-----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, UXQSS40QilOELzheUxG4abUCgnumLD4/GqEc9T8+k0RJhq5JnYTN7FUFa2sQQK6Z kJrakeEju84jQNJ3Ca0zRg== 0000950134-04-007058.txt : 20040510 0000950134-04-007058.hdr.sgml : 20040510 20040510115652 ACCESSION NUMBER: 0000950134-04-007058 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL MICROPRODUCTS INC CENTRAL INDEX KEY: 0000900708 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 943057566 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21528 FILM NUMBER: 04791654 BUSINESS ADDRESS: STREET 1: 1941 RINGWOOD AVE CITY: SAN JOSE STATE: CA ZIP: 95131-1721 BUSINESS PHONE: 4084519400 MAIL ADDRESS: STREET 1: 1941 RINOWOOD AVENUE CITY: SAN JOSE STATE: CA ZIP: 95131-1721 10-Q 1 c85313e10vq.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (MARK ONE) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ____________ COMMISSION FILE NUMBER 0-21528 BELL MICROPRODUCTS INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 94-3057566 - ------------------------------- -------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1941 RINGWOOD AVENUE, SAN JOSE, CALIFORNIA 95131-1721 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (408) 451-9400 - -------------------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) N/A - -------------------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT.) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES [X] NO [ ] COMMON STOCK, $.01 PAR VALUE -- NUMBER OF SHARES OUTSTANDING AT MAY 5, 2004: 27,168,136 1 BELL MICROPRODUCTS INC. INDEX TO FORM 10-Q
Page Number ------ PART I - FINANCIAL INFORMATION Item 1: Financial Statements (unaudited) Condensed Consolidated Balance Sheets - March 31, 2004 and December 31, 2003 3 Condensed Consolidated Statements of Operations - Three months ended March 31, 2004 and 2003 4 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2004 and 2003 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3: Quantitative and Qualitative Disclosure about Market Risk 18 Item 4: Controls and Procedures 19 PART II - OTHER INFORMATION Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 20 Item 6: Exhibits and Reports 20 Signatures 21
2 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) BELL MICROPRODUCTS INC. Condensed Consolidated Balance Sheets (in thousands, except per share data) (unaudited)
March 31, December 31, 2004 2003 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 3,441 $ 4,904 Accounts receivable, net 301,068 309,905 Inventories 235,981 256,992 Prepaid expenses and other current assets 23,390 23,595 ------------- ------------- Total current assets 563,880 595,396 Property and equipment, net 42,679 43,545 Goodwill 60,843 60,236 Intangibles 6,482 6,544 Deferred debt issuance costs and other assets 11,429 7,278 ------------- ------------- Total assets $ 685,313 $ 712,999 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 199,930 $ 250,494 Borrowings under lines of credit 1,652 3,009 Short-term note payable and current portion of long-term notes payable 8,349 11,848 Other accrued liabilities 48,204 46,411 ------------- ------------- Total current liabilities 258,135 311,762 Borrowings under lines of credit 57,438 127,416 Long-term notes payable 167,626 77,608 Other long-term liabilities 3,578 2,803 ------------- ------------- Total liabilities 486,777 519,589 ------------- ------------- Commitments and contingencies Shareholders' equity: Common Stock, $0.01 par value, 40,000 shares authorized; 27,129 and 26,907 issued and outstanding 157,909 157,251 Retained earnings 22,549 20,837 Accumulated other comprehensive income 18,078 15,322 ------------- ------------- Total shareholders' equity 198,536 193,410 ------------- ------------- Total liabilities and shareholders' equity $ 685,313 $ 712,999 ============= =============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 BELL MICROPRODUCTS INC. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
Three months ended March 31, ------------------------------ 2004 2003 ------------- ------------- Net sales $ 660,331 $ 532,653 Cost of sales 611,044 495,027 ------------- ------------- Gross profit 49,287 37,626 Operating expenses: Selling, general and administrative expenses 42,731 39,274 Restructuring costs and special charges - 1,383 ------------- ------------- Total operating expenses 42,731 40,657 Operating income (loss) 6,556 (3,031) Interest expense (3,838) (4,019) ------------- ------------- Income (loss) before income taxes 2,718 (7,050) Provision for (benefit from) income taxes 1,006 (2,115) ------------- ------------- Net income (loss) $ 1,712 $ (4,935) ============= ============= Income (loss) per share Basic $ 0.06 $ (0.25) ============= ============= Diluted $ 0.06 $ (0.25) ============= ============= Shares used in per share calculation Basic 27,068 20,131 ============= ============= Diluted 28,079 20,131 ============= =============
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 BELL MICROPRODUCTS INC. Condensed Consolidated Statements of Cash Flows (Increase/(decrease) in cash, in thousands) (unaudited)
Three months ended March 31, ----------------------------- 2004 2003 ------------- ------------- Cash flows from operating activities: Net income (loss): $ 1,712 $ (4,935) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 3,026 3,180 Provision for bad debts 2,064 1,929 Loss on disposal of property, equipment and other 26 -- Deferred income taxes 31 (349) Changes in assets and liabilities: Accounts receivable 8,915 7,064 Inventories 22,682 (11,419) Prepaid expenses 292 (5) Other assets (3,402) 228 Accounts payable (52,283) 446 Other accrued liabilities 1,172 (3,588) ------------- ------------- Net cash used in operating activities (15,765) (7,449) ------------- ------------- Cash flows from investing activities: Acquisition of property, equipment and other (669) (682) Proceeds from sale of property, equipment and other 25 - ------------- ------------- Net cash used in investing activities (644) (682) ------------- ------------- Cash flows from financing activities: Net borrowings (repayments) under line of credit agreements (71,716) 7,815 Repayment of long-term notes payable to RSA (23,500) (3,500) Proceeds from issuance of Common Stock and warrants 401 38 Proceeds from issuance of convertible notes 110,000 -- Repayments of notes and leases payable (285) (3,329) ------------- ------------- Net cash provided by financing activities 14,900 1,024 ------------- ------------- Effect of exchange rate changes on cash 46 (89) ------------- ------------- Net decrease in cash (1,463) (7,196) Cash at beginning of period 4,904 12,025 ------------- ------------- Cash at end of period $ 3,441 $ 4,829 ============= ============= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 6,997 $ 6,430 Income taxes $ 17 $ 328 Supplemental non-cash financing activities: Issuance of restricted stock $ 400 $ 4,037
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation: The accompanying interim condensed consolidated financial statements of Bell Microproducts Inc. ("the Company") have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S.), consistent in all material respects with those applied in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. The accounting estimates that require management's judgment of the most difficult and subjective estimates include: revenue recognition; the assessment of recoverability of goodwill and property, plant and equipment; the valuation of inventory and accounts payable; estimates for the allowance for doubtful accounts; and the recognition and measurement of income tax assets and liabilities. The actual results experienced by the Company may differ materially from management's estimates. Year end condensed balance sheet data included in this interim report is derived from audited financial statements. All other interim financial information is unaudited, but reflects all normal adjustments, which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. The interim financial statements should be read in connection with the financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. Certain prior year amounts have been reclassified to conform to the fiscal 2004 financial statement presentation. These reclassifications had no impact on total assets, operating income/(loss) or net income/(loss). In the quarter ended March 31, 2004, the Company completed a private offering of $110 million aggregate principal amount of 3 3/4% convertible subordinated notes due 2024. The notes are convertible into the Company's common stock under certain circumstances at a conversion rate of 91.2596 shares per $1,000 principal amount of notes, subject to adjustment, which is equivalent to a conversion price of approximately $10.96 per share. Proceeds were used to repay existing debt. The Company operates in one business segment as a distributor of storage products and systems as well as semiconductor and computer products and peripherals to original equipment manufacturers (OEMs), value-added resellers (VARs) and dealers in the United States, Canada, Europe and Latin America. The Company is one of the world's largest storage-centric value-added distributors and a specialist in storage products and solutions. The Company's concentration on data storage systems and products allows it to provide greater technical expertise to its customers, form strategic relationships with key manufacturers and provide complete storage solutions to its customers at many levels of integration. The Company's storage products include: - high-end computer and storage subsystems; - Fibre Channel connectivity products; - complete storage systems such as storage area networks (SAN), network attached storage (NAS) and direct attached storage (DAS); - storage management software; - disk, tape and optical drives; and - a broad selection of value-added services. 6 In addition, the Company has developed a proprietary LDI software licensing system, which facilitates the sale and administration of software licenses. The Company believes its comprehensive product and value-added service offerings have provided a competitive advantage in both domestic and international markets. Note 2 - Stock-Based Compensation Plans: The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended, to options granted under the stock option plans and rights to acquire stock granted under the Company's Stock Participation Plan, collectively called "options." For purposes of this pro-forma disclosure, the value of the options is estimated using a Black-Scholes option pricing model and amortized ratably to expense over the options' vesting periods. Because the estimated value is determined as of the date of grant, the actual value ultimately realized by the employee may be significantly different.
(In thousands, except per share amounts): --------------------------- March 31, 2004 2003 ------------ ------------ Net income (loss) as reported: $ 1,712 $ (4,935) Stock-based employee compensation expense determined under fair value based method, net of tax (794) (995) ------------ ------------ Pro forma net income (loss) $ 918 $ (5,930) ============ ============ Income (loss) per share: As reported Basic $ 0.06 $ (0.25) Diluted $ 0.06 $ (0.25) Pro forma Basic $ 0.03 $ (0.29) Diluted $ 0.03 $ (0.29)
The following weighted average assumptions were used for grants in the first quarter ended March 31, 2004 and 2003 respectively; expected volatility of 75% and 76%, expected lives of 3.61 and 3.48 and risk free interest rates of 2.2% and 2.3%, respectively. The Company has not paid dividends and assumed no dividend yield. The fair value of each purchase right issued under the Company's employee stock purchase plan is estimated on the beginning of the offering period using the Black-Scholes option-pricing model with substantially the same assumptions as the option plans but expected lives of 0.5 years. SFAS No. 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option's expected life and the price volatility of the underlying stock. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. Because additional stock options and stock purchase rights are expected to be granted at varying times during the year, the above pro forma disclosures are not considered by management to be representative of pro forma effects on reported financial results for the year ended December 31, 2004, or for other future periods. 7 OPTION EXCHANGE On November 25, 2002, the Company made an exchange offer (the "Exchange") to current officers and employees of the Company to exchange stock options held by these employees for rights to receive shares of the Company's Common Stock ("Restricted Units"). The offer period ended December 31, 2002 and the Restricted Units were issued on January 3, 2003 (the "Exchange Date"). Employee stock options eligible for the Exchange had a per share exercise price of $11.75 or greater, whether or not vested ("Eligible Options"). The offer provided for an exchange ratio of three option shares surrendered for each Restricted Unit to be received subject to vesting terms. The Restricted Units vest in one-fourth increments. If the employment of an employee who participated in the Exchange terminates prior to the vesting, the employee will forfeit the unvested shares of Restricted Units. As a result of the Exchange, the Company issued 744,802 rights to receive Restricted Units in return for 2,234,250 stock options. The total non-cash deferred compensation charge over the vesting period of four years is approximately $4 million computed based on the share price at the date of approval of $5.42 per share. Actual compensation charges will be adjusted accordingly for forfeitures of unvested shares related to subsequent employee terminations. Note 3 - Intangible Assets: The Company has acquired certain intangible assets through acquisitions which include non-compete agreements, trademarks, trade names and customer and supplier relationships. The carrying values and accumulated amortization of these assets at March 31, 2004 and December 31, 2003 are as follows (in thousands):
As of March 31, 2004 --------------------------------- Estimated Gross Useful Life for Carrying Accumulated Net Amortized Intangible Assets Amortization Amount Amortization Amount - ------------------------------- --------------- -------- ------------ --------- Non-compete agreements 3-6 years $ 2,408 $ (1,879) $ 529 Trademarks 20-40 years 4,648 (360) 4,288 Trade names 20 years 400 (36) 364 Customer/supplier relationships 7-10 years 1,600 (299) 1,301 --------------- -------- ------------ --------- Total $ 9,056 $ (2,574) $ 6,482 ======== ============ =========
As of December 31, 2003 --------------------------------- Estimated Gross Useful Life for Carrying Accumulated Net Amortized Intangible Assets Amortization Amount Amortization Amount - ------------------------------- --------------- -------- ------------ --------- Non-compete agreements 3-6 years $ 2,409 $ (1,770) $ 639 Trademarks 20-40 years 4,504 (329) 4,175 Trade names 20 years 400 (30) 370 Customer/supplier relationships 7-10 years 1,600 (240) 1,360 --------------- -------- ------------ --------- Total $ 8,913 $ (2,369) $ 6,544 ======== ============ =========
The estimated amortization expense of these assets in future fiscal years is as follows (in thousands):
Estimated Amortization Expense - ---------------------------------- April 1, 2004 to December 31, 2004 $ 505 For year ending December 31, 2005 357 For year ending December 31, 2006 357 For year ending December 31, 2007 348 For year ending December 31, 2008 338 Thereafter 4,577 -------- Total $ 6,482 ========
8 Note 4 - Earnings (Loss) per Share: Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period resulting from stock options using the treasury stock method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options. Following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the periods presented below (in thousands, except per share data):
Three Months Ended March 31, ----------------------------- 2004 2003 ------------ ------------ Net income (loss) $ 1,712 $ (4,935) ============ ============ Weighted average common shares outstanding (Basic) 27,068 20,131 Effect of dilutive options, grants and warrants 1,011 - ------------ ------------ Weighted average common shares outstanding (Diluted) 28,079 20,131 ============ ============
In the three months ended March 31, 2004 and 2003, total common stock options, grants and warrants excluded from diluted income (loss) per share calculations because they were antidilutive were 921,623 and 4,446,306, respectively. Note 5 - Lines of Credit and Term Debt: LINES OF CREDIT (IN THOUSANDS)
March 31, December 31, 2004 2003 ------------ ------------ Wachovia Facility $ 37,663 $ 68,007 Bank of America Facility 19,775 59,409 IFN Financing BV 1,652 3,009 ------------ ------------ 59,090 130,425 Less: amounts included in current liabilities 1,652 3,009 ------------ ------------ Amounts included in non-current liabilities $ 57,438 $ 127,416 ============ ============
On December 31, 2002, the Company entered into an amendment to its syndicated Loan and Security Agreement with Wachovia Bank, N.A. ("Wachovia facility"), (First Union Bank, as the original lender). The amendment reduces the credit facility to $160 million from $175 million and extends the maturity date to May 31, 2005. The Wachovia facility refinanced the Company's $50 million credit facility with California Bank & Trust that matured May 31, 2001, and the $80 million short-term loan with the RSA that matured June 30, 2001. The syndicate includes Congress Financial Corporation (Western) and Bank of America N.A. as co-agents and other financial institutions, as lenders. Borrowings under the line of credit bear interest at Wachovia's prime rate plus a margin of 0.0% to 0.5%, based on borrowing levels. At the Company's option, all or any portion of the outstanding borrowings may be converted to a Eurodollar rate loan, which bears interest at the adjusted Eurodollar rate plus a margin of 2.25% to 2.75%, based on borrowing levels. The 9 average interest rate on outstanding borrowings under the revolving line of credit during the quarter ended March 31, 2004, was 3.9%, and the balance outstanding at March 31, 2004 was $37.7 million. Obligations of the Company under the revolving line of credit are secured by certain assets of the Company and its North and South American subsidiaries. The revolving line of credit requires the Company to meet certain financial tests and to comply with certain other covenants, including restrictions on incurrence of debt and liens, restrictions on mergers, acquisitions, asset dispositions, capital contributions, payment of dividends, repurchases of stock and investments. On October 9, 2003, the Company entered into a Second Amendment and Waiver, to effectively enable the Company to complete the acquisition of EMB Mayorista, in Mexico. On December 2, 2002, as amended in November 2003, the Company entered into a Syndicated Credit Agreement arranged by Bank of America, National Association ("Bank of America facility"), as principal agent, to provide a (pound)75 million revolving line of credit facility, or the U.S. dollar equivalent of approximately $138 million at March 31, 2004 through December 2005. The Bank of America facility refinanced the Company's $60 million credit facility with Royal Bank of Scotland. The syndicate includes Bank of America as agent and security trustee and other banks and financial institutions, as lenders. Borrowings under the line of credit bear interest at Bank of America's base rate plus a margin of 2.375% to 2.50%, based on certain financial measurements. At the Company's option, all or any portion of the outstanding borrowings may be converted to a LIBOR Revolving Loan, which bears interest at the adjusted LIBOR rate plus a margin of 2.375% to 2.50%, based on certain financial measurements. The average interest rate on the outstanding borrowings under the revolving line of credit during the quarter ended March 31, 2004 was 6.0%, and the balance outstanding at March 31, 2004 was $19.8 million. Obligations of the Company under the revolving line of credit are secured by certain assets of the Company's European subsidiaries. The revolving line of credit requires the Company to meet certain financial tests and to comply with certain other covenants, including restrictions on incurrence of debt and liens, restrictions on mergers, acquisitions, asset dispositions, capital contributions, payment of dividends, repurchases of stock, repatriation of cash and investments. The Company has an agreement with IFN Finance BV to provide up to $7.5 million in short-term financing to the Company. The loan is secured by certain European accounts receivable and inventories, bears interest at 5.5%, and continues indefinitely until terminated by either party within 90 days notice. The loan balance outstanding was $1.7 million at March 31, 2004.
TERM LOANS (IN THOUSANDS) March 31, December 31, 2004 2003 ------------ ------------ Convertible Notes $ 110,000 $ - Note payable to RSA 55,500 79,000 Bank of Scotland 10,233 10,180 ------------ ------------ 175,733 89,180 Less: amounts due in current year 8,107 11,572 ------------ ------------ Long-term debt due after one year $ 167,626 $ 77,608 ============ ============
On March 5, 2004, the Company completed a private offering of $110 million aggregate principal amount of 3 3/4% convertible subordinated notes due 2024. The offering was made only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The notes are convertible into the Company's common stock under certain circumstances at a conversion rate of 91.2596 shares per $1,000 principal amount of notes, subject to adjustment, which is equivalent to a conversion price of approximately $10.96 per share. This represents a 32.5% premium over Bell Microproducts closing price of its common stock on the Nasdaq National Market on March 1, 2004 of $8.27 per share. The Company may redeem some or all of the notes under certain circumstances on or after March 5, 2009 and prior to March 5, 2011, and at any time thereafter without such circumstances, at 100% of the principal amount, plus accrued but unpaid interest up to, but excluding, the redemption date. The Company may be required to purchase some or all of the notes on March 5, 2011, March 5, 2014 or March 5, 2019 or in the event of a change in control at 100% of the principal amount, plus accrued but unpaid interest up to, but excluding, the purchase date. Proceeds from the offering were used to repay amounts 10 outstanding under its working capital facilities with Wachovia Bank, N.A. and Bank of America, National Association and its senior subordinated notes held by The Retirement Systems of Alabama. On July 6, 2000, the Company entered into a Securities Purchase Agreement with The Retirement Systems of Alabama and certain of its affiliated funds (the "RSA facility"), under which the Company borrowed $180 million of subordinated debt financing. This subordinated debt financing was comprised of $80 million bearing interest at 9.125%, repaid in May 2001; and $100 million bearing interest at 9.0%, payable in semi-annual principal installments of $3.5 million plus interest installments commencing December 31, 2000 and in semi-annual principal installments of $8.5 million commencing December 31, 2007, with a final maturity date of June 30, 2010. On August 1, 2003, the Company entered into an interest rate swap agreement with Wachovia Bank effectively securing a new interest rate on $40 million of the outstanding debt. The new rate is based on the six month U.S. Libor rate plus a fixed margin of 4.99% and continues until termination of the agreement on June 30, 2010. The RSA facility is secured by a second lien on the Company's and its subsidiaries' North American and South American assets. The Company must meet certain financial tests on a quarterly basis, and comply with certain other covenants, including restrictions of incurrence of debt and liens, restrictions on asset dispositions, payment of dividends, and repurchase of stock. The Company is also required to be in compliance with the covenants of certain other borrowing agreements. The balance outstanding at March 31, 2004 on this long-term debt was $55.5 million, $7.0 million is payable in 2004, $7.0 million is payable in each of the years 2005 and 2006 and $34.5 million thereafter. On May 9, 2003, the Company entered into a mortgage agreement with Bank of Scotland for (pound)6 million, or the U.S. dollar equivalent of approximately $11.1 million, as converted at March 31, 2004. The new mortgage agreement fully re-paid the borrowings outstanding under the previous mortgage agreement with Lombard NatWest Limited, and has a term of 10 years, bears interest at Bank of Scotland's rate plus 1.35%, and is payable in quarterly installments of approximately (pound)150,000, or $277,000 USD, plus interest. The principal amount due each year is approximately $1,108. The balance of the mortgage as converted to USD at March 31, 2004 was $10.2 million. Terms of the mortgage require the Company to meet certain financial ratios and to comply with certain other covenants on a quarterly basis. The Company was in compliance with its bank and subordinated debt financing covenants at March 31, 2004; however, there can be no assurance that the Company will be in compliance with such covenants in the future. If the Company does not remain in compliance with the covenants, and is unable to obtain a waiver of noncompliance from its lenders, the Company's financial condition, results of operations and cash flows would be materially adversely affected. Note 6 - Convertible Subordinated Notes and Common Stock Issuances: In March 2004, the Company completed a private offering of $110 million aggregate principal amount of 3 3/4% convertible subordinated notes due 2024. The notes are convertible into the Company's common stock under certain circumstances at a conversion rate of 91.2596 shares per $1,000 principal amount of notes, subject to adjustment, which is equivalent to a conversion price of approximately $10.96 per share. Substantially all of the net proceeds of approximately $106 million was used to repay a portion of amounts outstanding under the Company's revolving lines of credit and 9% senior subordinated notes. On August 27, 2003 the Company completed a secondary registered public offering of 5,000,000 shares of Common Stock, at an offering price to the public of $6.50 per share. In connection with the offering, the Company granted to the underwriters an option to purchase up to 750,000 shares to cover over-allotments, and the option was exercised in full on September 18, 2003. The Company received proceeds of $34.9 million, net of commissions, discounts and expenses. Note 7 - Restructuring Costs, Special Charges and Other Provisions: In the first quarter of 2004, the Company did not record any restructuring costs or special charges. 11 In the first quarter of 2003, as the Company continued to implement profit improvement and cost reduction measures, restructuring costs of $1.4 million were recorded. These charges consisted of severance and benefits of $1.3 million related to worldwide involuntary terminations and estimated lease costs of $56,300 pertaining to future lease obligations for non-cancelable lease payments for excess facilities in the U.S. The Company terminated 127 employees worldwide, across a wide range of functions including marketing, technical support, finance, operations and sales, and expects annual savings of approximately $8 million. Expected savings related to vacated facilities is not material. Future expected cost reductions will be reflected in the income statement line item "Selling, general and administrative expenses." The Company also recorded an inventory charge of approximately $1.5 million related to significant changes to certain vendor relationships and the discontinuance of other non-strategic product lines. At March 31, 2004, outstanding liabilities related to these restructuring and special charges are summarized as follows (in thousands):
Severance Lease Costs Costs Total ---------- ---------- ---------- Balance at January 1, 2003 $ 545 $ 2,079 $ 2,624 Restructuring and special charges 1,327 56 1,383 Cash payments (1,638) (808) (2,446) ---------- ---------- ---------- Balance at December 31, 2003 234 1,327 1,561 Restructuring and special charges - - - Cash payments (58) (137) (195) ---------- ---------- ---------- Balance at March 31, 2004 $ 176 $ 1,190 $ 1,366 ========== ========== ==========
Note 8 - Product Warranty Liabilities: The Company accrues for known warranty claims if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified warranty claims based on historical activity. Provisions for estimated returns and expected warranty costs are recorded at the time of sale and are adjusted periodically to reflect changes in experience and expected obligations. The Company's warranty reserve relates primarily to its storage solutions and value added businesses. Reserves for warranty items are included in other current liabilities. The provision has had no material change from December 31, 2003. Note 9 - Commitments and Contingencies: The Company is currently a party to various claims and legal proceedings arising in the normal course of business. If management believes that a loss is probable and can reasonably be estimated, the Company records the amount of the loss, or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these actions is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of any actions, individually and in the aggregate, will not have a material adverse effect on the Company's financial position or results of operations. In August 2003, the Company entered into an interest rate swap agreement in order to gain access to the lower borrowing rates normally available on floating-rate debt, while avoiding prepayment and other costs that would be associated with refinancing long-term fixed-rate debt. The swap purchased has a notional amount of $40 million, expiring in June 2010, with a six-month settlement period and provides for 12 variable interest at LIBOR plus a set rate spread. The notional amount does not quantify risk or represent assets or liabilities, but rather, is used in the determination of cash settlement under the swap agreement. As a result of purchasing this swap, the Company will be exposed to credit losses from counter-party non-performance; however, the Company does not anticipate any such losses from this agreement, which is with a major financial institution. The agreement will also expose the Company to interest rate risk should LIBOR rise during the term of the agreement. This swap agreement is accounted for under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). Under the provisions of SFAS 133, the Company initially recorded the interest rate swap at fair value, and subsequently recorded any changes in fair value in "other comprehensive income." Fair value is determined based on quoted market prices, which reflect the difference between estimated future variable-rate payments and future fixed-rate receipts. Note 10 - Newly Issued or Recently Effective Accounting Pronouncements: In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB issued FIN No. 46-R, "Consolidation of Variable Interest Entities", which represents a revision to FIN 46. FIN No. 46-R clarifies certain aspects of FIN 46 and provides certain entities with exemptions from the requirements of FIN 46. The variable interest model of FIN No. 46-R was only slightly modified from that contained in FIN 46. The variable interest model looks to identify the primary beneficiary of a variable interest entity. The primary beneficiary is the party that is exposed to the majority of the risk or stands to benefit the most from the variable interest entity's activities. A variable interest entity would be required to be consolidated if certain conditions were met. The provisions of FIN No. 46-R are effective for interests in variable interest entities as of the first interim or annual period ending after December 15, 2003. The Company currently has no contractual relationship or other business relationship with a variable interest entity and therefore the adoption of FIN 46 or FIN No. 46-R did not have a material effect on the Company's results of operations, financial position or cash flows as of and for the three month period ended March 31, 2004. On December 17, 2003, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition", which supercedes SAB 101, "Revenue Recognition in Financial Statements". SAB 104's primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not have a material effect on the Company's results of operations, financial position or cash flows as of and for the three month period ended March 31, 2004. In April 2004, the Emerging Issues Task Force issued Statement No. 03-06 "Participating Securities and the Two-Class Method Under FASB Statement No. 128, Earnings Per Share" ("EITF 03-06"). EITF 03-06 addresses a number of questions regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating earnings per share, clarifying what constitutes a participating security and how to apply the two-class method of computing earnings per share once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. EITF 03-06 is effective for fiscal periods beginning after March 31, 2004. The Company is currently evaluating the effect of adopting EITF 03-06 on its results of operations. 13 Note 11 - Comprehensive Income/(Loss): Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments. Comprehensive income (loss) is as follows (in thousands):
Three Months Ended March 31, ----------------------------- 2004 2003 ------------ ------------ Net income (loss) $ 1,712 $ (4,935) Other comprehensive income: Foreign currency translation adjustments 2,756 (819) ------------ ------------ Total comprehensive income (loss) $ 4,468 $ (5,754) ============ ============
Accumulated other comprehensive income presented in the accompanying condensed consolidated balance sheets consists of cumulative foreign currency translation adjustments. Note 12 - Geographic Information: The Company operates in one industry segment and markets its products worldwide through its own direct sales force. The Company attributes revenues from customers in different geographic areas based on the location of the customer. Sales in the U.S. were 36% and 38% of total sales for the three months ended March 31, 2004 and 2003, respectively.
(In thousands) Three Months Ended March 31, 2004 2003 --------------- --------------- Geographic information consists of the following: Net sales: North America $ 266,450 $ 217,573 Latin America 87,203 62,098 Europe 306,678 252,982 --------------- --------------- Total $ 660,331 $ 532,653 =============== ===============
March 31, December 31, 2004 2003 --------------- --------------- Long-lived assets: United States $ 51,221 $ 48,041 United Kingdom 56,240 54,707 Other foreign countries 13,972 14,052 --------------- --------------- Total $ 121,433 $ 116,800 =============== ===============
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INFORMATION REGARDING FORWARD-LOOKING STATEMENTS Information in the following Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements provide current expectations or forecasts of future events and can be identified by the use of terminology such as "believe," "estimate," "expect," "intend," "may," "could," 14 "will," and similar words or expressions. Any statement that is not a historical fact, including statements regarding estimates, projections, future trends and the outcome of events that have not yet occurred, is a forward-looking statement. Our forward-looking statements generally relate to growth, financial results, and financing and acquisition activities, among others. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including but not limited to our ability to reduce and control costs, our ability to take advantage of beneficial vendor pricing and rebate programs from time to time, the timing of delivery of products from suppliers, the product mix sold by the Company, the integration of acquired businesses, customer demand, the Company's dependence on a small number of customers that account for a significant portion of revenues, availability of products from suppliers, cyclicality in the storage disk drive and other industries, price competition for products sold by the Company, management of growth, the Company's ability to collect accounts receivable, price decreases on inventory that is not price protected, ability to negotiate credit facilities, potential interest rate fluctuations as described below and the other risk factors detailed in the Company's filings with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2003. The Company assumes no obligation to update such forward-looking statements or to update the reasons actual results could differ materially from those anticipated in such forward-looking statements. Because many factors are unforeseeable, the foregoing should not be considered an exhaustive list. THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003 Net sales were $660.3 million for the quarter ended March 31, 2004, compared to net sales of $532.7 million for the quarter ended March 31, 2003, which represented an increase of $127.6 million, or 24%. The increase was primarily due to growth in unit sales to existing and new customers, changes in foreign currency exchange rates and the acquisition of EBM Mayorista, S.A. de C.V. in October 2003. The Company's gross profit for the quarter ended March 31, 2004 was $49.3 million compared to $37.6 million for the quarter ended March 31, 2003, which represented an increase of $11.7 million, or 31%. Gross margin increased to 7.5% in the current quarter from 7.1% in the same period last year. The increase in gross margin percentage was primarily due to an inventory charge of $1.5 million taken in the first quarter of 2003, as discussed below. Selling, general and administrative expenses increased to $42.7 million for the quarter ended March 31, 2004, from $39.3 million for the quarter ended March 31, 2003, an increase of $3.4 million, or 9%. The increase in expenses was primarily attributable to changes in foreign currency exchange rates and the impact of sales volume increases. As a percentage of sales, selling, general and administrative expenses decreased in the first quarter of 2004 to 6.5% from 7.4% in the first quarter of 2003. Interest expense decreased to $3.8 million for the quarter ended March 31, 2004 from $4.0 million in the same period last year. This decrease was primarily due to a decrease in average interest rates on combined borrowings. The average interest rate in the first quarter of 2003 decreased to 5.9% from 7.2% in the in the same period last year. The effective tax rate was 37% for the quarter ended March 31, 2004, compared to an effective tax benefit rate of 30% for the quarter ended March 31, 2003. The higher tax rate was primarily related to the annualized affect of additional deferred tax valuation allowances established related to losses incurred in certain foreign jurisdictions. Restructuring Costs and Special Charges In the first quarter of 2004, the Company did not record any restructuring costs or special charges. In the first quarter of 2003, the Company continued to implement profit improvement and cost reduction measures and recorded restructuring costs of $1.4 million. These charges consisted of severance and benefits of $1.3 million related to worldwide involuntary terminations and estimated lease costs of 15 $56,300 pertaining to future lease obligations for non-cancelable lease payments for excess facilities in the U.S. The Company terminated 127 employees worldwide, across a wide range of functions including marketing, technical support, finance, operations and sales, and expects annual savings of approximately $8 million. Expected savings related to vacated facilities is not material. Future expected cost reductions will be reflected in the income statement line item `Selling, general and administrative expenses.' The Company also recorded an inventory charge of approximately $1.5 million related to significant changes to certain vendor relationships and the discontinuance of other non-strategic product lines. At March 31, 2004, outstanding liabilities related to these restructuring and special charges are summarized as follows (in thousands):
Severance Lease Costs Costs Total --------- ----------- ---------- Balance at January 1, 2003 $ 545 $ 2,079 $ 2,624 Restructuring and special charges 1,327 56 1,383 Cash payments (1,638) (808) (2,446) --------- ----------- ---------- Balance at December 31, 2003 234 1,327 1,561 Restructuring and special charges - - - Cash payments (58) (137) (195) --------- ----------- ---------- Balance at March 31, 2004 $ 176 $ 1,190 $ 1,366 ========= =========== ==========
LIQUIDITY AND CAPITAL RESOURCES In recent years, the Company has funded its working capital requirements principally through borrowings under term loans and bank lines of credit as well as proceeds from warrants and stock option exercises. Working capital requirements have included the financing of increases in inventory and accounts receivable resulting from sales growth, and the financing of certain acquisitions. The Company's future cash requirements will depend on numerous factors, including potential acquisitions and the rate of growth of its sales and its effectiveness at controlling and reducing its costs. On March 5, 2004, the Company completed a private offering of $110 million aggregate principal amount of 3 3/4% convertible subordinated notes due 2024. The offering was made only to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The notes are convertible into the Company's common stock under certain circumstances at a conversion rate of 91.2596 shares per $1,000 principal amount of notes, subject to adjustment, which is equivalent to a conversion price of approximately $10.96 per share. This represents a 32.5% premium over Bell Microproducts closing price of its common stock on the Nasdaq National Market on March 1, 2004 of $8.27 per share. The Company may redeem some or all of the notes under certain circumstances on or after March 5, 2009 and prior to March 5, 2011, and at any time thereafter without such circumstances, at 100% of the principal amount, plus accrued but unpaid interest up to, but excluding, the redemption date. The Company may be required to purchase some or all of the notes on March 5, 2011, March 5, 2014 or March 5, 2019 or in the event of a change in control at 100% of the principal amount, plus accrued but unpaid interest up to, but excluding, the purchase date. Proceeds from the offering were used to repay amounts outstanding under its working capital facilities with Wachovia Bank, N.A. and Bank of America, National Association and its senior subordinated notes held by The Retirement Systems of Alabama. Net cash used in operating activities for the three months ended March 31, 2004, was $15.8 million. The Company's inventories decreased as of March 31, 2004 to $236.0 million from $257.0 million as of December 31, 2003, and the Company's accounts payable decreased to $199.9 million as of March 31, 2004 16 from $250.5 million as of December 31, 2003. The decrease in inventories and accounts payable are primarily a result of decreased inventory purchases and the timing of inventory receipts and payments related thereto. The Company's accounts receivable decreased to $301.1 million as of March 31, 2004, from $309.9 million as of December 31, 2003. On December 31, 2002, the Company entered into an amendment to its syndicated Loan and Security Agreement with Wachovia Bank, N.A. ("Wachovia facility"), (First Union Bank, as the original lender). The amendment reduces the credit facility to $160 million from $175 million and extends the maturity date to May 31, 2005. The Wachovia facility refinanced the Company's $50 million credit facility with California Bank & Trust that matured May 31, 2001, and the $80 million short-term loan with the RSA that matured June 30, 2001. The syndicate includes Congress Financial Corporation (Western) and Bank of America N.A. as co-agents and other financial institutions, as lenders. Borrowings under the line of credit bear interest at Wachovia's prime rate plus a margin of 0.0% to 0.5%, based on borrowing levels. At the Company's option, all or any portion of the outstanding borrowings may be converted to a Eurodollar rate loan, which bears interest at the adjusted Eurodollar rate plus a margin of 2.25% to 2.75%, based on borrowing levels. The average interest rate on outstanding borrowings under the revolving line of credit during the quarter ended March 31, 2004, was 3.9%, and the balance outstanding at March 31, 2004 was $37.7 million. Obligations of the Company under the revolving line of credit are secured by certain assets of the Company and its North and South American subsidiaries. The revolving line of credit requires the Company to meet certain financial tests and to comply with certain other covenants, including restrictions on incurrence of debt and liens, restrictions on mergers, acquisitions, asset dispositions, capital contributions, payment of dividends, repurchases of stock and investments. On October 9, 2003, the Company entered into a Second Amendment and Waiver, to effectively enable the Company to complete the acquisition of EMB Mayorista, in Mexico On December 2, 2002, as amended in November 2003, the Company entered into a Syndicated Credit Agreement arranged by Bank of America, National Association ("Bank of America facility"), as principal agent, to provide a (pound)75 million revolving line of credit facility, or the U.S. dollar equivalent of approximately $138 million at March 31, 2004 through December 2005. The Bank of America facility refinanced the Company's $60 million credit facility with Royal Bank of Scotland. The syndicate includes Bank of America as agent and security trustee and other banks and financial institutions, as lenders. Borrowings under the line of credit bear interest at Bank of America's base rate plus a margin of 2.375% to 2.50%, based on certain financial measurements. At the Company's option, all or any portion of the outstanding borrowings may be converted to a LIBOR Revolving Loan, which bears interest at the adjusted LIBOR rate plus a margin of 2.375% to 2.50%, based on certain financial measurements. The average interest rate on the outstanding borrowings under the revolving line of credit during the quarter ended March 31, 2004 was 6.0%, and the balance outstanding at March 31, 2004 was $19.8 million. Obligations of the Company under the revolving line of credit are secured by certain assets of the Company's European subsidiaries. The revolving line of credit requires the Company to meet certain financial tests and to comply with certain other covenants, including restrictions on incurrence of debt and liens, restrictions on mergers, acquisitions, asset dispositions, capital contributions, payment of dividends, repurchases of stock, repatriation of cash and investments. On July 6, 2000, the Company entered into a Securities Purchase Agreement with The Retirement Systems of Alabama and certain of its affiliated funds (the "RSA facility"), under which the Company borrowed $180 million of subordinated debt financing. This subordinated debt financing was comprised of $80 million bearing interest at 9.125%, repaid in May 2001; and $100 million bearing interest at 9.0%, payable in semi-annual principal installments of $3.5 million plus interest installments commencing December 31, 2000 and in semi-annual principal installments of $8.5 million commencing December 31, 2007, with a final maturity date of June 30, 2010. On August 1, 2003, the Company entered into an interest rate swap agreement with Wachovia Bank effectively securing a new interest rate on $40 million of the outstanding debt. The new rate is based on the six month U.S. Libor rate plus a fixed margin of 4.99% and continues until termination of the agreement on June 30, 2010. The RSA facility is secured by a second lien on the Company's and its subsidiaries' North American and South American assets. The Company must meet certain financial tests on a quarterly basis, and comply with certain other covenants, including restrictions of incurrence of debt and liens, restrictions on asset dispositions, payment of dividends, and repurchase of 17 stock. The Company is also required to be in compliance with the covenants of certain other borrowing agreements. The balance outstanding at March 31, 2004 on this long-term debt was $55.5 million, $7.0 million is payable in 2004, $7.0 million is payable in each of the years 2005 and 2006 and $34.5 million thereafter. On May 9, 2003, the Company entered into a mortgage agreement with Bank of Scotland for (pound)6 million, or the U.S. dollar equivalent of approximately $11.1 million, as converted at March 31, 2004. The new mortgage agreement fully re-paid the borrowings outstanding under the previous mortgage agreement with Lombard NatWest Limited, and has a term of 10 years, bears interest at Bank of Scotland's rate plus 1.35%, and is payable in quarterly installments of approximately (pound)150,000, or $277,000 USD, plus interest. The principal amount due each year is approximately $1,108. The balance of the mortgage as converted to USD at March 31, 2004 was $10.2 million. Terms of the mortgage require the Company to meet certain financial ratios and to comply with certain other covenants on a quarterly basis. The Company has an agreement with IFN Finance BV to provide up to $7.5 million in short-term financing to the Company. The loan is secured by certain European accounts receivable and inventories, bears interest at 5.5%, and continues indefinitely until terminated by either party within 90 days notice. The loan balance outstanding was $1.7 million at March 31, 2004. The Company was in compliance with its bank and subordinated debt financing covenants at March 31, 2004; however, there can be no assurance that the Company will be in compliance with such covenants in the future. If the Company does not remain in compliance with the covenants, and is unable to obtain a waiver of noncompliance from its lenders, the Company's financial condition, results of operations and cash flows would be materially adversely affected. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is subject to interest rate risk on its variable rate credit facilities and could be subjected to increased interest payments if market interest rates fluctuate. For the quarter ended March 2004, average borrowings outstanding on the variable rate credit facility with Wachovia Bank were $77.9 million and average borrowings with Bank of America, N.A. was $55.6 million. Wachovia and Bank of America have interest rates that are based on associated rates such as Eurodollar and base or prime rates that may fluctuate over time based on changes in the economic environment. Based on actual borrowings throughout the year under these borrowing facilities, an increase of 1% in such interest rate percentages would increase the annual interest expense by approximately $1.3 million. A substantial part of the Company's revenue and capital expenditures are transacted in U.S. dollars, but the functional currency for foreign subsidiaries is not the U.S. dollar. The Company enters into foreign forward exchange contracts to hedge certain balance sheet exposures against future movements in foreign exchange rates. The gains and losses on the forward exchange contracts are largely offset by gains or losses on the underlying transactions and, consequently, a sudden or significant change in foreign exchange rates should not have a material impact on future net income or cash flows. As a result of the Company or its subsidiaries entering into transactions denominated in currencies other than their functional currency, the Company recognized no material foreign currency gain or loss during the quarter ended March 31, 2004. To the extent the Company is unable to manage these risks, the Company's results, financial position and cash flows could be materially adversely affected. In August 2003, the Company entered into an interest rate swap agreement in order to gain access to the lower borrowing rates normally available on floating-rate debt, while avoiding prepayment and other costs that would be associated with refinancing long-term fixed-rate debt. The swap purchased has a notional amount of $40 million, expiring in June 2010, with a six-month settlement period and provides for variable interest at LIBOR plus a set rate spread. The notional amount does not quantify risk or represent assets or liabilities, but rather, is used in the determination of cash settlement under the swap agreement. As a result of purchasing this swap, the Company will be exposed to credit losses from counter-party non- 18 performance; however, the Company does not anticipate any such losses from this agreement, which is with a major financial institution. The agreement will also expose the Company to interest rate risk should LIBOR rise during the term of the agreement. This swap agreement is accounted for under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). Under the provisions of SFAS 133, we initially recorded the interest rate swap at fair value, and subsequently recorded any changes in fair value in "other comprehensive income." Fair value is determined based on quoted market prices, which reflect the difference between estimated future variable-rate payments and future fixed-rate receipts. ITEM 4: CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. After evaluating the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 ("the Exchange Act") as of the end of the period covered by this quarterly report, our chief executive officer and chief financial officer with the participation of the Company's management, have concluded that the Company's disclosure controls and procedures are effective to ensure that information that is required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities Exchange Commission. (b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 19 PART II - OTHER INFORMATION ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES On March 5, 2004, the Company issued 3 3/4% convertible subordinated notes due 2024 in the aggregate principal amount of $110 million to two purchasers. The notes are convertible into the Company's common stock under certain circumstances at a conversion rate of 91.2596 shares per $1,000 principal amount of notes, subject to adjustment, which is equivalent to a conversion price of approximately $10.96 per share. The Company relied upon Rule 506 of Regulation D for an exemption from registration requirements. ITEM 6: EXHIBITS AND REPORTS (a) Exhibits: See Exhibit Index on page following Signatures. (b) Reports on Form 8-K: During the first quarter of 2004, the Company filed the following: Form 8-K dated January 12, 2004 to announce updated 2003 fourth quarter guidance. Form 8-K dated February 17, 2004 to announce 2003 fourth quarter and year end financial results. Form 8-K dated March 1, 2004 to announce the proposed convertible note offering. Form 8-K dated March 2, 2004 to announce the pricing of the proposed convertible note offering. 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 10, 2004 BELL MICROPRODUCTS INC. BY: /s/ JAMES E. ILLSON --------------------------------- CHIEF FINANCIAL OFFICER AND EXECUTIVE VICE PRESIDENT OF FINANCE AND OPERATIONS 21 EXHIBIT INDEX Form 10-Q Quarter ended March 31, 2004
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1* Employee Stock Purchase Plan, as Amended and Restated Through February 19, 2004. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Management agreement or compensatory plan or arrangement. 22 EX-10.1 2 c85313exv10w1.txt EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.1 BELL MICROPRODUCTS INC. EMPLOYEE STOCK PURCHASE PLAN (AS AMENDED AND RESTATED THROUGH FEBRUARY 19, 2004) The following constitute the provisions of the Employee Stock Purchase Plan of Bell Microproducts Inc. 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "Board" shall mean the Board of Directors of the company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock of the Company. (d) "Company" shall mean Bell Microproducts Inc. (e) "Compensation" shall mean all base straight time gross earnings, including payments for sick pay, vacation pay, holiday pay, bonuses, commissions and other compensation, but excluding car allowance, lead pay, SPIFFs, jury duty pay, bereavement pay, shift premium, overtime pay and executive incentive compensation-(MIP). (f) "Designated Subsidiaries" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Employee" shall mean any individual (i) who is an employee of the Company or any Designated Subsidiary for purposes of tax withholding under the Code, and (ii) except with respect to employees of a Designated Subsidiary located in The United Kingdom, whose customary employment with the Company or any Designated Subsidiary is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated on the 91st day of such leave. (h) "Enrollment Date" shall mean the first day of each Offering Period or Extended Offering Period. (i) "Exercise Date" shall mean the last day of each Offering Period, or with respect to an Extended Offering Period, the last day of each Purchase Period. (j) "Extended Offering Period" shall mean a period of approximately twelve (12), eighteen (18) or twenty-four (24) months, commencing on the date or dates so specified by the Board, during which options granted pursuant to the Plan may be exercised. The duration, commencement and termination of Extended Offering Periods may be changed pursuant to Section 4 of this Plan. (k) "Fair Market Value" shall mean, as of any date, the value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable, or; (1) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (1) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (l) "Offering Period" shall mean a period of approximately six (6) months, commencing on a date determined by the Board, during which an option granted pursuant to the Plan may be exercised. The duration, commencement and termination of Offering Periods may be changed pursuant to Section 4 of this Plan. (m) "Plan" shall mean this Employee Stock Purchase Plan. (n) "Purchase Price" shall mean an amount equal to 85% of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower. (o) "Purchase Period" shall mean, with respect to an Extended Offering Period, the approximately six (6) month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Extended Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. The duration, commencement and termination of Purchase Periods may be changed pursuant to Section 4 of this Plan. -2- (p) "Reserves" shall mean the number of shares of Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (q) "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. Eligibility. (a) Any Employee (as defined in Section 2(g)), who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods and Extended Offering Periods. The Plan shall be implemented by Offering Periods and/or Extended Offering Periods which may be consecutive and/or overlapping, as determined by the Board, commencing on such dates as the Board shall determine, and continuing thereafter until terminated in accordance with Section 19 hereof. The Board shall have the power to change the duration, commencement and termination of Offering Periods, Extended Offering Periods and/or Purchase Periods with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period, Extended Offering Period or Purchase Period to be affected thereafter. 5. Participation. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. -3- 6. Payroll Deductions. (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period or Extended Offering Period in an amount not exceeding ten percent (10%) of the Compensation which he or she receives on each pay day during the Offering Period or Extended Offering Period, and the aggregate of such payroll deductions during the Offering Period or Extended Offering Period shall not exceed ten percent (10%) of the participant's Compensation during any such Offering Period or Extended Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and will be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period or Extended Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period or Extended Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods or Extended Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to 0% at such time during any Offering Period or Extended Offering Period which is scheduled to end during the current calendar year (the "Current Offering Period or Extended Offering Period") that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in a prior Offering Period or Extended Offering Period which ended during that calendar year plus all payroll deductions accumulated with respect to the Current Offering Period or Extended Offering Period equal $21,250. Payroll deductions shall recommence at the rate provided in such participant' s subscription agreement at the beginning of the first Offering Period or Extended Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the Company may, but will not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. -4- 7. Grant of Option. On the Enrollment Date of each Offering Period or Extended Offering Period, each eligible Employee participating in such Offering Period or Extended Offering Period shall be granted an option to purchase on the Exercise Date(s) of such Offering Period or Extended Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be granted an option to purchase more than 1,500 shares of the Company's Common Stock during any two Offering Periods (or, with respect to an Extended Offering Period, during any two Purchase Periods); and provided, further, that in no event shall an Employee be permitted to purchase during any two Offering Periods (or, with respect to an Extended Offering Period, during any two Purchase Periods) more than a number of Shares determined by dividing $25,000 by the Fair Market Value of a share of the Company's Common Stock on the Enrollment Date; and provided, further, that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and shall expire on the last day of the Offering Period or Extended Offering Period. 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares will be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant' s account for the subsequent Offering Period or Extended Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Exercise Date on which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal; Termination of Employment. (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account will be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period or Extended Offering Period will be automatically terminated, and no further payroll deductions for the purchase of shares will be made during the Offering Period or Extended Offering Period or Extended Offering Period. If a participant withdraws from an Offering Period or Extended Offering Period, payroll deductions will not resume at the beginning of the -5- succeeding Offering Period or Extended Offering Period unless the participant delivers to the Company a new subscription agreement. (b) Upon a participant's ceasing to be an Employee (as defined in Section 2(g) hereof ), for any reason, including by virtue of him or her having failed to remain an Employee of the Company for at least twenty (20) hours per week during an Offering Period or Extended Offering Period in which the Employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant' s account during the Offering Period or Extended Offering Period but not yet used to exercise the option will be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 14 hereof, and such participant's option will be automatically terminated. (c) A participant's withdrawal from an Offering Period or Extended Offering Period will not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods or Extended Offering Periods which commence after the termination of the Offering Period or Extended Offering Period from which the participant withdraws. 11. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan. 12. Stock. (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 18 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 2,228,498 shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning January 1, 2004, equal to the lesser of (i) 400,000 shares, (ii) 2.0% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. If on a given Exercise Date the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant will have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 13. Administration. (a) Administrative Body. The Plan shall be administered by the Board or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent -6- permitted by law, be final and binding upon all parties. Further, the Board or its committee may, at any time, modify or interpret the provisions of the Plan or take any other action which it deems necessary to permit participation by employees in non-U.S jurisdictions and to comply with the applicable laws of such non-U.S. jurisdictions, including but not limited modifying the eligibility criteria set forth in Section 2(g) and collecting any income or payroll taxes resulting from such participation. 14. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period or Extended Offering Period in accordance with Section 10 hereof. 16. Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 17. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. -7- 18. Adjustments Upon Changes in Capitalization. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the Reserves as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Period or Extended Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. (c) Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period(s) or Extended Offering Period(s) then in progress by setting a new Exercise Date (the "New Exercise Date") or to cancel each outstanding right to purchase and refund all sums collected from participants during the Offering Period(s) or Extended Offering Period(s) then in progress. If the Board shortens the Offering Period(s) or Extended Offering Period(s) then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for his option has been changed to the New Exercise Date and that his option will be exercised automatically on the New Exercise Date, unless prior to such date he has withdrawn from the Offering Period(s) or Extended Offering Period(s) as provided in Section 10 hereof. For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of option stock subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in the sale of assets or merger was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation -8- or its parent equal in fair market value to the per share consideration received by holders of Common Stock and the sale of assets or merger. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event the Company effects one or more reorganizations, recapitalization, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. 19. Amendment or Termination. (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18 hereof, no such termination can affect options previously granted, provided that an Offering Period or Extended Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 18 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain shareholder approval in such a manner and to such a degree as required. (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods or Extended Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period or Extended Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 20. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock -9- exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 22. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 19 hereof. 23. Automatic Transfer to Low Price Extended Offering Period. To the extent permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Extended Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Extended Offering Period, then all participants in such Extended Offering Period shall be automatically withdrawn from such Extended Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Extended Offering Period as of the first day thereof. -10- EXHIBIT A BELL MICROPRODUCTS INC. EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT _____ Original Application Enrollment Date: __________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. _____________________________________ hereby elects to participate in the Bell Microproducts Inc. Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company' s Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (not to exceed 10%) during the Offering Period or Extended Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period or Extended Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete "Employee Stock Purchase Plan." I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that the grant of the option by the Company under this Subscription Agreement is subject to obtaining shareholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse Only): 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period or Extended Offering Period during which I purchased such shares), or one year from the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I hereby agree to notify the Company in writing within 30 days after the date of any disposition of shares and I will make adequate provision for Federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period or Extended Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print) ________________________________________________________ (First) (Middle) (Last) ________________________________________________________ Relationship ________________________________________________________ ________________________________________________________ (Address) NAME: (Please print) ________________________________________________________ (First) (Middle) (Last) ________________________________________________________ Relationship ________________________________________________________ ________________________________________________________ (Address) Employee's Social Security Number: ________________________________________________________ Employee's Address: ________________________________________________________ ________________________________________________________ ________________________________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS OR EXTENDED OFFERING PERIODS UNLESS TERMINATED BY ME. Dated: ___________ ____________________________________ Signature of Employee ____________________________________ Spouse's Signature (If beneficiary other than spouse) EXHIBIT B BELL MICROPRODUCTS INC. EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period or Extended Offering Period of the Bell Microproducts Inc. Employee Stock Purchase Plan which began on ________________ 20____ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period or Extended Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period or Extended Offering Period. The undersigned understands and agrees that his or her option for such Offering Period or Extended Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period or Extended Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods or Extended Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ____________________________________ ____________________________________ ____________________________________ Signature: ____________________________________ Date: ______________________________ EX-31.1 3 c85313exv31w1.txt CERTIFICATION OF CEO - SECTION 302 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, W. Donald Bell, Chief Executive Officer, hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bell Microproducts Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2004 /s/ W. Donald Bell Chief Executive Officer 23 EX-31.2 4 c85313exv31w2.txt CERTIFICATION OF CFO - SECTION 302 Exhibit 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James E. Illson, Chief Financial Officer, hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bell Microproducts Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 10, 2004 /s/ James E. Illson Chief Financial Officer 24 EX-32.1 5 c85313exv32w1.txt CERTIFICATION OF CEO - SECTION 906 Exhibit 32.1 CERTIFICATION PURSUANT SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Bell Microproducts Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, W. Donald Bell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 10, 2004 /s/ W. Donald Bell Chief Executive Officer 25 EX-32.2 6 c85313exv32w2.txt CERTIFICATION OF CFO - SECTION 906 Exhibit 32.2 CERTIFICATION PURSUANT SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Bell Microproducts Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, James E. Illson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 10, 2004 /s/ James E. Illson Chief Financial Officer 26 -----END PRIVACY-ENHANCED MESSAGE-----