No. pages 11
index exhibit pg. none
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
( Mark one )
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission file number 0-21528
-------------
Bell Microproducts Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-3057566
- ---------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1941 Ringwood Avenue, San Jose, California 95131-1721
- --------------------------------------------------------------------------------
(Address of principal executive offices ) (Zip Code)
(408) 451-9400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code )
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No initial report, previously not
------- ------- required to file
Common Stock, $.01 Par Value -- Number of Shares Outstanding at
- ---------------------------- September 30, 1997: 8,619,594
<PAGE>
<TABLE>
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Balance Sheets - September 30, 1997 and December 31, 1996
3
Condensed Statements of Operations - Three months and nine months
ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows - Nine months ended September
30, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports 10
Signature 11
2
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
Bell Microproducts Inc.
Condensed Balance Sheets
(in thousands, except per share data)
(unaudited)
<CAPTION>
September 30, December 31,
1997 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,144 $ 5,682
Accounts receivable, net 84,608 70,686
Inventories 97,216 78,659
Deferred and refundable income taxes 3,714 3,714
Prepaid expenses 1,540 885
-------- --------
Total current assets 195,222 159,626
Property and equipment, net 10,834 9,006
Goodwill 6,450 6,685
Other assets 422 363
-------- --------
Total assets $212,928 $175,680
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 83 $ 294
Accounts payable 60,122 45,725
Other accrued liabilities 7,257 6,271
Current portion of capitalized lease
obligations 1,676 1,378
-------- --------
Total current liabilities 69,138 53,668
Line of credit 62,000 45,900
Capitalized lease obligations, less current portion 4,912 4,985
-------- --------
Total liabilities 136,050 104,553
-------- --------
Commitments and contingencies
Shareholders' equity:
Common Stock, $0.01 par value, 20,000 shares
authorized; 8,620 and 8,445 issued and outstanding 52,812 51,644
Retained earnings 24,066 19,483
-------- --------
Total shareholders' equity 76,878 71,127
-------- --------
Total liabilities and shareholders' equity $212,928 $175,680
======== ========
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</FN>
3
</TABLE>
<PAGE>
<TABLE>
Bell Microproducts Inc.
Condensed Statements of Operations
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months ended September 30, Nine Months ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 138,003 $ 118,018 $ 394,107 $ 347,093
Cost of sales 124,375 103,855 350,706 304,684
--------- --------- --------- ---------
Gross profit 13,628 14,163 43,401 42,409
Selling, general and
administrative expenses 11,587 9,896 32,307 30,173
--------- --------- --------- ---------
Income from operations 2,041 4,267 11,094 12,236
Interest expense (1,122) (767) (3,192) (2,671)
--------- --------- --------- ---------
Income before income taxes 919 3,500 7,902 9,565
Provision for income taxes (386) (1,470) (3,319) (4,018)
--------- --------- --------- ---------
Net income $ 533 $ 2,030 $ 4,583 $ 5,547
========= ========= ========= =========
Earnings per share $ .06 $ .24 $ .51 $ .65
========= ========= ========= =========
Weighted average common
shares and equivalents 8,886 8,531 8,933 8,498
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</FN>
4
</TABLE>
<PAGE>
<TABLE>
Bell Microproducts Inc.
Condensed Statements of Cash Flows
(Increase/(decrease) in cash, in thousands)
(unaudited)
<CAPTION>
Nine months ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,583 $ 5,547
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,096 1,903
Change in allowance for doubtful accounts (936) 823
Change in deferred and refundable income taxes -- 383
Changes in assets and liabilities:
Accounts receivable (12,986) (6,207)
Inventories (18,557) (7,285)
Prepaid expenses (655) (136)
Other assets (59) (191)
Accounts payable 14,397 25,444
Other accrued liabilities 986 4,016
-------- --------
Net cash provided by (used in) operating activities (11,131) 24,297
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (2,356) (403)
-------- --------
Cash flows from financing activities:
Net borrowings/(repayments) under line of credit agreement 16,100 (22,500)
Net borrowings/(repayments) on current portion of long term (211) 132
liabilities
Proceeds from issuance of Common Stock 1,168 343
Principal payments on long term liabilities (1,108) (1,447)
-------- --------
Net cash provided by (used in) financing activities 15,949 (23,472)
-------- --------
Net increase in cash 2,462 422
Cash at beginning of period 5,682 2,489
-------- --------
Cash at end of period $ 8,144 $ 2,911
======== ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 3,178 $ 2,601
Income taxes $ 2,678 $ 2,146
Obligations incurred under capital leases $ 1,333 $ 2,280
<FN>
The accompanying notes are an integral part of these condensed financial statements.
</FN>
5
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation:
The condensed financial statements presented in this Quarterly Report
are unaudited. It is management's opinion that all adjustments, consisting of
normal recurring items, have been included for a fair basis of presentation.
This Quarterly Report on Form 10-Q should be read in conjunction with the
Company's 1996 Annual Report on Form 10-K. The operating results for the period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
<TABLE>
Recently Issued Accounting Statements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share." This
statement is effective for the Company's year ending December 31, 1997. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. If the Company had adopted this Statement for the
three and nine months ended September 30, 1997 and for the comparable periods in
the prior year, the Company's proforma earnings per share would have been as
follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ------------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Basic earnings per share $0.06 $0.24 $0.54 $0.66
Diluted earnings per share $0.06 $0.24 $0.51 $0.65
</TABLE>
In June 1997, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income within a financial statement. This Statement requires the
Company to report additional information on comprehensive income to supplement
the reporting of income. SFAS No. 130 is effective for both interim and annual
periods beginning after December 15, 1997. Comparative financial statements
provided for earlier periods are required to be reclassified so that
comprehensive income is displayed in a comparative format for all periods
presented. SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," establishes standards for reporting information about
operating segments in annual and interim financial statements. This Statement
also establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. The Company will adopt
SFAS No. 130 for the first quarter of 1998 and does not expect its provisions to
have a material effect on the Company's presentation of its consolidated
financial statements. The Company will adopt SFAS No. 131 as of the year ending
December 31, 1998 and is currently studying its provisions.
<TABLE>
Note 2 - Inventories:
A summary of inventories follows (in thousands):
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- ---------------------------
<S> <C> <C>
Purchased components and materials $ 89,694 $ 69,513
Work-in-process 7,522 9,146
--------------------------- ---------------------------
Total $ 97,216 $ 78,659
=========================== ===========================
6
</TABLE>
<PAGE>
<TABLE>
Note 3 - Property and equipment:
A summary of property and equipment follows (in thousands):
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- ---------------------------
<S> <C> <C>
Manufacturing and test equipment $ 9,668 $ 9,070
Computer and other equipment 4,003 3,212
Furniture and fixtures 1,772 1,147
Leasehold improvements and other 1,871 195
--------------------------- ---------------------------
17,314 13,624
Accumulated depreciation (6,480) (4,618)
--------------------------- ---------------------------
Total $ 10,834 $ 9,006
=========================== ===========================
</TABLE>
Note 4 - Line of Credit
On June 17, 1997 and September 1, 1997, the Company entered into
amendments to the Amended and Restated Syndicated Credit Agreement arranged by
Sumitomo Bank of California ("Sumitomo Bank") as Agent. The amendments increased
the Company's $80 million revolving line of credit to $100 million, extended the
maturity date to May 31, 1999 and decreased the related interest rate. At the
Company's option, the borrowings under the line of credit will bear interest at
Sumitomo Bank's prime rate or the adjusted LIBOR rate plus 1.40%. At September
30, 1997 the interest rate was 8.5%. The revolving line of credit requires the
Company to meet certain financial tests and to comply with certain other
covenants, including restrictions on incurrence of debt and liens, restrictions
on mergers, acquisitions, asset dispositions, declaration of dividends,
repurchases of stock, making investments and profitability. The Company is in
compliance with its bank covenants; however, there can be no assurance that the
Company will be in compliance in the future.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including the timing of delivery of products from suppliers, the
product mix sold by the Company, customer demand, the Company's dependence on a
small number of customers that account for a significant portion of revenues,
availability of products from suppliers, price competition for products sold by
the Company, management of growth, the Company's ability to collect accounts
receivable, price decreases on inventory that is not price protected, the short
history of profitability of Quadrus and the other risk factors detailed in the
Company's reports on Form 10-K for the year ended December 31, 1996 and Form
10-Q for the quarter ended March 31, 1997 filed with the Securities and Exchange
Commission.
Three months ended September 30, 1997 compared to three months ended September
30, 1996
Sales were $138.0 million for the quarter ended September 30, 1997,
which represented an increase of $20.0 million, or 17% over the same quarter in
1996. The increase in sales was attributable to increased demand for mass
storage products. For the quarter ended September 30, 1997, Quantum Corporation,
the Company's largest supplier, provided products which represented 48% of the
Company's sales, as compared to 38% in the same quarter in 1996. The loss of
Quantum or any other significant supplier would have a material adverse effect
on the Company's results of operations.
The Company's gross profit for the third quarter of 1997 was $13.6
million, a decrease of $0.5 million, or 4% from the third quarter of 1996. As a
percentage of sales, gross margin was 10% in the third quarter of 1997, compared
to 12% in the same quarter of 1996. The decrease in gross margin percent was
7
<PAGE>
primarily due to increased manufacturing overhead as a percent of sales and a
greater proportion of computer product sales, which have lower margins than
electronic components.
Selling, general and administrative expenses increased to $11.6 million
in the third quarter of 1997 from $9.9 million in the third quarter of 1996, an
increase of $1.7 million or 17%. This increase was attributable to increased
sales volume and increased personnel in the Company's sales and marketing
organization. These expenses remained flat as a percentage of sales at 8%
compared to the same quarter of 1996.
Interest expense was $1.1 million in the third quarter of 1997 as
compared to $0.8 million in the third quarter of 1996. This increase was
primarily due to higher average bank borrowings throughout the third quarter of
1997 in relation to the comparable 1996 quarter.
The Company's effective income tax rate remained the same, 42%, during
both periods.
Net income was $0.5 million in the third quarter of 1997, compared to
$2.0 million in the same period last year. The decrease in net income was
primarily the result of lower gross profits and increased operating and interest
expenses partially offset by decreased income tax expense.
Nine months ended September 30, 1997 compared to nine months ended September 30,
1996
Sales were $394.1 million for the nine months ended September 30, 1997,
which represented an increase of $47.0 million, or 14% over the same period in
1996. The increase in sales was attributable to increased demand for mass
storage products.
The Company's gross profit for the first nine months of 1997 was $43.4
million, an increase of $1.0 million or 2% over the first nine months of 1996.
As a percentage of sales, gross margin decreased to 11% in the first nine months
of 1997 from 12% in the same period in 1996. The decrease in gross margin
percent was primarily due to increased manufacturing overhead as a percent of
sales and a greater proportion of computer product sales.
Selling, general and administrative expenses increased to $32.3 million
in the first nine months of 1997 from $30.2 million in the first nine months of
1996, which represented an increase of 7%, but decreased as a percentage of
sales to 8% from 9%.
Interest expense was $3.2 million in the first nine months of 1997 as
compared to $2.7 million in the same period in 1996. This increase in interest
expense was primarily due to higher average bank borrowings during the 1997
period in relation to the comparable 1996 period.
The Company's effective income tax rate remained the same, 42%, during
both periods.
Net income decreased to $4.6 million in the first nine months of 1997
compared to $5.5 million in the same period of 1996. The decrease was due
primarily to decreased gross margin as a percentage of sales, increased
operating and interest expenses partially offset by decreased income tax
expense.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, the Company has funded its working capital
requirements principally through borrowings under bank lines of credit. Working
capital requirements have included the financing of increases in inventory and
accounts receivable resulting from sales growth.
On June 17, 1997, the Company increased its revolving line of credit
from $80 million to $100 million to provide additional working capital for the
Company. The revolving line of credit, which has a final payment due date of May
31, 1999, requires the Company to meet certain financial tests and to comply
with certain
8
<PAGE>
other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends, repurchases of stock, making investments and profitability. The
Company is in compliance with its bank covenants; however, there can be no
assurance that the Company will be in compliance in the future. Obligations of
the Company under the revolving line of credit are secured by substantially all
of the Company's assets. The Company intends to utilize its revolving line of
credit to fund future working capital requirements.
Net cash used in operating activities for the nine months ended
September 30, 1997, was $11.1 million. The Company's accounts receivable as of
September 30, 1997 increased to $84.6 million from $70.7 million as of December
31, 1996, as a result of increased sales at the end of the current quarter. The
Company's inventories as of September 30, 1997 increased to $97.2 million from
$78.7 million as of December 31, 1996, primarily as a result of the Company's
need to support anticipated sales growth. The Company's accounts payable
increased to $60.1 million as of September 30, 1997 from $45.7 million as of
December 31, 1996, due to increased inventory purchases. The Company's future
cash requirements will depend on numerous factors, including the rate of growth
of its sales. The Company believes that its working capital, including its
existing credit facility, will be sufficient to meet the Company's working
capital requirements for the next twelve months. However, the Company may, in
the future, seek additional debt or equity financing to fund continued growth.
9
<PAGE>
<TABLE>
Item 6. Exhibits and Reports
<CAPTION>
<S> <C> <C>
(a) Exhibits:
27. Financial Data Schedule for the nine months ended September 30, 1997.
99.1 Fourth Amendment to Second Amended and Restated Credit Agreement.
99.2 Management Retention Agreement between the Registrant and
Bruce M. Jaffe
(b) Reports on Form 8-K:
None
10
</TABLE>
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 1997
BELL MICROPRODUCTS INC.
By: Bruce M. Jaffe
---------------------------------------
Sr. Vice President of Finance and Operations
and Chief Financial Officer
By: Remo E. Canessa
----------------------------------------
Vice President of Finance, Corporate Controller and Secretary
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,144
<SECURITIES> 0
<RECEIVABLES> 87,899
<ALLOWANCES> 3,291
<INVENTORY> 97,216
<CURRENT-ASSETS> 195,222
<PP&E> 17,314
<DEPRECIATION> 6,480
<TOTAL-ASSETS> 212,928
<CURRENT-LIABILITIES> 69,138
<BONDS> 66,912
0
0
<COMMON> 86
<OTHER-SE> 76,792
<TOTAL-LIABILITY-AND-EQUITY> 212,928
<SALES> 394,107
<TOTAL-REVENUES> 394,107
<CGS> 350,706
<TOTAL-COSTS> 350,706
<OTHER-EXPENSES> 31,067
<LOSS-PROVISION> 1,240
<INTEREST-EXPENSE> 3,192
<INCOME-PRETAX> 7,902
<INCOME-TAX> 3,319
<INCOME-CONTINUING> 4,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,583
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
EXECUTION COPY
FOURTH AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment"), dated as of September 1, 1997, is entered into by and among:
(1) BELL MICROPRODUCTS INC., a California corporation
("Borrower");
(2) Each of the financial institutions listed in Schedule I to the
Credit Agreement referred to in Recital A below (collectively, the "Banks"); and
(3) SUMITOMO BANK OF CALIFORNIA, a California banking corporation,
as agent for the Banks (in such capacity, "Agent") .
RECITALS
A. Borrower, the Banks and Agent are parties to a Second Amended and
Restated Credit Agreement dated as of May 23, 1995, as amended by that certain
First Amendment to Second Amended and Restated Credit Agreement dated as of June
25, 1996, as further amended by that certain Second Amendment to Second Amended
and Restated Credit Agreement dated as of September 30, 1996, and as amended by
that certain Third Amendment to Second Amended and Restated Credit Agreement
dated as of June 17, 1997 (the "Credit Agreement") .
B. Borrower has requested the Banks and Agent to amend the Credit
Agreement in certain respects.
C. The Banks and Agent are willing so to amend the_Credit Agreement
upon the terms and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, the Banks and Agent hereby agree as follows:
1. Definitions, Interpretation. All capitalized terms defined above and
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings
<PAGE>
given to those terms in the Credit Agreement, as amended by this Amendment. The
rules of construction set forth in Section I of the Credit Aqreement shall, to
the extent not inconsistent with the terms of this Amendment, apply to this
Amendment and are hereby incorporated by reference.
2. Amendments to Credit Aqreement. Subject to the conditions set forth
in paragraph 4 below, the Credit Agreement is hereby amended by amending clause
(ii) of Subparagraph 2.01(c) to read in its entirety as follows:
(ii) During such periods as such Revolving Loan is a Revolving
LIBOR Loan, at a rate per annum equal at all times during each Interest
Period for such Revolving LIBOR Loan to the LIB0 Rate for such Interest
Period plus one and four-tenths percent (1.400%);
3. Representations and Warranties. Borrower hereby represents and
warrants to Agent and the Banks that, on the date of this Amendment and after
giving effect to the amendment set forth in paragraph 2 above on the Fourth
Amendment Effective Date (as defined below), the following are and shall be true
and correct on each such date:
(a) The representations and warranties set forth in Paragraph
4.01 of the Credit Agreement are true and correct in all material
respects;
(b) No Event of Default or Default has occurred and is
continuing; and
(c) Each of the Credit Documents is in full force and effect.
4. Fourth Amendment Effective Date. The amendments effected by
paragraph 2 above shall become effective on September 1, 1997 (the "Fourth
Amendment Effective Date"), subject to receipt by the Banks and Agent on or
prior to the Fourth Amendment Effective Date of the following, each in form and
substance satisfactory to the Banks, Agent and their respective counsel
(a) This Amendment duly executed by Borrower, each Bank and
Agent;
(b) A Certificate of the Secretary of Borrower, dated the
Fourth Amendment Effective Date, certifying (i) that the Certificate of
Incorporation and Bylaws of Borrower, in the forms delivered to Agent
on the Effective Date, are in full force and effect and have not been
amended, supplemented, revoked or repealed since such date; (ii) that
attached thereto are true and correct copies of resolutions duly
adopted by the Board of Directors of Borrower and continuing in
2
<PAGE>
effect, which authorize the execution, delivery and performance by
Borrower of this Amendment and the consummation of the transactions
contemplated hereby; (iii) that there are no proceedings for the
dissolution or liquidation of Borrower (commenced or threatened); and
(iv) the incumbency, signatures and authority of the officers of
Borrower authorized to execute, deliver and perform the Amendment;
(c) A Certificate of Good Standing (or comparable certificate)
for Borrower, certified as of a recent date prior to the Fourth
Amendment Effective Date by the Secretary of State of California;
(d) Payment of all fees and expenses of Agent's counsel
through the Fourth Amendment Effective Date; and
(g) Such other evidence as Agent or any Bank may reasonably
request to establish the accuracy and completeness of the
representations and warranties and the compliance with the terms and
conditions contained in this Amendment.
5. Effect of this Amendment. On and after the Fourth Amendment
Effective Date, each reference in the Credit Agreement and the other Credit
Documents to the Credit Agreement shall mean the Credit Agreement as amended
hereby. Except as specifically amended above, (a) the Credit Agreement and the
other Credit Documents shall remain in full force and effect and are hereby
ratified and confirmed and (b) the execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power, or remedy of the Banks or Agent, nor constitute a waiver of
any provision of the Credit Agreement or any other Credit Document.
6. Miscellaneous.
(a) Counterparts. This Amendment may be executed in any number
of identical counterparts, any set of which signed by all the parties
hereto shall be deemed to constitute a complete, executed original for
all purposes.
(b) Headinqs. Headings in this Amendment are for convenience
of reference only and are not part of the substance hereof.
(c) Governinq Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California
without reference to conflicts of law rules.
3
<PAGE>
IN WITNESS WHEREOF, Borrower, the Agent and the Banks have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: BELL MICROPRODUCTS INC.
By: /s/ W. Donald Bell
----------------------------------
Name: W. Donald Bell
Title: Chairman, President & CEO
AGENT: SUMITOMO BANK OF CALIFORNIA
As Agent
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BANKS: SUMITOMO BANK OF CALIFORNIA
As a Bank
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, Borrower, the Agent and the Banks have caused this
Amendment to be executed as of the day and year first above written.
BORROWER: BELL MICROPRODUCTS INC.
By:
----------------------------------
Name:
Title:
AGENT: SUMITOMO BANK OF CALIFORNIA
As Agent
By: /S/ S.C. BELLICINI
----------------------------------
Name: S.C. BELLICINI
Title: V.P./DEPUTY MANAGER
By: /S/ F. CLARK WARDEN
----------------------------------
Name: F. CLARK WARDEN
Title: SR V.P.
BANKS: SUMITOMO BANK OF CALIFORNIA
As a Bank
By: /S/ S.C. BELLICINI
----------------------------------
Name: S.C. BELLICINI
Title: V.P./DEPUTY MANAGER
By: /S/ F. CLARK WARDEN
----------------------------------
Name: F. CLARK WARDEN
Title: SR V.P.
4
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
As a Bank
By: ???
----------------------------------
Name: ???
Title: ???
By: /s/ KELLY D. TAKAHASHI
----------------------------------
Name: Kelly D. Takahashi
Title: Vice President
BANKBOSTON, N.A.,
(formerly known as The First National
Bank of Boston), As a Bank
By:
----------------------------------
Name:
Title:
COMERICA BANK-CALIFORNIA
As a Bank
By:
----------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED
As a Bank
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
5
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
As a Bank
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BANKBOSTON, N.A.,
(formerly known as The First National
Bank of Boston), As a Bank
By: /s/ TERESA J. HELLER
----------------------------------
Name: TERESA J. HELLER
Title: Director
COMERICA BANK-CALIFORNIA
As a Bank
By:
----------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED
As a Bank
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
5
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
As a Bank
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BANKBOSTON, N.A.,
(formerly known as The First National
Bank of Boston), As a Bank
By:
----------------------------------
Name:
Title:
COMERICA BANK-CALIFORNIA
As a Bank
By: /S/ SCOTT T. SMITH
----------------------------------
Name: Scott T. Smith
Title: Vice President
THE SUMITOMO BANK, LIMITED
As a Bank
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
5
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
As a Bank
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BANKBOSTON, N.A.,
(formerly known as The First National
Bank of Boston), As a Bank
By:
----------------------------------
Name:
Title:
COMERICA BANK-CALIFORNIA
As a Bank
By:
----------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED
As a Bank
By: /S/ DAVID HUGHES
----------------------------------
Name: David Hughes
Title: ??????
By: /S/ J. WILLIAM BLOORE
----------------------------------
Name: J. William Bloore
Title: Vice President
5
BELL MICROPRODUCTS, INC.
MANAGEMENT RETENTION AGREEMENT
This Management Retention Agreement (the "Agreement") is made and entered into
by and between Bruce M. Jaffe (the "Employee") and Bell Microproducts, Inc. (the
"Company"), effective as of the latest date set forth by the signatures of the
parties hereto below (the "Effective Date").
RECITALS
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with certain
severance benefits upon Employee's termination of employment following a Change
of Control which provides the Employee with enhanced financial security and
provides incentive and encouragement to the Employee to remain with the Company
notwithstanding the possibility of a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 4
below.
The parties hereto agree as follows:
1. Term of Agreement. This Agreement shall terminate three years following the
Effective Date, unless a Change of Control has occurred as of such time, in
which case this Agreement shall terminate upon the date that all obligations of
the parties hereto with respect to this Agreement have been satisfied. This
Agreement may be extended unilaterally by the Company by written resolutions
adopted by the Board prior to the termination of this Agreement.
2. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in
<PAGE>
accordance with the Company's written employee plans or pursuant to other
written agreements with the Company.
3. Severance Benefits.
(a) Termination Following A Change of Control. If the Employee's
employment terminates at any time within twelve (12) months following a Change
of Control, then, subject to Section 4, the Employee shall be entitled to
receive the following severance benefits:
(i) Involuntary Termination. If the Employee's employment
is terminated as a result of Involuntary Termination other than for Cause, then
the Employee shall receive the following severance benefits from the Company:
(1) Severance Payment. A cash payment in an amount equal
to one hundred percent (100%) of the Employee's Base Salary.
(2) Continued Employee Benefits. One hundred percent
(100%) Company-paid health, dental and life insurance coverage at the same level
of coverage as was provided to such employee immediately prior to the Change of
Control (the "Company-Paid Coverage") under the Company's plans. Such coverage
shall be provided under either (at the Company's discretion) (i) the Company's
plans, or (ii) no less favorable plans or arrangements secured by the Company.
If such coverage included the Employee's dependents immediately prior to the
Change of Control, such dependents shall also be covered at Company expense.
Company-Paid Coverage shall continue until the earlier of (i) one year from the
date of the Change of Control, or (ii) the date that the Employee and his
dependents become covered under another employer's group health, dental or life
insurance plans that provide Employee and his dependents with comparable
benefits and levels of coverage. For purposes of Title X of the Consolidated
Budget Reconciliation Act of 1985 ("COBRA"), the date of the "qualifying event"
for Employee and his dependents shall be the date upon which the Company-Paid
Coverage terminates.
(3) Stock Option Accelerated Vesting. One hundred percent
(100%) of the unvested portion of any stock option held by the Employee shall
automatically be accelerated in full so as to become completely vested;
provided, however, that if such potential vesting acceleration would cause a
contemplated Change of Control transaction that was intended to be accounted for
as a "pooling-of-interests" transaction to become ineligible for such accounting
treatment under generally accepted accounting principles, as determined by the
Company's independent public accountants (the "Accountants") prior to the Change
of Control, Employee's stock options and restricted stock shall not have their
vesting so accelerated.
(b) Timing of Severance Payments. Any severance payment to which
Employee is entitled under Section 4(a)(i) shall be paid by the Company to the
Employee (or to the Employee's successors in interest, pursuant to Section 7(b))
in cash and in full, not later than thirty (30) calendar days following the
Termination Date.
- 2 -
<PAGE>
(c) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing written employee plans or pursuant to other written agreements with the
Company.
(d) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or such Employee's
employment is terminated due to the death of the Employee, then the Employee
shall not be entitled to receive severance or other benefits except for those
(if any) as may then be established under the Company's then existing written
employee plans or pursuant to other written agreements with the Company.
(e) Termination Apart from Change of Control. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Employee shall be entitled to receive
severance and any other benefits only as may then be established under the
Company's existing severance and benefits plans and practices or pursuant to
other agreements with the Company.
4. Limitation on Payments. In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 4, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee's severance benefits under Section 3(a)(i) shall be
reduced as to such lesser extent as would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code. Unless the
Company and the Employee otherwise agree in writing, any determination required
under this Section 4 shall be made in writing by the Company's independent
public accountants immediately prior to Change of Control (the "Accountants"),
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by
this Section 4, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 4.
5. Definition of Terms. The following terms referred to in this Agreement shall
have the following meanings:
(a) Base Salary. "Base Salary" means an amount equal to twelve (12)
times Employee's monthly Company salary for the last full month preceding the
Change of Control.
(b) Cause. "Cause" shall mean (i) any act of personal dishonesty taken
by the Employee in connection with his responsibilities as an employee and
intended to result in substantial personal
- 3 -
<PAGE>
enrichment of the Employee, (ii) the conviction of a felony, (iii) a willful act
by the Employee which constitutes gross misconduct and which is injurious to the
Company, and (iv) following delivery to the Employee of a written demand for
performance from the Company which describes the basis for the Company's belief
that the Employee has not substantially performed his duties, continued
violations by the Employee of the Employee's obligations to the Company which
are demonstrably willful and deliberate on the Employee's part.
(c) Change of Control. "Change of Control" means the occurrence of any
of the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the date hereof, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(d) Disability. "Disability" shall mean that the Employee has been
unable to perform his Company duties as the result of his incapacity due to
physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Employee or the Employee's
legal representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate the
Employee's employment. In the event that the Employee resumes the performance of
substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(e) Involuntary Termination. "Involuntary Termination" shall mean (i)
without the Employee's express written consent, the significant reduction of the
Employee's duties, authority or
- 4 -
<PAGE>
responsibilities, relative to the Employee's duties, authority or
responsibilities as in effect immediately prior to such reduction, or the
assignment to Employee of such reduced duties, authority or responsibilities;
(ii) without the Employee's express written consent, a substantial reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available to the Employee immediately prior to such
reduction; (iii) a reduction by the Company in the base salary of the Employee
as in effect immediately prior to such reduction; (iv) a material reduction by
the Company in the kind or level of employee benefits, including bonuses, to
which the Employee was entitled immediately prior to such reduction with the
result that the Employee's overall benefits package is significantly reduced;
(v) the relocation of the Employee to a facility or a location more than
thirty-five (35) miles from the Employee's then present location, without the
Employee's express written consent; (vi) any purported termination of the
Employee by the Company which is not effected for Disability or for Cause, or
any purported termination for which the grounds relied upon are not valid; (vii)
the failure of the Company to obtain the assumption of this agreement by any
successors contemplated in Section 6(a) below; or (viii) any act or set of facts
or circumstances which would, under California case law or statute constitute a
constructive termination of the Employee.
(f) Termination Date. "Termination Date" shall mean (i) if this
Agreement is terminated by the Company for Disability, thirty (30) days after
notice of termination is given to the Employee (provided that the Employee shall
not have returned to the performance of the Employee's duties on a full-time
basis during such thirty (30)-day period), (ii) if the Employee's employment is
terminated by the Company for any other reason, the date on which a notice of
termination is given, provided that if within thirty (30) days after the Company
gives the Employee notice of termination, the Employee notifies the Company that
a dispute exists concerning the termination or the benefits due pursuant to this
Agreement, then the Termination Date shall be the date on which such dispute is
finally determined, either by mutual written agreement of the parties, or a by
final judgment, order or decree of a court of competent jurisdiction (the time
for appeal therefrom having expired and no appeal having been perfected), or
(iii) if the Agreement is terminated by the Employee, the date on which the
Employee delivers the notice of termination to the Company.
6. Successors.
(a) Company's Successors. Any successor to the Company (whether direct
or indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 6(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
- 5 -
<PAGE>
7. Notice.
(a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause or
by the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 7(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Employee to include in the notice any
fact or circumstance which contributes to a showing of Involuntary Termination
shall not waive any right of the Employee hereunder or preclude the Employee
from asserting such fact or circumstance in enforcing his rights hereunder.
8. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that the Employee may receive from any other
source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof. This Agreement supersedes in their
entirety any prior or contemporaneous agreements, whether written, oral, express
or implied, relating to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
- 6 -
<PAGE>
(e) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
set forth below.
COMPANY BELL MICROPRODUCTS, INC.
/s/ W. Donald Bell
---------------
W. Donald Bell
President and Chef Executive Offier
Date: 7/23/97
EMPLOYEE /s/ Bruce M. Jaffe
---------------
Bruce M. Jaffe
Date: 7/23/97
- 7 -
