduced by all benefits provided to
Executive under any Company disability plan or plans. Executive agrees to
participate in such plan(s) to as full an extent and amount as permitted under
such plans.
7.3 Voluntary Termination by Executive or Termination by
the Company for Cause.
If Executive voluntarily terminates his employment hereunder (other
than for Good Reason or Total Disability) or if the Company terminates
Executive's employment for Cause, Executive shall not be entitled to any further
compensation following such termination. The Company shall not be entitled to
recover any damages or other amount from Executive by reason of any such
termination.
8. RESTRICTIVE COVENANTS
8.1 Covenant Not to Compete.
During Executive's employment with the Company, Executive shall not,
directly or indirectly, be engaged in the distribution or sale of any products
that are directly competitive with products presently distributed or sold by the
Company or any of its subsidiaries within the geographical area in which the
Company or any of its subsidiaries conducts its business (except for passive
investments by Executive of up to 5% of the outstanding stock of a publicly-held
company engaged in any such activities). Following termination of Executive's
employment with the Company, both in the case of voluntary termination by
Executive (whether or not for Good Reason) or in the case of termination by the
Company (whether or not for Cause), there shall be no restrictions on
Executive's employment by another entity (whether or not competitive with the
Company) unless Executive shall have elected the compensation option set forth
in Section 7.1(i), in which case the restrictions set forth in the first
sentence of this Section 8.1 (except as provided in the last sentence of this
Section 8.1) shall continue to apply for the balance of the term of this
Agreement as of the date of termination; provided, however, that if Executive
elects the option set forth in Section 7.1(i) and then determines at a
subsequent date that he wishes to take actions that would otherwise violate such
restrictions, Executive will be relieved from such restrictions if he repays to
the Company, in advance of taking such actions, a pro rata portion of the
payments he received pursuant to that election (based on the length of the time
remaining on the non-competition covenant at that time in comparison to the
total remaining term of the non-competition covenant at the time of
termination). For example, if Executive were terminated without Cause after one
year, and elected to receive his remaining two years of pay under this Agreement
in a lump sum, and one year later wanted to work for a competitor, the Executive
could do so if he repaid the Company one-half of the amount he received as
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<PAGE> 8
severance (2 years severance pay lump-sum, 1 year of which was "earned" by not
competing, with the portion relating to the remaining 1 year to be repaid to the
Company in exchange for a release from the non-compete). The Company may, at any
time and from time to time, attach an annex to this Agreement specifying
specific jurisdictions in which the covenant not-to-compete set forth in this
Section 8.1 is applicable. Notwithstanding anything to the contrary contained in
the second sentence of this Section 8.1, Executive shall not be restricted from
employment by a manufacturer or manufacturer's sales representative which
manufactures and/or sells any products referred to in the first sentence of this
Section 8.1 or from the sale of any of such products in connection with such
employment.
8.2 Nondisclosure and Nonsolicitation. Both during and
after Executive's employment with the Company, Executive shall keep secret all
material confidential matters of the Company not in the public domain and will
not disclose them to anyone outside of the Company. Further, after termination
Executive will not seek to hire Company employees.
9. MISCELLANEOUS
9.1 Arbitration
All disputes, controversies or claims arising out of or in respect of
this Agreement (or its validity, interpretation or enforcement), the employment
relationship or the subject matter hereof shall be submitted to binding
arbitration taking place in the State of New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Expenses of the arbitration
shall be apportioned between the parties by the arbitrator on the basis of
relative fault.
9.2 Legal Fees
The Company shall pay all legal fees incurred by Executive arising out
of the Company's failing to make any payment or withholding any employee
benefits under this Agreement or contesting the validity, enforceability or
interpretation of this Agreement in the event it is determined that (i) such
action was not justified under this Agreement or (ii) if it is determined that
both the Company and the Executive acted in violation of this Agreement, the
Company's actions constituted a more serious violation than did the Executive's
actions. Determination as to Executive's entitlement to legal fees pursuant to
this Agreement may be made by the arbitrator if arbitration is sought or by
independent legal counsel acceptable to both parties.
9.3 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
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<PAGE> 9
9.4 Entire Agreement
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations between the parties, written or
oral, to the extent they have related in any way to the subject matter hereof.
9.5 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of the other.
9.6 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
9.7 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.8 Notices
All notices, requests, demands, claims, and other communications
required or permitted hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
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<PAGE> 10
IF TO THE COMPANY:
Milgray Electronics, Inc.
77 Schmitt Boulevard
Farmingdale, New York 11735
Attn: President
IF TO THE GUARANTOR:
Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, California 90049-5022
Attn: President
IF TO EXECUTIVE:
Thomas Woolf
Saw Mill Road
Newtown, Connecticut 06470
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving notice in the
manner herein set forth.
9.9 Governing Law
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
9.10 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Company and Executive. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
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<PAGE> 11
9.11 Severability
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
9.12 Guarantee
Guarantor unconditionally guarantees all of the Company's obligations
hereunder. Guarantor agrees that Executive may proceed directly against
Guarantor in the event of the Company's failure to perform all of its
obligations hereunder and shall not be obligated to exhaust his remedies against
the Company.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MILGRAY ELECTRONICS, INC.
By: /s/ Richard Hyman
-------------------------------
Name: Richard Hyman
Title: Executive Vice President
BELL INDUSTRIES, INC.
By: /s/ Tracy A. Edwards
-------------------------------
Name: Tracy A. Edwards
Title: Vice President
/s/ Thomas Woolf
--------------------------------
Thomas Woolf
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<PAGE> 12
EXHIBIT 3.4
FORM OF STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement ("Agreement") is made as of this
_________ day of _______________, 199_, between Bell Industries, Inc., a
California corporation(the "Company"), and Thomas Woolf (the "Participant").
R E C I T A L S
1. The Board of Directors of the Company and its shareholders have
adopted the 1990 Stock Option Plan as of October 29, 1990 and the 1994 Stock
Option Plan as of November 1, 1994 (the "Plans"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Plans.
2. The Plans provide for the selling or granting to selected executive
and other key employees, and other persons furnishing services to the Company or
any subsidiary of the Company, as the Compensation Committee (the "Committee")
may from time to time determine, of Restricted Stock or options to purchase
shares of Common Stock of the Company.
3. Pursuant to the Plans, the Committee has determined that it is to
the advantage and best interest of the Company and its stockholders to grant an
Incentive Stock Option to the Participant covering 10,000 shares of the
Company's Common Stock as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Incentive Stock Option Agreement between the Company and
the Participant.
4. The Option granted hereby is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Participant
the right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate 10,000 shares of Common
Stock at the purchase price of $___________ per share, exercisable in
installment periods in accordance with the provisions of this Agreement during a
period expiring on the 5th anniversary of the date of this Agreement (the
"Expiration Date") or earlier in accordance with Section 5 hereof; provided,
however, if the Participant does not in any given installment period purchase
all of the shares that the Participant is entitled to purchase in such
installment period, then the Participant's right to purchase any shares not
purchased in such installment period shall continue until the Expiration Date
or sooner termination of the Participant's option.
<PAGE> 13
2. Vesting. This Option shall vest and become exercisable in the
percentages and on the dates set forth below:
<TABLE>
<CAPTION>
Percentage Cumulative
Initially Percentage
Date Exercisable Exercisable
---- ----------- -----------
<S> <C> <C>
25% 25%
25% 50%
50% 100%
</TABLE>
Subject to earlier termination under Section 5 hereof, at any time after the 3rd
anniversary date of this Agreement, but no later than the Expiration Date, the
Participant may purchase all or any part of the shares subject to this Option
which the Participant theretofore failed to purchase. In each case, the number
of shares which may be purchased shall be calculated to the nearest full share.
Notwithstanding the foregoing vesting schedule, but subject
to Section 5 hereof, this Option shall become immediately exercisable in full,
if (i) the Company terminates Participant's employment agreement (the
"Employment Agreement") dated as of ____________, 1996 other than for Cause (as
defined in the Employment Agreement) or (ii) Participant terminates the
Employment Agreement for Good Reason (as defined in the Employment Agreement).
3. Manner of Exercise. Each exercise of this Option shall be by means
of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company
of the full purchase price of the shares to be purchased either (i) in cash or
by certified or cashier's check payable to the order of the Company, or (ii) by
delivery of shares of Common Stock already owned by, and in the possession of,
the Participant. Shares of Common Stock used to satisfy any portion of the
exercise price of this Option shall be valued at their fair market value
determined (in accordance with Section 4 below) as of the close of the business
day immediately preceding the date of exercise. This Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (i) one hundred (100) shares or (ii) the total number of shares then
eligible for exercise if less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of the Participant,
only by the Participant or, in the event a conservator, guardian or legal
representative is appointed during the Participant's lifetime to handle the
affairs of the Participant, by such conservator, guardian or legal
representative; and (ii) after the Participant's death, by his or her transferee
by will or the laws of descent or distribution, and not otherwise, regardless of
any community property interest therein of the spouse of the Participant or
such spouse's successors in interest. If the spouse of the Participant shall
have acquired a community property interest in this Option, the Participant, or
the Participant's
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<PAGE> 14
permitted successors in interest, may exercise the Option on behalf of the
spouse of the Participant or such spouse's successors in interest.
Except in the event of the Participant's death or permanent disability,
the Option may not be exercised prior to the date six months from the date
hereof.
4. Fair Market Value of Common Stock. The fair market value of a share
of Company Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the New York Stock Exchange (or other
principal stock exchange on which such shares are then listed) or, if such
shares are not then listed on such exchange (or other principal stock exchange),
by reference to the closing price (if a National Market Issue) or the mean
between the bid and asked price (if other over-the-counter issue) of a share as
supplied by the National Association of Securities Dealers through NASDAQ (or
its successor in function), in each case as reported by The Wall Street Journal,
for the date on which the option is granted or exercised, or if such date is not
a business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Cessation of Services, Death or Permanent Disability. If a
Participant ceases to be employed by the Company or one of its subsidiaries for
any reason other than the Participant's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the Participant's Option shall be
exercisable for a period of three (3) months after the date the Participant
ceases to be an employee of the Company or such subsidiary (unless by its terms
it sooner expires) to the extent exercisable on the date of such cessation of
employment and shall thereafter expire and be void and of no further force or
effect. A leave of absence approved in writing by the Committee shall not be
deemed a termination of employment for the purposes of this paragraph 5, but no
Option may be exercised during any such leave of absence, except during the
first three (3) months thereof.
If the Participant dies or becomes permanently disabled while employed
by the Company or one of its subsidiaries, the Participant's Option shall expire
one (1) year after the date of such death or permanent disability unless by its
terms it sooner expires. During such period after death, such Option may, to the
extent that it remained unexercised (but exercisable by the Participant
according to such Option's terms) on the date of such death, be exercised by the
person or persons to whom the Participant's rights under the Option shall pass
by the Participant's will or by the laws of descent and distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws and
Exchange Rules. No shares issuable upon the exercise of this Option shall be
issued and delivered unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933, as amended, and all
applicable state securities or "Blue Sky" laws (whether by registration or
qualification or satisfaction of exemption conditions), all applicable listing
requirements of any principal securities exchange on which shares of the
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<PAGE> 15
same class are then listed and any other requirements of law or of any
regulatory bodies having jurisdiction over such issuance and delivery. The
Company shall use its best efforts and take all necessary or appropriate actions
to assure that such full compliance on the part of the Company is made.
7. Withholding of Taxes. If the Participant or the Participant's
permitted successors in interest disposes of shares of Common Stock acquired
pursuant to the exercise of this Option within two years after the date of this
Agreement or within one year after exercise of this Option, the Company may
deduct and withhold from the wages, salary, bonus and other compensation paid by
the Company to the Participant the requisite tax upon the amount of taxable
income, if any, recognized by the Participant in connection with the exercise in
whole or in part of this Option or the sale of Common Stock issued to the
Participant upon exercises hereof, all taxes as may be required from time to
time under federal or state tax laws and regulations. This withholding of tax
shall be made from the Company's concurrent or next payment of wages, salary,
bonus or other compensation to the Participant or by payment to the Company by
the Participant of required withholding tax, as the Committee may determine.
8. Adjustments for Reorganizations, Stock Splits, etc. If the
outstanding shares of the Common Stock of the Company are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company through reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares or securities receivable upon the exercise of this Option,
without change in the aggregate purchase price applicable to the unexercised
portion of this Option but with a corresponding adjustment in the price for each
share or other unit of any security covered by this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon the sale of substantially all the property of the Company, the Committee
shall provide in writing for appropriate satisfaction of this Option by one or
more of the following alternatives to be made in connection with such
transaction: (i) the immediate exercisability of this Option (provided that this
Option was granted more than six months before such transaction) notwithstanding
the provisions of Section 3 hereof, except that this Option may not be exercised
for a fraction of a share and no partial exercise of this Option may be for less
than (a) one hundred (100) shares or (b) the total number of shares then
eligible for exercise if less than one hundred (100) shares; (ii) the assumption
of this Option or the substitution therefore of a new option covering the stock
of a successor corporation, with appropriate adjustments as to number and kind
of shares and prices; (iii) the continuance of the Plan by such successor
corporation in which event this Option shall remain in full effect under the
terms so provided; or (iv) the payment of an amount in cash or stock, or any
combination thereof, in lieu of and in complete satisfaction of this Option.
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<PAGE> 16
Adjustments under this paragraph 8 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under the Plan on any such adjustment.
9. Participation by Participant in Other Company Plans. Nothing herein
contained shall affect the right of the Participant to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
10. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Participant nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Participant.
11. Not an Employment or Service Contract. Nothing contained herein
shall be construed as agreement by the Company, express or implied, to employ
Participant or contract for Participant's services, to restrict the Company's
right to discharge Participant or cease contracting for Participant's services
or to modify, extend or otherwise affect in any manner whatsoever the terms of
any employment agreement or contract for services which may exist between the
Participant and the Company.
12. Agreement Subject to Plan. The Option hereby granted is subject
to, and the Company and the Participant agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
the Participant's rights under this Option without the prior written consent of
the Participant.
13. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Notices. Any notice or other paper or payment required to be given
or sent pursuant to the terms of this Agreement shall be sufficiently given or
served hereunder to any party when transmitted by registered or certified mail,
postage prepaid, addressed to the party to be served as follows:
(a) if to the Company: Bell Industries, Inc.
11812 San Vicente Boulevard
Los Angeles, CA 90049-5022
Attention: President
(b) if to Participant: Thomas Woolf
Saw Mill Road
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<PAGE> 17
Newtown, Connecticut 06470
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE> 18
15. Execution. This Option has been granted, executed and delivered
the day and year first above written at Los Angeles, California, and the
interpretation, performance and enforcement of this Agreement shall be governed
by the laws of the State of California.
COMPANY
BELL INDUSTRIES, INC.
BY:____________________________
PARTICIPANT
_______________________________
Thomas Woolf
By his or her signature below, the spouse of the Participant agrees to
be bound by all of the terms and conditions of the foregoing Agreement.
_______________________________
NAME:
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<PAGE> 19
EXHIBIT 5
FORM OF INDEMNIFICATION AGREEMENT
INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of __________, 1996, by and
between Milgray Electronics, Inc., a New York corporation (the "Corporation"),
Bell Industries, Inc., a California corporation (the "Guarantor"), and Thomas
Woolf (the "Indemnitee"), a Director and/or Officer of the Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks at the same time that the
availability of Directors' and officers' liability insurance has been severely
limited, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by law, and
WHEREAS, the Corporation does not regard the protection available to
Indemnitee as adequate in the present circumstances, and realizes that
Indemnitee may not be willing to serve as a Director or Officer without adequate
protection, and the Corporation desires Indemnitee to serve in such capacity;
NOW, THEREFORE, in consideration of Indemnitee's service as a Director
or Officer after the date hereof the parties agree as follows:
1. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or
in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature.
(b) The term "Expenses" shall include, but is not limited to,
expenses of investigations, judicial or administrative proceedings or
appeals, damages, judgments, fines, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements and any
expenses of establishing a right to indemnification under this
Agreement.
<PAGE> 20
(c) The terms "Director" and "Officer" shall include
Indemnitee's service at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise as well as a Director and/or Officer
of the Corporation.
2. Indemnity of Director or Officer. Subject only to the limitations
set forth in Section 3, Corporation will pay on behalf of the Indemnitee all
Expenses actually and reasonably incurred by Indemnitee because of any claim or
claims made against him in a Proceeding by reason of the fact that he is or was
a Director and/or Officer.
3. Limitations on Indemnity. Corporation shall not be obligated under
this Agreement to make any payment of Expenses to the Indemnitee
(a) which payment it is prohibited by applicable law from
paying as indemnity;
(b) for which payment is actually made to the Indemnitee under
an insurance policy, except in respect of any excess beyond the amount
of payment under such insurance;
(c) for which payment the Indemnitee is indemnified by
Corporation otherwise than pursuant to this Agreement and payment is
actually made to the Indemnitee except in respect of any excess beyond
the amount of the payment under such indemnification;
(d) resulting from a claim decided in a Proceeding adversely
to the Indemnitee based upon or attributable to the Indemnitee gaining
in fact any personal profit or advantage to which he was not legally
entitled;
(e) resulting from a claim decided in a Proceeding adversely
to the Indemnitee for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of Corporation within the
meaning of Section 16(b) or 16(c) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be indemnified under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in a
Proceeding that he committed (i) acts of active and deliberate
dishonesty (ii) with actual dishonest purpose and intent, and (iii)
which acts were material to the cause of action so adjudicated.
For purposes of Sections 3 and 4, the phrase "decided in a Proceeding"
shall mean a decision by a court, arbitrator(s), hearing officer or other
judicial agent having the
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<PAGE> 21
requisite legal authority to make such a decision, which decision has become
final and from which no appeal or other review proceeding is permissible.
4. Advance Payment of Costs. Expenses incurred by Indemnitee in
defending a claim against him in a Proceeding shall be paid by the Corporation
as incurred and in advance of the final disposition of such Proceeding;
provided, however, that Expenses of defense need not be paid as incurred and in
advance where the judicial agent of first impression has decided the Indemnitee
is not entitled to be indemnified pursuant to this Agreement or otherwise.
Indemnitee hereby agrees and undertakes to repay such amounts advanced if it
shall be decided in a Proceeding that he is not entitled to be indemnified by
the Corporation pursuant to this Agreement or otherwise.
5. Enforcement. If a claim under this Agreement is not paid by
Corporation, or on its behalf, within thirty days after a written claim has been
received by Corporation, the Indemnitee may at any time thereafter bring suit
against Corporation to recover the unpaid amount of the claim and if successful
in whole or in part, the Indemnitee shall be entitled to be paid also the
Expenses of prosecuting such claim.
6. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights. Notwithstanding the foregoing, if any of the
provisions hereof would impair or jeopardize Indemnitee's coverage under the
Corporation's Directors' and Officers' Liability Policy, such provisions shall
be ineffective and shall be deemed deleted from this Agreement.
7. Notice. The Indemnitee, as a condition precedent to his right to be
indemnified under this Agreement, shall give to Corporation notice in writing as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to Corporation shall be given at
its principal office and shall be directed to the President (or such other
address as Corporation shall designate in writing to the Indemnitee); notice
shall be deemed received if sent by prepaid mail properly addressed, the date of
such notice being the date postmarked. In addition, the Indemnitee shall give
Corporation such information and cooperation as it may reasonably require.
8. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee to the full extent permitted
by any applicable portion of this Agreement that shall not have been invalidated
or by any other applicable law.
9. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Articles of Incorporation or Bylaws
of the Corporation or under California law.
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<PAGE> 22
10. Applicable Law. This Agreement shall be governed by and construed
in accordance with California law.
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
12. Successors and Assigns. This Agreement shall be binding upon the
Corporation and its successors and assigns.
13. Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Indemnitee even though he may have ceased to be a
Director and/or Officer and shall inure to the benefit of the heirs and personal
representatives of Indemnitee.
14. Coverage of Indemnification. The indemnification under this
Agreement shall cover Indemnitee's service as a Director and/or Officer prior to
or after the date of the Agreement.
15. Guaranty. Guarantor unconditionally guarantees all of the
Corporation's obligations hereunder. Guarantor agrees that Indemnitee may
proceed directly against Guarantor in the event of the Corporation's failure to
perform all of its obligations hereunder and shall not be obligated to exhaust
his remedies against the Corporation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
INDEMNITEE CORPORATION
By:_______________________ By:___________________
GUARANTOR
By:___________________
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