<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
BELL INDUSTRIES
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
BELL INDUSTRIES LOGO
1960 EAST GRAND AVENUE, SUITE 560
EL SEGUNDO, CALIFORNIA 90245-4608
Dear Shareholder:
This year's Annual Meeting of Shareholders will be held on Tuesday, January
18, 2000, at the Doubletree Club Hotel, 1985 East Grand Avenue, El Segundo,
California, 90245 for the following purposes:
1. To elect seven (7) directors to hold office until the next Annual
Meeting of Shareholders and thereafter until their successors are
elected and duly qualified;
2. To consider and act upon a non-binding shareholder proposal that the
Board of Directors of the Company terminate Bell Industries' Rights
Agreement; and
3. To consider and act upon any other business or matters that may
properly come before the meeting, or any adjournments or
postponements thereof.
Management hopes that you will come to the meeting and give us an
opportunity to meet you and discuss any questions you may have.
The formal notice of meeting and the Proxy Statement follow. I urge you to
review the Proxy Statement carefully and, at your earliest convenience, sign,
date and mail the enclosed WHITE proxy card so that your shares will be
represented at the meeting. A prepaid return envelope is provided for this
purpose. Your vote is important regardless of how many shares you own.
Sincerely,
TRACY A. EDWARDS
President
November , 1999
<PAGE> 3
BELL INDUSTRIES, INC.
1960 EAST GRAND AVENUE, SUITE 560
EL SEGUNDO, CALIFORNIA 90245-4608
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 18, 2000
The Annual Meeting of Shareholders of Bell Industries, Inc., a California
corporation, will be held at the Doubletree Club Hotel, 1985 East Grand Avenue,
El Segundo, California, 90245, on Tuesday, January 18, 2000 at 11:00 A.M.
The meeting will be held for the following purposes:
1. To elect seven (7) directors to hold office until the next Annual
Meeting of Shareholders and thereafter until their successors are
elected and duly qualified;
2. To consider and act upon a non-binding shareholder proposal that the
Board of Directors of the Company terminate Bell Industries' Rights
Agreement; and
3. To consider and act upon any other business or matters that may properly
come before the meeting, or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on Monday, November
22, 1999 as the record date for the determination of shareholders entitled to
receive notice of, and to vote at, said meeting and any adjournment or
adjournments thereof.
By Order of the Board of Directors
JOHN J. COST
Secretary
November , 1999
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY SHARES YOU OWN. WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING OF SHAREHOLDERS IN PERSON, PLEASE
DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED WHITE PROXY CARD, FOR WHICH A
RETURN, STAMPED ENVELOPE IS PROVIDED. YOUR PROMPT RETURN OF THE WHITE PROXY CARD
WILL HELP THE COMPANY AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION TO
ASSURE A QUORUM AT THE MEETING.
<PAGE> 4
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
OF BELL INDUSTRIES, INC.
JANUARY 18, 2000
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INTRODUCTION
This Proxy Statement is being mailed on or about November , 1999 to
shareholders of Bell Industries, Inc. (the "Company") in connection with the
solicitation of Proxies by the Company's Board of Directors for use at the
Company's Annual Meeting of Shareholders to be held on January 18, 2000, or any
adjournments or postponements thereof (the "Annual Meeting"), for the purposes
set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders. Expenses relating to this proxy statement, the proxy and the
solicitation thereof will be paid by the Company.
The persons named in the accompanying proxy have advised the Company that
they intend to vote the proxies received by them in their discretion for as many
director nominees as the votes represented by such proxies are entitled to elect
(see "Election of Directors"); and with respect to the non-binding shareholder
proposal that the Board of Directors terminate the Company's Rights Agreement
(the "Shareholder Proposal"), such persons intend to vote for or against such
proposal as the votes represented by such proxies so instruct (see "Shareholder
Proposal"). If no instructions are given, the named proxies intend to vote the
proxies AGAINST the Shareholder Proposal. Any shareholder may revoke his or her
proxy at any time prior to its use by filing with the Secretary of the Company a
written notice of revocation or a duly executed proxy bearing a later date. A
shareholder may also revoke a proxy by voting in person at the Annual Meeting.
Only shareholders of record at the close of business on Monday, November
22, 1999, will be entitled to notice of, and to vote at, the meeting or any
adjournments thereof. At such record date, there were outstanding and entitled
to vote 9,608,315 shares of common stock. Each of the foregoing shares is
entitled to one vote on all matters other than the election of directors. In
connection with the election of directors, each shareholder is entitled to
cumulate votes.
A quorum must be present to take any action on a voting matter at the
meeting. The presence in person or represented by proxy of the persons entitled
to vote a majority of the shares constitutes a quorum. For purposes of
determining the number of shares present in person or represented by proxy on
voting matters, all votes cast "for," "against" or "abstain" are included.
"Broker non-votes," which occur when brokers or other nominees are prohibited
from exercising discretionary voting authority for beneficial owners who have
not provided voting instructions, are not counted for the purpose of determining
the number of shares present in person or represented by proxy on a voting
matter.
For information concerning the probability of a proxy contest with Steel
Partners II, L.P. ("Steel"), the Company's largest shareholder, for control of
the Company's Board of Directors, see "Probable Proxy Contest."
<PAGE> 5
IMPORTANT
Your vote is important, regardless of how many shares you own. The Board of
Directors of the Company urges you to sign, date and return the WHITE proxy card
today to vote FOR the election of the Company's nominees and AGAINST the
Shareholder Proposal.
THE BOARD OF DIRECTORS URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO YOU BY
STEEL. IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE YOUR PREVIOUSLY SIGNED PROXY
BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY CARD IN THE
ENCLOSED, POSTAGE PREPAID ENVELOPE. ONLY YOUR LATEST DATED PROXY FOR THE ANNUAL
MEETING WILL COUNT.
- If your shares are registered in your own name, please sign, date and
return the enclosed WHITE proxy card in the enclosed, postage prepaid
envelope today to the Company c/o MacKenzie Partners, Inc., 156 Fifth
Avenue, New York, New York 10010.
- If on the record date any of your shares are held in the name of a
brokerage firm, bank, bank nominee or other institution, only it can vote
such shares and only upon receipt of your specific instructions.
Accordingly, please contact the person responsible for your account and
instruct that person to execute the WHITE proxy card on your behalf. You
should confirm your instructions in writing to the person responsible for
your account and provide a copy of such instructions to the Company c/o
MacKenzie Partners at the address and telephone numbers set forth below
and on the back cover page of this Proxy Statement, so that the Company
may be aware of your instructions and attempt to ensure that such
instructions are followed.
If you have any questions regarding your proxy or need assistance in voting
your shares, please call:
MACKENZIE PARTNERS LOGO
156 Fifth Avenue
New York, New York 10010
Bank and Brokers Call Collect: (212) 929-5500
All Others Call Toll-Free: (800) 322-2885
PROPOSAL 1 -- ELECTION OF DIRECTORS
In voting for directors of the Company, each shareholder has the right to
cumulate votes and give one candidate a number of votes equal to the number of
directors to be elected, multiplied by the number of votes to which the shares
are entitled, or to distribute the votes on the same principle among as many
candidates as the shareholder chooses. The candidates receiving the highest
number of votes, up to the number of directors to be elected, shall be elected.
For a shareholder to exercise cumulative voting rights, such shareholder must
give notice of intent to cumulate votes prior to the vote at the meeting. Once a
shareholder gives such notice, all shareholders may also exercise their
cumulative voting rights. Steel has indicated that it presently intends to give
notice at the Annual Meeting to cumulate its votes.
The Company's Board of Directors presently consists of seven directors. The
persons who are elected directors will hold office until the next Annual Meeting
of Shareholders scheduled to be held in May 2000 and thereafter until their
successors are elected. All of the seven Board nominees are currently directors
of the Company. The names, business addresses and principal occupations of the
Board's nominees for election as
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directors, and the respective numbers of shares of Common Stock of the Company
beneficially owned, directly or indirectly, by each nominee are set forth below.
<TABLE>
<CAPTION>
YEAR SHARES BENEFICIALLY
FIRST OWNED AS OF PERCENT
NAME AND PRINCIPAL OCCUPATION AGE ELECTED NOVEMBER 15, 1999 OF CLASS(8)
----------------------------- --- ------- ------------------- -----------
<S> <C> <C> <C> <C>
John J. Cost(2)(3) 65 1971 17,506(5) (4)
Of Counsel
Irell & Manella LLP, Attorneys
Anthony L. Craig(1)(2) 54 1993 14,938(5) (4)
President, Tamandra, Inc.
Herbert S. Davidson(2) 77 1997 1,200 (4)
Director
Tracy A. Edwards 42 1999 61,661(6) (4)
President and Chief Executive Officer
Milton Rosenberg(1)(2)(3)(4) 77 1975 20,000(5) (4)
Private investor and consultant to
high technology companies
Gordon Graham 65 1994 47,429(6) (4)
Co-Chairman, private investor and
consultant to the Company
Theodore Williams(3) 79 1969 360,154(7) 3.7%
Co-Chairman
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Nominating Committee.
(4) Less 1% of total outstanding shares.
(5) Includes 14,800 shares with respect to each of Messrs. Cost, Craig and
Rosenberg, issuable pursuant to currently exercisable stock options issued
under Bell's Non-employees Directors' Stock Option Plan.
(6) Includes 44,193 shares with respect to Mr. Edwards and 21,024 shares with
respect to Mr. Graham issuable pursuant to currently exercisable stock
options.
(7) Includes 27,000 shares issuable pursuant to currently exercisable stock
options and 36,880 shares held indirectly by Mr. Williams as trustee of the
Ted and Rita Williams Foundation.
(8) On February 1, 1999, the Company's Board of Directors declared a dividend
distribution of one share purchase right ("Right") for each outstanding
share of Common Stock to shareholders of record on February 1, 1999, and
with respect to shares of Common Stock issued thereafter until certain
events occur. Consequently, each share of Common Stock shown in this table
and the tables set forth below includes an attendant Right.
In December 1996, Mr. Graham was elected President and Chief Operating
Officer and from January 1, 1998 to February 1, 1999 Mr. Graham served as
President and Chief Executive Officer. Mr. Graham became a consultant to the
Company in February 1999. For more than the past five years prior to his
election as President, Mr. Graham was employed by the Company in other executive
capacities. Mr. Graham's business address is 1960 East Grand Avenue, Suite 560,
El Segundo, California 90245-4608.
On February 1, 1999, Mr. Edwards was elected President and Chief Executive
Officer, and a director of the Company. From January 1998 until that time, Mr.
Edwards was the Executive Vice President of the Company and for more than five
years prior to January 1998, Mr. Edwards served as the Company's Vice
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President and Chief Financial Officer. Mr. Edwards' business address is 1960
East Grand Avenue, Suite 560, El Segundo, California 90245-4608.
Mr. Cost was a partner in the law firm of Irell & Manella LLP, Los Angeles,
California, from 1969 through December 1994. Effective January 1, 1995, Mr. Cost
retired as a partner of that firm and now acts "of counsel." He was elected
Secretary of the Company in 1987. Irell & Manella LLP provides legal services to
the Company. Mr. Cost's business address is 333 South Grand Avenue, Suite 3300,
Los Angeles, California 90071.
Since July 1997, Mr. Craig has been the President and Chief Executive
Officer of Tamandra, Inc., a privately-held investment company. From February
1996 through July 1997, Mr. Craig was the President and Chief Executive Officer
of Global Knowledge Network, a privately-held company engaged in providing
learning services for information technology in over 40 countries. From November
1993 through January 1996, he was a Vice President of Digital Equipment
Corporation, a New York Stock Exchange company. Mr. Craig is currently a
director of Mitel Corp., a publicly-held semi-conductor company. Mr. Craig is
also a director of the Global Knowledge Network. Mr. Craig's business address is
.
From 1970 until December 31, 1997, Mr. Williams was Chairman of the Board
and Chief Executive Officer of the Company. He resigned as Chief Executive
Officer on December 31, 1997, but remained Chairman. On February 1, 1999, he
became Co-Chairman. Mr. William's business address is 1960 East Grand Avenue,
Suite 560, El Segundo, California 90245-4608.
Mr. Davidson became director upon the consummation of the acquisition of
Milgray Electronics in January 1997. For more than five years prior to that
time, Mr. Davidson was the President and Chief Executive Officer of Milgray
Electronics. In connection with the acquisition, Mr. Davidson received
approximately $55 million for his equity interest in Milgray on the same basis
per share as all other Milgray shareholders. Mr. Davidson's business address is
1960 East Grand Avenue, Suite 560, El Segundo, California 90245-4608.
Mr. Rosenberg has been self-employed as an investor in, and consultant to,
high technology companies for more than the past five years. Mr. Rosenberg's
business address is P.O. Box 9655, Rancho Santa Fe, California 92067.
If for any reason one or more of the nominees named above should not be
available as a candidate for director, an event that the Board of Directors does
not anticipate, the persons named in the enclosed proxy will vote for such other
candidate or candidates as may be nominated by the Board and discretionary
authority to do so is included in the Proxy. Also, in the event the election of
directors is by cumulative voting, the persons named in the enclosed proxy will
cumulate the votes represented by the proxies so as to elect the maximum number
of directors possible, which number may be less than seven.
During 1998, directors who were employees received no additional
compensation for serving on the Board of Directors. Non-employee directors
received an annual retainer of $40,000, plus $1,000 for each attendance at a
meeting of the Board or a committee thereof which does not immediately precede
or follow a meeting of the Board. In June 1999, the Board eliminated the annual
retainer for directors effective January 1, 2000, except in the case of Mr.
Craig who will receive an annual retainer of $25,000. The Company had a
directors' retirement plan for non-employee directors. Under the plan, directors
having served at least ten years as a director after reaching the age of 65 are
entitled to receive an annual retirement benefit of $40,000. Such payments will
be made for the number of years equal to the number of years served as a
director or until his or her death; provided, that a surviving spouse is
entitled for a period of five years after death to continue to receive the same
benefits that such director would have been so entitled to receive. If a
director has reached age 60 and ceases to serve as a director at the request of
the Company, he will be entitled to the same retirement benefits as if he
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<PAGE> 8
retired at age 65. In the event of a change in control, a director leaving the
Board would be entitled to receive an immediate lump sum payment of the present
value of his accrued retirement benefit. In January 1996, the Company terminated
the directors' retirement plan except to the extent rights thereunder were
vested. The rights of Mr. Cost and Mr. Rosenberg were fully vested under the
plan. Messrs. Cost, Craig and Rosenberg are also entitled to receive stock
options under the Company's Non-employee Directors' Stock Option Plan. Under the
Plan, each non-employee director receives options for 10,000 shares upon his
election as a director and an option for 1,000 shares for each year thereafter
in which he is reelected. Pursuant to the Plan, Messrs. Cost, Craig and
Rosenberg each received options covering 10,000 shares in May 1996 when the Plan
was first adopted and options covering 1,000 shares in May 1997 and 1998.
Options granted under the Plan are for a term of five years, vest and may
be exercised six months from the date of grant and when granted have an exercise
price equal to the market price of the Company's common stock on the date of
grant.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION OF THE COMPANY'S
NOMINEES.
Unless otherwise directed, the persons named in the accompanying WHITE
proxy will vote the stock represented by all proxies received prior to the
Annual Meeting, and not properly revoked, excluding broker non-votes, in their
discretion (including cumulatively) in order to elect as many nominees as
believed possible under the then-prevailing circumstances.
PROPOSAL 2 -- SHAREHOLDER PROPOSAL REGARDING TERMINATION
OF SHAREHOLDER RIGHTS AGREEMENT
Steel, a shareholder of the Company holding 1,671,710 shares of the
Company's Common Stock (approximately 17.4% of the outstanding shares),
submitted the following proposal (the "Shareholder Proposal") and supporting
statement for inclusion in this Proxy Statement, and stated its intention to
present the Shareholder Proposal at the Annual Meeting. In accordance with
applicable regulations of the Securities and Exchange Commission, the Company
will provide the proponents' address upon written or oral request to any
shareholder.
PROPOSAL
RESOLVED, that the shareholders of Bell Industries, Inc. (the "Company")
hereby request that the Board of Directors of the Company terminate the Rights
Agreement dated as of February 1, 1999 and redeem the rights distributed
thereunder, unless the Rights Agreement is approved by an affirmative vote of a
majority of the shareholders at a meeting of shareholders to be called by the
Board for such purpose, and that this policy of shareholder approval apply to
all "Rights Agreements" considered at any time by the Board.
SUPPORTING STATEMENT OF STEEL
The Poison Pill Resolution seeks to eliminate the Rights Agreement
currently in place at the Company. On February 1, 1999, the Board, without
seeking stockholder approval, executed the Rights Agreement. One Right was
distributed with respect to each outstanding Share to stockholders of record on
February 1, 1999.
At any time prior to any person or persons becoming an Acquiring Person (as
defined in the Rights Agreement), the Company may redeem the Rights in whole,
but not in part, at a price of $.01 per Right (the "Redemption Price").
Immediately upon the action of the Board ordering redemption of the Rights, the
Rights will terminate and the only right to which the holders of Rights will be
entitled will be the right to
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receive the Redemption Price. The Rights will expire at the close of business on
May 31, 2001 unless earlier redeemed by the Company, at which time the Company
may choose to extend the current Rights Agreement or otherwise execute a new
Rights Agreement, in either case, without the consent of shareholders.
The Rights Agreement (commonly referred to as a "poison pill") is an
anti-takeover device which effectively prevents a change in control of the
Company, including a sale, without the approval of the Board. Triggering the
poison pill affects the bidder by causing substantial dilution to a person or
group that attempts to acquire the Company on terms not approved by the Board.
The elimination of the Rights Agreement would give the Company's
shareholders an improved ability to determine for themselves how to respond to
any offer, solicited or unsolicited, that might be made. While the Rights
Agreement may discourage coercive offers or enable the Board to seek an
alternative offer for shareholders, Steel Partners believes that it is equally
true that such a plan could be used to block an offer which shareholders would
find attractive or that it might be used for an undesirable purpose, such as the
entrenchment of the Board or management of the Company. It is Steel Partners'
opinion that the disclosure and substantive requirements of the Williams Act
(e.g., Sections 13(d), 14(d) and 14(e) of the Exchange Act) and the
supermajority voting requirements relating to certain business combinations that
are contained in Article Seven of the Company's Restated Articles provide the
shareholders of the Company adequate protection against unfair or coercive
offers.
RESPONSE OF YOUR BOARD OF DIRECTORS
Your Board of Directors unanimously recommends a vote 'AGAINST' the
Shareholder Proposal. If your choice is not indicated in the accompanying proxy,
the proxy will be voted in the manner recommended by the Board and, in
particular, AGAINST the Shareholder Proposal.
The Board of Directors adopted the shareholders' rights plan and approved
the Rights Agreement and other ancillary documents to be entered into with the
Harris Trust Company of California, as rights agent (collectively, the "Rights
Agreement"), on February 1, 1999. The overriding objective of the Board of
Directors in adopting the Rights Agreement was, and continues to be, the
preservation and maximization of the Company's value for all shareholders. The
Rights Agreement encourages any potential acquirer of the Company to negotiate
directly with the Board, which, the Company believes, is in the best position to
negotiate on behalf of all shareholders. The Rights Agreement does not affect
any takeover proposal which the Board of Directors determines, in the exercise
of its fiduciary duties, adequately reflects the value of the Company and is in
the best interests of the Company's shareholders. Under the terms of the Rights
Agreement, the Board of Directors, acting in the best interests of the Company
and the shareholders may redeem the Rights to permit a fair, equitable, and
noncoercive acquisition.
The Rights Agreement is a fundamental negotiating tool and is substantially
identical to the rights plans employed by hundreds, if not thousands of public
companies, including numerous members of the Fortune 500. The Rights Agreement
inhibits abusive conduct and is designed to protect shareholders against
practices which do not treat all shareholders fairly and equally (unsolicited
takeover attempts which utilize abusive tactics include, for example, a gradual
accumulation of shares in the open market, a partial or two-tier tender offer
that does not treat all shareholders equally, or a squeeze-out merger that
squeezes out certain shareholders.) The Rights Agreement strengthens the
Company's negotiating power and positions the Board of Directors to negotiate
the best price for shareholders where a sale of the Company is in the best
interests of the shareholders. The Board believes that keeping the Rights
Agreement in place allows the Company to improve its financial performance,
while, if necessary, using the Rights Agreement to either deter short term
speculators and/or to negotiate a higher offer price should the Company receive
a fair acquisition proposal. The Board of Directors believes that the continued
presence of the Rights Agreement also provides the Board
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with an additional degree of control, enabling the Board to evaluate a potential
buyer and to consider the impact of the proposal upon the Company's employees as
well as its shareholders.
In adopting the Rights Agreement originally, and in deciding to keep it in
place, the Board considered carefully the Rights Agreement's limited purposes
and benefits. The Board believes, although it cannot be certain, that the
continued application of the Rights Agreement will result in a higher premium
paid to shareholders for the sale of their interests in the Company. The Board
also believes that the presence of the Rights Agreement does not and will not
deter potential bidders or acquirers from acquiring the Company through a tender
offer or other takeover type transaction. The continuation of the Rights
Agreement will not impede any vote to replace the Board or to propose and elect
alternate nominees for the directors to be elected.
The Board believes that it should retain the flexibility to continue, adopt
or amend the Rights Agreement or any other similar rights agreement. Any
commitment by the Board to seek shareholder approval prior to the adoption or
implementation of a Rights Agreement would impede the Board's ability to
negotiate a fair and equitable sale. Further, during a takeover attempt (deemed
by the Board not to be in the best interests of the Company and the
shareholders), the requirement of prior shareholder approval of a Rights
Agreement would require the Company to divert precious time and financial
resources from its revenue generating activities.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE ADOPTION OF THE
NON-BINDING SHAREHOLDER PROPOSAL TO TERMINATE THE RIGHTS AGREEMENT.
Unless otherwise directed, the persons named in the enclosed WHITE proxy
will vote the stock represented by all proxies received prior to the Annual
Meeting, and not properly revoked, excluding broker non-votes, against the
Shareholder Proposal.
Even if the Shareholder Proposal is adopted by the shareholders, the Board
does not intend to implement the proposal. The Board of Directors will, of
course, be guided by its fiduciary obligations in deciding whether to amend the
Rights Agreement or redeem the rights granted thereunder in an appropriate
circumstance to permit the consummation of a transaction that the Board
determines is in the best interests of the Company's shareholders.
PROBABLE PROXY CONTEST
In late 1998, Steel began accumulating shares of the Company's common stock
and currently owns 1,671,710 shares (approximately 17.4% of the outstanding
shares) based upon reports filed by Steel with the Securities and Exchange
Commission. In a letter dated January 8, 1999, Steel informed the Company of its
intention to nominate four individuals to the Company's Board of Directors at
the Company's 1999 Annual Meeting of Shareholders, then scheduled to be held in
June 1999. By letter dated June 16, 1999, the Company's Board of Directors
offered to name two individuals of Steel's choice to be included in the
Company's slate for nominees as directors at that meeting in recognition of
Steel's stock ownership. The Company reaffirmed this offer on October 26, 1999.
Also in February, 1999, in response to Steel's accumulation of the Company's
shares, the Company adopted the Rights Agreements which is designed to assist
the Board in negotiating with third parties who attempt to take over the Company
through open market purchases of the Company's stock. The Rights Agreement has
the effect of causing substantive economic dilution to any shareholder who
acquires more than 18% of the Company's Common Stock without the Board's
consent.
As has been previously reported, the Company sold its Graphics Imaging
Group in September 1998 and its Electronics Distribution Group in January 1999.
These two groups combined accounted for approximately 75% of revenues and total
assets for the Company's 1997 fiscal year. From the net proceeds of the sale of
its
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Electronics Distribution Group, the Company made a special cash distribution of
$5.70 per share in May 1999.
Throughout 1999, the Company has pursued several strategic alternatives
with an objective of maximizing the value of the common stock. Lincoln Partners
LLP, the Company's investment banker, was employed to assist in this endeavor.
The alternatives reviewed included the sale of Bell stock to financial and
strategic buyers, the sale of the individual businesses to strategic buyers, and
the repurchase of certain outstanding equity through recapitalization of the
Company. At the time the Company was preparing its proxy material for its
planned June 1999 Annual Shareholders Meeting, Steel indicated that it might be
interested in acquiring the Company through a merger with WebFinancial
Corporation, a publicly traded company (NASDAQ: WEFN). Steel's general partner,
Warren Lichtenstein, owns 31.2% of WebFinancial (25.8% through Steel Partners)
and is also the Chairman of the Board of Directors and the chief executive
officer of that company. At the request of Steel, the Company agreed to postpone
the date of its 1999 Annual Meeting at which directors were to be elected until
the conclusion of negotiations regarding a possible merger.
Concurrent with the discussions with Steel, the Company continued to
consider strategic alternatives. In July, the Company received an offer to buy
the outstanding shares of the Company's stock at $4.75 per share from a party to
which it had previously given financial and other business information. The
Board rejected this offer as not adequate.
During the summer of 1999, Steel conducted an extensive examination of the
Company's operations and financial condition with the full cooperation of
management. A draft agreement of merger was prepared by Steel and delivered to
the Company. Negotiations over the terms of that draft agreement were conducted
and, by mid-September, there was substantial agreement on the terms other than
price. That agreement provided that the shares of the Company (other than those
owned by Steel) would be purchased by WebFinancial for cash in a yet to be
agreed upon amount. Shares of the Company's common stock owned by Steel would be
exchanged for shares of WebFinancial, thereby significantly increasing Steel's
ownership interest in that company. During September, the Company participated
in a number of meetings with financial institutions selected by Steel with the
purpose of aiding Steel and/or WebFinancial in obtaining the financing that
Steel deemed necessary in order to consummate the merger.
In mid-September, 1999, Steel made an oral offer through the Company's
investment bankers of $5.30 per share. At a Board of Directors' meeting held
September 28, 1999 to specifically consider Steel's offer, management informed
the Board that certain projections of future performance given Steel and its
potential lending banks needed to be slightly revised downward due to the
deterioration of gross profit margins relating to product sales at its Systems
Integration Group. The Board believed that Steel should be informed of this fact
before it could act upon the $5.30 per share offer. Steel was so informed and
shortly thereafter reaffirmed its oral offer. The Company's Board met again on
October 4, 1999 and concluded that a price of $5.30 per share was inadequate as
not reflecting an optimum value for the Company, although within the range of
potentially acceptable values derived by Lincoln Partners' based on comparable
company and discounted cash flow analyses. This decision was conveyed to Steel.
Steel then requested that the Board counter with a price that they deemed
adequate. The Company's Board met again on October 6, 1999. At this meeting, the
Board concluded that a price of $6.00 would be acceptable. That increased price
was apparently unacceptable to Steel since in a letter to the Company dated
October 7, 1999 and made publicly available on October 8, 1999 Steel stated
". . . we are extremely disappointed that the Bell Industries Board of Directors
has decided to "stay the course" and not proceed with the negotiated transaction
that we have been discussing and working on with Bell for several months . . . "
Since receipt of that letter, no meaningful negotiations over price have taken
place although, at the request of Steel, the Company has furnished it with
additional financial information and a shareholder's list. During the period May
1 through November , 1999, the Company's common stock traded on the New York
Stock Exchange at a high of $6.00 per share (on September 14, 1999)
8
<PAGE> 12
to a low of $3.80 (on May 26, 1999). On November , 1999, its closing price on
the New York Stock Exchange was $ .
On October 29, 1999, Steel filed a preliminary proxy statement with the
Securities and Exchange Commission pursuant to which, among other things, Steel
indicated that it would solicit proxies to elect four nominees to the Company's
Board of Directors. Accordingly, the Company believes that Steel will engage in
a solicitation of proxies for its slate of four nominees for directors to be
elected at the 1999 Annual Meeting of Shareholders.
On October 20, 1999, two purported class action complaints on behalf of the
shareholders of the Company were filed in the Superior Court for the State of
California, County of Los Angeles (the "Lawsuits"). The first was entitled
William Steiner vs. Bell Industries, Inc., et al. (Case No. BC218887), and the
second was entitled Charles Miller vs. Bell Industries, Inc., et al. (Case No.
BC218886). The Lawsuits name the Company and certain of its directors as
defendants and allege, among other things, that the Company's directors breached
their fiduciary duties by adopting the Company's Rights Agreement and by
entering into severance agreements with certain senior executives in an alleged
effort to entrench themselves in their positions and prevent Steel from
acquiring the Company for $5.30 per share. Each of the plaintiffs requested,
among other things, an order that the directors undertake an "appropriate
evaluation of alternatives designed to maximize value for Bell's public
stockholders" and ensure that no conflict of interests prevent directors from
carrying out their fiduciary duties, an accounting to the plaintiffs for alleged
unspecified damages (including costs and attorneys fees), utilization of the
Rights Agreement by the directors only in a way that would maximize shareholder
value, invalidation of the severance agreements and other relief. The Company
and the Board of Directors believe that the Lawsuits are without merit and plan
to vigorously defend against them.
9
<PAGE> 13
INFORMATION REGARDING SHAREHOLDERS
PRINCIPAL SECURITY HOLDERS
As of September 30, 1999, Cede & Co., a nominee of securities depositories
for various segments of the financial industry, held approximately 8,909,756
shares representing 93% of the Company's outstanding common stock, none of which
was owned beneficially by such organization. Based upon reports filed through
September 30, 1999 with the Securities and Exchange Commission, the Company
believes that only those entities named below beneficially own 5% or more of the
Company's common stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
Steel Partners II, L.P. 1,671,710 17.4%(1)
150 East 52nd Street, 21st Floor (Direct)
New York, New York 10022
Merrill Lynch & Co., Inc. 810,210 8.5%(2)
World Financial Center, North Tower (Direct)
250 Vesey Street
New York, New York 10381
First Carolina Investors, Inc. 706,400 7.4%
1130 East 3rd Street, Suite 410 (Direct)
Charlotte, North Carolina 28204
The TCW Group, Inc. 566,992 5.9%(3)
865 South Figueroa Street (Direct)
Los Angeles, California 90017
Dimensional Fund Advisors 498,071 5.2%
1299 Ocean Avenue, 11th Floor (Direct)
Santa Monica, California 90401
</TABLE>
- ---------------
(1) According to the Schedule 13D filed by Steel Partners II, L.P. ("Steel") on
January 11, 1999, the shares of the Company's common stock owned by Steel
are also beneficially owned by Mr. Warren Lichtenstein by virtue of his
position with Steel. In addition, according to such Schedule 13D, Steel, Mr.
Lichtenstein, Sandera Partners, L.P. ("Sandera"), Newcastle Partners, L.P.
("Newcastle") and Mr. Mark S. Schwarz entered into a joint filing agreement
pursuant to which, among other things, Mr. Lichtenstein and Mr. Schwarz
formed a group to nominate four individuals to be elected directors of the
Company's Board. In addition, Steel, Sandera, Newcastle, Mr. Lichtenstein
and Mr. Schwarz agreed to the joint filing of statements on Schedule 13D
with respect to their shares of the Company's common stock. According to
their jointly filed Schedule 13D filed October 8, 1999, Steel acquired
200,000 shares of the Company's common stock from Catalyst GP, Ltd.
(successor to Sandera) and the joint filing agreement was terminated as to
Sandera. According to such Schedule 13D, the aggregate ownership of Steel is
approximately 17.4%. See "Probable Proxy Contest" for further information
concerning Steel.
(2) According to the Schedule 13G filed by Merrill Lynch & Co., Inc., voting and
dispositive power over 545,300 of such shares is shared with Merrill Lynch
Special Value Fund, Inc.
(3) According to the Schedule 13G filed by the TCW Group, Inc., voting and
dispositive power over such shares is shared with Mr. Robert Day.
10
<PAGE> 14
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of the Company's common
stock of those executive officers of the Company listed in the "Summary
Compensation Table" under EXECUTIVE COMPENSATION, who are not Board director
nominees, as well as the beneficial ownership of common stock of all Board
nominees for directors and executive officers of the Company as a group as of
October 1, 1999. Information regarding the stock ownership of Board director
nominees is contained in the prior table under ELECTION OF DIRECTORS.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------------ ----------------------- --------
<S> <C> <C>
D.J. Hough 57,005(2) (1)
Former Senior Vice President (Direct)
and Chief Information Officer
Peter A. Resnick 480(3) (1)
Former Vice President and (Direct)
Corporate Controller
Stephen A. Weeks 2,809(4) (1)
Former Vice President and Treasurer (Direct)
All current directors and executive officers as a group 608,278(5) 6.3%
(ten persons)
</TABLE>
- ---------------
(1) Less than 1% of the outstanding.
(2) Mr. Hough resigned effective April 30, 1999.
(3) Mr. Resnick resigned effective August 31, 1999.
(4) Mr. Weeks resigned effective May 7, 1999.
(5) Includes 157,377 shares issuable pursuant to currently exercisable stock
options.
11
<PAGE> 15
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(A):
BELL INDUSTRIES, INC., NYSE MARKET INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
BELL INDUSTRIES PEER GROUP BROAD MARKET
--------------- ---------- ------------
<S> <C> <C> <C>
1993 100 100 100
1994 122 97 98
1995 141 126 127
1996 141 145 153
1997 109 164 201
1998 90 137 239
</TABLE>
(A) Assumes $100 invested on December 31, 1993 and dividends reinvested.
(B) The Peer Group for the period ended December 31, 1998 consisted of the
following electronic and industrial distribution companies:
<TABLE>
<S> <C>
Arrow Electronics, Inc. Kent Electronics Corp.
Avnet, Inc. Marshall Industries
Bell Microproducts, Inc. Nu-Horizons Electronics
Jaco Electronics Inc. Pioneer Standard Electronics
</TABLE>
(C) The Broad Market Index chosen was the New York Stock Exchange Market Index.
12
<PAGE> 16
EXECUTIVE COMPENSATION
The following table shows all cash compensation and certain other
compensation paid to (i) the chief executive officer and (ii) the other four
most highly compensated executive officers the ("Named Officers") for the three
years in the period ending December 31, 1998 for services rendered in all
capacities to the Company and its subsidiaries:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION OPTIONS
------------------------------------- (NUMBER OF
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER(2) SHARES)
--------------------------- ---- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Gordon Graham 1998 $ 600,000 $ -0- $ 60,000 -0-
Co-Chairman and former 1997 619,000 50,000 56,527 60,000
Chief Executive Officer 1996 176,000 44,829 19,047 4,200
Tracy A. Edwards 1998 $ 300,000 $ 200,000 $ 31,885 -0-
President and 1997 250,000 50,000 27,627 54,800
Chief Executive Officer(3) 1996 173,750 44,253 19,251 4,200
D.J. Hough 1998 $ 227,000 $ 350,000 $ 23,720 -0-
Former Senior Vice President 1997 227,000 50,000 25,127 6,000
and
Chief Information Officer(4) 1996 202,800 51,652 22,322 -0-
Peter A. Resnick 1998 $ 154,700 $ 235,000 $ 16,609 -0-
Former Vice President and 1997 132,800 20,000 15,003 -0-
Corporate Controller(5) 1996 75,100 15,893 -0- 3,600
Stephen A. Weeks 1998 $ 154,700 $ 430,000 $ 17,133 -0-
Former Vice President and 1997 138,000 20,000 15,527 3,000
Treasurer(6) 1996 105,000 26,743 12,747 2,400
</TABLE>
- ---------------
Certain columns have not been included in this table because the
information called for therein is not applicable to the Company or the
individuals named above for the periods indicated.
(1) Includes bonuses accrued and earned for the period although paid in a later
period. For example, executive bonuses earned in 1996 were not paid until
February 1997. The 1998 special bonuses for Messrs. Edwards, Hough, Weeks
and Resnick related to the sales of the Company's electronics distribution
and graphics imaging businesses.
(2) Consists of amounts contributed by the Company on behalf of the named
individual under the Company's Savings and Profit Sharing Plan and Executive
Deferred Income and Pension Plan.
(3) On February 1, 1999, Mr. Edwards became the President and Chief Executive
Officer of the Company.
(4) Mr. Hough resigned effective April 30, 1999.
(5) Mr. Resnick resigned effective August 31, 1999.
(6) Mr. Weeks resigned effective May 7, 1999.
Russell A. Doll was employed by the Company in April 1998 as Vice
President -- Finance. In February 1999, Mr. Doll was promoted to Vice President
and Chief Financial Officer. Chris Ferry, who had been employed by the Company
in managerial capacities for many years, was elected a corporate Senior Vice
President in February 1999. Mr. Doll and Mr. Ferry are currently receiving
annual salaries of $200,000 and $250,000, respectively. For 1998, Mr. Doll
received a salary of $128,365. In addition, he received a special bonus in the
amount of $100,000 related to the sales of the Company's electronics
distribution and graphics
13
<PAGE> 17
imaging businesses. For the years 1998 and 1997, Mr. Ferry received a salary of
$175,000 and $160,577, and bonuses of $307,100 and $267,122.
STOCK OPTIONS
No options were granted to the Chief Executive Officer and the Named
Executive Officers in 1998.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the former chief
executive officer, the current chief executive officer and the Named Officers,
concerning the exercise of options during the twelve month period ended December
31, 1998 and unexercised options held as of December 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
VALUE REALIZED UNEXERCISED OPTIONS AT UNEXERCISED OPTIONS AT
(MARKET PRICE DECEMBER 31, 1998 DECEMBER 31, 1998(1)
SHARES ACQUIRED AT EXERCISE LESS --------------------------- ---------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gordon Graham -0- $ -0- 7,512 57,528 $-0- $-0-
Tracy A. Edwards 2,890 5,375 41,721 52,848 -0- -0-
D.J. Hough 2,890 5,375 42,275 5,400 -0- -0-
Stephen A. Weeks 1,445 2,688 3,402 5,968 -0- -0-
Peter A. Resnick -0- -0- 360 3,240 -0- -0-
</TABLE>
- ---------------
(1) Based upon the closing price on the New York Stock Exchange on that date
($11.38).
In January 1999, Mr. Edwards, the Company's President and Chief Executive
Officer, was granted an option covering 300,000 shares at an exercise price of
$11.13, which was the market price on the date of grant. Following the Company's
$5.70 cash distribution in June 1999, the exercise price of all outstanding
options was reduced by the amount of the distribution under the applicable Stock
Option Plan. During 1999, the options held by Messrs. Hough, Weeks and Resnik
were cancelled following the cessation of their employment.
EMPLOYMENT AGREEMENTS
In February 1999, the Company entered into an employment agreement with Mr.
Edwards, the Company's President and Chief Executive Officer. This agreement
provides for an annual salary of $315,000 plus a bonus dependent upon the
Company achieving performance goals to be established from time to time by the
Company's Compensation Committee. Further, for calendar 1999, Mr. Edwards is
entitled to a minimum bonus of $150,000. The agreement also provides that Mr.
Edwards would receive an amount equal to two times his annual salary in the
event he no longer serves as President and Chief Executive Officer and such
termination is by the Company without cause or by Mr. Edwards if there has
occurred a material change in his duties, a reduction in his compensation or a
"change in control" (as defined below) of the Company. Under such circumstances,
Mr. Edwards would also receive payments under his severance agreement described
below.
The Company has severance agreements with its executive officers. Severance
agreements currently in effect are with Messrs. Edwards, Ferry and Doll. Each of
these agreements provides, in essence, that should there be a "change in
control" (as defined) and the officer's employment is terminated either (i)
involuntarily, without just cause, or (ii) voluntarily, if the officer has
determined in good faith that his duties have been altered in a material respect
or there has been a reduction in his compensation or employee benefits, then
upon
14
<PAGE> 18
termination, the officer would be entitled to receive a severance payment. A
"change of control" of the Company is generally defined as (i) any consolidation
or merger of the Company, other than a merger of the Company in which the
holders of the Company's common stock immediately prior to the merger have at
least seventy-five percent (75%) ownership of the voting capital stock of the
surviving corporation immediately after the merger, (ii) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, (iii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company, (iv) any person shall become the beneficial owner
of thirty percent (30%) or more of the Company's outstanding common stock, or
(v) during any period of two consecutive years, individuals who at the beginning
of such period constitute the entire Board of Directors shall cease for any
reason (except death) to constitute a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each new director
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
The sale of the Company's electronics distribution business in January 1999
constituted a "change in control." After the sale of the Company's electronics
distribution business, Messrs. Hough's, Weeks' and Resnick's corporate functions
were no longer needed, their employment ceased and they received $642,000,
$141,000 and $284,000, respectively, under severance agreements entered into in
October 1991, September 1993, and January 1997, respectively. Additionally,
Messrs. Weeks and Resnick each received a payment of $60,000 in lieu of
continued employee benefits under their severance agreements.
Mr. Edwards' severance agreement entered into in April 1993 provides that
if he is terminated under circumstances giving rise to a severance payment, the
amount of such payment would be 295% of the "base amount" (generally equivalent
to the highest twelve months compensation during such person's last three years
prior to termination). In addition, under his severance agreement the Company
agrees to pay Mr. Edwards the amount of any excise tax on the payment of any of
the above benefits which constitutes an "excess parachute payment" under Section
4999 of the Internal Revenue Code of 1986. Had Mr. Edwards been entitled to
payment under his severance agreement as of June 30, 1999, he would have
received approximately $1,720,000 as a severance payment. The severance
agreements with Messrs. Doll and Ferry entered into in April 1998 and April
1996, respectively, provide that if they are terminated under circumstances
giving rise to a severance payment, the amount of such payment would be the
lesser of 150% of their "base amount" and the maximum amount payable that would
not constitute an "excess parachute payment." In June 1999, Mr. Doll entered
into a second severance agreement having substantially the same terms except the
payment calculation would be 145% of the base amount.
Mr. Graham had a severance agreement entered into in October 1991 pursuant
to which he received $950,000 in February 1999 when Mr. Edwards assumed the
office of President and Chief Executive Officer. Also, in February 1999, Mr.
Graham entered into a three year consulting agreement which provides for annual
compensation of $250,000. These payments may be accelerated upon the occurrence
of another "change in control" event. He receives no other payment for his
services to the Company.
In February 1999, the Company paid Mr. Williams, Bell's former Chairman of
the Board, President and Chief Executive Officer approximately $1,723,000 owing
him under his deferred compensation agreement ($1,446,000) and consulting
agreement ($277,000). He was also paid an additional $277,000 in lieu of
continued salary as Co-Chairman of the Board. Mr. Williams will receive no
further monies for his services to the Company.
The Company has entered into Indemnity Agreements with all directors and
all executive officers of the Company after having received shareholder approval
at the Company's 1986 Annual Meeting. The Indemnity
15
<PAGE> 19
Agreements provide for indemnification of directors and officers in cases where
indemnification might not otherwise have been available.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Cost, who is also a member of the Compensation Committee, is the
Secretary of the Company. He receives as compensation for his services as
Secretary, in lieu of the annual retainer for being a director, an amount equal
to the annual retainer (approximately $40,000). It is expected that Mr. Cost
will receive this amount as long as he continues to act as Secretary.
COMPENSATION STRUCTURE AND COMMITTEE RESPONSIBILITIES
The Company compensates its executive officers with two basic forms of
compensation: cash (salary and incentive bonus) and stock options. Bonuses
granted for the fiscal year ended December 31, 1996 were based upon the formula
described hereafter. The Company's earnings for 1997 and 1998 were not
sufficient to warrant the payment of bonuses under the predetermined formula for
incentive compensation based upon a minimum return on shareholders' equity,
although special bonuses were awarded in 1998 in connection with the sale of two
major segments of the Company's business. Further in February 1996 and January
and December 1997, executives were awarded stock options under Bell's stock
option plans at an exercise price equal to the fair market value of the
underlying shares on the date of grant. No options were granted in calendar
1998. In January 1999, Mr. Edwards, the Company's President and Chief Executive
Officer, was granted an option covering 300,000 shares at an exercise price of
$11.13, which was the market price on the date of grant. Following the Company's
$5.70 cash distribution in June 1999, the exercise price was reduced to $5.43 in
accordance with the option agreement.
The Company Compensation Committee currently consists of Messrs. Cost,
Craig, Davidson and Rosenberg. The duties of the Committee are to determine the
overall compensation policy for the Company's executive officers, including
specifically fixing the compensation of the chief executive officer.
The following report is submitted by the Compensation Committee as it
relates to both cash compensation of, and stock options granted to, executive
officers of the Company. This report is not deemed "filed" with the Securities
and Exchange Commission and is therefore not intended to be incorporated by
reference in any other document filed by the Company with the Commission.
REPORT OF THE COMPENSATION COMMITTEE
The Company's compensation philosophy is based upon the belief that the
Company's success is the result of the coordinated efforts of all employees
working towards common objectives. Its executive officer compensation program is
composed of base salary, annual incentive cash bonuses and long-term incentive
compensation in the form of stock options.
BASE SALARY
The Committee attempts to set the base salary levels competitively with
those paid by others in the electronics and industrial distribution companies
comprising its Peer Group. Based upon its most recent survey (December 1996),
the Committee believes that the compensation levels paid to Company executives
are in the mid-range of compensation paid by its Peer Group. In determining
salaries, the Committee also takes into account individual experience and
performance, past salary history and specific issues particular to the Company.
16
<PAGE> 20
ANNUAL INCENTIVE BONUS
Prior to fiscal 1994, cash bonuses were considered annually and awarded
generally upon a subjective evaluation of the particular officer's performance
for the year and were dependent upon the overall financial achievement of the
Company during the year. For example, bonuses usually were not given in years
where the Company's growth was nominal. Thereafter, the Committee established an
incentive bonus program based upon the return on shareholders' equity and
awarded incentive bonuses for those periods in accordance with such programs.
For each period, no incentive bonus would be earned unless the Company's
earnings exceeded a predetermined percentage minimum return on shareholders'
equity as at the beginning of the period. If that minimum return was achieved,
each executive officer (including the Chief Executive Officer) earned a bonus
based upon the extent to which the Company's actual earnings exceeded the
minimum return on shareholders' equity. For the year ended December 31, 1996,
the Company's return on shareholders' equity was approximately 12%, in excess of
the predetermined minimum. The amount of a particular officer's bonus was an
arithmetic calculation based upon the actual return on shareholders' equity and
that officer's base salary. Since the amount of any bonus was dependent upon the
extent to which the Company's actual return on shareholders' equity exceeded the
predetermined minimum return, there was no arithmetic limitation upon the amount
of bonuses that could be earned. For the fiscal years ended December 31, 1997
and 1998, the Company's return on shareholders' equity did not equal or exceed
the predetermined percentage minimum; and therefore, no bonuses were earned
under the formula plan. Although the Company's earnings for 1997 were less than
necessary to achieve the minimum return on shareholders' equity previously
established, the Committee awarded discretionary cash bonuses to six corporate
officers in the aggregate amount of $206,667. The Committee believed that merit
bonuses were justified that year due to the effort expended by such officers in
connection with the integration of the business of Milgray Electronics which was
acquired by the Company in January 1997. For calendar 1998, certain officers
were granted special cash bonuses relating to the sale of the Company's
electronics distribution and graphics imaging businesses. Each of these officers
was instrumental in completing the sale of these two divisions. For the current
fiscal year, the Committee has established an incentive program based upon the
Company's pre-tax earnings.
LONG-TERM INCENTIVE PROGRAM
Currently, the Company's long-term incentive program consists of the award
of stock options to executive officers and other key employees at current market
prices. The grant of options with exercise prices at prevailing market prices is
designed to align executive compensation and shareholder long-term interests by
creating a direct link between long-term executive compensation and shareholder
return as evidenced by increased stock market value.
The Compensation Committee's current policy is to award significant amounts
of stock options to executive officers and other key employees. Exercise prices
are established equal to the fair market value of Bell's common stock on the
date of grant. Options are usually for a term of five (5) years and become
vested over a period of four (4) years dependent upon continued employment. The
number of stock options granted to executive officers is based upon an
evaluation of the particular officer's deemed ability to influence the long-
term growth and profitability of the Company. Stock options were granted to the
Company's executive officers in February 1996, January 1997 and December 1997
with exercise prices equal to fair market value at the time of grant.
Additionally, Mr. Edwards, Mr. Ferry and Mr. Doll were granted stock options
covering 300,000; 150,000; and 75,000 shares, respectively, in January 1999.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Graham had been an executive officer of the Company for over ten years
and President and Chief Executive Officer from January 1998 to February 1999.
For the 1998 fiscal year, Mr. Graham received a base
17
<PAGE> 21
salary of $600,000. On February 1, 1999, Mr. Edwards assumed the office of
President and Chief Executive Officer of the Company. His compensation was
previously described. Salary for the Chief Executive Officer is based upon
numerous factors, the most prominent being salaries earned by chief executive
officers of comparable companies, the individual's past salary history and the
complexity of the Company's business during his term.
Submitted By: John J. Cost (Chairman),
Anthony
Craig, Herbert Davidson, and Milton
Rosenberg
OTHER COMPENSATION
SAVINGS AND PROFIT SHARING PLAN
The Company established the Bell Industries' Employees' Savings and Profit
Sharing Plan (the "PSP") in 1973 under which both employees and the Company may
make contributions. The PSP will continue until terminated by the Board of
Directors. Employees must contribute at least 1% of their annual compensation to
participate in the PSP. The Company's contribution to the PSP is determined by
the Board of Directors in its discretion. For the fiscal year ended December 31,
1998, the Company did not contribute to the PSP.
EXECUTIVE DEFERRED INCOME AND PENSION PLAN
In July 1993, the Company adopted an Executive Deferred Income and Pension
Plan (the "EDP"). Under the EDP, each officer and such other highly compensated
employees as the Board may designate are eligible to participate. Each
participant may elect a percentage (not more than 10%) of his salary that he
wishes to defer. The Company matches the amount of the chosen deferral. Such
deferred sums bear an assumed interest at a rate equal to the Lehman Brothers
Long T-Bond index. In 1999, the Plan was amended eliminating the Company's
matching contribution.
In the event of an unforeseen emergency, a participant may withdraw his
deferred salary plus accrued interest but no portion of the matching funds
contributed by the Company. In such an event, the participant would be
ineligible from participating in the EDP for a period of two years. After
reaching age 62 and retiring, a participant may elect to have his benefit paid
in a lump sum or payable over a period of 5 to 15 years.
If a participant voluntarily resigns before age 62, he will be entitled to
receive at age 62 only a pro-rata portion of Company matching funds through the
date of his termination. That proration is based upon the period of EDP
participation; the participant being fully vested after 12 years. If a
participant dies while employed, his beneficiary would receive a lump sum
payment equal to all amounts that have accrued for his benefit through date of
death. If a participant's employment is terminated without cause or after a
change in control, he will receive the same benefit as he would have received if
his employment had been terminated due to death. If a participant is terminated
for cause, or if the Board determines within one year after termination that
cause existed at the time of termination, he will be entitled to receive in a
lump sum payment only the amount attributable to his deferred salary plus
accrued interest. In consideration for elimination in 1999 of the Company's
matching contribution, all previously unvested amounts immediately vested.
18
<PAGE> 22
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company's Board of Directors held seven meetings during calendar 1998.
Each director attended at least 80% of the meetings of the Board of Directors
and the committees on which he served.
The Board of Directors also has standing committees: an Audit Committee, a
Compensation Committee and a Nominating Committee. The Company does not
currently have an acting Executive Committee. During fiscal 1998, the Audit
Committee consisted of Messrs. Cost, Davidson and Rosenberg and held two
meetings during the year. The Audit Committee now consists of Messrs. Craig and
Rosenberg. The Company was notified by The New York Stock Exchange ("NYSE") that
its policies do not permit employee-directors to serve on the audit committees
of NYSE listed issuers, such as the Company. Accordingly, Messrs. Davidson and
Cost, who were, respectively, the Company's Vice-Chairman of the Board and the
Secretary, resigned from the Audit Committee in 1999. The Audit Committee
reviews periodic financial statements of the Company, reviews the independent
accountants' scope of engagement, performance and fees, and reviews the adequacy
of the Company's financial control procedures. The Compensation Committee is
composed of Messrs. Cost, Craig, Davidson and Rosenberg and during calendar 1998
held three meetings. Its function is to fix compensation of the chief executive
officer and other key executives and to administer various benefit plans,
including the stock option plans, in which officers and employees may
participate. Messrs. Cost, Rosenberg and Williams are members of the Nominating
Committee which was established in March 1993. The Nominating Committee held no
meetings during calendar 1998. Its function is to recommend individuals to be
members of the Board of Directors.
COST AND METHOD OF SOLICITATION
In addition to the solicitation of proxies by use of the mails, proxies may
also be solicited by the Company and its directors, officers and
management-level employees (who will receive no compensation therefor in
addition to their regular salaries and fees) by telephone, telegram, facsimile
transmission and other electronic communication and in person and by
advertisement. The Company will reimburse banks and brokers who hold shares of
the Company's common stock in their name or custody, or in the name of nominees
for others, for their out-of-pocket expenses incurred in forwarding copies of
any proxy materials to those persons for whom they hold such shares.
The Company has retained MacKenzie Partners, Inc. ("MacKenzie") to assist
in the solicitation of proxies. Pursuant to the Company's agreement with
MacKenzie, MacKenzie will provide various proxy advisory and solicitation
services for the Company at a cost of $7,500 (plus, if this solicitation is
contested, an additional amount, to be mutually agreed upon for additional
solicitation services), plus reasonable out-of-pocket expenses and
indemnification against certain liabilities. It is expected that MacKenzie will
use up to 20 persons in such solicitation. MacKenzie will solicit proxies from
individuals, brokers, banks, bank nominees and other institutional holders.
Although no precise estimate can be made at this time, the Company
anticipates that the aggregate amount to be spent by the Company in connection
with the solicitation of proxies by the Company will be approximately $ , of
which approximately $ has been incurred to date. This amount includes the
fees payable to MacKenzie, but excludes (i) the salaries and fees of officers,
directors and employees of the Company and (ii) the normal expenses of an
uncontested election. The aggregate amount that the Company will spend will vary
depending on, among other things, any developments that may occur in the
possible proxy contest discussed above.
19
<PAGE> 23
PARTICIPANTS IN THE SOLICITATION
Under applicable regulations of the Securities and Exchange Commission,
each of the directors of the Company is deemed to be a "participant" in the
Company's solicitation of proxies. Appendix A to this Proxy Statement provides
certain additional information with respect to the Company's directors.
ANNUAL REPORT ON FORM 10-K
The Company will provide, without charge, a copy of the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1998 upon the written request of any shareholder. This
request should be directed to Mr. Russell A. Doll, Vice President and Chief
Financial Officer, Bell Industries, Inc., 1960 East. Grand Avenue, Suite 560, El
Segundo, California 90245-4608.
SHAREHOLDER PROPOSALS
If a shareholder wishes to have a proposal printed in the Proxy Statement
to be used in connection with the Company's next Annual Meeting of Shareholders,
tentatively scheduled for May 11, 2000, such a proposal must be received by the
Company at its Corporate Office prior to December 18, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of the forms submitted to Bell during and with
respect to the most recent fiscal year, there are no directors, officers,
beneficial owners of more than 10 percent of Bell's Common Stock or any other
person subject to section 16(a) of the Securities Exchange Act of 1934 that was
required to file, and failed to so file, reports required by such section.
20
<PAGE> 24
MISCELLANEOUS
PricewaterhouseCoopers LLP has been the Company's independent accountants
for a number of years and has been selected to continue in such capacity for the
current fiscal year. It is anticipated that a representative from
PricewaterhouseCoopers LLP will attend the Annual Meeting of Shareholders, will
be available to answer questions, and will be afforded the opportunity to make
any statements the representative desires to make.
The Board of Directors knows of no other matters that are likely to come
before the meeting. If any such matters should properly come before the meeting,
however, it is intended that the persons named in the accompanying form of proxy
will vote such proxy in accordance with their best judgment on such matters. The
Company's Bylaws require that, for other business to be properly brought before
an annual meeting by a shareholder, the Company must have received written
notice thereof not less than 60 nor more than 90 days prior to the annual
meeting (or, if less than 70 days notice or other public disclosure of the date
of the annual meeting is given, not later than 10 days after the earlier of the
date notice was mailed or public disclosure of the date was made). The notice
must set forth (a) a brief description of the business proposed to be brought
before the annual meeting, (b) the shareholder's name and address, (c) the
number of shares beneficially owned by such shareholder as of the date of the
shareholder's Notice, and (d) any financial interest of such shareholder in the
proposal. Similar information is required with respect to any other shareholder,
known by the shareholder giving notice, supporting the proposal. Further, if the
proposal includes the nomination of a person to become a director which person
was not set forth in a proxy statement submitted to all shareholders pursuant to
the federal proxy rules, such proposal shall contain all the information
specified by such rules.
By Order of the Board of Directors
John J. Cost
Secretary
November , 1999
21
<PAGE> 25
APPENDIX A
CERTAIN INFORMATION CONCERNING THE COMPANY'S DIRECTORS
This Appendix A sets forth certain additional information regarding the
Company's directors, each of whom is deemed to be a "participant" in the
solicitation of proxies hereunder.
TRANSACTIONS IN COMPANY SECURITIES WITHIN THE PAST TWO YEARS
Except as set forth below, none of the Company's directors has engaged in
any purchases or sales of the Company's securities during the past two years:
On May 5, 1998, Mr. Cost was granted an option to purchase 1,000 shares of
common stock.
On December 22, 1997, April 27, 1998, August 29, 1998 and December 21, 1998
Mr. Edwards acquired 481, 480, 588, and 588 shares of common stock,
respectively, pursuant to the Employee Stock Purchase Plan. On December 11,
1997, Mr. Edwards was granted an option to acquire 50,000 shares of common
stock. On June 30, 1998, Mr. Edwards exercised options to purchase 2,890 shares
of common stock.
On December 22, 1997, April 27, 1998, August 29, 1998, and December 21,
1998, Mr. Graham acquired 333, 399, 488, and 435 shares of common stock,
respectively.
On May 5, 1998, Mr. Rosenberg was granted an option to acquire 1,000 shares
of common stock.
Mr. Williams engaged in the following transactions: on January 31, 1998,
disposed by gift 26,417 shares of common stock; on April 27, 1998, acquired 481
shares of common stock; on June 26, 1998, disposed by gift of 20,000 shares of
common stock; on July 23, 1998, disposed by gift of 1,000 shares of common
stock; on August 31, 1998, acquired 588 shares of common stock; on December 21,
1998, acquired 543 shares of common stock. On each of June 25, 1998, and October
1, 1998, Mr. Williams as the trustee of the Ted and Rita Williams Foundation
disposed of 1,000 shares of common stock. In January 1999, Mr. Williams was
granted an option to acquire 300,000 shares of common stock.
BENEFICIAL OWNERSHIP OF COMPANY SECURITIES
BY ASSOCIATES OF THE COMPANY'S DIRECTORS
Except as disclosed elsewhere in the Proxy Statement, to the knowledge of
the Company, none of the Company's directors has "associates," as that term is
defined in Rule 14a-1 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, who beneficially own any
securities of the Company.
A-1
<PAGE> 26
CERTAIN OTHER INFORMATION
Except as disclosed in this Appendix A or elsewhere in the Proxy Statement,
to the knowledge of the Company, none of the Company's directors: (i) owns of
record any securities of the Company that are not also beneficially owned by
them; (ii) is, or was within the past year, a party to any contract, arrangement
or understanding with any person with respect to the securities of the Company,
including, but not limited to, joint ventures, loan or option arrangements, puts
or calls, guarantees against loss or guaranties of profits, division of losses
or profits, or the giving or withholding of proxies; (iii) has any substantial
interest, direct or indirect, by security holdings or otherwise, in any matter
to be acted upon at the Annual Meeting; or (iv) beneficially owns any securities
of any parent or subsidiary of the Company. Except as disclosed in this Appendix
A or elsewhere in the Proxy Statement, to the knowledge of the Company, none of
the Company's directors or any of their associates has any arrangement or
understanding with any person with respect to future employment by the Company
or its affiliates or with respect to any future transactions to which the
Company or any of its affiliates will or may be a party, nor any material
interest, direct or indirect, in any transaction which has occurred since
January 1, 1998 or any currently proposed transaction, or series of similar
transactions, to which the Company or any of its affiliates was or is to be a
party and in which the amount involved exceeds $60,000.
A-2
<PAGE> 27
IMPORTANT
Your vote is important. No matter how many or how few shares of the
Company's stock you own, please give the Company your proxy FOR the election of
the Company's nominees and AGAINST the Shareholder Proposal by:
MARKING the enclosed WHITE proxy card,
SIGNING the enclosed WHITE proxy card,
DATING the enclosed WHITE proxy card, and
MAILING the enclosed WHITE proxy card TODAY in the envelope provided (no
postage is required if mailed in the United States).
If you have already submitted a proxy to Steel for the Annual Meeting, you
may change your vote to a vote FOR the election of the Company's nominees and
AGAINST the Shareholder Proposal by marking, signing, dating and returning the
enclosed WHITE proxy card for the Annual Meeting, which must be dated after any
proxy you may have submitted to Steel. ONLY YOUR LATEST DATED PROXY FOR THE
ANNUAL MEETING WILL COUNT AT THAT MEETING.
If you have any questions or require any additional information concerning
this Proxy Statement, please contact MacKenzie Partners, Inc. at the address set
forth below. If any of your shares are held in the name of a brokerage firm,
bank, bank nominee or other institution, only it can vote such shares and only
upon receipt of your specific instructions. Accordingly, please contact the
person responsible for your account and instruct that person to execute the
WHITE proxy card. You should confirm your instructions in writing to the person
responsible for your account and provide a copy of such instructions to the
Company c/o MacKenzie Partners at the address and telephone numbers set forth
below, so that the Company may be aware of your instructions and attempt to
ensure that such instructions are followed.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE
CONTACT:
MACKENZIE PARTNERS LOGO
156 Fifth Avenue
New York, New York 10010
Bank and Brokers Call Collect: (212) 929-5500
All Others Call Toll-Free: (800) 322-2885
<PAGE> 28
PROXY PROXY
BELL INDUSTRIES, INC.
1960 EAST GRAND AVENUE, SUITE 560
EL SEGUNDO, CALIFORNIA 90245-4608
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Tracy A. Edwards and John J. Cost and each
of them, as Proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote as designated below, all the
shares of common stock of Bell Industries, Inc. held of record by the
undersigned on November 22, 1999, at the Annual Meeting of Shareholders to be
held on January 18, 2000 or any adjournment or postponement thereof and at any
special meeting called in lieu thereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
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<PAGE> 29
BELL INDUSTRIES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
The Board of Directors recommends a vote FOR the election as Directors of the
nominees listed below.
1. ELECTION OF DIRECTORS: FOR WITHHOLD FOR ALL
Nominees: J. Cost, A Craig, H. Davidson, ALL ALL Except nominee(s)
T. Edwards, M. Rosenberg, G. Graham, written below
T. Williams [ ] [ ] [ ]
___________________________________________
The Board of Directors recommends a vote AGAINST the following shareholder
proposal:
2. To adopt a resolution that the Board FOR AGAINST ABSTAIN
of Directors terminate Bell Industries'
Rights Agreement [ ] [ ] [ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, the proxy will be voted
for the election of all nominees as directors, or any substitutions or additions
thereto, including cumulatively for all or fewer than all of the nominees, and
against Proposal No. 2. The undersigned hereby revokes any other proxy or
proxies previously given to vote or act with respect to the shares of Common
Stock of Bell Industries, Inc. owned of record by the undersigned.
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
Please sign exactly as name appears on this proxy.
_____________________________
Signature
_____________________________
Signature (if held jointly)
Dated:_______________________
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