EXHIBIT 99.2
CONSENT SOLICITATION STATEMENT
BELL MICROPRODUCTS INC.
SOLICITATION OF CONSENTS TO AMENDMENTS TO THE INDENTURE AND WAIVER OF DEFAULTS
IN RESPECT OF ITS
$109,850,000 AGGREGATE PRINCIPAL AMOUNT OF 3 3/4% CONVERTIBLE SUBORDINATED
NOTES, SERIES B DUE 2024
(CUSIP NO. 078137AC0)
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
DECEMBER 13, 2006, UNLESS EXTENDED (SUCH TIME AND DATE, AS THEY MAY BE EXTENDED,
THE "CONSENT DATE"). THE CONSENT SOLICITATION MAY BE TERMINATED BY BELL
MICROPRODUCTS OR CONSENTS REVOKED ON THE TERMS AND CONDITIONS SET FORTH IN THIS
STATEMENT.
Subject to the terms and conditions set forth in this Consent
Solicitation Statement (the "Statement") and the related Letter of Consent, Bell
Microproducts Inc. ("Bell Microproducts") hereby solicits (the "Solicitation")
the consents (the "Consents") of Holders (the "Record Holders") of record as of
5:00 p.m., New York City time, on December 6, 2006 (the "Record Date") of Bell
Microproducts' $109,850,000 principal amount 3 3/4% Convertible Subordinated
Notes, Series B due 2024 (the "Notes"), governed by the Indenture dated as of
December 21, 2004 (the "Indenture"), between Bell Microproducts and Wells Fargo
Bank, N.A., a national banking association organized and existing under the laws
of the United States, as trustee (the "Trustee").
The purpose of the Consent Solicitation is to obtain approval of
certain amendments (as defined below, the "Proposed Amendment") and a waiver
(the "Proposed Waiver") of a Default or Event of Default (as such terms are
defined in the Indenture) arising from the failure to file all reports and other
information and documents which it is required to file with the Securities and
Exchange Commission (the "SEC") pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") (collectively, the "SEC
Reports"), and within fifteen days after it files the SEC Reports with the SEC,
to file copies of the SEC Reports with the Trustee. The Proposed Amendment would
amend the Indenture to eliminate any provision that would trigger a Default or
Event of Default for the failure to file or deliver any reports required to be
filed with the SEC or the Trustee. For a more detailed description of the
purpose of the Consent Solicitation, the Proposed Amendment and the Proposed
Waiver, see "Bell Microproducts Inc.--Background and Purpose of the Consent
Solicitation".
The Solicitation Agent is:
CREDIT SUISSE SECURITIES (USA) LLC
As promptly as practicable following the Consent Date, Bell
Microproducts will pay the First Consent Fee to each Holder as to which Bell
Microproducts has received and accepted unrevoked Consents prior to the Consent
Date. The "First Consent Fee" is equal to $5.00 in cash for each $1,000.00 in
principal amount of Notes as to which Bell Microproducts has received and
accepted unrevoked Consents prior to the Consent Date. The payment by Bell
Microproducts to the holders of the Notes of the First Consent Fee shall be
conditioned upon the receipt by Bell Microproducts of validly delivered
and unrevoked consents from holders of a majority in aggregate principal amount
of the Notes by 5:00 p.m. New York City time on the Consent Date.
If Bell Microproducts does not commence and hold open an Eligible
Tender Offer, Bell Microproducts will pay the Second Consent Fee to each Holder
as to which Bell Microproducts has received and accepted unrevoked Consents
prior to the Consent Date. An "Eligible Tender Offer" is one that we have
commenced on or before February 28, 2007, held open for at least twenty business
days, and in which we have redeemed all Notes validly tendered at a price of at
least $1,000.00 plus accrued and unpaid interest up to, but not including, the
date the Notes are redeemed, for each $1,000.00 principal amount of Notes
validly tendered. The "Second Consent Fee" is equal to $50.00 in cash for each
$1,000.00 in principal amount of Notes as to which Bell Microproducts has
received and accepted unrevoked Consents prior to the Consent Date (together
with the First Consent Fee, the "Consent Fees").
Bell Microproducts will pay the Second Consent Fee, if it becomes
payable, to the Holders as promptly as practicable following a failure to effect
an Eligible Tender Offer. As with payment of the First Consent Fee, the payment
by Bell Microproducts to the holders of the Notes of the Second Consent Fee
shall be conditioned upon the receipt by Bell Microproducts of validly delivered
and unrevoked consents from holders of a majority in aggregate principal amount
of the Notes by 5:00 p.m. New York City time on the Consent Date.
The payment of the Consent Fees is also subject to satisfaction or
waiver of certain other conditions described in this Consent Solicitation.
Holders that revoke or do not submit properly executed Letter of Consents prior
to the Consent Date will not be entitled to either of the Consent Fees but will
be bound by the Proposed Amendment and Proposed Waiver if they become effective.
The Proposed Amendment and Proposed Waiver will become effective promptly
following the receipt and acceptance by Bell Microproducts of valid and
unrevoked Consents from Holders representing a majority of the outstanding
principal amount of Notes.
The Solicitation is being made upon the terms and is subject to the
conditions set forth in this Statement and the accompanying consent form (the
"Letter of Consent"). The terms and conditions of the Letter of Consent and the
parties' respective obligations therein are conditioned upon the Holders of at
least a majority in aggregate principal amount outstanding of the Notes,
entering into, and not revoking, the Waiver and Consent contained in the Letter
of Consent (such Consents, the "Required Consents").
Until the Consent Date, Holders may revoke Consents. Any notice of
revocation received after the Consent Date will not be effective. See "The
Solicitation--Revocation of Consents." From and after the Consent Date, each
present and future Holder of Notes will be bound by the Proposed Amendment and
Proposed Waiver, whether or not such Holder delivered a Consent.
Notwithstanding anything to the contrary set forth in this Statement,
Bell Microproducts reserves the right at any time on or prior to the business
day following the Consent Date to (i) prior to the satisfaction of all
conditions to the Solicitation, terminate the Solicitation for any reason, (ii)
extend the Solicitation from time to time if any condition to this Solicitation
has not been met or waived, (iii) amend the terms of the Solicitation, (iv)
modify the form or amount of the consideration to be paid to the Holders of the
Notes pursuant to the Solicitation, or (v) waive any of the conditions to the
Solicitation, subject to applicable law. See "The Solicitation--Consent Date;
Extensions; Amendment".
IMPORTANT
HOLDERS ARE REQUESTED TO READ AND CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS CONSENT SOLICITATION AND THE RELATED LETTER OF CONSENT AND TO
GIVE THEIR CONSENT TO THE PROPOSED
AMENDMENT AND PROPOSED WAIVER BY PROPERLY COMPLETING AND EXECUTING THE
ACCOMPANYING LETTER OF CONSENT IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
HEREIN AND THEREIN.
Holders who wish to consent must deliver their properly completed and
executed Letter of Consent to the Information Agent (as defined below) at the
address set forth on the back cover page of this Statement and in the Letter of
Consent in accordance with the instructions set forth herein and therein.
Consents should not be delivered to us, the Trustee or the Solicitation Agent
(as defined below). However, Bell Microproducts reserves the right to accept any
Consent received by us, the Trustee, the Information Agent or the Solicitation
Agent. Any beneficial owner of Notes who is not a Holder of such Notes must
arrange with the person who is the Holder or such Holder's assignee or nominee
to execute and deliver a Letter of Consent on behalf of such beneficial owner.
For purposes of the Consent Solicitation, The Depository Trust Company ("DTC")
has authorized DTC participants "(Participants") set forth in the position
listing of DTC as of the Record Date to execute Letter of Consents as if they
were the Holders of the Notes held of record in the name of DTC or the name of
its nominee. Accordingly, for purposes of the Consent Solicitation, the term
"Holder" shall be deemed to include such "Participants".
The transfer of Notes after the Record Date will not have the effect
of revoking any Consent theretofore validly given by a Holder, and each properly
completed and executed Letter of Consent will be counted notwithstanding any
transfer of the Notes to which such Letter of Consent relates, unless the
procedure for revoking consents described herein and in the Letter of Consent
has been followed.
Recipients of this Statement and the accompanying materials should not
construe the contents hereof or thereof as legal, business or tax advice. Each
recipient should consult its own attorney, business advisor and tax advisor as
to legal, business, tax and related matters concerning the Solicitation.
Please handle this matter through your bank or broker. Questions
concerning the terms of the Solicitation should be directed to the Solicitation
Agent at the address or telephone numbers set forth on the back cover page of
this Statement. Requests for assistance in completing and delivering a Letter of
Consent or requests for additional copies of this Statement, the Letter of
Consent or other related documents should be directed to the Information Agent
at the addresses or telephone numbers set forth on the back cover page of this
Statement.
No person has been authorized to give any information or make any
representations other than those contained in this Statement and, if given or
made, such information or representations must not be relied upon as having been
authorized by us, the Trustee, the Solicitation Agent, the Information Agent or
any other person.
The statements made in this Statement are made as of the date of this
Statement and delivery of this Statement or the accompanying materials at any
time does not imply that the information herein or therein is correct as of any
subsequent date. The information provided in this Statement is based upon
information provided solely by us. The Solicitation Agent has not independently
verified and does not make any representation or warranty, express or implied,
or assume any responsibility, as to the accuracy or adequacy of the information
contained herein.
The Solicitation is not being made to, and a Letter of Consent will
not be accepted from or on behalf of, a Holder in any jurisdiction in which the
making of the Solicitation or the acceptance thereof would not be in compliance
with the laws of such jurisdiction. However, we may in our discretion take such
action as we may deem necessary to lawfully make the Solicitation in any such
jurisdiction and to extend the Solicitation to any Holder in such jurisdiction.
In any jurisdiction in which the securities laws or blue sky laws require the
Solicitation to be made by a licensed broker or dealer, the Solicitation will be
deemed to be made on behalf of us by the Solicitation Agent or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
Unless otherwise stated, the terms "we," "us" and "our" refer to Bell
Microproducts Inc. Terms used in this Statement that are not otherwise defined
herein have the meanings set forth in the Indenture.
BELL MICROPRODUCTS INC.
OUR COMPANY
Bell Microproducts is an international, value-added distributor of a
wide range of high-tech products, solutions and services, including storage
systems, servers, software, computer components and peripherals, as well as
maintenance and professional services. An industry-recognized specialist in
storage products, we are a Fortune 1000 company and one of the world's largest
storage-centric value-added distributors. We are uniquely qualified with deep
technical and application expertise to service a broad range of information
technology needs. From design to deployment, our products are available at any
level of integration, from components to subsystem assemblies and
fully-integrated, tested and certified system solutions. More information can be
found in Bell Microproducts' SEC filings, or by visiting our website at
www.bellmicro.com. Information on our website is not part of this Statement.
BACKGROUND AND PURPOSE OF THE CONSENT SOLICITATION
As disclosed by Bell Microproducts in a press release and Form 8-K
filed November 9, 2006, Bell Microproducts' board of directors and audit
committee jointly determined on November 3, 2006 that Bell Microproducts will be
required to restate its financial statements and financial information for the
first, second, third and fourth quarters of 2005, the first and second quarters
of 2006 and the annual periods ended December 31, 2004 and 2005 due to a number
of accounting errors. The errors relate to: (1) the accounting treatment of
earnout payments to certain former shareholders of OpenPSL, a June 2004
acquisition by Bell Microproducts; (2) accounting for the foreign currency
translation of a portion of the goodwill resulting from certain foreign
acquisitions; and (3) accounting for certain accrued employment benefits
relating to tax liabilities of Bell Microproducts' Brazilian subsidiary.
The earnout payments to the OpenPSL shareholders were originally
treated as additional goodwill related to the acquisition, but Bell
Microproducts has now determined that the payments should have properly been
treated as compensation expense. The error will result in a non-cash
compensation charge in an aggregate amount of approximately $4.7 million spread
over six consecutive quarters beginning with the second quarter of 2004 and a
corresponding reduction in goodwill related to the acquisition. Bell
Microproducts will therefore restate its financial statements and financial
information for the second, third and fourth quarters of 2004 and the first,
second and third quarters of 2005, as well for the annual periods ended December
31, 2004 and December 31, 2005 to reduce pre-tax income from operations in those
periods by the aggregate amount noted above.
We will also restate a portion of the goodwill resulting from certain
foreign acquisitions to correctly account for foreign currency translation
adjustments. The currency translation adjustments affect all fiscal quarters and
fiscal years beginning with the first quarter of 2001. The adjustment will
result in an aggregate increase in goodwill of approximately $4 to $5 million
with a corresponding adjustment to accumulated other comprehensive income.
Additionally, Bell Microproducts will be restating its financial
statements and financial information for the third and fourth quarters of 2005,
the annual period ended December 31, 2005 and the first and second quarters of
2006 to accrue certain employee benefits relating to the employment tax
liability of its Brazilian subsidiary. This adjustment will result in Bell
Microproducts recording an assumed liability in purchase accounting of
approximately $1.4 million (with a corresponding increase in goodwill) and an
approximate $700,000 aggregate increase over the four affected quarters in
recorded
sales, general and administrative expense and a corresponding increase in other
accrued liabilities. In addition to the accounting issues the Company has
previously disclosed, it has also undertaken an evaluation of the manner in
which it recorded foreign currency cash flows during prior reported periods from
2004 through the current quarter, as well as a review of its stock options to
assure proper accounting treatment. The preliminary option review currently
being conducted, with the assistance of independent counsel, is limited in scope
and intended to provide the Company's audit committee with additional
information in order for it to determine whether a full review is necessary.
The Indenture requires Bell Microproducts to file all reports and
other information and documents which it is required to file with the Securities
and Exchange Commission (the "SEC") pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") (collectively, the "SEC
Reports"), and within fifteen days after it files the SEC Reports with the SEC,
to file copies of the SEC Reports with the Trustee. These requirements in the
Indenture are hereafter referred to as the "Reporting Covenants."
As a result of the need to restate certain financial statements, Bell
Microproducts was unable to file its Quarterly Report on Form 10-Q for the
quarter ended September 30, 2006 (the "Delayed SEC Report") as required by the
Exchange Act. As a result of our failure to file our Third Quarter Form 10-Q on
a timely basis, the Trustee served us with a notice of Default alleging a breach
of the Reporting Covenants. Bell Microproducts has thirty days from the date it
received the notice, or until December 14, 2006, to cure the Default by filing
the Delayed SEC Report or the holders may accelerate the payment of the
outstanding balance due under the Notes, which amount would become immediately
due and payable in full. However, the Holders of a majority of the outstanding
aggregate principal amount of the Notes may grant Bell Microproducts a waiver of
the Default. The purpose of this Consent Solicitation is to obtain such a waiver
of any Default or Event of Default under the Indenture relating to the Delayed
SEC Report, and amend the Indenture to eliminate any provision that would
trigger a Default or Event of Default for the failure to file or deliver any
reports required to be filed with the SEC or the Trustee, including as required
by Section 314 of the Trust Indenture Act of 1939, as amended (the "TIA").
RISK FACTORS
Participating in the Solicitation involves certain risks. Before
deciding whether or not to participate in the Solicitation, you should carefully
consider the risks described below in addition to the "risk factors" included in
our filings with the SEC and the information we disclose in our SEC filings that
are incorporated by reference in this Statement (see "Where You Can Find More
Information" below).
HOLDERS OF OUR NOTES HAVE THE RIGHT TO CALL FOR ACCELERATED PAYMENT.
As of September 30, 2006, the outstanding principal balance due under
the Notes was $109,850,000. As a consequence of being in violation of the
Reporting Covenants, the Holders of our Notes have the right to call for
accelerated payment of the Notes if we are unable to cure the Default by
December 14, 2006, which is 30 days from the notice of Default, or if the
Holders do not provide us with the Required Consent. In any such event, the
Trustee or Holders representing 25% in aggregate principal amount of the Notes
could call for such acceleration. In the event the majority of the Holders of
the Notes do not provide us with the Required Consent and, alone or together
with our senior lenders, determine to accelerate a portion of or all of our
indebtedness, we may lack the ability to meet those obligations out of currently
available cash. We cannot assure you that we would be able to refinance the
Notes or the borrowings under our line of credit arrangements, whether through
the capital markets or otherwise on commercially reasonable terms or at all.
OUR SENIOR LENDERS MAY HAVE THE RIGHT TO CALL FOR ACCELERATED PAYMENT OF OUR
INDEBTEDNESS UNDER OUR CREDIT FACILITIES.
The terms of the agreements with our senior lenders provide that they
may accelerate payment in certain circumstances, including the failure to file
required reports under the Exchange Act or the default under any of the senior
credit facilities or the Notes. While we have obtained requisite waivers from
our senior lenders in connection with any defaults arising from the failure to
file the Delayed SEC Report, if we fail to obtain the Required Consents, our
senior lenders may elect to accelerate the outstanding indebtedness under the
senior credit facilities. In the event a senior lender, alone or together with
the Holders of the Notes and other senior lenders, determines to accelerate a
portion of or all of our indebtedness, we may lack the ability to meet those
obligations out of currently available cash. We cannot assure you that we would
be able to refinance the Notes or our senior credit facilities, whether through
the capital markets or otherwise, on commercially reasonable terms or at all. If
we at any point lack the ability to meet our financial obligations, the payment
of principal of and interest on and other obligations on the Notes are
subordinated in right of payment to the senior lenders, and your right to
payment, as a Holder of the Notes, is pro rata among trade creditors and our
Subsidiaries and affiliates.
WE MAY HAVE TO CARRY OUR DEBT AS SHORT-TERM OBLIGATIONS ON OUR BALANCE SHEET.
If we are unsuccessful in curing or arranging for the waiver of the
Defaults under the Reporting Covenants in the Indenture, we may be required to
carry our debt as short-term obligations on our balance sheet as of December 31,
2006. This could cause us to alter the terms of our business with our trade
creditors and could materially adversely affect our financial condition and
results of operations. If such a reclassification were to occur, Bell
Microproducts may receive an opinion from its independent registered public
accountants containing an explanatory paragraph indicating uncertainty about
Bell Microproducts' ability to continue as a going concern relative to the
financial statements to be included in its 2006 Form 10-K, which has not yet
been filed.
In the event the Holders of the Notes, alone or together with our
senior lenders, determine to accelerate a portion or all of our indebtedness, we
may lack the ability to meet those obligations. We have concluded that if (i) we
fail to obtain the Required Consent, and (ii) the Holders of the Notes, alone or
together with our senior lenders, determine to accelerate a portion or all of
our indebtedness, there will be a substantial doubt about our ability to
continue as a going concern. Our auditor has not completed its audit of our 2006
financial statements and, accordingly, has not determined, as of the date of
this Consent Solicitation Statement, the form of its report on our financial
statements or whether such report would include a going concern modification
described above.
THERE IS CURRENTLY A LACK OF PUBLIC DISCLOSURE CONCERNING BELL MICROPRODUCTS.
As described above, we have not yet filed the Delayed SEC Report.
Until we file the Delayed SEC Report, there will be limited public information
available concerning our results of operations and financial condition. Although
Bell Microproducts has reported its third quarter results in a press release
dated October 25, 2006, our most recent available financial statements are as of
June 30, 2006, and they may not be indicative of our current financial condition
or results of operations for any period ending after June 30, 2006.
Additionally, the financial statements that are the subject of our previously
announced restatement, which include the financial statements filed with our
Quarterly Report on Form 10-Q for the period ended June 30, 2006, should not be
relied upon. The absence of more recent financial information may have a number
of adverse effects on us and the Notes, including a decrease in the market value
of the Notes and an increase in the volatility of such market price.
THE PROPOSED AMENDMENT AND PROPOSED WAIVER ARE BINDING ON ALL HOLDERS.
If the Required Consents are received, the Proposed Amendment and
Proposed Waiver with respect to the Indenture will be binding on all Holders of
the Notes. The Proposed Amendment and Proposed Waiver, which relates to the
timely filing of reports and information with the SEC and the Trustee, may
adversely affect the market price of the Notes or otherwise be adverse to the
interests of the Holders.
COMPLETION OF A TENDER OFFER MAY ADVERSELY AFFECT THE MARKET VALUE OF THE NOTES.
If Bell Microproducts commences a tender offer for the Notes, and
Holders of the Notes participate, the total number of Notes outstanding will
decrease. Consequently, the market for the Notes will become less liquid and the
market price of the Notes could be adversely affected.
FAILURE TO COMMENCE AND HOLD OPEN AN ELIGIBLE TENDER OFFER MAY CREATE A
SUBSTANTIAL FINANCIAL LIABILITY FOR BELL MICROPRODUCTS.
Assuming all conditions of the Solicitation are met, and we fail to
commence and properly hold open an Eligible Tender Offer for twenty business
days, we will be obligated to pay the Second Consent Fee to Holders who gave
Consent prior to the Consent Date. The Second Consent Fee would obligate us to
pay $50.00 in cash for each $1,000.00 in principal amount of Notes as to which
Bell Microproducts has received and accepted unrevoked Consents prior to the
Consent Date. Because we are soliciting consents from Holders of Notes with an
aggregate principal amount of $109,850,000 the Second Consent Fee could result
in a liability in excess of $5,000,000 and thus could adversely affect our
financial condition and results of operation.
THE DELAYED SEC REPORT MAY HAVE AN ADVERSE AFFECT ON OUR ABILITY TO RAISE
CAPITAL.
Our failure to meet the reporting requirements of the federal
securities laws affects our ability to access the capital markets. We are
currently ineligible to use "short-form" registration (registration that allows
us to incorporate by reference our Form 10-K, Form 10-Q and other SEC reports
into our registration statements) or, for most purposes, shelf registration,
until twelve complete months have passed after the date that we file the Delayed
SEC Report. Until we are current in our reporting, a holder of restricted
securities within the meaning of Rule 144 of the Securities Act of 1933, will be
unable to sell such securities in reliance on Rule 144, unless such holder has
held such securities for at least two years and is not our "affiliate" for
purposes of the U.S. securities laws.
As previously disclosed, because we are late in making our SEC
filings, we are not in compliance with the NASDAQ continued listing
requirements. We have received a written Staff Determination Notice from NASDAQ
stating that Bell Microproducts violated NASDAQ Marketplace Rule 4310(c)(14).
Bell Microproducts has requested a hearing with the NASDAQ Listing
Qualifications Panel, which has stayed the suspension of trading of Bell
Microproducts' common stock pending the decision of the Panel.
THE RESULTS OF BELL MICROPRODUCTS' REVIEW OF THE ACCOUNTING TREATMENT OF CERTAIN
TRANSACTIONS IS UNCERTAIN.
As previously disclosed, Bell Microproducts has decided to restate its
financial statements and financial information for the first, second, third and
fourth quarters of 2005, the first and second quarters of 2006 and the annual
periods ended December 31, 2004 and 2005 due to a number of accounting errors.
The restatement relates to: (1) earnout payments to certain former shareholders
of OpenPSL, a June 2004 acquisition of Bell Microproducts; (2) accounting for
the foreign currency translation of a portion of the goodwill resulting from
certain foreign acquisitions; and (3) accounting for certain accrued employment
benefits relating to tax liabilities of Bell Microproducts' Brazilian
subsidiary. The ultimate effect of the restatement on our prior period financial
statements and the outcome of our review of foreign currency
cash flows and prior stock option grants is still uncertain. Bell Microproducts'
prior period income and liabilities may be adversely affected.
The restatement process may also create additional issues. Our
accountants may discover other accounting errors during their evaluation of the
above-listed transactions, which may increase the cost of the restatement
process and further impact our prior period income and liabilities. Moreover,
because we have concluded that issues underlying the restatements represent
material weaknesses with respect to the effectiveness of internal control over
financial reporting, we expect to receive an adverse report from our registered
public accounting firm that the Company's internal control over financial
reporting was not effective as of December 31, 2005. The material weakness and
the resulting adverse report may negatively impact the market's perception of
the Company and therefore may cause the Company's common stock to trade at a
decreased price.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS AND OTHER FACTORS
Statements contained in this document that disclose Bell
Microproducts' or management's intentions, expectations or predictions of the
future, including statements regarding Bell Microproducts' solicitation of
consents for the Proposed Amendment and Proposed Waiver, and estimates of the
impact of the proposed restatements, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, 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," "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. Bell Microproducts
cautions that these statements involve risks and uncertainties and other factors
that may cause results to differ materially from those anticipated at the time
such statements are made, including but not limited to risks detailed in our
filings with the SEC as well as those identified above, and the following:
- risks associated with our inability to obtain the consents of
holders of a majority in principal amount of the Notes;
- risks associated with our potential failure or inability to
commence and properly hold open an Eligible Tender Offer for the
Notes;
- the ultimate outcome and timing of our financial restatement
process, including the stock option review;
- risks arising from material weaknesses in our internal control
over financial reporting;
- potential adverse effects to our financial condition, results of
operations or prospects as a result of any required adjustments
to prior period financial statements, and the incurrence of costs
related to the restatement and consent solicitation processes;
- risks associated with our inability to prepare and timely file
financial statements;
- potential adverse effects if there are additional adverse
accounting-related developments;
- potential adverse developments from enforcement actions that may
be commenced by regulatory agencies, including delisting of our
common stock from the Nasdaq Global Market; and
- potential downgrades in the credit ratings of our securities.
We assume 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 and
readers are cautioned not to place undue reliance on forward-looking statements.
THE PROPOSED AMENDMENT AND PROPOSED WAIVER
THE PROPOSED AMENDMENT
Sections 8.4 and 11.2 of the Indenture provide that Bell Microproducts
and the Trustee may enter into a supplemental indenture amending provisions of
the Indenture with the consent of Holders of a majority in principal amount of
the outstanding Notes. The Company is soliciting Consents from Holders in
accordance with this provision.
Set forth below is a summary of the Proposed Amendment. The summary
does not purport to be complete and is qualified in its entirety by reference to
the form of the Supplemental Indenture, which is available upon request from the
Information Agent, for the full and complete terms of the proposed amendments.
Any capitalized terms used in the following summary of the proposed amendments
have the meanings assigned thereto in the Indenture.
The Proposed Amendment to the Indenture would delete Section 6.2 from
Article 6 of the Indenture. Section 6.2 contains the following language:
"Section 6.2. SEC Reports.
(a) The Company shall file all reports and other information and
documents which it is required to file with the SEC pursuant to Section 13 of
15(d) of the Exchange Act, and within 15 days after it files them with the SEC,
the Company shall file copies of all such reports, information and other
documents with the Trustee; provided that any such reports, information and
documents filed with the SEC pursuant to its Electronic Data Gathering, Analysis
and Retrieval system shall be deemed to be filed with the Trustee.
(b) Delivery of such reports, information and documents to the Trustee
is for information purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable form information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates)."
Additionally the Proposed Amendment would add the following language
to the end of Section 8.1(a)(3):
", except that the Company's failure to comply in any way with Section 314 of
the TIA shall not be deemed a failure to comply with any of the terms, covenants
or agreements contained in the Securities or this Indenture that would
constitute a Default or Event of Default under this Indenture."
The Proposed Amendment would eliminate any provision in the Indenture
that would trigger a Default or Event of Default for the failure by the Company
to file or deliver any reports required to be filed with the SEC, including as
required by Section 314 of the TIA.
THE PROPOSED WAIVER
Section 8.4 of the Indenture provides, among other things, that
Holders of a majority in aggregate principal amount of the Securities then
outstanding (the "Majority Holders") may waive an existing Default or Event of
Default and its consequences. Bell Microproducts is soliciting the waiver of any
Default or Event of Default that exists or may arise under the Indenture as a
result of a failure by Bell Microproducts to comply fully with the Reporting
Covenants. Each Holder that executes a Letter of Consent will waive, in
accordance with Section 8.4 of the Indenture, any and all Defaults and Events of
Default that have or may occur due to any such failure and any such Defaults and
Events of Default that have occurred will be deemed to have been cured for all
purposes.
Copies of the Letter of Consent and the Indenture are available upon
request to the Information Agent. The Indenture, which is incorporated by
reference herein, is also on file with the SEC.
THE SOLICITATION
GENERAL
As of the Record Date, there were $109,850,000 aggregate principal
amount of Notes outstanding. At any time following receipt of the Required
Consents (which have not been revoked) with respect to the Notes, and in
compliance with the conditions contained in the Indenture, the Proposed
Amendment and the Proposed Waiver will become effective.
The delivery of a Consent will not affect a Holder's right to sell or
transfer any Notes, and a sale or transfer of any Notes after the Record Date
will not have the effect of revoking any Consent properly given by the Holder of
such Notes. Therefore, each properly executed and delivered Consent will be
counted notwithstanding any sale or transfer of any Notes to which such Consent
relates, unless the applicable Holder has complied with the procedure for
revoking Consents, as described herein and in the Letter of Consent. Failure to
deliver a Consent will have the same effect as if a Holder had voted "No" to the
Proposed Amendment and Proposed Waiver.
RECORD DATE
The Record Date is as of 5:00 p.m., New York City time, on December 6,
2006. This Statement and the Letter of Consent are being sent to all Holders on
the Record Date as we are reasonably able to identify. Such date has been fixed
as the date for the determination of Holders entitled to give Consents and
receive the Consent Fees, if payable, pursuant to the Solicitation. We reserve
the right to establish, from time to time, but in all cases prior to receipt of
the Required Consents, any new date as such Record Date with respect to the
Notes and, thereupon, any such new date will be deemed to be the Record Date for
purposes of the Solicitation.
CONSENT FEES
Assuming satisfaction of all conditions to the Solicitation, as
promptly as practicable after the Consent Date, we will pay the First Consent
Fee to each Holder of Notes as to which we have received and accepted Consents
prior to the Consent Date. If all conditions to the Solicitation have been
satisfied and, in addition, Bell Microproducts fails to effect an Eligible
Tender Offer, we will pay the Second Consent Fee to each Holder of Notes as to
which we have received and accepted Consents prior to the Consent Date. Bell
Microproducts will pay the Second Consent Fee, if it becomes payable, to the
Holders as promptly as practicable following a failure to effect an Eligible
Tender Offer. Interest will not accrue on or be payable with respect to any
Consent Fees.
The right to receive Consent Fees is not transferable with any Note.
We will only make payments of Consent Fees to Holders who have properly granted
Consents that are in effect at the Consent Date pursuant to the terms hereof. No
other Holder of any Notes will be entitled to receive any Consent Fees. Consents
will expire if the Required Consents have not been obtained on or before the
Consent Date.
HOW TO CONSENT
Holders who wish to Consent to the Proposed Amendment and the Proposed
Waiver should deliver one or more properly completed Letter of Consents signed
by or on behalf of such Holder by mail, hand delivery, overnight courier or by
facsimile or electronic transmission (with an original delivered subsequently)
in accordance with the instructions contained therein to the Information Agent
at its address or facsimile number set forth on the back cover page of this
Statement. We will have the right to determine whether any purported Consent
satisfies the requirements of the Solicitation and the Indenture, and any such
determination shall be final and binding on the Holder who delivered such
Consent or purported Consent. Letter of Consents must be received by the
Information Agent prior to the Consent Date in order to qualify for payment of
the Consent Fees.
Consents will be accepted from Holders and any other Person who has
obtained a proxy in a form reasonably acceptable to us that authorizes such
other Person (or Person claiming title by or through such other Person) to vote
any Notes on behalf of such Holder. For purposes of the Solicitation, The
Depository Trust Company ("DTC") has authorized the direct participants in DTC
("DTC Participants") set forth in the position listing of DTC as of the Record
Date to execute Letter of Consents as if they were Holders of the Notes held of
record in the name of DTC or its nominee. Accordingly, Consents will be accepted
from DTC Participants. ANY BENEFICIAL OWNER WHOSE NOTES ARE HELD THROUGH A
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES
TO CONSENT SHOULD CONTACT THE HOLDER OF ITS NOTES PROMPTLY AND INSTRUCT SUCH
HOLDER TO CONSENT ON ITS BEHALF.
Each Letter of Consent that is properly completed, signed, delivered
to and received by the Information Agent prior to the Consent Date (and accepted
by us as such), and not validly revoked prior to the Consent Date, will be given
effect in accordance with the specifications thereof. A Letter of Consent should
not be delivered to us, the Trustee or the Solicitation Agent. However, we
reserve the right to accept any Consent received by us, the Trustee or the
Solicitation Agent by any other reasonable means or in any form that reasonably
evidences the giving of a Consent. Under no circumstances will any person effect
a valid Consent by tendering or delivering Notes to us, the Trustee, the
Solicitation Agent or the Information Agent.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and revocation of a Consent will be resolved by us, in
our sole discretion, which resolution shall be final and binding. We reserve the
right to reject any and all Consents not validly given or any Consents, our
acceptance of which could, in our opinion or the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects or irregularities in
the delivery of a Consent or modify the conditions to the Solicitation (subject
to any requirement to extend the Consent Date). Unless waived, any defects or
irregularities in connection with deliveries of Consents must be cured within
such time as we shall determine. None of us, the Trustee, the Solicitation
Agent, the Information Agent or any other person shall be under any duty to give
notification of defects, irregularities or waivers with respect to deliveries of
Consents, nor shall any of them incur any liability for failure to give such
notification.
If the Notes to which a Consent relates are held by two or more joint
Holders, each such Holder must sign the Letter of Consent. If a signature is by
a trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation or other Holder acting in a fiduciary or
representative capacity, such person should so indicate when signing and must
submit proper evidence satisfactory to us of such person's authority so to act.
If Notes are held in different names, a separate Letter of Consent must be
executed covering each name.
If a Consent relates to fewer than all Notes held of record as of the
Record Date by the Holder providing such Consent, such Holder must indicate on
the Letter of Consent the aggregate dollar amount (in integral multiples of
$1,000) of such Notes to which the Consent relates. Otherwise, the Consent will
be deemed to relate to all Notes held by such Holder. The Consent Fees will be
paid only for such portion of the Notes to which a Consent relates.
CONDITIONS TO THE CONSENT SOLICITATION
Our acceptance of validly executed, delivered and unrevoked Consents
and payment of the Consent Fees with respect thereto are subject to (i) Required
Consents for the Notes having been received (and not revoked) prior to the
Consent Date and (ii) the absence of any law or regulation, and the absence of
any injunction or action or other proceeding (pending or threatened) that (in
the case of any action or proceeding if adversely determined) would make
unlawful or invalid or enjoin the implementation of the Proposed Amendment and
the Proposed Waiver or the payment of the Consent Fees or that would question
the legality or validity thereof.
If any of the preceding conditions are not satisfied on or prior to
the Consent Date, we may, in our sole discretion and without giving any notice,
allow the Solicitation to lapse, or extend the solicitation period and continue
soliciting consents to the Solicitation. Furthermore, subject to applicable law
and if we have not yet received the Required Consents, we may terminate the
Solicitation at any time prior to the Consent Date, in which case any Consents
received will be voided and no Consent Fees will be paid.
CONSENT DATE; EXTENSIONS; AMENDMENT
We will make a public announcement of the Consent Date and our
acceptance of validly tendered Consents at or prior to 9:00 a.m., New York City
time, on the next business day after the Consent Date. We may extend the
Solicitation from time to time if any condition to this Solicitation has not
been met. In order to extend the Consent Date, we will notify the Information
Agent of any extension by oral or written notice and will make a public
announcement thereof at or prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Consent Date. Such announcements may
state that we are extending the Solicitation for a specified period of time.
Failure of any Holder or beneficial owner of Notes to be so notified will not
affect the extension of the Solicitation.
Notwithstanding anything to the contrary set forth in this Statement,
we reserve the right at any time on or prior to the business day following the
Consent Date to (i) prior to the satisfaction of all conditions to the
Solicitation, terminate the Solicitation for any reason, (ii) extend the
Solicitation from time to time if any condition to this Solicitation has not
been met or waived, (iii) amend the terms of the Solicitation, (iv) modify the
form or amount of the consideration to be paid to the Holders of the Notes
pursuant to the Solicitation, or (v) waive any of the conditions to the
Solicitation, subject to applicable law. If we take any of these actions, we
will make a public announcement thereof.
If the Solicitation is amended in any material manner, or we waive or
modify any material conditions to the Solicitation, we will promptly disclose
such amendment, waiver or modification in a public announcement, and we may, if
determined by us to be appropriate, extend the Solicitation for no less than one
day, such period to be set at our discretion subject to applicable law.
Without limiting the manner in which we may choose to make a public
announcement of any extension, amendment or termination of the Solicitation, we
shall have no obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely press release and
complying with any applicable notice provisions of the Indenture.
REVOCATION OF CONSENTS
Until the Consent Date, Holders may revoke Consents tendered prior to
the Consent Date. Any notice of revocation received after the Consent Date will
not be effective, even if received prior to the Consent Date. Any Holder who
revokes a Consent prior to the Consent Date will not receive any Consent Fees,
unless such Consent is redelivered and properly received by the Information
Agent and accepted by us on or prior to the Consent Date. Unless properly
revoked, a Consent by a Holder shall bind the Holder and every subsequent Holder
of such Notes or portion of such Notes that evidences the same debt as the
consenting Holder's Notes, even if a notation of the Consent is not made on any
such Notes.
Subject to the immediately preceding paragraph, any Holder as to which
a Consent has been given prior to the Consent Date may revoke such Consent as to
such Notes or any portion of such Notes (in integral multiples of $1,000) by
delivering a written notice of revocation bearing a date later than the date of
the prior Letter of Consent to the Information Agent at any time prior to the
Consent Date. With respect to a Consent delivered prior to the Consent Date, any
notice of revocation received by the Information Agent after the Consent Date
will not be effective.
To be effective, a notice of revocation must be in writing signed by
the Holder, must contain the name of the Holder, the Notes to which it relates
and the principal amount of Notes to which it relates, must be received by the
Information Agent before the Consent Date, and must be signed in the same manner
as the original Letter of Consent. All revocations of Consents should be
addressed to the Information Agent at the address set forth on the back cover of
this Statement.
We reserve the right to contest the validity of any revocation and all
questions as to the validity (including time of receipt) of any revocation will
be determined by us in our sole discretion, which determination will be
conclusive and binding subject only to such final review as may be prescribed by
the Trustee concerning proof of execution and ownership. None of us, any of our
affiliates, the Solicitation Agent, the Information Agent, the Trustee or any
other person will be under any duty to give notification of any defects or
irregularities with respect to any revocation, nor shall any of them incur any
liability for failure to give such information.
SOLICITATION AGENT AND INFORMATION AGENT
We have retained Credit Suisse Securities (USA) LLC to serve as our
solicitation agent (the "Solicitation Agent") and Global Bondholder Services
Corporation to serve as our information agent (the "Information Agent") in
connection with the Solicitation. The Solicitation Agent has not been retained
to render an opinion as to the fairness of the Solicitation. We have agreed to
indemnify the Solicitation Agent and the Information Agent against certain
liabilities and expenses. At any time, the Solicitation Agent may trade the
Notes for its own account or for the accounts of its customers and, accordingly,
may have a long or short position in the Notes. The Solicitation Agent and its
affiliates have provided in the past, and are currently providing, other
investment banking, commercial banking and/or financial advisory services to us.
We have not authorized any person (including the Solicitation Agent
and the Information Agent) to give any information or make any representations
in connection with the Solicitation other than as set forth herein and, if given
or made, such information or representations must not be relied upon as having
been authorized by us, the Trustee, the Information Agent, the Solicitation
Agent or any other person.
Requests for assistance in filling out and delivering Letter of
Consents or for additional copies of this Statement or the Letter of Consent may
be directed to the Information Agent at its address and telephone number set
forth on the back cover of this Statement.
FEES AND EXPENSES
We will bear the costs of the Solicitation, including the fees and
expenses of the Solicitation Agent, the Solicitation Agent's counsel and the
Information Agent. We will pay the Trustee reasonable and customary compensation
for its services in connection with the Solicitation, plus reimbursement for
expenses.
Brokers, dealers, commercial banks, trust companies and other nominees
will be reimbursed by the Information Agent, by application of funds provided by
us, for customary mailing and handling expenses incurred by them in forwarding
material to their customers. We will pay all other fees and expenses
attributable to the Solicitation, other than expenses incurred by Holders or
beneficial owners of Notes.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
THIS DISCLOSURE IS LIMITED TO THE U.S. FEDERAL TAX ISSUES ADDRESSED
HEREIN. ADDITIONAL ISSUES MAY EXIST THAT ARE NOT ADDRESSED IN THIS DISCLOSURE
AND THAT COULD AFFECT THE U.S. FEDERAL TAX TREATMENT OF THE CONSENT
SOLICITATION. THIS TAX DISCLOSURE WAS WRITTEN IN CONNECTION WITH THE
SOLICITATION BY BELL MICROPRODUCTS OF CONSENTS TO THE PROPOSED AMENDMENT AND
PROPOSED WAIVER, AND IT CANNOT BE USED BY ANY HOLDER FOR THE PURPOSE OF AVOIDING
PENALTIES THAT MAY BE ASSERTED AGAINST THE HOLDER UNDER THE INTERNAL REVENUE
CODE. HOLDERS SHOULD SEEK THEIR ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES
FROM AN INDEPENDENT TAX ADVISER.
The following summary describes certain U.S. federal income tax
consequences of the Consent Solicitation. This discussion applies only to Notes
held as capital assets, and does not describe all of the tax consequences that
may be relevant to holders in light of their particular circumstances or to
holders subject to special rules, such as:
- certain financial institutions;
- insurance companies;
- dealers in securities or foreign currencies;
- persons holding Notes as part of a hedge or other integrated
transaction;
- U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
- partnerships or other entities classified as partnerships for U.S.
federal income tax purposes; or
- persons subject to the alternative minimum tax.
This summary is based on the Internal Revenue Code of 1986, as amended
to the date hereof (the "Code"), administrative pronouncements, judicial
decisions and final, temporary and proposed Treasury regulations in effect as of
the date hereof, changes to any of which subsequent to the date of this Consent
Solicitation Statement may affect the tax consequences described herein. Holders
are urged to consult their tax advisers with regard to application of the U.S.
federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
TAX CONSEQUENCES TO U.S. HOLDERS
As used herein, the term "U.S. Holder" means a beneficial owner of a
Note for U.S. federal income tax purposes that is:
- a citizen or resident of the United States;
- a corporation, or other entity taxable as a corporation for U.S.
federal income tax purposes, created or organized in or under the laws
of the United States or of any political subdivision thereof; or
- an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source.
The term U.S. Holder also includes certain former citizens and residents of the
United States.
TAX CONSIDERATIONS FOR CONSENTING U.S. HOLDERS
Deemed Exchange of Notes
If the (i) Required Consents are received and (ii) the Proposed
Amendment and Proposed Waiver become effective, and (iii) Bell Microproducts
does not commence and hold open an Eligible Tender Offer such that the Second
Consent Fee is paid to Consenting Holders, Consenting Holders will he deemed to
have exchanged the Notes ("Old Notes") for new Notes ("New Notes"), because the
Second Consent Fee will result in a change in the yield of the Notes that is
considered a "significant modification" of the Notes. This deemed exchange will
be a taxable transaction for U.S. federal income tax purposes. Accordingly, a
U.S. Holder will generally realize gain or loss on such deemed exchange in an
amount equal to the difference (if any) between the amount realized on the
deemed exchange and such U.S. Holder's adjusted tax basis in the Old Notes.
Provided that the Consent Fees are treated as additional consideration in the
deemed exchange (as discussed below), the amount realized would equal the sum of
the amount of the Consent Fees and the "issue price" of the New Notes (other
than amounts treated as received with respect to accrued interest on the Old
Notes, which would be taxable as ordinary interest income). The issue price of
the New Notes will depend on whether the Old Notes or the New Notes are
"publicly traded" within the meaning of applicable Treasury regulations. If
either the Old Notes or the New Notes are publicly traded, the issue price of
the New Notes will equal the fair market value of the New Notes (if the New
Notes are publicly traded) or the Old Notes (if the New Notes are not publicly
traded), in each case on the date of the deemed exchange. If neither the Old
Notes nor the New Notes are publicly traded, the issue price of the New Notes
will equal their stated principal amount. While not clear, Bell Microproducts
believes that the Old Notes and the New Notes are publicly traded within the
meaning of the applicable Treasury regulations.
If the deemed exchange is treated as a wash sale within the meaning of
Section 1091 of the Code, U.S. Holders would not be allowed to currently
recognize any loss resulting from the deemed exchange. Instead, such loss will
be deferred, and would be reflected as an increase in the basis of the New
Notes. U.S. Holders should consult their own tax advisers regarding whether the
deemed exchange may be subject to the wash sale rules.
Subject to the application of the market discount rules discussed in
the next paragraph, any gain or loss will be capital gain or loss, and will be
long-term capital gain or loss if at the time of the deemed exchange, the Old
Notes have been held for more than one year. The deduction of capital losses for
U.S. federal income tax purposes is subject to limitations. A U.S. Holder's
holding period for a New Note will
commence on the date immediately following the date of the deemed exchange, and
the U.S. Holder's initial tax basis in the New Note will be the issue price of
the New Note.
If a U.S. Holder holds Old Notes acquired at a "market discount," any
gain recognized by the holder on the deemed exchange of the Old Notes would be
recharacterized as ordinary interest income to the extent of accrued market
discount that had not previously been included as ordinary income.
Subject to a statutory de minimis exception, if the issue price of a
New Note at the time of the deemed exchange were less than its stated principal
amount, the New Note would have original issue discount for U.S. federal income
tax purposes, which would be included in a U.S. Holder's gross income on a
constant yield basis in advance of the receipt of cash attributable to the
discount. Information regarding any original issue discount on the New Notes
will be available in Internal Revenue Service Publication 1212.
If Bell Microproducts does commence and hold open an Eligible Tender
Offer (with the consequence that no Second Consent Fee is paid) the Proposed
Amendment and Proposed Waiver will not cause the Consenting Holders to be deemed
to have exchanged Old Notes for New Notes because the First Consent Fee alone
does not result in a change in the yield of the Notes that is considered a
"significant modification" of the Notes.
Taxation of the Consent Fees
The law is unclear with respect to the U.S. federal income tax
treatment of the Consent Fees. The receipt of the Consent Fee(s) by a U.S.
Holder may be treated either as additional consideration received in the deemed
exchange of Old Notes for New Notes or as separate consideration for consenting
to the Proposed Amendment and Proposed Waiver, in which case the Consent Fees
would constitute ordinary income to the U.S. Holder. Bell Microproducts intends
to treat the Consent Fees as additional consideration received in the deemed
exchange of Old Notes for New Notes. There can be no assurance, however, that
the Internal Revenue Service ("IRS") will not successfully assert a contrary
position.
TAX CONSIDERATIONS FOR NON-CONSENTING U.S. HOLDERS
The Proposed Amendment and Proposed Waiver will not be a significant
modification to non-consenting U.S. Holders, and therefore, subject to the
discussion in the next paragraph, the Consent Solicitation will generally have
no U.S. federal income tax consequences to such holders.
As described above under "Tax Considerations for Consenting U.S.
Holders - Deemed Exchange of Notes," Consenting Holders will be deemed to have
received New Notes if the Proposed Amendment and Proposed Waiver become
effective. Such New Notes will have the same CUSIP numbers as the Notes held by
non-consenting U.S. Holders, but may have more original issue discount for U.S.
federal income tax purposes. Because the Notes held by the non-consenting U.S.
Holders will be indistinguishable from the New Notes, it is possible that the
IRS will successfully assert that such Notes have the same amount of original
issue discount as the New Notes, particularly if a non-consenting U.S. Holder or
its transferee cannot prove that its Notes are not New Notes. Non-consenting
U.S. Holders should consult their own tax advisers regarding whether their Notes
may be treated as having additional original issue discount for U.S. federal
income tax purposes as a result of the fungibility of their Notes and the New
Notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information returns will be filed with the IRS in connection with the
payment of the Consent Fee(s) and deemed interest payments with respect to a
deemed exchange of Old Notes for New Notes. A U.S. Holder will be subject to
U.S. backup withholding on such payments if the U.S. Holder fails to provide its
taxpayer identification number to the paying agent and comply with certain
certification
procedures or otherwise establish an exemption from backup withholding. The
amount of any backup withholding deducted from a payment to a U.S. Holder will
be allowed as a credit against the U.S. Holder's U.S. federal income tax
liability and may entitle the U.S. Holder to a refund, provided that the
required information is furnished to the IRS.
U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE TAX
CONSEQUENCES OF THE CONSENT SOLICITATION, INCLUDING WHETHER THE NOTES ARE
PUBLICLY TRADED FOR U.S. FEDERAL INCOME TAX PURPOSES, WHETHER THE WASH SALE
RULES APPLY, THE PROPER CHARACTERIZATION OF THE CONSENT FEES FOR U.S. FEDERAL
INCOME TAX PURPOSES AND THE TAX CONSEQUENCES OF THE CONSENT SOLICITATION TO
NON-CONSENTING HOLDERS.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
As used herein, the term "Non-U.S. Holder" means a beneficial owner of
a Note for U.S. federal income tax purposes that is:
- a nonresident alien individual;
- a foreign corporation; or
- a nonresident alien fiduciary or a foreign estate or trust.
This discussion is not addressed to Non-U.S. Holders who own, actually
or constructively, 10% or more of the total combined voting power of all classes
of stock of Bell Microproducts entitled to vote, who are controlled foreign
corporations related to Bell Microproducts through stock ownership, or who, on
the date of acquisition of the Notes, owned Notes with a fair market value of
more than 5% of the fair market value of the common stock of Bell Microproducts.
Additionally, this discussion does not describe the U.S. federal income tax
consequences to Non-U.S. Holders who are engaged in a trade or business in the
United States with which the Notes are effectively connected, or who are
individuals present in the United States for 183 days or more in the taxable
year of disposition. Such Non-U.S. Holders will generally be subject to special
rules and should consult their own tax advisers regarding the U.S. federal
income tax consequences applicable to their particular situation.
TAX CONSIDERATIONS FOR CONSENTING NON-U.S. HOLDERS
Deemed Exchange of Notes
Subject to the discussion below concerning backup withholding, any
gain realized by a Non-U.S. Holder on a deemed exchange of Old Notes for New
Notes (as described above under "Tax Consequences to U.S. Holders - Tax
Considerations for Consenting U.S. Holders - Deemed Exchange of Notes") will not
be subject to U.S. federal income tax.
Deemed payments of interest (including original issue discount, if
any) to any Non-U.S. Holder on a deemed exchange of Old Notes for New Notes will
not be subject to U.S. federal withholding tax, provided that the Non-U.S.
Holder certifies on IRS Form W-8BEN, under penalties of perjury, that it is not
a United States person.
TAXATION OF THE CONSENT FEES
The law is unclear with respect to the tax treatment of the Consent
Fees. If the receipt of a Consent Fee by a Non-U.S. Holder is treated as
separate consideration for consenting to the Proposed Amendment and Proposed
Waiver, such payment may be subject to U.S. withholding tax at a 30% rate,
subject to reduction pursuant to an applicable treaty. Although Bell
Microproducts intends to treat the Consent Fees as additional consideration
received in the deemed exchange of Old Notes for New Notes,
because the law is unclear, Bell Microproducts intends to withhold taxes from
the payment of the Consent Fee(s) unless an exemption or partial reduction is
properly established. Non-U.S. Holders are urged to consult their own tax
advisers as to the U.S. federal income tax treatment of the Consent Fees and the
possibility of obtaining a refund with respect to any U.S. federal taxes
withheld therefrom.
TAX CONSIDERATIONS FOR NON-CONSENTING NON-U.S. HOLDERS
Subject to the discussion in the next paragraph, the Consent
Solicitation will have no U.S. federal income tax consequences to any
non-consenting Non-U.S. Holders.
As discussed above under "Tax Consequences to U.S. Holders - Tax
Considerations for Non-Consenting U.S. Holders"), it is possible that the IRS
will assert that the Notes have additional original issue discount for U.S.
federal income tax purposes. Therefore, non-consenting Non-U.S. Holders are
urged to provide Bell Microproducts with an IRS Form W-8BEN if they have not
already done so.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information returns will be filed with the IRS in connection with the
payment of the Consent Fee(s) and any deemed interest payments with respect to
any deemed exchange of Old Notes for New Notes. Unless the Non-U.S. Holder
complies with certification procedures to establish that it is not a United
States person, the Non-U.S. Holder may be subject to U.S. backup withholding on
any Consent Fee payments or deemed interest payments with respect to the Notes.
The certification procedures required to claim the exemption from withholding
tax on interest described above will satisfy the certification requirements
necessary to avoid backup withholding as well. The amount of any backup
withholding from a payment to a Non-U.S. Holder will be allowed as a credit
against the Non-U.S. Holder's U.S. federal income tax liability and may entitle
the Non-U.S. Holder to a refund, provided that the required information is
furnished to the IRS.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy any
document that we file at the SEC's public reference room located at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public from the SEC's web site at www.sec.gov, and at the
offices of the NASDAQ Stock Exchange. For further information on obtaining
copies of our public filings at the NASDAQ Stock Exchange, you should visit
http://www.nasdaq.com. HOWEVER, WE HAVE NOT FILED CERTAIN OF OUR REPORTS AS
REQUIRED AND THE FINANCIAL STATEMENTS AND FINANCIAL INFORMATION FOR THE FIRST,
SECOND, THIRD AND FOURTH QUARTERS OF 2006, THE FIRST AND SECOND QUARTERS OF 2006
AND THE ANNUAL PERIODS ENDED DECEMBER 31, 2001, 2002, 2003, 2004, 2005 AND 2006
SHOULD NO LONGER BE RELIED UPON. SEE "RISK FACTORS--THERE IS CURRENTLY A LACK OF
PUBLIC DISCLOSURE CONCERNING BELL MICROPRODUCTS."
This Statement "incorporates by reference" information that we have
filed with the SEC under the Exchange Act. This means that we are disclosing
important information to you by referring you to those documents. Information
contained in any subsequently filed document, to the extent it modifies
information in this Statement or in any document incorporated by reference in
this Statement, will automatically update and supersede the information
originally in this Statement or incorporated by reference in this Statement.
Except as provided below, we incorporate by reference the following documents
listed below (filed under File No. 0-21528) and any future filings with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, as of their
respective filing dates, until the Consent Date:
- Annual Report on Form 10-K for the year ended December 31, 2005;
- Definitive Proxy Statement filed April 21, 2006;
- Quarterly Report on Form 10-Q for the three-month period ended
March 31, 2006;
- Quarterly Report on Form 10-Q for the six-month period ended June
30, 2006;
- Notification of inability to timely file Form 10-Q with respect
to the quarterly period ended September 30, 2006; and
- Current Reports on Form 8-K or 8-K/A dated April 26, 2006, July
26, 2006, September 22, 2006, October 4, 2006, October 25, 2006,
November 9, 2006, November 13, 2006, and November 20, 2006.
We specifically do not incorporate into this Statement any of our
filed historical financial statements and related financial information as of
and for first, second, third and fourth quarters of 2005, the first and second
quarters of 2006 and the annual periods ended December 31, 2004 and 2005 which
are included in the above mentioned documents.
You may request a copy of these filings at no cost by making a written
or telephone to:
Investor Relations Department
Bell Microproducts Inc.
1941 Ringwood Avenue
San Jose, CA 95131
(408) 451-9400
The above SEC filings are also available to the public on our website
at www.bellmicro.com. Information on our website is not part of this Statement.
MISCELLANEOUS
The Solicitation is not being made to, and Letter of Consents will not
be accepted from or on behalf of, Holders in any jurisdiction in which the
making of the Solicitation or the acceptance thereof would not be in compliance
with the laws of such jurisdiction. However, we may in our discretion take such
action as we may deem necessary to make the Solicitation in any such
jurisdiction and to extend the Solicitation to Holders in such jurisdiction. In
any jurisdiction in which the securities laws or blue sky laws require the
Solicitation to be made by a licensed broker or dealer, the Solicitation will be
deemed to be made on our behalf by the Solicitation Agent or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
In order to give the Consents, a Holder should mail, hand deliver,
send by overnight courier or by facsimile or electronic transmission (in each
case, confirmed by physical delivery) a properly completed and duly executed
Letter of Consent, and any other required document, to the Information Agent at
its address set forth below. Any questions or requests for assistance or for
additional copies of this Statement or related documents may be directed to the
Information Agent at one of its telephone numbers set forth below. A Holder (or
a beneficial owner that is not a Holder) may also contact the Solicitation Agent
or the Information Agent at their respective telephone numbers set forth below
or its broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Solicitation.
The Solicitation Agent for the Solicitation is:
CREDIT SUISSE SECURITIES (USA) LLC
Eleven Madison Avenue
New York, New York 10010
U.S. Toll Free: 1 (800) 820-1653
Call Collect: 1 (212) 538-3953
The Information Agent for the Solicitation is:
GLOBAL BONDHOLDER SERVICES CORPORATION
65 Broadway -- Suite 723
New York, New York 10006
Attn: Corporate Actions
Banks and Brokers call: (212) 430-3774
Toll free: (866) 857-2200
By Facsimile:
(For Eligible Institutions only):
(212) 430-3775
Confirmation:
(212) 430-3774
By Mail By Overnight Courier By Hand
65 Broadway -- Suite 723 65 Broadway -- Suite 723 65 Broadway -- Suite 723
New York, NY 10006 New York, NY 10006 New York, NY 10006