Document:

exv4w1

 

Exhibit 4.1

ANYTHING HEREIN TO THE CONTRARY NOTWITHSTANDING, THE REPAYMENT OF THE OBLIGATIONS EVIDENCED BY
THIS NOTE, THE LIENS AND SECURITY INTERESTS SECURING THE OBLIGATIONS EVIDENCED BY THIS NOTE, THE
EXERCISE OF ANY RIGHT OR REMEDY WITH RESPECT THERETO, AND CERTAIN OF THE RIGHTS OF THE HOLDER
HEREOF ARE SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AND SUBORDINATION AGREEMENT DATED AS OF
MARCH 12, 2007 (AS AMENDED, RESTATED, SUPPLEMENTED, OR OTHERWISE MODIFIED FROM TIME TO TIME, THE
“INTERCREDITOR AGREEMENT”), BY AND BETWEEN WELLS FARGO FOOTHILL, INC., AS SENIOR AGENT, AND
NEWCASTLE PARTNERS, L.P., AS SUBORDINATED CREDITOR. IN THE EVENT OF ANY CONFLICT BETWEEN THE TERMS
OF THE INTERCREDITOR AGREEMENT AND THIS NOTE, THE TERMS OF THE INTERCREDITOR AGREEMENT SHALL GOVERN
AND CONTROL.

AMENDED AND RESTATED

CONVERTIBLE PROMISSORY NOTE

			
	 	 	 
	     $10,000,000
	 	March 12, 2007

     FOR VALUE RECEIVED, each of the undersigned, BELL INDUSTRIES, INC., a California corporation
(the “Maker” or “Company”) and BELL INDUSTRIES, INC., a Minnesota corporation (together with Maker,
referred to herein collectively as the “Obligors”), hereby jointly and severally promise to pay to
the order of Newcastle Partners, L.P. a Texas limited partnership, or its assigns (the “Payee”), at
such place as the Payee may designate in writing, the principal sum of Ten Million ($10,000,000),
or such other amount as shall equal the outstanding principal amount hereof, under the terms set
forth herein. Capitalized terms used but not defined herein shall have the respective meanings
given to such terms in the Purchase Agreement, dated as of January 31, 2007 (the “Purchase
Agreement”), between the Maker and the Payee.

     1. Interest. Except as otherwise provided herein, the unpaid principal balance hereof
from time to time outstanding shall bear interest from January 31, 2007 at the rate of eight
percent (8%) per annum, subject to adjustment as provided for in Section 6. Interest shall accrue
on the outstanding unpaid principal amount (as increased pursuant to Section 2(a) below) until such
principal amount is paid (or converted as provided herein) from January 31, 2007. Interest on this
Note shall be computed on the basis of a 365-day year.

     2. Payment of Interest and Principal. Except as otherwise provided herein (including,
without limitation, Sections 5 and 6 hereof), and subject to any default hereunder, the principal
and interest hereof is payable as follows:

     (a) Interest shall be paid in kind and shall accrete as additional principal on this Note on
the applicable interest payment date; provided that, following January 31, 2008, if both (i)
Maker’s senior lenders (including Agent, in the event that the Senior Credit Agreement remains in
effect) consent in writing to the payment of cash interest and (ii) the Current Market Price at the
date of election (which shall be on or following January 31, 2008) is at least 200% of the
Conversion Price, interest on the then outstanding principal balance of this Note may be paid in
cash at the election of Maker; provided further that, if such election to pay cash interest is
made,

 

 

the interest rate set forth in Section 1 hereof shall be increased to the lesser of (a)
sixteen percent (16%) or (b) the highest lawful interest rate permitted by applicable law; and
provided further that any accrued interest as of the date of such election shall accrete as
additional principal on this Note as of such election date. Interest shall be payable in arrears
on December 31, March 31, June 30 and September 30 of each year, beginning March 31, 2007. All
references herein to the “principal” of this Note shall include all interest accreted thereon as
additional principal pursuant to the foregoing sentence.

     (b) The entire outstanding principal amount of the Note together with all accrued but unpaid
interest shall be due in cash on January 31, 2017 (the “Maturity Date”) from the Obligors.

     (c) On and following January 31, 2010, so long as the Current Market Price (determined on the
date of prepayment) is greater than 150% of the Conversion Price and the Shareholder Approval shall
have been received, the Maker will have right of early prepayment of this Note at an amount equal
to 105% of the aggregate outstanding principal on this Note. For the purposes of this Note, the
“Current Market Price” on any date means the average of the daily Closing Prices per share of
Common Stock for all Trading Days included in 90 consecutive calendar days preceding the date in
question. For purposes of the foregoing, (i) the “Closing Price” shall be the last reported sales
price or, if no such reported sale takes place on any particular date, the average of the reported
closing bid and asked prices on the principal exchange (or on NASDAQ) on which the Common Stock is
listed (or if the Common Stock is not so listed, the average of the closing bid and asked prices
furnished by any two members of the National Association of Securities Dealers as selected by Payee
for such purpose) on the date in question and (ii) “Trading Days” shall mean any day on which the
market on which the Common Stock is then traded is open for trading. Any such prepayment under
this Section 2(c) shall be on 30 days advance notice to Payee.

     3. Conversion at the Option of Payee.

     (a) At any time while any portion of the principal or interest of this Note is outstanding,
the Payee may give the Maker written notice of its intention to convert all or any portion of the
outstanding principal and/or accrued but unpaid interest on this Note into such number of shares of
the Maker’s common stock (the “Common Stock”), equal to the amount to be converted divided by the
Conversion Price in effect at such time. Upon receipt of the Payee’s written notice, the Maker
shall cause certificates representing those shares to be delivered to Payee within three business
days of Maker’s receipt of such notice. The person or persons entitled to receive the shares of
Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the date the applicable conversion
notice is given.

     (b) The “Conversion Price” shall be $3.81, subject to any adjustment. The Conversion Price
shall be adjusted proportionally for any subsequent stock dividend or split, stock combination or
other similar recapitalization, reclassification or reorganization of or affecting Maker’s Common
Stock. In addition, the Conversion Price shall also be appropriately adjusted in the event that
Maker issues shares of Common Stock (or issues securities, including warrants or similar rights,
entitling holders to exercise, convert or exchange into, or otherwise subscribe for, shares of
Common Stock) at a price per share less than the Current Market Price as

 

 

of the date of such issuance, as follows: the new Conversion Price shall be reduced to equal
(x) the prevailing Conversion Price (i.e., prior to any adjustment hereunder) multiplied by (y) the
quotient obtained by dividing (a) the Market Value Share Number by (b) the total number of shares
of Common Stock that would be outstanding after giving effect to the exercise, conversion or
exchange of any rights or other derivative Company securities outstanding (determined pro forma for
the applicable issuance giving rise to the adjustment in the Conversion Price hereunder). For
purposes of the foregoing, the “Market Value Share Number” shall equal the sum of (i) the total
number of shares of Common Stock that would be outstanding after giving effect to the exercise,
conversion or exchange of any rights or other derivative Company securities outstanding (determined
prior to the applicable issuance giving rise to the adjustment in the Conversion Price) plus (ii)
the quotient obtained by dividing (A) the aggregate consideration received by the Company in the
applicable issuance (or, in the case of the issuance of any rights or other derivative Company
securities giving rise to the adjustment in the Conversion Price hereunder, such aggregate
consideration to be received upon the exercise, conversion or exchange of any such rights or
derivative Company securities) by (B) the Current Market Price.

     (c) In case of a Change of Control, instead of receiving shares of Maker’s Common Stock upon
conversion of this Note, Payee shall have the right thereafter to receive the kind and amount of
shares of stock and other securities, cash and property which the Payee would have owned or have
been entitled to receive immediately after such Change of Control had the same portion of this Note
been converted immediately prior to the effective date of such Change of Control and, in any such
case, if necessary, appropriate adjustment shall be made in the application of the provisions set
forth in this Section with respect to the rights and interests thereafter of the Payee, to the end
that the provisions set forth in this Section shall thereafter correspondingly be made applicable,
as nearly as may reasonably be, in relation to any shares of stock and other securities, cash and
property thereafter deliverable in connection with this Note. The provisions of this subsection
shall similarly apply to successive Changes of Control.

     (d) “Change of Control” means that the Maker shall, directly or indirectly, in one or more
related transactions, (i) consolidate or merge with or into (whether or not the Maker is the
surviving corporation) another person, (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Maker to another person, (iii) allow
another person to make a purchase, tender or exchange offer that is accepted by the holders of more
than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held
by the person or persons making or party to, or associated or affiliated with the persons making or
party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement
or other business combination (including, without limitation, a reorganization, recapitalization or
spin-off) with another person whereby such other person acquires more than 50% of the outstanding
shares of Common Stock (not including any shares of Common Stock held by the other person or other
persons making or party to, or associated or affiliated with the other persons making or party to,
such stock purchase agreement or other business combination); provided, however, that a transaction
in which Newcastle Partners, L.P. or any of its affiliates is the acquiring party shall not be
deemed to constitute a Change of Control.

 

 

     (e) No fractional shares of Maker’s Common Stock shall be issued upon conversion of the Note.
In lieu of any fractional shares to which Payee would otherwise be entitled, the Maker shall pay
cash equal to the product of such fraction multiplied by the average of the closing prices of the
Common Stock on the American Stock Exchange (or the exchange on which Maker’s Common Stock trades
for the five consecutive trading days immediately preceding the date of the conversion.

     (f) In the event of an adjustment to the Conversion Price, the Maker shall promptly deliver to
the Payee a certificate, signed by its Chief Financial Officer, setting forth the new Conversion
Price and a calculation in reasonable detail of the adjustment to the Conversion Price.

     (g) The Maker shall pay any and all taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of this Note; provided that the Maker shall not be
required to pay any tax that may be payable in respect of any issuance of Common Stock to any
person other than the Payee or with respect to any income tax due by the Payee with respect to such
Common Stock.

     4. Redemption Upon Change of Control. No sooner than 15 days nor later than 10 days
prior to the consummation of a Change of Control, the Maker shall deliver written notice of such
Change of Control to the Payee (a “Change of Control Notice”). At any time during the period
beginning after the Payee’s receipt of a Change of Control Notice and ending on the date of the
consummation of such Change of Control, the Payee may require the Maker to redeem all or any
portion of this Note by delivering written notice thereof (a “Change of Control Redemption Notice”)
to the Maker, which Change of Control Redemption Notice shall indicate the portion of the
outstanding principal amount of this Note that the Payee is electing to redeem. The portion of this
Note subject to redemption pursuant to this Section 4 shall be redeemed by the Maker at a price
equal to 110% of the principal amount being redeemed, plus accrued but unpaid interest on such
principal amount (the “Change of Control Redemption Price”). Redemptions required by this Section 4
shall be made on the date of the consummation of the Change of Control and shall have priority to
payments to shareholders of the Maker in connection with such Change of Control. Notwithstanding
anything to the contrary in this Section 4, until the Change of Control Redemption Price is paid in
full, the principal amount submitted for redemption under this Section 4 (together with any accrued
but unpaid interest thereon) may be converted, in whole or in part, by the Payee into Common Stock
pursuant to Section 3.

     5. Conversion On Maturity Date. On the Maturity Date, in lieu of receiving the payment
required by Section 2(b), the Payee may elect to have Maker issue to the Payee a certificate
representing such number of shares of Common Stock as is equal to the quotient obtained by dividing
the entire principal amount of this Note then outstanding, plus all accrued but unpaid interest
thereon, by the Conversion Price in effect at such time, in full satisfaction of this Note (the
“Maturity Date Conversion”). The applicable provisions of Section 3 shall apply with equal force to
the Maturity Date Conversion. In the event that the Shareholder Approval has not then been
obtained, Payee may elect to receive both (1) such number of shares as the Maker shall be permitted
to issue under exchange rules in the absence of a shareholder vote and (2) cash in lieu of any
remaining principal balance.

 

 

     6. Condition to Issuance of Shares Upon Conversion. Notwithstanding anything to the
contrary contained in Section 3 or Section 5 of this Note, it shall be a condition precedent to
Maker’s issuance of shares of Common Stock under this Note in an amount greater than 19.9% of the
Company’s then issued and outstanding Common Stock upon conversion of this Note, whether on the
Maturity Date or otherwise, that the Shareholder Approval shall have been obtained prior to such
issuance; provided that, in the event that the Shareholder Approval is not obtained, Payee shall be
permitted to convert this Note into such number of shares as the Maker shall be permitted to issue
under exchange rules in the absence of a shareholder vote (and Payee shall be permitted to retain
the Note in respect of any remaining principal balance). In addition, notwithstanding anything to
the contrary, in the event that the Shareholder Approval is not obtained, the interest rate set
forth in Section 1 hereof in respect of the Disallowed Excess Principal on this Note shall be
increased to the lesser of (a) sixteen percent (16%) or (b) the highest lawful interest rate
permitted by applicable law. For purposes of this Note, the “Disallowed Excess Principal” shall
mean the principal balance of the Note (determined after giving effect to any accretion for
interest that has become payable) in excess of the principal balance of the Note then convertible
at the Conversion Price into the maximum number of shares permitted under applicable exchange rules
in the absence of a shareholder vote. For the avoidance of doubt, the Disallowed Excess Principal
shall increase with each subsequent payment of interest that accretes as additional principal on
this Note.

     7. Dividends. If, at any time while any portion of the principal or interest on the
Note is outstanding, Maker declares a distribution in cash, property (including securities) or a
combination thereof, whether by way of dividend or otherwise, with respect to its Common Stock, the
Payee shall participate pro rata in such distribution on an as-converted basis with holders of
Maker’s Common Stock.

     8. Security; Subordination. THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A
SECURITY AGREEMENT (THE “SECURITY AGREEMENT”) EXECUTED BY THE OBLIGORS IN FAVOR OF PAYEE.
ADDITIONAL RIGHTS OF THE PAYEE ARE SET FORTH IN THE SECURITY AGREEMENT. Notwithstanding anything
to the contrary, the Indebtedness evidenced by this Note is hereby expressly subordinated in the
manner set forth in the Subordination Agreement. This Note will rank senior to all existing and
future unsecured indebtedness of Maker.

     9. Certain Defined Terms. The following terms in this Note shall have the meanings
specified below:

     “Agent” means Wells Fargo Foothill, Inc., in its capacity as the arranger and
administrative agent for the Lenders, together with its successors and assigns, if any, in such
capacity.

     “Borrowers” means, individually and collectively, jointly and severally, Bell
Industries, Inc., a California corporation, and Bell Industries, Inc., a Minnesota corporation.

     “Indebtedness” means (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or other

 

 

financial products, (c) all obligations as a lessee under capital leases, (d) all obligations
or liabilities of others secured by a Lien on any asset of a Person or its subsidiaries,
irrespective of whether such obligation or liability is assumed, (e) all obligations to pay the
deferred purchase price of assets (other than trade payables incurred in the ordinary course of
business and repayable in accordance with customary trade practices), (f) all obligations owing
under hedge agreements, and (g) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any
obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (f)
above.

     “Insolvency Proceeding” means any proceeding commenced by or against any Person under
any provision of title 11 of the United States Code (as in effect from time to time) or under any
other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.

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

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

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

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

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

 

 

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

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

     10. Affirmative Covenants. Except to the extent permitted by the Senior Credit
Agreement so long as such facility remains in effect, from the date hereof and until payment in
full of this Note, the Maker will, and will cause each of its Subsidiaries to:

     (a) Maintenance of Existence. Do all things necessary to preserve and keep in full force and
effect its existence as a corporation.

     (a) Compliance with Applicable Laws. Comply in all material respects with the requirements of
all applicable statutes, laws, rules, regulations and orders of any governmental authority, except
where contested in good faith and by proper proceedings.

     (b) Licenses. Obtain and maintain all material licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its properties or to the conduct of its
business.

 

 

     (c) Financial Reporting. Comply with the financial reporting requirements set forth in the
Senior Credit Agreement.

     10. Negative Covenants.

     (a) Indebtedness. Except to the extent permitted by the Senior Credit Agreement so long as
such facility remains in effect, neither the Company nor any Subsidiary will incur indebtedness for
borrowed money except the following:

          (i) Senior Debt under Senior Credit Agreement in an aggregate principal amount not to exceed
$40 million;

          (ii) Indebtedness for borrowed money that is not secured by a Lien on any assets, property or
capital stock owned by the Company or any of its Subsidiaries in an amount not to exceed
$1,000,000; and

          (iii) any other Indebtedness permitted to be incurred under Section 6.1 of the Senior Credit
Agreement so long as such facility remains in effect.

     (b) Liens. Neither the Company nor any of its Subsidiaries shall create, incur, assume or
permit to exist any Lien on or with respect to any of its assets or property of any character,
whether now owned or hereafter acquired, except for Permitted Liens (as defined in the Senior
Credit Agreement so long as such facility remains in effect; provided that “Permitted Liens” shall
be defined in accordance with Section 9 otherwise).

     (c) Material Asset Sales. Neither the Company nor any of its Subsidiaries shall sell, lease,
transfer, license or otherwise dispose of any of its assets or property including securities
(collectively, a “Transfer”), whether now owned or hereafter acquired, except (i) transfers in the
ordinary course of its business consisting of the sale of inventory and sales of worn-out or
obsolete equipment and (ii) transfers not in excess of one million ($1,000,0000) for fair value and
other than to any affiliate of the Company.

     (d) Mergers, Etc. Neither the Company nor any of its Subsidiaries shall consolidate with or
merge into any other Person or permit any other Person to merge into it.

     11. Default. Except to the extent that any of the following are not “Events of
Default” under the Senior Credit Agreement so long as such facility remains in effect, the
occurrence of any one or more of the following events shall constitute an event of default (each,
an ‘Event of Default”), upon which Payee may declare the entire principal amount of this Note,
together with all accrued but unpaid interest, to be immediately due and payable in cash:

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

 

 

     (b) The Obligors shall be in material default of any term or provision of this Note, the
Purchase Agreement, the Registration Rights Agreement or the Security Agreement, and such failure
shall continue through 15 days after Payee gives written notice of such default to Maker.

     (c) Any representation or warranty of the Maker contained in the Purchase Agreement or the
Registration Rights Agreement shall have been false in any material respect on the Closing Date.

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

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

     (f) any Liens of Payee in any of the assets of Maker or its Subsidiaries shall cease to be or
shall not be valid and perfected Liens or the Maker or any Subsidiary shall assert that such Liens
are not valid and perfected Liens.

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

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

 

 

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

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

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

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

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

 

 

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

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

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

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

(SIGNATURE PAGE FOLLOWS}

 

 

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

	 	 	 	 	 
	BELL INDUSTRIES, INC., a California corporation	 	 
	 
	 	 	 	 
	By

	 	/s/ Kevin Thimjon	 	 
	 

	 	 	 	 
	Its Chief Financial Officer	 	 
	 
	 	 	 	 
	BELL INDUSTRIES, INC., a Minnesota corporation	 	 
	 
	 	 	 	 
	By

	 	/s/ Kevin Thimjon	 	 
	 

	 	 	 	 
	Its Chief Financial Officerexv10w1

 

Exhibit 10.1

ANYTHING HEREIN TO THE CONTRARY NOTWITHSTANDING, THE REPAYMENT OF THE OBLIGATIONS EVIDENCED BY
THIS AGREEMENT, THE LIENS AND SECURITY INTERESTS SECURING THE OBLIGATIONS EVIDENCED BY THIS
AGREEMENT, THE EXERCISE OF ANY RIGHT OR REMEDY WITH RESPECT THERETO, AND CERTAIN OF THE RIGHTS OF
THE HOLDER HEREOF ARE SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AND SUBORDINATION AGREEMENT
DATED AS OF MARCH 12, 2007 (AS AMENDED, RESTATED, SUPPLEMENTED, OR OTHERWISE MODIFIED FROM TIME TO
TIME, THE “INTERCREDITOR AGREEMENT”), BY AND BETWEEN WELLS FARGO FOOTHILL, INC., AS SENIOR AGENT,
AND NEWCASTLE PARTNERS, L.P., AS SUBORDINATED CREDITOR. IN THE EVENT OF ANY CONFLICT BETWEEN THE
TERMS OF THE INTERCREDITOR AGREEMENT AND THIS AGREEMENT, THE TERMS OF THE INTERCREDITOR AGREEMENT
SHALL GOVERN AND CONTROL.

     This SECURITY AGREEMENT (this “Agreement”), dated as of March 12, 2007, among Grantors listed
on the signature pages hereof and those additional entities that hereafter become parties hereto by
executing the form of Supplement attached hereto as Annex 1 (collectively, jointly and severally,
the “Grantors” and each, individually, a “Grantor”), and NEWCASTLE PARTNERS, L.P., (together with
its successors or assigns, the “Secured Party”).

W I T N E S S E T H:

     WHEREAS, Grantors and the Secured Party have entered into that certain Amended and Restated
Convertible Promissory Note, dated March 12, 2007 (the “Note”) wherein Secured Party has agreed to
advance $10,000,000 to Borrower and make certain financial accommodations pursuant to the terms
thereof, and

     WHEREAS, in order to induce the Secured Party to enter into the Note and other agreements
between the parties, and to induce the Secured Creditor to make financial accommodations to
Borrowers, Grantors have agreed to grant a continuing security interest in and to the Collateral in
order to secure the prompt and complete payment, observance and performance of, among other things,
the Secured Obligations owing to the Secured Creditor,

     WHEREAS, pursuant to that certain Credit Agreement dated January 31 2007 (the “Credit
Agreement”) among the Borrowers and Wells Fargo Foothill, Inc., in its capacity as administrative
agent for a certain Lender Group and Bank Product Provider (together with its successors, the
“Agent”), the Agent and Lender Group has made certain financial accommodations available to
Borrowers from time to time pursuant to the terms and conditions thereof, and

     WHEREAS, reference is made to that certain Intercreditor and Subordination Agreement entered
into by and between Secured Party and Agent, dated as of March 12, 2007 (the “Intercreditor
Agreement”)

Schedule 1-1

 

 

     NOW, THEREFORE, for and in consideration of the recitals made above and other good and
valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

     1. Defined Terms. All capitalized terms used herein (including in the preamble and
recitals hereof) without definition shall have the meanings ascribed thereto in the Note. Any terms
used in this Agreement that are defined in the Code shall be construed and defined as set forth in
the Code unless otherwise defined herein or in the Note; provided, however, that if the Code is
used to define any term used herein and if such term is defined differently in different Articles
of the Code, the definition of such term contained in Article 9 of the Code shall govern. In
addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the
following terms shall have the following meanings:

          (a) “Account” means an account (as that term is defined in the Code).

          (b) “Account Debtor” means an account debtor (as that term is defined in the Code).

          (c) “Agent” had the meaning specified in the recitals to this Agreement.

          (d) “Agent’s Lien” has the meaning specified therefor in the Agent’s Credit Agreement.

          (e) “Books” means books and records (including each Grantor’s Records indicating,
summarizing, or evidencing such Grantor’s assets (including the Collateral) or liabilities, each
Grantor’s Records relating to such Grantor’s business operations or financial condition, and each
Grantor’s goods or General Intangibles related to such information).

          (f) “Borrower” or “Borrowers” has the meaning specified therefor in the
recitals to this Agreement.

          (g) “Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within 1 year from the date of
acquisition thereof, (b) marketable direct obligations issued by any state of the United States or
any political subdivision of any such state or any public instrumentality thereof maturing within 1
year from the date of acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors
Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270 days from the date of
creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at
least P-1 from Moody’s, (d) certificates of deposit or bankers’ acceptances maturing within 1 year
from the date of acquisition thereof issued by any bank organized under the laws of the United
States or any state thereof having at the date of acquisition thereof combined capital and surplus
of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the
criteria described in clause (d) above, or (ii) any other bank organized under the laws of the
United States or any state thereof so long as the amount maintained with any such other bank is
less than or equal to $100,000 and is insured by the Federal Deposit Insurance
Corporation, and (f) Investments in money market funds substantially all of whose assets are
invested in the types of assets described in clauses (a) through (e) above.

 

 

          (h) “Chattel Paper” means chattel paper (as that term is defined in the Code) and
includes tangible chattel paper and electronic chattel paper.

          (i) “Code” means the California Uniform Commercial Code, as in effect from time to
time; provided, however, that in the event that, by reason of mandatory provisions of law, any or
all of the attachment, perfection, priority, or remedies with respect to Secured Party’s Lien on
any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions
thereof relating to such attachment, perfection, priority, or remedies.

          (j) “Collateral” has the meaning specified therefor in Section 2.

          (k) “Commercial Tort Claims” means commercial tort claims (as that term is defined in
the Code), and includes those commercial tort claims listed on Schedule 1 attached hereto
(“Commercial Tort Claims”).

          (l) “Copyrights” means copyrights and copyright registrations, and also includes (i)
the copyright registrations and recordings thereof and all applications in connection therewith
listed on Schedule 2 attached hereto and made a part hereof, (ii) all reissues, continuations,
extensions or renewals thereof, (iii) all income, royalties, damages and payments now and hereafter
due or payable under and with respect thereto, including payments under all licenses entered into
in connection therewith and damages and payments for past or future infringements or dilutions
thereof, (iv) the right to sue for past, present and future infringements and dilutions thereof,
(v) the goodwill of each Grantor’s business symbolized by the foregoing or connected therewith, and
(vi) all of each Grantor’s rights corresponding thereto throughout the world.

          (m) “Copyright Security Agreement” means each Copyright Security Agreement among
Grantors, or any of them, and Agent, for the benefit of the Secured Party, in substantially the
form of Exhibit A attached hereto, pursuant to which Grantors have granted to Secured Party, a
security interest in all their respective Copyrights.

          (n) “Deposit Account” means any deposit account (as that term is defined in the Code).

          (o) “Equipment” means equipment (as that term is defined in the Code).

          (p) “Event of Default” has the meaning specified therefor in the Note or any breach of
the terms and conditions of this Agreement or the failure to perform or observe any covenant
hereof.

          (q) “General Intangibles” means general intangibles (as that term is defined in the
Code) and, in any event, includes payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action, goodwill

 

 

(including the goodwill associated with any Trademark, Patent, or Copyright), Patents,
Trademarks, Copyrights, URLs and domain names, industrial designs, other industrial or Intellectual
Property or rights therein or applications therefor, whether under license or otherwise, programs,
programming materials, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights under any royalty
or licensing agreements, including Intellectual Property Licenses, infringement claims, computer
programs, information contained on computer disks or tapes, software, literature, reports,
catalogs, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds,
and tax refund claims, interests in a partnership or limited liability company which do not
constitute a security under Article 8 of the Code, and any other personal property other than
Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Related
Property, Negotiable Collateral, and oil, gas, or other minerals before extraction.

          (r) “Grantor” and “Grantors” have the meanings specified therefor in the
recitals to this Agreement.

          (s) “Guaranty” has the meaning specified therefor in the Agent’s Credit Agreement.

          (t) “Indebtedness” means (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest
rate swaps, or other financial products, (c) all obligations as a lessee under capital leases, (d)
all obligations or liabilities of others secured by a Lien on any asset of a Person or its
Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations
to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary
course of business and repayable in accordance with customary trade practices), (f) all obligations
owing under hedge agreements, and (g) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any
obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (f)
above.

          (u) “Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or
insolvency law, assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.

          (v) “Intellectual Property” means Patents, Copyrights, Trademarks, the goodwill
associated with such Trademarks, trade secrets and customer lists, and Intellectual Property
Licenses.

          (w) “Intellectual Property Licenses” means rights under or interests in any patent,
trademark, copyright or other intellectual property, including software license agreements with any
other party, whether the applicable Grantor is a licensee or licensor under any such
license agreement, including the license agreements listed on Schedule 3 attached hereto and
made a part hereof.

 

 

          (x) “Inventory” means inventory (as that term is defined in the Code).

          (y) “Investment Related Property” means (i) investment property (as that term is
defined in the Code), and (ii) all of the following (regardless of whether classified as investment
property under the Code): all Pledged Interests, Pledged Operating Agreements, and Pledged
Partnership Agreements.

          (z) “Negotiable Collateral” means letters of credit, letter-of-credit rights,
instruments, promissory notes, drafts, and documents.

          (aa) “Note” has the meaning specified in the recitals to this Agreement.

          (bb) “Obligations” means all loans, advances, debts, principal, interest (including
any interest that accrues after the commencement of an Insolvency Proceeding, regardless of whether
allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), contingent
reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities,
obligations (including indemnification obligations), fees, charges, costs, (including any fees or
expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether
allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), lease
payments, guaranties, covenants, and duties of any kind and description owing by Borrowers to the
Secured Party pursuant to or evidenced by the Note and irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including all interest not paid when due and all other expenses or other
amounts that Borrowers are required to pay or reimburse. Any reference in the Agreement or in the
Note to the Obligations shall include all or any portion thereof and any extensions, modifications,
renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.

          (cc) “Patents” means patents and patent applications, and also includes (i) the
patents and patent applications listed on Schedule 4 attached hereto and made a part hereof, (ii)
all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or
payable under and with respect thereto, including payments under all licenses entered into in
connection therewith and damages and payments for past or future infringements or dilutions
thereof, (iv) the right to sue for past, present and future infringements and dilutions thereof,
and (v) all of each Grantor’s rights corresponding thereto throughout the world.

          (dd) “Patent Security Agreement” means each Patent Security Agreement among Grantors,
or any of them, and Secured Party, in substantially the form of Exhibit B attached hereto, pursuant
to which Grantors have granted to Secured Party, a security interest in all their respective
Patents.

          (ee) “Permitted Liens” means (a) Liens held by the Agent under the Agent’s Credit
Agreement, (b) Liens for unpaid taxes, assessments, or other governmental charges or levies that
either (i) are not yet delinquent, or (ii) do not have priority over the Secured Party’s Liens and
the underlying taxes, assessments, or charges or levies are the subject of Permitted

 

 

Protests, (c) judgment Liens that do not constitute an Event of Default under the Note, (d)
Liens set forth on Schedule P-2, provided that any such Lien only secures the Indebtedness that it
secures on the Closing Date and any Refinancing Indebtedness in respect thereof, (e) the interests
of lessors under operating leases, (f) purchase money Liens or the interests of lessors under
Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money
Indebtedness and so long as (i) such Lien attaches only to the asset purchased or acquired and the
proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the
asset purchased or acquired or any Refinancing Indebtedness in respect thereof, (g) Liens arising
by operation of law in favor of warehousemen, landlords, carriers, mechanics, material men,
laborers, or suppliers, incurred in the ordinary course of business and not in connection with the
borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the
subject of Permitted Protests, (h) Liens on amounts deposited in connection with obtaining worker’s
compensation or other unemployment insurance, (i) Liens on amounts deposited in connection with the
making or entering into of bids, tenders, or leases in the ordinary course of business and not in
connection with the borrowing of money, (j) Liens on amounts deposited as security for surety or
appeal bonds in connection with obtaining such bonds in the ordinary course of business, (k) with
respect to any Real Property, easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof; (l) Liens held by Ingram Micro
solely to secure any Ingram Micro Debt that is permitted by Section 6.1 of the Agent’s Agreement;
provided, however, that from and after the date that is 5 Business Days after the closing date of
the Agent’s Credit Agreement, such Liens shall only be permitted so long as (i) the Ingram Micro
Subordination Agreement is in full force and effect; and (ii) the Ingram Micro Debt is permitted by
Section 6.1 of the Agent’s Credit Agreement.

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

          (gg) “Pledged Companies” means, each Person listed on Schedule 5 hereto as a “Pledged
Company”, together with each other Person, all or a portion of whose Stock, is acquired or
otherwise owned by a Grantor after the Closing Date.

          (hh) “Pledged Interests” means all of each Grantor’s right, title and interest in and
to all of the Stock now or hereafter owned by such Grantor, regardless of class or designation,
including all substitutions therefor and replacements thereof, all proceeds thereof and all rights
relating thereto, also including any certificates representing the Stock, the right to receive any
certificates representing any of the Stock, all warrants, options, share appreciation rights and
other rights, contractual or otherwise, in respect thereof, and the right to receive dividends,
distributions of income, profits, surplus, or other compensation by way of income or liquidating
distributions, in cash or in kind, and cash, instruments, and other property from time to time
received, receivable, or otherwise distributed in respect of or in addition to, in substitution of,
on account of, or in exchange for any or all of the foregoing.

          (ii) “Pledged Interests Addendum” means a Pledged Interests Addendum substantially in
the form of Exhibit C to this Agreement.

 

 

          (jj) “Pledged Operating Agreements” means all of each Grantor’s rights, powers, and
remedies under the limited liability company operating agreements of each of the Pledged Companies
that are limited liability companies.

          (kk) “Pledged Partnership Agreements” means all of each Grantor’s rights, powers, and
remedies under the partnership agreements of each of the Pledged Companies that are partnerships.

          (ll) “Proceeds” has the meaning specified therefor in Section 2.

          (mm) “Real Property” means any estates or interests in real property now owned or
hereafter acquired by any Grantor and the improvements thereto.

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

          (oo) “Records” means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable form.

          (pp) “Security Interest” has the meaning specified therefor in Section 2.

          (qq) “Secured Obligations” means each and all of the following: (a) all of the present
and future obligations of Grantors arising from this Agreement or the Note, (b) all Obligations of
Borrowers, including, in the case of each of clauses (a) and (b), reasonable attorneys fees and
expenses and any interest, fees, or expenses that accrue after the filing of an Insolvency
Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any
Insolvency Proceeding.

          (rr) “Securities Account” means a securities account (as that term is defined in the
Code).

 

 

          (ss) “Stock” means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting,
including common stock, preferred stock, or any other “equity security” (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).

          (tt) “Supporting Obligations” means supporting obligations (as such term is defined in
the Code).

          (uu) “Trademarks” means trademarks, trade names, trademark applications, service
marks, service mark applications, and also includes (i) the trade names, trademarks, trademark
applications, service marks, and service mark applications listed on Schedule 6 attached hereto and
made a part hereof, and (ii) all renewals thereof, (iii) all income, royalties, damages and
payments now and hereafter due or payable under and with respect thereto, including payments under
all licenses entered into in connection therewith and damages and payments for past or future
infringements or dilutions thereof, (iv) the right to sue for past, present and future
infringements and dilutions thereof, (v) the goodwill of each Grantor’s business symbolized by the
foregoing or connected therewith, and (v) all of each Grantor’s rights corresponding thereto
throughout the world.

          (vv) “Trademark Security Agreement” means each Trademark Security Agreement among
Grantors, or any of them, and Secured Party, in substantially the form of Exhibit D attached
hereto, pursuant to which Grantors have granted to Secured Party a security interest in all their
respective Trademarks.

          (ww) “URL” means “uniform resource locator,” an internet web address.

     2. Grant of Security. Each Grantor hereby unconditionally grants, assigns, and pledges
to Secured Party, a continuing security interest (herein referred to as the “Security Interest”) in
all personal property of such Grantor whether now owned or hereafter acquired or arising and
wherever located, including such Grantor’s right, title, and interest in and to the following,
whether now owned or hereafter acquired or arising and wherever located (the “Collateral”):

          (a) all of such Grantor’s Accounts;

          (b) all of such Grantor’s Books;

          (c) all of such Grantor’s Chattel Paper;

          (d) all of such Grantor’s Deposit Accounts;

          (e) all of such Grantor’s Equipment and fixtures;

          (f) all of such Grantor’s General Intangibles;

          (g) all of such Grantor’s Inventory;

 

 

          (h) all of such Grantor’s Investment Related Property;

          (i) all of such Grantor’s Negotiable Collateral;

          (j) all of such Grantor’s rights in respect of Supporting Obligations;

          (k) all of such Grantor’s Commercial Tort Claims;

          (l) all of such Grantor’s money, Cash Equivalents, or other assets of each such Grantor that
now or hereafter come into the possession, custody, or control of the Secured Party;

          (m) all of the proceeds and products, whether tangible or intangible, of any of the foregoing,
including proceeds of insurance or Commercial Tort Claims covering or relating to any or all of the
foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, General
Intangibles, Inventory, Investment Related Property, Negotiable Collateral, Supporting Obligations,
money, or other tangible or intangible property resulting from the sale, lease, license, exchange,
collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation
with respect to any of the foregoing, any rebates or refunds, whether for taxes or otherwise, and
all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds
thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured
or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty
payable by reason of loss or damage to, or otherwise with respect to any of the foregoing (the
“Proceeds”). Without limiting the generality of the foregoing, the term “Proceeds” includes
whatever is receivable or received when Investment Related Property or proceeds are sold,
exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Secured
Party from time to time with respect to any of the Investment Related Property.

     3. Security for Obligations. Subject only to the provisions of the Intercreditor
Agreement, this Agreement and the Security Interest created hereby secures the payment and
performance of the Secured Obligations, whether now existing or arising hereafter. Without limiting
the generality of the foregoing, this Agreement secures the payment of all amounts which constitute
part of the Secured Obligations and would be owed by Grantors, or any of them, to Secured Party,
but for the fact that they are unenforceable or not allowable due to the existence of an Insolvency
Proceeding involving any Grantor.

     4. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) each
of the Grantors shall remain liable under the contracts and agreements included in the Collateral,
including the Pledged Operating Agreements and the Pledged Partnership Agreements, to perform all
of the duties and obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Secured Party of any of the rights hereunder shall not release any
Grantor from any of its duties or obligations under such contracts and agreements included in the
Collateral, and (c) Secured Party shall have any obligation or liability under such contracts and
agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be
obligated to perform any of the obligations or duties of

 

 

any Grantors thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder. Until an Event of Default shall occur and be continuing, except as otherwise
provided in this Agreement, Grantors shall have the right to possession and enjoyment of the
Collateral for the purpose of conducting the ordinary course of their respective businesses.
Without limiting the generality of the foregoing, it is the intention of the parties hereto that
record and beneficial ownership of the Pledged Interests, including all voting, consensual, and
dividend rights, shall remain in the applicable Grantor until the occurrence of an Event of Default
and until Secured Party shall notify the applicable Grantor of Secured Party’s exercise of voting,
consensual, or dividend rights with respect to the Pledged Interests pursuant to Section 15 hereof.

     5. Representations and Warranties. Each Grantor hereby represents and warrants as
follows:

          (a) The exact legal name of each of the Grantors is set forth on the signature pages of this
Agreement.

          (b) Schedule 7 attached hereto sets forth all Real Property owned by Grantors as of the
Closing Date.

          (c) As of the Closing Date, no Grantor has any interest in, or title to, any Copyrights,
Intellectual Property Licenses, Patents, or Trademarks except as set forth on Schedules 2, 3, 4,
and 6, respectively, attached hereto. This Agreement is effective to create a valid and continuing
Lien on such Copyrights, Intellectual Property Licenses, Patents and Trademarks and, upon filing of
the Copyright Security Agreement with the United States Copyright Office and filing of the Patent
Security Agreement and the Trademark Security Agreement with the United State Patent and Trademark
Office, and the filing of appropriate financing statements in the jurisdictions listed on Schedule
8 hereto, all action necessary or desirable to protect and perfect the Security Interest in and to
on each Grantor’s Patents, Trademarks, or Copyrights has been taken and such perfected Security
Interest is enforceable as such as against any and all creditors of and purchasers from any
Grantor. No Grantor has any interest in any Copyright that is necessary in connection with the
operation of such Grantor’s business, except for those Copyrights identified on Schedule 2 attached
hereto which have been registered with the United States Copyright Office.

          (d) This Agreement creates a valid security interest in the Collateral of each of Grantors, to
the extent a security interest therein can be created under the Code, securing the payment of the
Secured Obligations. Except to the extent a security interest in the Collateral cannot be
perfected by the filing of a financing statement under the Code, all filings and other actions
necessary or desirable to perfect and protect such security interest have been duly taken or will
have been taken upon the filing of financing statements listing each applicable Grantor, as a
debtor, and Secured Party, as secured party, in the jurisdictions listed next to such Grantor’s
name on Schedule 8 attached hereto. Upon the making of such filings, Secured Party shall have a
secured priority perfected security interest in the Collateral of each Grantor to the extent such
security interest can be perfected by the filing of a financing statement. All action by any
Grantor necessary to protect and perfect such security interest on each item of Collateral has been
duly taken.

 

 

          (e) Except for the Security Interest created for the benefit of the Agent, and hereby for
Secured Party, each Grantor is and will at all times be the sole holder of record and the legal and
beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests
indicated on Schedule 5 as being owned by such Grantor and, when acquired by such Grantor, any
Pledged Interests acquired after the Closing Date; (ii) all of the Pledged Interests are duly
authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or
will constitute the percentage of the issued and outstanding Stock of the Pledged Companies of such
Grantor identified on Schedule 5 hereto as supplemented or modified by any Pledged Interests
Addendum or any Supplement to this Agreement; (ii) such Grantor has the right and requisite
authority to pledge, the Investment Related Property pledged by such Grantor to Secured Party as
provided herein; (iii) all actions necessary or desirable to perfect, establish the priority of, or
otherwise protect, Secured Party’s Liens in the Investment Related Collateral, and the proceeds
thereof, have been duly taken, (A) upon the execution and delivery of this Agreement; (B) upon the
taking of possession by Secured Party of any certificates constituting the Pledged Interests, to
the extent such Pledged Interests are represented by certificates, together with undated powers
endorsed in blank by the applicable Grantor; (C) upon the filing of financing statements in the
applicable jurisdiction set forth on Schedule 8 attached hereto for such Grantor with respect to
the Pledged Interests of such Grantor that are not represented by certificates, and (D) with
respect to any Securities Accounts, upon the delivery of Control Agreements with respect thereto;
and (iv) each Grantor has delivered to and deposited with Secured Party (or, with respect to any
Pledged Interests created or obtained after the Closing Date, will deliver and deposit in
accordance with Sections 6(a) and 8 hereof) all certificates representing the Pledged Interests
owned by such Grantor to the extent such Pledged Interests are represented by certificates, and
undated powers endorsed in blank with respect to such certificates. None of the Pledged Interests
owned or held by such Grantor has been issued or transferred in violation of any securities
registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or
transfer may be subject. Upon satisfaction in full of the Agent’s liens, the Grantors shall take
such actions as the Secured Party reasonably requests to effectuate the delivery of any
certificate, document of title, or other document constituting or relating to the Pledged
Interests, Investment Related Collateral or any other form of Collateral to the Secured Party.

          (f) No consent, approval, authorization, or other order or other action by, and no notice to
or filing with, any Governmental Authority or any other Person is required (i) for the grant of a
Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the
execution, delivery, or performance of this Agreement by such Grantor, or (ii) for the exercise by
Secured Party of the voting or other rights provided for in this Agreement with respect to the
Investment Related Property or the remedies in respect of the Collateral pursuant to this
Agreement, except as may be required in connection with such disposition of Investment Related
Property by laws affecting the offering and sale of securities generally.

          (g) Schedule 9 attached hereto sets forth all motor vehicles owned by Grantors as of the
Closing Date, by model, model year and vehicle identification number (“VIN”).

 

 

     6. Covenants. Each Grantor, jointly and severally, covenants and agrees with Secured
Party that from and after the date of this Agreement and until the date of termination of this
Agreement in accordance with Section 22 hereof:

          (a) Possession of Collateral. Subject only to the Agent’s senior interests, in the
event that any Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral, Investment Related Property, or Chattel Paper, and if and to the extent that perfection
or priority of Secured Party’s Security Interest is dependent on or enhanced by possession, the
applicable Grantor, immediately upon the request of Secured Party, shall execute such other
documents and instruments as shall be requested by Secured Party or, if applicable, endorse and
deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel
Paper to Secured Party, together with such undated powers endorsed in blank as shall be requested
by Secured Party;

          (b) Chattel Paper.

          (i) Each Grantor shall take all steps reasonably necessary to grant Secured Party control of
all electronic Chattel Paper in accordance with the Code and all “transferable records” as that
term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the
federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant
jurisdiction;

          (ii) If any Grantor retains possession of any Chattel Paper or instruments (which retention of
possession shall be subject to the extent permitted hereby and by the Note), promptly upon the
request of Secured Party, such Chattel Paper and instruments shall be marked with the following
legend: “This writing and the obligations evidenced or secured hereby are subject to the Security
Interest of Newcastle Partners, L.P.”;

          (c) Control Agreements.

          (i) Upon satisfaction in full of the Agent’s senior liens, each Grantor for the benefit of
Secured Party shall obtain an authenticated Control Agreement, from each bank maintaining a Deposit
Account for such Grantor;

          (ii) Upon satisfaction in full of the Agent’s senior liens, each Grantor for the benefit of
Secured Party shall obtain authenticated Control Agreements, from each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or holding any financial
assets or commodities to or for any Grantor;

          (d) Letter-of-Credit Rights. Each Grantor that is or becomes the beneficiary of a
letter of credit shall promptly (and in any event within 2 Business Days after becoming a
beneficiary), notify Secured Party thereof and, upon the request by Secured Party, enter into a
tri-party agreement with Secured Party and the issuer or confirmation bank with respect to
letter-of-credit rights assigning such letter-of-credit rights to Secured Party and directing all
payments thereunder to Secured Party’s Account, all in form and substance satisfactory to Secured
Party;

 

 

          (e) Commercial Tort Claims. Each Grantor shall promptly (and in any event within 2
Business Days of receipt thereof), notify Secured Party in writing upon incurring or
otherwise obtaining a Commercial Tort Claim after the date hereof and, upon request of Agent,
promptly amend Schedule 1 to this Agreement to describe such after-acquired Commercial Tort Claim
in a manner that reasonably identifies such Commercial Tort Claim, and hereby authorizes the filing
of additional financing statements or amendments to existing financing statements describing such
Commercial Tort Claims, and agrees to do such other acts or things deemed necessary or desirable by
Secured Party to give Secured Party a perfected security interest in any such Commercial Tort
Claim;

          (f) Government Contracts. If any Account or Chattel Paper arises out of a contract or
contracts with the United States of America or any department, agency, or instrumentality thereof,
Grantors shall promptly (and in any event within 2 Business Days of the creation thereof) notify
Secured Party thereof in writing and execute any instruments or take any steps reasonably required
by Secured Party in order that all moneys due or to become due under such contract or contracts
shall be assigned to Secured Party, and shall provide written notice thereof under the Assignment
of Claims Act or other applicable law;

          (g) Intellectual Property.

          (i) Upon request of Secured Party, in order to facilitate filings with the United States
Patent and Trademark Office and the United States Copyright Office, each Grantor shall execute and
deliver to Secured Party one or more Copyright Security Agreements, Trademark Security Agreements,
or Patent Security Agreements to further evidence Secured Party’s Lien on such Grantor’s Patents,
Trademarks, or Copyrights, and the General Intangibles of such Grantor relating thereto or
represented thereby;

          (ii) Each Grantor shall have the duty, to the extent necessary or economically desirable in
the operation of such Grantor’s business, (A) to promptly sue for infringement, misappropriation,
or dilution and to recover any and all damages for such infringement, misappropriation, or
dilution, (B) to prosecute diligently any trademark application or service mark application that is
part of the Trademarks pending as of the date hereof or hereafter until the termination of this
Agreement, (C) to prosecute diligently any patent application that is part of the Patents pending
as of the date hereof or hereafter until the termination of this Agreement, and (D) to take all
reasonable and necessary action to preserve and maintain all of such Grantor’s Trademarks, Patents,
Copyrights, Intellectual Property Licenses, and its rights therein, including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings. Each Grantor shall promptly file an application with
the United States Copyright Office for any Copyright that has not been registered with the United
States Copyright Office if such Copyright is necessary in connection with the operation of such
Grantor’s business. Any expenses incurred in connection with the foregoing shall be borne by the
appropriate Grantor. Each Grantor further agrees not to abandon any Trademark, Patent, Copyright,
or Intellectual Property License that is necessary or economically desirable in the operation of
such Grantor’s business;

          (iii) Grantors acknowledge and agree that the Secured Party shall have no duties with respect
to the Trademarks, Patents, Copyrights, or Intellectual Property Licenses. Without limiting the
generality of this Section 6(g), Grantors acknowledge and agree that Secured Party shall not be
under any obligation to take any steps necessary to preserve rights in

 

 

the Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any other
Person, but Secured Party may do so at its option from and after the occurrence and during the
continuance of an Event of Default, and all expenses incurred in connection therewith (including
reasonable fees and expenses of attorneys and other professionals) shall be for the sole account of
Borrowers ;

          (iv) In no event shall any Grantor, either itself or through any agent, employee, licensee, or
designee, file an application for the registration of any Patent, Trademark, or Copyright with the
United States Patent and Trademark Office, the United States Copyright Office or any similar office
or agency without giving Secured Party prior written notice thereof. Promptly upon any such
filing, each Grantor shall comply with Section 6(g)(i) hereof;

          (h) Investment Related Property.

          (i) If any Grantor shall receive or become entitled to receive any Pledged Interests after the
Closing Date, it shall promptly (and in any event within 2 Business Days of receipt thereof)
deliver to Secured Party a duly executed Pledged Interests Addendum identifying such Pledged
Interests;

          (ii) All sums of money and property paid or distributed in respect of the Investment Related
Property which are received by any Grantor shall be held by the Grantors in trust for the benefit
of Secured Party segregated from such Grantor’s other property, and such Grantor shall deliver it
forthwith to Secured Party’s in the exact form received;

          (iii) Each Grantor shall promptly deliver to Secured Party a copy of each notice or other
communication received by it in respect of any Pledged Interests;

          (iv) No Grantor shall make or consent to any amendment or other modification or waiver with
respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or
enter into any agreement or permit to exist any restriction with respect to any Pledged Interests;

          (v) Each Grantor agrees that it will cooperate with Secured Party in obtaining all necessary
approvals and making all necessary filings under federal, state, local, or foreign law in
connection with the Security Interest on the Investment Related Property or any sale or transfer
thereof;

          (vi) As to all limited liability company or partnership interests, issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents, warrants and
covenants that the Pledged Interests issued pursuant to such agreement (A) are not and shall not be
dealt in or traded on securities exchanges or in securities markets, (B) do not and will not
constitute investment company securities, and (C) are not and will not be held by such Grantor in a
securities account. In addition, none of the Pledged Operating Agreements, the Pledged Partnership
Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged
Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any
relevant jurisdiction;

 

 

          (i) Real Property; Fixtures. Each Grantor covenants and agrees that upon the
acquisition of any fee interest in Real Property it will promptly (and in any event within 2
Business Days of acquisition) notify Secured Party of the acquisition of such Real Property and
will grant to Secured Party, a Mortgage on each fee interest in Real Property now or hereafter
owned by such Grantor and shall deliver such other documentation and opinions, in form and
substance satisfactory to Secured Party, in connection with the grant of such Mortgage as Secured
Party shall request in its Permitted Discretion, including title insurance policies, financing
statements, fixture filings and environmental audits and such Grantor shall pay all recording
costs, intangible taxes and other fees and costs (including reasonable attorneys fees and expenses)
incurred in connection therewith. Each Grantor acknowledges and agrees that, to the extent
permitted by applicable law, all of the Collateral shall remain personal property regardless of the
manner of its attachment or affixation to real property.

          (j) Transfers and Other Liens. Grantors shall not (i) sell, assign (by operation of
law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the
Collateral, except expressly permitted by the Note, or (ii) create or permit to exist any Lien upon
or with respect to any of the Collateral of any of Grantors, except for Permitted Liens. The
inclusion of Proceeds in the Collateral shall not be deemed to constitute Secured Party’s consent
to any sale or other disposition of any of the Collateral except as expressly permitted in this
Agreement; and

          (k) Other Actions as to Any and All Collateral. Each Grantor shall promptly (and in
any event within 2 Business Days of acquiring or obtaining such Collateral) notify Secured Party in
writing upon (i) acquiring or otherwise obtaining any Collateral after the date hereof consisting
of Trademarks, Patents, Copyrights, Intellectual Property Licenses, Investment Related Property,
Chattel Paper (electronic, tangible or otherwise), documents (as defined in Article 9 of the
Code), promissory notes (as defined in the Code, or instruments (as defined in the Code) or (ii)
any amount payable under or in connection with any of the Collateral being or becoming evidenced
after the date hereof by any Chattel Paper, documents, promissory notes, or instruments and, in
each such case upon the request of Secured Party, promptly execute such other documents, or if
applicable, deliver such Chattel Paper, other documents or certificates evidencing any Investment
Related Property and do such other acts or things deemed necessary or desirable by Secured Party to
protect Secured Party’s Security Interest therein; and

          (l) Motor Vehicles. Upon request of Secured Party, with respect to all motor vehicles
owned by any Grantor, Grantor shall deliver to Secured Party, a certificate of title for all such
motor vehicles and shall cause those title certificates to be filed (with the Secured Party’s Lien
noted thereon) in the appropriate state motor vehicle filing office.

     7. Relation to Other Security Documents. The provisions of this Agreement shall be
read and construed with the other documents referred to below in the manner so indicated.

          (a) Note. In the event of any conflict between any provision in this Agreement and a
provision in the Note, such provision of the Note shall control.

          (b) Patent, Trademark, Copyright Security Agreements. The provisions of the Copyright
Security Agreements, Trademark Security Agreements, and Patent Security
Agreements are supplemental to the provisions of this Agreement, and nothing contained in the
Copyright Security Agreements, Trademark Security Agreements, or the Patent Security Agreements
shall limit any of the rights or remedies of Secured Party hereunder.

 

 

     8. Further Assurances.

     (a) Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly
execute and deliver all further instruments and documents, and take all further action, that may be
necessary or that Secured Party may reasonably request, in order to perfect and protect the
Security Interest granted or purported to be granted hereby or to enable Secured Party to exercise
and enforce its rights and remedies hereunder with respect to any of the Collateral.

     (b) Each Grantor authorizes the filing by Secured Party financing or continuation statements,
or amendments thereto, and such Grantor will execute and deliver to Secured Party such other
instruments or notices, as may be necessary or as Secured Party may reasonably request, in order to
perfect and preserve the Security Interest granted or purported to be granted hereby.

     (c) Each Grantor authorizes Secured Party at any time and from time to time to file, transmit,
or communicate, as applicable, financing statements and amendments (i) describing the Collateral as
“all personal property of debtor” or “all assets of debtor” or words of similar effect, (ii)
describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that
contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing
office acceptance. Each Grantor also hereby ratifies any and all financing statements or
amendments previously filed by Secured Party in any jurisdiction.

     (d) Each Grantor acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement filed in connection with
this Agreement without the prior written consent of Secured Party, subject to such Grantor’s rights
under Section 9-509(d)(2) of the Code.

     9. Secured Party’s Right to Perform Contracts, Exercise Rights, etc. Upon the
occurrence and during the continuance of an Event of Default, Secured Party (or its designee) (a)
may proceed to perform any and all of the obligations of any Grantor contained in any contract,
lease, or other agreement and exercise any and all rights of any Grantor therein contained as fully
as such Grantor itself could, (b) shall have the right to use any Grantor’s rights under
Intellectual Property Licenses in connection with the enforcement of the Secured Party’s rights
hereunder, including the right to prepare for sale and sell any and all Inventory and Equipment now
or hereafter owned by any Grantor and now or hereafter covered by such licenses, and (c) shall have
the right to request that any Stock that is pledged hereunder be registered in the name of Secured
Party or any of its nominees.

     10. Secured Party Appointed Attorney-in-Fact. Each Grantor hereby irrevocably
appoints Secured Party its attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor or otherwise, at such time as an Event of Default has
occurred and is continuing under the Note, to take any action and to execute any instrument
which Secured Party may reasonably deem necessary or advisable to accomplish the purposes of
this Agreement, including:

 

 

     (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and
receipts for moneys due and to become due under or in connection with the Accounts or any other
Collateral of such Grantor;

     (b) to receive and open all mail addressed to such Grantor and to notify postal authorities to
change the address for the delivery of mail to such Grantor to that of Secured Party;

     (c) to receive, indorse, and collect any drafts or other instruments, documents, Negotiable
Collateral or Chattel Paper;

     (d) to file any claims or take any action or institute any proceedings which Secured Party may
deem necessary or desirable for the collection of any of the Collateral of such Grantor or
otherwise to enforce the rights of Secured Party with respect to any of the Collateral;

     (e) to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any Person obligated to such Grantor in respect of any Account of such Grantor;

     (f) to use any labels, Patents, Trademarks, trade names, URLs, domain names, industrial
designs, Copyrights, advertising matter or other industrial or intellectual property rights, in
advertising for sale and selling Inventory and other Collateral and to collect any amounts due
under Accounts, contracts or Negotiable Collateral of such Grantor; and

     (g) Secured Party shall have the right, but shall not be obligated, to bring suit in its own
name to enforce the Trademarks, Patents, Copyrights and Intellectual Property Licenses and, if
Secured Party shall commence any such suit, the appropriate Grantor shall, at the request of
Secured Party, do any and all lawful acts and execute any and all proper documents reasonably
required by Secured Party in aid of such enforcement.

     To the extent permitted by law, each Grantor hereby ratifies all that such attorney-in-fact
shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an
interest and shall be irrevocable until this Agreement is terminated.

     11. Secured Party May Perform. If any of Grantors fails to perform any
agreement contained herein, Secured Party may itself perform, or cause performance of, such
agreement, and the reasonable expenses of Secured Party incurred in connection therewith shall be
payable, jointly and severally, by Grantors.

     12. Secured Party’s Duties. The powers conferred on Secured Party hereunder are
solely to protect Secured Party’s interest in the Collateral, and shall not impose any duty upon
Secured Party to exercise any such powers. Except for the safe custody of any Collateral in its
actual possession and the accounting for moneys actually received by it hereunder, Secured Party
shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall
be

 

 

deemed to have exercised reasonable care in the custody and preservation of any Collateral in
its actual possession if such Collateral is accorded treatment substantially equal to that which
Secured Party accords its own property.

     13. Collection of Accounts, General Intangibles and Negotiable Collateral. At any
time upon the occurrence and during the continuation of an Event of Default, Secured Party or
Secured Party’s designee may (a) notify Account Debtors of any Grantor that the Accounts, General
Intangibles, Chattel Paper or Negotiable Collateral have been assigned to Secured Party, or that
Secured Party has a security interest therein, and (b) collect the Accounts, General Intangibles
and Negotiable Collateral directly, and any collection costs and expenses shall constitute part of
such Grantor’s Secured Obligations under the Note.

     14. Disposition of Pledged Interests by Secured Party. None of the Pledged Interests
existing as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired
on the date of acquisition thereof will be, registered or qualified under the various federal or
state securities laws of the United States and disposition thereof after an Event of Default may be
restricted to one or more private (instead of public) sales in view of the lack of such
registration. Each Grantor understands that in connection with such disposition, Secured Party may
approach only a restricted number of potential purchasers and further understands that a sale under
such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests
were registered and qualified pursuant to federal and state securities laws and sold on the open
market. Each Grantor, therefore, agrees that: (a) if Secured Party shall, pursuant to the terms
of this Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a
private sale, Secured Party shall have the right to rely upon the advice and opinion of any
nationally recognized brokerage or investment firm (but shall not be obligated to seek such advice
and the failure to do so shall not be considered in determining the commercial reasonableness of
such action) as to the best manner in which to offer the Pledged Interest or any portion thereof
for sale and as to the best price reasonably obtainable at the private sale thereof; and (b) such
reliance shall be conclusive evidence that Secured Party has handled the disposition in a
commercially reasonable manner.

     15. Voting Rights.

     (a) Upon the occurrence and during the continuation of an Event of Default, (i) Secured Party
may, at its option, and with 2 Business Days prior notice to any Grantor, and in addition to all
rights and remedies available to Secured Party under any other agreement, at law, in equity, or
otherwise, exercise all voting rights, and all other ownership or consensual rights in respect of
the Pledged Interests owned by such Grantor, but under no circumstances is Secured Party obligated
by the terms of this Agreement to exercise such rights, and (ii) if Secured Party duly exercises
its right to vote any of such Pledged Interests, each Grantor hereby appoints Secured Party, such
Grantor’s true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Interests in
any manner Secured Party deems advisable for or against all matters submitted or which may be
submitted to a vote of shareholders, partners or members, as the case may be. The
power-of-attorney granted hereby is coupled with an interest and shall be irrevocable.

 

 

     (b) For so long as any Grantor shall have the right to vote the Pledged Interests owned by it,
such Grantor covenants and agrees that it will not, without the prior written consent of Secured
Party, vote or take any consensual action with respect to such Pledged Interests which would
materially adversely affect the rights of Secured Party and the other members of the Lender Group
or the value of the Pledged Interests.

     16. Remedies. Upon the occurrence and during the continuance of an Event of Default:

          (a) Secured Party may exercise in respect of the Collateral, in addition to other rights and
remedies provided for herein, in the Note, or otherwise available to it, all the rights and
remedies of a secured party on default under the Code or any other applicable law. Without
limiting the generality of the foregoing, each Grantor expressly agrees that, in any such event,
without demand of performance or other demand, advertisement or notice of any kind (except a notice
specified below of time and place of public or private sale) to or upon any of Grantors or any
other Person (all and each of which demands, advertisements and notices are hereby expressly waived
to the maximum extent permitted by the Code or any other applicable law), may take immediate
possession of all or any portion of the Collateral and (i) require Grantors to, and each Grantor
hereby agrees that it will at its own expense and upon request of Secured Party forthwith, assemble
all or part of the Collateral as directed by Secured Party and make it available to Secured Party
at one or more locations where such Grantor regularly maintains Inventory, and (ii) without notice
except as specified below, sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of Secured Party’s offices or elsewhere, for cash, on credit, and upon such
other terms as Secured Party may deem commercially reasonable. Each Grantor agrees that, to the
extent notice of sale shall be required by law, at least 10 days notice to any of Grantors of the
time and place of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification and specifically such notice shall constitute a reasonable
“authenticated notification of disposition” within the meaning of Section 9-611 of the Code.
Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.

          (b) Secured Party is hereby granted a license or other right to use, without liability for
royalties or any other charge, each Grantor’s labels, Patents, Copyrights, rights of use of any
name, trade secrets, trade names, Trademarks, service marks and advertising matter, URLs, domain
names, industrial designs, other industrial or intellectual property or any property of a similar
nature, whether owned by any of Grantors or with respect to which any of Grantors have rights under
license, sublicense, or other agreements, as it pertains to the Collateral, in preparing for sale,
advertising for sale and selling any Collateral, and each Grantor’s rights under all licenses and
all franchise agreements shall inure to the benefit of Secured Party.

          (c) Any cash held by Secured Party as Collateral and all cash proceeds received by Secured
Party in respect of any sale of, collection from, or other realization upon all or any part of the
Collateral shall be applied against the Secured Obligations in the order set forth
in the Note. In the event the proceeds of Collateral are insufficient to satisfy all of the
Secured Obligations in full, each Grantor shall remain jointly and severally liable for any such
deficiency.

 

 

          (d) Each Grantor hereby acknowledges that the Secured Obligations arose out of a commercial
transaction, and agrees that if an Event of Default shall occur and be continuing Secured Party
shall have the right to an immediate writ of possession without notice of a hearing. Secured Party
shall have the right to the appointment of a receiver for the properties and assets of each of
Grantors, and each Grantor hereby consents to such rights and such appointment and hereby waives
any objection such Grantors may have thereto or the right to have a bond or other security posted
by Secured Party.

     17. Remedies Cumulative. Each right, power, and remedy of Secured Party as provided
for in this Agreement or in the Note or now or hereafter existing at law or in equity or by statute
or otherwise shall be cumulative and concurrent and shall be in addition to every other right,
power, or remedy provided for in this Agreement or in the Note or now or hereafter existing at law
or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Secured
Party, of any one or more of such rights, powers, or remedies shall not preclude the simultaneous
or later exercise by Secured Party of any or all such other rights, powers, or remedies.

     18. Marshaling. Secured Party shall not be required to marshal any present or future
collateral security (including but not limited to the Collateral) for, or other assurances of
payment of, the Secured Obligations or any of them or to resort to such collateral security or
other assurances of payment in any particular order, and all of its rights and remedies hereunder
and in respect of such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights and remedies, however existing or arising. To the extent that it
lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling
of collateral which might cause delay in or impede the enforcement of Secured Party’s rights and
remedies under this Agreement or under any other instrument creating or evidencing any of the
Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of
the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that
it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

     19. Indemnity and Expenses.

          (a) Each Grantor agrees to indemnify Secured Party from and against all claims, lawsuits and
liabilities (including reasonable attorneys fees) growing out of or resulting from this Agreement
(including enforcement of this Agreement) or any other agreement with Secured Party to which such
Grantor is a party, except claims, losses or liabilities resulting from the gross negligence or
willful misconduct of the party seeking indemnification as determined by a final non-appealable
order of a court of competent jurisdiction. This provision shall survive the termination of this
Agreement and the Note and the repayment of the Secured Obligations.

          (b) Grantors, jointly and severally, shall, upon demand, pay to Secured Party all the expenses
which Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or, upon an Event of Default, the

 

 

sale of, collection from, or other realization upon, any of the Collateral in accordance with
this Agreement and the Note, (iii) the exercise or enforcement of any of the rights of Secured
Party hereunder or (iv) the failure by any of Grantors to perform or observe any of the provisions
hereof.

     20. Merger, Amendments; Etc. THIS AGREEMENT TOGETHER WITH THE NOTE REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS
BETWEEN THE PARTIES. No waiver of any provision of this Agreement, and no consent to any departure
by any of Grantors herefrom, shall in any event be effective unless the same shall be in writing
and signed by Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No amendment of any provision of
this Agreement shall be effective unless the same shall be in writing and signed by Secured Party
and each of Grantors to which such amendment applies.

     21. Addresses for Notices. All notices and other communications provided for
hereunder shall be given in the form and manner and delivered to Secured Party at the following
address:

Newcastle Partners, L.P.

Attn: Evan Stone, Esq.

200 Crescent Court, Suite 1400

Dallas, TX 75201

with a copy to:

Olshan Grundman Frome Rosenzweig & Wolosky LLP

Attn: Steve Wolosky, Esq.

Park Avenue Tower

65 East 55th Street

New York, NY 10022

     22. Continuing Security Interest: Assignments under the Note. This Agreement
shall create a continuing security interest in the Collateral and shall (a) remain in full force
and effect until the Obligations have been paid in full in cash in accordance with the provisions
of the Note, (b) be binding upon each of Grantors, and their respective successors and assigns, and
(c) inure to the benefit of, and be enforceable by, Secured Party, and its successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), Secured Party may assign
or otherwise transfer all or any portion of its rights and obligations under the Note to any other
Person, and such other Person shall thereupon become vested with all the benefits in respect
thereof granted to such the Lender herein or otherwise. Upon payment in full in cash of the
Obligations in accordance with the provisions of the Note, the Security Interest granted hereby
shall terminate and all rights to the Collateral shall revert to Grantors or any other Person
entitled thereto. At such time, Secured Party will authorize the filing of appropriate termination
statements to terminate such Security Interests. No transfer or renewal, extension, assignment, or
termination of this Agreement or of the Note any other instrument or document executed and
delivered by any Grantor to Secured Party nor any additional Advances or other loans made by any
Lender to Borrowers, nor the taking of further security, nor the retaking or re-delivery of the

 

 

Collateral to Grantors, or any of them, by Secured Party, shall release any of Grantors from
any obligation, except a release or discharge executed in writing by Secured Party in accordance
with the provisions of the Note. Secured Party shall not by any act, delay, omission or otherwise,
be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing
and signed by Secured Party and then only to the extent therein set forth. A waiver by Secured
Party of any right or remedy on any occasion shall not be construed as a bar to the exercise of any
such right or remedy which Secured Party would otherwise have had on any other occasion.

     23. Governing Law.

     (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO
THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND
THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.

     (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
PROPERTY MAY BE BROUGHT, AT SECURED PARTY’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SECURED
PARTY ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. SECURED
PARTY AND EACH GRANTOR WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE
TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING
IS BROUGHT IN ACCORDANCE WITH THIS SECTION 23(b).

     (c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, SECURED PARTY AND EACH GRANTOR HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. SECURED PARTY
AND EACH GRANTOR REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

 

     24. New Subsidiaries. Any new direct or indirect Subsidiary (whether by acquisition
or creation) of Grantor is required to enter into this Agreement by executing and delivering in
favor of Secured Party a supplement to this Agreement in the form of Annex 1 attached hereto.
Upon the execution and delivery of Annex 1 by such new Subsidiary, such Subsidiary shall become a
Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The
execution and delivery of any instrument adding an additional Grantor as a party to this Agreement
shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor
hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor
hereunder.

     25. Miscellaneous.

          (a) This Agreement may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be deemed to be an
original, and all of which, when taken together, shall constitute but one and the same Agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method
of transmission shall be equally as effective as delivery of an original executed counterpart of
this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile or
other electronic method of transmission also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.

          (b) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective
to the extent of such prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of such provision in any
other jurisdiction.

          (c) Headings used in this Agreement are for convenience only and shall not be used in
connection with the interpretation of any provision hereof.

          (d) The pronouns used herein shall include, when appropriate, either gender and both singular
and plural, and the grammatical construction of sentences shall conform thereto.

          (e) Unless the context of this Agreement or the Note clearly requires otherwise, references to
the plural include the singular, references to the singular include the plural, the terms
“includes” and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,”
“hereby,” “hereunder,” and similar terms in this Agreement or the Note refer to this Agreement or
such Note, as the case may be, as a whole and not to any particular provision of this Agreement or
such Note, as the case may be. Section, subsection, clause, schedule, and exhibit references herein
are to this Agreement unless otherwise specified. Any reference in this Agreement or in the Note to
any agreement, instrument, or document shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements set forth herein). Any reference herein or in the Note to the satisfaction or repayment
in full of the Obligations shall mean the repayment in full in cash (or cash collateralization in
accordance with the terms hereof) of all Obligations
other than unasserted contingent indemnification Obligations. Any reference herein to any
Person shall be construed to include such Person’s successors and assigns. Any requirement of a
writing contained herein or in the Note shall be satisfied by the transmission of a Record and any
Record so transmitted shall constitute a representation and warranty as to the accuracy and
completeness of the information contained therein.

 

 

     IN WITNESS WHEREOF, the undersigned parties hereto have executed this Agreement by and through
their duly authorized officers, as of the day and year first above written.

	 	 	 	 	 	 	 	 	 
	GRANTORS:	 	BELL INDUSTRIES, INC.,
	 	 	a California corporation
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	BELL INDUSTRIES, INC.,
	 	 	a Minnesota corporation
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	NEWCASTLE PARTNERS, L.P.
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}]]