sec document

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J34ViJAX2aE+ZXIPev6Mqt3Ds17pPv6nIJjxsTqFWIwRA8FGyaEjBizCiVC2SAY0 a8FPL2VtftON8boXOoyOVg== 0000921895-07-000266.txt : 20070205 0000921895-07-000266.hdr.sgml : 20070205 20070205172504 ACCESSION NUMBER: 0000921895-07-000266 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20070205 DATE AS OF CHANGE: 20070205 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BELL INDUSTRIES INC /NEW/ CENTRAL INDEX KEY: 0000945489 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 952039211 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-52973 FILM NUMBER: 07581604 BUSINESS ADDRESS: STREET 1: 1960 E GRAND AVENUE SUITE 560 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3105632355 MAIL ADDRESS: STREET 1: 1960 E GRAND AVENUE SUITE 560 CITY: EL SEGUDON STATE: CA ZIP: 90245 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA BELL INDUSTRIES INC DATE OF NAME CHANGE: 19950519 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NEWCASTLE PARTNERS L P CENTRAL INDEX KEY: 0000932334 IRS NUMBER: 752574953 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 200 CRESCENT COURT STREET 2: STE 1400 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 214-661-7474 MAIL ADDRESS: STREET 1: 200 CRESCENT COURT STREET 2: STE 1400 CITY: DALLAS STATE: TX ZIP: 75201 SC 13D/A 1 sc13da204670bel_01312007.htm sec document


                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 --------------

                                  SCHEDULE 13D

                 INFORMATION TO BE INCLUDED IN STATEMENTS FILED
                    PURSUANT TO RULE 13d-1(a) AND AMENDMENTS
                     THERETO FILED PURSUANT TO RULE 13d-2(a)

                              (Amendment No. 2)(1)

                              Bell Industries, Inc.
 ------------------------------------------------------------------------------
                                (Name of issuer)

                                  COMMON STOCK
 ------------------------------------------------------------------------------
                         (Title of class of securities)

                                   078 107 109
 ------------------------------------------------------------------------------
                                 (CUSIP number)

                                 MARK E. SCHWARZ
                         NEWCASTLE CAPITAL GROUP, L.L.C.
                         200 Crescent Court, Suite 1400
                               Dallas, Texas 75201
                                 (214) 661-7474
 ------------------------------------------------------------------------------
                  (Name, address and telephone number of person
                authorized to receive notices and communications)

                                January 31, 2007
 ------------------------------------------------------------------------------
             (Date of event which requires filing of this statement)

      If the filing person has  previously  filed a statement on Schedule 13G to
report the acquisition  which is the subject of this Schedule 13D, and is filing
this  schedule  because  of Rule  13d-1(e),  13d-1(f)  or  13d-1(g),  check  the
following box /_/

      Note.  Schedules filed in paper format shall include a signed original and
five copies of the schedule,  including  all exhibits.  SEE Rule 13d-7 for other
parties to whom copies are to be sent.

                         (Continued on following pages)

                              (Page 1 of 68 Pages)



- --------
(1)   The  remainder  of this cover  page  shall be filled  out for a  reporting
person's  initial  filing on this  form with  respect  to the  subject  class of
securities,  and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.

      The information  required on the remainder of this cover page shall not be
deemed to be "filed"  for the purpose of Section 18 of the  Securities  Exchange
Act of 1934 or otherwise  subject to the  liabilities of that section of the Act
but  shall be  subject  to all other  provisions  of the Act  (however,  SEE the
NOTES).




- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 2 of 68 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                     Newcastle Partners, L.P.
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    WC
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    Texas
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  2,275,152 (1)
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   0
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              2,275,152 (1)
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              0
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    2,275,152 (1)
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    22.1%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    PN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!

(1)   Consists of (a) 1,710,052 shares into which an 8% convertible subordinated
      note due January 31, 2017 held by Newcastle Partners, L.P. are convertible
      within 60 days from the date hereof, and (b) 565,100 shares owned directly
      by Newcastle Partners, L.P.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 3 of 68 Pages
- ----------------------                                    ----------------------

================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                     Newcastle Capital Group, L.L.C.
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    Texas
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  2,275,152 (1)
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   0
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              2,275,152 (1)
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              0
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    2,275,152 (1)
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    22.1%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    PN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!

(1)   Consists of (a) 1,710,052 shares into which an 8% convertible subordinated
      note due January 31, 2017 held by Newcastle Partners, L.P. are convertible
      within 60 days from the date hereof, and (b) 565,100 shares owned directly
      by Newcastle Partners, L.P.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 4 of 68 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                     Newcastle Capital Management, L.P.
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    Texas
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  2,275,152 (1)
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   0
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              2,275,152 (1)
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              0
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    2,275,152 (1)
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    22.1%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    PN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!

(1)   Consists of (a) 1,710,052 shares into which an 8% convertible subordinated
      note due January 31, 2017 held by Newcastle Partners, L.P. are convertible
      within 60 days from the date hereof, and (b) 565,100 shares owned directly
      by Newcastle Partners, L.P.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 5 of 68 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                     Mark E. Schwarz
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*

                    OO
- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    U.S.A.
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  2,315,152 (1)
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   0
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              2,315,152 (1)
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              0
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    2,315,152 (1)
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    22.4%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    IN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!

(1)   Consists of (a) 1,710,052 shares into which an 8% convertible subordinated
      note due January 31, 2017 held by Newcastle Partners, L.P. are convertible
      within 60 days from the date hereof,  (b) 565,100 shares owned directly by
      Newcastle Partners, L.P., and (c) 40,000 shares underlying options held by
      Mr. Schwarz that are exercisable within 60 days from the date hereof.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 6 of 68 Pages
- ----------------------                                    ----------------------


================================================================================
     1         NAME OF REPORTING PERSONS
               I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)

                     Clinton J. Coleman
- --------------------------------------------------------------------------------
     2         CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*         (a) / /
                                                                         (b) / /
- --------------------------------------------------------------------------------
     3         SEC USE ONLY

- --------------------------------------------------------------------------------
     4         SOURCE OF FUNDS*


- --------------------------------------------------------------------------------
     5         CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
               PURSUANT TO ITEM 2(d) OR 2(e)                                 / /
- --------------------------------------------------------------------------------
     6         CITIZENSHIP OR PLACE OF ORGANIZATION

                    U.S.A.
- --------------------------------------------------------------------------------
 NUMBER OF         7     SOLE VOTING POWER
   SHARES
BENEFICIALLY                  0
  OWNED BY     -----------------------------------------------------------------
    EACH           8     SHARED VOTING POWER
 REPORTING
PERSON WITH                   0
               -----------------------------------------------------------------
                   9     SOLE DISPOSITIVE POWER

                              0
               -----------------------------------------------------------------
                  10     SHARED DISPOSITIVE POWER

                              0
- --------------------------------------------------------------------------------
    11         AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
               PERSON

                    0
- --------------------------------------------------------------------------------
    12         CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
               CERTAIN SHARES*                                               / /
- --------------------------------------------------------------------------------
    13         PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)

                    0%
- --------------------------------------------------------------------------------
    14         TYPE OF REPORTING PERSON*

                    IN
================================================================================

                      *SEE INSTRUCTIONS BEFORE FILLING OUT!




- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 7 of 68 Pages
- ----------------------                                    ----------------------


                                  SCHEDULE 13D

      The following  constitutes  Amendment  No. 2 ("Amendment  No. 2") to the
Schedule  13D  filed by the  undersigned.  This  Amendment  No.  2 amends  the
Schedule 13D as specifically set forth.

      Item 2 is hereby amended in its entirety to read as follows:

      ITEM 2.     IDENTITY AND BACKGROUND

            Items  2(a),  2(b) and 2(c).  This  Statement  is  jointly  filed by
Newcastle Partners,  L.P., a Texas limited partnership ("NP"), Newcastle Capital
Group,  L.L.C., a Texas limited  liability  company ("NCG"),  Newcastle  Capital
Management,  L.P.,  a Texas  limited  partnership  ("NCM"),  Mark E. Schwarz and
Clinton J. Coleman  (together with Mr.  Schwarz,  NP, NCG and NCM,  collectively
referred to as the "Reporting Persons").  Each of NCM, as the general partner of
NP, NCG, as the general  partner of NCM,  and Mark E.  Schwarz,  as the managing
member of NCG, may be deemed,  pursuant to Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the "Act"),  to be the beneficial  owners of all shares
of Common  Stock  held by NP.  The  Reporting  Persons  are  filing  this  Joint
Statement,  as they may be considered a "group"  under  Section  13(d)(3) of the
Act.  However,  neither the fact of this filing nor  anything  contained  herein
shall be deemed to be an  admission by the  Reporting  Persons that such a group
exists.

            As stated  above,  Mark E.  Schwarz is the  managing  member of NCG.
Clinton J. Coleman is a Vice President of NCM. The principal  business of NCG is
acting as the general partner of NCM. The principal business of NCM is acting as
the  general  partner  of NP.  The  principal  business  of NP is  investing  in
securities. The principal place of business for each of the Reporting Persons is
200 Crescent Court, Suite 1400, Dallas, Texas 75201.

            Item 2(d). During the last five years, none of the Reporting Persons
has been convicted in a criminal  proceeding  (excluding  traffic  violations or
similar misdemeanors).

            Item 2(e). During the last five years, none of the Reporting Persons
has been a party to a civil proceeding of a judicial or  administrative  body of
competent jurisdiction and as a result of such proceeding,  was or is subject to
a judgment, decree or final order enjoining future violations of, or prohibiting
or mandating  activities subject to, federal or state securities laws or finding
any violation with respect to such laws.

            Item 2(f).  Mark E.  Schwarz and Clinton J.  Coleman are citizens of
the United States of America.




- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 8 of 68 Pages
- ----------------------                                    ----------------------


      Item 3 is hereby amended in its entirety to read as follows:

      ITEM 3.     SOURCE AND AMOUNT OF FUNDS

         As of February 2, 2007,  NP had invested (a)  $1,111,465  (inclusive of
brokerage  commissions)  in  shares  of  Common  Stock,  and  (2) an  additional
$10,000,000 in the Convertible Note (as defined and described in Item 6 hereof),
which is  convertible  into shares of Common Stock.  The source of the foregoing
funds was the  working  capital of NP.  Neither  NCG nor NCM  directly  owns any
shares of Common Stock.

        Mark E. Schwarz  directly owns options  exercisable  within 60 days from
the date hereof into 40,000 shares of Common  Stock,  which options were granted
to him as consideration for his service as a director of the Issuer.

        Clinton J. Coleman  does not  currently  beneficially  own any shares of
Common Stock.


        The first two  paragraphs of Item 4 are hereby amended in their entirety
to read as follows:

      ITEM 4.     PURPOSE OF THE TRANSACTION

      NP  purchased  the shares of Common  Stock  based on the  belief  that the
shares of Common Stock,  when  purchased,  were  undervalued  and represented an
attractive investment opportunity. In addition, NP's purchase of the Convertible
Note was  consummated  in order to extend  financing to the Issuer in connection
with a strategic acquisition  undertaken by the Issuer which closed concurrently
with the purchase of the  Convertible  Note.  Mark E. Schwarz is a member of the
board of  directors  of the Issuer (the "Board of  Directors")  and has received
stock options as compensation.  Depending upon overall market conditions,  other
investment  opportunities,  and the  availability  of shares of Common  Stock at
desirable  prices,  NP may  endeavor  to  increase  its  position  in the Issuer
through,  among other  things,  the  purchase of shares of Common  Stock in open
market or private transactions, on such terms and at such times as the Reporting
Persons deem advisable.

      The  Reporting   Persons  may,  from  time  to  time,   evaluate   various
alternatives  that they might consider in order to influence the  performance of
the Issuer and the  activities of the Board of  Directors.  Depending on various
factors,  the Reporting  Persons may take such actions as they deem  appropriate
including,  without limitation,  engaging in discussions with management and the
Board of Directors,  communicating with other  shareholders,  seeking additional
representation on the Board of Directors, offering to acquire the Issuer, making
proposals to the Issuer  concerning  the  capitalization  and  operations of the
Issuer,  purchasing  additional shares of Common Stock or selling some or all of
their shares of Common Stock or to change  their  intention  with respect to any
and all matters referred to in this Item 4.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 9 of 68 Pages
- ----------------------                                    ----------------------


      Items 5(a) (b) and (c) are hereby  amended  in their  entirety  to read as
follows:

      ITEM 5.     INTEREST IN SECURITIES OF THE ISSUER

      Item 5(a). As of February 2, 2007, NP beneficially  owned 2,275,152 shares
of Common Stock  (consisting of (i) 565,100 shares of Common Stock held directly
by  NP,  and  (ii)  1,710,052  shares  issuable  to NP  upon  conversion  of the
Convertible Note within 60 days from the date hereof), representing 22.1% of the
Issuer's  outstanding  shares of Common  Stock.  The  percentage  ownership  was
calculated  by dividing (i) the  2,275,152  shares of Common Stock  beneficially
owned by NP by (ii) the sum of (A) 8,593,224 shares of Common Stock  outstanding
as  disclosed  by the Issuer  pursuant to the parties'  Purchase  Agreement  (as
defined and described in Item 6 hereof) and (B) 1,710,052  shares issuable to NP
upon conversion of the Convertible Note within 60 days from the date hereof.

      Pursuant to the rules and regulations of the American Stock Exchange,  the
Issuer is expected to be required to obtain the approval  from its  shareholders
before it can issue  upon  conversion  of the  Convertible  Note such  number of
shares of Common Stock equal to more than 19.9% of the outstanding  shares. Upon
obtaining such approval from the Issuer's  shareholders,  the  Convertible  Note
shall be convertible into at least an additional  914,620 shares of Common Stock
(such number of shares  representing the difference  between the total number of
shares issuable in respect of the initial $10,000,000 principal amount under the
Convertible Note at the Conversion Price (as defined in Item 6 hereof), less the
1,710,052  shares which  represent 19.9% of the Issuer's  currently  outstanding
shares Common Stock).  At such time when the Convertible Note may be convertible
into the additional  914,620 shares of Common Stock, the Reporting Persons shall
be deemed to beneficially  own an aggregate of 3,189,771  shares of Common Stock
or 28.4% of the Issuer's  outstanding  shares of Common Stock,  which percentage
was  calculated on the basis  described in the second  sentence of the preceding
paragraph  (substituting in clause (B) an aggregate of 2,624,272 shares issuable
upon full conversion of the Convertible Note).

      In addition,  since the Convertible Note accretes 8% interest  (subject to
upward  adjustment  in certain  circumstances,  as further  described  in Item 6
hereof) as principal as of each interest  quarterly payment date beginning March
31, 2007,  the number of shares into which the  Convertible  Note is convertible
will increase,  and accordingly,  the shares beneficially owned by NP in respect
of the Convertible  Note will increase over time to the extent the  shareholders
have voted in favor of any required  approval for the issuance of such number of
shares of Common Stock equal to more than 19.9% of the outstanding shares.

      As of February 2, 2007,  each of NCM (as the general  partner of NP),  NCG
(as the general  partner of NCM),  and Mark E.  Schwarz (as  managing  member of
NCG), may be deemed to beneficially own the shares of Common Stock  beneficially
owned by NP. In addition,  Mr. Schwarz  directly owns options to purchase 40,000
shares of Common Stock that are exercisable within 60 days from the date hereof,
which,  together  with the  shares  of  Common  Stock  beneficially  held by NP,
represents  approximately  22.4% of the  Issuer's  outstanding  shares of Common
Stock.  To the extent  the  additional  914,620  shares of Common  Stock  become
issuable to NP as a result of obtaining any required shareholder approval for



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 10 of 68 Pages
- ----------------------                                    ----------------------


the conversion of the Convertible Note into shares of Common Stock equal to more
than  19.9%  of  the  outstanding   shares,  Mr.  Schwarz  shall  be  deemed  to
beneficially own 28.7% of the shares of Common Stock outstanding.

      Currently,  Clinton J.  Coleman  does not  beneficially  own any shares of
Common Stock.

      Item 5(b). By virtue of his position with NP, NCM and NCG, Mr. Schwarz has
the sole power to vote and  dispose of the  shares of Common  Stock  owned by NP
reported in this Statement.

      The filing of this  Statement  shall not be construed as an admission that
either Mr.  Schwarz or Mr. Coleman is for the purposes of Section 13(d) or 13(g)
of the Act, the beneficial  owner of any of the 2,275,152 shares of Common Stock
owned by NP.  Pursuant to Rule 13d-4 of the Act,  Mr.  Schwarz  and Mr.  Coleman
disclaim all such beneficial ownership,  except to the extent of their pecuniary
interests therein.

      Item 5(c). The  transactions  in the Issuer's  securities  during the last
sixty days are as follows:

                            Newcastle Partners, L.P.

Transaction Date      Buy/sell*     Quantity (Shares)*       Price Per Share ($)*
- ----------------      ---------     ------------------       --------------------

12/06/06               Buy                   4,900                   $3.28
12/07/06               Buy                   8,900                   $3.29
12/08/06               Buy                  19,000                   $3.33
12/11/06               Buy                   1,600                   $3.34
12/12/06               Buy                   3,700                   $3.33
12/28/06               Buy                   2,500                   $3.61
01/18/07               Buy                   2,600                   $3.64


   *  All  transactions  were effected by Newcastle  Partners,  L.P. in the open
      market.  These transactions do not include the purchase of the Convertible
      Note.


         Item 6 is hereby amended in its entirety to read as follows:

      ITEM 6.     CONTRACTS, ARRANGEMENTS,  UNDERSTANDINGS OR RELATIONSHIPS WITH
                  RESPECT TO SECURITIES OF THE ISSUER

      On January 31, 2007, NP purchased a convertible  subordinated  pay-in-kind
promissory note (the "Convertible  Note") in the principal amount of $10,000,000
from the Issuer in a private  placement  pursuant to a purchase  agreement dated
January  31,  2007  between the Issuer and NP (the  "Purchase  Agreement").  The
outstanding  principal  balance  and/or  accrued  but  unpaid  interest  on  the
Convertible Note is convertible at any time by NP into shares of Common Stock at



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 11 of 68 Pages
- ----------------------                                    ----------------------


a  conversion  price (the  "Conversion  Price")  of $3.81 per share,  subject to
adjustment.  The Convertible Note accrues  interest at 8% per annum,  subject to
adjustment in certain circumstances, which interest accretes as principal on the
Convertible Note as of each quarterly  interest payment date beginning March 31,
2007. The Convertible Note matures on January 31, 2017. The Issuer has the right
to  prepay  the  Convertible  Note at an  amount  equal  to 105% of  outstanding
principal  following the third  anniversary  of the issuance of the  Convertible
Note so long as a weighted  average market price of the Issuer's Common Stock is
greater  than 150% of the  Conversion  Price.  The  Issuer  also has the  option
(subject to the consent of the Issuer's  senior  lenders) to pay interest on the
outstanding  principal  balance  of the  Convertible  Note in  cash at a  higher
interest rate following the first anniversary of the issuance of the Convertible
Note if the weighted average market price is greater than 200% of the Conversion
Price. The Issuer, NP and the Issuer's senior lender have agreed that the Issuer
can grant a second  priority lien on the Issuer's real and personal  property to
NP to secure the Issuer's  obligations  under the Convertible Note. In the event
that NP's security  interest is not made effective  within a specified period of
time, the interest rate on the Convertible  Note is subject to an increase.  The
Issuer's  obligation to issue shares of Common Stock under the Convertible  Note
representing an amount greater than 19.9% of its issued and  outstanding  shares
of Common Stock is subject to any required  approval of  shareholders  under the
rules of the  American  Stock  Exchange.  In the event that the  approval is not
received at the Issuer's 2007 annual meeting of shareholders,  the interest rate
on a portion of the Convertible  Note is subject to an increase.  The Issuer has
agreed under the Purchase  Agreement (as described  below) to seek such approval
at the 2007 annual  meeting of  shareholders.  The foregoing is a description of
certain  material terms of the Convertible Note and is qualified in its entirety
by  reference  to the  actual  terms  of the  Convertible  Note.  A copy  of the
Convertible  Note is filed herewith as Exhibit 2 and is  incorporated  herein by
reference.

      Under the  Purchase  Agreement,  in  connection  with the  purchase of the
Convertible  Note, the Issuer  granted NP certain  governance and related rights
subject to NP beneficially owning at least 5% of the Issuer's outstanding shares
of Common Stock. These rights include, but are not limited to, the following:

   o  The right to  designate  two (2)  individuals  as  members of the Board of
      Directors (the Board of Directors is obligated to promptly take all action
      necessary to cause the Board of Directors to consist of six (6)  directors
      and any increase in the size of the Board of Directors must be approved by
      NP);

   o  Representation  by NP  designees  on  all  standing  committees  on  which
      representation is permitted under applicable SEC or exchange rules;

   o  Exemption from the advance notice  requirements  for director  nominations
      and shareholder proposals contained in the Issuer's Bylaws;

   o  Pre-emptive rights to acquire  additional  securities of the Issuer in the
      event of any proposed issuance of securities.

      In addition,  the Issuer has agreed to exempt future NP transactions  from
interested  shareholder  voting  requirements  under the  Issuer's  articles  of



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 12 of 68 Pages
- ----------------------                                    ----------------------


incorporation and from any shareholder rights plan or similar defense mechanisms
that may be adopted by the Issuer in the future. The Purchase Agreement contains
customary  representations  and  warranties and  indemnities in NP's favor.  The
foregoing is a description of certain  material terms of the Purchase  Agreement
and is  qualified  in its  entirety  by  reference  to the  actual  terms of the
Purchase  Agreement.  A copy of the  Purchase  Agreement  is filed  herewith  as
Exhibit 3 and is incorporated herein by reference.

      Pursuant to NP's rights  under the  Purchase  Agreement,  NP informed  the
Issuer that Mr. Coleman is being designated as its  representative  on the Board
of Directors,  in addition to Mr.  Schwarz who currently  serves on the Board of
Directors,  and  accordingly Mr. Coleman was appointed to the Board of Directors
following the closing of the purchase of the Convertible Note.

      In connection with the purchase of the Convertible Note, the Issuer and NP
also  entered  into a  registration  rights  agreement  pursuant to which NP was
granted demand and piggyback  registration rights in respect of shares of Common
Stock issued or issuable under the Convertible  Note. A copy of the Registration
Rights  Agreement is filed herewith as Exhibit 4 and is  incorporated  herein by
reference.

         Item 7 is hereby amended in its entirety to read as follows:

      ITEM 7.     MATERIAL TO BE FILED AS EXHIBITS

Exhibit 1   Joint  Filing  Agreement  dated June 25, 2003 among NP, NCG, NCM and
            Mark E. Schwarz (previously filed).

Exhibit 2   Convertible  Promissory  Note dated  January 31, 2007 issued by Bell
            Industries, Inc.

Exhibit 3   Purchase  Agreement dated January 27, 2007 between Bell  Industries,
            Inc. and Newcastle Partners, L.P.

Exhibit 4   Registration  Rights  Agreement  dated January 27, 2007 between Bell
            Industries, Inc. and Newcastle Partners, L.P.

Exhibit 5   Joint Filing  Agreement  dated  February 5, 2007 among NP, NCG, NCM,
            Mark E. Schwarz and Clinton J. Coleman.




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CUSIP No. 078 107 109                   13D                  Page 13 of 68 Pages
- ----------------------                                    ----------------------


                                   SIGNATURES

      After due inquiry and to the best of his knowledge and belief, each of the
undersigned  certifies that the information set forth in this statement is true,
complete and correct.

Dated: February 5, 2007
                                         NEWCASTLE PARTNERS, L.P.

                                         By: Newcastle Capital Management, L.P.,
                                             its general partner

                                         By: Newcastle Capital Group, L.L.C.,
                                             its general partner

                                         By: /s/ Mark E. Schwarz
                                             -----------------------------------
                                             Mark E. Schwarz, Managing Member


                                         NEWCASTLE CAPITAL MANAGEMENT, L.P.

                                         By: Newcastle Capital Group, L.L.C.,
                                             its general partner


                                         By: /s/ Mark E. Schwarz
                                             -----------------------------------
                                             Mark E. Schwarz, Managing Member


                                         NEWCASTLE CAPITAL GROUP, L.L.C.

                                         By: /s/ Mark E. Schwarz
                                             -----------------------------------
                                             Mark E. Schwarz, Managing Member


                                         /s/ Mark E. Schwarz
                                         ---------------------------------------
                                         Mark E. Schwarz


                                         /s/ Clinton J. Coleman
                                         ---------------------------------------
                                          Clinton J. Coleman




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CUSIP No. 078 107 109                   13D                  Page 14 of 68 Pages
- ----------------------                                    ----------------------



                                  EXHIBIT INDEX

   Exhibit                                                   Page
   -------                                                   ----


1     Joint Filing Agreement dated January 25, 2003          Previously filed
      among NP, NCG, NCM and Mark E. Schwarz.

2     Convertible Promissory Note dated January 31, 2007     15 - 31
      issued by Bell Industries, Inc.


3     Purchase Agreement dated January 27, 2007 between      32 - 50
      Bell Industries, Inc. and Newcastle Partners, L.P.


4     Registration Rights Agreement dated January 27,        51 - 67
      2007 between Bell Industries, Inc. and Newcastle
      Partners, L.P.


5     Joint Filing Agreement dated February 5, 2007          68
      among NP, NCG, NCM, Mark E. Schwarz and Clinton J.
      Coleman





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CUSIP No. 078 107 109                   13D                  Page 15 of 68 Pages
- ----------------------                                    ----------------------


                                                                       Exhibit 2


THIS NOTE AND THE SECURITIES UNDERLYING THIS NOTE HAVE NOT BEEN REGISTERED UNDER
THE  SECURITIES  ACT OF  1933,  AS  AMENDED  (THE  "ACT"),  OR  QUALIFIED  UNDER
APPLICABLE  STATE  SECURITIES  LAWS. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED  IN THE  ABSENCE OF SUCH  REGISTRATION  AND  QUALIFICATION  WITHOUT,
EXCEPT AS  OTHERWISE  AGREED BY BELL  INDUSTRIES,  INC.,  AN  OPINION OF COUNSEL
REASONABLY  SATISFACTORY TO BELL  INDUSTRIES,  INC. THAT SUCH  REGISTRATION  AND
QUALIFICATION ARE NOT REQUIRED.

THIS NOTE AND THE  INDEBTEDNESS  EVIDENCED  HEREBY IS SUBORDINATED IN THE MANNER
AND TO THE EXTENT  SET FORTH IN SECTION  8(b) BELOW AND THE HOLDER OF THIS NOTE,
BY ACCEPTANCE  HEREOF,  SHALL BE BOUND BY THE PROVISIONS OF SECTION 8(b) OF THIS
CONVERTIBLE PROMISSORY NOTE.


                           CONVERTIBLE PROMISSORY NOTE

$10,000,000                                                     January 31, 2007

FOR VALUE  RECEIVED,  the  undersigned,  BELL  INDUSTRIES,  INC.,  a  California
corporation  (the  "Maker"),  hereby  promises 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 the date hereof  (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 the date hereof 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 the date hereof.  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



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 16 of 68 Pages
- ----------------------                                    ----------------------


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").

(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.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 17 of 68 Pages
- ----------------------                                    ----------------------


(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



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 18 of 68 Pages
- ----------------------                                    ----------------------


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.

(f) 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.

(g) 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.

(h) 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.



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CUSIP No. 078 107 109                   13D                  Page 19 of 68 Pages
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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.

(a) Notwithstanding anything to the contrary, the indebtedness evidenced by this
Note is hereby  expressly  subordinated  in the manner set forth in Section 8(b)
below.  This  Note  will  rank  senior  to all  existing  and  future  unsecured



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 20 of 68 Pages
- ----------------------                                    ----------------------


indebtedness  of Maker. In addition,  promptly  following the date of this Note,
Maker agrees to enter into a security  agreement with Payee acceptable to Payee,
Maker and Agent which agreement grants Payee a second lien security  interest in
all of Maker's  presently  existing  and  hereafter  acquired  real and personal
property  to secure  Maker's  obligations  under  this Note;  provided  that the
security  agreement  set  forth as  exhibit  A  hereto  shall  be  deemed  to be
acceptable to both Maker and Agent. Notwithstanding anything to the contrary, if
the  foregoing  security  agreement  is not  executed  within  eight  (8)  weeks
following  the date of this  Note,  the  interest  rate set  forth in the  first
sentence of Section 1 of this Note shall be increased  to, and remain (until any
further adjustment pursuant to this Note), ten percent (10%).

(b) Subordination Provisions

(1)  CERTAIN  TERMS  DEFINED.  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.

      "JUNIOR DEBT" means all  principal,  interest,  fees,  costs,  enforcement
expenses,  and all  other  payment  obligations  (including  attorneys  fees and
disbursements  and the  repurchase  price with respect to this Note) of any kind



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CUSIP No. 078 107 109                   13D                  Page 21 of 68 Pages
- ----------------------                                    ----------------------


arising under this Note (and any amendments, restatements, supplements, or other
modifications  thereof) or any other Junior Document,  together with any and all
refinancings, renewals, or extensions of such obligations.

      "JUNIOR DOCUMENTS" means, collectively, this Note, the Purchase Agreement,
the Security  Agreement and any and all other documents or instruments  executed
in connection with this Note, the Purchase Agreement or the Security  Agreement,
whether  now  existing  or  hereafter   created,   each  as  amended,   restated
supplemented, or otherwise modified from time to time.

      "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



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CUSIP No. 078 107 109                   13D                  Page 22 of 68 Pages
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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.

(2) SUBORDINATION AND STANDBY.

      (a) Agreement to Subordinate.

            (i) Maker  covenants and agrees,  and the holder of this Note by its
acceptance  hereof likewise  covenants and agrees,  that this Note is subject to
the  provisions of this Section  (8)(b)(2)(a)(i),  and each Person  holding this
Note,  whether upon  original  issue or upon  transfer,  assignment  or exchange
thereof,  accepts and agrees to be bound by such provisions.  The holder of this
Note  by  its  acceptance   hereof  also   acknowledges   and  agrees  that  the
subordination  provisions set forth in this Section  8(b)(2)(a)(i)  are, and are
intended to be, an inducement and a  consideration  to each holder of the Senior
Debt to acquire and  continue to hold,  or to continue to hold,  the Senior Debt
and such holder of the Senior Debt shall be deemed  conclusively  to have relied
on such  subordination  provisions  in  acquiring  and  continuing  to hold,  or
continuing to hold, such Senior Debt.

            (ii) The holder of this Note by its acceptance  hereof  agrees,  for
itself and each future  holder of this Note or the Junior Debt,  that the Junior
Debt is expressly  "subordinate  and junior in right of payment" (as that phrase



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CUSIP No. 078 107 109                   13D                  Page 23 of 68 Pages
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is hereinafter defined) to all Senior Debt.  "Subordinate and junior in right of
payment"  means that (A) no part of the Junior  Debt shall have any claim to the
assets of any  Borrower  on a parity  with or prior to the  claim of the  Senior
Debt,  and (B) unless and until the Senior  Debt has been Paid in Full,  without
the express prior written  consent of the holders of the Senior Debt, the holder
of this Note will not take,  demand  (including by means of any legal action) or
receive from a Borrower, and no Borrower will make, give or permit,  directly or
indirectly, by set-off, redemption, purchase or in any other manner, any payment
of the whole or any part of the Junior Debt.

            (iii)  Unless  and  until  the  Senior  Debt is  Paid  in  Full  and
irrespective  of  whether a default  or event of  default  has  occurred  and is
continuing  with respect to the Senior  Debt:  (A) the holder of this Note shall
not accelerate the Junior Debt and shall not, directly or indirectly,  commence,
prosecute,  or  participate  in any  lawsuit,  action,  or  proceeding,  whether
private, judicial, equitable, administrative, or otherwise (including the filing
of any Insolvency Proceeding against any Borrower or any assets of any Borrower)
to enforce its rights or interests  in respect of the Junior  Debt,  and (B) the
holder  of this Note  shall  have no right  either  to (x)  obtain a Lien on any
assets of any Borrower  (other than, so long as the holder of this Note executes
and delivers to the Agent an intercreditor and  subordination  agreement in form
and substance reasonably  satisfactory to Agent, those Liens granted by Borrower
to the holder of this Note under the  Security  Agreement)  or (y)  enforce  any
Liens in,  foreclose,  levy, or execute upon, or collect or attach any assets of
any Borrower,  whether by judicial  action or  otherwise.  In the event that the
holder of this Note  obtains any Liens in violation  of the  provisions  of this
Note,  any and all of such Liens shall in each case be  subordinate to the Liens
on the collateral securing the Senior Debt.

      (b)   Insolvency.

            (i)  Continuing  Subordination.   The  provisions  of  this  Section
8(b)(2)(b)(i)  are intended to be enforceable  notwithstanding  any dissolution,
winding-up, liquidation, or reorganization of any Borrower, whether voluntary or
involuntary,  or the  commencement of any Insolvency  Proceeding by or against a
Borrower. Upon any such dissolution, winding-up, liquidation, reorganization, or
Insolvency Proceeding, (A) all amounts due or to become due upon the Senior Debt
shall  first be Paid in Full before any payment is made on account of the Junior
Debt, and (B) any payment or distribution  of any kind or character  (whether in
cash,  property,  securities,  by set-off,  or otherwise) to which the holder of
this  Note  would  be  entitled   but  for  the   provisions   of  this  Section
8(b)(2)(b)(i),  shall be immediately delivered by the Person making such payment
or distribution  (whether a Borrower,  a trustee in bankruptcy,  a receiver,  or
otherwise)  or the holder of this Note (if received by it) directly to Agent for
application to the payment of the Senior Debt.

            (ii)  Reinstatement.  If Agent or any Lender or any other  holder of
any Senior Debt is required in any  Insolvency  Proceeding  or otherwise to turn
over or otherwise pay any amount (a "Recovery") to the estate or to any creditor
or representative of a Borrower or any other Person,  then the Senior Debt shall
be reinstated to the extent of such Recovery.  If the provisions of this Section



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CUSIP No. 078 107 109                   13D                  Page 24 of 68 Pages
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8(b)(2)(b)(ii)  shall  have  been  terminated  prior  to  such  Recovery,   such
provisions  shall be  reinstated  in full  force  and  effect,  and  such  prior
termination shall not diminish, release, discharge,  impair, or otherwise affect
the obligations of the parties hereto from such date of reinstatement.

            (iii)  Proof of Claim.  The  holder of this Note may file a proof of
claim in an Insolvency  Proceeding;  provided however that if the holder of this
Note  does  not file a proper  claim  or  proof  of debt or  other  document  or
amendment thereof in the form required in any Insolvency  Proceeding prior to 30
days  before  the  expiration  of time to file such claim or other  document  or
amendment  thereof,  then Agent shall have the right (but not the obligation) in
such proceeding,  and the holder of this Note hereby irrevocably  appoints Agent
as such holder's lawful attorney in fact to demand,  sue for,  collect,  receive
and  give  receipt  for  the  payments  and  distributions  in  respect  of  the
Subordinated  Debt that are made in such  proceeding and that are required to be
paid or  delivered  to Agent as provided in Section  8(b)(2)(b)(i),  to file and
prove  all  claims  therefore,  to vote the  claim of the  holder  of this  Note
(whether in respect of any plan of  reorganization or liquidation or otherwise),
and to execute and deliver all documents in such proceeding,  all in the name of
Agent or the  holder of this  Note,  as Agent  reasonably  may  determine  to be
necessary or appropriate.

            (iv) Other Waivers. Until the Senior Debt has been Paid in Full, the
holder of this Note agrees that it shall not without  Agent's  written  consent,
(A) propose any plan of  reorganization  or  liquidation or file any pleading or
other document in support of any plan that would impair the rights of Agent, the
Lenders,  or any other  holders  of the  Senior  Debt,  (B)  oppose  any plan of
reorganization or liquidation proposed by, or approved in writing by, Agent, (C)
vote its claim in favor of any plan of reorganization or liquidation  opposed by
Agent,  or (D) oppose any relief  requested  or  supported  by Agent;  provided,
however  that the holder of this Note may  propose a plan of  reorganization  so
long as such plan requires that the Senior Debt be Paid in Full on the effective
date of such plan.

      (c)  Turnover.  In the event  that the  holder of this Note  receives  any
payment or  distribution of assets of Borrower of any kind in  contravention  of
any term of this Note  (whether in cash,  property or  securities,  by setoff or
otherwise)  before  the  Senior  Debt is Paid in  Full,  then  such  payment  or
distribution shall be held by such holder in trust for the benefit of Agent, and
such holder shall  immediately  deliver such payment or distribution to Agent in
precisely the form received  (except for the  endorsement  or assignment by such
holder where  necessary)  for  application to the payment of the Senior Debt. In
the event of the failure of the holder of this Note to make any such endorsement
or  assignment  to Agent,  Agent and any of its  officers  or agents  are hereby
irrevocably  authorized to make such endorsement or assignment and the holder of
this Note hereby irrevocably  appoints Agent as such holder's lawful attorney in
fact for the purpose of enabling Agent to make such endorsement or assignment.



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      (d) Debt Amendments and Changes.

            (i) Any holder of the Senior  Debt may, at any time and from time to
time,  without  the  consent of or notice to the  holder of this  Note,  without
incurring  responsibility  to the holder of this Note, and without  impairing or
releasing  the  subordination  provided in this Note or the  obligations  of the
holder of this Note to the holders of the Senior Debt, discontinue the extension
of credit to any  Borrower  and take any other  action in  respect of the Senior
Debt or the assets of any  Borrower  which such holders is entitled to take with
respect to the Senior Debt or such  assets.  Any holder of the Senior Debt shall
have the right,  without  notice to or consent from the holder of this Note,  to
amend,  restate,  supplement,  or modify  the  Senior  Debt or any  Senior  Loan
Document,  in  any  manner  whatsoever,  including  the  right  to do any of the
following:  (A) change the manner,  place,  or terms of payment  (including  any
change in the rate of  interest)  or extend  the time of  payment  of, or renew,
amend, modify, alter, or grant any waiver or release with respect to, or consent
to any departure from, the Senior Debt or any instrument  evidencing the same or
any agreement  evidencing,  governing,  creating,  guaranteeing  or securing the
Senior Debt; (B) sell,  exchange,  release,  or otherwise deal with any property
pledged, mortgaged or otherwise securing the Senior Debt; (C) release any Person
liable  under  or in  respect  of the  Senior  Debt;  (D)  fail or  delay in the
perfection  of Liens  securing  the Senior  Debt;  (E)  exercise or refrain from
exercising any rights  against  Company and any other Person;  or (F) amend,  or
grant any waiver or release with respect to, or consent to any  departure  from,
any  guarantee  for all or any of the Senior  Debt,  and the holder of this Note
consents and agrees to any such action, amendment,  supplement, or modification.
The holder of this Note waives notice of any such action, amendment, supplement,
or  modification,  and agrees that no such  action,  amendment,  supplement,  or
modification  shall affect,  release,  or impair the  provisions of this Section
8(b).

            (ii) The holder of this Note understands and agrees that none of the
Junior Documents or any other document,  instrument or agreement  evidencing all
or any part of the Subordinated Debt (other than immaterial  modifications)  may
be modified or amended without the prior written consent of Agent.

      (e) No  Impairment  of  Subordination.  No right of any  present or future
holder of the Senior Debt to enforce  subordination  as herein provided shall at
any time in any way be  prejudiced  or  impaired by any act or failure to act on
the part of a Borrower or by any act or failure to act,  in good  faith,  by any
such holder,  or by any  noncompliance by a Borrower with the terms,  provisions
and covenants of this Note,  regardless of any knowledge  thereof which any such
holder may have or otherwise be charged with.

      (f) No  impairment  of Borrower's  Obligation.  Nothing  contained in this
Section 8(b) or elsewhere in this Note is intended to or shall impair,  as among
Borrowers,  their  creditors  other than the holders of the Senior Debt, and the
holder  of this  Note,  the  obligation  of  Borrowers,  which is  absolute  and
unconditional,  to pay to the holder of this Note the principal of, and premium,
if any,  and  interest  on this Note as and when the same  shall  become due and
payable in  accordance  with their terms,  or is intended to or shall affect the
relative rights of the holder of this Note and creditors of Borrowers other than
the holders of the Senior Debt.  No provision of this Section  8(b)(2)(f)  shall
prevent  the  occurrence  of any  default or event of  default  under this Note;
provided  that if  payment  of this Note is  accelerated  because of an event of
default, Borrowers shall promptly notify Agent of the acceleration.




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CUSIP No. 078 107 109                   13D                  Page 26 of 68 Pages
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(3) Costs and  Attorneys  Fees.  In the event  Agent or any  Lender or any other
holder of any Senior  Debt  commences  or becomes a party to any  proceeding  or
action to enforce the provisions of Section 8(b), the court or body before which
the same  shall be tried  shall  award to the  prevailing  party  all  costs and
expenses thereof, including, but not limited to, reasonable attorneys' fees, the
usual and customary and lawfully recoverable court costs, and all other expenses
in connection therewith.

(4) Third Party  Beneficiary.  Each of Agent, each Lender, and each other holder
of any Senior Debt is a third party  beneficiary  of this  Section  8(b) and may
enforce the provisions of Section 8(b) against any holder of the Junior Debt.

(5)  Modification  of this Section.  None of the provisions of this Section 8(b)
may be waived,  amended,  supplemented or otherwise  modified  without the prior
written consent of Agent and the requisite holders of Senior Debt as required by
the Senior Loan  Documents,  which may be  withheld by Agent or such  holders in
their sole reasonable discretion.

(6) Notwithstanding  anything to the contrary,  the provisions set forth in this
Section 8(b) shall be superceded  by the  provisions  of any  intercreditor  and
subordination  agreement or similar  agreement  entered  into between  Payee and
Agent in connection with the granting of any security interest to Payee pursuant
to Section 8(a) hereof.

9.  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.

(b) 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.

(c) 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.

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



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CUSIP No. 078 107 109                   13D                  Page 27 of 68 Pages
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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 8(b) 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 Maker 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 Maker  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.



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(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.



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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; PROVIDED HOWEVER
THAT THE VALIDITY,  CONSTRUCTION AND ENFORCEABILITY OF SECTION 8(B) OF THIS NOTE
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, AND EACH OF THE HOLDER
OF THIS  NOTE  AND  THE  HOLDERS  OF THE  SENIOR  DEBT  SUBMIT  TO THE  PERSONAL
JURISDICTION  OF ANY STATE OR FEDEAL COURT SITTING IN THE STATE OF CALIFORNIA IN
RESPECT OF CLAIMS ARISING UNDER SECTION 8(B) OF THIS NOTE.

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.



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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}



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CUSIP No. 078 107 109                   13D                  Page 31 of 68 Pages
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IN WITNESS WHEREOF, the undersigned has hereunto affixed its signature.

BELL INDUSTRIES, INC.

By
  ------------------------------

Its
   -----------------------------




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CUSIP No. 078 107 109                   13D                  Page 32 of 68 Pages
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                                                                       Exhibit 3



                               PURCHASE AGREEMENT

      THIS PURCHASE  AGREEMENT (the  "AGREEMENT") is entered into as of the 31st
day of January,  2007,  by and  between  BELL  INDUSTRIES,  INC.,  a  California
corporation  (the  "COMPANY"),  and  NEWCASTLE  PARTNERS,  L.P., a Texas limited
partnership (the "PURCHASER").

                                R E C I T A L S :
                                -----------------

      WHEREAS, in consideration of $10,000,000, the Company proposes to issue to
the Purchaser,  and the Purchaser desires to purchase, a $10,000,000 convertible
promissory note in the form attached as Exhibit A (the "NOTE").

      NOW,  THEREFORE,  in consideration of the foregoing recital and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

SECTION 1.  AGREEMENT TO SELL AND PURCHASE

        1.1  AUTHORIZATION  OF  TRANSACTION.  On or prior to the  closing of the
  transactions contemplated in this Agreement (the "CLOSING"), the Company shall
  have  authorized  the sale and  issuance  to the  Purchaser  of the Note  and,
  subject to  obtaining  Shareholder  Approval  (as defined  below),  all of the
  shares of the  Company's  common stock (the  "COMMON  STOCK"),  issuable  upon
  conversion of the Note (collectively, the "SHARES").

        1.2 SALE AND PURCHASE.  Subject to the terms and conditions  hereof,  at
  the Closing, the Company hereby agrees to issue and sell to the Purchaser, and
  the Purchaser  agrees to purchase from the Company,  the Note for an aggregate
  purchase price of $10,000,000 (the "PURCHASE PRICE").

SECTION 2.  CLOSING, DELIVERY AND PAYMENT

        2.1  CLOSING.  The  Closing  shall take place at 10:00 a.m.  on the date
  hereof at the offices of the Maker's  legal  counsel,  Manatt in Los  Angeles,
  California,  or at such other time or place as the Company  and the  Purchaser
  may mutually agree (the "CLOSING DATE"). At the Closing,  subject to the terms
  and  conditions  hereof,  the  Company  will  issue,  sell and  deliver to the
  Purchaser the Note,  against  payment of the Purchase Price by certified check
  or wire transfer of immediately available funds. At that time, the Company and
  the Purchaser  shall also execute the Security  Agreement in the form attached
  as Exhibit B and the  Registration  Rights  Agreement in the form  attached as
  Exhibit C (the "REGISTRATION RIGHTS AGREEMENT").

SECTION 3.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      The Company  hereby  represents  and  warrants to the  Purchaser as of the
Closing Date, and agrees, as follows:

        3.1  ORGANIZATION,  GOOD  STANDING AND  QUALIFICATION.  The Company is a
  corporation  duly organized,  validly  existing and in good standing under the
  laws of the State of California.  The Company's only active  subsidiaries  are
  the  subsidiaries  listed  on  SCHEDULE  3.1 (the  "SUBSIDIARIES").  Except as
  indicated on SCHEDULE 3.1, each Subsidiary is duly organized, validly existing
  and in good standing under the laws of its jurisdiction of organization.  Each
  of the Company and the  Subsidiaries  has all  requisite  corporate  power and



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  authority to own and operate its respective properties and assets and to carry
  on its respective business as presently conducted and as presently proposed to
  be conducted.  The Company has all requisite  corporate power and authority to
  execute and deliver this Agreement,  the Note, the Security  Agreement and the
  Registration  Rights Agreement  (together,  the "TRANSACTION  DOCUMENTS"),  to
  issue and sell the Shares upon  conversion  of the Note  (subject to obtaining
  Shareholder  Approval)  and to carry  out the  provisions  of the  Transaction
  Documents.  Each of the Company and the  Subsidiaries is duly qualified and is
  authorized  to do business  and is in good  standing in each  jurisdiction  in
  which the nature of its respective activities and of its respective properties
  (both owned and leased) makes such qualification  necessary,  except for those
  jurisdictions  in which  failure to be so qualified  would not have a material
  adverse effect on the Company or its business, taken as a whole.

        3.2 CAPITALIZATION. The Company is authorized to issue 35,000,000 shares
  of Common Stock,  of which  8,593,224  shares are issued and outstanding as of
  the date hereof, and 1,000,000 shares of preferred stock.  Except as set forth
  on  SCHEDULE  3.2 or in the  Company's  current,  quarterly,  annual and other
  periodic  filings (the "SEC  REPORTS")  with the U.S.  Securities and Exchange
  Commission (the "COMMISSION"),  there are no outstanding options,  warrants or
  other rights to acquire any of the  Company's  capital  stock,  or  securities
  convertible,  exercisable or exchangeable  for the Company's  capital stock or
  for securities  themselves  convertible,  exercisable or exchangeable  for the
  Company's capital stock (together,  "CONVERTIBLE  SECURITIES").  Except as set
  forth on SCHEDULE 3.2 or in the SEC  Reports,  the Company has no agreement or
  commitment  to sell or issue  any  shares  of  capital  stock  or  Convertible
  Securities.  All issued and outstanding  shares of the Company's capital stock
  (i) have been duly  authorized  and  validly  issued,  (ii) are fully paid and
  nonassessable, (iii) are free from any preemptive and cumulative voting rights
  and (iv) were issued  pursuant to an effective  registration  statement  filed
  with the Commission and applicable state securities authorities or pursuant to
  valid exemptions under federal and state securities laws.  Except as set forth
  on SCHEDULE  3.2 or in the SEC  Reports,  there are no  outstanding  rights of
  first refusal or proxy or  shareholder  agreements of any kind relating to any
  of the  Company's  securities  to which the  Company  or any of its  executive
  officers  and  directors is a party or as to which the Company  otherwise  has
  knowledge.  When issued in compliance  with the  provisions  of the Note,  the
  Shares will be validly issued, fully paid and nonassessable,  and will be free
  of any  liens or  encumbrances;  provided,  however,  that the  Shares  may be
  subject to restrictions on transfer under state and/or federal securities laws
  as set  forth  herein  or as  otherwise  required  by such  laws at the time a
  transfer is proposed.

        3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the part
  of the Company,  its officers and directors  (including a special committee of
  independent  directors)  necessary for the  authorization  of the  Transaction
  Documents and the performance of all obligations of the Company  hereunder and
  thereunder at the Closing,  including the  authorization,  sale,  issuance and
  delivery of the Shares upon  conversion  of the Note,  has been taken,  and no
  further  corporate  action is required to be taken except for the  Shareholder
  Approval.  The  Transaction  Documents,  when executed and delivered,  will be
  valid and binding  obligations of the Company  enforceable against the Company
  in  accordance  with  their  terms,   except  (i)  as  limited  by  applicable
  bankruptcy,  insolvency,  reorganization,  moratorium or other laws of general
  application  affecting  enforcement  of creditors'  rights,  (ii) according to
  general  principles  of equity that  restrict  the  availability  of equitable
  remedies   and  (iii)  to  the   extent   that  the   enforceability   of  the



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  indemnification provisions of the Registration Rights Agreement may be limited
  by applicable laws. The issuance and sale of the Shares upon conversion of the
  Note are not and will not be  subject  to any  preemptive  rights or rights of
  first refusal.

        3.4 FINANCIAL  STATEMENTS.  The audited  consolidated  balance sheets at
  December 31, 2005 of the Company and the audited  consolidated  statements  of
  operations,  cash flows and  stockholders'  equity of the Company for the year
  ended December 31, 2005 and the unaudited  consolidated  balance sheet at, and
  the unaudited  consolidated  statements  of operations  and cash flows for the
  nine months  ended,  September  30, 2006 of the Company (all of the  foregoing
  together,  the  "FINANCIAL  STATEMENTS,"  with  September  30,  2006 being the
  "LATEST STATEMENT DATE" and the consolidated  financial  statements at and for
  the  nine  months  ended  September  30,  2006  being  the  "LATEST  FINANCIAL
  STATEMENTS"), as contained in the SEC Reports, fairly present the consolidated
  financial  condition,  results of operations and cash flows of the Company and
  its  Subsidiaries on a consolidated  basis as of the respective  dates and for
  the respective  periods  covered  thereby  (subject,  in the case of unaudited
  financial  statements,  to normal  year-end audit  adjustments)  and have been
  prepared in accordance with generally  accepted  accounting  principles in the
  United States applied on a consistent basis (except as may be indicated in the
  notes thereto) and the rules and regulations of the Commission.

        3.5 LIABILITIES. Except as reflected or expressly reserved in the Latest
  Financial Statements,  permitted by the Senior Credit Agreement (as defined in
  the  Note)  or  disclosed  on  SCHEDULE  3.5,  neither  the  Company  nor  any
  Subsidiaries has any material liabilities or obligations and there is no known
  basis for any material  contingent  liabilities,  except  current  liabilities
  incurred after the Latest Statement Date in the ordinary course of business of
  the Company and the Subsidiaries.

        3.6 CERTAIN  AGREEMENTS AND ACTIONS.  Except to the extent  permitted by
  the  Senior  Credit  Agreement  (as  defined in the Note) or as  disclosed  on
  SCHEDULE 3.6 or in the SEC Reports,  since the Latest Statement Date,  neither
  the Company nor any  Subsidiary  has (i)  declared or paid any  dividends,  or
  authorized  or made any  distribution  upon or with  respect  to any  class or
  series of its capital stock, (ii) incurred any indebtedness for money borrowed
  or any other  material  liabilities  out of the  ordinary  course of business,
  (iii) made any loans or advances to any person,  other than ordinary  advances
  for travel or  entertainment  expenses,  or (iv) sold,  exchanged or otherwise
  disposed of any of its assets or rights,  other than in the ordinary course of
  business.  "PERSON" shall mean an individual,  a limited liability  company, a
  partnership,  a joint  venture,  a  corporation,  a trust,  an  unincorporated
  organization or any other entity.

        3.7  OBLIGATIONS  OF OR TO  RELATED  PARTIES.  Except  as  disclosed  on
  SCHEDULE 3.7 or in the SEC Reports, there are no obligations of the Company or
  any Subsidiary to executive officers, directors, 1% or greater shareholders or
  key  employees  (listed in the Company's  most recent proxy  materials) of the
  Company or any  Subsidiary  or to any members of their  immediate  families or
  other affiliates,  other than (i) for accrued salaries, (ii) reimbursement for
  expenses  reasonably  incurred on behalf of the Company or any  Subsidiary and
  (iii) for other standard  employee  benefits made  generally  available to all
  employees  (including  stock  option  agreements  outstanding  under any stock
  option plan  approved by the Board of  Directors  of the  Company).  Except as
  disclosed  on  SCHEDULE  3.7 or in the  SEC  Reports,  none  of the  executive



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  officers,  directors,  1% or greater  shareholders or key employees (listed in
  the Company's most recent proxy  materials) of the Company or any  Subsidiary,
  or any members of their immediate  families or other affiliates,  are indebted
  to the  Company or any  Subsidiary  or have any direct or  indirect  ownership
  interest in any firm,  corporation  or other  entity with which the Company or
  any Subsidiary is affiliated or with which the Company or any Subsidiary has a
  business relationship,  or any firm, corporation or other entity that competes
  with the Company or any Subsidiary. Except as disclosed in the SEC Reports, no
  executive officer, director, 1% or greater shareholder or key employee (listed
  in  the  Company's  most  recent  proxy  materials)  of  the  Company  or  any
  Subsidiary,  or, to the  Company's  knowledge,  any member of their  immediate
  families or other affiliates,  is, directly or indirectly,  interested in or a
  party to any material  contract with the Company or any Subsidiary.  Except to
  the extent  permitted by the Senior Credit  Agreement (as defined in the Note)
  or as disclosed on SCHEDULE 3.7 or in the SEC Reports, neither the Company nor
  any Subsidiary is a guarantor or indemnitor of any  indebtedness or obligation
  of  any  other  person,  other  than  the  Company  or its  Subsidiaries.  The
  representations  contained in this Section 3.7 shall not be deemed to apply to
  the Purchaser or any of its affiliates.

        3.8 NO MATERIAL  ADVERSE  CHANGE.  Since the Latest  Statement Date, and
  except  as  disclosed  in the SEC  Reports,  there  has not been any  material
  adverse change in the business, assets,  liabilities,  condition (financial or
  otherwise),  operations or prospects of the Company, and no event has occurred
  or circumstance exists that may result in such a material adverse change.

        3.9  TITLE  TO  PROPERTIES  AND  ASSETS;  LIENS.  Except  to the  extent
  permitted by the Senior  Credit  Agreement  (as defined in the Note) or as set
  forth on  SCHEDULE  3.6 or  SCHEDULE  3.9 or in the SEC  Reports,  each of the
  Company and its  Subsidiaries  has good and marketable title to its properties
  and  assets,  including  the  properties  and assets  reflected  in the Latest
  Financial  Statements,  and good title to its leasehold estates,  in each case
  subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than
  (i) those resulting from taxes that have not yet become delinquent, (ii) minor
  liens and  encumbrances  that do not materially  detract from the value of the
  property subject thereto or materially impair the operations of the Company or
  any  Subsidiary  and (iii) those that have  otherwise  arisen in the  ordinary
  course of business. All facilities,  machinery,  equipment, fixtures and other
  properties owned,  leased or used by the Company or any Subsidiary are in good
  operating  condition  and  repair  and are  reasonably  fit and usable for the
  purposes for which they are being used, reasonable wear and tear excepted.

        3.10 INTELLECTUAL  PROPERTY.  Except as set forth on SCHEDULE 3.10 or in
  the SEC Reports, each of the Company and its Subsidiaries owns or licenses all
  trademarks, service marks, trade names, copyrights, trade secrets, information
  and other proprietary  rights and processes  necessary for its business as now
  conducted and as proposed to be conducted,  without any known  infringement of
  the rights of others.

        3.11 COMPLIANCE WITH OTHER INSTRUMENTS.  Except as disclosed in SCHEDULE
  3.11 or the  SEC  Reports,  neither  the  Company  nor  any  Subsidiary  is in
  violation or default of any term of its Articles of  Incorporation  or Bylaws,
  or of any  provision  of  any  mortgage,  indenture,  contract,  agreement  or
  instrument  to which  it is party or by which it is bound or of any  judgment,
  decree,  order, writ, statute, rule or regulation applicable to the Company or
  any  Subsidiary  that would  materially  and  adversely  affect the  business,



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  assets,  liabilities,   condition  (financial  or  otherwise),  operations  or
  prospects of the Company.  The execution and delivery of, and the  performance
  of and  compliance  with the  transactions  contemplated  by, the  Transaction
  Documents,  and the  issuance  and sale of the Shares upon  conversion  of the
  Note,  will not,  with or without  the  passage of time or giving of notice or
  both,  result  in any  such  material  violation,  or be in  conflict  with or
  constitute  a default  under any such term,  or result in the  creation of any
  mortgage,  pledge,  lien,  encumbrance or charge upon any of the properties or
  assets  of the  Company  or any  Subsidiary  or  the  suspension,  revocation,
  impairment,  forfeiture or nonrenewal of any permit, license, authorization or
  approval  applicable  to  the  Company  or any  Subsidiary,  the  business  or
  operations of the Company or any Subsidiary or any of the assets or properties
  of the Company or any Subsidiary.

        3.12 LITIGATION. Except as disclosed in the SEC Reports, SCHEDULE 3.5 or
  SCHEDULE 3.12, there is no action, suit,  proceeding or investigation  pending
  or, to the Company's knowledge,  currently threatened against the Company that
  questions the validity of this Agreement or the other agreements  contemplated
  hereby or the right of the Company to enter into any of such agreements, or to
  consummate  the  transactions   contemplated  hereby  or  thereby.  Except  as
  disclosed  in the SEC  Reports,  SCHEDULE  3.5 or SCHEDULE  3.12,  there is no
  action,  suit,  proceeding  or  investigation  pending  or,  to the  Company's
  knowledge,  currently  threatened  against the Company or any Subsidiary  that
  could result, either individually or in the aggregate, in any material adverse
  change  in  the  business,  assets,   liabilities,   condition  (financial  or
  otherwise),  operations  or prospects of the Company,  or in any change in the
  current equity  ownership of the Company,  nor is the Company aware that there
  is any  basis  for the  foregoing.  Except as  disclosed  in the SEC  Reports,
  SCHEDULE 3.5 or SCHEDULE  3.12,  neither the Company nor any  Subsidiary  is a
  party or subject to the provisions of any order, writ, injunction, judgment or
  decree of any court or government agency or instrumentality.

        3.13 TAX RETURNS AND  PAYMENTS.  Except as disclosed  on SCHEDULE  3.13,
  each of the Company and its Subsidiaries  has filed all tax returns  (federal,
  state and local)  required  to be filed by it.  All taxes  shown to be due and
  payable on such  returns,  any  assessments  imposed,  and,  to the  Company's
  knowledge, all other taxes due and payable by the Company or any Subsidiary on
  or before  the  Closing  have been paid or will be paid prior to the time they
  become  delinquent.  The Company has not been  advised (i) that any of the tax
  returns of the Company or any Subsidiary  have been or are being audited as of
  the date hereof or (ii) of any  deficiency in assessment or proposed  judgment
  to federal, state or other taxes of the Company or any Subsidiary. The Company
  has no knowledge of any liability of any tax to be imposed upon the properties
  or assets of the Company or any  Subsidiary  as of the date of this  Agreement
  that is not adequately provided for.

        3.14  EMPLOYEES.   Neither  the  Company  nor  any  Subsidiary  has  any
  collective bargaining agreements with any of its employees.  There is no labor
  union organizing activity pending or, to the Company's  knowledge,  threatened
  with respect to the Company or any Subsidiary. Except as set forth on SCHEDULE
  3.14 or in the SEC Reports,  no executive  officer or key employee  (listed in
  the  Company's  most recent proxy  materials)  has any  agreement or contract,
  written or verbal,  regarding his employment.  Except as disclosed on SCHEDULE
  3.14 or in the SEC Reports,  neither the Company nor any Subsidiary is a party
  to or bound by any  currently  effective  deferred  compensation  arrangement,
  bonus plan, incentive plan, profit sharing plan, retirement agreement or other
  employee  compensation  plan or  agreement.  To the  Company's  knowledge,  no



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  employee of the Company or any  Subsidiary,  nor any consultant  with whom the
  Company or any Subsidiary has contracted, is in violation of any material term
  of any employment or consulting  agreement with the Company or any Subsidiary.
  Except as  disclosed  on SCHEDULE  3.14 or in the SEC  Reports,  no  executive
  officer or key employee  (listed in the Company's most recent proxy materials)
  of the  Company or any  Subsidiary  has been  granted  the right to  continued
  employment by the Company or any  Subsidiary  or to any material  compensation
  following  termination of employment with the Company or any  Subsidiary.  The
  Company is not aware that any executive officer or key employee (listed in the
  Company's  most  recent  proxy  materials),  or that any  group  of  executive
  officers  or  key  employees  (listed  in  the  Company's  most  recent  proxy
  materials),  intends to terminate his or their  employment with the Company or
  any  Subsidiary,  nor  does  the  Company  or any  Subsidiary  have a  present
  intention to terminate the employment of any executive  officer,  key employee
  (listed in the  Company's  most recent proxy  materials) or group of executive
  officers  or  key  employees  (listed  in  the  Company's  most  recent  proxy
  materials).

        3.15  REGISTRATION  RIGHTS.  Except as  disclosed  on  SCHEDULE  3.15 or
  required  pursuant  to the  Registration  Rights  Agreement,  the  Company  is
  presently  not  under any  obligation,  and has not  granted  any  rights,  to
  register  (as  defined  in  the  Registration  Rights  Agreement)  any  of the
  Company's presently  outstanding  securities or any of its securities that may
  hereafter be issued.

        3.16 COMPLIANCE WITH LAWS; PERMITS. Except as disclosed in SCHEDULE 3.16
  or the SEC Reports,  neither the Company nor any Subsidiary is in violation of
  any applicable statute, rule, regulation, order or restriction of any domestic
  or foreign  government or any  instrumentality or agency thereof in respect of
  the conduct of its  business or the  ownership  of its  properties  that would
  materially and adversely affect the business, assets,  liabilities,  condition
  (financial  or  otherwise),   operations  or  prospects  of  the  Company.  No
  governmental orders,  permissions,  consents,  approvals or authorizations are
  required to be obtained and no registrations, filings, notices or declarations
  are required to be filed in connection with the execution and delivery of, and
  the performance of the transactions contemplated by, the Transaction Documents
  or the issuance of the Shares upon conversion of the Note, except such as have
  been duly and validly  obtained or filed,  or with respect to any filings that
  must be made after the Closing,  as will be filed in a timely manner.  Each of
  the Company and the Subsidiaries has all franchises, permits, licenses and any
  similar  authority  necessary  for the  conduct of its  business  as now being
  conducted by it, the lack of which could  materially and adversely  affect the
  business, assets, liabilities,  condition (financial or otherwise), operations
  or prospects of the Company, and the Company believes it can (and covenants to
  Purchaser  that it will) obtain any similar  authority  for the conduct of its
  business as planned to be conducted.

        3.17 ENVIRONMENTAL AND SAFETY LAWS. Except as disclosed in SCHEDULE 3.17
  or the SEC Reports,  to the Company's  knowledge,  neither the Company nor any
  Subsidiary  is in  violation  of any  applicable  statute,  law or  regulation
  relating to the  environment or  occupational  health and safety,  and, to the
  Company's knowledge, no material expenditures are or will be required in order
  to comply with any such existing statute, law or regulation.

        3.18  PRIVATE   OFFERING.   Assuming  the  truth  and  accuracy  of  the
  representations  and  warranties of the Purchaser  contained in Section 4, the
  offer,  sale and issuance of the Note (and the Shares issuable upon conversion
  of the  Note)  will  be  exempt  from  the  registration  requirements  of the



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 39 of 68 Pages
- ----------------------                                    ----------------------


  Securities Act of 1933, as amended (the "SECURITIES  ACT"), and will have been
  registered or qualified (or are exempt from  registration  and  qualification)
  under the registration,  permit or qualification  requirements of the State of
  Texas.

        3.19 FULL  DISCLOSURE.  None of the  Transaction  Documents  nor the SEC
  Reports  contains any untrue statement of a material fact nor omits to state a
  material fact  necessary in order to make the statements  contained  herein or
  therein not misleading in light of the  circumstances in which they were made.
  There  are  no  facts  that  (individually  or in  the  aggregate)  materially
  adversely affect the business,  assets,  liabilities,  condition (financial or
  otherwise),  operations  or  prospects  of the Company  that have not been set
  forth in the  Transaction  Documents,  the SEC  Reports or in other  documents
  delivered to the Purchaser or its attorneys or agents in connection herewith.

        3.20  INVESTMENT  COMPANY  ACT. The Company is not, and will not use the
  proceeds from the Note in a manner so as to become,  an "investment  company,"
  within the meaning of the Investment Company Act of 1940, as amended.

        3.21 AMERICAN STOCK EXCHANGE  COMPLIANCE.  The Company's Common Stock is
  registered  pursuant to Section 12(b) of the Securities  Exchange Act of 1934,
  as amended (the "EXCHANGE  ACT"), and is listed on the American Stock Exchange
  (the "AMEX").  The Company has taken no action  designed to, or likely to have
  the effect of, and the  transactions  contemplated  by this Agreement will not
  have the effect of,  terminating  the  registration  of the Common Stock under
  Section  12(b) of the Exchange Act or  de-listing of the Common Stock from the
  Amex. Except as disclosed in SCHEDULE 3.21 or the SEC Reports, the Company has
  not  received  any  notification  that the  Commission,  the Amex or any other
  self-regulatory   organizational   body  is  contemplating   terminating  such
  registration or listing.

        3.22  REPORTING  STATUS.  The Company has filed all  documents  that the
  Company  was  required  to file  under the  Exchange  Act during the 12 months
  preceding the date of this Agreement. The SEC Reports complied in all material
  respects  with  the  applicable  requirements  of  the  Securities  Act or the
  Exchange  Act, as the case may be, and the  applicable  rules and  regulations
  promulgated   thereunder  as  of  their  respective   filing  dates,  and  the
  information contained therein as of the date thereof did not contain an untrue
  statement of a material  fact or omit to state a material  fact required to be
  stated  therein or necessary to make the statements  therein,  in light of the
  circumstances  under  which they were made,  not  misleading.  The Company has
  disclosed in Item 4 of the Company's Report on Form 10-Q for the quarter ended
  September  30,  2006  the   effectiveness  of  its  disclosure   controls  and
  procedures. The Company is not aware of any material weaknesses (as defined in
  Section 404 of the Sarbanes-Oxley Act) in its internal controls.

        3.23 NO MANIPULATION OF PRICE. Neither the Company nor, to the knowledge
  of the Company,  any agent or other person acting on behalf of the Company has
  taken or will, in violation of applicable  law, take any action designed to or
  that  might  reasonably  be  expected  to cause or  result  in,  or which  has
  constituted, stabilization or manipulation of the price of the Common Stock to
  facilitate  the  sale or  resale  of the  securities  issued  or  issuable  in
  connection with the transactions contemplated hereunder.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 40 of 68 Pages
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        3.24 FOREIGN CORRUPT PRACTICES; SARBANES-OXLEY.

        (a) Neither the Company nor, to the knowledge of the Company,  any agent
  or  other  person  acting  on  behalf  of the  Company  has  (i)  directly  or
  indirectly,  used any  corporate  funds  for  unlawful  contributions,  gifts,
  entertainment  or other  unlawful  expenses  related to  foreign  or  domestic
  political  activity,  (ii) made any  direct or  indirect  unlawful  payment to
  foreign or domestic  government  officials  or  employees or to any foreign or
  domestic  political parties or campaigns from corporate funds, (iii) failed to
  disclose  fully any  contribution  made by the  Company (or made by any person
  acting on its behalf of which the Company is aware)  which is in  violation of
  law, or (iv)  violated in any  material  respect any  provision of the Foreign
  Corrupt Practices Act of 1977, as amended.

        (b) The Company,  to its  knowledge,  is in  compliance  in all material
  respects with the  provisions of the  Sarbanes-Oxley  Act of 2002 (and related
  rules of the Commission) that are applicable to it as of the Closing Date.

        3.25 NO MATERIAL  TRANSACTIONS  OR EVENTS.  As of the Closing Date,  the
  Company  is not  aware of any  pending  or  proposed  merger,  acquisition  or
  disposition of assets that support 20% or more of current revenues, or revenue
  shortfall against publicly issued Company  guidance,  other than as previously
  disclosed in the SEC Reports or in a publicly disseminated press release.

        3.26 ACKNOWLEDGMENT  REGARDING THE PURCHASER'S PURCHASE OF THE NOTE. The
  Company  acknowledges  that the Purchaser is not acting as a financial advisor
  or fiduciary of the Company (or in any similar  capacity)  with respect to the
  Transaction  Documents and the transactions  contemplated  hereby and thereby,
  and any advice given by the Purchaser or any of its  representatives or agents
  in connection with the Transaction Documents and the transactions contemplated
  hereby and thereby is merely  incidental  to the  Purchaser's  purchase of the
  Note.  The Company  further  represents  to the  Purchaser  that the Company's
  decision to enter into the Transaction  Documents has been based solely on the
  independent evaluation by the Company and its representatives.

        3.27  NO  GENERAL  SOLICITATION.  Neither  the  Company,  nor any of its
  affiliates,  nor any person acting on its or their behalf,  has engaged in any
  form of general  solicitation  or general  advertising  (within the meaning of
  Regulation D) in connection with the offer or sale of the Note and the Shares.

        3.28 NO INTEGRATED OFFERING. None of the Company, its Subsidiaries,  any
  of their  affiliates,  or any person  acting on their behalf has,  directly or
  indirectly,  made any offers or sales of any security or solicited  any offers
  to buy any security,  under  circumstances that would require  registration of
  any of the Note or the Shares under the  Securities Act or cause this offering
  to be  integrated  with prior  offerings  by the Company  for  purposes of the
  Securities Act or any applicable  shareholder approval provisions,  including,
  without  limitation,  under the  rules  and  regulations  of any  exchange  or
  automated  quotation  system on which any of the securities of the Company are
  listed or designated.

        3.29 OFF-BALANCE SHEET ARRANGEMENTS.  There is no material  transaction,
  arrangement or other relationship between the Company and an unconsolidated or
  other off-balance sheet entity that is required to be disclosed by the Company
  in its Exchange Act filings and is not so disclosed



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 41 of 68 Pages
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SECTION 4.  REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

      The  Purchaser  hereby  represents  and  warrants to the Company as of the
Closing Date, and agrees, as follows:

        4.1 INVESTMENT  REPRESENTATIONS.  The Purchaser understands that neither
  the offer nor the sale of the Note or the Shares has been registered under the
  Securities Act. The Purchaser also  understands that the Note is being offered
  and  sold  pursuant  to  an  exemption  from  registration  contained  in  the
  Securities Act based in part upon the Purchaser's representations contained in
  the Agreement. The Purchaser hereby represents and warrants as follows:

      (a)  PURCHASER   BEARS  ECONOMIC  RISK.  The  Purchaser  has   substantial
experience in  evaluating  and investing in private  placement  transactions  of
securities  in  companies  similar  to the  Company  so  that it is  capable  of
evaluating  the merits and risks of its  investment  in the  Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment  indefinitely unless the Note (or the Shares) is subsequently
registered  pursuant to the Securities Act, or an exemption from registration is
available.  Except as contemplated by the  Registration  Rights  Agreement,  the
Purchaser has no present intention of selling or otherwise transferring the Note
or the Shares,  or any interest  therein.  The Purchaser also  understands  that
there is no assurance that any exemption from registration  under the Securities
Act will be available and that, even if available,  such exemption may not allow
the Purchaser to transfer all or any portion of the Note or the Shares under the
circumstances, in the amounts or at the times the Purchaser might propose.

      (b)   ACQUISITION   FOR  OWN  ACCOUNT.   Except  as  contemplated  by  the
Registration  Rights  Agreement,  the  Purchaser is  acquiring  the Note and the
Shares for the Purchaser's own account for investment  only, and not with a view
towards their public distribution.

      (c)  PURCHASER  CAN  PROTECT  ITS  INTEREST.  By reason of its,  or of its
management's business or financial experience, the Purchaser has the capacity to
protect its own interests in connection  with the  transactions  contemplated in
this Agreement,  the Note and the Registration  Rights Agreement.  Further,  the
Purchaser  is  aware  of  no  publication  of  any   advertisement   or  general
solicitation in connection with the transactions contemplated in the Agreement.

      (d) ACCREDITED  INVESTOR.  The Purchaser is an accredited  investor within
the meaning of Regulation D of the Securities Act.

      (e) RESIDENCE.  The Purchaser is organized  under the laws of the State of
Texas and its principal office is located in the State of Texas.

      (f) RULE 144. The Purchaser  acknowledges and agrees that the Note and, if
issued,  the  Shares  must be held  indefinitely  unless  they are  subsequently
registered  under the Securities Act or an exemption from such  registration  is
available.  The Purchaser has been advised or is aware of the provisions of Rule
144 promulgated under the Securities Act, which permits limited resale of shares
purchased  in a private  placement  subject  to the  satisfaction  of  specified
conditions.



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      (g) ACCESS TO INFORMATION. The Purchaser has had an opportunity to discuss
the Company's  business,  management  and  financial  affairs with the Company's
management and to review the Company's  facilities.  The Purchaser  acknowledges
that the Company has given the  Purchaser  access to the  corporate  records and
accounts of the Company, has made its officers and representatives available for
interview by the Purchaser  and has  furnished the Purchaser  with all documents
and other  information  requested by the Purchaser to make an informed  decision
with respect to the purchase of the Note.

        4.2 TRANSFER  RESTRICTIONS.  The Purchaser  acknowledges and agrees that
  the Note and, if issued,  the Shares are subject to  restrictions  on transfer
  and will bear restrictive legends.

        4.3 ORGANIZATION; AUTHORIZATION; BINDING OBLIGATIONS. The Purchaser is a
  limited  partnership  duly  organized,  validly  existing and in good standing
  under the laws of the  State of  Delaware.  The  Purchaser  has all  requisite
  limited  partnership power and authority to execute and deliver this Agreement
  and the Registration  Rights Agreement and to carry out its obligations  under
  the provisions of such documents.  This Agreement and the Registration  Rights
  Agreement,  when executed and delivered, will be valid and binding obligations
  of the Purchaser  enforceable  against the Purchaser in accordance  with their
  terms,   except  (i)  as  limited  by   applicable   bankruptcy,   insolvency,
  reorganization,  moratorium  or other  laws of general  application  affecting
  enforcement  of creditors'  rights,  (ii)  according to general  principles of
  equity that restrict the  availability of equitable  remedies and (iii) to the
  extent  that  the  enforceability  of the  indemnification  provisions  of the
  Registration Rights Agreement may be limited by applicable laws.

SECTION 5.  CONDITIONS FOR CLOSING

        5.1  CONDITIONS  FOR THE  COMPANY  TO  SATISFY.  The  obligation  of the
  Purchaser to purchase the Note as contemplated by this Agreement is subject to
  satisfaction of the following contingencies at or prior to Closing:

      (a) The Company shall have obtained all consents and approvals  from third
parties,  governmental authorities and self-regulatory organizations required in
connection herewith.

      (b) The Company  shall have  executed and  delivered  to the  Purchaser at
Closing the Transaction Documents.

      (c) The  Company's  board of  directors  shall have  approved  the Charter
Exemption Resolution.

SECTION 6.  COVENANTS

        6.1 USE OF PROCEEDS.  The Company will use the proceeds from the sale of
  the Note in  connection  with the  acquisition  of Skytel  business  and other
  general corporate purposes.

        6.2 LISTING. The Company shall promptly secure the listing of all of the
  Registrable  Securities (as defined in the Registration Rights Agreement) upon
  each national securities exchange and automated quotation system, if any, upon
  which the Common Stock is then listed (subject to official notice of issuance)
  and shall  maintain,  so long as any other  shares of Common Stock shall be so
  listed, such listing of all Registrable  Securities from time to time issuable



- ----------------------                                    ----------------------
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- ----------------------                                    ----------------------


  under the terms of the Transaction  Documents.  The Company shall maintain the
  Common Stock's authorization for listing on the Amex; provided,  however, that
  the Company makes no covenant regarding  applicable listing standards based on
  the  trading  price of the Common  Stock.  Neither  the Company nor any of its
  Subsidiaries shall take any action that would be reasonably expected to result
  in the delisting or suspension of the Common Stock on the Amex.

        6.3 NO INTEGRATED OFFERING. None of the Company, its Subsidiaries, their
  affiliates  or any person acting on their behalf will take any action or steps
  referred to in Section 3.28 that would require registration of any of the Note
  or the Shares  under the  Securities  Act or cause the offering of the Note or
  the Shares to be integrated with other offerings.

        6.4 RESERVATION OF SHARES. The Company shall take all action, including,
  without  limitation,  using  reasonable  best  efforts  to obtain  Shareholder
  Approval,  necessary  to have  authorized,  and  reserved  for the  purpose of
  issuance, the number of Shares issuable pursuant to the terms of the Note.

        6.5  SHAREHOLDER  APPROVAL.  The Company shall provide each  shareholder
  entitled to vote at the annual  meeting of  shareholders  of the Company  (the
  "SHAREHOLDER MEETING"), which shall be promptly called and held not later than
  May  31,  2007  (the  "SHAREHOLDER  MEETING  DEADLINE"),  a  proxy  statement,
  substantially  in the form which will have been  reviewed by the Purchaser and
  its  counsel,  soliciting  each  such  shareholder's  affirmative  vote at the
  Shareholder  Meeting for approval of a resolution  providing for the Company's
  issuance  of all of the  Shares  as  described  in the  Transaction  Documents
  (including all Shares  issuable under the Note) in accordance  with applicable
  law and the rules and  regulations of the Amex (such  affirmative  approval of
  such  matter  or  matters  being  referred  to  herein  as  the   "SHAREHOLDER
  APPROVAL"),  and the Company shall use its reasonable  best efforts to solicit
  its  shareholders'  approval of such  resolution and use its  reasonable  best
  efforts to cause the Board of  Directors  of the Company  (including a special
  committee of independent directors) to recommend to the shareholders that they
  approve such resolution.  The Company shall be obligated to seek to obtain the
  Shareholder  Approval by the Shareholder  Meeting Deadline.  In the event that
  the  shareholders  fail to approve  the matter or matters  referred  to in the
  first  sentence  of  this  Section  6.5 at the  2007  annual  meeting  (or any
  subsequent meeting), the Company shall seek approval for the matters set forth
  at each subsequent shareholder meeting until such matters are approved.

        6.6  BOARD  RESOLUTION.   Prior  to  the  closing  of  the  transactions
  contemplated  hereunder,  the  Company's  Board  of  Directors  shall  pass  a
  resolution  (the "Charter  Exemption  Resolution"),  in a manner that complies
  with  Article  Seven,  Section  2(a) of the  Company's  Restated  Articles  of
  Incorporation   and  otherwise   satisfactory  to  Purchaser,   exempting  all
  transactions  (whether  or  not  related  to  the  transactions   contemplated
  hereunder),  including  but  not  limited  to  equity  sales  and  acquisition
  transactions,   involving   Purchaser  or  any  affiliate   thereof  occurring
  subsequent to the date hereof from the special shareholder voting requirements
  of Article Seven of the Company's Restated Articles of Incorporation.

        6.7 CERTAIN  GOVERNANCE  PROVISIONS.  So long as Purchaser  beneficially
  owns 5% (which shall be deemed to include,  for the  avoidance  of doubt,  all
  shares of Common Stock issuable upon the conversion of the Note) of the shares




- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 44 of 68 Pages
- ----------------------                                    ----------------------

  of Common Stock outstanding, Purchaser shall have the following governance and
  other rights:

      (a) Purchaser shall have the right, in its sole  discretion,  to designate
two (2)  individuals  to the Company's  Board of Directors  (each,  a "Purchaser
Designee");  it being  further  agreed  that (1)  Purchaser  Designees  shall be
removable by, and only by, Purchaser at any time in Purchaser's  discretion (and
neither the Board of Directors nor any other  shareholder or shareholders  shall
have the right to remove any Purchaser  Designee)  and (2) Purchaser  shall have
the right in its sole  discretion to designate any replacement for any Purchaser
Designee, including to designate any director to fill any vacancy created by the
removal, death, retirement or disqualification (or other cause) of any Purchaser
Designee.  The Company shall take any and all action  necessary so that promptly
following the closing hereunder,  the Company's Board of Directors shall consist
of six directors, of which two (2) shall be designees of Purchaser.

      (b) All standing committees of the Board of Directors of the Company shall
include at least one designee of Purchaser, as determined by Purchaser; provided
that the  foregoing  right  shall not apply in respect of any  committee  of the
Board of Directors on which all Purchaser  Designees  shall be prohibited  under
the applicable SEC or exchange rules.

      (c) Any increase in the size of the Company's Board of Directors in excess
of six shall require the consent of Purchaser.

      (d) Purchaser  shall have  pre-emptive  rights to acquire Common Stock (or
other  securities) on the same terms offered to any other purchaser or potential
purchaser to maintain the percentage level of Purchaser's  beneficial  ownership
of Common  Stock  (giving  effect to the  transactions  contemplated  hereunder,
including  any  conversion of the Note) in the event of any issuance or proposed
issuance of equity or equity linked securities by the Company.

      (e) The Company's bylaws shall provide that (i) Purchaser is exempted from
the  advance  notice  requirements  set  forth  in  2.01(h)(1)  and  2.10 of the
Company's bylaws and (ii) Purchaser's written consent shall be required to amend
the  foregoing  exemption.  Prior to or  promptly  following  the closing of the
transactions  contemplated  hereunder,  the Company's  Board of Directors  shall
approve amendments to the Company's bylaws to give effect to the foregoing.

      (f) Purchaser and its affiliates  (including any further  acquisitions  of
Common Stock thereby)  shall be exempted from the provisions of any  shareholder
rights agreement or plan or similar defensive mechanism adopted by the Company.

The Company,  including its Board of Directors,  agrees to take all such actions
as shall be required to give full effect to the foregoing rights,  including (1)
taking all actions to ensure that the Company's  governing  documents are not at
any  time  inconsistent  with the  foregoing  provisions  and (2) if  necessary,
soliciting proxies from the shareholders of the Company eligible to vote for the
election of Purchaser Designees.

        6.8 FURTHER  ASSURANCES.  Except to the extent  permitted  by the Senior
  Credit Agreement (as defined in the Note), each party shall do and perform, or
  cause to be done and  performed,  all such further acts and things,  and shall
  execute and deliver all such other agreements,  certificates,  instruments and
  documents, as the other party may reasonably request in order to carry out the



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 45 of 68 Pages
- ----------------------                                    ----------------------

  intent and accomplish the purposes of this Agreement and the  consummation  of
  the transactions contemplated hereby, including, without limitation, to enable
  the full conversion of the Note.

SECTION 7.  MISCELLANEOUS

        7.1 Governing Law. This  Agreement  shall be governed by the laws of the
  State of Texas,  without  regard to conflicts of law  principles.  EACH OF THE
  PARTIES TO THIS AGREEMENT  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  AGREEMENT,  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  AGREEMENT 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 AGREEMENT 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.

        7.2 SURVIVAL. The representations,  warranties, covenants and agreements
  made  herein  shall  survive  any  investigation  made by the  parties and the
  closing of the transactions  contemplated hereby until the earlier to occur of
  (a) the Maturity Date (as defined in the Note) of the Note and (b) the payment
  (or  conversion)  in full of the principal  amount of the Note and any accrued
  but unpaid interest thereon;  provided that,  notwithstanding  anything to the
  contrary,  the  provisions  set forth in Section 6.7 hereof  shall  survive in
  accordance with the express terms of Section 6.7. All statements as to factual
  matters  contained in any certificate or other  instrument  delivered by or on
  behalf of the Company  pursuant  hereto in  connection  with the  transactions
  contemplated  hereby shall be deemed to be  representations  and warranties by
  the Company hereunder solely as of the date of such certificate or instrument.

        7.3  SUCCESSORS  AND  ASSIGNS.  Except as otherwise  expressly  provided
  herein,  the  provisions  hereof shall inure to the benefit of, and be binding
  upon, the successors,  assigns,  heirs,  executors and  administrators  of the
  parties  hereto and shall inure to the benefit of and be  enforceable  by each
  person who shall be a holder of the Note or the Shares from time to time.  The
  Company shall not assign this Agreement or any rights or obligations hereunder
  without the prior written  consent of the Purchaser.  The Purchaser may assign
  some or all of its  rights  hereunder  (other  than the  rights  set  forth in
  Section 6.7 hereof,  except Section 6.7(f) which  exemption  shall continue to
  apply to any transferee of the Note in respect of Shares issuable  thereunder)
  without  the  consent of the  Company  in  connection  with a transfer  by the
  Purchaser of any of the Notes or the Shares.

        7.4 ENTIRE AGREEMENT.  The Transaction Documents and the other documents
  delivered  pursuant hereto  constitute the full and entire  understanding  and
  agreement  between the parties with regard to the subjects  hereof and thereof
  and no party  shall be  liable  or bound  to the  other in any  manner  by any



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 46 of 68 Pages
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  representations,  warranties, covenants and agreements, except as specifically
  set forth herein and therein.

        7.5 SEVERABILITY. The invalidity,  illegality or unenforceability of one
  or more of the  provisions  of this  Agreement in any  jurisdiction  shall not
  affect the  validity,  legality or  enforceability  of the  remainder  of this
  Agreement in such jurisdiction or the validity,  legality or enforceability of
  this Agreement,  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.

        7.6 AMENDMENT AND WAIVER. This Agreement may be amended or modified, and
  any provision  hereunder may be waived,  only upon the written  consent of the
  Company and the Purchaser.

        7.7 NOTICES.  All notices,  requests,  consents and other communications
  hereunder  shall be made in writing and shall be deemed given (i) when made if
  made by hand  delivery,  (ii) one business day after being  deposited  with an
  overnight courier if made by courier guaranteeing overnight delivery, (iii) on
  the date  indicated  on the  notice of receipt  if made by  first-class  mail,
  return  receipt  requested or (iv) on the date of  confirmation  of receipt of
  transmission by facsimile, addressed as follows:

      (a)   if to the Company, at

            Bell Industries, Inc.
            8888 Keystone Crossing
            Suite 1700
            Indianapolis, Indiana 46240
            Facsimile: (317) 715-6816
            Attention:  Chief Financial Officer

            with a copy to:

            Manatt, Phelps & Phillips, LLP
            11355 West Olympic Boulevard
            Los Angeles, CA 90064
            Facsimile:  (310) 914-5712
            Attention:  Mark Kelson, Esq.

      (b)   if to the Purchaser, in care of:

            Newcastle Partners, L.P.
            200 Crescent Court, Suite 1400
            Dallas, TX  75201
            Facsimile:  (214) 661-7475
            Attention:  Evan D. Stone, Esq.



- ----------------------                                    ----------------------
CUSIP No. 078 107 109                   13D                  Page 47 of 68 Pages
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        7.8 INDEMNIFICATION BY THE COMPANY.  The Company agrees to indemnify and
  hold the Purchaser  harmless  against any loss,  liability,  damage or expense
  (including  reasonable  legal fees and costs) that the  Purchaser  may suffer,
  sustain or become  subject to as a result of or in connection  with the breach
  by the Company of any representation,  warranty,  covenant or agreement of the
  Company contained in any of the Transaction Documents; provided, however, that
  no  indemnification  shall be required hereunder for the negligence or willful
  misconduct  of  the  Purchaser  or  breach  by  the  Purchaser  of  any of the
  representations and warranties set forth in Section 4 hereof. In case any such
  action is brought  against  the  Purchaser,  the  Company  will be entitled to
  participate  in  and  assume  the  defense  thereof  with  counsel  reasonably
  satisfactory  to the  Purchaser,  and after  notice  from the  Company  to the
  Purchaser of its election to assume the defense thereof, the Company shall not
  be responsible  for any legal or other expenses  subsequently  incurred by the
  Purchaser  in  connection  with the  defense  thereof;  provided,  that if the
  Purchaser shall have reasonably  concluded that there may be one or more legal
  defenses  available to the Purchaser  which  conflict in any material  respect
  with those  available to the Company,  the Company shall not have the right to
  assume the defense of such action on behalf of the  Purchaser  and the Company
  shall reimburse the Purchaser for that portion of the fees and expenses of one
  counsel retained by the Purchaser.

        7.9 EXPENSES.  The Company  agrees to pay or reimburse the Purchaser for
  its  reasonable  legal fees and expenses  incurred by Purchaser in  connection
  with the negotiation  and execution of the  Transaction  Documents and any and
  all expenses that Purchaser may incur after the date hereof in connection with
  the  granting of any waiver with  respect to, the  modification  of any of the
  terms  or  provisions  of,  or the  enforcement  of  any  of  the  Transaction
  Documents.

        7.10 TITLES AND SUBTITLES. The titles of the sections and subsections of
  the  Agreement  are  for  convenience  of  reference  only  and  are not to be
  considered in construing this Agreement.

        7.11  COUNTERPARTS.  This  Agreement  may be delivered  via facsimile or
  other means of electronic communication,  and may be executed in counterparts,
  each of which shall be an original, but all of which together shall constitute
  one instrument.



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      IN WITNESS  WHEREOF,  the  parties  hereto  have  hereunto  affixed  their
signatures.

BELL INDUSTRIES, INC.                   NEWCASTLE PARTNERS, L.P.
                                        By: Newcastle  Capital  Management, L.P.
                                        its General Partner

By                                      By
  ----------------------------------      ----------------------------------

Its                                     Its
   ---------------------------------       ---------------------------------





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                                    EXHIBIT A

                                  FORM OF NOTE





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                                    EXHIBIT B

                      FORM OF REGISTRATION RIGHTS AGREEMENT




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                                                                       Exhibit 4

                          REGISTRATION RIGHTS AGREEMENT

      THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of
January 27, 2007, by and between BELL INDUSTRIES, INC., a California corporation
(the "COMPANY"),  and NEWCASTLE PARTNERS,  L.P. a Texas limited partnership (the
"INVESTOR").

                                R E C I T A L S :

      WHEREAS,  the Company has entered  into that certain  Purchase  Agreement,
dated  as of the date  hereof  (the  "PURCHASE  AGREEMENT"),  with the  Investor
pursuant  to which the  Company  has agreed to issue and sell to the  Investor a
convertible promissory note (the "NOTE");

      WHEREAS,  the Company has agreed to grant certain registration rights with
respect to the shares of the Company's  Common Stock issuable upon conversion of
the Note;

      NOW,  THEREFORE,  in  consideration  of the  foregoing  and of the  mutual
promises  and  covenants  contained  herein,  and for  other  good and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound, hereby agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

      Capitalized  terms used but not defined  herein shall have the  respective
meanings given to them in the Purchase Agreement.

      As used herein,  the following  terms shall have the following  respective
meanings:

      1.1 "COMMISSION" shall mean the U.S. Securities and Exchange Commission or
any other successor federal agency at the time administering the Securities Act.

      1.2   "COMMON STOCK" shall mean the Company's common stock.

      1.3  "EXCHANGE  ACT" shall mean the  Securities  Exchange Act of 1934,  as
amended,  or any similar  federal  statute and the rules and  regulations of the
Commission thereunder, all as the same shall be in effect at the time.

      1.4  "HOLDERS"  shall mean and include  the  Investor  and any  transferee
thereof who holds Registrable Securities of record.

      1.5 "REGISTER,"  "REGISTERED" and  "REGISTRATION"  refer to a registration
effected by preparing and filing with the Commission a registration statement in
compliance  with the  Securities  Act,  and the  declaration  or ordering by the
Commission of the effectiveness of such registration statement.

      1.6 "REGISTRABLE  SECURITIES" means any and all shares of Common Stock (i)
issued or issuable upon  conversion of the Note and (ii) issued or issuable with
respect  to the  Common  Stock  referred  to in clause  (i) above upon any stock
split, stock dividend, recapitalization,  reclassification,  exchange, merger or



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other similar  event.  The term  "Registrable  Securities"  shall exclude in all
cases, however, such shares of Common Stock (i) following their sale by a Holder
to the public pursuant to a registered  offering or pursuant to Rule 144 or (ii)
sold in a private  transaction in which the Holder's  registration  rights under
this Agreement are not assigned.

      1.7  "REGISTRATION  EXPENSES"  shall  mean all  reasonable  and  customary
expenses  incurred by the Company in complying  with Articles 2, 3 and 5 hereof,
including,  without limitation, all registration,  qualification and Commission,
National  Association  of Securities  Dealers,  Inc.,  stock  exchange and other
filing fees, printing expenses,  duplication  expenses relating to copies of any
registration statement or prospectus delivered to any Holders, escrow fees, fees
and  disbursements of legal counsel for the Company,  fees and  disbursements of
the Company's accountants and blue sky fees and expenses.

      1.8 "RULE 144" shall mean Rule 144 under the  Securities  Act or any other
similar rule or regulation then in effect.

      1.9 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar  federal  statute and the rules and  regulations  of the  Commission
thereunder, all as the same shall be in effect at the time.

      1.10 "SELLING  EXPENSES" shall mean all underwriting  fees,  discounts and
selling  commissions  applicable  to the  Registrable  Securities  registered on
behalf of the Holders and the fees and expenses of any special  counsel  engaged
by the Holders.

                                    ARTICLE 2
                              REQUIRED REGISTRATION

      2.1   REQUEST FOR REGISTRATION.

      (a) At any time from and after the date  hereof,  the  Investor may make a
written  request  to the  Company  to file a  registration  statement  under the
Securities Act covering all or part of the  Registrable  Securities then held by
the  Investor.  No later than 30 days  following  its  receipt  of such  written
request (the "DEMAND  REGISTRATION  FILING DATE"),  the Company will prepare and
file with the  Commission a  registration  statement  under the  Securities  Act
covering all of the Registrable Securities requested to be included therein, and
the Company will use its reasonable best efforts to obtain the  effectiveness of
such  registration  as soon as  practicable  as would permit or  facilitate  the
original  issuance  or  subsequent  resale and  distribution  of all  securities
requested  to be  registered.  If,  however,  the Company  shall  furnish to the
Investor a  certificate  signed by the Chief  Operating  Officer of the  Company
prior to the Demand  Registration  Filing Date stating  that,  in the good faith
judgment  of the  Board of  Directors  of the  Company,  it  would be  seriously
detrimental to the Company and its shareholders for such registration  statement
to be filed by reason of a material pending transaction,  then the Company shall
have the right to defer such  filing for a period of not more than 90 days after
the Demand Registration  Filing Date. Such registration  statement shall contain
(unless the Investor otherwise directs) substantially the "Plan of Distribution"
attached hereto as ANNEX A.

      (b) The  Company  shall be  obligated  to  effect  only  one  registration
pursuant to this Section 2.1,  subject to the  provisions of Section 2.2. If any
registration  is commenced  pursuant to this Section 2.1 and is not  consummated



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for any reason whatsoever (a "FAILED  REGISTRATION"),  such Failed  Registration
shall not be deemed to constitute a registration  under this Section 2.1 and the
Investor  shall retain its rights  pursuant to this Section 2.1. Any expenses in
connection with a Failed Registration shall be paid in accordance with Article 4
hereof.

      2.2 SHELF  REGISTRATION.  At any time from and after the date  hereof  and
from time to time,  the  Investor  may make a written  request to the Company to
prepare and file with the Commission a shelf  registration  statement  under the
Securities Act covering all of the Registrable  Securities then outstanding on a
delayed or continuous  basis  pursuant to Section 415 of the  Securities  Act (a
"SHELF  REGISTRATION").  No later  than 30 days  following  its  receipt of such
written request (the "SHELF REGISTRATION FILING DATE"), the Company will prepare
and file with the Commission a registration  statement  under the Securities Act
covering all of the Registrable  Securities requested to be included therein and
the Company will use its reasonable best efforts to obtain the  effectiveness of
such  registration  as soon as  practicable  as would permit or  facilitate  the
original  issuance  or  subsequent  resale and  distribution  of all  securities
requested to be registered hereunder.  If, however, the Company shall furnish to
the Holders a certificate  signed by the Chief Operating  Officer of the Company
within 30 days of the Shelf  Registration  Filing Date stating that, in the good
faith  judgment of the Board of Directors of the Company,  it would be seriously
detrimental to the Company and its shareholders for such registration  statement
to be filed by reason of a material pending transaction,  then the Company shall
have the right to defer such  filing for a period of not more than sixty 90 days
after the Shelf  Registration  Filing Date.  Such  registration  statement shall
contain  (unless  the  Holders  otherwise  direct)  substantially  the  "Plan of
Distribution"  attached  hereto  as ANNEX  A.  Notwithstanding  anything  to the
contrary,  in the case of any shelf  registration  pursuant to this Section 2.2,
the  Company  shall  use  its  reasonable  best  efforts  to keep  the  relevant
registration  statement  effective until the date as of which all the securities
requested to be registered  (including whether or not subsequently  transferable
under Rule 144) under the shelf registration  statement have been disposed of in
a manner described  therein.  Notwithstanding  anything to the contrary,  in the
event that the Company is not eligible to effect a Shelf Registration,  (a) this
Section 2.2 shall not apply and (b) Investor  shall have two (as opposed to one)
demand  rights  pursuant to Section 2.1;  provided that the Company shall not be
obligated to effect more than one demand registration pursuant to Section 2.1 in
any twelve consecutive calendar months.

      2.3   UNDERWRITING.

      (a) The resale  distribution of the Registrable  Securities covered by the
registration  statements  referred  to in  Section  2.1 and 2.2  above  shall be
effected by means of the method of distribution  selected by the Holders holding
a majority in  interest of the  Registrable  Securities.  The Holders  holding a
majority in interest of the  Registrable  Securities  may also change the resale
distribution  method from time to time (subject to amendment of the registration
statement at the expense of the Holders as required to describe  such  changes).
If such  distribution is effected by means of an underwriting,  the right of any
Holder to registration pursuant to this Article 2 shall be conditioned upon such
Holder's  participation in such  underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.



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      (b) If such  distribution  is  effected by means of an  underwriting,  the
Company  (together  with all Holders  proposing to distribute  their  securities
through  such  underwriting)  shall  enter  into an  underwriting  agreement  in
customary  form with a managing  underwriter of nationally  recognized  standing
selected  for such  underwriting  by a majority  in  interest of the Holders and
approved  by  the  Company  (such  consent  not  to be  unreasonably  withheld);
provided,  however,  that the  liability of each Holder  thereunder  shall in no
event exceed an amount equal to the net proceeds  from the offering  received by
such Holder.

      (c) Notwithstanding any other provision of this Article 2, if the managing
underwriter determines that marketing factors require a limitation of the number
of  shares to be  underwritten,  the  Company  shall so advise  all  Holders  of
Registrable Securities, and the number of shares of Registrable Securities to be
included in the underwriting shall be allocated among the Holders of Registrable
Securities  that have elected to participate in such  underwritten  offering pro
rata  according  to the number of  Registrable  Securities  held by each Holder.
Without the consent of a majority in  interest  of the  Holders,  no  securities
other than Registrable Securities shall be covered by such registration.

      (d) If any  Holder  disapproves  of the  terms of the  underwriting,  such
Holder may elect to withdraw  therefrom by written  notice to the  Company,  the
managing  underwriter  and the other Holders,  and the  applicable  registration
shall be deemed to be a Failed  Registration  (and the Investor shall retain its
demand rights) for purposes of Section 2.1(b) hereof. The Registrable Securities
so withdrawn shall also be withdrawn from registration.

                                    ARTICLE 3
                              COMPANY REGISTRATION

      3.1 NOTICE OF  REGISTRATION  TO  INVESTOR.  If at any time or from time to
time from and after the date hereof, the Company shall determine to register any
of its  securities,  either  for its own  account  or the  account of a security
holder or holders,  other than (i) a  registration  relating  solely to employee
benefit plans on Form S-8 (or any successor  form),  (ii) a registration on Form
S-4 (or any  successor  form),  (iii) a  registration  on any form that does not
permit  secondary  sales  or (iv) a  registration  relating  solely  to a rights
offering, the Company will:

      (a) promptly give to the Investor written notice thereof; and

      (b) include in such registration (and any related qualification under blue
sky laws or other compliance),  and in any underwriting involved therein, all of
the Registrable  Securities specified in a written request,  made within 15 days
after  receipt of such  written  notice  from the Company  described  in Section
3.1(a),  by the Investor,  but only to the extent that the original  issuance or
resale distribution of such Registrable  Securities is not already covered by an
effective registration statement under Article 2 above.

      3.2   UNDERWRITING.

      (a) If the  registration  of which  the  Company  gives  notice  is for an
offering involving an underwriting,  the Company shall so advise the Investor as
part of the written notice given pursuant to Section 3.1(a).  In such event, the
right of the  Investor  to  registration  pursuant  to this  Article  3 shall be
conditioned  upon the  Investor's  participation  in such  underwriting  and the



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inclusion of the Investor's  Registrable  Securities in the  underwriting to the
extent  provided  herein.  The Investor shall  (together with the Company) enter
into an underwriting  agreement in customary form with the managing  underwriter
selected for such  underwriting  by the  Company;  provided,  however,  that the
liability of the Investor thereunder shall in no event exceed an amount equal to
the net proceeds from the offering received by the Investor.

      (b) Notwithstanding any other provision of this Article 3, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten,  the Company shall so advise the Investor, and the
number of shares of Common  Stock to be included in such  registration  shall be
allocated as follows:  (i) first, for the account of the Company,  all shares of
Common  Stock  proposed  to be sold by the  Company;  and (ii)  second,  for the
account of the Investor and any other shareholders of the Company  participating
in such  registration,  the  number of shares of Common  Stock  requested  to be
included in the  registration  by the  Investor and such other  shareholders  in
proportion,  as nearly as practicable,  to the respective  number of shares that
are proposed to be offered and sold by the Investor and such other  shareholders
at the time of filing the registration  statement.  No Registrable Securities or
other shares of Common Stock excluded from the underwriting in this Article 3 by
reason of the  underwriters'  marketing  limitation  shall be  included  in such
registration.

      (c) The Company  shall so advise the Investor  and the other  shareholders
distributing  their securities  through such underwriting of any such limitation
and the  number of  shares  that may be  included  in the  registration.  If the
Investor  disapproves  of the terms of any such  underwriting,  the Investor may
elect to withdraw  therefrom  by written  notice to the Company and the managing
underwriter.  Any securities  excluded or withdrawn from such underwriting shall
be withdrawn from such registration.

      (d) The  Company  shall  have  the  right to  terminate  or  withdraw  any
registration  initiated by it under this Article 3 prior to the effectiveness of
such  registration,   whether  or  not  the  Investor  has  elected  to  include
Registrable  Securities in such  registration;  provided that the Investor shall
have the right to convert such registration into a demand  registration  covered
by Section 2.1 hereof.

                                    ARTICLE 4
                            EXPENSES OF REGISTRATION

      All Registration  Expenses  incurred in connection with any  registration,
qualification  or  compliance  pursuant  to  Articles  2,  3 and 5  hereof,  the
reasonable fees of one counsel for the Holders of Registrable  Securities in the
case of a registration in which a Holder  participates and any other similar out
of pocket expenses  incurred by any Holder or Holders pursuant to any applicable
underwriting  agreement in connection  with a registration  hereunder  shall, in
each case, be borne by the Company. All Selling Expenses relating to Registrable
Securities registered on behalf of a Holder shall be borne by such Holder.



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                                    ARTICLE 5
                             REGISTRATION PROCEDURES

      (a) In the case of each  registration  effected by the Company pursuant to
this  Agreement,  the Company will keep each Holder advised in writing as to the
initiation of each  registration and as to the completion  thereof.  The Company
agrees to use its reasonable  best efforts to effect or cause such  registration
to permit the sale of the Registrable  Securities covered thereby by the Holders
thereof in  accordance  with the  intended  method or  methods  of  distribution
thereof  described  in such  registration  statement.  In  connection  with  any
registration of any Registrable Securities, the Company shall:

            (i) prepare and file with the  Commission a  registration  statement
      with respect to such  Registrable  Securities and use its reasonable  best
      efforts to cause such registration statement filed to become effective;

            (ii)  prepare  and file  with the  Commission  such  amendments  and
      supplements to such  registration  statement and the  prospectus  included
      therein as may be necessary to effect and  maintain the  effectiveness  of
      such  registration   statement   pursuant  to  the  applicable  rules  and
      regulations of the Commission and the instructions  applicable to the form
      of such registration statement (provided,  however, that the Company shall
      not  be  obliged  to  maintain  the  effectiveness  of  such  registration
      statement  longer than through the earlier of (A) two years  following the
      effective  date of such  registration  statement  and (B) such time as all
      Registrable  Securities  registered  thereunder have been sold pursuant to
      such  registration   statement),   and  furnish  to  the  Holders  of  the
      Registrable  Securities  covered  thereby copies of any such supplement or
      amendment prior to its use and/or filing with the Commission;

            (iii)  permit  one legal  counsel  for the  Holders  of  Registrable
      Securities  to be  included  in a  registration  statement  to review  and
      comment upon a registration statement,  and all amendments and supplements
      thereto,  within a reasonable  amount of time prior to its filing with the
      Commission,  and not file any  registration  statement,  or  amendment  or
      supplement  thereto,  in a form to which such legal counsel reasonably and
      timely objects.  The Company shall furnish to such legal counsel,  without
      charge, copies of any correspondence from the Commission to the Company or
      its representatives relating to any registration statement;

            (iv)  promptly  notify the Holders of  Registrable  Securities to be
      included in a  registration  statement  hereunder,  the sales or placement
      agent,  if any,  therefor and the managing  underwriter  of the securities
      being sold, and confirm such advice in writing, (A) when such registration
      statement or the prospectus  included therein or any prospectus  amendment
      or supplement or post-effective amendment has been filed and, with respect
      to such registration statement or any post-effective  amendment,  when the
      same has become  effective,  (B) of the issuance by the  Commission of any
      stop order suspending the effectiveness of such registration  statement or
      the initiation of any proceedings for that purpose,  (C) of the receipt by
      the Company of any  notification  with  respect to the  suspension  of the
      qualification  of the Registrable  Securities for sale in any jurisdiction
      or the initiation or  threatening of any proceeding for such purpose,  (D)
      of any request by the  Commission  for any  amendment or  supplement  to a



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      registration statement or related prospectus or related information or (E)
      if, at any time when a prospectus  is required to be  delivered  under the
      Securities Act, such registration statement or prospectus, or any document
      incorporated  by  reference  in any of the  foregoing,  contains an untrue
      statement of a material  fact or omits to state any material fact required
      to be stated  therein or  necessary  to make the  statements  therein  not
      misleading in light of the  circumstances  then  existing.  In the case of
      clause (E), the Company shall  promptly  prepare a supplement or amendment
      to such  registration  statement  to  correct  such  untrue  statement  or
      omission;

            (v) use its reasonable  best efforts to obtain the withdrawal of any
      order suspending the effectiveness of such  registration  statement or any
      post-effective  amendment thereto or of any order suspending or preventing
      the use of any related  prospectus or suspending the  qualification of any
      Registrable Securities included in such registration statement for sale in
      any jurisdiction at the earliest practicable date;

            (vi) furnish to each Holder of Registrable Securities to be included
      in such registration  statement hereunder,  each placement or sales agent,
      if any, therefor and each underwriter,  if any, thereof, without charge, a
      conformed  copy of such  registration  statement  and  any  amendment  and
      supplement  thereto (in each case  including  all exhibits  and  documents
      incorporated  by  reference)  and such number of copies of the  prospectus
      included  in  such  registration  statement  (including  each  preliminary
      prospectus,  any summary prospectus and any free writing prospectus),  and
      any amendment or supplement  thereto,  as such Holder,  agent, if any, and
      underwriter,  if any, may  reasonably  request in order to facilitate  the
      disposition of the Registrable  Securities  owned by such Holder,  sold by
      such agent or underwritten by such  underwriter and to permit such Holder,
      agent and underwriter to satisfy the prospectus  delivery  requirements of
      the Securities Act;

            (vii) use its reasonable best efforts to (A) register or qualify the
      Registrable Securities to be included in such registration statement under
      such other  securities  laws or blue sky laws of such states of the United
      States or the District of Columbia as may be  reasonably  requested by the
      Holders of a majority of such Registrable Securities participating in such
      registration,  each  placement  or sales  agent,  if any,  therefor or the
      managing  underwriter,  if any,  thereof,  (B) keep such  registrations or
      qualifications in effect and comply with such laws at all times during the
      period  described in Section 5(a)(ii) above, and (C) take any and all such
      actions as may be reasonably  necessary to enable such Holder,  agent,  if
      any,  and  underwriter,  if any, to  consummate  the  disposition  in such
      jurisdictions of such Registrable Securities;  provided,  however, that in
      order to fulfill the foregoing  obligations under this Section  5(a)(vii),
      the  Company  shall  not  (unless  otherwise  required  to do  so  in  any
      jurisdiction)  be required to (1)  qualify  generally  to do business as a
      foreign  company  or a  broker-dealer,  (2)  execute a general  consent to
      service of process or (3) subject itself to taxation;

            (viii) furnish,  at the request of the Holders of a majority of such
      Registrable  Securities  participating in such  registration,  on the date
      that such  Registrable  Securities are delivered to the  underwriters  for
      sale, if such securities are being sold through underwriters,  or, if such
      securities are not being sold through  underwriters,  on the date that the



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      registration  statement with respect to such securities becomes effective,
      (i) an opinion, dated as of such date, of counsel representing the Company
      for  the  purposes  of such  registration,  in form  and  substance  as is
      customarily  given to underwriters in an underwritten  public offering and
      reasonably  satisfactory  to  a  majority  in  interest  of  the  Holders,
      addressed  to the  underwriters,  if any,  and to such  Holders and (ii) a
      letter,  dated as of such  date,  from the  independent  certified  public
      accountants of the Company,  in form and substance as is customarily given
      by  independent   certified  public  accountants  to  underwriters  in  an
      underwritten public offering and reasonably  satisfactory to a majority in
      interest of the Holders,  addressed to the  underwriters,  if any, and, if
      permitted by applicable accounting standards, to such Holders; and

            (ix)  otherwise use its  reasonable  best efforts to comply with all
      applicable  rules and regulations of the Commission in connection with any
      registration hereunder.

      (b) The Company may require each Holder of  Registrable  Securities  as to
which any  registration  is being  effected to furnish in writing to the Company
such information  regarding such Holder and such Holder's method of distribution
of such  Registrable  Securities as the Company may from time to time reasonably
request.  Each  such  Holder  agrees  to  notify  the  Company  as  promptly  as
practicable of any inaccuracy or change in information  previously  furnished by
such  Holder to the  Company  or of the  occurrence  of any event as a result of
which any prospectus relating to such registration  contains an untrue statement
of a material fact regarding such Holder or the distribution of such Registrable
Securities  or omits to state any  material  fact  regarding  such Holder or the
distribution  of such  Registrable  Securities  required to be stated therein or
necessary  to make  the  statements  therein  not  misleading  in  light  of the
circumstances  then  existing,  and  promptly  to  furnish  to the  Company  any
additional  information  required to correct and update any previously furnished
information or required so that such prospectus shall not contain,  with respect
to such Holder or the  distribution of such  Registrable  Securities,  an untrue
statement  or a material  fact or omit to state a material  fact  required to be
stated  therein or necessary to make the  statements  therein not  misleading in
light of the circumstances then existing.

      (c) Each of the Holders will comply with the  provisions of the Securities
Act with respect to disposition of the Registrable  Securities to be included in
any registration statement filed by the Company.

                                    ARTICLE 6
                                 INDEMNIFICATION

      6.1  The  Company  will  indemnify  each  Holder,  each  of its  officers,
directors and partners, such Holder's legal counsel and independent accountants,
if any, each person  controlling such Holder within the meaning of Section 15 of
the Securities Act, each  underwriter,  if any, and each person who controls any
underwriter  within the meaning of Section 15 of the  Securities Act against all
expenses,  claims,  losses,  damages  and  liabilities  (or  actions  in respect
thereof),  including  any  of  the  foregoing  incurred  in  settlement  of  any
litigation,  commenced  or  threatened,  arising  out of or based on any  untrue
statement (or alleged  untrue  statement)  of a material  fact  contained in any
registration statement or prospectus, or any amendment or supplement thereto, or
any omission (or alleged  omission) to state therein a material fact required to



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be stated therein or necessary to make the statements therein not misleading, or
any  violation by the Company of any rule or  regulation  promulgated  under the
Securities  Act or any state  securities  laws  applicable  to the  Company  and
relating  to action or  inaction  by the  Company  in  connection  with any such
registration,  qualification or compliance, and will reimburse each such Holder,
each of its officers,  directors and partners,  such Holder's  legal counsel and
independent  accountants,   each  person  controlling  such  Holder,  each  such
underwriter and each person who controls any such  underwriter for any legal and
other expenses reasonably  incurred in connection with investigating,  preparing
or  defending  any such claim,  loss,  damage,  liability  or action;  provided,
however, that the Company will not be liable in any such case to the extent that
any such expense,  claim, loss, damage,  liability or action arises out of or is
based on any untrue  statement  or  omission  or  alleged  untrue  statement  or
omission  made in  reliance  upon and in  conformity  with  written  information
furnished to the Company by such Holder  expressly for use in such  registration
statement or prospectus, or any amendment or supplement thereto.

      6.2 Each Holder will, if  Registrable  Securities  held by such Holder are
included  in the  securities  as to which such  registration,  qualification  or
compliance  is being  effected,  severally  indemnify  the Company,  each of its
directors and  officers,  its legal counsel and  independent  accountants,  each
underwriter,  if any, of the Company's securities covered by such a registration
statement,  each person who controls the Company or such underwriter  within the
meaning of Section 15 of the Securities Act, and each other such Holder, each of
its officers, directors, partners, legal counsel and independent accountants, if
any, and each person controlling such Holder within the meaning of Section 15 of
the  Securities  Act,  against  all  expenses,   claims,   losses,  damages  and
liabilities  (or actions in respect  thereof),  including  any of the  foregoing
incurred in settlement of any litigation,  commenced or threatened,  arising out
of or based on any untrue statement (or alleged untrue  statement) of a material
fact  contained  in  any  such  registration  statement  or  prospectus,  or any
amendment or supplement  thereto, or any omission (or alleged omission) to state
therein a material fact  required to be stated  therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors,  officers,  partners,  legal counsel,  independent  accountants,
underwriters  and control  persons for any legal and other  expenses  reasonably
incurred in  connection  with  investigating,  preparing or  defending  any such
claim, loss,  damage,  liability or action, in each case to the extent, but only
to the extent,  that such untrue  statement  (or alleged  untrue  statement)  or
omission  (or  alleged  omission)  is  made in such  registration  statement  or
prospectus or amendment or  supplement  in reliance upon and in conformity  with
written  information  furnished  to the  Company by such Holder  regarding  such
Holder and/or such  Holder's  method of  distribution  expressly for use in such
registration  statement or prospectus,  or any amendment or supplement  thereto;
provided,  however,  that the  obligations  of each  Holder  hereunder  shall be
limited to an amount  equal to the net  proceeds to such  Holder of  Registrable
Securities sold pursuant to such registration statement.

      6.3 Each party  entitled  to  indemnification  under  this  Article 6 (the
"INDEMNIFIED  PARTY")  shall  give  notice  to the  party  required  to  provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the  Indemnifying  Party to assume  the  defense of any such claim or any
litigation  resulting  therefrom,  provided  that  counsel for the  Indemnifying
Party,  who shall  conduct  the  defense of such claim or  litigation,  shall be
approved by the  Indemnified  Party (whose  approval shall not  unreasonably  be
withheld). The Indemnified Party may participate in such defense at such party's



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expense;  provided,  however, that the Indemnifying Party shall bear the expense
of such defense of the Indemnified  Party if  representation  of both parties by
the same counsel would be inappropriate due to actual or potential  conflicts of
interest. The failure of any Indemnified Party to give notice as provided herein
shall  not  relieve  the  Indemnifying  Party  of  its  obligations  under  this
Agreement,  unless such failure is materially  prejudicial to the ability of the
Indemnifying  Party to defend the action. No Indemnifying  Party, in the defense
of any  such  claim or  litigation,  shall,  except  with  the  consent  of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which  does not  include  as an  unconditional  term  thereof  the giving by the
claimant or plaintiff to such Indemnified  Party of a release from all liability
in respect of such claim or litigation.

      6.4  If  the  indemnification  provided  for  in  Section  6.1  or  6.2 is
unavailable or  insufficient  to hold harmless an Indemnified  Party,  then each
Indemnifying  Party  shall  contribute  to the  amount  paid or  payable by such
Indemnified  Party as a result  of the  expenses,  claims,  losses,  damages  or
liabilities  (or  actions or  proceedings  in respect  thereof)  referred  to in
Section 6.1 or 6.2, in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Holders of  Registrable  Securities
on the other hand in connection  with  statements or omissions which resulted in
such expenses, claims, losses, damages or liabilities (or actions or proceedings
in respect thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things,  whether
the untrue or alleged  untrue  statement  of a material  fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the  Holders of  Registrable  Securities  and the  parties'  relative
intent,  knowledge,  access to information and opportunity to correct or prevent
such untrue  statement  or omission.  The Company and the Holders  agree that it
would not be just and  equitable if  contributions  pursuant to this Section 6.4
were to be determined by pro rata allocation (even if all Holders of Registrable
Securities  were treated as one entity for such  purpose) or by any other method
of  allocation  which  does not take  account  of the  equitable  considerations
referred to in the first  sentence of this  Section  6.4.  The amount paid by an
Indemnified  Party as a result  of the  expenses,  claims,  losses,  damages  or
liabilities  (or actions or proceedings in respect  thereof)  referred to in the
first sentence of this Section 6.4 shall be deemed to include any legal or other
expenses  reasonably  incurred  by such  Indemnified  Party in  connection  with
investigating or defending any claim,  action or proceeding which is the subject
of this Section 6.4. No person  guilty of fraudulent  misrepresentation  (within
the  meaning of  Section  11(f) of the  Securities  Act)  shall be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.  The  obligations  of Holders of  Registrable  Securities  to
contribute  pursuant to this Section 6.4 shall be several in  proportion  to the
respective  amount  of  Registrable  Securities  sold  by  them  pursuant  to  a
registration  statement,  and shall be  limited  to an  amount  equal to the net
proceeds to each such Holder of  Registrable  Securities  sold  pursuant to such
registration statement.

                                    ARTICLE 7
                               RULE 144 REPORTING

      With a view  to  making  available  the  benefits  of  certain  rules  and
regulations of the Commission that may at any time permit the sale of securities
of the Company to the public without registration, the Company agrees to use its
reasonable best efforts to:



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      7.1 Make and keep public information  regarding the Company available,  as
those terms are  understood and defined in Rule 144, at all times after the date
hereof; and

      7.2 File with the  Commission  in a timely  manner all  reports  and other
documents required of the Company under the Securities Act and the Exchange Act.

                                    ARTICLE 8
                         TRANSFER OF REGISTRATION RIGHTS

      The rights to cause the Company to register  Registrable  Securities under
Section 2.2 of this Agreement, together with all related rights and obligations,
may be assigned by a Holder to any other person; provided, however, that (A) the
transferor  shall furnish to the Company  written notice of the name and address
of such  transferee  or assignee and the  securities  with respect to which such
registration  rights  are being  assigned  prior to such  transfer  and (B) such
transferee  shall agree in writing to be subject to all applicable  restrictions
set forth in this  Agreement.  In each case, such rights may only be transferred
together with the underlying  Registrable  Securities in a transfer permitted by
the  Securities  Act and applicable  state  securities  laws. Any such permitted
transferee or assignee shall be deemed a Holder hereunder.

                                    ARTICLE 9
        LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES

      From and after the date of this Agreement,  the Company shall not, without
the prior  written  consent  of the  Holders of a  majority  of the  Registrable
Securities  then  outstanding,  enter  into any  agreement  with any  holder  or
prospective  holder of any securities of the Company  providing for the grant to
such holder of registration rights superior to those granted herein.

                                   ARTICLE 10
                                  MISCELLANEOUS

      10.1 GOVERNING LAW; FORUM. The laws of the State of Texas shall govern the
interpretation,  validity  and  performance  of the  terms  of  this  Agreement,
regardless  of the law that might be applied  under  principles  of conflicts of
law.  EACH OF THE PARTIES TO THIS  AGREEMENT  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 AGREEMENT,  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  AGREEMENT 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 AGREEMENT 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.

      10.2  SUCCESSORS  AND  ASSIGNS.  Except as  otherwise  expressly  provided
herein,  the  provisions  hereof  shall  inure to the benefit of, and be binding
upon,  the  successors and assigns of each of the parties hereto and shall inure
to the benefit of and be binding upon each Holder of any Registrable Securities.



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      10.3 ENTIRE  AGREEMENT.  This  Agreement  constitutes  the full and entire
understanding  and  agreement  between  the  parties  with regard to the subject
matter hereof.

      10.4 NOTICES.  All notices,  requests,  consents and other  communications
hereunder  shall be made in writing  and shall be deemed  given (i) when made if
made by hand  delivery,  (ii) one  business  day after being  deposited  with an
overnight courier if made by courier guaranteeing  overnight delivery,  (iii) on
the date indicated on the notice of receipt if made by first-class  mail, return
receipt requested or (iv) on the date of confirmation of receipt of transmission
by facsimile, addressed as follows:

      (a)   if to the Company, at

            Bell Industries, Inc.
            8888 Keystone Crossing
            Suite 1700
            Indianapolis, Indiana 46240
            Facsimile: (317) 715-6816
            Attention:  Chief Financial Officer

            with a copy to:

            Manatt, Phelps & Phillips, LLP
            11355 West Olympic Boulevard
            Los Angeles, CA 90064
            Facsimile:  (310) 914-5712
            Attention:  Mark Kelson, Esq.

      (b)   if to the Investor, in care of:

            Newcastle Partners, L.P.
            200 Crescent Court, Suite 1400
            Dallas, TX  75201
            Facsimile:  (214) 661-7475
            Attention:  Evan D. Stone, Esq.

      (c) if to a  Holder,  to the  address  reflected  on  the  records  of the
Company,  or such other  address or  addresses  as shall have been  furnished in
writing by such party to the Company and to the other parties to this Agreement.

      10.5 SEVERABILITY.  The invalidity,  illegality or unenforceability of one
or more of the provisions of this Agreement in any jurisdiction shall not affect
the validity,  legality or  enforceability of the remainder of this Agreement in



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such jurisdiction or the validity, legality or enforceability of this Agreement,
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.

      10.6 TITLES AND SUBTITLES.  The titles of the sections and  subsections of
this  Agreement  are  for  convenience  of  reference  only  and  are  not to be
considered in construing this Agreement.

      10.7  COUNTERPARTS.  This  Agreement  may be  executed  in any  number  of
counterparts,  each of which  shall be an  original,  but all of which  together
constitute one instrument.

      10.8 AMENDMENT AND MODIFICATION.  This Agreement may be amended,  modified
or  supplemented  in any respect  only by written  agreement  by the Company and
Holders representing at least a majority of the Registrable  Securities,  voting
together as a single class;  provided,  that no such  amendment  shall  unfairly
discriminate  against a particular  Holder  relative to the other  Holders.  Any
action taken by the Holders,  as provided in this Section  10.8,  shall bind all
Holders.




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

                                         NEWCASTLE PARTNERS, L.P.

BELL INDUSTRIES, INC.                    BY: NEWCASTLE CAPITAL MANAGEMENT, L.P.,
                                             ITS GENERAL PARTNER

By                                       By
  ----------------------------------       ----------------------------------

Its                                      Its
   ---------------------------------        ---------------------------------





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                                     ANNEX A
                              PLAN OF DISTRIBUTION

      We are  registering the shares offered by this prospectus on behalf of the
selling shareholders.  The selling  shareholders,  which as used herein includes
donees, pledgees,  transferees or other successors-in-interest selling shares of
common stock or interests in shares of common stock  received  after the date of
this  prospectus  from a  selling  shareholder  as a gift,  pledge,  partnership
distribution  or other  transfer,  may,  from time to time,  sell,  transfer  or
otherwise  dispose of any or all of their shares of common stock or interests in
shares of common  stock on any stock  exchange,  market or trading  facility  on
which the shares are traded or in private  transactions.  These dispositions may
be at fixed prices,  at prevailing  market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale or at negotiated prices.

      The selling  shareholders may use any one or more of the following methods
when disposing of shares or interests therein:

         o  ordinary  brokerage  transactions  and  transactions  in  which  the
            broker-dealer solicits purchasers;

         o  block  trades in which the  broker-dealer  will  attempt to sell the
            shares as agent,  but may position and resell a portion of the block
            as principal to facilitate the transaction;

         o  purchases  by  a  broker-dealer  as  principal  and  resale  by  the
            broker-dealer for its account;

         o  an  exchange  distribution  in  accordance  with  the  rules  of the
            applicable exchange;

         o  privately negotiated transactions;

         o  short sales;

         o  through  the  writing or  settlement  of  options  or other  hedging
            transactions, whether through an options exchange or otherwise;

         o  broker-dealers  may agree with the  selling  shareholders  to sell a
            specified number of such shares at a stipulated price per share;

         o  a combination of any such methods of sale; and

         o  any other method permitted pursuant to applicable law.

      The  selling  shareholders  may,  from  time to  time,  pledge  or grant a
security  interest  in some or all of the shares of common  stock  owned by them
and,  if they  default in the  performance  of their  secured  obligations,  the
pledgees or secured parties may offer and sell the shares of common stock,  from
time to time,  under this  prospectus,  or under an amendment to this prospectus
under  Rule  424(b)(3)  or other  applicable  provision  of the  Securities  Act
amending the list of selling shareholders to include the pledgee,  transferee or
other successors in interest as selling shareholders under this prospectus.  The
selling  shareholders  also may  transfer  the  shares of common  stock in other
circumstances,  in which case the  transferees,  pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.



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      In connection with the sale of our common stock or interests therein,  the
selling  shareholders may enter into hedging transactions with broker-dealers or
other  financial  institutions,  which may in turn  engage in short sales of the
common stock in the course of hedging the  positions  they  assume.  The selling
shareholders  may also sell shares of our common  stock short and deliver  these
securities  to close out their  short  positions,  or loan or pledge  the common
stock to  broker-dealers  that in turn may sell these  securities.  The  selling
shareholders   may  also  enter   into   option  or  other   transactions   with
broker-dealers  or other  financial  institutions or the creation of one or more
derivative  securities which require the delivery to such broker-dealer or other
financial  institution of shares offered by this  prospectus,  which shares such
broker-dealer  or  other  financial  institution  may  resell  pursuant  to this
prospectus (as supplemented or amended to reflect such transaction).

      The aggregate  proceeds to the selling  shareholders  from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions,  if any. Each of the selling shareholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part,  any proposed  purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering.

      The selling shareholders also may resell all or a portion of the shares in
open market  transactions  in reliance upon Rule 144 under the Securities Act of
1933,  provided that they meet the criteria and conform to the  requirements  of
that rule.

      The selling  shareholders  and any  broker-dealers  that act in connection
with the sale of  securities  might be deemed to be  "underwriters"  within  the
meaning of Section 2(11) of the Securities Act, and any commissions  received by
such  broker-dealers and any profit on the resale of the securities sold by them
while  acting as  principals  might be deemed to be  underwriting  discounts  or
commissions under the Securities Act.

      To the extent  required,  the shares of our common  stock to be sold,  the
names of the selling  shareholders,  the respective  purchase  prices and public
offering  prices,  the  names  of any  agent,  dealer  or  underwriter,  and any
applicable  commissions or discounts with respect to a particular  offer will be
set  forth in an  accompanying  prospectus  supplement  or,  if  appropriate,  a
post-effective  amendment  to the  registration  statement  that  includes  this
prospectus.

      In order to comply with the securities laws of some states, if applicable,
the common stock may be sold in these  jurisdictions  only through registered or
licensed  brokers or dealers.  In addition,  in some states the common stock may
not be sold unless it has been  registered or qualified for sale or an exemption
from  registration  or  qualification  requirements is available and is complied
with.



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      We have advised the selling shareholders that the anti-manipulation  rules
of  Regulation  M under  the  Exchange  Act may  apply to sales of shares in the
market and to the activities of the selling  shareholders and their  affiliates.
In addition,  we will make copies of this  prospectus (as it may be supplemented
or amended  from time to time)  available  to the selling  shareholders  for the
purpose of satisfying the  prospectus  delivery  requirements  of the Securities
Act. The selling  shareholders may indemnify any broker-dealer that participates
in transactions  involving the sale of the shares against  certain  liabilities,
including liabilities arising under the Securities Act.

      We have agreed to indemnify the selling  shareholders against liabilities,
including  liabilities  under  the  Securities  Act and state  securities  laws,
relating to the registration of the shares offered by this prospectus.

      We have  agreed  with the selling  shareholders  to keep the  registration
statement that includes this  prospectus  effective until the earlier of (1) two
years  following the effective date of the  registration  statement and (2) such
time as all shares of common  stock  covered by this  prospectus  have been sold
pursuant to this  prospectus;  provided that the  limitation set forth in clause
(1) shall not apply in the case of any shelf registration.




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                                                                       Exhibit 5

                             JOINT FILING AGREEMENT

          In accordance with Rule 13d-1(k)(1)(iii) under the Securities Exchange
Act of 1934,  as amended,  the persons  named below agree to the joint filing on
behalf of each of them of a  Statement  on Schedule  13D dated  February 5, 2007
(including  amendments  thereto)  with  respect to the shares of Common Stock of
Bell  Industries,  Inc. This Joint Filing Agreement shall be filed as an Exhibit
to such Statement.


Dated: February 5, 2007
                                         NEWCASTLE PARTNERS, L.P.

                                         By: Newcastle Capital Management, L.P.,
                                             its general partner

                                         By: Newcastle Capital Group, L.L.C.,
                                             its general partner

                                         By: /s/ Mark E. Schwarz
                                             -----------------------------------
                                             Mark E. Schwarz, Managing Member


                                         NEWCASTLE CAPITAL MANAGEMENT, L.P.

                                         By: Newcastle Capital Group, L.L.C.,
                                             its general partner


                                         By: /s/ Mark E. Schwarz
                                             -----------------------------------
                                             Mark E. Schwarz, Managing Member


                                         NEWCASTLE CAPITAL GROUP, L.L.C.

                                         By: /s/ Mark E. Schwarz
                                             -----------------------------------
                                             Mark E. Schwarz, Managing Member


                                         /s/ Mark E. Schwarz
                                         ---------------------------------------
                                         Mark E. Schwarz


                                         /s/ Clinton J. Coleman
                                         ---------------------------------------
                                          Clinton J. Coleman
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