No. pages 14
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, 1999
----------------------------
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,
1999: 9,182,559
1
<PAGE>
<TABLE>
BELL MICROPRODUCTS INC.
INDEX TO FORM 10-Q
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Number
------
<S> <C>
Item 1: Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998 3
Condensed Consolidated Statements of Income - Three months and nine
months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows - Nine months
ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3: Quantitative and Qualitative Disclosure about Market Risk 11
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports 13
Signature: 14
2
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
Bell Microproducts Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
<CAPTION>
September 30, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,412 $ 4,082
Accounts receivable, net 158,682 106,609
Inventories 138,247 105,330
Deferred income taxes 4,072 4,072
Prepaid expenses 2,742 1,154
Assets of discontinued operations -- 47,790
-------- --------
Total current assets 307,155 269,037
Property and equipment, net 6,097 3,355
Goodwill, net 16,214 12,362
Other assets 1,003 826
-------- --------
Total assets $330,469 $285,580
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $128,709 $ 72,002
Other accrued liabilities 9,057 8,429
Liabilities related to discontinued
operations -- 16,240
-------- --------
Total current liabilities 137,766 96,671
Borrowing under the line of credit 99,500 102,400
Other liabilities 37 33
-------- --------
Total liabilities 237,303 199,104
-------- --------
Shareholders' equity:
Common Stock, $0.01 par value, 20,000 shares
authorized; 9,183 and 8,914 issued and outstanding 58,155 56,181
Retained earnings 34,725 30,247
Accumulated other comprehensive income 286 48
-------- --------
Total shareholders' equity 93,166 86,476
-------- --------
Total liabilities and shareholders' equity $330,469 $285,580
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
3
</TABLE>
<PAGE>
<TABLE>
Bell Microproducts Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
<CAPTION>
-------------------------- ---------------------------
Three months ended Nine months ended
September 30, September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 283,359 $ 148,815 $ 734,585 $ 389,875
Cost of sales 259,384 133,085 670,387 344,820
--------- --------- --------- ---------
Gross profit 23,975 15,730 64,198 45,055
Selling general and administrative expenses 18,253 11,373 49,134 33,211
--------- --------- --------- ---------
Income from continuing operations 5,722 4,357 15,064 11,844
Interest expense 1,676 748 4,456 2,124
Foreign exchange remeasurement gain (123) -- (481) --
--------- --------- --------- ---------
Income from continuing operations before
income taxes 4,169 3,609 11,089 9,720
Provision for income taxes 1,813 1,516 4,719 4,082
--------- --------- --------- ---------
Income from continuing operations 2,356 2,093 6,370 5,638
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit -- (42) (2,946) (1,950)
Gain on sale of contract manufacturing division,
net of income tax benefit -- -- 1,054 --
--------- --------- --------- ---------
Net income $ 2,356 $ 2,135 $ 4,478 $ 3,688
========= ========= ========= =========
Earnings per share
Basic
Continuing operations $ 0.26 $ 0.24 $ 0.71 $ 0.64
Discontinued operations -- -- (0.21) (0.22)
--------- --------- --------- ---------
Total $ 0.26 $ 0.24 $ 0.50 $ 0.42
========= ========= ========= =========
Earnings per share
Diluted
Continuing operations $ 0.26 $ 0.24 $ 0.70 $ 0.64
Discontinued operations -- -- (0.21) (0.22)
--------- --------- --------- ---------
Total $ 0.26 $ 0.24 $ 0.49 $ 0.42
========= ========= ========= =========
Shares used in per share calculation
Basic 9,096 8,831 8,991 8,774
--------- --------- --------- ---------
Diluted 9,211 8,874 9,068 8,841
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
4
</TABLE>
<PAGE>
<TABLE>
Bell Microproducts Inc.
Condensed Consolidated Statements of Cash Flows
(Increase/(decrease) in cash, in thousands)
(unaudited)
<CAPTION>
Nine months ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing activities $ 6,370 $ 5,637
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,575 746
Change in allowance for doubtful accounts (340) 1,984
Change in deferred income taxes -- 13
Changes in assets and liabilities:
Accounts receivable (40,323) (14,832)
Inventories (30,528) (4,232)
Prepaid expenses 1,217 (148)
Other assets (177) (17)
Accounts payable 35,408 15,251
Other accrued liabilities (1,317) 2,912
-------- --------
Net cash (used in) provided by continuing operating activities (28,115) 7,314
Net cash used in discontinued operations (1,765) (10,083)
-------- --------
Net cash used in operating activities (29,880) (2,769)
-------- --------
Cash flows from investing activities:
Acquisition of property, equipment and other, net (2,602) (1,332)
Acquisition of business (2,196) --
Proceeds from sale of business 34,665 --
-------- --------
Net cash provided by (used in) investing activities 29,867 (1,332)
-------- --------
Cash flows from financing activities:
Net (repayments)/borrowings under line of credit agreement (2,900) 4,500
Proceeds from issuance of Common Stock 1,974 990
Principal payments on long term liabilities 4 11
-------- --------
Net cash (used in) provided by financing activities (922) 5,501
-------- --------
Effect of exchange rate changes on cash 265 --
-------- --------
Net (decrease) increase in cash (670) 1,400
Cash at beginning of period 4,082 6,325
-------- --------
Cash at end of period $ 3,412 $ 7,725
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
5
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation:
The Company operates in one operating segment. The Company markets and
distributes a broad range of semiconductor and computer products primarily to
industrial OEM's, hardware integrators, VARs and other resellers.
The consolidated 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 1998 Annual Report on Form 10-K. The operating results for
the period ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999.
Recently Issued Accounting Statement
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new
model for accounting for derivatives and hedging activities and supersedes and
amends a number of existing accounting standards. SFAS 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
is not expected to have a material effect on the Company's financial statements.
The standard is effective for the Company in fiscal 2000.
Note 2 - Acquisitions:
On July 21, 1999, the Company acquired certain assets and assumed
certain liabilities of Future Tech International, Inc. ("FTI"), a privately held
company located in Miami. Prior to its reorganization in bankruptcy, FTI was a
leading value-added distributor of computer components to markets of Latin
America and the Caribbean. FTI distributes products from AMD, Canon, Maxtor,
NEC, Quantum and other leading manufacturers, and manufactures and markets its
proprietary Markvision-branded products.
The acquisition was accounted for as a purchase. The assets acquired
were primarily accounts receivable, inventory and fixed assets. As consideration
for the assets purchased, the Company paid $2.2 million in cash, including
acquisition costs and assumed certain liabilities, primarily trade accounts
payable. The Company is obligated to pay up to an additional $4.5 million in
cash within 21 months of the closing date as a contingent incentive payment to
be based upon earnings achieved up to the first anniversary of the closing date.
The purchase price was allocated to the acquired assets and liabilities
based upon management's estimate of their fair market values as of the
acquisition date as follows (in thousands):
6
<PAGE>
Restricted cash $ 23
Accounts receivable 12,576
Inventories 2,639
Equipment and other assets 3,947
Goodwill 4,227
Accounts payable (20,989)
Other accrued liabilities (204)
--------
Total consideration $ 2,219
========
The results of operations of FTI have been included with those of the
Company for periods subsequent to the date of acquisition. Set forth below is
the unaudited proforma combined summary of operations of the Company for three
months and nine months ended September 30, 1999 and 1998, as if the acquisition
had been made on January 1, 1998 (in thousands).
Nine Months Ended
September 30,
---------------------
Net sales $807,313 $524,536
Net income $ 1,348 $ 1,018
Earnings per share
Basic $ 0.15 $ 0.12
======== ========
Diluted $ 0.15 $ 0.12
======== ========
Shares used in per share
calculation
Basic 8,991 8,774
======== ========
Diluted 9,068 8,841
======== ========
Note 3 - Earnings per Share:
Basic EPS is computed by dividing net income available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period including stock
options, using the treasury stock method, and convertible preferred stock, using
the if-converted method.
<TABLE>
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below (in
thousands):
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $2,356 $2,135 $4,478 $3,688
====== ====== ====== ======
Weighted average common shares outstanding
(Basic) 9,096 8,831 8,991 8,774
Effect of dilutive warrants and options 115 43 77 67
------ ------ ------ ------
Weighted average common shares outstanding
(Diluted) 9,211 8,874 9,068 8,841
====== ====== ====== ======
7
</TABLE>
<PAGE>
Note 4 - Property and Equipment:
A summary of property and equipment follows (in thousands):
September 30, 1999 December 31, 1998
------------------ -----------------
Computer and other equipment $ 4,931 $ 3,121
Furniture and fixtures 2,246 1,761
Leasehold improvements 925 476
Warehouse and other equipment 1,433 484
------- -------
9,535 5,842
Accumulated depreciation (3,438) (2,487)
------- -------
Total $ 6,097 $ 3,355
======= =======
Note 5 - Line of Credit:
On November 12, 1998, the Company entered into a Third Amended and
Restated Syndicated Credit Agreement, arranged by California Bank & Trust as
Agent, which was further amended in October 1999. The Third Amended and Restated
Syndicated Credit Agreement increased the Company's $100 million revolving line
of credit to $130 million. At the Company's option, the borrowings under the
line of credit will bear interest at California Bank & Trust's prime rate or the
adjusted LIBOR rate plus 1.85%. At September 30, 1999, the prime interest rate
was 8.25%. The balance outstanding on the revolving line of credit at September
30, 1999 was $99.5 million. The revolving line of credit has a final payment due
date of October 31, 2000. Obligations of the Company under the revolving line of
credit are secured by substantially all of the Company's assets. The revolving
line of credit requires the Company to meet certain financial tests and to
comply with certain other covenants on a quarterly basis, including restrictions
on incurrence of debt and liens, restrictions on mergers, acquisitions, asset
dispositions, declaration of dividends, repurchases of stock, making investments
and profitability. At September 30, 1999 the Company was not in compliance with
one of its covenants in its Third Amended and Restated Syndicated Credit
Agreement. In conjunction with the October 1999 amendment, the Company received
a waiver from its banks regarding this non-compliance.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information Regarding Forward-Looking Statements
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, the integration of acquired businesses,
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, cyclicality in the disk drive and other industries, 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, potential year 2000 costs, potential interest rate fluctuations as
described below and the other risk factors detailed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 filed with the
Securities and Exchange Commission. The Company assumes no obligation to update
such forward-looking statements or to update the reasons actual results could
differ materially from those anticipated in such forward-looking statements.
8
<PAGE>
Three months ended September 30, 1999 compared to three months ended September
30, 1998
Sales were $283.4 million for the quarter ended September 30, 1999,
which represented an increase of $134.6 million, or 90% compared to the same
quarter in 1998. Computer product sales increased by $116.9 million primarily
due to the expansion of the customer base related to the acquisitions of the
Computer Products Division of Almo Corporation ("Almo CPD") and Tenex Data
Division of Axidata, Inc. ("Tenex Data") in November 1998, the acquisition of
FTI in July 1999 and to the growth in unit sales in existing product lines and
the addition of new lines. Semiconductor sales increased by $18.0 million
primarily due to the acquisition of FTI, growth in unit sales in existing
product lines and the addition of new lines.
The Company's gross profit for the third quarter of 1999 was $24.0
million, an increase of $8.3 million, or 53% from the third quarter of 1998. The
increase in gross profit was primarily the result of increased sales volume. As
a percentage of sales, overall gross margins were 8.5% compared to 10.6% in the
same period last year. This decrease was primarily due to increased competitive
pricing in the industry and the increase in the proportion of computer product
sales, which typically have lower margins than semiconductors.
Selling, general and administrative expenses increased to $18.3 million
in the third quarter of 1999 from $11.4 million in the third quarter of 1998, an
increase of $6.9 million, or 61%. This increase in expenses was attributable to
the acquisitions of Almo CPD, Tenex Data and FTI, the Company's continuing
effort to strengthen its financial and administrative support, and increased
sales volume.
Interest expense was $1.7 million in the third quarter of 1999 as
compared to $0.7 million in the same period last year. This increase was
primarily due to higher bank borrowings throughout the third quarter of 1999 in
relation to the comparable 1998 quarter.
In the third quarter of 1999, the Company recognized remeasurement
gains of approximately $123,000 relating to the retranslation of US dollar
denominated debt of Tenex Data.
The effective income tax rate increased to 43% in the third quarter of
1999 from 42% in the same period in 1998. This increase was primarily due to the
reduction of certain tax credits, resulting from the sale of the Company's
contract manufacturing division.
Nine Months ended September 30, 1999 compared to nine months ended September 30,
1998
Sales were $734.6 million for the nine months ended September 30, 1999,
which represented an increase of $344.7 million, or 88% over the same period in
1998. The increase in sales was attributable to growth in unit sales in existing
product lines, the addition of new lines and expansion of the customer base
related to the acquisitions of Almo CPD and Tenex Data in November 1998, and the
acquisition of FTI in July of 1999.
The Company's gross profit for the first nine months of 1999 was $64.2
million, an increase of $19.1 million or 42% over the first nine months of 1998.
As a percentage of sales, gross margin decreased to 8.7%, compared to 11.6% in
the same period last year. This decrease was primarily due to increased
competitive pricing in the industry and the increase in the proportion of
computer product sales, which typically have lower margins than semiconductors.
Selling, general and administrative expenses increased to $49.1 million
in the first nine months of 1999 from $33.2 million in the first nine months of
1998, which represented an increase of 48%. This increase was attributable to
the acquisitions of Almo CPD, Tenex Data and FTI, the Company's continuing
effort to strengthen its financial and administrative support, and increased
sales volume.
9
<PAGE>
Interest expense was $4.5 million in the first nine months of 1999 as
compared to $2.1 million in the same period last year. This increase was
primarily due to higher bank borrowings throughout the nine month period in
relation to the comparable 1998 period.
In the first nine months of 1999, the Company recognized remeasurement
gains of approximately $481,000 relating to the retranslation of US dollar
denominated debt of Tenex Data.
The effective income tax rate increased to 43% in the first nine months
of 1999, from 42% in the same period in 1998. This increase was primarily due to
the reduction of certain tax credits resulting from the sale of the Company's
contract manufacturing division.
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.
The Company's revolving line of credit is $130 million. At the
Company's option, the borrowings under the line of credit will bear interest at
California Bank & Trust's prime rate or the adjusted LIBOR rate plus 1.85%. At
September 30, 1999, the prime interest rate was 8.25%. The balance outstanding
on the revolving line of credit at September 30, 1999 was $99.5 million. The
revolving line of credit has a final payment due date of October 31, 2000.
Obligations of the Company under the revolving line of credit are secured by
substantially all of the Company's assets. The revolving line of credit requires
the Company to meet certain financial tests and to comply with certain other
covenants on a quarterly basis, including restrictions on incurrence of debt and
liens, restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends, repurchases of stock, new investments and profitability. At September
30, 1999 the Company was not in compliance with one of its covenants in its
Third Amended and Restated Syndicated Credit Agreement. In conjunction with the
October 1999 amendment, the Company received a waiver from its banks regarding
this noncompliance. There can be no assurance that the Company will be in
compliance with its bank covenants in the future. If the Company does not remain
in compliance with the covenants in its Third Amended and Restated Syndicated
Credit Agreement and is unable to obtain a waiver of noncompliance from its
banks, the Company's financial condition and results of operations would be
materially adversely affected. The Company intends to utilize its revolving line
of credit to fund future working capital requirements. The Company evaluates
potential acquisitions from time to time and may utilize its line of credit to
acquire complementary businesses, provided consent from its banks is obtained.
On July 21, 1999, the Company acquired certain assets and assumed
certain liabilities of FTI for a purchase price of approximately $2.2 million in
cash including acquisition costs. The acquisition, which was accounted for as a
purchase, was funded through borrowings under the Company's revolving line of
credit. On June 8, 1999 the Company sold its Contract Manufacturing Division,
Quadrus, for a total cash consideration of $34.7 million. On November 13, 1998,
the Company acquired the Computer Products Division of Almo Corporation for
approximately $20.7 million in cash and a stock warrant valued at $1.0 million.
On November 19, 1998, the Company acquired Tenex Data, a division of Axidata,
Inc. for a total consideration of approximately $5.8 million in cash. Both the
1998 acquisitions were funded through the Company's revolving line of credit.
Net cash used in operating activities for the nine months ended
September 30, 1999 was $29.9 million. The Company's net accounts receivable as
of September 30, 1999 increased to $158.7 million from $106.6 million as of
December 31, 1998. The Company's accounts payable increased to $128.7 million as
of September 30, 1999 from $72.0 million as of December 31, 1998, primarily due
to increased inventory purchases. The Company's inventories as of September 30,
1999 increased to $138.2 million from $105.3 million as of December 31, 1998,
primarily as a result of the Company's need to support anticipated future sales
requirements. Net cash provided by investing activities during the nine months
ended September 30, 1999 totaled $29.9 million, which was primarily related to
the sale of Quadrus. Net cash used in financing activities during the nine
months ended September 30,
10
<PAGE>
1999 totaled $0.9 million, which was primarily related to the borrowings under
the Company's line of credit. The Company's future cash requirements will depend
on numerous factors, including potential acquisitions and the rate of growth of
its sales. The Company may, in the future, seek additional debt or equity
financing to fund continued growth.
YEAR 2000 COMPLIANCE
The Year 2000 issue relates to the way computer systems and programs
define calendar dates; they could fail or make miscalculations due to
interpreting a date including "00" to mean 1900, not 2000. This could result in
system failures causing disruptions in operations, including among other things,
interruptions in processing business transactions and other normal business
operations. Also, many systems and equipment that are not typically thought of
as "computer-related" (referred to as non-IT) contain embedded hardware or
software that may have a time element.
The Company's plan to address the Year 2000 issue includes three
phases: identification of all systems and equipment, both information technology
("IT") and non-IT that may be affected by the Year 2000 issue; evaluation and
development of strategies to address affected systems and equipment; and
remediation of affected systems and equipment.
The Company completed the first two phases in that it has identified
all affected systems and equipment, both IT and non-IT, and has completed its
Year 2000 compliance evaluation. The Company determined that the majority of its
affected systems (both software and hardware) required upgrade versus
replacement in order to become Year 2000 compliant. As of September 30, 1999,
the Company completed phase three, remediation of affected systems and
equipment, for its business critical systems. The Company plans to continue
testing these systems throughout the remainder of 1999 to ensure continual Year
2000 compliance. The Company has an objective for its secondary systems and
equipment to be Year 2000 compliant in the fourth quarter of 1999 and will
continue testing throughout the year. As of September 30, 1999, the Company has
incurred expenses totaling approximately $200,000, and expects to incur an
estimated additional $20,000 to complete its Year 2000 readiness.
The Company has identified and contacted its critical suppliers,
service providers and contractors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remedy their
own Year 2000 issues. To the extent that responses to Year 2000 readiness are
unsatisfactory, the Company intends to change suppliers, service providers and
contractors to those who have demonstrated Year 2000 readiness but cannot be
assured that it will be successful in finding such alternative suppliers,
service providers and contractors. The Company does not currently have any
formal information concerning the Year 2000 compliance status of its customers
but has received indications that most of its customers are working on Year 2000
compliance. In the event that any of the Company's significant customers and
suppliers do not successfully and timely achieve Year 2000 compliance, and the
Company is unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected. In the event Year
2000 issues relating to key customers and suppliers are not successfully
resolved, based on information available to the Company at present, the Company
believes that the most likely worst case scenario is a temporary disruption in
infrastructure service, particularly power and telecommunications, which could
adversely impact supplier deliveries or customer shipments. The Company has
developed a contingency plan regarding the most reasonably likely case scenario
in the event it has not adequately addressed the Year 2000 issue. If severe
disruptions occur in these areas and are not corrected in a timely manner, a
revenue or profit shortfall may result in the year 2000.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's line of credit has an interest rate that is based on
associated rates such as LIBOR and the Prime Rate that may fluctuate over time
based on changes in the economic environment. The Company is subject to interest
rate risk, and could be subjected to increased interest payments if market
11
<PAGE>
interest rates fluctuate. An effective increase or decrease of 10% in such
interest rate percentages would affect the Company's results from continuing
operations by approximately 3%. The potential change noted above is based on
sensitivity analysis performed by the Company as of September 30, 1999.
Substantially all of the Company's revenue and capital expenditure are
transacted in US Dollars. As a result of transactions in other currencies, the
Company has recognized foreign currency remeasurement gain of $481,000 during
the quarter ended September 30, 1999. The Company is likely to be subject to
increased foreign currency transactions and associated risks of depreciation of
value and volatility of cashflows following the acquisitions of Future Tech and
Tenex Data. To the extent the Company is unable to manage these risks, the
Company's results and financial position could be materially adversely affected.
12
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports
(a) Exhibits:
27. Financial Data Schedule for the nine months ended September 30, 1999
99. Waiver and Third Amendment to Third Amended and Restated Credit
Agreement dated as of October 15, 1999
99.1* Employment Agreement dated as of July 1, 1999 between the Registrant
and W. Donald Bell, the Registrant's Chief Executive Officer
99.2 Management Retention Agreements between the Registrant and the
following executive officers of the Registrant: W. Donald Bell and
Remo E. Canessa
* Confidential treatment has been sought for portions of this document.
Reports on Form 8-K:
On October 4, 1999 the Company filed a Form 8-K/A under Item 2.
which amended the Company's current report in Form 8-K dated August
4, 1999, regarding its acquisition of Future Tech International,
Inc.
13
<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 15, 1999
BELL MICROPRODUCTS INC.
By: Remo E. Canessa
------------------------------------------
Vice President of Finance and Operations,
Chief Financial Officer
(Principal Financial Officer and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,412
<SECURITIES> 0
<RECEIVABLES> 162,215
<ALLOWANCES> 3,533
<INVENTORY> 138,247
<CURRENT-ASSETS> 307,155
<PP&E> 9,535
<DEPRECIATION> 3,438
<TOTAL-ASSETS> 330,469
<CURRENT-LIABILITIES> 137,766
<BONDS> 99,537
0
0
<COMMON> 92
<OTHER-SE> 93,074
<TOTAL-LIABILITY-AND-EQUITY> 330,469
<SALES> 734,585
<TOTAL-REVENUES> 734,585
<CGS> 670,387
<TOTAL-COSTS> 670,387
<OTHER-EXPENSES> 44,575
<LOSS-PROVISION> 4,078
<INTEREST-EXPENSE> 4,456
<INCOME-PRETAX> 11,089
<INCOME-TAX> 4,719
<INCOME-CONTINUING> 6,370
<DISCONTINUED> (2,946)
<EXTRAORDINARY> 1,054
<CHANGES> 0
<NET-INCOME> 4,478
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.49
</TABLE>
EXECUTION VERSION
WAIVER AND THIRD AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS WAIVER AND THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT (this "Waiver and Amendment"), dated as of October 15, 1999, 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 Restated Credit Agreement referred to in Recital A below (the
"Banks");
(3) CALIFORNIA BANK & TRUST, a California banking
corporation, as administrative agent for the Banks (in such capacity,
"Administrative Agent"); and
(4) UNION BANK OF CALIFORNIA, N.A., a national banking
association, as collateral agent for the Banks (in such capacity,
"Collateral Agent").
RECITALS
A. Borrower, the Banks, Administrative Agent and Collateral Agent are
parties to a Third Amended and Restated Credit Agreement dated as of November
12, 1998, as amended by (i) that certain First Amendment to Third Amended and
Restated Credit Agreement dated as of May 13, 1999 and (ii) that certain Second
Amendment to Third Amended and Restated Credit Agreement dated as of July 21,
1999 (as amended, the "Restated Credit Agreement").
B. Borrower has requested the Banks, Administrative Agent and
Collateral Agent to amend the Restated Credit Agreement in certain respects.
C. In addition, Borrower has failed to comply with one of the financial
covenants set forth in the Restated Credit Agreement. Borrower has requested the
Banks, Administrative Agent and Collateral Agent to waive such non-compliance.
D. The Banks, Administrative Agent and Collateral Agent are willing so
to amend the Restated Credit Agreement and grant such waiver 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, Administrative Agent and Collateral Agent
hereby agree as follows:
1. Definitions, Interpretation. All capitalized terms defined above and
elsewhere in this Waiver and Amendment shall be used herein as so defined.
Unless otherwise defined herein, all other capitalized terms used herein shall
have the respective meanings given to those
1
<PAGE>
terms in the Restated Credit Agreement, as amended by this Waiver and Amendment.
The rules of construction set forth in Section I of the Restated Credit
Agreement shall, to the extent not inconsistent with the terms of this Waiver
and Amendment, apply to this Waiver and Amendment and are hereby incorporated by
reference.
2. Amendment to Credit Agreement. Subject to the conditions set forth
in paragraph 5 below, Subparagraph 2.01(a) of the Restated Credit Agreement is
hereby amended by substituting the date "October 31, 2000" for the date "July
30, 2000."
3. Waiver Under Credit Agreement. Subject to the conditions set forth
in paragraph 5 hereof, the Banks, Administrative Agent and the Collateral Agent
hereby waive Borrower's compliance with the Leverage Ratio set forth in clause
(iv) of Subparagraph 5.02(m) of the Restated Credit Agreement for the quarter
ended September 30, 1999, provided that Borrower's Leverage Ratio for such
quarter was not greater than 3.12 to 1.00.
4. Representations and Warranties. Borrower hereby represents and
warrants to Administrative Agent, Collateral Agent and the Banks that, on the
date of this Waiver and Amendment and after giving effect to the amendment set
forth in paragraph 2 and the waiver set forth in paragraph 3 above, the
following are and shall be true and correct on the Effective Date (as defined
below):
(a) The representations and warranties set forth in Paragraph
4.01 of the Restated Credit Agreement are true and correct in all
material respects;
(b) No Default or Event of Default has occurred and is
continuing; and
(c) Each of the Credit Documents is in full force and effect.
5. Effective Date. The amendment to the Restated Credit Agreement
effected by paragraph 2 above and the waiver granted under paragraph 3 above
shall become effective on October 15, 1999 (the "Effective Date"), subject to
receipt by the Banks, Administrative Agent and Collateral Agent on or prior to
the Effective Date of the following, each in form and substance satisfactory to
the Banks, Administrative Agent, Collateral Agent and their respective counsel:
(a) This Waiver and Amendment duly executed by Borrower, the
Banks, Administrative Agent and Collateral
Agent;
(b) A letter in the form of Attachment A hereto appropriately
completed, dated the Effective Date and duly executed by each
Guarantor;
(c) A Certificate of the Secretary or an Assistant Secretary
of Borrower, dated the Effective Date, certifying that (i) the Articles
of Incorporation and Bylaws of Borrower, in the form delivered to
Administrative Agent on the Closing Date, are in full force and effect
and have not been amended, supplemented, revoked or repealed since such
date, (ii) that the resolution of Borrower, in the form delivered to
Administrative Agent on the Closing Date, is in full force and effect
and has not been amended, supplemented, revoked or repealed since such
date, and (iii) the incumbency, signatures
2
<PAGE>
and authority of the officers of Borrower authorized to execute,
deliver and perform the Credit Agreement, this Amendment, the other
Credit Documents and all other documents, instruments or agreements
relating thereto executed or to be executed by Borrower;
(d) A nonrefundable amendment fee equal to Seventy Eight
Thousand Dollars ($78,000.00) to be shared among the Banks pro rata
according to their respective Proportionate Shares; and
(e) Such other evidence as Administrative Agent, Collateral
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 Waiver and Amendment.
6. Effect of this Waiver and Amendment. On and after the Effective
Date, each reference in the Restated Credit Agreement and the other Credit
Documents to the Restated Credit Agreement shall mean the Restated Credit
Agreement as amended hereby. Except as specifically amended above, (a) the
Restated 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 Waiver and Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power, or remedy of
the Banks, Administrative Agent or Collateral Agent, nor constitute a waiver of
any provision of the Restated Credit Agreement or any other Credit Document.
7. Reservation of Rights. Borrower acknowledges and agrees that the
execution and delivery by Administrative Agent, Collateral Agent and the Banks
of this Waiver and Amendment shall not be deemed to create a course of dealing
or otherwise obligate Administrative Agent, Collateral Agent or the Banks to
execute similar waivers or amendments under the same or similar circumstances in
the future.
8. Miscellaneous.
(a) Counterparts. This Waiver and 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) Headings. Headings in this Waiver and Amendment are for
convenience of
reference only and are not part of the substance hereof.
(c) Governing Law. This Waiver and 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 Banks, Administrative Agent and
Collateral Agent have caused this Waiver and Amendment to be executed as of the
day and year first above written.
BORROWER: BELL MICROPRODUCTS INC.
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
ADMINISTRATIVE AGENT: CALIFORNIA BANK & TRUST,
As Administrative Agent
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
COLLATERAL AGENT: UNION BANK OF CALIFORNIA, N.A.,
As Collateral Agent
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
4
<PAGE>
BANKS: CALIFORNIA BANK & TRUST,
As a Bank
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.,
As a Bank
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
SANWA BANK CALIFORNIA,
As a Bank
By:__________________________________
Name:
Title:
COMERICA BANK--CALIFORNIA,
As a Bank
By:__________________________________
Name:
Title:
5
<PAGE>
U.S. BANK NATIONAL ASSOCIATION,
As a Bank
By:__________________________________
Name:
Title:
6
<PAGE>
ATTACHMENT A
FORM OF GUARANTOR CONSENT LETTER
October 15, 1999
TO: ADMINISTRATIVE AGENT,
As Administrative Agent for the Banks
and the Agents under the Restated
Credit Agreement referred to below
1. Reference is made to the following:
(a) The Third Amended and Restated Credit Agreement dated as
of November 12, 1998, among Borrower, the Banks, Administrative Agent
and Collateral Agent, as amended by that certain First Amendment to
Third Amended and Restated Credit Agreement dated as of May 13, 1999
and that certain Second Amendment to Third Amended and Restated Credit
Agreement dated as of July 21, 1999 (as amended, the "Restated Credit
Agreement");
(b) [The Bell Canada Guaranty, dated as of November 12, 1998
(the " Bell Canada Guaranty"),] [The Bell-Tenex Guaranty, dated as of
November 20, 1998 (the "Bell-Tenex Guaranty"),] executed by the
undersigned ("Guarantor") in favor of the Banks and Collateral Agent;
and
(c) The Waiver and Third Amendment to Third Amended and
Restated Credit Agreement, dated as of October 15, 1999, among
Borrower, the Banks, Administrative Agent and Collateral Agent (the
"Waiver and Third Amendment");
2. Guarantor hereby confirms that it is a wholly-owned subsidiary of
[Bell Microproducts Inc., a California corporation] [Bell Microproducts Canada
Inc., a California corporation ("Bell Canada") and that Bell Canada is a
wholly-owned subsidiary of Bell Microproducts Inc., a California corporation].
3. Guarantor hereby consents to the Waiver and Third Amendment,
including without limitation, the extension of the Revolving Loan Maturity Date
from July 31, 2000 to October 31, 2000. Guarantor expressly agrees that the
Waiver and Third Amendment shall in no way affect or alter the rights, duties,
or obligations of Guarantor, the Banks or Collateral Agent under the [Bell
Canada Guaranty] [Bell-Tenex Guaranty].
4. Pursuant to the [Bell Canada Guaranty] [Bell-Tenex Guaranty],
Guarantor continues to guaranty the payment when due of, inter alia, all loans,
advances, debts, liabilities and obligations, however arising, owed by the
Borrower to any Agent or any Bank of every kind and description now existing or
hereafter arising pursuant to the terms of the Restated Credit Agreement as
amended by the Waiver and Third Amendment or any of the other Credit Documents.
A-1
<PAGE>
5. The [Pledge] [Security] Agreement, dated as of November 20, 1998
executed by Guarantor in favor of Collateral Agent (the "[Pledge] [Security]
Agreement") and any other security granted to any Agent or any of the Banks from
time to time as security for the obligations of Guarantor under the [Bell Canada
Guaranty] [Bell-Tenex Guaranty] remains in full force and effect and unamended,
and the security interests, mortgages, charges, liens, assignments, transfers
and pledges granted by Guarantor pursuant to the [Pledge] [Security] Agreement
and such other documents (if any) continue to extend to all debts, liabilities
and obligations, present or future, direct or indirect, absolute or contingent,
matured or unmatured, at any time due or accruing due, of Guarantor to any of
the Banks and any Agent arising under, in connection with or pursuant to the
Restated Credit Agreement and the other Credit Documents, as acknowledged and
confirmed by this Guarantor Consent Letter, notwithstanding the amendment of the
Restated Credit Agreement by the Waiver and Third Amendment.
6. From and after the date hereof, the term "Restated Credit Agreement"
as used in the [Bell-Canada Guaranty] [Bell-Tenex Guaranty] shall mean the
Restated Credit Agreement, as amended by the Waiver and Third Amendment.
7. Guarantor's consent to the Waiver and Third Amendment shall not be
construed (i) to have been required by the terms of the [Bell Canada Guaranty]
[Bell-Tenex Guaranty], any other Credit Document or any other document,
instrument or agreement relating thereto or (ii) to require the consent of
Guarantor in connection with any future amendment of the Restated Credit
Agreement or any other Credit Document.
A-2
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guarantor Consent
Letter as of the day and year first written above.
[BELL/MICROPRODUCTS CANADA-TENEX DATA ULC]
[BELL MICROPRODUCTS CANADA INC.]
By: ____________________________
Name:___________________________
Title:__________________________
A-3
BELL MICROPRODUCTS, INC.
MANAGEMENT RETENTION AGREEMENT
This Management Retention Agreement (the "Agreement") is made and
entered into by and between Remo E. Canessa (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 Agreement. This Agreement shall terminate three years
following the Effective Date, unless a Change of Control has occurred as 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.
1
<PAGE>
2. At-Will Employment. The Company and the Employee acknowledge that
the Employee's employment is and shall continue to 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 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 is terminated 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 Employment 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 earlier or (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" or 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
2
<PAGE>
Employees 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 3(a)(i) shall be paid by the
Company to the Employee (or to the Employee's successors in interest,
pursuant to Section 6(b)) in cash and in full, not later than (30)
calendar days following the Termination Date.
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 that
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 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
3
<PAGE>
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 assumption 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 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 in 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 enrichment of the Employee, (ii) the conviction of a felony,
or (iii) a willful act by the Employee which constitutes gross
misconduct and which is injurious to the Company.
c. Change in Control. "Change in 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
4
<PAGE>
(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
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 unless part of a
management-wide or company-wide cost-reduction program in which a
majority of management or employees are affected; (iv) a material
reduction by the Company in the kind of 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 unless part of a
management-wide or companywide cost-reduction program in which a
majority of management or employees are affected; (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; (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
5
<PAGE>
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 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 by a 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 term 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, divisees
and legatees.
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
6
<PAGE>
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 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 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, contruction
and performance of this Agreement shall be governed by the laws of the
State of California.
7
<PAGE>
e. Severability. The invalidity of 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.
By: /s/ W. Donald Bell
----------------------------
W. Donald Bell
President & CEO
Dated: 8/6/99
Employee: Remo E. Canessa
Dated: 7/29/99
8
<PAGE>
Confidential Treatment is requested for portions of this document.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into by and between W. Donald Bell ("Bell") and Bell Microproducts, Inc., a
California corporation ("Company"), effective as of 7/1/99, and supersedes and
replaces in its entirety the Employment Agreement between the parties dated
December 10, 1996.
WITNESETH:
WHEREAS, Bell has been serving and continues to serve as the
Chairman, President and Chief Executive Officer of Company; and
WHEREAS, the parties wish to continue Bell's employment with
Company for a period of at least three years from the date of this Agreement and
wish to set forth the terms and conditions of that employment relationship in
writing;
NOW, THEREFORE, in consideration of Bell's continued
employment with Company, and other good and valuable consideration, and in
consideration of the covenants contained herein, the receipt and sufficiency of
which are hereby acknowledged, the parties do hereby agree and contract as
follows:
1. Term of Employment. Company hereby agrees to employ Bell as
Chairman, President and Chief Executive Officer for the period
commencing with the date set forth above and ending on December 31,
2002, unless Bell's employment is terminated earlier pursuant to
Paragraph 4 of this Agreement After December 31, 2002, Bell's
employment with Company may be continued by mutual written agreement
of the parties.
2. Duties. Bell accepts employment with Company as its
Chairman, President and Chief Executive Officer. Bell agrees to devote
his full time, attention and best efforts to the business and affairs
of the Company. Bell shall perform all duties and responsibilities
commensurate with his position as Chairman, President and Chief
Executive Officer and shall follow the reasonable direction of the
Board of Directors of the Company. Company agrees to nominate Bell for
election to Company's Board of Directors, and Bell agrees to serve,
for any period for which he is so elected, without additional
compensation therefor. Bell may serve on corporate, civic or
charitable boards or committees, fulfill speaking engagements and
manage personal investments, so long as Company, in its sole
discretion, reasonably determines that such activities do not
interfere, compete with or otherwise pose a conflict of interest with
respect to the performance of Bell's duties and responsibilities under
this Agreement. Bell shall comply with Company's policies and
procedures as adopted from time to time; provided, however, that to
the extent any such policies and procedures are inconsistent with this
Agreement, the provisions of this Agreement shall control.
<PAGE>
Confidential Treatment is requested for portions of this document.
3. Compensation and Benefits. During the term of this
Agreement, Bell shall receive the following compensation and
benefits:
a. Base Salary. Bell shall receive a minimum base
salary of $375,000 per year, less applicable withholding,
payable monthly or more frequently in accordance with
Company's customary payroll practices. The Compensation
Committee of the Company's Board of Directors shall review
Bell's base salary at least annually and may, in its sole
discretion, increase the base salary under its normal
compensation policies for executive officers.
b. Annual Incentive Compensation. Bell shall
participate in any and all annual incentive compensation
plans, including but not limited to the Management Incentive
Program, which may be established by the Compensation
Committee of Company's Board of Directors for the Chief
Executive Officer from time to time. In no event shall any
annual incentive compensation plans established by the
Compensation Committee for the Chief Executive Officer after
the date set forth above be less favorable than the annual
incentive compensation plans currently maintained for the
Chief Executive Officer as of such date.
c. EPS Enhancement Incentive
(i) Within thirty (30) days following the
issuance of the audited financial statements for the 1999
fiscal year and each fiscal year thereafter until the
termination of this Agreement, Company shall pay Bell a
lump-sum cash incentive payment (the "EPS Enhancement
Incentive") equal to (i) $5,000 for each $0.01 of Company's
annual net earnings per share (as hereinafter defined) over
and above [*] per share, plus (ii) $3,000 for each $.01 if
Company's annual net earning per share (as hereinafter
defined) over and above [*] per share.
(ii) For purposes of this Paragraph 3(c), the
term "annual net earning per shares for any fiscal year" shall
mean the net profits of the Company, after the provision for
income taxes, any extraordinary items of profit or loss and
the computation of any payments due under this Paragraph 3(c),
expressed on a fully diluted earning per share basis (based on
the weighted average number of shares of Company's Common
Stock outstanding or equivalent thereto or otherwise treated
as outstanding during such annual fiscal period), computed in
accordance with generally accepted accounting principles by
Company's interdependent public accountants and as reported in
Company's audited financial statements for such fiscal year.
The [*] and [*] per share thresholds stated herein shall be
adjusted to reflect the effect of any stock dividends on, or
stock splits or reverse splits of, or recapitalizations,
reclassifications or other similar transactions affecting
Company's Common Stock which are declared or effected after
the date of this Agreement in the same manner as such
dividends, stock splits or transactions have been reflected in
the annual net earnings per share in accordance with generally
accepted
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Confidential Treatment is requested for portions of this document.
accounting principles and as reported in Company's audited
financial statements, and the $5,000 and $3,000 amounts shall
be adjusted consistent with the goals of the EPS Enhancement
Incentive and the amount that would otherwise be payable
without such adjustment pursuant to Section 3(c).
(iii) If, in any fiscal year, the total
compensation paid to Ben would result in a violation of the
compensation deduction limits contained in Section 162(m) of
the Internal Revenue Code of 1986 (the "Code"), or any
successor provision, and the regulations issued thereunder, a
portion of the EPS Enhancement Incentive shall be credited to
a deferred compensation account and shall become due and
payable upon the effective date of Bell's termination of
employment for any reason. The portion credited to the
deferred compensation account shall be the amount necessary to
avoid such violation of Code 162(m). All amounts credited to
the deferred compensation account shall be adjusted for
interest, compounded quarterly, at the prime interest rate
quoted by Citicorp, NA. from time to time, beginning with the
date the deferred compensation account is established and
continuing until all amounts have been paid in full. Upon
Bell's termination of employment, the balance of the deferred
compensation account shall be paid in equal annual
installments not to exceed $500,000 per year. The deferred
compensation account shall at all times be entirely unfunded.
Neither Bell nor his successors shall have any interest in the
assets of Company by reason of the right to receive the
amounts credited to the deferred compensation account; and
Bell shall have only the rights of a general unsecured
creditor with respect thereto.
d. Long-Term Disability Insurance. Company agrees to
pay all premiums required for long-term disability insurance
which shall provide Bell with a disability benefit equal to
(60%) of Bell's total compensation if, as the result of Bell's
incapacity due to physical or mental illness, Bell is unable
to perform his duties as President and Chief Executive
Officer. Company may, in its discretion, provide such
long-term disability insurance under its group policy.
e. Business Expenses. Company will reimburse Bell for
ordinary and necessary travel and other out-of-pocket expenses
incurred by Bell in connection with the performance of his
duties, provided that Bell promptly submits to Company
receipts verifying such expenses.
f. Other Employee Benefits. Bell shall be eligible to
participate in any and all other employee benefit plans and
programs offered by Company from time to time, including but
not limited to, any medical, dental, short-term disability and
life insurance coverage, stock option plans or retirement
plans, in accordance with the terms and conditions of those
benefit plans and programs and on a basis consistent with that
customarily provided to Company's executive officers. In
addition, Company shall continue to maintain all life
insurance policies currently in effect as one of the effective
dates set forth above.
3
<PAGE>
Confidential Treatment is requested for portions of this document.
g. Vacation and Other Absences. Bell shall be entitled
to paid vacations each year in accordance with Company's
then-current vacation policy for executive officers. The rules
relating to other absences from regular duties for holidays,
sick or disability leave, leave of absence without pay, or for
other reasons, shall be the same as those customarily provided
to Company's executive officers.
4. Termination. Unless extended by mutual written agreement of
the parties, and except for the provisions hereof which are intended
to survive for other periods of time as specified herein, this
Agreement shall terminate (a) upon the expiration date stated in
Paragraph 1 December 31, 2002; (b) at any time upon mutual written
agreement of the parties; (c) immediately upon Bell's death; (d) by
the Company, immediately and without prior written notice, for "cause"
(as defined in Section 5(c) below); or (e) by Bell or by Company for
any reason not otherwise covered by clauses (a), (b), (c) or (d)
herein, with at least thirty (30) days' written notice to the other.
Except as otherwise provided in Paragraph 5, upon the termination of
Bell's employment for any reason, Bell shall be entitled to receive
his base salary through his last date of employment, any annual
incentive employment, the amounts credited to the deferred
compensation account described in Paragraph 3(c), any unreimbursed
business expenses incurred prior to such termination of employment and
such other employee benefits to the extent permitted by the applicable
policies or plan documents or as required by law.
5. Severance Benefits.
a. Termination Without Cause or Involuntary
Termination. If Company terminates Bell's employment
without cause or in the event of an "involuntary
termination" (as defined in Section 5(c) below) at any
time during the term of this Agreement, Bell shall be
entitled to the following additional severance
benefits:
(i) Base Salary. Company shall
continue to pay Bell his then-current base
salary through the expiration date stated in
Paragraph 1, or such later date as may have
been mutually agreed to in writing by the
parties.
(ii) Benefits. Company shall continue
to provide, at no cost to Bell, medical,
dental, short-term disability and life
insurance benefits for Ben and his dependents
through the expiration date stated in
Paragraph 1, or such later date as may have
been mutually agreed to by the parties, at
the same level of coverage as was provided to
Bell immediately prior to the termination of
his employment, and shall continue to pay all
premiums required for the long-term
disability insurance coverage described in
Paragraph 3(d) through the expiration date
stated in Paragraph 1, or such later date as
may have been mutually agreed to by the
parties.
4
<PAGE>
Confidential Treatment is requested for portions of this document.
Company may, in its discretion, provide the
benefits described herein under the Company's group plans or
under no less favorable insurance contracts or arrangements
secured by the Company. For purposes of Title X of the
Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the
date of the "qualifying event" for Bell and his dependents
shall be the expiration date stated in Paragraph 1. Company's
obligations to provide the benefits described herein shall
cease if Bell and his dependents become covered under another
employer's group medical, dental, short-term disability,
long-term disability or life insurance plans that provide Bell
and his dependents with comparable benefits and levels of
coverage.
(iii) Portions of EPS Enhancement Incentive
for current Fiscal Year. Within thirty (30) days after
the effective date of Bell's termination of
employment, Bell shall receive a lump-sum cash payment
for a portion of the EPS Enhancement Incentive which
he could have earned for the fiscal year in which his
employment terminates. Such portion shall be based on
the cumulative monthly earning per share for such
fiscal year through the end of the month coinciding
with or immediately preceding the effective date of
Bell's termination of employment as reported in
Company's Interim financial statements. For purposes
of determining such portion of the EPS Enhancement
Incentive, the [*] and [*] thresholds described in
Paragraph 3(c) shall be pro rated for the number of
months counted in such cumulative monthly earning per
share, rounded down to the nearest cent. Exhibit A
sets forth an example of how the payments required
under this Paragraph 5(a)(iii) shall be calculated,
but such Exhibit A shall not, in any manner, limit the
application of this Paragraph 5(a)(iii).
(iv) Average Annual and EPS Enhancement
Incentives. Within (30) days after the effective date
of Bell's termination of employment, Bell shall
receive a lump-sum cash payment equal to three times
the sum of (A) the monthly average of the EPS
Enhancement Incentive described in Paragraph 3(c)
which Bell may have earned for each fiscal year or
portion thereof during the term of this Agreement,
including the fiscal year in which Bell's termination
of employment occurs, multiplied by twelve, and (B)
the monthly average of all other annual incentive
compensation described in paragraph 3(b) which Bell
may have earned for each fiscal year or portion
thereof during the term of this Agreement, including
the fiscal year in which Bell's termination of
employment occurs, multiplied by twelve. Exhibit A
sets forth an example of how the payments required
under this Paragraph 4(a)(iv) shall be calculated, but
such Exhibit A shall not, in any manner, limit the
application of this Paragraph 5(a)(iv).
(v) Acceleration of Stock Options.
Notwithstanding anything in the applicable stock
option plan and successor plan, or stock option
agreement to the contrary, upon the effective date of
Bell's termination of employment, one hundred (100%)
of the unvested portion of any stock option or
restricted stock award held by Bell shall
automatically be accelerated in full so as to become
fully vested, subject to the restrictions relating to
"pooling-of-interests" accounting treatment
5
<PAGE>
Confidential Treatment is requested for portions of this document.
contained in Section 3(a)(i)(3) of the Management Retention
Agreement entered into by Bell and the Company on July 1,
1999, if applicable.
b. Termination Upon Disability. If Bell's employment
with the Company is terminated an account of disability at any
time during the term of this Agreement, Bell shall be entitled
to the following additional benefits:
(i) Benefits. Company shall continue to
provide, at no cost to Bell, medical, dental and life
insurance benefits for Bell and his dependents through
the expiration date stated in Paragraph 1, or such
later date as may have been mutually agreed to by the
parties, at the same level of coverage as was provided
to Bell immediately in writing prior to the
termination of his employment.
Company may, in its discretion, provide the
benefits described herein under the Company's group plans or
under no less favorable insurance contracts or arrangements
secured by the Company. For purposes of Title X of the
Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the
date of the "qualifying event" for Bell and his dependents
shall be the end of the twenty-four month period following the
effective date of Bell's termination of employment. Company's
obligations to provide the benefits described herein shall
cease if Bell and his dependents become covered under another
employer's group medical, dental or life insurance plans that
provide Bell and his dependents with comparable benefits and
levels of coverage.
(ii) Portion of EPS Enhancement Incentive for
Current Fiscal Year. Within thirty (30) days after the
effective date of Bell's termination of employment on
account of disability, Bell shall receive a lump-sum
cash payment for a portion of the EPS Enhancement
Incentive which he could have earned for the fiscal
year in which his employment terminates. Such portion
shall be based on the cumulative monthly earning per
share for such fiscal year through the end of the
month coinciding with or immediately preceding the
effective date of Bell's termination of employment, as
reported in Company's interim financial statements.
For purposes of determining such portion of the EPS
Enhancement Incentive, the [*] and [*] thresholds
described in Paragraph 3(c) shall be pro rated for the
number of months counted in such cumulative monthly
earnings per share, rounded down to the nearest cent.
c. Definitions.
(i) Cause. "Cause" shall mean (i) any act of
personal dishonesty taken by Bell in connection with
his duties and responsibilities as President and Chief
Executive Officer and intended to result in
substantial personal enrichment of Bell, (ii) Bell's
conviction of a felony or (iii) a willful act by Bell
which constitutes gross misconduct and which is
injurious to the Company.
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Confidential Treatment is requested for portions of this document.
(ii) Disability. "Disability" shall have the
same meaning as set forth in the long-term disability
insurance contract referred to in Paragraph 3(d).
(iii) Involuntary Termination. "Involuntary
termination" shall mean:
(A) without Bell's express written
consent, the significant reduction of Bell's
duties, authority or responsibilities,
relative to his duties, authority or
responsibilities as in effect immediately
prior to such reduction, or the assignment to
Bell of such reduced duties, authority or
responsibilities;
(B) without Bell's express written
consent, a substantial reduction, without
good business reasons, of the facilities and
perquisites (including office space and
location) available to Bell immediately prior
to such reduction;
(C) a reduction by Company in Bell's
base salary as in effect immediately prior to
such reduction;
(D) reduction by Company in the kind
of level of employee benefits, including
bonuses, to which Bell was entitled
immediately prior to such reduction with the
result that Bell's overall benefits package
is significantly reduced;
(E) Bell's relocation to a facility
or a location more than thirty-five (35)
miles from Bell's then present location,
without Bell's express written consent;
(F) any purported termination of Bell
by Company which is not effected for
disability or for cause, or any purported
termination for which the grounds relied upon
are not valid;
(G) the failure of Company to obtain
the assumption of this Agreement by any
successors contemplated in Paragraph 8 below;
or
(H) any act or set of facts or
circumstances which would, under California
case law or stature constitute a constructive
termination of Bell.
6. Covenant Not to Compete. In consideration of Bell's employment
hereunder and other good and valuable consideration, and in
consideration of the covenants contained herein, the receipt and
sufficiency of which are hereby acknowledged, all of which are express
payments for the obligations set forth in this Paragraph 6, Bell agrees
that, during his employment and for a period of two (2) years after the
termination of the Agreement, he will not, directly or indirectly,
engage in (whether as an employee, consultant, proprietor, partner,
director or otherwise), have any ownership interest in, or participate
in the financing, operation,
7
<PAGE>
Confidential Treatment is requested for portions of this document.
management or control of any firm, corporation or business that engages in or
intends to engage in business that is in direct competition with the Company's
principal business (as defined and discussed in Company's documents filed with
the Securities Exchange Commission); provided, however, that nothing contained
herein shall prevent Bell from owning or purchasing securities of any business
entity whose securities are regularly traded in any national securities exchange
or in the over-the-counter market if such ownership does not result in his or
his affiliates' owning directly or beneficially at any time five percent (5%) of
the voting securities of any corporation engaged in any business competitive to
the business then carried on by Company.
7. Remedies. The restriction contained in paragraph 6 is necessary for
Company's protection, and any breach thereof will cause Company irreparable
damage for which there is not adequate remedy at law. Bell agrees that, in the
event of such breach, Company shall, in addition to any other remedy which
Company may have at law or in equity, be entitled to seek such equitable and
injunctive relief as may be available without the necessity of proving damages.
Company agrees that, in the event of a breach of this Agreement by Company, Bell
shall have all such remedies as may be available at law or in equity.
8. Successors.
a. Company's Successors. Any successor to Company (whether
direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of 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 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 contemplated by this Paragraph
8(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
of Bell's hereunder shall inure to the benefit of, and be enforceable
by, Bell's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
9. Notice. 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 Bell, mailed notices shall
be addressed to him at the home address which he most recently communicated to
Company in writing. In the case of Company, mailed notices shall be addressed to
its corporate headquarters, and all notices shall be directed to the attention
of its Secretary.
8
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Confidential Treatment is requested for portions of this document.
10. Coordination of Agreements. In the event of any conflict between
this Agreement and the Management Retention Agreement entered into by Bell and
Company on July 1, 1999, the terms of this Agreement shall control.
11. Miscellaneous Provisions.
a. No Duty to Mitigate. Bell shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earning that Bell may receive from any
other source.
b. Amendment 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 Bell and by an
authorized officer of Company (other than Bell). 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 any other 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,
relation to the subject matter hereof.
d. Governing Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the
State of California.
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 the withholding of all applicable federal, state or
local 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.
9
<PAGE>
Confidential Treatment is requested for portions of this document.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year set forth above.
COMPANY: BELL MICROPRODUCTS INC.
Its: Director E J Gelbach
Dated: 7/12/99
BELL: /s/ W. Donald Bell
-------------------------
W. Donald Bell
Dated: 6/30/99
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Confidential Treatment is requested for portions of this document.
EXHIBIT A
This Exhibit A sets forth an example of how the payments required
under Paragraphs 5(a)(iii) and 5(a)(iv) should be calculated, but shall not, in
any manner, limit the application of such provisions.
Example: Assume that Bell is terminated on June 30, 1999. Company's
earnings per share ("EPS") for FY 1999 are as follows:
First Quarter [*]
Second Quarter [*]
Third Quarter [*]
Fourth Quarter [*]
During FY 1999, Bell earned the following incentive bonuses:
First Quarter [*]
Second Quarter [*]
1. Paragraph 5(a)(iii) - EPS Enhancement incentive for 1999.
Cumulative Monthly EPS:
Pro Rata Threshold: [*]
EPS Enhancement
Incentive for 1999 [*]
2. Paragraph 5(a)(Civ) -- Average Annual and EPS Enhancement
Incentives.
(A) EPS Enhancement Incentive
Monthly Average EPS: [*] [*]
Average Annual EPS: [*] [*]
Three Year Payout: [*] [*]
A-l
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Confidential Treatment is requested for portions of this document.
(B) Other Incentive Bonuses:
Monthly Average
Incentive Bonus: [*]
Average Annual Bonus [*]
Three-Year Payout: [*]
Total Payout equals the sum of (A) and (B): [*]
A-2
<PAGE>
BELL MICROPRODUCTS, INC.
MANAGEMENT RETENTION AGREEMENT
This Management Retention Agreement (the "Agreement") is made and
entered into by and between W. Donald Bell (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.
<PAGE>
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 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 Employment 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" or
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
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<PAGE>
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 3(a)(i) shall be paid by the
Company to the Employee (or to the Employee's successors in interest,
pursuant to Section 6(b)) in cash and in full, not later than thirty
(30) calendar days following the Termination Date.
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
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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 enrichment of the Employee, (ii) the conviction of a felony,
or (iii) a willful act by the Employee which constitutes gross
misconduct and which is injurious to the Company.
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
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<PAGE>
(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
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 unless part of a
management-wide or company-wide cost-reduction program in which a
majority of management or employees are affected; (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 unless part of a
management-wide or company-wide cost-reduction program in which a
majority of management or employees are affected; (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; (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
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<PAGE>
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 by a 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, divisees
and legatees.
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
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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.
<PAGE>
e. Severabillity. The invalidity of 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
By: EJ Gellbach
Its: Director
Dated: 7/12/99
Employee: /s/ W. Donald Bell
----------------------------
W. Donald Bell
Dated: 6/30/99
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