Tidel Technologies DEF 14A 9-25-2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant ¨
Check
the
appropriate box:
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¨
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Preliminary
Proxy Statement
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¨
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x
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Definitive
Proxy Statement
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¨
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Definitive
Additional Materials
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¨
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Soliciting
Material Under Rule 14a-12
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TIDEL
TECHNOLOGIES, INC.
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(Name
of Registrant as Specified in Its Charter)
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NOT
APPLICABLE
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(Name
of Persons(s) Filing Proxy Statement, if Other Than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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x
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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The
purchase price payable under the asset sale consists of a cash payment
of $15.5
million, subject to certain adjustments. Solely for purposes of calculating
the
amount of the filing fee, the registrant estimates a net purchase price
of
approximately $13,770,032. The amount of the filing fee, calculated in
accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended,
equals $107 per each $1,000,000 of the value of the transaction, or
$1,498.
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(4)
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Proposed
maximum aggregate value of
transaction:
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$13,770,032
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(5)
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Total
fee paid: $1,936.70
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x
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Fee
paid previously with preliminary
materials:
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¨ Check
box
if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and
identify the filing for which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or the form or schedule
and the date of its filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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Tidel
Technologies, Inc.
2900
Wilcrest Drive, Suite 105
Houston,
Texas 77042
August
25, 2006
To
our
stockholders:
You
are
cordially invited to attend a special meeting of stockholders of Tidel
Technologies, Inc. to be held at Tidel Engineering, L.P., 2025
Beltline Road, Suite 114, Carrollton Texas 75006
on
September 25, 2006 at 10:00 a.m., local time. At this meeting, we intend to
seek
stockholder approval of the sale of substantially all of the assets of our
electronic cash security business to Sentinel Operating, L.P. and to change
our
name from “Tidel Technologies, Inc.” to “Secure Alliance Holdings Corporation”
(or, if that name is unavailable, to “Sentry Group Holdings
Corporation”).
Our
board of directors (with interested directors abstaining) has unanimously
approved all of the proposals described in the proxy statement and is
recommending that stockholders also approve them.
Please
review in detail the attached proxy statement for a more complete statement
regarding the proposal to approve the asset sale (proposal 1 in the proxy
statement), including a description of the amended and restated asset purchase
agreement, the background of the decision to enter into the amended and restated
asset purchase agreement, the reasons that our board of directors has decided
to
recommend that you approve the asset sale and the section beginning on page
16
titled “Special Factors” describing special factors relating to the asset
sale.
Your
vote
is very important to us, regardless of the number of shares you own. Whether
or
not you plan to attend the special meeting, please vote as soon as possible
to
make sure your shares are represented at the meeting.
On
behalf
of our board of directors, I thank you for your support and urge you to vote
“FOR” each of the proposals described in the proxy statement.
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By
Order of the Board of Directors,
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Leonard
Carr
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Secretary
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Houston,
Texas, August 25, 2006
The
notice and proxy statement are first being mailed to our stockholders on or
about August 25, 2006.
[THIS
PAGE INTENTIONALLY LEFT BLANK]
Tidel
Technologies, Inc.
2900
Wilcrest Drive, Suite 105
Houston,
Texas 77042
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO
BE HELD ON SEPTEMBER 25, 2006
To
our
stockholders:
A
special
meeting of stockholders of Tidel Technologies, Inc. will be held at Tidel
Engineering, L.P., 2025
Beltline Road, Suite 114, Carrollton Texas 75006
on
September 25, 2006 at 10:00 a.m., local time. At this meeting you will be
asked:
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1.
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To
consider and to vote on a proposal to approve the sale of substantially
all of the assets of our electronic cash security business, consisting
of
(a) timed access cash controllers, (b) the Sentinel products, (c)
the
servicing, maintenance and repair of the timed access cash controllers
or
Sentinel products and (d) all other assets and business operations
associated with the foregoing, pursuant to the amended and restated
asset
purchase agreement attached as Annex A to the proxy
statement;
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2.
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To
consider and to vote on a proposal to file a certificate of amendment
to
our certificate of incorporation to change our name from “Tidel
Technologies, Inc.” to “Secure Alliance Holdings Corporation” (or, if that
name is unavailable, to “Sentry Group Holdings
Corporation”);
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3.
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To
approve adjournments of the special meeting if deemed necessary to
facilitate the approval of the sale of substantially all of the assets
of
our cash security business and the name change amendment to our
certificate of incorporation, including to permit the solicitation
of
additional proxies if there are not sufficient votes at the time
of the
special meeting to establish a quorum or to approve the sale of our
cash
security business or the name change amendment to our certificate
of
incorporation; and
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4.
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To
transact such other business as may properly be brought before the
special
meeting or any adjournment or postponement
thereof.
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The
special committee of our board of directors, which is comprised solely of
directors who have no economic or other interest in the purchaser under the
amended and restated asset purchase agreement, unanimously found that the
amended and restated asset purchase agreement, the asset sale and related
transactions were advisable and fair to and in the best interests of us and
our
unaffiliated stockholders, and recommended to the board of directors the
approval and adoption of the asset purchase agreement. Our
board of directors (with interested directors abstaining) has unanimously
approved, and recommends that an affirmative vote be cast in favor, of each
of
the proposals listed on the proxy card and described in the enclosed proxy
statement.
Only
holders of record of our common stock at the close of business on August 7,
2006, will be entitled to notice of and to vote at the special meeting or any
adjournment thereof.
You
are
urged to review carefully the information contained in the enclosed proxy
statement prior to deciding how to vote your shares at the special
meeting.
Because
of the significance of the sale of our electronic cash security business, your
participation in the special meeting, in person or by proxy, is especially
important. We hope you will be able to attend the special meeting.
Whether
or not you plan to attend the special meeting, please complete, sign, date,
and
return the enclosed proxy card promptly.
If
you
attend the special meeting, you may revoke your proxy and vote in person if
you
wish, even if you have previously returned your proxy card. Simply attending
the
special meeting, however, will not revoke your proxy; you must vote at the
special meeting. If you do not attend the special meeting, you may still revoke
your proxy at any time prior to the special meeting by providing a later dated
proxy or by providing written notice of your revocation to our company’s
Secretary. Your prompt cooperation will be greatly appreciated.
The
notice and proxy statement are first being mailed to stockholders on or about
August 25, 2006.
Please
follow the voting instructions on the enclosed proxy card to vote either by
mail, telephone or electronically by the Internet.
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By
Order of the Board of Directors,
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Leonard
Carr
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Secretary
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Houston,
Texas
August
25, 2006
TABLE
OF CONTENTS
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Annex
A
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Amended
and Restated Asset Purchase
Agreement
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Annex
B
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Opinion
of Capitalink, LC
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Annex
C
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Form
of Certificate of Amendment to Certificate of
Incorporation
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The
following summary highlights selected information from this proxy statement
and
may not contain all of the information that may be important to you.
Accordingly, we encourage you to read carefully this entire proxy statement,
its
annexes and the documents referred to in this proxy statement. Each item in
this
summary includes a page reference directing you to a more complete description
of that item. In this proxy statement, the terms “Tidel,” “Company,” “we,”
“our,” “ours,” and “us” refer to Tidel Technologies, Inc., a Delaware
corporation, and its subsidiaries. Tidel Engineering, L.P., or Engineering,
is a
Delaware limited partnership and is Tidel’s indirect wholly-owned operating
subsidiary.
The
proposed transaction is the sale, or the Asset Sale, of substantially all of
the
assets of our electronic cash security systems business, or the Cash Security
business, consisting of (a) timed access cash controllers, (b) the Sentinel
products, (c) the servicing, maintenance and repair of the timed access cash
controllers or Sentinel products and (d) all other assets and business
operations associated with the foregoing pursuant to the asset purchase
agreement, initially dated as of January 12, 2006 and amended and restated
as of
June 9, 2006, by and among Tidel, Engineering, and Sentinel Operating, L.P.,
or
Buyer, a buyer controlled by a management buyout group that includes
Mark K. Levenick, our Interim Chief Executive Officer and a member of our
board of directors, and Raymond P. Landry, a member of our board of
directors. References in this proxy statement to the Initial Asset Purchase
Agreement are to the asset purchase agreement initially entered into as of
January 12, 2006. References in this proxy statement to the Asset Purchase
Agreement are to the asset purchase agreement as amended and restated on June
9,
2006. Tidel and Engineering are referred to in this proxy statement as the
Sellers. The Asset Sale would represent the sale of substantially all of our
assets. We refer to Mr. Levenick and Mr. Landry as management participants
in this proxy statement given their relationship with Buyer. We refer in this
proxy statement to our stockholders other than Laurus Master Fund, Ltd., or
Laurus, and the management participants as unaffiliated stockholders. The term
special committee in this proxy statement refers to the committee of those
directors who have no interest in the Buyer, economic or otherwise, and which
was formed to negotiate the terms of the Asset Purchase Agreement, the Asset
Sale and related transactions with the management participants.
The
Purchase Price and Cash Adjustments
The
Asset
Purchase Agreement provides for the payment to us of a cash purchase price
of
$15,500,000, less $100,000 as consideration for the Buyer assuming certain
potential liability in connection with ongoing litigation, and less a working
capital deficit adjustment of $1,629,968 as provided for in the Asset Purchase
Agreement, resulting in a net purchase price of $13,770,032. In addition, the
purchase price is subject to a cash adjustment of $2,458,718 payable to Tidel
by
the Buyer on closing.
Proceeds
from the Asset Sale (Page
27)
After
deducting the $8,508,963 sale fee payable to Laurus, under an agreement we
entered into with Laurus on June 9, 2006, and the cost of redeeming our shares
held by Laurus and other transactional costs, we estimate that the net proceeds
accruing to Tidel from the Asset Sale will be approximately $5,100,000. Proceeds
from the Asset Sale will not be distributed to stockholders.
If
the Asset Sale Occurs, Tidel will be left
as a
Non-Operating, Shell Public Company (Page 20)
In
the
event that the Asset Sale is approved by the holders of a majority of our
outstanding shares at the special meeting and the Asset Sale occurs, Tidel
will
be left as a non-operating, shell public company whose principal asset will
be
cash. Shares in shell companies may be more thinly traded than those of
operating companies. Accordingly, you may encounter delays in selling your
shares of our common stock following the Asset Sale. This may also have an
effect on the market price of our shares following the Asset Sale. We cannot
predict if this will in fact occur and cannot offer any guidance in this regard.
For more information see “Special Factors -- Tidel will have no operations
following the Asset Sale.”
Background
of the Asset Sale (Page 22)
We
have
experienced severe financial difficulties over the past several years during
which time we incurred significant losses and have had negative cash flow.
In
addition, our long time Chairman and Chief Executive Officer, James T. Rash,
died in December 2004. During this time, we funded our ongoing operations with
cash on hand and when that was exhausted we entered into financings with Laurus
in November 2003 and November 2004. We refer to these financings in this proxy
statement as the 2003 Laurus Financing and the 2004 Laurus Financing and
collectively as the Laurus Financings.
The
2003
Laurus Financing was critical to Tidel, and without the funds from such
financing Tidel would have had to consider alternatives such as a bankruptcy
filing or liquidation. In August 2004, due primarily to liquidity shortfalls,
Laurus sent us a default notice in respect of our non-payment of interest and
principal on the indebtedness under the 2003 Laurus Financing, as well as
noncompliance with certain other covenants of the 2003 Laurus Financing
documents. Following this default, Laurus agreed to forbear from exercising
all
remedies available to it under the 2003 Laurus Financing documents at such
time
and agreed to provide the 2004 Laurus Financing to us in consideration, among
other things, of our agreeing to enter into the Agreement Regarding NCR Asset
Sale and Other Asset Sales, dated as of November 26, 2004, or the 2004 Laurus
Fee Agreement, under which we agreed, among other things, to pay Laurus a fee
based on a percentage of the proceeds of any sale of our assets, including
a
sale of the Cash Security business. We amended the 2004 Laurus Fee Agreement
pursuant to an agreement, or the 2006 Laurus Agreement, which we entered into
with Laurus on June 9, 2006. Pursuant to the 2006 Laurus Agreement, we have
agreed to pay Laurus $8,508,963 in full satisfaction of all amounts payable
to
Laurus under the 2004 Laurus Fee Agreement, including fees payable in respect
of
the sale of our ATM business division and the Asset Sale. We previously had
estimated that Laurus would receive aggregate fees under the 2004 Laurus Fee
Agreement of between $9 million and $11 million.
We
agreed
in the 2004 Laurus Fee Agreement that we would accept an offer to buy all or
substantially all of our assets, equity interests or other property pursuant
to
an asset sale transaction or a group of asset sales so long as the aggregate
gross cash proceeds offered in connection with such asset sale or asset sales
equaled or exceeded 0.75 multiplied by the sum of Tidel’s trailing six-month
audited revenue plus Tidel’s six-month projected revenue. We agreed to this
requirement because Laurus made it one of a number of conditions to providing
the 2004 Laurus Financing, and we determined that it was in the best interests
of our stockholders to complete the 2004 Laurus Financing. We also agreed under
the 2004 Laurus Fee Agreement that neither the sale of our ATM business division
nor the sale of the Cash Security business would be consummated without the
prior written consent of Laurus including, without limitation, the consent
of
Laurus to the amount and type of consideration to be received.
At
the
time we entered into the 2004 Laurus Financing we previously had discussions
with NCR Corporation regarding the sale of our ATM business division, and we
subsequently entered into an agreement to sell our ATM business division to
NCR
Corporation on February 19, 2005, which transaction closed on January 3, 2006.
In connection with the sale of our ATM business division, $8.2 million of the
approximately $10.4 million purchase price was deposited into a collateral
account held by Laurus, as collateral for the satisfaction of all monetary
obligations payable to Laurus. Following the application by Laurus of $2,790,501
of this collateral amount to the approximately $8.2 million of our outstanding
indebtedness of Tidel to Laurus (including a prepayment penalty of $59,180),
$5.4 million remains in the collateral account held by Laurus as collateral
for
our obligations to Laurus, including our redemption obligations under the
exercise and conversion agreement and the stock redemption agreement discussed
below.
As
a
condition, among others, of the 2004 Laurus Financing, Tidel was required to
engage Stifel, Nicolaus & Company, Inc., or Stifel, to provide a fairness
opinion to Tidel in connection with the sale of our ATM business division to
NCR
Corporation, to provide investment banking services in connection with the
sale
of our ATM business division if the sale to NCR Corporation did not occur,
and
to provide investment banking services for the purpose of actively pursuing
the
consummation of the sale of our Cash Security business. As part of the financing
with Laurus, Tidel and Stifel executed an engagement letter on October 21,
2004.
Between April 2005 and August 2005, Stifel worked to identify a suitable
strategic transaction for the Cash Security business, and identified potential
buyers for this business with whom we negotiated. In late August 2005, Laurus
indicated to us that it would support a management buyout of the Company with
a
group composed of Mr. Levenick, Mr. Landry, and Jeffrey R. Galgano,
who was affiliated with Stifel, and that Laurus would consider, subject to
due
diligence, providing the financing to the management participants. Thereafter,
Mr. Galgano notified Stifel of his interest in pursuing a transaction with
Messrs. Levenick and Landry and on September 21, 2005, Stifel resigned as
financial advisor to Tidel and ceased advising us in respect of the strategic
alternatives for the Cash Security business. For more information concerning
the
role of Laurus and Stifel in the sale process, see “The Asset Sale -- Background
of the Asset Sale.”
Our
negotiations with Buyer continued through January 3, 2006, when we closed the
sale of the ATM business division, until January 12, 2006, the date of initial
execution of the Asset Purchase Agreement. Simultaneously with entering into
the
Initial Asset Purchase Agreement, we also entered into certain agreements with
Laurus which, among other things, required Laurus to convert a portion of Tidel
debt held by Laurus into common stock representing approximately 46.5% of the
voting power of Tidel, which has substantially increased the likelihood that
the
Asset Sale will be approved. These agreements include the voting agreement,
the
exercise and conversion agreement and the stock redemption agreement, each
entered into as of January 12, 2006. Each of the voting agreement, the stock
redemption agreement and the exercise and conversion agreement was subsequently
amended by the first amendment thereto dated as of February 28, 2006 and by
the
second amendment thereto dated as of June 9, 2006.
Under
the
voting agreement, Laurus has agreed to vote all of the shares of Tidel common
stock that its owns, and any shares over which it exercises voting control,
in
favor of the approval and adoption of the Asset Purchase Agreement and related
transactions, including the Amendment, and against any competing transactions
proposed to the Company’s stockholders.
The
exercise and conversion agreement provided, among other things, for Laurus
to
convert $5.4 million of indebtedness into 18,000,000 of shares of our common
stock on January 13, 2006. Following this conversion, Laurus and the officers
and directors of Tidel together hold common stock representing approximately
51.4% of the voting power of the Company. The exercise and conversion agreement
further provides that if the Asset Sale does not occur by September 30, 2006,
we
will immediately redeem from Laurus the 18,000,000 shares of our common stock
for $.30 per share, or an aggregate of $5.4 million. As originally executed,
the
exercise and conversion agreement provided that we would redeem Laurus’ shares
by March 31, 2006 if the Asset Sale had not occurred by that date. The March
31,
2006 date was initially extended to May 31, 2006 on February 28, 2006 and was
further extended to September 30, 2006 on June 9, 2006, and one consequence
of
which is that Laurus remains a stockholder long enough to assure the required
stockholder approval of the Asset Sale, after which time all of its shares
are
required to be redeemed for cash. The $5.4 million held by Laurus under a cash
collateral deposit letter secures our monetary obligations to Laurus, including
our obligations under the exercise and conversion agreement.
In
the
event the Asset Sale is approved and consummated, we have agreed, pursuant
to
the terms of the stock redemption agreement,
to
redeem from Laurus all 19,251,000 shares of our common stock that it currently
holds (which includes the 18,000,000 shares it received pursuant to the exercise
and conversion agreement) at a per share price not less than $.20 nor greater
than $.34 following the determination of our assets in accordance with a formula
set forth in the stock redemption agreement, or an estimated aggregate
redemption amount between $3.9 million and $6.5 million. Laurus has agreed
under
the stock redemption agreement (i) to the cancellation, as of the closing of
the
Asset Sale, of the outstanding warrants that it holds to purchase 4,750,000
shares of our common stock at an exercise price of $.30 per share, and (ii)
not
to exercise such warrants prior to the earlier to occur of September 30, 2006
and the date on which the Asset Purchase Agreement is terminated. See “Special
Factors -- Laurus Stock Redemption” for a more detailed description of the
proposed redemption of our shares held by Laurus.
After
entering into the Initial Asset Purchase Agreement, Buyer contacted the special
committee of the Board of Directors by email on March 15, 2006 and requested
that the purchase price payable by Buyer be reduced and that payment of a
portion thereof be deferred as a result of the deterioration in performance
of
the Cash Security business since January 2006, particularly as a result of
the
significant reduction in orders placed by key customers. On March 16, 2006,
the
special committee responded to the Buyer in writing and rejected Buyer’s
proposed terms. After a written reply from Buyer on March 17, 2006, the special
committee of the Board of Directors on March 20, 2006 repeated to Buyer its
desire to consummate the Asset Sale. In its response to Buyer, the special
committee stated that while it would conduct good faith discussions with Buyer
regarding the terms of the Initial Asset Purchase Agreement, it viewed the
Initial Asset Purchase Agreement as binding and the special committee rejected
the new terms proposed by Buyer and any other fundamental changes to the Initial
Asset Purchase Agreement.
In
late
April 2006, Buyer proposed amending the Initial Asset Purchase Agreement by
reducing the purchase price payable to Tidel from $17.5 million to $15.5
million, less $100,000 as consideration for our potential liability in
connection with ongoing litigation, and less a working capital deficit
adjustment of $1,629,968 as provided for in the Asset Purchase Agreement,
resulting in a net purchase price of $13,770,032. The amendment also provided
for a cash adjustment of $2,458,718 to be paid to Sellers by Buyer at Closing.
Buyer provided a draft Asset Purchase Agreement to Tidel on May 8, 2005. We
entered into the amended and restated asset purchase agreement on June 9,
2006.
The
special committee and Laurus negotiated the 2006 Laurus Agreement which provides
for Tidel to pay Laurus a sale fee of $8,508,963 upon the closing of the Asset
Sale in full satisfaction of all amounts payable to Laurus (including fees
payable under the 2004 Laurus Fee Agreement in respect of the sale of our ATM
business division and the Asset Sale). Under the terms of the 2006 Laurus
Agreement we have agreed, among other things, that upon payment of the sale
fee
to Laurus, neither Tidel nor any of its subsidiaries shall have any further
obligations due to, owing to or to be performed by them to Laurus, that all
warrants held by Laurus to purchase shares of common stock of Tidel shall
terminate and be of no further force and effect and that all liens, claims,
encumbrances and security interests held by Laurus or its transferees or
assignees in Tidel’s and its subsidiaries’ assets shall terminate and be of no
further force and effect. Furthermore, under the 2006 Laurus Agreement, Laurus
has agreed, subject to the closing of the Asset Sale, to release and discharge
Tidel and its subsidiaries from all claims, causes of action and
liabilities.
The
special committee of the board of directors believes that the 2006 Laurus
Agreement and the Asset Purchase Agreement are in the best interests of the
Company and its unaffiliated stockholders as the 2006 Laurus Agreement affords
finality to stockholders of the fees that will be payable to Laurus in the
event
that the Asset Sale is consummated and allows Tidel to fully terminate all
arrangements with Laurus. Upon the payment to Laurus of the $8,508,963 sale
fee,
no further fees are payable to Laurus in respect of the 2004 Laurus Fee
Agreement. Accordingly, following the Asset Sale, the Company will be able
to
consider all courses of action and will not be limited by the provisions of
the
2004 Laurus Fee Agreement. In addition to the sale fee, upon the consummation
of
the Asset Sale we shall redeem the 19,251,000 shares of our common stock held
by
Laurus pursuant to the terms of the stock redemption agreement at a per share
price not less than $.20 nor greater than $.34. At such point we will seek
to
maximize the value of all residual assets of the Company for the benefit of
the
Company’s remaining stockholders.
Effects
of the Asset Sale (Page 27)
If
the
Asset Purchase Agreement, the Asset Sale and the other transactions contemplated
thereby are approved and adopted by our stockholders and the other conditions
to
closing are satisfied, we will be a shell public company with no operations
and
we will consider all available alternatives, including without limitation the
acquisition of a new business or alternatively, the possible dissolution of
Tidel and liquidation of its assets, the discharge of any remaining liabilities,
and the eventual distribution of the remaining assets to our stockholders.
Although we currently do not expect to liquidate Tidel, if we later determine
liquidation is in the best interest of our stockholders, such action will
require the approval of the holders of a majority of our then outstanding shares
of common stock. If liquidation does occur we cannot give any assurances as
to
the amount of liquidation proceeds that might eventually be distributed to
you.
Following
the sale of our ATM business division on January 3, 2006 and upon the
consummation of the Asset Sale, we estimate that we will have received
approximately $24.2 million in the aggregate, representing approximately $10.4
million from the sale of our ATM business division and approximately $13.8
million (excluding the closing cash adjustment) from the Asset Sale. Of this
aggregate amount, between $12.4 million and $15 million will be paid by us
to
Laurus. These aggregate proceeds take into account the payment of the $8,508,963
sale fee to Laurus under the 2006 Laurus Agreement (which includes all amounts
and fees payable under the 2004 Laurus Fee Agreement, including fees payable
in
respect of the sale of our ATM business division and the Asset Sale) and a
payment in an amount estimated to be between approximately $3.9 million and
$6.5
million in the aggregate upon the redemption of the 19,251,000 shares of our
common stock held by Laurus pursuant to the terms of the stock redemption
agreement. Following this redemption, Laurus will hold no shares of our common
stock and all of our remaining stockholders will own a proportionally large
percentage of Tidel.
See
“Special Factors -- Fee Payable to Laurus” and “Special Factors -- Laurus Stock
Redemption” for a more detailed description of the fees payable to Laurus,
including how they were calculated, and for a more detailed description of
the
proposed redemption of our shares held by Laurus.
In
addition to its role as a Tidel stockholder and a financier to Tidel, Laurus
has
entered into non-binding proposal letters with the management participants
for
the provision of acquisition financing and a revolving credit facility to an
affiliate of Buyer in connection with the Asset Sale and for which an affiliate
of Laurus will receive fees. See “The Asset Sale -- Financing -- Buyer
Financing” for a more detailed description of the financing that Laurus may
provide to the Buyer affiliate in connection with the Asset Sale.
The
Parties to the Asset Sale (Page
28)
Tidel
Technologies, Inc.
Tidel
Engineering, L.P.
Tidel,
through Engineering, develops, manufactures, sells and supports electronic
cash
security systems, consisting of Timed Access Cash Controller, or TACC, products
and the Sentinel products, which are designed for the management of cash within
various specialty retail markets, primarily in the United States. On January
3,
2006, we completed the sale of our automated teller machine business to NCR
Corporation.
Sentinel
Operating, L.P.
Buyer
is
a Texas limited partnership which is indirectly controlled by Messrs. Levenick,
Landry and Galgano. Buyer was formed solely for the purpose of entering into
the
Asset Purchase Agreement and consummating the transactions contemplated by
the
Asset Purchase Agreement. It has not conducted any activities to date other
than
activities incidental to its formation and in connection with the transactions
contemplated by the Asset Purchase Agreement.
Voting
Agreements (Page 28)
Laurus
has entered into a voting agreement under which it has agreed to vote all of
the
shares of Tidel common stock that it owns and any shares over which it exercises
voting control in favor of the approval and adoption of the Asset Purchase
Agreement and against any competing transactions proposed to our stockholders
and the filing of an amendment, or the Amendment, to our certificate of
incorporation to change our name from “Tidel Technologies, Inc.” to “Secure
Alliance Holdings Corporation” (or, if that name is unavailable, to “Sentry
Group Holdings Corporation”). Tidel and our officers and directors have entered
into a voting agreement under which such officers and directors agreed to vote
all the shares of Tidel common stock that each party owns and any shares over
which such party exercises voting control in favor of the approval and adoption
of the Asset Purchase Agreement and the Amendment. As a result of these
arrangements, as of the record date, Laurus and our officers and directors
have
agreed to vote an aggregate of 19,860,905 shares, representing approximately
51.4% of the shares of our common stock entitled to vote at the special meeting,
in favor of the approval and adoption of the Asset Purchase Agreement and the
Amendment. Laurus alone holds 19,251,000 shares representing approximately
49.8%
of our outstanding shares of common stock. Such votes are sufficient to approve
and adopt the Asset Purchase Agreement and the Amendment, regardless of the
vote
of any other person.
Background
to Laurus’ Equity
Position
(Page 29)
As
of the
record date, Laurus holds 19,251,000 shares of our common stock, representing
approximately 49.8% of our outstanding shares of common stock. You should be
aware that:
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as
of December 31, 2005, Laurus held only 1,251,000 shares of our common
stock, representing only 6.1% of our outstanding
stock;
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in
connection with the Asset Sale and the Asset Purchase Agreement and
pursuant to the terms of the exercise and conversion agreement, Laurus
converted $5.4 million of Tidel convertible debt that it held into
18,000,000 shares of our common
stock;
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the
terms of the convertible notes held by Laurus required that Laurus
provide
at least 75 days notice to Tidel prior to converting the notes in
amounts
that would cause Laurus to hold in excess of 4.99% of Tidel’s outstanding
shares and this 75-day notice requirement was waived in the exercise
and
conversion agreement;
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the
conversion rate for the $5.4 million of convertible debt was $0.30
per
share, which is slightly lower than the $0.33 per share price of
our
common stock at the time of the conversion. A conversion rate of
$0.40 was
set when we issued the convertible note to Laurus in November 2003
as part
of the 2003 Laurus Financing. We lowered the conversion rate to $0.30
in
August 2004 in connection with Laurus’s agreement to forbear from
exercising all remedies available to it under the 2003 Laurus Financing
documents as a result of an event of default at such
time;
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Laurus
held convertible debt with a principal amount in excess of $9.75
million,
but converted $5.4 million, with the remaining amount being repaid
on
January 13, 2006;
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following
Laurus’ conversion of such $5.4 million in debt on January 13, 2006 into
18,000,000 shares, Laurus held shares representing approximately
49.8% of
our common stock;
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the
record date with respect to the vote regarding the Asset Sale was
initially set for January 13, 2006, the day after the date the Initial
Asset Purchase Agreement was entered into, and was subsequently changed
to
August 7, 2006;
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we
have agreed to repurchase from Laurus, upon the closing of the Asset
Sale,
all shares of our common stock that are held by Laurus at a per share
price of not less than $.20 and not greater than $.34;
and
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if
the Asset Sale does not occur by September 30, 2006, we have agreed
to
immediately redeem from Laurus the 18,000,000 shares of common stock
issued to Laurus at a redemption price of $.30 per share, or $5.4
million
in the aggregate.
|
The
above
transactions were conducted so that Laurus would be a stockholder with respect
to the 18,000,000 shares during the time necessary to vote its shares for the
Asset Sale, but would not incur all of the ordinary risks associated with being
a stockholder, since we have agreed to repurchase these 18,000,000 shares from
Laurus at a predetermined price. If the Asset Sale is consummated, these shares
will be repurchased, but at a price based on the value of our assets pursuant
to
the formula contained in the stock redemption agreement. If the Asset Sale
is
not consummated, these shares will be repurchased at $.30 per share, the
conversion price, or $5.4 million in the aggregate. Laurus will not be treated
the same as our other equity holders because we have agreed to buy back
18,000,000 shares held by Laurus, but we have no current plans to buy back
any
shares held by unaffiliated stockholders. Another effect of these transactions
is that Laurus and our officers and directors now hold a majority of the
outstanding shares of our common stock and will vote these shares in favor
of
the Asset Sale. The result of these transactions is that unaffiliated
stockholders, who hold less than a majority of the shares in the aggregate
as of
the record date, will not have the opportunity to affect the approval of the
Asset Sale, in the event they object.
Reasons
for the Asset Sale
(Page 30)
In
reaching its conclusion regarding the fairness of the Asset Sale to our
unaffiliated stockholders and its decision to approve and adopt the Asset
Purchase Agreement and recommend the approval and adoption of the Asset Purchase
Agreement by our stockholders, the special committee consulted with management
and its financial and legal advisors. In considering whether to approve the
Asset Purchase Agreement on June 9, 2006, the special committee noted the
deterioration in performance of the electronic cash security business since
the
execution of the Initial Asset Purchase Agreement on January 12, 2006. The
special committee considered the following factors and potential benefits of
the
Asset Sale, including, without limitation, the price to be paid, the process
undergone, the Cash Security business’ future prospects, litigation risks and
the terms of the Asset Purchase Agreement. The special committee also considered
and balanced against the potential benefits of the Asset Sale certain adverse
factors. See “The Asset Sale -- Reasons for the Asset Sale.”
It
was
with these considerations, among others, that the special committee recommended
to our board of directors that the Asset Sale and the Asset Purchase Agreement
be approved. Throughout this sale process, the board of directors has believed,
and continues to believe, that the orderly sale process the board of directors
has embarked on since November 2004 has allowed us to realize greater
stockholder value for our assets than could otherwise have been realized through
declaring bankruptcy, seeking a court ordered sale of our assets in either
November 2003 or November 2004 or continuing to operate. Our board of directors
(with interested directors abstaining) believes that the Asset Sale is in our
best interests and those of our unaffiliated stockholders.
Following
board approval on July 7, 2006, we made a payment of $100,000 to each of our
three non-employee directors, Raymond P. Landry, Stephen P. Griggs, and Jerrell
G. Clay, in recognition of the extraordinary efforts of, and time spent by,
such
directors over the past two years in connection with Tidel business matters,
including without limitation, the sale of our ATM business division to NCR
Corporation and exploring strategic alternatives regarding our Cash Security
business, and helping guide the Company following the serious illness and
subsequent death of our former Chief Executive Officer.
Record
Date and Quorum (Page 14)
You
are
entitled to vote at the special meeting if you owned shares of our common stock
at the close of business on August 7, 2006, the record date for the special
meeting. You will have one vote for each share of our common stock that you
owned on the record date. As of the record date, there were 38,677,210 shares
of
our common stock outstanding and entitled to be voted.
A
quorum
of the holders of the outstanding shares of our common stock must be present
for
the special meeting to be held. A quorum is present if the holders of a majority
of the outstanding shares of our common stock entitled to vote are present
at
the meeting, either in person or represented by proxy. Abstentions and broker
non-votes are counted as present for the purpose of determining whether a quorum
is present. A broker non-vote occurs on an item when a broker is not permitted
to vote on that item without instructions from the beneficial owner of the
shares and no instructions are given.
Required
Vote (Page 34)
For
us to
consummate the transactions contemplated by the Asset Purchase Agreement,
including the Asset Sale and the Amendment, stockholders holding at least a
majority of our common stock outstanding at the close of business on the record
date must vote “FOR” the approval and adoption of the Asset Purchase Agreement,
the Asset Sale and the transactions contemplated thereby and “FOR” the
Amendment. All of our stockholders are entitled to one vote per share. A failure
to vote your shares of Tidel common stock, an abstention or a broker non-vote
will have the same effect as a vote against the Asset Sale and against the
Amendment.
Proxies;
Revocation (Page 14)
Any
Tidel
registered stockholder (meaning a stockholder that holds stock in its own name)
entitled to vote may submit a proxy by telephone or the Internet or by returning
the enclosed proxy card by mail, or may vote in person by appearing at the
special meeting. If your shares are held in “street name” by your broker, you
should instruct your broker on how to vote your shares using the instructions
provided by your broker. If you do not provide your broker with instructions,
your shares will not be voted and that will have the same effect as a vote
against the Asset Sale, the transactions contemplated thereby and the
Amendment.
Any
Tidel
registered stockholder who executes and returns a proxy card (or submits a
proxy
via telephone or the Internet) may revoke the proxy at any time before it is
voted in any one of the following ways:
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filing
with or transmitting to our Secretary at the principal executive
offices
of the Company, at or before the special meeting, an instrument or
transmission of revocation that is dated a later date than the
proxy;
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sending
a later-dated proxy relating to the same shares to our Secretary
at the
principal executive offices of the Company, at or before the special
meeting;
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submitting
a later-dated proxy by the Internet or by telephone, at or before
the
special meeting; or
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attending
the special meeting and voting in person by
ballot.
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Simply
attending the special meeting will not constitute revocation of a proxy. If
you
have instructed your broker to vote your shares, the above-described options
for
revoking your proxy do not apply and instead you must follow the directions
provided by your broker to change your instructions.
Recommendations
of the Special Committee (Page
33)
The
special committee of our board of directors unanimously found that after due
consideration of all relevant factors:
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the
Asset Purchase Agreement, the Asset Sale and related transactions
are
advisable and fair to and in the best interests of the Company and
its
unaffiliated stockholders; and
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it
would recommend to the board of directors the approval and adoption
of the
Asset Purchase Agreement and the
Amendment.
|
In
reaching this decision, the special committee noted several factors, including
the exhaustive search process performed by Stifel, the opinion of Capitalink
that the purchase price was fair, from a financial point of view, to our
unaffiliated stockholders, our contractual obligations to Laurus, the terms
of
the Asset Purchase Agreement and that, following the Asset Sale, Laurus would
no
longer be a stockholder of Tidel or be in a position to control Tidel and Tidel
will have no further obligations to Laurus under the 2004 Laurus Fee Agreement
or any other agreement.
Recommendation
of the Company’s Board of Directors (Pages
33 and 55)
Our
board
of directors (with interested directors abstaining) has:
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determined
that the Asset Purchase Agreement, the Asset Sale and related transactions
are advisable and fair to and in the best interests of the Company
and its
unaffiliated stockholders;
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approved
and adopted the Asset Purchase Agreement and the Amendment;
and
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recommended
that Tidel’s stockholders vote “FOR” the approval and adoption of the
Asset Purchase Agreement and “FOR” the approval and adoption of the
Amendment.
|
In
reaching its conclusion regarding the fairness of the Asset Sale to our
unaffiliated stockholders and its decision to approve and adopt the Asset
Purchase Agreement and related transactions and recommend the approval and
adoption of the Asset Purchase Agreement and related transactions by our
stockholders, our board of directors noted the recommendations of the special
committee and the factors considered by the special committee. In considering
the recommendation of our board of directors with respect to the Asset Sale,
you
should be aware that some of the Company’s directors and executive officers and
its principal stockholder, Laurus, have interests in the Asset Sale that are
different from, or in addition to, the interests of our stockholders generally.
“Special Factors -- Fee Payable to Laurus” and “Special Factors -- Our principal
stockholder, Laurus, has interests in the Asset Sale which are different from,
or in addition to, our other stockholders.” For the factors considered by our
board of directors in reaching its decision to approve and adopt the Asset
Purchase Agreement, see “The Asset Sale -- Reasons for the Asset
Sale.”
Opinion
of Capitalink (Page 34 and Annex
B)
Capitalink,
L.C., or Capitalink, has delivered its opinion to the special committee of
our
board of directors that, as of the date of its opinion and based upon and
subject to the factors and assumptions set forth therein, the Asset Sale
consideration to be received by the Company pursuant to the Asset Purchase
Agreement is fair, from a financial point of view, to the Company’s unaffiliated
stockholders.
The
opinion of Capitalink is addressed to the special committee of our board of
directors for their benefit and use, is directed only to the consideration
to be
paid in the Asset Sale and does not constitute a recommendation to the board
of
directors or any of our stockholders as to how to vote in connection with the
Asset Purchase Agreement. The opinion of Capitalink does not address the
Company’s underlying business decision to pursue the Asset Sale, the relative
merits of the Asset Sale as compared to any alternative business strategies
that
might exist for the Company, the financing of the Asset Sale or the effects
of
any other transaction in which the Company might engage. The full text of the
written opinion of Capitalink, dated May 24, 2006, which sets forth the
procedures followed, limitations on the review undertaken, matters considered
and assumptions made in connection with such opinion, is attached as Annex
B to
this proxy statement. We recommend that you read the opinion carefully in its
entirety.
Laurus
and Messrs. Levenick and Landry have entered into non-binding proposal letters
for the provision of acquisition financing and a revolving credit facility
to an
affiliate of Buyer in connection with the Asset Sale. See “The Asset Sale --
Financing -- Buyer Financing” for a more detailed description of the financing
that Laurus may provide in connection with the Asset Sale.
Interests
of the Company’s Directors and Executive
Officers in the Asset Sale (Page 43)
Our
directors and executive officers may have interests in the Asset Sale that
are
different from, or in addition to, yours, including the following:
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Mark K.
Levenick, our Interim Chief Executive Officer and a member of our
board,
and Raymond P. Landry, a member of our board, have been offered
employment positions with Buyer to take effect following the Asset
Sale;
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we
agreed to make the following payments to four executives who will
remain
with the Cash Security business following the Asset Sale: $350,000
to
Mark K. Levenick, $50,000 to M. Flynt Moreland, $50,000 to Troy D.
Richard and $20,000 to Robert M. Gutierrez, in connection with the
termination of each such person’s employment with the Sellers and upon the
closing of the Asset Sale. These payments had previously been approved
as
stay bonuses prior to the sale of the Cash Security business to Buyer
being proposed. We also have agreed to make payments comprising
termination and severance and stay bonuses to certain employees and
a
consultant who will not remain with the Cash Security business following
the Asset Sale;
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the
Asset Purchase Agreement requires that we provide indemnification
for our
current and former directors and officers for six years following
the
Asset Sale with a proviso that if Tidel is dissolved or ceases to exist
for any reason prior to the end of such six-year period, we will
extend
our then in effect directors’ and officers’ and fiduciaries’ liability
insurance policy on commercially reasonable terms and conditions
and with
insurance coverage as comparable as possible with the insurance policy
then in effect for the current officers and directors of Tidel and
our
subsidiaries; and
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following
board approval on July 7, 2006, we made a payment of $100,000 to
each of
our three non-employee directors, Raymond P. Landry, Stephen P. Griggs,
and Jerrell G. Clay, in recognition of the extraordinary efforts
of, and
time spent by, such directors over the past two years in connection
with
Tidel business matters, including without limitation, the sale of
our ATM
business division to NCR Corporation and exploring strategic alternatives
regarding our Cash Security business, and helping guide the Company
following the serious illness and subsequent death of our former
Chief
Executive Officer.
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Material
United States Federal Income Tax Consequences
(Page 44)
We
do not
expect that the Asset Sale will result in any federal income tax consequences
to
our stockholders. However, Tidel may be subject to federal income taxes as
a
result of the consummation of the Asset Sale.
Regulatory
Approvals (Page 44)
We
are
unaware of any material federal, state or foreign regulatory requirements or
approvals required for the execution of the Asset Purchase Agreement or
completion of the Asset Sale.
Exclusivity;
No Solicitation of Transactions (Page
48)
The
Asset
Purchase Agreement restricts our ability to solicit or engage in discussions
or
negotiations with third parties regarding specified transactions involving
the
Company. Notwithstanding these restrictions, under certain limited circumstances
required for our board of directors to comply with its fiduciary duties, our
board of directors may respond to an unsolicited written bona fide proposal
for
an alternative acquisition, change its recommendation of the Asset Sale and
terminate the Asset Purchase Agreement and enter into an agreement with respect
to a superior proposal after paying the termination fee specified in the Asset
Purchase Agreement.
Conditions
to Asset Sale (Page 49)
Before
we
can complete the Asset Sale, a number of conditions must be satisfied. These
include, among other things:
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the
receipt of Company stockholder
approval;
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the
absence of governmental orders, not subsequently vacated, that have
the
effect of making the Asset Sale illegal or that otherwise restrict,
prevent or prohibit the closing of the Asset
Sale;
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the
performance by each of the parties of its covenants under the Asset
Purchase Agreement in all material
respects;
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the
receipt by Sellers and Buyer of all necessary consents or approvals
required under third-party contracts;
and
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the
accuracy of the parties’ representations and warranties in the Asset
Purchase Agreement in all material respects, including the absence
of
certain material adverse effects with respect to
Sellers.
|
Other
than the conditions pertaining to the Company stockholder approval and the
absence of governmental orders, either Sellers on the one hand, or Buyer on
the
other hand, may elect to waive conditions to their respective performance and
complete the Asset Sale. Sellers have no intention to waive any condition as
of
the date of this proxy statement.
Termination
of the Asset Purchase Agreement (Page
50)
Sellers
and Buyer may agree in writing to terminate the Asset Purchase Agreement at
any
time without completing the Asset Sale, even after the stockholders of Tidel
have approved and adopted the Asset Purchase Agreement. The Asset Purchase
Agreement may also be terminated at any time prior to the effective time of
the
Asset Sale in certain other circumstances, including:
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·
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by
either Sellers or Buyer, as the case may be, upon giving written
notice to
Sellers, in the case of Buyer, or to Buyer, in the case of Sellers,
in the
event (A) Sellers in the case of Buyer, and Buyer in the case of
Sellers,
have breached any representation, warranty, or covenant contained
in the
Asset Purchase Agreement in any material respect, and the terminating
party has notified the breaching party of the breach, and the breach
has
continued without cure for a period of 30 days after the notice of
breach
or if (B) the Asset Sale shall not have occurred on or before the
eight-month anniversary of the Asset Purchase
Agreement;
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by
Buyer by written notice to Sellers if Sellers, contrary to the terms
of
the Asset Purchase Agreement, fail to deal exclusively with Buyer
in
respect of the sale of the Cash Security business or fail to file
a proxy
and recommend the Asset Sale to a stockholders’ meeting of the Company;
or
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by
Buyer by written notice to Sellers if a majority of the Company’s
non-affiliated directors shall have failed to make or have withdrawn
their
recommendation of the Asset Purchase Agreement or the transactions
contemplated thereby or shall have approved or recommended an alternative
acquisition proposal.
|
The
Company has agreed to pay Buyer a fee of $400,000 in cash if a parent payment
event occurs, in addition to any damages to which Buyer may be entitled to
under
the Asset Purchase Agreement.
The
Asset
Purchase Agreement defines a parent payment event as the termination of the
Asset Purchase Agreement in the event Sellers (A) fail to deal exclusively
with
Buyer in respect of the sale of the Cash Security business or fail to file
a
proxy and recommend the Asset Sale to a stockholders’ meeting of the Company, or
(B) consummate, publicly announce, or execute documentation providing for any
acquisition proposal other than the Asset Sale pursuant to the terms of the
Asset Purchase Agreement, provided that such consummation, announcement or
execution occurs prior to the 18-month anniversary of the date of the
termination of the Asset Purchase Agreement.
No
Right of Appraisal (Page 55)
You
will
not experience any change in your rights as a stockholder as a result of the
Asset Sale or the Amendment. None of Delaware law, our certificate of
incorporation or our bylaws provides for appraisal or other similar rights
for
dissenting stockholders in connection with the Asset Sale or the Amendment.
Accordingly, you will have no right to dissent and obtain payment for your
shares.
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL
MEETING
Q:
How does the board recommend that I vote on the matters
proposed?
A:
Your
board (with interested directors abstaining) unanimously recommends that
stockholders vote “FOR” each of the proposals submitted at the special meeting.
Our board of directors and executive officers and our principal stockholder,
Laurus, hold shares representing approximately 51.4% of the shares outstanding
as of August 7, 2006 and they have agreed to vote all these shares in favor
of
the Asset Sale and the transactions contemplated thereby, including the
Amendment. Such votes are sufficient to approve and adopt the Asset Sale and
the
Amendment, regardless of the vote of any other person.
Q:
Will any of the proceeds from the Asset Sale be distributed to me as a
stockholder?
A:
No. We
will use the proceeds from the Asset Sale to pay the sale fee under the 2006
Laurus Agreement of $8,508,963 to Laurus in full satisfaction of all amounts
payable to Laurus (including fees payable under the 2004 Laurus Fee Agreement
in
respect of the sale of our ATM business division and the Asset Sale). In
addition, we have agreed to redeem from Laurus all shares of common stock held
by Laurus, for an estimated aggregate redemption amount of between $3.9 million
and $6.5 million following the determination of our assets in accordance with
a
formula set forth in the stock redemption agreement. See “Special Factors --
Laurus Stock Redemption.” Upon the consummation of the Asset Sale, we estimate
that an aggregate of between $12.4 million and $15 million will be paid by
us to
Laurus. It is our present intention to review Tidel’s financial position at that
time and consider all options including, without limitation the acquisition
of a
new business or alternatively, the possible dissolution and liquidation of
Tidel. Although we currently do not expect to liquidate Tidel, in the event
we
later determine liquidation is in the best interest of our stockholders, we
cannot estimate at this time the amount that would be available for distribution
to our stockholders. Our board of directors will continue to seek the best
alternatives for our stockholders including investigating the acquisition of
a
new business. In the event our board of directors judges that the acquisition
of
a new business represents the best alternative for Tidel and our stockholders,
no proceeds from the Asset Sale will be distributed to our
stockholders.
Q:
Can I still sell my shares?
A:
Yes.
None of the Asset Purchase Agreement, the Asset Sale or any of the other matters
discussed in this proxy statement will affect your right to sell or otherwise
transfer your shares of our common stock prior to the Asset Sale. In the event
that the Asset Sale and the Asset Purchase Agreement is approved by the holders
of a majority of our outstanding shares at the special meeting and the Asset
Sale occurs, Tidel will be left as a non-operating, shell public company whose
principal asset will be cash. Shares in shell companies may be more thinly
traded than those of operating companies. Accordingly, you may encounter delays
in selling your shares of our common stock following the Asset Sale. This may
also have an effect on the market price of our shares following the Asset Sale.
Your board of directors cannot predict if this will in fact occur and cannot
offer any guidance in this regard.
Q:
If
my shares are held in “street name” by my broker, will my broker vote my shares
for me?
A:
No.
Your broker will not be permitted to exercise voting discretion with respect
to
the proposals to be acted upon. Thus, you must give your broker or nominee
specific instructions for him to vote your shares. If you do not give your
broker or nominee specific instructions, your shares will not be voted, and
will
not be counted in determining the number of shares necessary for approval.
You
should follow the directions provided by your broker regarding how to instruct
your broker to vote your shares.
Q:
May I change my vote after I have mailed my signed proxy card?
A:
Yes.
You may change your vote by sending in a written revocation or a later dated,
signed proxy card before the special meeting or by simply attending the special
meeting and voting in person. Simply attending the special meeting, however,
will not revoke your proxy; you must vote at the special meeting.
Q:
What do I need to do now?
A:
Please
vote your shares as soon as possible so that your shares may be represented
at
the special meeting. You may vote by signing and dating your proxy card and
mailing it in the enclosed return envelope, or you may vote in person at the
special meeting. Alternatively, you may vote by telephone or via the Internet
in
accordance with any instructions on your proxy card.
Q:
Who should I call if I have any questions?
A:
If you
have questions about any of the proposals on which you are voting, you may
call
the Company at (713) 783-8200.
Place
and Time.
The
meeting will be held at Tidel Engineering, L.P., 2025
Beltline Road, Suite 114, Carrollton Texas 75006
on
September 25, 2006 at 10:00 a.m., local time.
Record
Date and Voting.
Our
board of directors fixed the close of business on August 7, 2006, as the record
date for the determination of holders of our outstanding shares entitled to
notice of and to vote on all matters presented at the special meeting. Such
stockholders will be entitled to one vote for each share held on each matter
submitted to a vote at the special meeting. As of the record date, there were
38,677,210 shares of our common stock, $0.01 par value per share, issued and
outstanding, each of which is entitled to one vote on each matter to be voted
upon. You may vote in person or by proxy.
Purpose
of the Special Meeting.
The
purpose of the special meeting is to vote upon (i) approval of the Asset Sale;
(ii) approval of the Amendment, (iii) adjournment of the special meeting, if
necessary, including to permit the solicitation of additional proxies if there
are not sufficient votes at the time of the special meeting to approve the
Asset
Sale or the Amendment; and (iv) such other business as may properly be brought
before the special meeting and any adjournment or postponement
thereof.
Quorum.
The
required quorum for the transaction of business at the special meeting is a
majority of the votes eligible to be cast by holders of shares of our common
stock issued and outstanding on the record date. Shares that are voted “FOR,”
“AGAINST” a proposal or marked “ABSTAIN” are treated as being present at the
special meeting for purposes of establishing a quorum and are also treated
as
shares entitled to vote at the special meeting with respect to such
proposal.
Abstentions
and Broker Non-Votes.
Broker
“non-votes” and the shares of common stock as to which a stockholder abstains
are included for purposes of determining whether a quorum of shares of common
stock is present at a meeting. A broker “non-vote” occurs when a nominee holding
shares of common stock for the beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. Since the first two proposals require the approval of the holders of
a
majority of our shares outstanding, both broker “non-votes” and abstentions
would have the same effect as votes against such proposals. With respect to
the
third proposal, to approve the adjournment of the special meeting if deemed
necessary, neither broker “non-votes” nor abstentions are included in the
tabulation of the voting results and, therefore, they do not have the effect
of
votes against such proposal.
Voting
of Proxies.
Our
board of directors is asking for your proxy. Giving the board of directors
your
proxy means you authorize it to vote your shares at the special meeting in
the
manner you direct. You may vote for or against the proposals or abstain from
voting. All valid proxies received prior to the special meeting will be voted.
All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made.
If
no choice is indicated on the proxy, the shares will be voted “FOR” the Asset
Sale and “FOR” the Amendment and as the proxy holders may determine in their
discretion with respect to any other matters that properly come before the
special meeting. A stockholder giving a proxy has the power to revoke his or
her
proxy, at any time prior to the time it is voted, by delivering to the Secretary
of Tidel a written instrument that revokes the proxy or a validly executed
proxy
with a later date, or by attending the special meeting and voting in person.
The
form of proxy accompanying this proxy statement confers discretionary authority
upon the named proxyholders with respect to amendments or variations to the
matters identified in the accompanying Notice of Special Meeting and with
respect to any other matters which may properly come before the special meeting.
As of the date of this proxy statement, management knows of no such amendment
or
variation or of any matters expected to come before the special meeting which
are not referred to in the accompanying Notice of Special Meeting.
Attendance
at the Special Meeting.
Only
holders of common stock, their proxy holders and guests we may invite may attend
the special meeting. If you wish to attend the special meeting in person but
you
hold your shares through someone else, such as a stockbroker, you must bring
proof of your ownership and identification with a photo at the special meeting.
For example, you could bring an account statement showing that you beneficially
owned shares of common stock of Tidel as of the record date as acceptable proof
of ownership.
Costs
of Solicitation.
We will
bear the cost of printing and mailing proxy materials, including the reasonable
expenses of brokerage firms and others for forwarding the proxy materials to
beneficial owners of common stock. In addition to solicitation by mail,
solicitation may be made by certain of our directors, officers and employees,
or
firms specializing in solicitation; and may be made in person or by telephone
or
telegraph. No additional compensation will be paid to any of our directors,
officers or employees for such solicitation. We have retained Mackenzie
Partners, Inc., 105 Madison Avenue, 14th Floor, New York, New York 10016, as
proxy solicitor, for a fee of $7,500 plus out-of-pocket expenses.
CAUTIONARY
STATEMENT CONCERNING
FORWARD-LOOKING
INFORMATION
This
proxy statement, and the documents to which we refer you in this proxy
statement, contain forward-looking statements based on estimates and
assumptions. Forward-looking statements include information concerning possible
or assumed future results of operations of the Company, the expected completion
and timing of the Asset Sale and other information relating to the Asset Sale.
There are forward-looking statements throughout this proxy statement, including,
among others, under the headings “Summary,” “Special Factors,” “The Asset Sale
-- Opinion of Capitalink” and in statements containing the words “believes,”
“plans,” “expects,” “anticipates,” “intends,” “estimates” or other similar
expressions. You should be aware that forward-looking statements involve known
and unknown risks and uncertainties. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that the actual results or developments we anticipate will be realized,
or
even if realized, that they will have the expected effects on the business
or
operations of the Company. In addition to other factors and matters contained
in
this document, we believe the following factors could cause actual results
to
differ materially from those discussed in the forward-looking
statements:
Considerations
Relating to the Asset Purchase Agreement and the Asset Sale:
|
·
|
the
failure to satisfy the conditions to consummation of the Asset Sale,
including the receipt of the required Tidel stockholder
approval;
|
|
·
|
the
occurrence of any event, change or other circumstances that could
give
rise to the termination of the Asset Purchase
Agreement;
|
|
·
|
the
failure of the Asset Sale to close for any other
reason;
|
|
·
|
the
outcome of legal proceedings that may be instituted against us and
others
in connection with the Asset Purchase Agreement;
and
|
|
·
|
the
amount of the costs, fees, expenses and charges related to the Asset
Sale.
|
Other
Factors:
|
·
|
risks,
uncertainties and factors set forth in our reports and documents
filed
with the Securities and Exchange Commission, or the SEC (which reports
and
documents should be read in conjunction with this proxy statement;
see
“Where You Can Find Additional
Information”).
|
All
forward-looking statements contained or incorporated by reference in the proxy
statement speak only as of the date of this proxy statement or as of such
earlier date that those statements were made and are based on current
expectations or expectations as of such earlier date and involve a number of
assumptions, risks and uncertainties that could cause the actual result to
differ materially from such forward-looking statements. Except as required
by
law, we undertake no obligation to update or publicly release any revisions
to
these forward-looking statements or reflect events or circumstances after the
date of this proxy statement.
Tidel
does not expect to distribute any portion of the
proceeds from the Asset Sale to its stockholders
Under
the
terms of the 2004 Laurus Fee Agreement, by and between the Company and Laurus,
the Company agreed to pay Laurus fees in respect of the Asset Sale, calculated
as a percentage of the net proceeds of a sale of the Company’s assets. On June
9, 2006, the Company and Laurus amended the 2004 Laurus Fee Agreement pursuant
to the 2006 Laurus Agreement. Under the 2006 Laurus Agreement, the Company
has
agreed to pay Laurus a fee of $8,508,963 in full satisfaction of all amounts
payable to Laurus under the 2004 Laurus Fee Agreement. See “Special Factors --
Fee Payable to Laurus” for a more detailed description of the 2004 Laurus Fee
Agreement and the 2006 Laurus Agreement. A copy of the 2004 Laurus Fee Agreement
is included as an exhibit to our Annual Report on Form 10-K/A for the fiscal
years ended September 30, 2004 and September 30, 2005 and filed November 30,
2005 which is incorporated by reference into this proxy statement. A copy of
the
2006 Laurus Agreement is included as an exhibit to our Current Report on Form
8-K filed June 14, 2006 which is incorporated by reference into this proxy
statement. A copy of the 2006 Laurus Agreement is distributed with this proxy
statement.
Pursuant
to the terms of the stock redemption agreement, we have agreed to repurchase
from Laurus, upon the closing of the Asset Sale, all 19,251,000 shares of our
common stock held by Laurus at a per share price not less than $.20 nor greater
than $.34, or an aggregate sum between approximately $3.9 million and $6.5
million, following the determination of our assets in accordance with a formula
set forth in the stock redemption agreement. See “Special Factors -- Laurus
Stock Redemption” for a more detailed description of the proposed redemption of
our shares held by Laurus. A copy of the Laurus stock redemption agreement
is
included as an exhibit to our Current Report on Form 8-K filed on January 19,
2006, as amended by our Current Report on Form 8-K/A filed on January 31, 2006,
our Current Report on Form 8-K filed on March 7, 2006 and our Current Report
on
Form 8-K filed on June 14, 2006, which are incorporated by reference into this
proxy statement. A copy of the stock redemption agreement, as amended, is
distributed with this proxy statement.
Following
the Asset Sale, the Company will be a shell public company with no operations
and the Company will consider all alternatives available to it, including the
acquisition of a new business or, alternatively, the possible dissolution of
the
Company and liquidation of it assets, the discharge of any remaining
liabilities, and the eventual distribution of remaining assets to our
stockholders. At this time, the Company cannot give any assurances as to the
amount of liquidation proceeds that might eventually be distributed to
stockholders or the timing of such distribution, if any. If the Company decides
to dissolve and liquidate its assets such action would require the approval
of
the holders of the majority of its then outstanding shares and we cannot give
any assurances as to the amount of liquidation proceeds that might eventually
be
distributed to you.
The
following discussion describes the fees that the Company agreed to pay Laurus
under the 2004 Laurus Fee Agreement. As previously discussed, the 2004 Laurus
Fee Agreement was amended by the 2006 Laurus Agreement.
Upon
the
consummation of the Asset Sale, the only fees payable by Tidel to Laurus
pursuant to the 2004 Laurus Fee Agreement will be the $8,508,963 sale fee under
the 2006 Laurus Agreement. If the Asset Sale is not consummated, then the terms
of the 2006 Laurus Agreement provide that the 2006 Laurus Agreement shall be
treated as having no effect and the 2004 Laurus Fee Agreement shall remain
in
effect.
2004
Laurus Fee Agreement
The
Company agreed under the 2004 Laurus Fee Agreement that any sales of the Cash
Security business assets on or before November 26, 2009 be applied: first,
towards
the repayment of any remaining outstanding indebtedness owing to Laurus;
second,
to
Laurus in an amount equal to the applicable excess proceeds percentage set
forth
in the 2004 Laurus Fee Agreement and which would be at least 55.5% of the sum
of
the excess proceeds of the Asset Sale plus the proceeds of the Company’s sale of
its ATM business division, minus certain specified payments; and third,
to
Tidel the remainder of any excess proceeds not distributed to Laurus under
clause second. We previously had estimated that Laurus would receive aggregate
fees under the 2004 Laurus Fee Agreement of between $9 million and $11 million
given the $17,500,000 purchase price under the Initial Asset Purchase Agreement
(exclusive of any post closing adjustments), and the approximately $10.4 million
purchase price received by the Company in respect of the sale of the Company’s
ATM business division on January 3, 2006. For purposes of the 2004 Laurus Fee
Agreement, excess proceeds are any amounts which Tidel receives from a sale
of
its assets in excess of the indebtedness owing by Tidel to Laurus.
Under
the
2004 Laurus Fee Agreement, if Laurus received proceeds from Tidel asset sales
in
excess of $2 million, such excess proceeds payments would be credited towards
the repayment of a reorganization fee of $2 million under the 2004 Laurus Fee
Agreement. In the event that Laurus does not receive the $2 million
reorganization fee on or before November 26, 2009, then the Company would have
to pay any remaining balance due on the reorganization fee to Laurus at such
date under the original terms of the 2004 Laurus Fee Agreement.
The
Asset
Purchase Agreement provides for a cash purchase price of $15,500,000, less
$100,000 as consideration for Sellers’ potential liability in connection with
ongoing litigation, less a working capital adjustment of $1,629,968 as provided
for in the Asset Purchase Agreement, resulting in a net purchase price of
$13,770,032. In addition, the purchase price is subject to a cash adjustment
of
$2,458,718 payable to Tidel by the Buyer on closing. The Company sold
substantially all of the assets of its ATM division to an affiliate of NCR
Corporation on January 3, 2006 for a purchase price of approximately $10.4
million. If the 2004 Laurus Fee Agreement had not been amended by the 2006
Laurus Agreement, we estimate Laurus would have received an aggregate fee of
between $9 million and $11 million in respect of the sale of the ATM business
division and the Asset Sale.
2006
Laurus Agreement
Pursuant
to the terms of the 2006 Laurus Agreement, the Company and Laurus agreed to
amend the 2004 Laurus Fee Agreement to provide for a fixed sale fee of
$8,508,963 payable by the Company to Laurus in full satisfaction of all amounts
payable to Laurus (including fees payable under the 2004 Laurus Fee Agreement
in
respect of the sale of our ATM business division and the Asset Sale). This
$8,508,963 sale fee shall be payable by the Company to Laurus upon the closing
of the Asset Sale. Upon payment of this sale fee and performance of certain
other obligations, the 2004 Laurus Fee Agreement terminates, Laurus provides
a
general release to Tidel, and all of Tidel’s obligations to Laurus are
terminated.
Laurus
would receive a substantially smaller fee if the
Company sold the Cash Security business after November 26,
2009
Under
the
terms of the 2004 Laurus Fee Agreement, a sale of the Company’s assets after
November 26, 2009, would only require the Company to pay to Laurus a fee of
$2
million.
After
considering all alternatives open to the Company, the Company’s financial
performance and the risk of delaying a sale of the Cash Security business and
the benefits to the Company of terminating all arrangements with Laurus upon
the
consummation of the Asset Sale pursuant to the 2006 Laurus Agreement, it is
the
judgment of the Company’s board of directors that the decision to sell the Cash
Security business prior to November 26, 2009 at the present time is in the
best
interests of the Company and its unaffiliated stockholders.
Under
the
terms of the stock redemption agreement we entered into with Laurus dated as
of
January 12, 2006, as amended, we have agreed to repurchase from Laurus, upon
the
closing of the Asset Sale, all 19,251,000 shares of our common stock held by
Laurus at a per share price of not less than $.20 nor greater than $.34, or
an
aggregate price between approximately $3.9 million and $6.5 million, following
the determination of our net assets in accordance with the formula set forth
below.
The
stock
redemption agreement with Laurus provides that the purchase price for the shares
of our common stock to be repurchased from Laurus shall consist of the per
share
price (as defined below and which is based on the net assets of the Company
on
the closing of the Asset Sale) multiplied by the 19,251,000 shares of our common
stock owned by Laurus. The per share price shall equal the quotient obtained
by
dividing:
|
(1)
|
the
value on the closing date of the Asset Sale
of
|
|
·
|
the
sum of the value of all assets of the Company that would be valued
by the
Company in connection with a liquidation of the Company following
the
closing of the Asset Sale (after giving effect to such closing),
including, but not limited to:
|
|
(i)
|
all
cash and cash equivalents held by the
Company,
|
|
(ii)
|
all
marketable securities held by the Company,
and
|
|
(iii)
|
all
other remaining tangible and intangible assets held directly or indirectly
by the Company valued at fair market
value,
|
|
(i)
|
all
fees and expenses of the Company and its subsidiaries in connection
with
the sale of the Company’s ATM business division and the Asset Sale through
the Asset Sale closing date,
|
|
(ii)
|
all
payments and obligations due to, or on behalf of, present and former
employees of the Company and its subsidiaries incurred through the
Asset
Sale closing date,
|
|
(iii)
|
all
amounts paid or payable to Laurus pursuant to the 2006 Laurus
Agreement,
|
|
(iv)
|
all
other liabilities of the Company and its
subsidiaries,
|
|
(v)
|
payments
due to independent members of our board in an aggregate amount not
to
exceed $400,000 (other than as disclosed in this proxy statement,
there
are no plans to make any other payments),
and
|
|
(vi)
|
a
good faith estimate of the costs and expenses which would be incurred
in
connection with the liquidation of the Company including, without
limitation, legal fees, directors and officers insurance, all fees
and
expenses relating to SEC and governmental filings and related expenses,
by
|
|
(2)
|
the
total number of shares of our common stock outstanding on the Asset
Sale
closing date.
|
Under
the
terms of the
exercise
and conversion agreement, as amended, if
the
Asset Sale does not occur by September 30, 2006, we will immediately redeem
from
Laurus the 18,000,000 shares of our common stock issued to Laurus
on
January 13, 2006 for $.30 per share, the conversion price, or $5.4 million
in
the aggregate. As
originally executed, the exercise and conversion agreement provided that we
would redeem Laurus’ shares by March 31, 2006 if the Asset Sale had not occurred
by that date. The March 31, 2006 date was initially extended to May 31, 2006
on
February 28, 2006 and was further extended to September 30, 2006 on June 9,
2006, and one consequence of which is that Laurus remains a stockholder long
enough to assure the required stockholder approval of the Asset Sale, after
which time all of its shares are required to be redeemed for cash. A copy of
the
exercise and conversion agreement, as amended, is distributed with this proxy
statement. Pursuant to the terms of the stock redemption agreement, as amended,
with Laurus, Laurus has agreed (i) to the cancellation as of the closing of
the
Asset Sale of the outstanding warrants that it holds to purchase 4,750,000
shares of our common stock at an exercise price of $.30 per share, and (ii)
not
to exercise such warrants prior to the earlier to occur of September 30, 2006
and the date on which the Asset Purchase Agreement is terminated.
The
Initial Asset Purchase Agreement was amended and
restated, principally to reduce the purchase price payable
thereunder
We
entered into the Initial Asset Purchase Agreement as of January 12, 2006. The
Initial Asset Purchase Agreement provided for a purchase price of $17,500,000,
less $100,000 for our potential liability in connection with ongoing litigation,
and subject to post-closing net working capital and cash on hand purchase price
adjustments. As a result of a deterioration in the financial performance of
the
Cash Security business since January 2006, Buyer requested that we amend the
Initial Asset Purchase Agreement in order to reduce the purchase price payable
thereunder. After a period of two months, including negotiations with Laurus
which led to the negotiation and execution of the 2006 Laurus Agreement after
the delivery of a revised opinion from Capitalink, the special committee of
the
board of directors agreed for Tidel to amend and restate the Initial Asset
Purchase Agreement and to a reduction in the purchase price payable to the
Company. The Asset Purchase Agreement, entered into on June 9, 2006, provides
for a purchase price of $15,500,000, less $100,000 as consideration for our
potential liability in connection with ongoing litigation, and less a working
capital deficit adjustment of $1,629,968 as provided for in the Asset Purchase
Agreement, resulting in a net purchase price of $13,770,032. In addition, the
purchase price is subject to a cash adjustment of $2,458,718 payable to Tidel
by
the Buyer on closing. The special committee determined that the Asset Purchase
Agreement was in the best interests of Tidel’s unaffiliated stockholders as,
taken together with the 2006 Laurus Agreement, it allows Tidel to meet its
contractual obligations to Laurus arising out of the 2004 Laurus Financing,
terminate the 2004 Laurus Fee Agreement, and obtain a general release from
Laurus.
Our
principal stockholder, Laurus,
has interests
in the Asset Sale which are different from, or in addition to, our other
stockholders
Laurus,
which held 19,251,000, or 49.8%, of our outstanding shares of common stock
as of
the record date and which is our principal stockholder, will receive proceeds
from the Asset Sale upon our payment to it of the $8,508,963 sale fee under
the
2006 Laurus Agreement and upon our redemption of the shares of our common stock
which it holds. We estimate that an aggregate amount of between $12.4 million
and $15 million will be paid by us to Laurus upon the closing of the Asset
Sale
as a result of the payment of the sale fee and our redemption pursuant to the
stock redemption agreement of all shares of our common stock held by Laurus.
Laurus will not be treated the same as our other equity holders because we
have
agreed to buy back any shares held by Laurus, but we have no current plans
to
buy back any shares held by unaffiliated stockholders.
In
addition, Buyer has informed us that it and Laurus have entered into non-binding
proposal letters pursuant to which Laurus may provide acquisition financing
and
a revolving credit facility to Buyer in connection with the Asset Sale. Under
one of the proposal letters, Laurus proposes to provide a loan of up to $20
million to an affiliate of the Buyer, or the Buyer Affiliate, to be used to
complete the Asset Sale, pay closing costs in connection with the Asset Sale,
complete a reverse merger with a shell public company or an initial public
offering and for use as general working capital. At closing of the loan, Buyer
would make a $700,000 servicing payment to an affiliate of Laurus. In addition,
Buyer will make payments to an affiliate of Laurus equal to $60,000 in
connection with due diligence documentation and has also agreed to pay the
fees
of outside counsel retained by Laurus for these transactions. In connection
with
the loan, Laurus would also receive an option to purchase a number of shares
of
common stock of the Buyer Affiliate equal to 40% of the Buyer Affiliate’s
outstanding common stock on a fully-diluted basis, subject to certain
exceptions.
Under
the
other proposal letter, Laurus proposes to provide to the Buyer Affiliate and
its
subsidiaries a revolving credit facility for up to $2,000,000. At the closing
of
the credit facility, the Buyer Affiliate would pay to an affiliate of Laurus
a
fee equal to $70,000. In addition, Buyer will pay Laurus a due diligence fee
of
$15,000 and a structuring and legal fee in the amount of $10,000 plus the cost
of outside counsel retained by Laurus. In addition, the Buyer Affiliate will
reimburse Laurus for all reasonable fees and expenses incurred by such outside
counsel. In connection with the credit facility, the Buyer Affiliate would
also
issue to Laurus warrants to purchase a number of shares of common stock of
the
Buyer Affiliate with an aggregate fair market value of $700,000 as of the time
of the closing of the credit facility and such warrants would be exercisable
at
a price equal to the lesser of (i) 115% of the fair market value of a share
of
common stock of the Buyer Affiliate as of the completion of a reverse merger
into a public company, and (ii) the price per share of common stock of the
Buyer
Affiliate which results in a $45,000,000 aggregate valuation of the outstanding
common stock of the Buyer Affiliate.
The
final
terms and conditions of the loan and the credit facility would be subject to
negotiations between Laurus, Buyer and the Buyer Affiliate and the execution
and
delivery of definitive agreements.
The
foregoing description of the financing proposed to be provided by Laurus to
the
Buyer Affiliate has been provided to us by Buyer. See “The Asset Sale --
Financing -- Buyer Financing” for a more detailed description of the financing
that Laurus may provide to the Buyer Affiliate in connection with the Asset
Sale.
The
board of directors has identified the
Asset Sale as
the most suitable method to meet its expected /scheduled liquidity
needs
If
stockholders reject the proposed Asset Sale to Buyer, Tidel will be faced with
a
critical liquidity challenge and urgent need for additional capital. In that
situation, Tidel’s board of directors would be forced to consider alternatives
which it believes are likely to be substantially less favorable than the
proposed Asset Sale. Tidel currently knows of no alternative sales or capital
raising transactions or strategies that, in the opinion of our board of
directors, would be likely to produce a more meaningful value for stockholders.
Given Tidel’s limited inventory, personnel and cash, and the funds which would
be needed to continue operations, our board of directors believes it would
be
difficult to continue our business or identify another appropriate potential
purchaser who could acquire Tidel. Our board of directors expects Tidel to
continue to experience cash demands that exceed our cash flow as Tidel requires
substantial working capital to fund its business and meet its debt service
and
other obligations. Failure to consummate the Asset Sale will have a material
adverse effect on our business, results of operations and financial
condition.
Tidel
will have no operations following the Asset
Sale
Following
the Asset Sale, Tidel will have substantially no operations. It is the present
intention of the board of directors to review Tidel’s financial position at that
time and consider all options including, without limitation, the acquisition
of
a new business or alternatively, the possible dissolution of Tidel and
liquidation of its assets, the discharge of any remaining liabilities, and
the
eventual distribution of the remaining assets to our stockholders. There can
be
no assurance that the option chosen will be beneficial to stockholders. Until
the sale of the Cash Security business, Tidel’s revenue and profitability will
depend on its ability to maintain and generate additional customers and to
maintain and grow the Cash Security business. A reduction in demand for the
products and services of the Cash Security business would have a material
adverse effect on Tidel’s business.
Failure
to complete the Asset
Sale may have an
adverse effect on our stock price
The
failure to complete the Asset Sale may result in a decrease in the market value
of Tidel’s common stock and may create substantial doubt as to Tidel’s ability
to grow and implement its current business strategies.
The
Asset
Sale is subject to a number of conditions to closing. As a result, Tidel cannot
assure you that the Asset Sale will be completed. If the Asset Sale is not
completed for any reason, the market price of Tidel’s common stock may
decline.
Further,
if our board of directors, in the exercise of its fiduciary duties, elects
to
terminate the Asset Purchase Agreement prior to the consummation of the Asset
Sale in order to pursue a financially superior proposal, Tidel must pay the
Buyer $400,000.
On
June
9, 2005, Corporate Safe Specialists, Inc., or CSS, filed a lawsuit against
Tidel
and Engineering in the United States District Court of the Northern District
of
Illinois, Eastern Division. CSS alleges that the Sentinel product sold by
Engineering infringes on one or more patent claims found in CSS patent U.S.
Patent No. 6,885,281 (the ‘281 patent). CSS seeks injunctive relief against
future infringement, unspecified damages for past infringement and attorney’s
fees and costs. Tidel was released from this lawsuit, but Engineering remains
a
defendant. Engineering is vigorously defending this lawsuit.
Subsequently
we filed a motion to dismiss the case CSS filed in Illinois, and Engineering
filed a motion to transfer the Illinois case to the Eastern District of Texas.
On August 15, 2005, the Court ordered the transfer of this case to the Northern
District of Texas. We also filed a declaratory judgment action pending in the
Eastern District of Texas. In that action, we are asking the Eastern District
of
Texas to find, among other things that we have not infringed on the `281 patent.
We have also requested that an injunction be issued by the Eastern District
of
Texas against CSS for intentional interference with the sale or bid process
for
our Cash Security business.
We
have
answered the lawsuit denying that our Sentinel products in any way infringe
upon
the independent claims of the `281 patent. We also filed a counterclaim against
CSS where we seek to recover damages resulting from CSS’s violation of a
confidential agreement signed by CSS and Tidel and from CSS’s intentional
interference in the sale of the Sentinel product line and related assets.
Further, we have filed a Motion for Partial Summary Judgment, or the Summary
Judgment Motion, and a Motion for Sanctions Pursuant to Rule 11, or the Rule
11
Motion, in which it is our contention that CSS and/or its counsel failed to
perform the required investigation of the facts before bringing suit. We have
requested damages from both CSS and its counsel for failure to properly
investigate the validity of the claims by CSS.
Recently,
and just days before the date by which time CSS was to file its responses to
the
Company’s Summary Judgment Motion and Rule 11 Motion, CSS instead filed a Motion
for Entry of Judgment (the “Judgment Motion”) claming that we have destroyed
evidence and/or have obstructed the discovery process. We filed our response
contesting each of the Judgment Motion’s contentions.
On
May
16, 2006, the court issued an order directing the parties to submit a joint
claims construction chart, after which the court would conduct a Markman
hearing. The purpose of a Markman hearing is to narrow the patent claims issues
to be submitted to the jury; However, CSS failed to do so. Consequently, the
Court ordered a telephone hearing to address the then-pending Judgment Motion
for additional time within which to attend to the claims construction issues.
During the hearing, the Court admonished CSS’s counsel for failing to comply
with the order, clarified for CSS’s counsel what the Court expected and directed
the parties to file the joint claims construction report on or before August
30,
2006. The court also directed CSS’s counsel to have CSS undertake a meaningful
inspection of the Sentinel safe that had been made available by us, which
invitation CSS had not yet acted upon.
It
is
anticipated that once the joint claims construction is filed by the parties,
the
Court will enter a scheduling order setting the Markman hearing sometime this
fall. The parties continue to address discovery issues, including the inspection
of the CSS safe and the production of additional versions of our source code
for
the Sentinel safes. We intend to vigorously defend all of CSS's
claims.
The
purchase price payable to Buyer under the Asset Purchase Agreement is subject
to
a $100,000 reduction as consideration for our potential liability in connection
with this litigation.
Under
the
Asset Purchase Agreement, we have agreed prior to the Asset Sale to take all
actions that a reasonably prudent person would undertake with respect to this
litigation and
to
diligently defend this litigation, provided, however, that any material actions
with respect to this litigation will require the prior written consent of Buyer,
which consent will not be unreasonably withheld.
Buyer
has
agreed that following the Asset Sale, it shall undertake and have the sole
right
to direct on behalf of itself and Sellers, the defense of this litigation,
with
counsel of its choice, provided that in the event Sellers incur any adverse
consequences in connection with the litigation subsequent to the Asset Sale,
then Buyer will indemnify Sellers from and against the entirety of any such
adverse consequences to the extent they are incurred as a result of the breach
of the Asset Purchase Agreement or the negligent action or inaction of
Sellers.
(PROPOSAL
1)
This
section of the proxy statement describes certain aspects of the Asset Sale.
However, we recommend that you read carefully the complete Asset Purchase
Agreement for the precise legal terms of the Asset Sale and other information
that may be important to you. The Asset Purchase Agreement is included in this
proxy statement as Annex A. Unless otherwise defined in this section, all
capitalized terms used in this section have the meanings ascribed to them in
the
section titled “Summary.”
Background
of the Asset Sale
Tidel
has
experienced severe financial difficulties over the past several years during
which time it has incurred significant losses and has had a negative cash flow.
During this time, Tidel funded its ongoing operations with cash on hand and
when
that was exhausted Tidel entered into financings with Laurus in November 2003
and November 2004. In August 2004, Laurus notified Tidel that an event of
default had occurred and had continued beyond any applicable grace period as
a
result of our non-payment of interest and principal on the indebtedness under
the 2003 Laurus Financing, as well as noncompliance with certain other covenants
of the 2003 Laurus Financing documents. In exchange for Laurus’ waiver of the
event of default until September 17, 2004, Tidel agreed, among other things,
to
lower the conversion price on convertible debt issued to Laurus and to lower
the
exercise price of outstanding warrants issued to Laurus from $0.40 per share
to
$0.30 per share.
Throughout
this time, James T. Rash, Tidel’s former Chairman, Chief Executive Officer and
Chief Financial Officer, was in serious ill-health and in December 2004,
Mr. Rash died. While other members of management worked strenuously on the
Company’s behalf, Mr. Rash’s serious illness and subsequent death affected
the Company’s operations.
The
2004
Laurus Financing was completed on November 26, 2004 and involved Tidel issuing
to Laurus an additional $3.4 million in convertible debt and our issuance to
Laurus of 1,251,000 shares of common stock in satisfaction of fees incurred
in
connection with the convertible debt in the 2003 Laurus Financing.
As
a
condition to the 2004 Laurus Financing, Laurus required Tidel, among other
things, to enter into the 2004 Laurus Fee Agreement whereby Tidel agreed to
pay
a reorganization fee to Laurus of $2 million no later than February 26, 2010
if
the excess net proceeds resulting from sales by Tidel of its assets during
the
course of the agreement were less than $2 million, which reorganization fee
is
secured by all of Tidel’s assets, and is guaranteed by Tidel subsidiaries. The
2004 Laurus Fee Agreement provided, among other things, that (i) the net
proceeds of the sale of our ATM business division to NCR Corporation be applied
to our obligations to Laurus under the 2003 Laurus Financing and the 2004 Laurus
Financing, but not to the reorganization fee, and (ii) the proceeds of any
subsequent sales of equity interests or assets of us or our subsidiaries
consummated on or before November 26, 2009 are to be applied first to any
remaining obligations to Laurus, then paid to Laurus pursuant to an increasing
percentage of at least 55.5%, which amount shall be applied to the
reorganization fee.
Tidel
agreed in the 2004 Laurus Fee Agreement that it would accept an offer to buy
all
or substantially all of its assets, equity interests or other property pursuant
to an asset sale transaction or a group of asset sales so long as the aggregate
gross cash proceeds offered in connection with such asset sale or asset sales
equaled or exceeded 0.75 multiplied by the sum of Tidel’s trailing six month
audited revenue plus Tidel’s six-month projected revenue. Tidel agreed to the
requirement that Tidel accept anoffer to buy its assets because Laurus made
it
one of a number of conditions to providing the 2004 Laurus Financing, and Tidel
determined that it was in the best interests of its stockholders to complete
the
2004 Laurus Financing. Tidel also agreed under the 2004 Laurus Fee Agreement
that neither the sale of Tidel’s former ATM business division nor the sale of
the Cash Security business would be consummated without the prior written
consent of Laurus including, without limitation, the consent of Laurus to the
amount and type of consideration to be received. In light of this contractual
obligation, we determined to proceed with a sale of the Cash Security business.
We also considered the Cash Security business’ future prospects, litigation
risks, and benefits of satisfying all of our obligations to Laurus, among other
things.
As
a
condition, among others, of the 2004 Laurus Financing, Tidel was required to
engage Stifel to provide a fairness opinion to the Company in connection with
the sale of the Company’s ATM business division to NCR Corporation, to provide
investment banking services in connection with the sale of our ATM business
division if the sale to NCR Corporation did not occur, and to provide investment
banking services for the purpose of actively pursuing the consummation of the
sale of the Cash Security business. As part of the financing with Laurus, Tidel
and Stifel executed an engagement letter on October 21, 2004. Tidel had no
prior
relationship with Stifel. Stifel has advised Tidel that, prior to the 2004
Laurus Financing, Laurus and Stifel had become known to the other in a
professional context unrelated to Tidel. We have been advised that there were
no
fees payable between Laurus and Stifel as a result of Laurus requiring the
Company to hire Stifel. Tidel paid Stifel a fee of $150,000 and reimbursed
Stifel for expenses of approximately $30,000 upon the delivery of the fairness
opinion of Stifel in connection with the sale of the Company’s ATM business
division to NCR Corporation.
In
accordance with the terms of its engagement, Stifel contacted 153 potential
buyers, approximately half of whom were financial sponsors and half of whom
were
strategic buyers, regarding the potential buyers’ interest in pursuing a
transaction with Tidel with respect to the Cash Security business. Between
April
and June 2005, the Company and Stifel negotiated and executed confidentiality
agreements with 57 interested parties that requested confidential information
relevant to a potential transaction with Tidel and the Company received 15
non-binding expressions of interest from parties. During this time period,
Stifel also distributed an executive summary concerning Tidel to each interested
party, once it executed a confidentiality agreement.
On
June
14, 2005, representatives of Stifel met with our board of directors and
discussed the results of Stifel’s efforts on behalf of Tidel concerning
the strategic alternatives for the Cash Security business,
including the terms indicated in the 15 expressions of interest. Based on their
evaluation of the 15 expressions of interest, our board of directors determined
to continue discussions with eight of the 15 parties. Our board of directors
decided not to pursue discussions with the other parties based primarily on
the
price ranges that had been provided and the terms offered to Tidel.
Between
late June and mid July 2005, Tidel management made presentations to eight of
the
interested parties. All eight interested parties were invited to meet with
senior members of Tidel management led by Mark K. Levenick, the Chief
Executive Officer of Engineering, as well as to visit Tidel’s offices in
Carrollton, Texas, and to review a data room the Company had established for
this purpose. The management presentations included a general overview of the
Cash Security business, its product and service offerings, its customers, and
discussions about historical and projected financial performance. The data
room
contained printed copies of all documents relevant to the Cash Security business
and each party was provided an electronic copy of all materials contained in
the
data room subject to the terms of the confidentiality agreement that each party
had executed with us.
On
July
19, 2005, the board of directors discussed the status of the strategic
alternative process, including the number of persons that expressed interest
in
the opportunity, and six of the eight interested parties provided the Company
with non-binding letters of intent for the purchase of the Cash Security
business. Stifel discussed the responses it had received with the board of
directors. Based on the consideration offered and the terms submitted, the
Company selected what it believed to be the superior proposal from a financial
sponsor entity as a potential purchaser from the group of six interested
parties. The six proposals were for purchase prices ranging from $10 million
(plus a deferred earn-out payment of $3.1 million) to $17.25 million (plus
a
deferred earn-out payment of $1.25 million), and the proposal selected was
for a
purchase price of $17.25 million. This potential purchaser submitted a letter
from its financial backers indicating their capability to consummate a purchase
of the Cash Security business. In early August 2005, this potential purchaser
notified the Company that its original equity financial backer had withdrawn
its
support for a potential transaction involving the Cash Security business and
that it had located another equity financial backer who was willing to support
a
transaction with respect to the Cash Security business. Senior members of our
management made additional presentations to the new prospective equity financial
backer during which this new equity financial backer expressed reservations
concerning the status of the ongoing CSS litigation involving
Engineering.
Subsequently,
this prospective purchaser and its financial backers submitted a proposal to
the
Company with a requirement that Laurus consent to support the transaction and
take whatever actions were necessary to cause the transaction to be consummated.
After several discussions with Laurus regarding obtaining this consent,
Mr. Landry received a communication from Laurus on August 26, 2005 to the
effect that Laurus would support a management buyout of the Company with a
group
composed of Messrs. Levenick and Landry, and Galgano, who was affiliated with
Stifel, with Laurus to provide the financing to the management participants,
subject to due diligence.
Thereafter,
on August 26, 2005, Mr. Landry notified the other members of our board,
Messrs. Griggs and Clay, of the Laurus proposal and Mr. Landry resigned as
chairman of the Company’s audit committee in order to pursue the prospective
transaction. On September 6, 2005, Laurus informed the Company that it would
not
consent to the terms of the draft letter of intent provided by the potential
purchaser. Upon such notification from Laurus, negotiations with the financial
sponsor were discontinued. Shortly after this, Laurus provided a non-binding
proposal letter to Messrs. Levenick and Landry outlining the terms on which
Laurus would provide acquisition financing to the management
participants.
On
September 8, 2005, Mr. Galgano notified Stifel of his interest in pursuing
a transaction with Messrs. Levenick and Landry and on September 21, 2005, Stifel
resigned as financial advisor to Tidel and ceased advising the Company in
respect of strategic alternatives for the Cash Security business.
Given
the
interests of Messrs. Levenick and Landry in the potential transaction, a special
committee of our board of directors composed of Stephen P. Griggs and Jerrell
G.
Clay was formed in order to negotiate the terms of any sale of the Cash Security
business with the management participants. Other than as disclosed in this
proxy
statement, there are no plans to make any payments to the members of the special
committee as a result of their service on such committee.
On
September 26, 2005, the special committee judged the proposal of Buyer to be
superior to all prior proposals and entered into a letter of intent with Messrs.
Levenick and Landry under which the special committee outlined the preliminary
terms of a potential sale of the Cash Security business to Buyer, including
a
purchase price of $18,750,000 which would include $17,500,000 for 100% of the
assets and business of the Cash Security business and up to $1,250,000 for
working capital if it was reflected on the Company’s balance sheet at closing.
The letter of intent also provided that (a) financing for the transaction would
be provided by Laurus and that there would be no other financing contingency,
(b) Messrs. Levenick and Landry would be given 15 days to complete their due
diligence in respect of the Asset Sale, and (c) the Company would not initiate
or participate in any discussions or negotiations with, or provide any
information or assistance to, or enter into any agreement with any person or
entity concerning the sale or transfer of Tidel or Engineering for a period
of
60 days after September 27, 2005. This purchase price in the letter of intent
was higher than all other proposals received by the Company. In light of their
experience with the Cash Security business’ sale process, the special committee
believed that the purchase price proposed by Buyer was the highest price that
Buyer was willing to pay in the Asset Sale.
Buyer
retained the law firm of Hensley Kim & Edgington, LLC, Denver, Colorado, or
HKE, to advise it in respect of the Asset Sale and Olshan Grundman Frome
Rosenzweig & Wolosky LLP, New York, New York, or Olshan, advised the Company
and the special committee in respect of the Asset Sale.
On
November 3, 2005, an initial draft of the Initial Asset Purchase Agreement,
prepared by HKE, was delivered to the Company. The special committee reviewed
the draft Initial Asset Purchase Agreement. The members of the committee
discussed the terms of the draft Initial Asset Purchase Agreement with Olshan,
including terms that would permit the board of directors to satisfy its
fiduciary duties in the event that an unsolicited competing transaction were
proposed following the execution of the Initial Asset Purchase
Agreement.
The
Company, through its counsel, responded to the Buyer’s draft of the Initial
Asset Purchase Agreement and the following significant changes were made through
further negotiations:
|
·
|
The
representations and warranties of the Company would not survive the
closing of the Asset Sale;
|
|
·
|
A
break-up/termination fee of $400,000 was agreed
to;
|
|
·
|
The
terms of when such a break-up fee would be due were
narrowed;
|
|
·
|
The
liabilities to be assumed by Buyer were
broadened;
|
|
·
|
The
provision in the draft Initial Asset Purchase Agreement providing
for a
post-closing escrow account to cover Sellers’ breaches of representations
was eliminated; and
|
|
·
|
The
Buyer’s obligations under the draft Initial Asset Purchase Agreement were
not subject to a financing
contingency.
|
On
November 29, 2005, in light of the ongoing negotiations and the Company’s
efforts to close the sale of its ATM business division, the parties agreed
to
extend the exclusivity period under the letter of intent until January 31,
2006.
The
special committee interviewed other investment advisory firms with a view to
selecting a firm that would advise the special committee as to the fairness
to
the Company’s unaffiliated stockholders from a financial point of view of the
sale of Cash Security business. The special committee selected Capitalink to
render this opinion to it and entered into an engagement letter with Capitalink
on December 7, 2005.
On
December 31, 2005, a meeting of the special committee was held, which was
followed by a meeting of the board of directors. Messrs. Griggs and Clay, as
the
sole special committee members, were present at the meeting of the special
committee, as were representatives from Olshan and Capitalink. A general
discussion among the members of the committee then ensued as to the terms ofthe
Initial Asset Purchase Agreement, including a presentation from Capitalink.
Following this discussion, the special committee unanimously found that after
due consideration of all relevant factors, the Initial Asset Purchase Agreement
and the Asset Sale and related transactions were advisable and fair to and
in
the best interests of the Company and its unaffiliated stockholders, and
recommended to the board of directors the approval and adoption of the Initial
Asset Purchase Agreement.
The
full
board met next, with representatives of Olshan and Capitalink all present.
The
full board noted the recommendation of the special committee in favor of the
approval and the adoption of the Initial Asset Purchase Agreement. Both
Mr. Levenick and Mr. Landry noted that in light of their respective
pending employment and investment arrangements with Buyer and its parent, it
would be appropriate for each such director to abstain from the board of
directors’ vote with respect to the Initial Asset Purchase Agreement, and
Mr. Levenick and Mr. Landry abstained from voting on this matter. The
board considered the fiduciary obligations of the board of directors in light
of
the proposed Asset Sale; the duty owed by the directors to evaluate the Initial
Asset Purchase Agreement, the Asset Sale and all related transactions on behalf
of the Company’s unaffiliated stockholders; and the fact that the special
committee, which is wholly comprised of independent directors not affiliated
with Buyer, had determined that the Initial Asset Purchase Agreement, the Asset
Sale and related transactions are advisable and are fair to and in the best
interests of the Company and its unaffiliated stockholders and had recommended
the adoption and approval of the Initial Asset Purchase Agreement; and the
efforts of the board of directors and its committee to be fully informed and
to
exercise due care in their deliberations and efforts. The board of directors
discussed a number of factors including the proposed terms of the Initial Asset
Purchase Agreement, the risks and merits of the Asset Sale and the risks and
merits of not pursuing the Asset Sale.
A
representative of Capitalink then summarized for the board of directors various
aspects of the proposed Asset Sale, a financial analysis of the Cash Security
business, an analysis of companies that Capitalink viewed as generally
comparable to the Cash Security business, an analysis of transactions that
Capitalink viewed as generally comparable to a sale of the Cash Security
business, and a leveraged buyout and a discounted cash flow analysis of the
Cash
Security business. The board of directors requested that Capitalink render
an
opinion as to whether the proposed Asset Sale consideration to be received
by
the Company was fair from a financial point of view to the Company’s
unaffiliated stockholders. Capitalink then delivered to the Company’s board of
directors an opinion that, as of December 30, 2005 and based upon and subject
to
the factors and assumptions set forth in the opinion, the Asset Sale
consideration to be received by the Company pursuant to the Initial Asset
Purchase Agreement is fair, from a financial point of view, to the Company’s
unaffiliated stockholders. The members of the board of directors present at
the
meeting (excluding Messrs. Levenick and Landry, who had previously abstained)
then unanimously found that after due consideration of all relevant factors,
the
Initial Asset Purchase Agreement and the Asset Sale and related transactions
were advisable and fair to and in the best interests of the Company and its
unaffiliated stockholders and recommended that the Company’s stockholders vote
for the approval and adoption of the Initial Asset Purchase
Agreement.
The
Initial Asset Purchase Agreement was executed by the Company, Engineering and
Buyer and the related agreements were executed by the parties thereto, in each
case, as of January 12, 2006. On January 18, 2006, the Company disclosed its
entry into the Initial Asset Purchase Agreement in its Annual Report on Form
10-K for the year ended September 30, 2005. On January 19, 2006 the Company
issued a press release announcing the transaction and filed a Current Report
on
Form 8-K with the SEC, which it subsequently amended on January 31, 2006, which
included the Initial Asset Purchase Agreement and other relevant agreements
as
exhibits thereto.
After
entering into the Initial Asset Purchase Agreement, Buyer contacted the special
committee of the Board of Directors by email on March 15, 2006 and requested
that the purchase price payable by Buyer be reduced and that payment of a
portion thereof be deferred as a result of the deteriorating performance of
the
Cash Security business since January 2006. On March 16, 2006, the special
committee responded to Buyer in writing and rejected Buyer’s proposed terms.
After a written reply from Buyer on March 17, 2006, the special committee of
the
Board of Directors on March 20, 2006 repeated to Buyer its desire to consummate
the Asset Sale. In its response to Buyer on March 20, 2006, the special
committee stated that while it would conduct good faith discussions with Buyer
regarding the terms of the Initial Asset Purchase Agreement, it viewed the
Initial Asset Purchase Agreement as binding and the special committee rejected
the new terms proposed by Buyer and any other fundamental changes to the Initial
Asset Purchase Agreement. To support Buyer’s request for a reduction in the
purchase price payable, Buyer made the following principal points to the special
committee:
|
·
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the
Company’s current and future earnings are heavily dependent on one
customer;
|
|
·
|
due
to ownership and organization changes at this customer, this customer
has
lowered its Sentinel product line budget from 1,500 to 1,200 units
for
fiscal year 2006;
|
|
·
|
in
addition, two other key customers significantly reduced their orders
for
the Company’s Sentinel products subsequent to the execution of the Initial
Asset Purchase Agreement;
|
|
·
|
Tidel’s
revenue has decreased approximately $3.5 million, or 18.2%, from
fiscal
year 2005 to the twelve month period ended March 31, 2006;
and
|
|
·
|
sales
of the Company’s legacy cash controller devices for the first six months
of fiscal year 2006 were approximately 20% below the corresponding
period
in 2005 and 20% below budget.
|
In
late
April 2006, Buyer proposed amending the Initial Asset Purchase Agreement by
reducing the purchase price payable to Tidel from $17.5 million to $15.5
million, less $100,000, as consideration for our potential liability in
connection with ongoing litigation, and less a working capital deficit
adjustment of $1,629,968 as provided for in the Asset Purchase Agreement,
resulting in a net purchase price of $13,770,032. The amendment also provided
for a cash adjustment of $2,458,718 to be paid to Sellers by Buyer at Closing.
Buyer provided a draft Asset Purchase Agreement to Tidel on May 8, 2006.
The
special committee and Laurus negotiated the 2006 Laurus Agreement which provides
for Tidel to pay Laurus a sale fee of $8,508,963 upon the closing of the Asset
Sale in full satisfaction of all amounts payable to Laurus (including fees
payable under the 2004 Laurus Fee Agreement in respect of the sale of our ATM
business division and the Asset Sale). Under the terms of the 2006 Laurus
Agreement we have agreed, among other things, that upon payment of the sale
fee
to Laurus and the redemption of all shares of our common stock held by Laurus
pursuant to the stock redemption agreement, neither Tidel nor any of its
subsidiaries shall have any further obligations due to, owing to or to be
performed by them to Laurus, that all warrants held by Laurus to purchase shares
of common stock of Tidel shall terminate and be of no further force and effect
and that all liens, claims, encumbrances and security interests held by Laurus
or its transferees or assignees in Tidel’s and its subsidiaries’ assets shall
terminate and be of no further force and effect. Furthermore, under the 2006
Laurus Agreement, Laurus has agreed, subject to the closing of the Asset Sale,
to release and discharge Tidel and its subsidiaries from all claims, causes
of
action and liabilities.
In
considering the draft Asset Purchase Agreement, the special committee noted
the
deterioration in performance of the electronic cash security business since
the
execution of the Initial Asset Purchase Agreement on January 12, 2006. The
special committee considered the following factors and potential benefits of
the
Asset Sale, including, without limitation, the price to be paid, the process
undergone, the Cash Security business’ future prospects, litigation risks and
the terms of the Asset Purchase Agreement. The special committee also considered
and balanced against the potential benefits of the Asset Sale certain adverse
factors. See “The Asset Sale -- Reasons for the Asset Sale.” The special
committee of directors believes that the 2006 Laurus Agreement and the Asset
Purchase Agreement are in the best interests of the Company and its unaffiliated
stockholders as the 2006 Laurus Agreement affords finality to stockholders
of
the fees that will be payable to Laurus in the event that the Asset Sale is
consummated and allows Tidel to fully terminate all arrangements with Laurus.
Upon the payment to Laurus of the $8,508,963 sale fee, no further fees are
payable to Laurus in respect of the 2004 Laurus Fee Agreement. Accordingly,
following the Asset Sale, the Company will be able to consider all courses
of
action and will not be limited by the provisions of the 2004 Laurus Fee
Agreement. In addition to the sale fee, upon the consummation of the Asset
Sale
we shall redeem the 19,251,000 shares of our common stock held by Laurus
pursuant to the terms of the stock redemption agreement at a per share price
not
less than $.20 nor greater than $.34. At such point we will seek to maximize
the
value of all residual assets of the Company for the benefit of the Company’s
remaining stockholders.
On
May
24, 2006, a meeting of the special committee was held. Messrs. Griggs and Clay,
as the sole special committee members, were present at the meeting of the
special committee, as were representatives from Olshan and Capitalink. A general
discussion among the members of the special committee then ensued as to the
terms of the Asset Purchase Agreement. A representative of Capitalink then
summarized for the special committee various aspects of the proposed Asset
Sale,
a financial analysis of the Cash Security business, an analysis of companies
that Capitalink viewed as generally comparable to the Cash Security business,
an
analysis of transactions that Capitalink viewed as generally comparable to
a
sale of the Cash Security business, and a leveraged buyout and a discounted
cash
flow analysis of the Cash Security business. The special committee requested
that Capitalink render an opinion as to whether the proposed Asset Sale
consideration to be received by the Company was fair from a financial point
of
view to the Company’s unaffiliated stockholders. Capitalink then delivered to
the special committee an opinion that, as of May 24, 2006 and based upon and
subject to the factors and assumptions set forth in the opinion, the Asset
Sale
consideration to be received by the Company pursuant to the Asset Purchase
Agreement is fair, from a financial point of view, to the Company’s unaffiliated
stockholders. The full text of the written opinion of Capitalink, which sets
forth the assumptions made, procedures followed, matters considered and
limitations on the review undertaken in connection with such opinion, is
attached as Annex B to this proxy statement. Following this discussion, the
special committee unanimously found that after due consideration of all relevant
factors, the Asset Purchase Agreement and the Asset Sale and related
transactions were advisable and fair to and in the best interests of the Company
and its unaffiliated stockholders, and recommended to the board of directors
the
approval and adoption of the Asset Purchase Agreement.
The
full
board met on June 9, 2006, with representatives of Olshan and Capitalink all
present. The full board noted the recommendation of the special committee in
favor of the approval and the adoption of the Asset Purchase Agreement. Both
Mr. Levenick and Mr. Landry noted that in light of their respective
pending employment and investment arrangements with Buyer and its parent, it
would be appropriate for each such director to abstain from the board of
directors’ vote with respect to the Asset Purchase Agreement, and
Mr. Levenick and Mr. Landry abstained from voting on this matter. The
board considered the fiduciary obligations of the board of directors in light
of
the proposed Asset Sale; the duty owed by the directors to evaluate the Asset
Purchase Agreement, the Asset Sale and all related transactions on behalf of
the
Company’s unaffiliated stockholders; and the fact that the special committee,
which is wholly comprised of independent directors not affiliated with Buyer,
had determined that the Asset Purchase Agreement, the Asset Sale and related
transactions are advisable and are fair to and in the best interests of the
Company and its unaffiliated stockholders and had recommended the adoption
and
approval of the Asset Purchase Agreement; and the efforts of the board of
directors and its committee to be fully informed and to exercise due care in
their deliberations and efforts. The board of directors discussed a number
of
factors including the proposed terms of the Asset Purchase Agreement, the risks
and merits of the Asset Sale and the risks and merits of not pursuing the Asset
Sale.
A
representative of Capitalink then summarized for the board of directors various
aspects of the proposed Asset Sale, a revised financial analysis of the Cash
Security business, an analysis of companies that Capitalink viewed as generally
comparable to the Cash Security business, an analysis of transactions that
Capitalink viewed as generally comparable to a sale of the Cash Security
business, and a leveraged buyout and a discounted cash flow analysis of the
Cash
Security business. Capitalink informed the board that it had delivered to the
special committee an opinion that, as of May 24, 2006 and based upon and subject
to the factors and assumptions set forth in the opinion, the Asset Sale
consideration to be received by the Company pursuant to the Asset Purchase
Agreement is fair, from a financial point of view, to the Company’s unaffiliated
stockholders. The members of the board of directors present at the meeting
(excluding Messrs. Levenick and Landry, who had previously abstained) then
unanimously found that after due consideration of all relevant factors, the
Asset Purchase Agreement and the Asset Sale and related transactions were
advisable and fair to and in the best interests of the Company and its
unaffiliated stockholders and recommended that the Company’s stockholders vote
for the approval and adoption of the Asset Purchase Agreement.
Proceeds
from the Asset
Sale
After
deducting the $8,508,963 sale fee payable to Laurus under the 2006 Laurus
Agreement and the cost of redeeming our shares held by Laurus and other
transactional costs, we estimate that the net proceeds accruing to Tidel from
the Asset Sale will be approximately $5,100,000. Proceeds from the Asset Sale
will not be distributed to stockholders.
Effects
of the Asset Sale
If
the
Asset Purchase Agreement, the Asset Sale and the other transactions contemplated
thereby are approved and adopted by our stockholders and the other conditions
to
closing are satisfied, we will be a shell public company with no operations
and
we will consider all available alternatives, including without limitation the
acquisition of a new business or alternatively, the possible dissolution of
Tidel and liquidation of it assets, the discharge of any remaining liabilities,
and the eventual distribution of the remaining assets to our stockholders in
the
event that Tidel is liquidated. Although we currently do not expect to liquidate
Tidel, if we later determine liquidation is in the best interest of our
stockholders, such action will require the approval of the holders of a majority
of our then outstanding shares of common stock. If liquidation does occur,
we
cannot give any assurances as to the amount of liquidation proceeds that might
eventually be distributed to you.
Following
the sale of our ATM business division on January 3, 2006 and upon the
consummation of the Asset Sale, we estimate that we will have received
approximately $24.2 million in the aggregate, representing approximately $10.4
million from the sale of our ATM business division and approximately $13.8
million (excluding the closing cash adjustment) from the Asset Sale. Of this
aggregate amount, we estimate that between $12.4 million and $15 million will
be
paid by us to Laurus. This amount takes into account the payment to Laurus
of
the $8,508,963 sale fee under the 2006 Laurus Agreement in full satisfaction
of
all amounts payable to Laurus (including fees payable under the 2004 Laurus
Fee
Agreement in respect of the sale of our ATM business division and the Asset
Sale) and a payment in the estimated amount of between approximately $3.9
million and $6.5 million upon the redemption of the 19,251,000 shares of our
common stock held by Laurus pursuant to the terms of the stock redemption
agreement. Following this redemption, Laurus will hold no shares of our common
stock and all of the remaining stockholders will own a proportionally large
percentage of Tidel.
See
“Special Factors -- Fee Payable to Laurus” and “Special Factors -- Laurus Stock
Redemption” for a more detailed description of the fees payable to Laurus,
including how they will be calculated, and for a more detailed description
of
the proposed redemption of our shares held by Laurus.
In
addition to its role as a Company stockholder and a financier to the Company,
Laurus has entered into non-binding proposal letters with the management
participants for the provision of acquisition financing and a revolving credit
facility to Buyer in connection with the Asset Sale and for which an affiliate
of Laurus will receive fees. See “The Asset Sale -- Financing -- Buyer
Financing” for a more detailed description of the financing that Laurus may
provide the management participants in respect of the Asset Sale.
In
the
event that the Asset Sale is approved by the holders of a majority of our
outstanding shares at the special meeting and the Asset Sale occurs, Tidel
will
be left as a non-operating, shell public company whose principal assets will
be
cash. Shares in shell companies may be more thinly traded than those of
operating companies. Accordingly, you may encounter delays in selling your
shares of our common stock following the Asset Sale. This factor may also have
an effect on the market price of our shares following the Asset Sale. We cannot
predict if this will in fact occur and cannot offer any guidance in this
regard.
The
Parties to the Asset
Sale
Tidel
Technologies, Inc.
Tidel
Engineering, L.P.
The
Cash
Security business is comprised of our TACC and Sentinel products. Our TACC
products are essentially stand-alone safes that dispense cash to an operator
in
preset amounts. Our Sentinel products have all the functionality of our TACC
products, but each has been designed to also reduce the risk of internal theft
and increase in-store management efficiencies through its state-of-the-art
integration with a store’s point-of-sale, or POS, and accounting systems. Our
engineering, sales and service departments work closely with distributors and
their customers to continually analyze and fulfill their needs, enhance existing
products and develop new products.
Engineering,
is Tidel’s indirect wholly-owned operating subsidiary and, together with Tidel,
is a seller under the Asset Purchase Agreement.
Tidel
has
its principal executive offices at 2900 Wilcrest Drive, Suite 105, Houston,
Texas 77042. The telephone number of Tidel’s principal executive office is (713)
783-8200.
Engineering
has its principal executive offices at 2025
Beltline Road, Suite 114, Carrollton Texas 75006.
The
telephone number of Engineering’s principal executive office is (972)
484-3358.
Sentinel
Operating, L.P.
Buyer
is
a Texas limited partnership that was formed solely for the purpose of entering
into the Asset Purchase Agreement and consummating the transactions contemplated
by the Asset Purchase Agreement. It has not conducted any activities to date
other than activities incidental to its formation and in connection with the
transactions contemplated by the Asset Purchase Agreement.
After
the
closing of the Asset Sale Buyer will have its principal executive offices at
2025
Beltline Road, Suite 114, Carrollton Texas 75006.
The
telephone number of Buyer’s principal executive offices will be (972)
484-3358.
Laurus
has entered into a voting agreement under which it has agreed to vote all of
the
shares of Tidel common stock that it owns and any shares over which it exercises
voting control in favor of the approval and adoption of the Asset Purchase
Agreement and against any competing transactions proposed to our stockholders
and the filing of the Amendment. Tidel and our officers and directors have
entered into a voting agreement under which such officers and directors agreed
to vote all the shares of Tidel common stock that they own and any shares over
which they exercise voting control in favor of the approval and adoption of
the
Asset Purchase Agreement and the Amendment. As a result of these arrangements,
as of the record date, Laurus and our officers and directors have agreed to
vote
an aggregate of 19,860,905 shares, representing approximately 51.4% of the
shares of our common stock entitled to vote at the special meeting, in favor
of
the approval and adoption of the Asset Purchase Agreement and the Amendment.
Laurus alone holds 19,251,000 shares representing approximately 49.8% of our
outstanding shares of common stock. Such votes are sufficient to approve and
adopt the Asset Purchase Agreement and the Amendment, regardless of the vote
of
any other person.
Background
to Laurus’ Equity
Position
As
of the
record date, Laurus holds 19,251,000 shares of our common stock, representing
approximately 49.8% of our outstanding shares of common stock. You should be
aware that:
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as
of December 31, 2005, Laurus held only 1,251,000 shares of our common
stock, representing only 6.1% of our outstanding
stock;
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in
connection with the Asset Sale and Asset Purchase Agreement and pursuant
to the terms of the exercise and conversion agreement, Laurus converted
$5.4 million of Tidel convertible debt it that it held into 18,000,000
shares of our common stock;
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the
terms of the convertible notes held by Laurus required that Laurus
provide
at least 75 days notice to Tidel prior to converting the notes in
amounts
that would cause Laurus to hold in excess of 4.99% of Tidel’s outstanding
shares and this 75-day notice requirement was waived in the exercise
and
conversion agreement;
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the
conversion rate for the $5.4 million of convertible debt was $0.30
per
share, which is slightly lower than the $0.33 per share price of
our
common stock at the time of the conversion. A conversion rate of
$0.40 was
set when we issued the convertible note to Laurus in November 2003
as part
of the 2003 Laurus Financing. We lowered the conversion rate to $0.30
in
August 2004 in connection with Laurus’s agreement to forbear from
exercising all remedies available to it under the 2003 Laurus Financing
documents as a result of an event of default at such
time;
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Laurus
held convertible debt with a principal amount in excess of $9.75
million,
but agreed only to convert $5.4 million, with the remaining amount
being
repaid on January 13, 2006;
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following
Laurus’ conversion of such $5.4 million in debt on January 13, 2006 into
18,000,000 shares, Laurus held shares representing approximately
49.8% of
our common stock;
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the
record date with respect to the vote regarding the Asset Sale was
initially set for January 13, 2006, the day after the date the Initial
Asset Purchase Agreement was entered into, and was subsequently changed
to
August 7, 2006;
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we
have agreed to repurchase from Laurus, upon the closing of the Asset
Sale,
all shares of our common stock that are held by Laurus at a per share
price of not less than $.20 and not greater that $.34;
and
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if
the Asset Sale does not occur by September 30, 2006, we have agreed
to
immediately redeem from Laurus the 18,000,000 shares of common stock
issued to Laurus at a redemption price of $.30 per share, or $5.4
million
in the aggregate.
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The
above
transactions were conducted so that Laurus would be a stockholder with respect
to the 18,000,000 shares during the time necessary to vote its shares for the
Asset Sale, but would not incur all of the ordinary risks associated with being
a stockholder, since we have agreed to repurchase these 18,000,000 shares from
Laurus at a predetermined price. If the Asset Sale is consummated, these shares
will be repurchased, but at a price based on the value of our assets pursuant
to
the formula contained in the stock redemption agreement. If the Asset Sale
is
not consummated, these shares will be repurchased at $.30 per share, the
conversion price, or $5.4 million in the aggregate. Laurus will not be treated
the same as our other equity holders because we have agreed to buy back
18,000,000 shares held by Laurus, but we have no current plans to buy back
any
shares held by unaffiliated stockholders. Another effect of these transactions
is that Laurus and our officers and directors now hold a majority of the
outstanding shares of our common stock and will vote these shares in favor
of
the Asset Sale. The result of these transactions is that unaffiliated
stockholders, who hold less than a majority of the shares in the aggregate
as of
the record date, will not have the opportunity to affect the approval of the
Asset Sale, in the event they object.
Reasons
for the Asset Sale
In
reaching its conclusion regarding the fairness of the Asset Sale to our
unaffiliated stockholders and its decision to approve and adopt the Asset
Purchase Agreement and recommend the approval and adoption of the Asset Purchase
Agreement by our stockholders, the special committee consulted with management
and its financial and legal advisors. The special committee considered the
following factors and potential benefits of the Asset Sale, each of which it
believed supported its decision:
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the
Asset Sale consideration is all cash, so that the transaction will
allow
the Company to immediately realize a fair value, in cash, for its
remaining business and will provide the Company’s stockholders certainty
in assessing the value of Buyer’s
bid;
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the
Asset Sale is the result of an active auction process in which the
Company
had contact with 153 potential
bidders;
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historical
and current information concerning the Cash Security business, financial
performance and condition, operations, technology, management and
competitive position, and current industry, economic and market
conditions, including the Company’s prospects if it were to remain an
independent company;
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the
special committee’s belief that the Asset Sale is more favorable to the
Company’s stockholders than any other alternative reasonably available to
it and the Company’s stockholders, including the alternative of remaining
a stand-alone, independent company and the proposals made by the
other
bidders in our auction process, as well as the risks and uncertainties
associated with those alternatives;
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a
significant portion of the Company’s business relies on a few large
customers, and there is a significant customer concentration risk,
whereby
a significant portion of the sales are made to a few customers. This
presents a significant risk to the business if a customer, for any
reason,
determines to no longer purchase the Company’s products (or to reduce
purchases), which could occur if the customer is bought by another
business, changes its business, or for any other reason stops or
delays
purchases of the Company’s products. Tidel experienced such a problem in
2001 when the largest customer for the Company’s ATM business, JRA 222,
Inc., d/b/a Credit Card Center (“CCC”), filed for protection under Chapter
11 of the United States Bankruptcy Code in June 2001 with over $27
million
in accounts receivable owing to
Tidel;
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the
Cash Security business has continued to experience liquidity shortfalls
from time to time, and the Company has limited ability to obtain
additional financing on reasonable terms for sufficient working
capital;
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on
June 9, 2005, CSS filed a lawsuit against Tidel and Engineering in
the
United States District Court of the Northern District of Illinois,
Eastern
Division. CSS alleges that the Sentinel product sold by Engineering
infringes on one or more patent claims found in CSS patent U.S. Patent
No.
6,885,281 (the ‘281 patent). CSS seeks injunctive relief against future
infringement, unspecified damages for past infringement and attorney’s
fees and costs. Tidel was released from this lawsuit, but Engineering
remains a defendant. Engineering is vigorously defending this litigation.
All litigation involves uncertainty, and while Engineering is vigorously
defending this action, there is no assurance as to what the final
outcome
will be;
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the
Laurus Financings to which Tidel is a party are extremely restrictive
and
impose numerous requirements on us, including limitations on our
ability
to obtain additional financing, the requirement to retain a financial
advisor regarding strategic alternatives for the Cash Security business
and the requirement to accept an offer to sell the Cash Security
business
under certain conditions as provided in the 2004 Laurus Fee
Agreement;
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the
presentation of Capitalink, including its opinion that, as of the
date of
its opinion and based upon and subject to the factors and assumptions
set
forth in such opinion, the Asset Sale consideration to be received
by the
Company pursuant to the Asset Purchase Agreement is fair, from a
financial
point of view, to the Company’s unaffiliated stockholders (see “The Asset
Sale -- Opinion of Capitalink” and Annex B to this proxy
statement);
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the
financial and other terms and conditions of the Asset Purchase Agreement,
the fact that they were the product of negotiations between the parties,
and the fact that the special committee (which is comprised solely
of
independent directors) unanimously recommended the approval and adoption
of the Asset Purchase Agreement;
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the
financial results of the Cash Security business have deteriorated
since
the signing of the Initial Asset Purchase Agreement in January 2006,
which
the special committee believed, based on various factors discussed
herein,
justified the revised purchase
price;
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the
Asset Sale will allow Tidel to discharge all outstanding indebtedness
and
other obligations owing to Laurus and to terminate our financing
arrangements with Laurus and satisfy all outstanding obligations
to Laurus
upon the payment of the $8,508,963 sale fee under the 2006 Laurus
Agreement. Following the consummation of all transactions described
herein, Tidel will have no further obligations to Laurus, and Laurus
will
cease to be a stockholder of Tidel, or have the ability to exercise
control over Tidel;
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pursuant
to the terms of the stock redemption agreement, Laurus has agreed
to the
cancellation as of the closing of the Asset Sale of the outstanding
warrants that it holds to purchase 4,750,000 shares of our common
stock at
an exercise price of $.30 per share. The special committee believes
that
this cancellation is a favorable development for the unaffiliated
stockholders of the Company;
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the
terms of the Asset Purchase Agreement, including without
limitation:
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the
provisions of the Asset Purchase Agreement that allow the board of
directors, under certain limited circumstances (and the payment to
Buyer
of $400,000) if required to comply with its fiduciary duties under
applicable law, to change its recommendation that the Company’s
stockholders vote in favor of the approval and adoption of the Asset
Purchase Agreement;
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the
provisions of the Asset Purchase Agreement that allow the Company,
under
certain limited circumstances if required by the board of directors
to
comply with its fiduciary duties under applicable law, to furnish
information to and conduct negotiations with third
parties;
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the
provisions of the Asset Purchase Agreement that provide the board
of
directors the ability to terminate the Asset Purchase Agreement in
order
to accept a financially superior proposal (subject to certain conditions
contained in the Asset Purchase Agreement and the payment to Buyer
of
$400,000);
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the
conclusion of the board of directors that the requirement to pay
Buyer
$400,000 in the event that the Asset Purchase Agreement is terminated
under certain circumstances was reasonable in light of the benefits
of the
Asset Sale, the auction process conducted by the Company and commercial
practice; and
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the
completion of the Asset Sale requires the approval and adoption of
the
holders of a majority of the Company’s common stock outstanding on the
record date.
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The
special committee also considered and balanced against the potential benefits
of
the Asset Sale the following potentially adverse factors concerning the Asset
Sale:
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if
the Company waited until after November 26, 2009 in order to sell
the Cash
Security business, the amounts payable to Laurus under the 2004 Laurus
Fee
Agreement in respect of such a sale would be substantially
reduced;
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the
purchase price of $17,500,000 under the Initial Asset Purchase Agreement
has been reduced to $15,500,000, less adjustments for ongoing litigation
and working capital adjustments, following negotiations with Buyer
and
Laurus and the entry into the Asset Purchase
Agreement;
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the
risk that the Asset Sale might not be completed in a timely manner
or at
all, including the risk that the Asset Sale will not occur if Buyer
fails
to obtain financing;
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the
interests of the Company’s management in the Asset
Sale;
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the
Company will no longer exist as an operating
company;
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the
Company’s stockholders will not participate in any future earnings or
growth of the Cash Security
business;
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the
Company was entering into an Asset Purchase Agreement with a newly
formed
entity with essentially no assets and, accordingly, that the Company
will
have no recourse for a failure by Buyer to close or for a breach
of the
Asset Purchase Agreement;
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the
restrictions on the conduct of the Company’s business prior to completion
of the Asset Sale, requiring the Company to conduct its business
only in
the ordinary course, subject to specific limitations or Buyer’s consent,
which may delay or prevent the Company from undertaking business
opportunities that may arise pending completion of the Asset
Sale;
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the
restrictions on the board’s ability to solicit or engage in discussions or
negotiations with a third party regarding specified transactions
involving
the Company and the requirement that the Company pay Buyer $400,000
in
certain cases in the event of a termination of the Asset Purchase
Agreement on the part of Sellers;
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the
risk of diverting management focus and resources from other strategic
opportunities and from operational matters while working to implement
the
Asset Sale; and
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the
possibility of management and employee disruption associated with
the
Asset Sale.
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In
addition, the special committee believed that sufficient procedural safeguards
were and are present to ensure the fairness of the Asset Sale to the
unaffiliated stockholders. These procedural safeguards include the
following:
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the
special committee, which consists entirely of directors who are not
officers or employees of Tidel, acted to represent solely the interests
of
the unaffiliated stockholders and to negotiate with Buyer and Laurus
on
behalf of such stockholders;
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the
special committee received legal advice from Olshan, as legal advisor,
which has extensive experience in transactions similar to the Asset
Sale;
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the
Asset Sale was unanimously approved by the directors present at the
meeting called for that purpose, which included all of the directors
except Mark K. Levenick and Raymond P. Landry who abstained from
voting on that matter;
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the
special committee requested and received from Capitalink an opinion
that
the consideration to be paid pursuant to the Asset Purchase Agreement
was
fair from a financial point of view to our unaffiliated
stockholders;
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the
special committee, with the assistance of its legal advisor, conducted
extensive negotiations with Buyer and had the authority to reject
the
terms of the Asset Sale. As a result of these negotiations, the special
committee believed, based upon the responses it received to the efforts
of
Stifel to identify a suitable strategic transaction for the Cash
Security
business, that the purchase price payable under the Asset Purchase
Agreement was the highest price that Buyer was willing to pay in
the Asset
Sale; and
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the
Company’s ability, subject to compliance with the terms and conditions of
the Asset Purchase Agreement, to terminate the Asset Purchase Agreement
prior to the completion of the Asset Sale in order to approve any
alternative transaction proposed by a third party that is a “superior
proposal,” as defined in the Asset Purchase
Agreement.
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In
addition, the special committee considered that unaffiliated stockholders of
the
Company represented a minority of the Company’s stockholders, that the Company’s
unaffiliated stockholders did not have sufficient votes to affect the approval
of the Asset Purchase Agreement and the Asset Sale, and that the approval of
such transactions did not require the approval of a majority of the Company’s
unaffiliated stockholders. The special committee noted that Laurus converted
$5.4 million of its outstanding indebtedness on January 13, 2006, the initial
record date set by the Company for the special meeting, and that, under the
terms of the
exercise
and conversion agreement, as amended, if
the
Asset Sale does not occur by September 30, 2006, the Company has agreed to
immediately redeem from Laurus the 18,000,000 shares of Company common stock
issued to Laurus
on
January 13, 2006 for a redemption price of $.30 per share, or $5.4 million
in
the aggregate.
In this
context, Laurus does not bear all of the ordinary risks of our other equity
holders regarding the Asset Sale as we have agreed to buy back 18,000,000 shares
of our common stock held by Laurus if the Asset Sale does not occur, but we
have
no current plans to buy back any shares held by unaffiliated
stockholders.
After
taking into account all of the factors set forth above, as well as others,
the
special committee agreed that the benefits of the Asset Sale outweighed the
risks and that the Asset Purchase Agreement, the Asset Sale and the related
transactions contemplated by the Asset Purchase Agreement are advisable and
are
fair to and in the best interests of the Company and its unaffiliated
stockholders and recommended the Asset Purchase Agreement and the Asset Sale
to
the board of directors of the Company. The board of directors considered the
recommendations of the special committee and (with interested directors
abstaining) approved and adopted the Asset Purchase Agreement and recommends
that the Company’s stockholders vote to approve and adopt the Asset Purchase
Agreement at the special meeting.
The
special committee did not assign relative weights to the above factors or the
other factors considered by it. In addition, the special committee did not
reach
any specific conclusion on each factor considered, but conducted an overall
analysis of these factors. Individual members of the special committee may
have
given different weights to different factors.
Recommendations
of the Special
Committee
The
special committee unanimously found that after due consideration of all relevant
factors:
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the
Asset Purchase Agreement, the Asset Sale and related transactions
are
advisable and fair to and in the best interests of the Company and
its
unaffiliated stockholders; and
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it
would recommend to the board of directors the approval and adoption
of the
Asset Purchase Agreement.
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In
reaching this decision, the special committee noted several factors, including
the exhaustive search process performed by Stifel, the opinion of Capitalink
that the purchase price was from fair, a financial point of view, to our
unaffiliated stockholders, the Company’s contractual obligations to Laurus, the
terms of the Asset Purchase Agreement and that, following the Asset Sale, Laurus
would no longer be a stockholder of the Company or be in a position to control
the Company.
Recommendation
of the Company’s Board of
Directors
Our
board
of directors (with interested directors abstaining) has:
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determined
that the Asset Purchase Agreement, the Asset Sale and related transactions
are advisable and fair to and in the best interests of the Company
and its
unaffiliated stockholders;
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approved
and adopted the Asset Purchase Agreement and the Amendment;
and
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recommended
that Tidel’s stockholders vote “FOR” the approval and adoption of the
Asset Purchase Agreement and “FOR” the approval and adoption of the
Amendment.
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In
reaching its conclusion regarding the fairness of the Asset Sale
to our
unaffiliated stockholders and its decision to approve and adopt the
Asset
Purchase Agreement and related transactions and recommend the approval
and
adoption of the Asset Purchase Agreement and related transactions
by our
stockholders, our board of directors noted the recommendations of
the
special committee and the factors considered by the special committee.
In
considering the recommendation of our board of directors with respect
to
the Asset Sale, you should be aware that some of the Company’s directors
and executive officers and its principal stockholder, Laurus, have
interests in the Asset Sale that are different from, or in addition
to,
the interests of our stockholders generally. See “Special Factors -- Fee
Payable to Laurus” and “Special Factors -- Our principal stockholder,
Laurus, has interests in the Asset Sale which are different from,
or in
addition to, our other stockholders.” For the factors considered by our
board of directors in reaching its decision to approve and adopt
the Asset
Purchase Agreement, see “The Asset Sale -- Reasons for the Asset
Sale.”
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The
approval of the Asset Purchase Agreement, the Asset Sale and related
transactions requires the approval of the holders of a majority of our
outstanding shares of common stock. Shares that are voted “FOR” or “AGAINST” the
proposal or marked “ABSTAIN” will be counted towards the vote requirement.
Broker non-votes, if any, will not be counted towards the vote requirement.
Laurus and our officers and directors have agreed to vote an aggregate of
19,860,905 shares, representing approximately 51.4% of the shares of our common
stock entitled to vote at the special meeting, in favor of the approval and
adoption of the Asset Purchase Agreement, the Asset Sale and related
transactions. Such votes are sufficient to approve and adopt the Asset Purchase
Agreement, the Asset Sale and related transactions, regardless of the vote
of
any other person.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 1.
On
December 31, 2005, Capitalink issued a fairness opinion to our special committee
of our board of directors that, as December 30, 2005, based upon and subject
to
the assumptions made, matters considered, and limitations on its review as
set
forth in the opinion, the consideration payable under the Initial Asset Purchase
Agreement was fair, from a financial point of view, to our
stockholders.
The
parties amended and restated the Initial Asset Purchase Agreement through the
Asset Purchase Agreement and reduced the purchase price payable to Tidel by
Buyer from $17.5 million to $15.5 million, less $100,000, as consideration
for
our potential liability in connection with ongoing litigation, and less a
working capital deficit adjustment of $1,629,968 as provided for in the Asset
Purchase Agreement, resulting in a net purchase price of $13,770,032. The Asset
Purchase Agreement also provided for a cash adjustment of $2,458,718 to be
paid
to Sellers by Buyer at Closing. Prior to entering into the Asset Purchase
Agreement, Tidel requested that Capitalink furnish a new fairness opinion to
Tidel in respect of the purchase price payable to Tidel under the Asset Purchase
Agreement.
Capitalink
made presentations to the special committee of our board of directors on May
24,
2006 and subsequently delivered its new written opinion to the special committee
of our board of directors, which stated that, as of May 24, 2006, and based
upon
and subject to the assumptions made, matters considered, and limitations on
its
review as set forth in the opinion, the purchase price under the Asset Purchase
Agreement to be received by the Company pursuant to the Asset Purchase Agreement
is fair, from a financial point of view, to the Company’s unaffiliated
stockholders. The amount of the purchase price payable under the Asset Purchase
Agreement was determined pursuant to negotiations between us and Buyer and
not
pursuant to recommendations of Capitalink. The full text of the written opinion
of Capitalink is attached as Annex B and is incorporated by reference into
this
proxy statement.
You
are
urged to read the Capitalink opinion carefully and in its entirety for a
description of the assumptions made, matters considered, procedures followed
and
limitations on the review undertaken by Capitalink in rendering its opinion.
The
summary of the Capitalink opinion set forth in this proxy statement is qualified
by reference to the full text of the opinion.
The
Capitalink opinion is not intended to be and does not constitute a
recommendation to you as to how you should vote or proceed with respect to
the
Asset Sale.
Capitalink
was not requested to opine as to, and the opinion does not in any manner
address, the relative merits of the Asset Sale as compared to any alternative
business strategy that might exist for us, our underlying business decision
to
proceed with or effect the Asset Sale, and other alternatives to the Asset
Sale
that might exist for us.
In
arriving at its opinion, Capitalink took into account an assessment of general
economic, market and financial conditions, as well as its experience in
connection with similar transactions and securities valuations generally. In
so
doing, among other things, Capitalink:
|
·
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Reviewed
the Asset Purchase Agreement.
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|
·
|
Reviewed
publicly available financial information and other data with respect
to
Tidel, including the Annual Report on Form 10-K (and amendments thereto)
for the year ended September 30, 2005, the Quarterly Report on Form
10-Q
for the three months ended March 31, 2006, and the Current Reports
on Form
8-K filed on January 19, 2006 (as amended on January 31, 2006) and
on
March 7, 2006.
|
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·
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Reviewed
non-public information and other data with respect to Tidel and the
Cash
Security Business, including various internal financial management
reports.
|
|
·
|
Reviewed
the range of the purchase price payable under the Asset
Sale.
|
|
·
|
Considered
the historical financial results and present financial condition
of the
Cash Security business.
|
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·
|
Reviewed
and analyzed the Cash Security business’s projected unlevered free cash
flows and prepared a discounted cash flow
analysis.
|
|
·
|
Reviewed
and analyzed certain financial characteristics of publicly-traded
companies that were deemed to have characteristics comparable to
the Cash
Security business.
|
|
·
|
Reviewed
and analyzed certain financial characteristics of target companies
in
transactions where such target company was deemed to have characteristics
comparable to that of the Cash Security
business.
|
|
·
|
Reviewed
the Cash Security business’s projected future cash flows and prepared a
leveraged buyout analysis.
|
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·
|
Reviewed
an analysis prepared by Stifel regarding the marketing of the Cash
Security business for sale, including bids
received.
|
Capitalink
also performed such other analyses and examinations as it deemed appropriate
and
held discussions with Tidel management in relation to certain financial and
operating information furnished to Capitalink, including financial analyses
with
respect to their respective business and operations.
In
arriving at its opinion, Capitalink relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used without
assuming any responsibility for any independent verification of any such
information. Further, Capitalink relied upon the assurances of Tidel management
that they were not aware of any facts or circumstances that would make any
such
information inaccurate or misleading. With respect to the financial information
and projections utilized, Capitalink assumed that such information has been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments, and that such information provides a reasonable basis upon which
it could make an analysis and form an opinion. Capitalink did not make a
physical inspection of the properties and facilities of Tidel and did not make
or obtain any evaluations or appraisals of the assets and liabilities
(contingent or otherwise) of Tidel or the Cash Security business. In addition,
Capitalink did not attempt to confirm whether Tidel or the Cash Security
business had good title to their respective assets. Capitalink assumed that
the
Asset Sale will be consummated in a manner that complies in all respects with
the applicable provisions of the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and all other applicable federal
and state statues, rules and regulations. Capitalink assumes that the Asset
Sale
will be consummated substantially in accordance with the terms set forth in
the
Asset Purchase Agreement, without any further amendments thereto, and that
any
amendments, revisions or waivers thereto will not be detrimental to the
unaffiliated stockholders.
Capitalink’s
opinion is necessarily based upon market, economic and other conditions as
they
existed on, and could be evaluated as of, May 24, 2006. Accordingly, although
subsequent developments may affect its opinion, Capitalink has not assumed
any
obligation to update, review or reaffirm its opinion.
In
connection with rendering its opinion, Capitalink performed certain financial,
comparative and other analyses as summarized below. Each of the analyses
conducted by Capitalink was carried out to provide a different perspective
on
the Asset Sale, and to enhance the total mix of information available.
Capitalink did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to the
fairness, from a financial point of view, of the purchase price payable under
the Asset Sale to unaffiliated stockholders. Further, the summary of
Capitalink’s analyses described below is not a complete description of the
analyses underlying Capitalink’s opinion. The preparation of a fairness opinion
is a complex process involving various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances and, therefore, a fairness opinion is not
readily susceptible to partial analysis or summary description. In arriving
at
its opinion, Capitalink made qualitative judgments as to the relevance of each
analysis and factor that it considered. In addition, Capitalink may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
range of valuations resulting from any particular analysis described above
should not be taken to be Capitalink’s view of the value of Cash Security
business’s assets. The estimates contained in Capitalink’s analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. In addition, analyses
relating to the value of businesses or assets neither purport to be appraisals
nor do they necessarily reflect the prices at which businesses or assets may
actually be sold. Accordingly, Capitalink’s analyses and estimates are
inherently subject to substantial uncertainty. Capitalink believes that its
analyses must be considered as a whole and that selecting portions of its
analyses or the factors it considered, without considering all analyses and
factors collectively, could create an incomplete and misleading view of the
process underlying the analyses performed by Capitalink in connection with
the
preparation of its opinion.
The
analyses performed were prepared solely as part of Capitalink’s analysis of the
fairness, from a financial point of view, of the purchase price payable under
the Asset Sale to the unaffiliated stockholders, and were provided to our board
of directors in connection with the delivery of Capitalink’s opinion. The
opinion of Capitalink was just one of the many factors taken into account by
our
board of directors in making its determination to approve the Asset Sale,
including those described elsewhere in this proxy statement.
Cash
Security Business Financial Review
Capitalink
undertook a review of the Cash Security business’s historical financial data in
order to understand and interpret its operating and financial performance and
strength. As part of this analysis, the Cash Security business’s revenue and
earnings are adjusted to remove any unusual or extraordinary sources of revenue
and expenses. The adjustments provide a more accurate portrayal of the Cash
Security business’s underlying operating earnings and financial performance.
Capitalink noted the following:
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Net
revenue has increased significantly over the review period from
approximately $7.7 million in fiscal year 2002 to approximately $19.4
million in fiscal year 2005 representing a compound annual growth
rate of
35.9%. This increase in revenue is attributed to the increase in
the
number of Sentinel units sold, particularly in fiscal year 2005 when
an
estimated 1,867 units were sold, compared with 240 in fiscal year
2003 and
191 in fiscal year 2004.
|
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Gross
profit increased from approximately $3.0 million in fiscal year 2002
to
approximately $6.0 million in fiscal year 2005. Normalized earnings
before
interest, taxes, depreciation and amortization, or EBITDA, also increased
over the review period in line with revenues and gross margin from
approximately $0.5 million in fiscal year 2002 to approximately $1.5
million in fiscal year 2005.
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However,
revenue and EBITDA have decreased approximately $3.5 million and
approximately 2.6 million, or 18.2% and 62.3% respectively, from
fiscal
year 2005 to the last twelve month period ended March 31,
2006.
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This
decrease in revenue and EBITDA is mainly attributed to ownership
and
organization changes at a major customer who lowered their Sentinel
product line budget from 1,500 to 1,200 units for fiscal year 2006.
In
addition, sales of the legacy Cash Controllers for the first six
months of
fiscal year 2006 were approximately 20% below the corresponding period
in
2005 and 20% below budget.
|
Valuation
Overview
Based
upon a review of the historical financial data and certain other qualitative
data for the Cash Security business, Capitalink utilized several valuation
methodologies to determine a range of values for the Cash Security business.
Capitalink utilized the discounted cash flow, the comparable company, the
comparable transaction and leveraged buyout analyses (all of which are discussed
in more detail hereinafter) to derive an indicated equity value for the Cash
Security business.
Capitalink
weighted the four approaches equally and then deducted the $0.1 million
adjustment for litigation to arrive at an indicated equity value range of
approximately $13.1 million and approximately $16.1 million.
Capitalink
noted that the Asset Sale purchase price of approximately $16.2 million
(including the closing cash adjustment) was greater than the Cash Security
business’ indicated equity value range.
Cash
Security Business Discounted Cash Flow Analysis
A
discounted cash flow analysis estimates value based upon a company’s projected
future free cash flow discounted at a rate reflecting risks inherent in its
business and capital structure. Unlevered free cash flow represents the amount
of cash generated and available for principal, interest and dividend payments
after providing for ongoing business operations.
While
the
discounted cash flow analysis is the most scientific of the methodologies used,
it is dependent on projections and is further dependent on numerous
industry-specific and macroeconomic factors.
Capitalink
utilized the forecasts provided by Tidel management, which project a gradual
increase in revenues from fiscal year 2005 to fiscal year 2008 from
approximately $19.4 million to $27.8 million, respectively. This assumes that
the decline in revenue during the last twelve month period ended March 31,
2006
and the forecasted fiscal year 2006 revenue decline of 13.2% will be offset
by
significant revenue increases in fiscal year 2007 and fiscal year
2008.
The
forecasts also project an improvement in EBITDA from fiscal year 2005 to fiscal
year 2008 from approximately $4.1 million to approximately $4.3 million,
respectively. This represents a decrease in the Company’s EBITDA margin from
21.2% to 15.6% but an increase from the 9.7% EBITDA margin in the last twelve
month period ended March 31, 2006.
In
order
to arrive at a present value, Capitalink utilized discount rates ranging from
26.0% to 28.0%. This was based on an estimated weighted average cost of capital
of 27.4% (based on the Company’s estimated weighted average cost of debt of
10.0% and 30.1% estimated cost of equity). The cost of equity was derived
utilizing the Ibbotson build-up method based upon the following rates and
premiums: 5.4% riskless rate; 6.3% equity risk premium; 4.8% industry risk
premium; 9.8% size premium, and; company specific risk factor of 4.0%, which
takes into account the Cash Security business’s limited history of operating
profits, significant customer and product concentration and risks related to
a
major contract.
Capitalink
presented a range of terminal values at the end of the forecast period by
applying a range of terminal exit multiples based on revenue and EBITDA as
well
as long term perpetual growth rates. Capitalink selected appropriate terminal
exit multiples by examining the multiples indicated by the comparable companies
and comparable transaction analyses.
Utilizing
terminal revenue multiples of between 0.80 times and 1.00 times, terminal EBITDA
multiples of between 5.5 times and 6.5 times and long term perpetual growth
rates of between 3.5% and 5.5%, Capitalink calculated a range of indicated
enterprise values by weighting the above indications equally.
Capitalink
added net cash of approximately $1.4 million (which includes cash balances
less
vehicle leases) to derive an indicated equity value range of approximately
$15.1
million to approximately $18.1 million.
Cash
Security Business comparable company Analysis
A
selected comparable company analysis reviews the trading multiples of publicly
traded companies that are similar to the Cash Security business with respect
to
business and revenue model, operating sector, size and target customer
base.
Due
to
the difficulty of finding publicly listed companies that matched the operating
characteristics of the Cash Security business, Capitalink broadened its search
to include companies that manufacture and market safe and vault systems, ATM
and
POS related products (primarily to grocery and chain stores), and other
specialized electronic cash related products, or the comparable companies.
Based
upon these criteria and for the purposes of its analyses and for the purposes
of
its analysis, Capitalink included Diebold, Inc., Wincor Nixdorf AG, Coinstar,
Inc., Lipman Electronics, TRM Corp., CashGuard, AB, and Global Payment
Technologies, Inc. as the comparable companies.
All
of
the comparable companies are classified under the SIC code 3578 (Calculating
and
Accounting Machines, Except Computers). Capitalink also noted that most of
the
comparable companies manufacture and sell a number of different products and
offer various other related services to their customers. In comparison, the
Cash
Security business sells two primary products, of which the Sentinel product
made
up over 70% of total sales. In addition, customer concentration is very high
with one contract generating approximately 80% of total Sentinel
sales.
All
of
the comparable companies are larger than the Cash Security business, with last
twelve month revenue ranging from approximately $22.0 million to approximately
$2.7 billion, compared with approximately $15.9 million for the Cash Security
business.
From
an
EBITDA basis, the Cash Security business is more profitable than most of the
comparable companies, with last twelve month EBITDA margins ranging from
approximately (22.5%) to approximately 21.4%, compared with approximately 9.7%
for the Cash Security business. Capitalink noted that the EBITDA margins for
the
comparable companies are generally lower than the Cash Security business partly
because the Cash Security business’s expenses do not include public company
costs. Although, the Company is a public entity it does not allocate corporate
overhead, including public company costs to its operating divisions, including
the Cash Security business.
Capitalink
also noted that with the exception of CashGuard AB, all of the comparable
companies have had at least three years of positive profitability. In
comparison, fiscal year 2005 is the first year that the Cash Security business
has become profitable.
Multiples
utilizing market value and enterprise value were used in the analyses. For
comparison purposes, all operating profits including EBITDA were normalized
to
exclude unusual and extraordinary expenses and income.
Capitalink
noted the following with respect to the multiples generated:
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·
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The
enterprise value to last twelve month revenue multiple ranged from
0.46
times to 3.71 times, with a mean of 1.88
times.
|
|
·
|
The
enterprise value to calendar year 2006 revenue multiple ranged from
1.22
times to 2.36 times, with a mean of 1.58
times.
|
|
·
|
The
enterprise value to last twelve month EBITDA multiple ranged from
7.7
times to 14.9 times, with a mean of 12.0
times.
|
|
·
|
The
enterprise value to calendar year 2006 EBITDA multiple ranged from
7.0
times to 11.4 times, with a mean of 10.2
times.
|
|
·
|
The
enterprise value to calendar year 2007 EBITDA multiple ranged from
6.0
times to 11.3 times, with a mean of 9.1
times.
|
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|
The
enterprise value to mean fiscal year 2004 and fiscal year 2005 EBITDA
multiple ranged from 7.8 times to 13.4 times, with a mean of 11.9
times.
|
Capitalink
selected an appropriate multiple range for the Cash Security business by
examining the range indicated by the comparable companies and then applied
this
multiple range to the Cash Security business’s ranges of last twelve month 2005
revenue, calendar year 2006 revenue, last twelve month 2005 EBITDA, calendar
year 2006 EBITDA, and mean EBITDA.
Capitalink
noted that the financials used in calculating the multiples of the comparable
companies include public company costs. Therefore, the calculated comparable
company multiples would be higher than appropriate for the Cash Security
business, whose financials do not include public company costs.
Capitalink
expects the Cash Security business’s valuation multiples to be significantly
below the mean of the comparable companies due a number of factors:
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The
Cash Security business has little operating profit
history.
|
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·
|
Current
and future EBITDA is heavily dependent on one product
line.
|
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|
Current
and future EBITDA is heavily dependent on one
customer.
|
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·
|
The
product sold by the Cash Security business is highly
specialized.
|
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|
Lack
of public company costs, as noted
above.
|
Based
on
the above factors, the multiple ranges selected for the Company were as
follows:
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Between
0.80 and 1.0 times last twelve month 2006
revenue.
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|
Between
0.65 and 0.85 times calendar year 2006
revenue.
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|
Between
6.0 and 8.0 times mean EBITDA (fiscal year 2004-fiscal year
2005).
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|
Between
6.0 and 8.0 times last twelve months 2006
EBITDA.
|
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Between
5.0 and 7.0 times calendar year 2006
EBITDA.
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|
Between
4.0 and 6.0 times calendar year 2007
EBITDA
|
Applying
these multiple ranges to latest twelve month revenue, calendar year 2006
projected revenue, fiscal years 2004 and 2005 average EBITDA, latest twelve
month EBITDA and calendar year 2006 projected EBITDA of approximately $19.4
million, approximately $21.7 million, approximately $1.7 million, approximately
$4.1 million and approximately $5.0 million, respectively, Capitalink calculated
a series of enterprise values for the Cash Security business.
Capitalink
added net cash of approximately $1.4 million (which includes cash balances
less
vehicle leases) and derived an indicated equity value range of approximately
$13.7 million to approximately $18.1 million.
None
of
the comparable companies have characteristics identical to the Cash Security
business. An analysis of publicly traded comparable companies is not
mathematical; rather it involves complex consideration and judgments concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading of the
comparable companies.
Cash
Security Business Comparable Asset Sale Analysis
A
comparable transaction analysis involves a review of merger, acquisition and
asset purchase transactions involving target companies that are in related
industries to the Cash Security business. The comparable transaction analysis
generally provides the widest range of value due to the varying importance
of an
acquisition to a buyer (i.e., a strategic buyer willing to pay more than a
financial buyer) in addition to the potential differences in the transaction
process (i.e., competitiveness among potential buyers).
Capitalink
located seven transactions announced since September 2003 involving target
companies involved in the manufacture and sale of electronics safes and vaults,
POS and ATM systems and other specialized electronic cash equipment, or the
comparable asset sales, and for which detailed financial information was
available. Based upon these criteria and for purposes of its analysis,
Capitalink utilized the following comparable asset sales:
Target
|
Acquiror
|
Lipman
Electronics Engineering, Inc.
|
Verifone
Holdings, Inc.
|
Cash
Systems, Inc.
|
Institutional
Investors
|
ATM
Network Services
|
Global
Access Corp.
|
Global
Cash Access Holdings, Inc.
|
Summit
Partners, Tudor Ventures
|
Frisco
Bay Industries Ltd.
|
Stanley
Works
|
Financial
Technologies
|
NetBank,
Inc.
|
Kyrus
Corporation
|
Agilysys,
Inc.
|
Based
on
the information disclosed with respect to the targets in the each of the
comparable asset sales, Capitalink calculated and compared the enterprise values
as a multiple of last twelve month revenue and last twelve month
EBITDA.
Capitalink
noted the following with respect to the multiples generated:
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·
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The
enterprise value to last twelve month revenue multiple ranged from
0.24
times to 2.15 times, with a mean of 1.05
times.
|
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·
|
The
enterprise value to last twelve month EBITDA multiple ranged from
3.5
times to 10.7 times, with a mean of 8.4
times.
|
Capitalink
expects the Cash Security business’s valuation multiples to be significantly
below the mean of the comparable asset sales due a number of
factors:
|
·
|
The
Cash Security business has little operating profit
history.
|
|
·
|
Current
and future EBITDA is heavily dependent on one product
line.
|
|
·
|
Current
and future EBITDA is heavily dependent on one
customer.
|
|
·
|
The
product sold by the Cash Security business is highly
specialized.
|
Capitalink
determined a range of indicated enterprise values for the Cash Security business
by selecting a range of valuation multiples based on the comparable asset sales,
and then applied them to the Cash Security business’s last twelve month revenue
and last twelve month EBITDA.
Taking
into account such factors, Capitalink selected a multiple range for the Cash
Security business’s last twelve month revenue of between 0.80 and 1.0 times, and
last twelve month EBITDA of between 7.0 and 9.0 times. Applying these multiple
ranges to latest twelve month revenue and EBITDA of approximately $19.4 million
and approximately $4.1 million, respectively, Capitalink calculated a series
of
enterprise values for the Cash Security business.
Capitalink
added net cash of approximately $1.4 million (which includes cash balances
less
vehicle leases) and derived an indicated equity value range of approximately
$13.2 million to approximately $16.3 million.
None
of
the target companies in the comparable asset sales have characteristics
identical to the Cash Security business. Accordingly, an analysis of comparable
business combinations is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the target companies in the comparable asset sales and other
factors that could affect the respective acquisition values.
Cash
Security Business Leveraged Buyout Analysis
A
leveraged buyout analysis examines the free cash flows of the Cash Security
business, and determines the price a leveraged buyout firm might theoretically
be willing to pay in a leveraged buyout transaction in order to generate
acceptable internal rates of return.
The
leveraged buyout analysis assumes the leveraged buyout firm would be able to
realize a return on its investment in the Cash Security business through a
sale
or public offering of the Cash Security business at the end of fiscal year
2010.
Capitalink
utilized projections provided by Tidel management from fiscal year 2006 to
fiscal year 2007, and assumed 10% revenue growth in each of fiscal year 2008,
fiscal year 2009 and fiscal year 2010.
The
key
assumptions utilized in this analysis are as follows:
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·
|
The
leveraged buyout firm target return is expected to be between 30.0%
and
35.0%.
|
|
·
|
The
Cash Security business is sold at the end of fiscal 2010 at an EBITDA
multiple of 5.5 times to 6.5 times a projected fiscal 2010 EBITDA
of
approximately $4.4 million.
|
|
·
|
Total
debt of approximately $7.5 million is used to leverage the
investment.
|
Based
on
the leveraged buyout analysis, Capitalink determined an implied indicated equity
value range for the Cash Security business of between approximately $10.6
million and $12.1 million.
Based
on
the information and analyses set forth above, Capitalink delivered its written
opinion to the special committee of our board of directors, which stated that,
as of May 24, 2006, based upon and subject to the assumptions made, matters
considered, and limitations on its review as set forth in the opinion, the
purchase price payable under the Asset Sale is fair, from a financial point
of
view, to the unaffiliated stockholders. Capitalink is an investment banking
firm
that, as part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers,
acquisitions, corporate restructurings, private placements, and for other
purposes. We determined to use the services of Capitalink because it is a
recognized investment banking firm that has substantial experience in similar
matters. Capitalink does not beneficially own any interest in Tidel or
Engineering and has not provided either company with any other services. In
addition, Capitalink has had no prior relationships with any of Buyer, Messrs.
Levenick, Landry or Galgano or with Laurus.
Capitalink
received a fee of $75,000 from the Company and reimbursement by the Company
for
expenses upon the delivery of its fairness opinion dated December 30, 2005
and
has received an additional fee of $37,500 in respect to delivery of its fairness
opinion dated May 24, 2006. The terms of the fee arrangements with Capitalink,
which Tidel and Capitalink believe are customary in transactions of this nature,
were negotiated at arms’ length between the special committee and
Capitalink.
Purpose
of the Asset Sale
The
purpose of the Asset Sale for Tidel is to enable it to immediately realize
the
value of its remaining business. In this respect, the special committee and
the
board of directors believe that the Asset Sale is more favorable to the
Company’s stockholders than any other alternative reasonably available because
of the uncertain returns to such stockholders in light of the Company’s
business, operations, financial condition, strategy and prospects, as well
as
the risks involved in achieving those prospects, and general industry, economic
and market conditions, both on a historical and on a prospective basis. The
special committee and the board of directors believe this even though Laurus
will receive $8,508,963 upon the closing of the Asset Sale pursuant to the
terms
of the 2006 Laurus Agreement (in full satisfaction of all amounts payable to
Laurus, including under the 2004 Laurus Fee Agreement and which includes the
fee
payable to Laurus in respect of the sale of our ATM business division on January
3, 2006). In addition, following the Asset Sale we are required to pay Laurus
an
aggregate sum between approximately $3.9 million and $6.5 million, or a per
share price not less than $.20 per share nor greater than $.34, upon the
redemption under the stock redemption agreement of all 19,251,000 shares held
by
Laurus. Following this redemption, Laurus will own no Tidel shares and all
remaining stockholders will own a proportionally larger percentage of Tidel.
We
estimate that the net Asset Sale proceeds accruing to Tidel will be
approximately $5,100,000. The special committee and the board of directors
are
aware of the valuations, with a range between $13.1 million and $16.1 million,
that Capitalink has placed upon the Cash Security business and consider and,
in
their respective business judgments, believe, that the net purchase price of
$13,770,032 under the Asset Purchase Agreement following adjustments for ongoing
litigation and working capital and subject to a cash adjustment, represents
a
fair value for the Cash Security business in light of the prospects for the
Cash
Security business and its expected financial performance.
In
particular, the special committee and the board of directors believe that we
face several challenges in our efforts to increase stockholder value, including
competition from companies with substantially greater scale. For these reasons,
and the other reasons discussed under “The Asset Sale -- Reasons for the Asset
Sale,” the special committee and the board of directors each have determined
that the Asset Purchase Agreement, the Asset Sale and related transactions
are
advisable and are fair to and in the best interests of the Company and its
unaffiliated stockholders.
Fees
and Expenses of the Asset Sale
The
Company estimates that the total amount of funds necessary to complete the
Asset
Sale and the related transactions is anticipated to be approximately $10.0
million which includes:
|
·
|
$8,508,963
sale fee to be paid to Laurus pursuant to the 2006 Laurus Agreement
in the
event the Asset Sale occurs, in full satisfaction of all amounts
payable
to Laurus (including fees payable under the 2004 Laurus Fee Agreement
in
respect of the sale of our ATM business division and the Asset
Sale);
|
|
·
|
$470,000
in aggregate amount to be paid as termination payments to four officers
of
Sellers (including a payment of $350,000 to Mark K. Levenick, our
Interim
Chief Executive Officer) upon the closing of the Asset Sale;
and
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$1,030,000
to pay related fees and expenses of the Company in connection with
the
Asset Sale and related
transactions.
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The
expenses estimated to be incurred in connection with the Asset Sale are as
follows:
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Accounting
fees and expenses;
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Advisory
fees and expenses;
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Legal
fees and expenses;
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Printing,
solicitation and mailing costs;
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Miscellaneous
expenses.
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In
addition, upon the closing of the Asset Sale an estimated aggregate redemption
amount between $3.9 million and $6.5 million shall be paid to Laurus to redeem
all 19,251,000 shares of our common stock that it holds. Following this
redemption, Laurus will hold no shares of our common stock and all remaining
stockholders will own a proportionally larger percentage of Tidel.
If
the
Asset Sale is consummated, these payments are expected to be funded by available
cash of the Company.
If
the
Asset Sale is not consummated, the exercise and conversion agreement requires
us
to redeem 18,000,000 shares of our common stock held by Laurus for a conversion
price of $.30 per share, or $5.4 million in the aggregate. In addition, if
the
Asset Sale is not consummated under certain circumstances described under “The
Asset Purchase Agreement -- Buyer Fee,” we may be obligated to pay Buyer
$400,000.
Buyer
Financing
The
Buyer
has informed us that it and Laurus have entered into a non-binding proposal
letter pursuant to which Laurus may provide acquisition financing to Buyer
in
respect of the Asset Sale. Under this proposal letter, Laurus proposes to
provide a loan of up to $20 million to the Buyer Affiliate, to be used to
complete the Asset Sale, pay closing costs in connection with the Asset Sale,
complete a reverse merger with a shell public company or an initial public
offering and for use as general working capital. The loan would be evidenced
by
a secured convertible promissory note, or the Buyer Note, issued by the Buyer
Affiliate to Laurus, with an interest rate equal to the prime rate plus 2.0%
up
to a maximum rate of 10%, or the maximum rate, and a maturity of 37 months
from
issuance. During the first 13 months of the loan, the maximum interest rate
payable is 8%, with up to an additional 2% of the Maximum Rate being deferred.
The Buyer Note would be convertible by Laurus into equity of the Buyer Affiliate
as follows:
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$5,000,000
convertible at a $20,000,000 valuation of the Buyer
Affiliate;
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$5,000,000
convertible at a $25,000,000 valuation of the Buyer Affiliate;
and
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$10,000,000
convertible at a $150,000,000 valuation of the Buyer’s
Affiliate.
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The
Buyer
Affiliate would be entitled to redeem outstanding amounts under the Buyer Note
at a rate of 110% of such amounts prior to the second anniversary of its
issuance and thereafter at a rate of 100% of such amounts. Amounts due under
the
Buyer Note would be secured by a first lien on all of the assets of Buyer and
a
pledge of equity securities held by affiliates of Buyer, provided that the
pledge of equity securities would be released when the principal amount of
the
Buyer Note is reduced to $10,000,000 or less.
The
principals of Buyer would be required to provide personal guarantees of the
Buyer Note for up to $1,000,000; provided that the personal guarantees would
be
released when the principal amount of the Buyer Note is reduced to $10,000,000
or less. The Buyer Affiliate would be permitted to sell up to $1,000,000 in
value of its equity securities, with any such sales reducing the amount of
the
personal guarantees on a dollar for dollar basis. In addition, the Buyer
Affiliate would be required to complete a reverse merger into a public shell
company or an initial public offering of its common stock within six months
of
the closing of the loan.
In
connection with the loan, the Buyer Affiliate would also grant Laurus an option
to purchase a number of shares of common stock of the Buyer Affiliate equal
to
40.0% of the Buyer Affiliate’s outstanding common stock on a fully diluted basis
excluding any conversion of the Buyer Note and options issued under any employee
stock option plan. The Buyer Affiliate shall not issue any options to the
principals of Buyer under any employee stock option plan.
At
the
closing the loan, Buyer has agreed to make a $700,000 servicing payment to
an
affiliate of Laurus. In addition, Buyer will make due diligence and
documentation expense payments totaling $60,000 to a Laurus affiliate and has
also agreed to pay the fees of outside counsel retained by Laurus in connection
with these transactions.
In
addition, the Buyer Affiliate has entered into a non-binding proposal letter
pursuant to which Laurus would provide to the Buyer Affiliate and its
subsidiaries a revolving credit facility for up to $2,000,000, or the credit
facility. The available amount under the credit facility will be based upon
accounts receivable at an advance rate equal to 90% of eligible accounts
receivable, 50% of eligible inventory capped at 500,000 and 50% of eligible
purchase orders capped at $500,000. Amounts outstanding from time to time under
the credit facility would incur interest at a rate equal to the prime rate
plus
1.0%, with a minimum rate of 8% and a maximum rate of 10%, and a maturity of
three years from the closing of the credit facility. If the credit facility
is
terminated prior to maturity, the Buyer Affiliate would be required to pay
Laurus a termination fee of $100,000 if termination occurs prior to the first
anniversary of the closing of the credit facility, $80,000 if termination occurs
subsequent to the first anniversary and prior to the second anniversary of
the
closing of the credit facility and $60,000 if termination occurs subsequent
the
second anniversary and prior to maturity. Amounts due under the credit facility
would be secured by a first lien on all of the assets of the Buyer Affiliate
and
its subsidiaries. In addition, the Buyer Affiliate would be required to set
up a
lock box arrangement in favor of Laurus.
In
connection with the credit facility, the Buyer Affiliate would also issue to
Laurus warrants to purchase a number of shares of common stock of the Buyer
Affiliate with an aggregate fair market value of $700,000 as of the time of
the
closing of the credit facility and such warrants would be exercisable at a
price
equal to the lesser of (i) 115% of the fair market value of a share of common
stock of the Buyer Affiliate as of the completion of a reverse merger into
a
public company, and (ii) the price per share of common stock of the Buyer
Affiliate which results in a $45,000,000 aggregate valuation of the outstanding
common stock of the Buyer Affiliate. The Buyer Affiliate would be required
to
file a registration statement with the Securities and Exchange Commission to
register the shares of common stock of the Buyer Affiliate underlying the
warrants issued to Laurus.
At
the
closing of the credit facility, the Buyer Affiliate would pay to an affiliate
of
Laurus a fee equal to $70,000. In addition, Buyer will pay Laurus a due
diligence fee of $15,000 and a structuring and legal fee in the amount of
$10,000 plus the cost of outside counsel retained by Laurus. In addition, the
Buyer affiliate will reimburse Laurus for all reasonable fees and expenses
incurred by such outside counsel.
Laurus
would agree with Buyer to not engage in short sales of the common stock of
the
Buyer Affiliate.
The
final
terms and conditions of the loan and the credit facility would be subject to
negotiations between Laurus, Buyer and the Buyer Affiliate and the execution
and
delivery of definitive agreements.
The
foregoing description of the loan and the credit facility to be provided by
Laurus to the Buyer Affiliate has been provided to us by Buyer.
Interests
of the Company’s Directors and Executive
Officers in the Asset Sale
Our
directors and executive officers may have interests in the Asset Sale that
are
different from, or in addition to, yours, including the following:
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Mark K.
Levenick, our Interim Chief Executive Officer and a member of our
board,
and Raymond P. Landry, a member of our board, have been offered
employment positions with Buyer to take effect following the Asset
Sale;
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On
June 9, 2006, we agreed to make the following payments to four executives
who will remain with the Cash Security business following the Asset
Sale:
$350,000 to Mark K. Levenick, $50,000 to M. Flynt Moreland, $50,000
to Troy D. Richard and $20,000 to Robert M. Gutierrez, in connection
with
the termination of each such person’s employment with the Sellers and upon
the closing of the Asset Sale. Under the agreement with each executive,
we
agreed to make the termination payment upon the closing of the Asset
Sale
in consideration for terminating such executive’s employment agreement and
all rights thereunder (including any rights to vacation pay or other
benefits) other than for accrued pay. Each payment had previously
been
approved by the Company’s compensation committee, prior to the sale of the
Cash Security business to Buyer being proposed, as a stay bonus in
respect
of such executive continuing his employment with the Company until
the
closing of the sale of the Company’s ATM business division and the Asset
Sale. Under the terms of each agreement, each executive agrees that
all
stock options held by him to purchase the Company’s common stock, to the
extent exercisable and not previously terminated, may be exercised
by him
at any time prior to 90 days following the closing of the Asset Sale.
In
addition, each agreement provides that in the event the Asset Purchase
Agreement is terminated or the Asset Sale is not consummated, the
agreement would have no effect and the executive’s employment agreement
will continue in accordance with its
terms;
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We
also have agreed to make payments comprising termination and severance
and
stay bonuses to certain employees and a consultant who will not remain
with the Cash Security business following the Asset
Sale;
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The
Asset Purchase Agreement requires that we provide indemnification
for our
current and former directors and officers for six years following
the
Asset Sale with a proviso that if Tidel is dissolved or ceases to
exist
for any reason prior to the end of such six-year period, we will
extend
our then in effect directors’ and officers’ and fiduciaries’ liability
insurance policy on commercially reasonable terms and conditions
and with
insurance coverage as comparable as possible with the insurance policy
then in effect for the current officers and directors of Tidel and
our
subsidiaries; and
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Following
board approval on July 7, 2006, we made a payment of $100,000 to
each of
our three non-employee directors, Raymond P. Landry, Stephen P. Griggs,
and Jerrell G. Clay, in recognition of the extraordinary efforts
of, and
time spent by, such directors over the past two years in connection
with
Tidel business matters, including without limitation, the sale of
our ATM
business division to NCR Corporation and exploring strategic alternatives
regarding our Cash Security business, and helping guide the Company
following the serious illness and subsequent death of our former
Chief
Executive Officer.
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The
Asset
Purchase Agreement provides that all rights to indemnification or exculpation
existing in favor of the employees, agents, directors or officers of Tidel
and
its subsidiaries in effect on the date of the Asset Purchase Agreement will
continue in full force and effect for a period of six years after the Asset
Sale; and that Tidel, for a period of six years after the Asset Sale, will
maintain directors’ and officers’ and fiduciaries’ liability insurance covering
the officers and directors of Tidel and its subsidiaries as of the date of
the
Asset Purchase Agreement on comparable terms and coverage as is in effect for
the officers and directors of Tidel and its subsidiaries on the date of the
Asset Sale and if Tidel is dissolved prior to the termination of this six year
period, Tidel shall first extend to and pay Tidel’s directors’ and officers’ and
fiduciaries’ liability insurance policy on commercially reasonable terms for all
directors and officers of Tidel as of the date of the Asset Purchase
Agreement.
Material
United States Federal Income Tax
Consequences
The
proposed Asset Sale will be a transaction taxable to Tidel for United States
consolidated federal income tax purposes. Tidel will recognize taxable income
equal to the amount realized on the sale in excess of Tidel’s tax basis in the
assets sold. The amount realized on the sale will consist of the cash received
in exchange for the assets sold, plus the amount of liabilities assumed by
Buyer.
Although
the Asset Sale will result in a taxable gain to Tidel, we expect the majority
of
the taxable gain will be offset to the extent of net operating losses. The
taxable gain will differ from the gain to be reported in the Tidel financial
statements due to temporary tax differences and certain other differences
between the tax laws and generally accepted accounting principles.
While
Tidel believes that it will be able to apply the tax net operating loss carry
forwards without limitation against the taxable gain from the sale of the
assets, the availability and amount of net operating loss carryforwards may
be
subject to audit and adjustment by the Internal Revenue Service. In the event
the Internal Revenue Service adjusts the net operating loss carryforwards,
Tidel
may incur an increased tax liability on a consolidated basis on the sale of
the
assets.
Tidel
stockholders will experience no federal income tax consequences as a result
of
the consummation of the proposed sale of the assets by Tidel to Buyer pursuant
to the Asset Purchase Agreement.
The
Company is not aware of any regulatory requirements or governmental approvals
or
actions that may be required to consummate the Asset Sale, except for compliance
with the applicable regulations of the Securities and Exchange Commission in
connection with this proxy statement and the Delaware General Corporation Law
in
connection with the Asset Sale.
THE
ASSET PURCHASE AGREEMENT
The
following summarizes material provisions of the Asset Purchase Agreement, a
copy
of which is attached to this proxy statement as Annex A. We encourage you to
read carefully the Asset Purchase Agreement in its entirety because the rights
and obligations of the parties are governed by the express terms of the Asset
Purchase Agreement and not by this summary or any other information contained
in
this proxy statement.
The
description of the Asset Purchase Agreement in this proxy statement has been
included to provide you with information regarding its terms. The Asset Purchase
Agreement contains representations and warranties made by and to the Company,
Engineering and Buyer as of specific dates. The statements embodied in those
representations and warranties were made for purposes of that contract between
the parties and are subject to qualifications and limitations agreed by the
parties in connection with negotiating the terms of that contract, including
qualifications set forth on the disclosure schedules to the Asset Purchase
Agreement. In addition, certain representations and warranties were made as
of a
specified date, may be subject to contractual standards of materiality different
from those generally applicable to stockholders, or may have been used for
the
purpose of allocating risk between the parties rather than establishing matters
as facts.
Closing
under the Asset Purchase Agreement will occur on the business day following
the
satisfaction or waiver of all conditions to the obligations of the parties
to
consummate the transactions contemplated thereby, including the approval and
adoption of the Asset Sale by the holders of a majority of the Company’s common
stock outstanding on the record date.
Representations
and Warranties
The
Sellers make various representations and warranties in the Asset Purchase
Agreement that are subject, in some cases, to specified exceptions and
qualifications. Our representations and warranties relate to, among other
things:
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Our
filings for recent periods with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 will not contain any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they were made, not
misleading;
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Our
financial statements, including the accuracy
thereof;
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The
absence of any material adverse change since June 30, 2005, including,
without limiting the scope of this representation, our entry into
agreements or the occurrence of specified events either involving
more
than $10,000 or outside our ordinary course of
business;
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The
absence of undisclosed liabilities relating to our Cash Security
business;
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Our
compliance in all material respects with all applicable
laws;
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Taxes,
including as to our proper, accurate and timely filing and payment
of
taxes;
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Leased
realty, including that we are in compliance under our leases of realty,
including as a result of the Asset Sale, and that we have not transferred
interests in our leased realty to other persons and that our leased
realty
is in good condition and repair;
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Real
property use in connection with the Cash Security business, including
that
we hold all material permits that are appropriate for us to use our
leased
realty;
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Intellectual
property, including that we have the right to use all intellectual
property desirable for the operation of our Cash Security business
as
presently conducted or as presently proposed to be conducted, that
we have
not infringed on the intellectual property rights of third
parties;
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Tangible
assets, including that all tangible assets necessary for the operation
of
our Cash Security business have been maintained in accordance with
normal
industry practice and are in good operating condition and
repair;
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Inventory,
including that all of our inventory is merchantable and fit for the
purpose for which it was procured or manufactured, and none of it
is
slow-moving, obsolete, damaged, or defective subject to the reserve
for
inventory writedown on our June 30, 2005 balance
sheet;
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Contracts,
including that all our material contracts, generally speaking our
contracts involving amounts in excess of $10,000, are, and following
the
Asset Sale, will continue to be, legal, valid, binding, enforceable,
and
in full force and effect; and are freely assignable to
Buyer;
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Insurance,
including that we have in full force and effect insurance policies
insuring the properties and assets of our Cash Security
business;
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Litigation,
including as to the absence of any litigation affecting our Cash
Security
business that would reasonably be expected to result in any material
adverse change;
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Product
warranties and product liabilities, including that each product
manufactured, sold, leased, or delivered by our Cash Security business
has
been in conformity with all product warranties and there is no liability
or basis for future liability for damages to third parties for such
products;
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Employee
matters including, that no employee of the Cash Security business
is party
to any agreement with third parties that would limit the performance
of
such employees’ duties with the Sellers and that there are no labor
disputes occurring or to Sellers’ knowledge,
threatened;
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Employee
benefit plans, including that each such plan has been maintained,
funded
and administered in accordance with the terms of such plan, and that
there
have been no prohibited transactions with respect to such plan and
that
Buyer will have no liability with respect to such
plan;
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Environmental,
health, and safety requirements, including that each of Sellers,
and their
respective predecessors and affiliates has complied and is in material
compliance with all environmental, health, and safety requirements;
and
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Customers
and suppliers, including that no customer of, or material supplier
to, the
Cash Security business has indicated that it shall stop, or decrease
the
rate of, supplying materials, products or services to the Cash Security
business.
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For
the
purposes of the Asset Purchase Agreement, a “material adverse effect” or
“material adverse change” with respect to us means any effect or change that
would be (or could be reasonably expected to be) materially adverse to the
business, assets, condition (financial or otherwise), operating results,
operations, or business prospects of Sellers or our Cash Security business
(regardless of whether or not such adverse effect or change can be or has been
cured at any time or whether Buyer has knowledge of such effect or change);
provided however, that that the financial condition, operating results or
business prospects of Sellers or the Cash Security business of which Buyer
has
knowledge as of the date of the Asset Purchase Agreement shall not be deemed
to
be a “material adverse effect” or “material adverse change.”
You
should be aware that these representations and warranties are made by Sellers
to
Buyer, may be subject to important limitations and qualifications set forth
in
the Asset Purchase Agreement and the disclosure schedules thereto and do not
purport to be accurate as of the date of this proxy statement.
The
Asset
Purchase Agreement also contains various representations and warranties made
by
Buyer that are subject, in some cases, to specified exceptions and
qualifications. The representations and warranties relate to, among other
things, Buyers due organization and existence, its power and authority to enter
into and perform the Asset Purchase Agreement and the transactions contemplated
thereby, and that Buyer’s execution and delivery of the Asset Purchase
Agreement, and that its consummation of the transactions contemplated thereby
will not contravene any agreement or organizational document of
Buyer:
The
representations and warranties of each of the parties to the Asset Purchase
Agreement will expire upon the closing of the Asset Sale.
Conduct
of Our Business Pending the Asset
Sale
For
the
period between January 12, 2006 and the completion of the Asset Sale, we have
agreed:
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not
to engage in any practice, take any action, or enter into any transaction
outside the ordinary course of
business;
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to
keep our business and properties substantially intact, including
our
present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and
employees;
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to
permit representatives of Buyer to have reasonable access to all
premises,
personnel, records, and contracts of Sellers;
and
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to
take all actions that a reasonably prudent person would undertake
with
respect to litigation involving Engineering and Corporate
Safe Specialists, Inc. and
to diligently defend this litigation, provided, however, that any
material
actions with respect to this litigation will require the prior written
consent of Buyer, which consent is not be unreasonably
withheld.
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Buyer
and
Sellers have agreed that following the closing of the Asset Sale:
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the
parties will take such further actions as the other party may reasonably
request, all at the sole cost and expense of the requesting
party;
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Sellers
shall not use the term“Tidel”
or “Sentinel” or any derivations thereof as part of their respective
names;
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In
the event a party is contesting or defending any matter arising out
of the
Asset Sale, the other party will cooperate with the contesting or
defending party;
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Sellers
shall not do anything that would harm the business relationships
between
its customers, suppliers and other business associates and Buyer
after
closing the Asset Sale;
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For
a period of five years from and after the Asset Sale, Sellers shall
not
compete in any business that the Company’s Cash Security business conducts
as of the closing of the Asset Sale and shall not solicit any employee
of
Buyer to leave the employment of Buyer or solicit any customer or
potential customer of Buyer to cease or reduce its business with
Buyer;
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Buyer
shall undertake and have the sole right to direct on behalf of itself
and
Sellers, the defense of ongoing litigation involving Engineering
with
counsel of its choice, provided that in the event Sellers shall incur
any
adverse consequences in connection with the litigation subsequent
to the
Asset Sale, then Buyer shall indemnify Sellers from and against the
entirety of any such adverse consequences to the extent they are
incurred
as a result of the breach of the Asset Purchase Agreement or the
negligent
action or inaction of Sellers;
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All
rights to indemnification or exculpation now existing in favor of
the
employees, agents, directors or officers of Tidel and its subsidiaries
in
effect on the date of the Asset Purchase Agreement will continue
in full
force and effect for a period of six years after the Asset Sale;
and
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Tidel,
for a period of six years after the Asset Sale, will maintain directors’
and officers’ and fiduciaries’ liability insurance covering the officers
and directors of Tidel and its subsidiaries as of the date of the
Asset
Purchase Agreement on comparable terms and coverage as is in effect
for
the officers and directors of Tidel and its subsidiaries on the date
of
the Asset Sale and if Tidel is dissolved prior to the termination
of this
six year period, Tidel shall first have extended and paid Tidel’s
directors’ and officers’ and fiduciaries’ liability insurance policy on
commercially reasonable terms for all directors and officers of Tidel
as
of the date of the Asset Purchase
Agreement.
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Exclusivity;
No Solicitation
of
Transactions
Sellers
have agreed that neither they nor any of their representatives shall solicit
or
facilitate any acquisition proposal relating to the Cash Security business,
or
afford access to the business, properties, assets, books or records of Sellers
or cooperate in any way with any third party that is seeking to make an
acquisition proposal relating to the Cash Security business. Sellers have also
agreed to immediately cease and cause to be terminated any and all existing
activities, discussions or negotiations with any third party conducted prior
to
the date of the Asset Purchase Agreement.
For
purposes of the Asset Purchase Agreement, an “acquisition proposal” includes any
transaction other than the conversion of Seller’s debt by Laurus, any offer,
tender offer, proposal or inquiry relating to, or any third party indication
of
interest in, any acquisition of any Seller’s assets or over five percent of any
class of equity or voting securities of Sellers or their subsidiaries, or a
merger, business combination or other similar transaction involving Sellers
or
any their subsidiaries, or any other transaction the consummation of which
could
reasonably be expected to impede, interfere with, prevent or materially delay
the Asset Sale.
Notwithstanding
the agreement granting Buyer exclusive rights to consummate the purchase of
the
Cash Security business, provided Sellers are in compliance with the exclusivity
agreement with Buyer, the Asset Purchase Agreement allows the Company’s board of
directors to engage in discussions with, and provide non public information
to,
a third party that has made a superior proposal concerning the Cash Security
business, so long as Buyer is also furnished with such nonpublic information.
Following receipt of such a superior proposal, the Company’s board of directors
may fail to make, withdraw or modify in a manner adverse to Buyer its
recommendation to its stockholders to support the Asset Sale, and may submit
such superior proposal to a vote of its stockholders if a majority of its
non-affiliated directors determine in good faith, after considering written
advice of outside legal counsel and the financial advisor to the Company’s board
of directors that the board must take such action to comply with its fiduciary
duties under applicable law. In addition, the Company must keep Buyer informed
on a current basis as to the status of any superior proposal and notify Buyer
promptly, but in no event later than 24 hours, after receipt by Buyer of any
acquisition proposal.
In
the
event the Company receives a superior proposal, the Company and its board of
directors may not negotiate in respect of such superior proposal and do the
other things described in the preceding paragraph until the Company has
negotiated in good faith with Buyer with respect to the terms of the
transactions contemplated by the Asset Purchase Agreement for a period of 10
business days from the date Buyer receives written notice of all material terms
and conditions of the Superior Proposal (including any documents related
thereto). In the event the Company subsequently receives any amendments or
changes to such Superior Proposal, the Company and its board of directors shall
not take any of the actions described in the preceding paragraph until the
Company has negotiated in good faith with Buyer with respect to the terms of
the
transactions contemplated by the Asset Purchase Agreement for a period of 10
business days from the date Buyer receives written notice of all material terms
and conditions of such original superior proposal, as amended or changed
(including any documents related thereto) and such written notice shall specify
if the Company and its board of directors intend to take any actions described
in the preceding paragraph.
For
purposes of the Asset Purchase Agreement, a “superior proposal” means any bona
fide, unsolicited written acquisition proposal on terms that a majority of
the
Company’s non-affiliated directors determine in good faith are more favorable
and provide greater value to all of the Company’s stockholders than as provided
under the Asset Purchase Agreement and which is reasonably likely to be
consummated on such terms and for which financing, to the extent required,
is
then fully committed.
Under
the
Asset Purchase Agreement, the Company has agreed:
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to
duly call, give notice of, convene and hold a meeting of our stockholders
as soon as reasonably practicable for the purpose of voting on the
approval and adoption of the Asset Purchase Agreement and transactions
contemplated under it, including the
Amendment;
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to
promptly prepare and file with the SEC, use its commercially reasonable
best efforts to have cleared by the SEC and thereafter mail to its
stockholders as promptly as practicable, a proxy statement and all
other
proxy materials for such meeting;
|
|
·
|
to
use its commercially reasonable best efforts to obtain the necessary
approvals by its stockholders of the Asset Purchase Agreement and
the
transactions contemplated thereby and the Amendment;
and
|
|
·
|
to
hire MacKenzie Partners, Inc., or another proxy solicitor of equivalent
stature, to assist the Company in the solicitation of votes and proxies
for the stockholder meeting.
|
Laurus
has entered into and the Company’s executive officers and directors has entered
into voting agreements with Buyer under which Laurus and the Company’s executive
officers and directors have agreed to vote the shares of Company common stock
that such person’s own and control in favor of the Asset Purchase Agreement and
the Amendment at the meeting of the Company’s stockholders called to approve and
adopt the Asset Purchase Agreement.
The
obligations of Buyer to effect the Asset Sale are subject to the satisfaction
of
the following conditions:
|
·
|
the
representations and warranties of Sellers in the Asset Purchase Agreement
shall be true and correct in all material
respects;
|
|
·
|
Sellers
shall have performed and complied with all of the covenants in the
Asset
Purchase Agreement in all material
respects;
|
|
·
|
Sellers
shall have procured all of the third-party consents required to be
obtained in connection with the Asset
Sale;
|
|
·
|
no
action, suit, or proceeding shall be pending or threatened in respect
of
the Asset Sale;
|
|
·
|
no
material adverse effect shall have
occurred;
|
|
·
|
there
shall not have been an adverse change or impact with respect to Sellers
or
Buyer in connection with ongoing
litigation;
|
|
·
|
stockholders
holding at least a majority of our common stock outstanding at the
close
of business on the record date shall have approved the Asset Purchase
Agreement and the Amendment;
|
|
·
|
Sellers
shall have delivered the assets to be acquired by Buyer under the
Asset
Sale, free of all liens and shall provided Buyer with evidence of
the
release of all liens affecting such
assets;
|
|
·
|
Sellers,
Tidel Cash Systems, Inc. and Tidel Services, Inc. shall have changed
their
respective names such that they do not contain the terms “Tidel” or
“Sentinel” or any derivations thereof and shall have provided to Buyer
evidence thereof reasonably satisfactory to Buyer;
and
|
|
·
|
Sellers
shall have terminated the employment agreements of its executive
officers
on terms reasonably satisfactory to
Buyer.
|
Conditions
to Obligations
of the
Sellers
The
obligation of the Sellers to effect the Asset Sale is subject to the
satisfaction of the following additional conditions:
|
·
|
the
representations and warranties of Buyer in the Asset Purchase Agreement
shall be true and correct in all material
respects;
|
|
·
|
Buyer
shall have performed and complied with all of the covenants in the
Asset
Purchase Agreement in all material
respects;
|
|
·
|
no
action, suit, or proceeding shall be pending or threatened in respect
of
the Asset Sale; and
|
|
·
|
stockholders
holding at least a majority of our common stock outstanding at the
close
of business on the record date shall have approved the Asset Purchase
Agreement and the Amendment.
|
Either
Sellers or Buyer may elect to waive conditions to their respective performance
and complete the Asset Sale. As of the date of this proxy statement neither
Sellers nor Buyer is aware of any material uncertainty as to any of the
conditions to the completion of the Asset Sale.
The
Asset
Purchase Agreement may be terminated and the Asset Sale may be abandoned at
any
time prior to the closing of the Asset Sale:
|
·
|
by
mutual written consent of the
parties;
|
|
·
|
by
either Sellers or Buyer, as the case may be, upon giving written
notice to
Sellers in the case of Buyer, and to Buyer in the case of Sellers,
in the
event (A) Sellers in the case of Buyer, and Buyer in the case of
Sellers,
have breached any representation, warranty, or covenant contained
in the
Asset Purchase Agreement in any material respect, and the terminating
party has notified the breaching party of the breach, and the breach
has
continued without cure for a period of 30 days after the notice of
breach
or if (B) the Asset Sale shall not have occurred on or before the
eight-month anniversary of the Asset Purchase
Agreement;
|
|
·
|
by
Buyer by written notice to Sellers if Sellers, contrary to the terms
of
the Asset Purchase Agreement, fail to deal exclusively with Buyer
in
respect of the sale of the Company’s Cash Security business or fail to
file a proxy and recommend the Asset Sale to a stockholders’ meeting of
the Company; or
|
|
·
|
by
Buyer by written notice to Sellers if a majority of the Company’s
non-affiliated directors shall have failed to make or have withdrawn
their
recommendation of the Asset Purchase Agreement or the transactions
contemplated thereby or shall have approved or recommended an alternative
acquisition proposal.
|
Laurus
has entered into a voting agreement with Buyer under which it has agreed to
vote
all of the shares of Tidel common stock that its owns, and any shares over
which
they exercise voting control, in favor of the approval and adoption of the
Asset
Purchase Agreement and related transactions, including the Amendment, and
against any competing transactions proposed to the Company’s stockholders. The
full text of the voting agreement, the first amendment thereto, and the second
amendment thereto is included as an exhibit to our Current Report on Form 8-K/A
filed January 31, 2006, our Current Report on Form 8-K filed March 7, 2006
and
our Current Report on Form 8-K filed June 14, 2006, respectively, which are
incorporated by reference into this proxy statement. A copy of the voting
agreement, as amended, is distributed with this proxy statement.
Officer
and Director Voting
Agreement
Our
officers and directors have entered into a voting agreement with Buyer under
which each of these persons has agreed to vote, and has granted a proxy to
Buyer
for this purpose, all of their shares of Tidel common stock that they own and
any shares over which they exercise voting control in favor of the approval
and
adoption of the Asset Purchase Agreement and related transactions, including
the
Amendment, and against any competing transactions proposed to the Company’s
stockholders. The full text of the voting agreement is included as an exhibit
to
our Current Report on Form 8-K/A filed January 31, 2006 which is incorporated
by
reference into this proxy statement. A copy of this voting agreement is
distributed with this proxy statement.
In
the
event a parent payment event occurs, the Company has agreed to pay Buyer
$400,000, within two business days, in addition to any damages to which it
may
be entitled to under the Asset Purchase Agreement.
The
Asset
Purchase Agreement defines a parent payment event as the termination of the
Asset Purchase Agreement in the event the Sellers (A) fail to deal exclusively
with Buyer in respect of the sale of the Company’s Cash Security business or to
file a proxy and recommend the Asset Sale to a stockholders’ meeting of the
Company, or (B) consummate, publicly announce, or execute documentation
providing for any acquisition proposal other than the Asset Sale pursuant to
the
terms of the Asset Purchase Agreement, provided that such consummation,
announcement or execution occurs prior to the 18-month anniversary of the date
of the termination of the Asset Purchase Agreement.
The
Asset
Purchase Agreement may be amended by the parties thereto in writing at any
time
before or after approval and adoption of the Asset Purchase Agreement by the
stockholders of the Company, but, after any such approval and adoption, no
amendment will be made that by law requires further approval by the Company’s
stockholders without first obtaining such approval.
Until
the
closing of the Asset Sale, the parties may, to the extent legally
allowed:
|
·
|
extend
the time for the performance of any of the obligations or other acts
of
the other parties in the Asset Purchase
Agreement;
|
|
·
|
waive
in writing any inaccuracies in the representations and warranties
contained in the Asset Purchase Agreement and the disclosure schedules
to
the Asset Purchase Agreement; and
|
|
·
|
waive
in writing compliance with any of the agreements or conditions contained
in the Asset Purchase Agreement.
|
We
have
not paid any dividends in the past two years, and do not anticipate paying
dividends in the foreseeable future. Since November 25, 2003, we have been
restricted from paying dividends pursuant to our financing arrangements with
Laurus.
Upon
the
Asset Sale, two of our current directors, Mark K. Levenick and
Raymond P. Landry, will resign from our board of directors and, by action
of our board of directors, we will amend our bylaws to reduce the size of our
board of directors to two directors.
SECURITY
OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The
following table and the notes thereto set forth certain information regarding
the beneficial ownership of the Company’s common stock as of the record date,
by:
|
·
|
each
current director of the Company;
|
|
·
|
the
chief executive officer and the four other most highly compensated
executive officers whose salary and bonus for the fiscal year ended
September 30, 2005 were in excess of $100,000 (collectively, the
“named
executive officers”).
|
|
·
|
all
named executive officers and directors of the Company as a group;
and
|
|
·
|
each
other person known to the Company to own beneficially more than five
percent of the outstanding Common
Stock.
|
Laurus
entered into the exercise and conversion agreement as of January 12, 2006
pursuant to which Laurus converted, on January 13, 2006, $5.4 million of our
outstanding indebtedness that it held into 18,000,000 shares of our common
stock. The
exercise and conversion agreement, as subsequently amended, provides that
if
the
Asset Sale does not occur by September 30, 2006, Tidel will immediately redeem
from Laurus the 18,000,000 shares of our common stock issued to
Laurus
on
January 13, 2006. Pursuant
to the terms of a stock redemption agreement we entered into with Laurus as
of
January 12, 2006, and subsequently amended, we agreed to redeem from Laurus,
upon the closing of the Asset Sale, all 19,251,000 shares of our common stock
held by Laurus at a per share price of not less than $.20 nor greater than
$.34,
or an estimated aggregate redemption amount between $3.9 million and $6.5
million, following the determination of our assets in accordance with the
formula set forth therein. For more detailed information concerning these
transactions with Laurus see “Special Factors -- Laurus Stock Redemption” and
“Related Party Transactions.” Pursuant to the terms of the stock redemption
agreement with Laurus, Laurus has agreed (i) to the cancellation as of the
closing of the Asset Sale of the outstanding warrants that it holds to purchase
4,750,000 shares of our common stock at an exercise price of $.30 per share,
and
(ii) not to exercise such warrants prior to the earlier to occur of September
30, 2006 and the date on which the Asset Purchase Agreement is
terminated.
The
Company has determined beneficial ownership in accordance with the rules of
the
SEC. The number of shares beneficially owned by a person includes shares of
common stock of the Company that are subject to stock options that are either
currently exercisable or exercisable within 60 days following August 25, 2006.
These shares are also deemed outstanding for the purpose of computing the
percentage of outstanding shares owned by the person. However, these shares
are
not deemed outstanding for the purpose of computing the percentage ownership
of
any other person. Unless otherwise indicated, to the Company’s knowledge, each
stockholder has sole voting and dispositive power with respect to the securities
beneficially owned by that stockholder. Unless a footnote indicates otherwise,
the address of each person listed below is c/o Tidel Technologies, Inc., 2900
Wilcrest Drive, Suite 105, Houston, Texas 77042. As of the record date, there
were 38,677,210 shares of common stock of the Company outstanding.
Name
and Address of Beneficial Owner
|
|
Amount
and Nature of Beneficial
Ownership
|
|
Percent
of
Class(1)
|
|
Laurus
Master Fund, Ltd
|
|
|
19,251,000
|
|
|
(2)
|
|
|
49.8
|
%
|
Mark
K. Levenick
|
|
|
390,000
|
|
|
(3)
|
|
|
1.0
|
%
|
Jerrell
G. Clay
|
|
|
181,405
|
|
|
|
|
|
*
|
|
Raymond
P. Landry
|
|
|
38,500
|
|
|
|
|
|
*
|
|
Stephen
P. Griggs
|
|
|
—
|
|
|
|
|
|
*
|
|
Robert
D. Peltier
|
|
|
—
|
|
|
|
|
|
*
|
|
Directors
and Executive Officers
as a group (5 persons) (4)
|
|
|
609,905
|
|
|
|
|
|
1.6
|
%
|
(1) |
Based
upon 38,677,210 shares outstanding as of the record
date.
|
(2) |
The
number of shares currently beneficially owned by Laurus as of the
record
date is reflected above. On January 13, 2006, Laurus converted $5.4
million in aggregate principal amount of convertible Sellers’ debt it held
into 18,000,000 shares of our common stock pursuant to the terms
of the
underlying debt and the exercise and conversion agreement. The exercise
and conversion agreement also provides that if the Asset Sale does
not
occur by September 30, 2006, Tidel will immediately redeem from Laurus
the
18,000,000 shares of our common stock issued to Laurus on January
13,
2006. For more information on these transactions with Laurus see
“Related
Party Transactions” and “Special Factors.” The address of Laurus is c/o
M&C Corporate Services Ltd., P.O. Box 309 GT, Ugland House, South
Church Street, George Town, Grand Cayman, Cayman
Islands.
|
(3) |
Includes
275,000 shares which could be acquired within 60 days upon exercise
of
outstanding options at exercise prices of (i) $1.25 per share as
to
100,000 shares, (ii) $1.875 per share as to 75,000 shares and (iii)
$2.50
per share as to 100,000 shares.
|
(4) |
A
former executive officer, Michael F. Hudson, accepted a new employment
position on January 1, 2006 with the purchaser of our ATM division
and
terminated his employment with Sellers. No shares held by Mr. Hudson
are included on the above table.
|
RELATED
PARTY TRANSACTIONS
Laurus
We
entered into the exercise and conversion agreement with Laurus pursuant to
which
Laurus converted on January 13, 2006 $5.4 million of our outstanding
indebtedness it held into 18,000,000 shares of our common stock. Following
Laurus’ conversion of such debt, Laurus holds 19,251,000 shares, representing
approximately 49.8% of our outstanding shares of common stock. We subsequently
amended and extended the exercise and conversion agreement on each of February
28, 2006 and June 9, 2006.
On
January 13, 2006, we repaid all of our remaining outstanding debt to Laurus
in
the principal amount of $2,617,988 plus accrued but unpaid interest in the
amount of $113,333. In connection therewith, we paid a prepayment penalty to
Laurus in the amount of $59,180. The 2004 Laurus Fee Agreement requires the
prepayment of this debt.
In
addition, we entered into a stock redemption agreement with Laurus dated as
of
January 12, 2006 and subsequently amended and extended on each of February
28,
2006 and June 9, 2006, under which we have agreed to redeem from Laurus, upon
the closing of the Asset Sale, all 19,251,000 shares of our common stock held
by
Laurus at a per share price of not less than $.20 nor greater than $.34, or
an
estimated aggregate redemption amount between $3.9 million and $6.5 million
following the determination of our assets in accordance with a formula set
forth
in the stock redemption agreement. See “Special Factors -- Laurus Stock
Redemption” for a more detailed description of the proposed redemption of our
shares held by Laurus.
Following
the share redemption under the Laurus stock redemption agreement, Laurus will
cease to hold any equity interest in the Company or to be in a position to
control the Company. Pursuant to the terms of the stock redemption agreement
with Laurus, Laurus has agreed (i) to the cancellation as of the closing of
the
Asset Sale of the outstanding warrants that it holds to purchase 4,750,000
shares of our common stock at an exercise price of $.30 per share, and (ii)
not
to exercise such warrants prior to the earlier to occur of September 30, 2006
and the date on which the Asset Purchase Agreement is terminated.
If
the
Asset Sale does not occur by September 30, 2006, then pursuant to the terms
of
the exercise and conversion agreement, as amended, we entered into with Laurus,
we have agreed to immediately redeem from Laurus the 18,000,000 shares of our
common stock issued to Laurus at a conversion price of $.30 per share, or $5.4
million in the aggregate.
We
and
Laurus also entered into a cash collateral deposit letter, and a reaffirmation,
ratification and confirmation agreement, each dated as of January 12, 2006.
Pursuant to the cash collateral deposit letter, we agreed that a portion of
the
$8,200,000 of proceeds, or the deposit amount, from the January 2006 sale of
our
automated teller machine business that were on deposit with Laurus for repayment
of outstanding Company indebtedness to Laurus would be applied to repay all
amounts owing to Laurus under (i) the portion of the note, dated November 25,
2003, in the initial principal amount of $6,450,000, together with an additional
$292,987 principal amount added thereto on November 26, 2004, remaining after
Laurus’ conversion of $5.4 million of outstanding indebtedness it held into
shares of our common stock, (ii) a convertible term note, dated November 26,
2004 in the aggregate principal amount of $600,000, which was convertible into
shares of common stock of the Company at a conversion price of $0.30 per share
and (iii) a convertible term note, dated November 26, 2004, in the aggregate
principal amount of $1,500,000, which was convertible into shares of common
stock of the Company at a conversion price of $3.00 per share, collectively,
the
notes. Thereafter, the notes were deemed to have been indefeasibly repaid and
the deposit amount was reduced to $5,330,507. Under the cash collateral deposit
letter, such remaining deposit amount together with an additional cash deposit
of $69,493 from the Company, or an aggregate amount of $5.4 million, will be
used as collateral to secure our obligations to Laurus under, among other
things, the stock redemption agreement and the exercise and conversion
agreement. Pursuant to the reaffirmation, ratification and confirmation
agreement, we acknowledged and reaffirmed our obligation to pay to Laurus
simultaneously with the closing of the Asset Sale the fees pursuant to the
2004
Laurus Fee Agreement. On June 9, 2006, we entered into the 2006 Laurus Agreement
with Laurus under which we agreed that upon the payment of the $8,508,963 sale
fee to Laurus upon the consummation of the Asset Sale and the redemption
pursuant to the stock redemption agreement of all shares of Tidel common stock
held by Laurus, all obligations of Tidel to Laurus would be satisfied in full
including all fees payable under the 2004 Laurus Fee Agreement. See “Special
Factors -- Fee Payable to Laurus” for a more detailed description of fees
payable to Laurus.
At
the
request of Buyer, Tidel has entered into voting agreements with our officers
and
directors and with Laurus under which those officers and directors who are
Tidel
stockholders and Laurus have agreed to vote all of the shares of Tidel common
stock that such party owns and any shares over which it exercises voting control
in favor of the approval and adoption of the Asset Purchase Agreement and the
Asset Sale.
Raymond
P. Landry, a member of our Board, has provided certain financial consulting
services to the Company totaling $106,422 during fiscal year 2005.
Robert
D.
Peltier was appointed Interim Chief Financial Officer in February 2005. Mr.
Peltier is the nephew of Raymond P. Landry, one of our current directors. We
have used the services of a printing company in which Mr. Peltier has an
interest. We believe that the approximately $86,000 in fees paid to the printing
company are comparable to fees that would be paid to another printing company
for comparable services rendered in an arms-length transaction.
Following
board approval on July 7, 2006, the Company made a payment of $100,000 to each
of the three non-employee directors of the Company, Raymond P. Landry, Stephen
P. Griggs, and Jerrell G. Clay, in recognition of the extraordinary efforts
of,
and time spent by, such directors over the past two years in connection with
Tidel business matters, including without limitation, the sale of the Company’s
ATM business division to NCR Corporation and exploring strategic alternatives
regarding our Cash Security business, and helping guide the Company following
the serious illness and subsequent death of its former Chief Executive
Officer.
Laurus
or
its affiliates may provide financing to Buyer in respect of the Asset Sale.
See
“Special Factors -- Financing -- Buyer Financing.”
Tidel’s
stockholders will not experience any change in their rights as stockholders
as a
result of the Asset Sale. Neither Delaware law, Tidel’s certificate of
incorporation nor Tidel’s bylaws provides for appraisal or other similar rights
for dissenting stockholders in connection with the Asset Sale. Accordingly,
Tidel’s stockholders will have no right to dissent and obtain payment for their
shares.
APPROVAL
OF AMENDMENT TO CERTIFICATE
OF INCORPORATION
(PROPOSAL 2)
The
Asset
Purchase Agreement requires that prior to closing the Asset Sale, the Company
file an amendment to its certificate of incorporation to change its name such
that it does not contain the terms “Tidel” or “Sentinel” or any derivations
thereof. Our board of directors has proposed that the Company’s name be changed
from “Tidel Technologies, Inc.” to “Secure Alliance Holdings Corporation”, and
at the special meeting, you will be asked to approve an amendment to our
certificate of incorporation to implement this change. The proposed amendment
provides that if the name “Secure Alliance Holdings Corporation” is not
available in Delaware, we will be authorized to change the name to “Sentry Group
Holdings Corporation” instead.
A
copy of
the proposed certificate of amendment is attached as Annex C to this proxy
statement. You are urged to read the certificate of amendment carefully as
it is
the legal document that governs the amendment to our certificate of
incorporation. Although we are asking for stockholder approval of this proposal,
if for any reason the Asset Sale is not completed, this proposal will not be
implemented.
The
approval of the Amendment requires the approval of the holders of a majority
of
our outstanding shares of common stock. Shares that are voted “FOR” or “AGAINST”
the proposal or marked “ABSTAIN” will be counted towards the vote requirement.
Broker non-votes, if any, will not be counted towards the vote requirement.
Laurus and our officers and directors have agreed to vote an aggregate of
19,860,905 shares, representing approximately 51.4% of the shares of our common
stock entitled to vote at the special meeting, in favor of the approval and
adoption of the Amendment. Such votes are sufficient to approve and adopt the
Amendment, regardless of the vote of any other person.
Recommendation
of our Board of
Directors
Our
board
of directors (with interested directors abstaining) has concluded unanimously
that the Amendment is in the best interests of our stockholders and recommends
that our stockholders approve this proposal.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2.
ADJOURNMENT
OF THE SPECIAL MEETING (PROPOSAL
3)
Tidel
may
ask its stockholders to vote on a proposal to adjourn the special meeting,
if
necessary or appropriate, in order to allow for the solicitation of additional
proxies if there are insufficient votes at the time of the meeting to approve
and adopt the Asset Purchase Agreement and the Amendment.
The
approval of the adjournment proposal requires the approval of the holders of
a
majority of the shares of common stock voting at the special meeting. Shares
that are voted “FOR” or “AGAINST” the proposal will be counted towards the vote
requirement. Neither broker “non-votes” nor abstentions are included in the
tabulation of the voting results and, therefore, they do not have the effect
of
votes against such proposal.
Recommendation
of our Board of
Directors
Our
board
of directors (with interested directors abstaining) has concluded unanimously
that the adjournment proposal is in the best interests of our stockholders
and
recommends that our stockholders approve this proposal.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL
3.
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL
DATA
The
following tables set forth selected historical consolidated financial data
for
Tidel Technologies, Inc. as of the dates and for the periods indicated. The
consolidated balance sheet data and the consolidated operations data for fiscal
years 2001 through 2005 have been derived from our audited consolidated
financial statements included in our filings on Form 10-K for each of the
respective periods. This data should be read in conjunction with our filings
on
Form 10-K for each of the respective periods.
|
|
Years
Ended September 30,
|
|
SELECTED
STATEMENT OF OPERATIONS DATA:(1)
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
Net
income (loss)(2)
|
|
$
|
(3,286
|
)
|
$
|
11,318
|
|
$
|
(9,237
|
)
|
$
|
(14,078
|
)
|
$
|
(25,942
|
)
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(.16
|
)
|
|
.65
|
|
|
(0.53
|
)
|
|
(0.81
|
)
|
|
(1.49
|
)
|
Diluted
|
|
|
(.16
|
)
|
|
.37
|
|
|
(0.53
|
)
|
|
(0.81
|
)
|
|
(1.49
|
)
|
|
|
As
of September 30,
|
|
SELECTED
BALANCE SHEET DATA:(1)
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
Current
assets
|
|
$
|
16,908
|
|
$
|
10,129
|
|
$
|
11,773
|
|
$
|
17,263
|
|
$
|
28,797
|
|
Current
liabilities
|
|
|
13,177
|
|
|
8,190
|
|
|
32,109
|
|
|
28,487
|
|
|
28,547
|
|
Working
capital (deficit)
|
|
|
3,731
|
|
|
1,939
|
|
|
(20,336
|
)
|
|
(11,224
|
)
|
|
250
|
|
Total
assets
|
|
|
17,537
|
|
|
10,778
|
|
|
14,430
|
|
|
19,907
|
|
|
33,837
|
|
Total
short-term notes payable and long-term debt (net of
discount)
|
|
|
4,421
|
|
|
175
|
|
|
2,279
|
|
|
20,000
|
|
|
23,424
|
|
Shareholders’
equity (deficit)
|
|
|
2,263
|
|
|
2,588
|
|
|
(17,679
|
)
|
|
(8,580
|
)
|
|
5,194
|
|
(1)
|
All
amounts are in thousands, except per share dollar
amounts.
|
(2)
|
Income
tax expense (benefit) was $0, $(81,229), $0, $(293,982), and $(3,416,030),
for the years ended September 30, 2005, 2004, 2003, 2002 and 2001,
respectively.
|
The
following condensed consolidated balance sheets and condensed consolidated
statements of operations, comprehensive income (loss) and cash flows as of
June
30, 2006 and the periods then ended have been derived from and should be read
in
conjunction with our filing on Form 10-Q for the quarterly period ended June
30,
2006.
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June
30, 2006
|
|
September
30, 2005
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,890,257
|
|
$
|
1,003,663
|
|
Restricted
cash
|
|
|
5,400,000
|
|
|
—
|
|
Marketable
securities - available-for-sale
|
|
|
881,414
|
|
|
—
|
|
Trade
accounts receivable, net
|
|
|
—
|
|
|
250,000
|
|
Notes
and other receivables
|
|
|
13,890
|
|
|
12,965
|
|
Prepaid
expenses and other
|
|
|
41,711
|
|
|
170,231
|
|
Assets
held for sale, net of accumulated depreciation of $1,327,408 and
$5,236,167, respectively
|
|
|
5,263,786
|
|
|
15,471,113
|
|
Total
current assets
|
|
|
17,491,058
|
|
|
16,907,972
|
|
Property
and equipment, at cost
|
|
|
—
|
|
|
55,641
|
|
Accumulated
depreciation
|
|
|
—
|
|
|
(42,848
|
)
|
Net
property and equipment
|
|
|
—
|
|
|
12,793
|
|
Other
assets
|
|
|
4,000
|
|
|
615,763
|
|
Total
assets
|
|
$
|
17,495,058
|
|
$
|
17,536,528
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
—
|
|
$
|
2,325,000
|
|
Accounts
payable
|
|
|
312,206
|
|
|
431,876
|
|
Accrued
interest payable
|
|
|
2,000,000
|
|
|
2,135,852
|
|
Shares
subject to redemption
|
|
|
5,400,000
|
|
|
—
|
|
Other
accrued expenses
|
|
|
300,000
|
|
|
290,871
|
|
Liabilities
related to assets held for sale
|
|
|
3,194,091
|
|
|
7,993,154
|
|
Total
current liabilities
|
|
|
11,206,297
|
|
|
13,176,753
|
|
Long-term
debt, net of current maturities and debt discount of $3,746,531
at
September 30, 2005
|
|
|
—
|
|
|
2,096,457
|
|
Total
liabilities
|
|
|
11,206,297
|
|
|
15,273,210
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, authorized 100,000,000 shares; issued and
outstanding 38,677,210 shares and 20,677,210 shares,
respectively
|
|
|
386,772
|
|
|
206,772
|
|
Additional
paid-in capital
|
|
|
30,782,187
|
|
|
30,962,187
|
|
Accumulated
deficit
|
|
|
(25,461,612
|
)
|
|
(28,905,810
|
)
|
Accumulated
other comprehensive income
|
|
|
581,414
|
|
|
169
|
|
Total
shareholders’ equity
|
|
|
6,288,761
|
|
|
2,263,318
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
17,495,058
|
|
$
|
17,536,528
|
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three
Months Ended June 30,
|
|
Nine
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
662,730
|
|
|
652,007
|
|
|
2,655,647
|
|
|
1,334,541
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
1,421
|
|
|
2,678
|
|
|
3,592
|
|
Operating
(loss)
|
|
|
(662,730
|
)
|
|
(653,428
|
)
|
|
(2,658,325
|
)
|
|
(1,338,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on investment in 3CI
|
|
|
4,210,577
|
|
|
—
|
|
|
4,210,577
|
|
|
—
|
|
Interest
income (expense), net
|
|
|
21,960
|
|
|
(1,160,459
|
)
|
|
(4,173,612
|
)
|
|
(5,399,974
|
)
|
Gain
on collection of receivable
|
|
|
—
|
|
|
—
|
|
|
598,496
|
|
|
—
|
|
Gain
on CCC bankruptcy settlement
|
|
|
—
|
|
|
—
|
|
|
105,000
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
(7,455
|
)
|
|
—
|
|
Total
other income (expense)
|
|
|
4,232,537
|
|
|
(1,160,459
|
)
|
|
733,006
|
|
|
(5,399,974
|
)
|
Income
(loss) before taxes
|
|
|
3,569,807
|
|
|
(1,813,887
|
)
|
|
(1,925,319
|
)
|
|
(6,738,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income
(loss) from continuing operations
|
|
|
3,569,807
|
|
|
(1,813,887
|
)
|
|
(1,925,319
|
)
|
|
(6,738,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) discontinued operations
|
|
|
683,119
|
|
|
700,739
|
|
|
1,833,411
|
|
|
3,337,763
|
|
Additional
costs incurred on sale of ATM business
|
|
|
(76,403
|
)
|
|
—
|
|
|
(76,403
|
)
|
|
—
|
|
Gain
(loss) on sale of ATM business
|
|
|
—
|
|
|
—
|
|
|
3,612,509
|
|
|
—
|
|
Total
income from discontinued operations
|
|
|
606,716
|
|
|
700,739
|
|
|
5,369,517
|
|
|
3,337,763
|
|
Net
income (loss)
|
|
$
|
4,176,523
|
|
$
|
(1,113,148
|
)
|
$
|
3,444,198
|
|
$
|
(3,400,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.09
|
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
$
|
(0.33
|
)
|
Income
from discontinued operations
|
|
|
0.02
|
|
|
0.03
|
|
|
0.17
|
|
|
0.17
|
|
Net
income (loss)
|
|
$
|
0.11
|
|
$
|
(0.06
|
)
|
$
|
0.11
|
|
$
|
(0.16
|
)
|
Weighted
average basic common shares outstanding
|
|
|
38,677,210
|
|
|
20,677,210
|
|
|
31,754,133
|
|
|
20,163,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.09
|
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
$
|
(0.33
|
)
|
Income
from discontinued operations
|
|
|
0.02
|
|
|
0.03
|
|
|
0.17
|
|
|
0.17
|
|
Net
income (loss)
|
|
$
|
0.11
|
|
$
|
(0.06
|
)
|
$
|
0.11
|
|
$
|
(0.16
|
)
|
Weighted
average common and dilutive shares outstanding
|
|
|
38,710,044
|
|
|
20,677,210
|
|
|
31,786,967
|
|
|
20,163,250
|
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
Three
Months Ended June 30,
|
|
Nine
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
Income (loss)
|
|
$
|
4,176,523
|
|
$
|
(1,113,148
|
)
|
$
|
3,444,198
|
|
$
|
(3,400,344
|
)
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities available-for-sale
|
|
|
581,414
|
|
|
—
|
|
|
581,414
|
|
|
—
|
|
Unrealized
gain (loss) on investment in 3CI
|
|
|
—
|
|
|
(139,778
|
)
|
|
90,855
|
|
|
42,082
|
|
Comprehensive
income (loss)
|
|
$
|
4,757,937
|
|
$
|
(1,252,926
|
)
|
$
|
4,116,467
|
|
$
|
(3,358,262
|
)
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,444,198
|
|
$
|
(3,400,344
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,678
|
|
|
3,592
|
|
Amortization
of debt discount and financing costs
|
|
|
4,078,738
|
|
|
2,830,352
|
|
Gain
on disposal of investment in 3CI pursuant to class-action
settlement
|
|
|
(4,210,577
|
)
|
|
—
|
|
Gain
on sale of ATM business
|
|
|
(3,612,509
|
)
|
|
—
|
|
Other
|
|
|
7,455
|
|
|
—
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable, net
|
|
|
250,000
|
|
|
—
|
|
Notes
and other receivables
|
|
|
(925
|
)
|
|
989,552
|
|
Prepaid
expenses and other assets
|
|
|
128,520
|
|
|
18,041
|
|
Accounts
payable and accrued liabilities
|
|
|
(246,393
|
)
|
|
1,966,289
|
|
Net
cash flows used in discontinued operations
|
|
|
(1,716,566
|
)
|
|
(766,268
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
(1,875,381
|
)
|
|
1,641,214
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Proceeds
from class-action settlement on investment in 3CI
|
|
|
4,489,963
|
|
|
—
|
|
Proceeds
from sale of ATM business
|
|
|
10,440,000
|
|
|
—
|
|
Purchases
of property and equipment
|
|
|
—
|
|
|
(11,566
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
14,929,963
|
|
|
(11,566
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
|
—
|
|
|
2,100,000
|
|
Repayments
of notes payable
|
|
|
(2,767,988
|
)
|
|
(375,000
|
)
|
Borrowings
on revolver
|
|
|
1,204,391
|
|
|
2,251,203
|
|
Payments
on revolver
|
|
|
(1,204,391
|
)
|
|
(2,251,203
|
)
|
Increase
in restricted cash
|
|
|
(5,400,000
|
)
|
|
—
|
|
Increase
in deferred financing costs
|
|
|
—
|
|
|
(280,567
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(8,167,988
|
)
|
|
1,444,433
|
|
Net
increase in cash and cash equivalents
|
|
|
4,886,594
|
|
|
3,074,081
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
1,003,663
|
|
|
258,120
|
|
Cash
and cash equivalents at end of period
|
|
$
|
5,890,257
|
|
$
|
3,332,201
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
371,492
|
|
$
|
622,082
|
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
Conversion
of debt into common stock held for redemption
|
|
$
|
5,400,000
|
|
$
|
—
|
|
Discount
on issuance of debt with beneficial conversion premium and detachable
warrants
|
|
$
|
—
|
|
$
|
723,198
|
|
Issuance
of shares to lender in payment of fees
|
|
$
|
—
|
|
$
|
638,010
|
|
Issuance
of shares in connection with settlement of class-action
litigation
|
|
$
|
—
|
|
$
|
1,564,490
|
|
Unrealized
gain on 3CI investment
|
|
$
|
—
|
|
$
|
42,082
|
|
Unrealized
gain on marketable securities available-for-sale
|
|
$
|
581,414
|
|
$
|
—
|
|
Forgiveness
of trade receivable in exchange for investment in available-for-sale
securities
|
|
$
|
300,000
|
|
$
|
—
|
|
Due
to
the requirement to classify our only two product lines as discontinued
operations, the results of continuing operations consists of primarily of
corporate overhead and debt-related costs.
An
analysis of continuing operations and assets and liabilities is provided in
the
following tables:
CONTINUING
OPERATIONS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
June
30, 2006
|
|
September
30, 2005
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,890,257
|
|
$
|
1,003,663
|
|
Restricted
cash
|
|
|
5,400,000
|
|
|
—
|
|
Marketable
securities available-for-sale
|
|
|
881,414
|
|
|
—
|
|
Trade
accounts receivable, net of allowance of $0
|
|
|
—
|
|
|
250,000
|
|
Notes
and other receivables
|
|
|
13,890
|
|
|
12,965
|
|
Prepaid
expenses and other
|
|
|
41,711
|
|
|
170,231
|
|
Total
current assets
|
|
|
12,227,272
|
|
|
1,436,859
|
|
|
|
|
|
|
|
|
|
Property
and equipment, at cost
|
|
|
—
|
|
|
55,641
|
|
Accumulated
depreciation
|
|
|
—
|
|
|
(42,848
|
)
|
Net
property and equipment
|
|
|
—
|
|
|
12,793
|
|
|
|
|
|
|
|
|
|
Investment
in subsidiaries
|
|
|
(2,854,229
|
)
|
|
—
|
|
Due
from (to) subsidiaries
|
|
|
(40,957
|
) |
|
—
|
|
Other
assets
|
|
|
4,000
|
|
|
615,763
|
|
Total
assets
|
|
$
|
9,336,086
|
|
$
|
2,065,415
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current
maturities of long term debt
|
|
$
|
—
|
|
$
|
2,325,000
|
|
Accounts
payable
|
|
|
312,206
|
|
|
431,876
|
|
Accrued
interest payable
|
|
|
2,000,000
|
|
|
2,135,852
|
|
Shares
subject to redemption
|
|
|
5,400,000
|
|
|
—
|
|
Other
accrued expenses
|
|
|
300,000
|
|
|
290,871
|
|
Total
current liabilities
|
|
|
8,012,206
|
|
|
5,183,599
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current maturities and debt discount of $3,746,531 at
September 30, 2005
|
|
|
—
|
|
|
2,096,457
|
|
Total
liabilities
|
|
$
|
8,012,206
|
|
$
|
7,280,056
|
|
Continuing
Operations
An
analysis of continuing operations is as follows:
CONTINUING
OPERATIONS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Selling,
general and administrative
|
|
|
662,730
|
|
|
652,007
|
|
|
2,655,647
|
|
|
1,334,541
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
1,421
|
|
|
2,678
|
|
|
3,592
|
|
Operating
loss
|
|
|
(662,730
|
)
|
|
(653,428
|
)
|
|
(2,658,325
|
)
|
|
(1,338,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
21,960
|
|
|
(1,160,459
|
)
|
|
(4,173,612
|
)
|
|
(5,399,974
|
)
|
Gain
on investment in 3CI
|
|
|
4,210,577
|
|
|
—
|
|
|
4,210,577
|
|
|
—
|
|
Gain
on collection of receivable
|
|
|
—
|
|
|
—
|
|
|
598,496
|
|
|
—
|
|
Gain
on CCC bankruptcy settlement
|
|
|
—
|
|
|
—
|
|
|
105,000
|
|
|
—
|
|
Other
|
|
|
—
|
|
|
—
|
|
|
(7,455
|
)
|
|
—
|
|
Total
other income (expense)
|
|
|
4,232,537
|
|
|
(1,160,459
|
)
|
|
733,006
|
|
|
(5,399,974
|
)
|
Income
(loss) before taxes
|
|
|
3,569,807
|
|
|
(1,813,887
|
)
|
|
(1,925,319
|
)
|
|
(6,738,107
|
)
|
Income
tax expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income
(loss) from continuing operations
|
|
$
|
3,569,807
|
|
$
|
(1,813,887
|
)
|
$
|
(1,925,319
|
)
|
$
|
(6,738,107
|
)
|
Discontinued
Operations (ATM business)
An
analysis of the discontinued operations of the ATM business is as
follows:
The
following is a summary of the net assets sold related to the ATM business
as
initially determined at December 31, 2004 and as finally reported on the
closing
date of January 3, 2006:
|
|
January
3, 2006
|
|
December
31, 2004
|
|
Assets
held for sale:
|
|
|
|
|
|
Trade
accounts receivable (net of allowances for bad debt)
|
|
$
|
1,857,192
|
|
$
|
2,310,262
|
|
Inventories
(net of reserve or obsolescence)
|
|
|
7,126,918
|
|
|
7,323,439
|
|
Prepaid
expense and other assets
|
|
|
—
|
|
|
392,972
|
|
Property,
plant and equipment, at cost net of depreciation
|
|
|
79,056
|
|
|
121,525
|
|
Other
Assets
|
|
|
27,297
|
|
|
27,297
|
|
Total
assets held for sale
|
|
$
|
9,090,463
|
|
$
|
10,175,495
|
|
|
|
|
|
|
|
|
|
Liabilities
held for sale:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
1,627,748
|
|
|
1,681,288
|
|
Other
accrued expenses
|
|
|
636,174
|
|
|
1,814,634
|
|
Liabilities
held for sale
|
|
$
|
2,263,922
|
|
$
|
3,495,922
|
|
DISCONTINUED
OPERATIONS — ATM BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Three
Months Ended June 30,
|
|
Nine
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
Sales
|
|
$
|
—
|
|
$
|
4,734,044
|
|
$
|
3,847,874
|
|
$
|
11,833,366
|
|
Cost
of sales
|
|
|
—
|
|
|
3,650,721
|
|
|
2,592,268
|
|
|
8,550,479
|
|
Gross
Profit
|
|
|
—
|
|
|
1,083,323
|
|
|
1,255,606
|
|
|
3,282,887
|
|
Selling,
general and administrative
|
|
|
—
|
|
|
1,367,879
|
|
|
880,941
|
|
|
4,151,213
|
|
Depreciation
and amortization
|
|
|
—
|
|
|
48,355
|
|
|
46,048
|
|
|
194,281
|
|
Operating
income (loss)
|
|
|
—
|
|
|
(332,911
|
)
|
|
328,617
|
|
|
(1,062,607
|
)
|
Non-operating
(income) expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
—
|
|
$
|
(332,911
|
)
|
$
|
328,617
|
|
$
|
(1,062,607
|
)
|
There
were no operations from the ATM business during the quarter ended June
30,
2006.
Discontinued
Operations (Cash Security business)
An
analysis of the discontinued operations of the Cash Security business is
as
follows:
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
June
30,
2006
|
|
September
30, 2005
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
588,536
|
|
$
|
—
|
|
Trade
accounts receivable, net of allowance of approximately $92,447
and $7,500,
respectively
|
|
|
2,508,653
|
|
|
1,856,523
|
|
Inventories
|
|
|
1,523,863
|
|
|
3,137,818
|
|
Prepaid
expenses and other
|
|
|
80,923
|
|
|
198,057
|
|
Total
current assets
|
|
|
4,701,975
|
|
|
5,192,398
|
|
Property
and equipment, at cost
|
|
|
1,639,219
|
|
|
1,097,604
|
|
Accumulated
depreciation
|
|
|
(1,327,408
|
)
|
|
(1,020,015
|
)
|
Net
property and equipment
|
|
|
311,811
|
|
|
77,589
|
|
Other
assets
|
|
|
250,000
|
|
|
25,631
|
|
Total
assets
|
|
$
|
5,263,786
|
|
$
|
5,295,618
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current
maturities
|
|
$
|
3,929
|
|
$
|
1,852
|
|
Accounts
payable
|
|
|
973,006
|
|
|
1,397,394
|
|
Other
accrued expenses
|
|
|
2,196,174
|
|
|
3,069,278
|
|
Total
current liabilities
|
|
|
3,173,109
|
|
|
4,468,524
|
|
Long-term
debt, net of current maturities
|
|
|
20,982
|
|
|
28,708
|
|
Total
liabilities
|
|
$
|
3,194,091
|
|
$
|
4,497,232
|
|
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Three
Months Ended June 30,
|
|
Nine
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Net
Sales
|
|
$
|
4,256,773
|
|
$
|
5,310,146
|
|
$
|
11,986,516
|
|
$
|
16,568,457
|
|
Cost
of sales
|
|
|
2,464,820
|
|
|
2,993,849
|
|
|
7,292,291
|
|
|
8,984,878
|
|
Gross
Profit
|
|
|
1,791,953
|
|
|
2,316,297
|
|
|
4,694,225
|
|
|
7,583,579
|
|
Selling,
general and administrative
|
|
|
1,084,417
|
|
|
1,274,518
|
|
|
3,159,185
|
|
|
3,159,673
|
|
Depreciation
and amortization
|
|
|
23,972
|
|
|
7,560
|
|
|
28,685
|
|
|
22,308
|
|
Operating
income (loss)
|
|
|
683,564
|
|
|
1,034,219
|
|
|
1,506,355
|
|
|
4,401,598
|
|
Non-operating
income (expense)
|
|
|
(445
|
)
|
|
570
|
|
|
(1,561
|
)
|
|
1,227
|
|
Net
income (loss)
|
|
$
|
683,119
|
|
$
|
1,033,649
|
|
$
|
1,504,794
|
|
$
|
4,400,371
|
|
The
following unaudited financial information represents the operations of the
Cash
Security business for the nine months ended June 30, 2006, and the fiscal
years
ended September 30, 2005 and 2004.
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Nine
Months Ended June 30, 2006
|
|
Fiscal
Year Ended September 30, 2005
|
|
Fiscal
Year Ended September 30, 2004
|
|
Net
sales
|
|
$
|
11,986,516
|
|
$
|
19,435,222
|
|
$
|
7,467,194
|
|
Cost
of sales
|
|
|
7,292,291
|
|
|
10,870,947
|
|
|
5,350,108
|
|
Gross
profit
|
|
|
4,694,225
|
|
|
8,564,275
|
|
|
2,117,086
|
|
Selling,
general and administrative
|
|
|
3,159,185
|
|
|
4,449,550
|
|
|
3,550,491
|
|
Depreciation
and amortization
|
|
|
28,685
|
|
|
29,868
|
|
|
84,008
|
|
Operating
income (loss)
|
|
|
1,506,355
|
|
|
4,084,857
|
|
|
(1,517,413
|
)
|
Non-operating
expense
|
|
|
(1,561
|
)
|
|
23,884
|
|
|
37,918
|
|
Net
income (loss)
|
|
$
|
1,504,794
|
|
$
|
4,060,973
|
|
$
|
(1,555,331
|
)
|
The
following unaudited financial information represents the assets and liabilities
related to the Cash Security business as of June 30, 2006 and September 30, 2005
and 2004.
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
June
30, 2006
|
|
September
30, 2005
|
|
September
30, 2004
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
588,536
|
|
$
|
—
|
|
$
|
—
|
|
Trade
accounts receivable, net of allowance
|
|
|
2,508,653
|
|
|
1,856,523
|
|
|
1,076,362
|
|
Inventories
|
|
|
1,523,863
|
|
|
3,137,818
|
|
|
1,350,631
|
|
Prepaid
expenses and other
|
|
|
80,923
|
|
|
198,057
|
|
|
93,087
|
|
Total
current assets
|
|
|
4,701,975
|
|
|
5,192,398
|
|
|
2,520,080
|
|
Property,
plant and equipment, at cost
|
|
|
1,639,219
|
|
|
1,097,604
|
|
|
1,091,197
|
|
Accumulated
depreciation
|
|
|
(1,327,408
|
)
|
|
(1,020,015
|
)
|
|
(972,920
|
)
|
Net
property, plant and equipment
|
|
|
311,811
|
|
|
77,589
|
|
|
118,277
|
|
Other
assets
|
|
|
250,000
|
|
|
25,631
|
|
|
25,631
|
|
Total
assets
|
|
$
|
5,263,786
|
|
$
|
5,295,618
|
|
$
|
2,663,988
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Current
maturities
|
|
$
|
3,929
|
|
$
|
1,852
|
|
$
|
8,951
|
|
Accounts
payable
|
|
|
973,006
|
|
|
1,397,394
|
|
|
1,380,054
|
|
Other
accrued expenses
|
|
|
2,196,174
|
|
|
3,069,278
|
|
|
1,058,001
|
|
Total
current liabilities
|
|
|
3,173,109
|
|
|
4,468,524
|
|
|
2,447,006
|
|
Long-term
debt, net of current maturities
|
|
|
20,982
|
|
|
28,708
|
|
|
28,709
|
|
Total
liabilities
|
|
$
|
3,194,091
|
|
$
|
4,497,232
|
|
$
|
2,475,715
|
|
Unaudited
Pro Forma Financial Statements
The
following unaudited pro forma financial statements give effect to the sale
of
substantially all of the assets relating to our Cash Security business. The
unaudited pro forma consolidated balance sheet and statements of earnings filed
with this proxy statement are presented for illustrative purposes only. The
pro
forma balance sheet as of June 30, 2006 has been prepared to reflect the sale
of
substantially all of the assets of our Cash Security business as if such sale
had taken place on June 30, 2006, and is not necessarily indicative of the
financial position of Tidel had such sale occurred on that date. The unaudited
pro forma statements of earnings (operations) for the nine months ended June
30,
2006 and the fiscal years ended September 30, 2005, 2004 and 2003 have been
prepared assuming that the transaction occurred as of the beginning of this
period, and are not necessarily indicative of the results of operations for
future periods or the results that actually would have been realized had we
sold
the assets of our Cash Security business as of that date. The pro forma
financial statements should be read in conjunction with the unaudited financial
statements filed in our Form 10-Q for the quarter ended June 30,
2006.
Costs
and
expenses attributed to the Cash Security business include direct costs primarily
associated with that business as well as interest and certain shared expenses,
including treasury, legal and human resources, based upon estimated usage.
Certain items are maintained at Tidel’s corporate headquarters (Corporate) and
are not allocated to the Cash Security business. They primarily include costs
associated with accounting and certain executive officer salaries and bonuses
and certain items including investment securities, equity investments, and
deferred income taxes, certain portions of excess cost over fair value of assets
acquired, jointly-used fixed assets and debt.
The
following pro forma data is presented based on the following
assumptions:
The
Asset
Purchase Agreement provides that the purchase price for the Cash Security
business shall be an amount equal to $15.5 million less $1.63 million
representing the negative working capital at December 31, 2005 and less $100,000
as consideration for the buyer’s potential liability in connection with ongoing
litigation if the litigation has not been dismissed pursuant to a final
non-appealable court order prior to the closing of the sale of the Cash Security
business, resulting in a final purchase price of $13.77 million. In addition
to
the purchase price, a cash adjustment shall be paid by the buyer to Tidel at
closing in an amount of approximately $2.46 million. The purchase price together
with the cash adjustment at closing results in total cash proceeds to the
Company of approximately $16.2 million for the sale of the Cash Security
business. In addition, the buyer will retain the cash in the operating account
at date of closing, and will be held liable to pay any outstanding checks as
of
the date of closing. The Asset Purchase Agreement is subject to customary
representations and warranties and covenants and the satisfaction of several
customary closing conditions, including our obtaining stockholder approval.
The
closing under the Asset Purchase Agreement is expected to occur in September
2006.
The
following unaudited pro forma consolidated balance sheet represents the June
30,
2006 balance sheet adjusted to reflect the sale of the Cash Security business,
pursuant to the Asset Purchase Agreement, as if such transaction had taken
place
on June 30, 2006:
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
|
|
As
of June 30, 2006
|
|
|
|
As
Reported
|
|
|
|
Pro
Forma Adjustments
|
|
Pro
Forma
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,890,257
|
|
|
(1)
|
|
$
|
5,074,447
|
|
$
|
10,964,704
|
|
Restricted
cash
|
|
|
5,400,000
|
|
|
(1)
|
|
|
(5,400,000
|
)
|
|
—
|
|
Marketable
securities - available-for-sale
|
|
|
881,414
|
|
|
|
|
|
|
|
|
881,414
|
|
Trade
accounts receivable, net
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Notes
and other receivables
|
|
|
13,890
|
|
|
|
|
|
|
|
|
13,890
|
|
Prepaid
expenses and other
|
|
|
41,711
|
|
|
|
|
|
|
|
|
41,711
|
|
Assets
held for sale, net
|
|
|
5,263,786
|
|
|
(2)
|
|
|
(5,263,786
|
)
|
|
—
|
|
Total
current assets
|
|
|
17,491,058
|
|
|
|
|
|
(5,589,339
|
)
|
|
11,901,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, at cost
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Accumulated
depreciation
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Net
property and equipment
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
4,000
|
|
|
|
|
|
|
|
|
4,000
|
|
Total
assets
|
|
$
|
17,495,058
|
|
|
|
|
$
|
(5,589,339
|
)
|
$
|
11,905,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
—
|
|
|
|
|
$
|
|
|
$ |
—
|
|
Accounts
payable
|
|
|
312,206
|
|
|
|
|
|
|
|
|
312,206
|
|
Accrued
interest payable
|
|
|
2,000,000
|
|
|
(4)
|
|
|
(2,000,000
|
)
|
|
—
|
|
Shares
subject to redemption
|
|
|
5,400,000
|
|
|
(5)
|
|
|
(5,400,000
|
)
|
|
—
|
|
Other
accrued expenses
|
|
|
300,000
|
|
|
|
|
|
|
|
|
300,000
|
|
Liabilities
related to assets held for sale
|
|
|
3,194,091
|
|
|
(3)
|
|
|
(3,194,091
|
)
|
|
—
|
|
Total
current liabilities
|
|
|
11,206,297
|
|
|
|
|
|
(10,594,091
|
)
|
|
612,206
|
|
Long-term
debt
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
Total
liabilities
|
|
|
11,206,297
|
|
|
|
|
|
(10,594,091
|
)
|
|
612,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, authorized 100,000,000 shares; issued
and
outstanding 38,677,210 shares and 20,677,210 shares,
respectively
|
|
|
386,772
|
|
|
(6)
|
|
|
(192,510
|
)
|
|
194,262
|
|
Additional
paid-in capital
|
|
|
30,782,187
|
|
|
(6)
|
|
|
(952,830
|
)
|
|
29,829,357
|
|
Accumulated
deficit
|
|
|
(25,461,612
|
)
|
|
|
|
|
6,150,092
|
|
|
(19,311,520
|
)
|
Accumulated
other comprehensive income
|
|
|
581,414
|
|
|
|
|
|
|
|
|
581,414
|
|
Total
shareholders’ equity
|
|
|
6,288,761
|
|
|
|
|
|
5,004,752
|
|
|
11,293,513
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
17,495,058
|
|
|
|
|
$
|
(5,589,339
|
)
|
$
|
11,905,719
|
|
Notes
to Unaudited Pro Forma Consolidated Balance Sheet:
(1) |
Adjust
cash to reflect the remaining proceeds of approximately $5.1 million
after
aggregate gross proceeds from sale of the Cash Security business
of
approximately $16.2 million less (i) assumed costs and expenses associated
with closing the transaction of approximately $1.5 million, (ii)
payment
to Laurus of approximately $8.5 million for the sale fee, (iii) payment
to
Laurus of approximately $6.55 million upon the redemption of 19,251,000
of
our shares assuming an estimated stock price of $.34 per share, of
which
$5.4 million is held by Laurus in a cash collateral
account.
|
(2) |
Remove
the Cash Security business assets held for sale resulting in the
corporate
entity remaining with no
operations.
|
(3) |
Remove
the Cash Security business liabilities related to assets held for
sale
resulting in the corporate entity remaining with no
operations.
|
(4) |
Remove
previously accrued portion of the $8.5 million sale fee payable to
Laurus.
|
(5) |
Remove
previously accrued portion of the $6.55 million redemption payment
to
Laurus to redeem 19,251,000 shares of our common assuming an estimated
redemption price of $.34 per share.
|
(6) |
Record
redemption of 19,251,000 shares of our common stock from
Laurus.
|
The
following unaudited pro forma statements of operations represent the nine months
ended June 30, 2006 and the fiscal years ended September 30, 2005, 2004 and
2003
excluding the Cash Security business.
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the Nine Months Ended June 30, 2006
|
|
|
|
As
Reported
|
|
Pro
Forma
Adjustments
|
|
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
$ |
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
2,655,647
|
|
|
|
|
|
|
|
|
2,655,647
|
|
Depreciation
and amortization
|
|
|
2,678
|
|
|
|
|
|
|
|
|
2,678
|
|
Operating
loss
|
|
|
(2,658,325
|
)
|
|
|
|
|
|
|
|
(2,658,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on investment in 3CI
|
|
|
4,210,577
|
|
|
|
|
|
|
|
|
4,210,577
|
|
Interest
expense, net of interest income
|
|
|
(4,173,612
|
)
|
|
|
|
|
|
|
|
(4,173,612
|
)
|
Gain
on collection of receivable previously reserved
|
|
|
598,496
|
|
|
|
|
|
|
|
|
598,496
|
|
Additional
income related to the CCC bankruptcy settlement
|
|
|
105,000
|
|
|
|
|
|
|
|
|
105,000
|
|
Other
|
|
|
(7,455
|
)
|
|
|
|
|
|
|
|
(7,455
|
)
|
Total
other income (expense)
|
|
|
733,006
|
|
|
|
|
|
|
|
|
733,006
|
|
Loss
before taxes
|
|
|
(1,925,319
|
)
|
|
|
|
|
|
|
|
(1,925,319
|
)
|
Income
tax expense
|
|
|
—
|
|
|
|
|
|
(1)
|
|
|
—
|
|
Loss
from continuing operations
|
|
|
(1,925,319
|
)
|
|
|
|
|
|
|
|
(1,925,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations
|
|
|
1,833,411
|
|
|
(1,504,794
|
) |
|
(2)
|
|
|
328,617
|
|
Gain
on sale of ATM business
|
|
|
3,536,106
|
|
|
|
|
|
|
|
|
3,536,106
|
|
Total
income (loss) from discontinued operations
|
|
|
5,369,5177
|
|
|
(1,504,794
|
)
|
|
|
|
|
3,864,723
|
|
Net
income (loss)
|
|
$
|
3,444,198
|
|
$
|
(1,504,794
|
)
|
|
|
|
$
|
1,939,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.06
|
)
|
$ |
|
|
|
|
|
$
|
(0.06
|
)
|
Income
(loss) from discontinued operations
|
|
|
0.17
|
|
|
(0.05
|
)
|
|
|
|
|
.12
|
|
Net
income (loss)
|
|
$
|
0.11
|
|
$
|
(0.05
|
)
|
|
|
|
$
|
0.06
|
|
Weighted
average common shares outstanding
|
|
|
31,754,133
|
|
|
|
|
|
|
|
|
31,754,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.06
|
)
|
$ |
|
|
|
|
|
$
|
(0.06
|
)
|
Income
(loss) from discontinued operations
|
|
|
0.17
|
|
|
(0.03
|
)
|
|
|
|
|
0.14
|
|
Net
income (loss)
|
|
$
|
0.11
|
|
$
|
(0.03
|
)
|
|
|
|
$
|
0.08
|
|
Weighted
average common and dilutive shares outstanding
|
|
|
31,786,967
|
|
|
|
|
|
|
|
|
31,786,967
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1) |
No
tax adjustment due to NOL
carryforwards.
|
(2) |
Adjust
discontinued operations by removing the Cash Security business. The
corporate division is reported as continuing operations, and the
remaining
ATM business is reported as income (loss) from discontinued operations
and
gain on sale of ATM business.
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the Fiscal Year Ended September 30, 2005
|
|
|
|
As
reported
|
|
|
|
Pro
Forma Adjustments
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
|
|
$ |
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
1,805,484
|
|
|
|
|
|
|
|
|
1,805,484
|
|
Depreciation
and amortization
|
|
|
4,977
|
|
|
|
|
|
|
|
|
4,977
|
|
Operating
loss
|
|
|
(1,810,461
|
)
|
|
|
|
|
|
|
|
(1,810,461
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net, includes $3,746,531 of debt discount
amortization
|
|
|
(6,549,069
|
)
|
|
|
|
|
|
|
|
(6,549,069
|
)
|
Total
other income (expense)
|
|
|
(6,549,069
|
)
|
|
|
|
|
|
|
|
(6,549,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before taxes
|
|
|
(8,359,530
|
)
|
|
|
|
|
|
|
|
(8,359,530
|
)
|
Income
tax expense (benefit)
|
|
|
—
|
|
|
(1)
|
|
|
|
|
|
—
|
|
Income
(loss) from continuing operations
|
|
|
(8,359,530
|
)
|
|
|
|
|
|
|
|
(8,359,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
5,073,608
|
|
|
(2)
|
|
|
(4,108,741
|
)
|
|
964,867
|
|
Net
income (loss)
|
|
$
|
(3,285,922
|
)
|
|
|
|
$
|
(4,108,741
|
)
|
$
|
(7,394,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.41
|
)
|
|
|
|
$ |
|
|
$
|
(0.41
|
)
|
Income
(loss) from discontinued operations
|
|
|
0.25
|
|
|
|
|
|
|
|
|
0.05
|
|
Net
income (loss)
|
|
$
|
(0.16
|
)
|
|
|
|
$ |
|
|
$
|
(0.36
|
)
|
Weighted
average common shares outstanding
|
|
|
20,292,796
|
|
|
|
|
|
|
|
|
20,292,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.41
|
)
|
|
|
|
$ |
|
|
$
|
(0.41
|
)
|
Income
(loss) from discontinued operations
|
|
|
0.25
|
|
|
|
|
|
|
|
|
0.05
|
|
Net
income (loss)
|
|
$
|
(0.16
|
)
|
|
|
|
$ |
|
|
$
|
(0.36
|
)
|
Weighted
average common and dilutive shares outstanding
|
|
|
20,292,796
|
|
|
|
|
|
|
|
|
20,292,796
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1) |
No
tax adjustment due to NOL
carryforwards.
|
(2) |
Adjust
discontinued operations by removing the Cash Security business. The
corporate division is reported as continuing operations, and the
remaining
ATM business is reported as income (loss) from discontinued
operations.
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the Fiscal Year Ended September 30, 2004
|
|
|
|
As
Reported
|
|
|
|
Pro
Forma Adjustments
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
22,514,486
|
|
|
(1)
|
|
$
|
(7,467,194
|
)
|
$
|
15,047,292
|
|
Cost
of sales
|
|
|
17,055,179
|
|
|
(2)
|
|
|
(5,350,108
|
)
|
|
11,705,071
|
|
Gross
profit
|
|
|
5,459,307
|
|
|
|
|
|
(2,117,086
|
)
|
|
3,342,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
10,195,095
|
|
|
(3)
|
|
|
(3,550,491
|
)
|
|
6,644,604
|
|
Depreciation
and amortization
|
|
|
513,839
|
|
|
(4)
|
|
|
(84,008
|
)
|
|
429,831
|
|
Operating
income (loss)
|
|
|
(5,249,627
|
)
|
|
|
|
|
1,517,413
|
|
|
(3,732,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
18,823,000
|
|
|
|
|
|
|
|
|
18,823,000
|
|
Gain
on sale of securities
|
|
|
1,918,012
|
|
|
|
|
|
|
|
|
1,918,012
|
|
Interest
expense, net
|
|
|
(4,255,042
|
)
|
|
|
|
|
|
|
|
(4,255,042
|
)
|
Other
|
|
|
—
|
|
|
(5)
|
|
|
37,918
|
|
|
37,918
|
|
Total
other income
|
|
|
16,485,970
|
|
|
|
|
|
37,918
|
|
|
16,523,888
|
|
Income
before taxes
|
|
|
11,236,343
|
|
|
|
|
|
1,555,331
|
|
|
12,791,674
|
|
Income
tax benefit
|
|
|
(81,229
|
)
|
|
(6)
|
|
|
|
|
|
(81,229
|
)
|
Net
income from continuing operations
|
|
$
|
11,317,572
|
|
|
|
|
$
|
1,555,331
|
|
$
|
12,872,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$
|
0.65
|
|
|
|
|
$ |
|
|
$
|
$0.74
|
|
Weighted
average common shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
11,317,572
|
|
|
|
|
$ |
|
|
$
|
$12,872,903
|
|
Interest
expense on convertible debt
|
|
|
2,898,225
|
|
|
|
|
|
|
|
|
2,898,225
|
|
Adjusted
net income for diluted shares
|
|
$
|
14,215,797
|
|
|
|
|
$ |
|
|
$
|
$15,771,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.37
|
|
|
|
|
$ |
|
|
$
|
$0.41
|
|
Weighted
average common and dilutive shares outstanding
|
|
|
38,576,763
|
|
|
|
|
|
|
|
|
38,576,763
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1) |
Remove
revenues related to the Cash Security
business.
|
(2) |
Remove
cost of sales related to Cash Security
business.
|
(3) |
Remove
selling, general and administrative expenses related to Cash Security
business.
|
(4) |
Remove
depreciation and amortization related to the Cash Security
business.
|
(5) |
Remove
other expense related to the Cash Security
business.
|
(6) |
No
tax adjustment due to NOL
carryforwards.
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the Fiscal Year Ended September 30, 2003
|
|
|
|
As
Reported
|
|
|
|
Pro
Forma Adjustments
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
17,794,299
|
|
|
(1)
|
|
$
|
(7,359,181
|
)
|
$
|
10,435,118
|
|
Cost
of sales
|
|
|
14,612,447
|
|
|
(2)
|
|
|
(4,936,867
|
)
|
|
9,675,580
|
|
Gross
profit
|
|
|
3,181,852
|
|
|
|
|
|
(2,422,314
|
)
|
|
759,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
9,019,016
|
|
|
(3)
|
|
|
(3,184,314
|
)
|
|
5,834,702
|
|
Depreciation
and amortization
|
|
|
799,855
|
|
|
(4)
|
|
|
(141,473
|
)
|
|
658,382
|
|
Operating
income (loss)
|
|
|
(6,637,019
|
)
|
|
|
|
|
903,473
|
|
|
(5,733,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(2,599,698
|
)
|
|
|
|
|
|
|
|
(2,599,698
|
)
|
Other
|
|
|
—
|
|
|
(5)
|
|
|
66,581
|
|
|
66,581
|
|
Total
other income (expense)
|
|
|
(2,599,698
|
)
|
|
|
|
|
66,581
|
|
|
(2,533,117
|
)
|
Income
(loss) before taxes
|
|
|
(9,236,717
|
)
|
|
|
|
|
970,054
|
|
|
(8,266,663
|
)
|
Income
tax benefit
|
|
|
—
|
|
|
(6)
|
|
|
|
|
|
—
|
|
Net
income (loss) from continuing operations
|
|
$
|
(9,236,717
|
)
|
|
|
|
$
|
970,054
|
|
$
|
(8,266,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(0.53
|
)
|
|
|
|
$ |
|
|
$
|
$0.47
|
|
Weighted
average common shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(0.53
|
)
|
|
|
|
$ |
|
|
$
|
$0.47
|
|
Weighted
average common and dilutive shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
17,426,210
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1) |
Remove
revenues related to the Cash Security
business.
|
(2) |
Remove
cost of sales related to the Cash Security
business.
|
(3) |
Remove
selling, general and administrative expenses related to Cash Security
business.
|
(4) |
Remove
depreciation and amortization related to the Cash Security
business.
|
(5) |
Remove
other expense related to the Cash Security
business.
|
(6) |
No
tax adjustment due to NOL
carryforwards.
|
WHERE
YOU CAN FIND ADDITIONAL
INFORMATION
The
Company files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, proxy statements
or
other information that we file with the SEC at the following location of the
SEC, Public Reference Room, 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
rooms. You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at
prescribed rates. The Company’s public filings are also available to the public
from document retrieval services and the Internet website maintained by the
SEC
at www.sec.gov.
Any
person, including any beneficial owner, to whom this proxy statement is
delivered may request copies of reports, proxy statements or other information
concerning us, including any information incorporated into this proxy statement
by reference, without charge, by written or telephonic request directed to
us at
Tidel Technologies, Inc., 2900 Wilcrest Drive, Suite 105, Houston, Texas 77042,
(713) 783-8200, Attention: Secretary.
No
persons have been authorized to give any information or to make any
representations other than those contained in this proxy statement and, if
given
or made, such information or representations must not be relied upon as having
been authorized by us or any other person. You should not assume that the
information contained in this proxy statement is accurate as of any date other
than that date, and the mailing of this proxy statement to stockholders shall
not create any implication to the contrary.
INCORPORATION
BY REFERENCE
The
SEC
allows us to incorporate by reference information into this proxy statement.
This means that we can disclose important information to you by referring you
to
another document filed separately with the SEC. The information incorporated
by
reference is considered to be part of this proxy statement. This proxy statement
and the information that the Company files later with the SEC may update and
supersede the information in this proxy statement. The Company incorporates
by
reference each document it files under Sections 13(a), 13(c), 14 or 15(d) of
the
Securities Exchange Act after the date of the initial filing of this proxy
statement and before the special meeting. The Company also incorporates by
reference into this proxy statement the following documents filed by it with
the
SEC under the Securities Exchange Act:
|
·
|
Our
Annual Report on Form 10-K for our fiscal year ended September 30,
2005,
as filed on January 18, 2006;
|
|
·
|
Our
Current Report on Form 8-K filed on January 19, 2006 (as amended
on
January 31, 2006);
|
|
·
|
Our
Quarterly Report on Form 10-Q for our quarter ended December 31,
2005, as
filed on February 21, 2006;
|
|
·
|
Our
Current Report on Form 8-K filed on March 7,
2006;
|
|
·
|
Our
Quarterly Report on Form 10-Q for our quarter ended March 31, 2006,
as
filed on May 22, 2006;
|
|
·
|
Our
Current Report on Form 8-K filed on June 14, 2006;
and
|
|
·
|
Our
Quarterly Report on Form 10-Q for our quarter ended June 30, 2006,
as
filed on August 21, 2006.
|
The
SEC
has adopted rules that permit companies and intermediaries, such as brokers,
to
satisfy delivery requirements for proxy statements with respect to two or more
stockholders sharing the same address by delivering a single proxy statement
addressed to those stockholders. This process, known as “householding,”
potentially means extra convenience for stockholders and cost savings for
companies. In connection with this proxy solicitation, a number of brokers
with
customers who are our stockholders will be “householding” our proxy materials
unless contrary instructions have been received from the customers. We will
promptly deliver, upon oral or written request, a separate copy of the proxy
statement to any stockholder sharing an address to which only one copy was
mailed. Requests for additional copies should be directed to Tidel Technologies,
Inc., 2900 Wilcrest Drive, Suite 105, Houston, Texas 77042, (713) 783-8200,
Attention: Secretary.
Once
a
stockholder has received notice from his or her broker that the broker will
be
“householding” communications to the stockholder’s address, “householding” will
continue until the stockholder is notified otherwise or until the stockholder
revokes his or her consent. If, at any time, a stockholder no longer wishes
to
participate in “householding” and would prefer to receive separate copies of the
proxy statement, the stockholder should so notify his or her broker. Any
stockholder who currently receives multiple copies of the proxy statement at
his
or her address and would like to request “householding” of communications should
contact his or her broker or, if shares are registered in the stockholder’s
name, our Investor Relations Department at the address or telephone number
provided above.
REQUEST
TO VOTE, SIGN AND RETURN PROXIES
If
you do
not intend to be present at the special meeting of stockholders on September
25,
2006 please vote the enclosed proxy at your earliest convenience.
|
By
Order of the Board of Directors,
|
|
|
|
Leonard
Carr
|
|
Secretary
|
August
25, 2006
[THIS
PAGE INTENTIONALLY LEFT BLANK]
Annex
A
AMENDED
AND RESTATED
ASSET
PURCHASE AGREEMENT
BY
AND AMONG
SENTINEL
OPERATING, L.P.
TIDEL
TECHNOLOGIES, INC.
AND
TIDEL
ENGINEERING, L.P.
DATED
AS OF JUNE 9, 2006
§1.
Definitions.
|
4
|
|
|
|
§2.
Basic Transaction.
|
10
|
(a)
|
Purchase
and Sale of Assets.
|
10
|
(b)
|
Assumption
of Liabilities.
|
10
|
(c)
|
Purchase
Price.
|
10
|
(d)
|
Closing.
|
10
|
(e)
|
Deliveries
at Closing.
|
10
|
(f)
|
December
Balance Sheet.
|
10
|
(g)
|
Cash
Adjustments.
|
10
|
(h)
|
Purchase
Price Allocation.
|
11
|
|
|
|
§3.
Sellers’ Representations and Warranties.
|
11
|
(a)
|
Organization.
|
11
|
(b)
|
Authorization
of Transaction.
|
12
|
(c)
|
Non-contravention.
|
12
|
(d)
|
Brokers’
Fees and Fairness Opinion.
|
12
|
(e)
|
Title
to Assets.
|
12
|
(f)
|
Subsidiaries.
|
12
|
(g)
|
SEC
Filings and Financial Statements.
|
13
|
(h)
|
Events
Subsequent to Most Recent Balance Sheet.
|
13
|
(i)
|
Undisclosed
Liabilities.
|
15
|
(j)
|
Legal
Compliance.
|
15
|
(k)
|
Tax
Matters.
|
15
|
(l)
|
Real
Property.
|
16
|
(m)
|
Intellectual
Property.
|
17
|
(n)
|
Tangible
Assets.
|
19
|
(o)
|
Inventory.
|
19
|
(p)
|
Contracts.
|
19
|
(q)
|
Notes
and Accounts Receivable.
|
20
|
(r)
|
Powers
of Attorney.
|
20
|
(s)
|
Insurance.
|
20
|
(t)
|
Litigation.
|
21
|
(u)
|
Product
Warranty.
|
21
|
(v)
|
Product
Liability.
|
21
|
(w)
|
Employees.
|
21
|
(x)
|
Employee
Benefit Plans.
|
22
|
(y)
|
Guaranties.
|
23
|
(z)
|
Environmental,
Health, and Safety Matters.
|
23
|
(aa)
|
Certain
Business Relationships.
|
24
|
(bb)
|
Customers
and Suppliers.
|
24
|
|
|
|
§4.
Buyer’s Representations and Warranties.
|
24
|
(a)
|
Organization
of Buyer.
|
24
|
(b)
|
Authorization
of Transaction.
|
24
|
(c)
|
Non-contravention.
|
24
|
(d)
|
Brokers’
Fees.
|
25
|
|
|
|
§5.
Pre-Closing Covenants.
|
25
|
(a)
|
General.
|
25
|
(b)
|
Notices
and Consents.
|
25
|
(c)
|
Operation
of Business.
|
25
|
(d)
|
Preservation
of Business.
|
25
|
(e)
|
Full
Access.
|
25
|
(f)
|
Notice
of Developments.
|
25
|
(g)
|
Exclusivity.
|
26
|
(h)
|
Maintenance
of Acquired Assets.
|
27
|
(i)
|
Parent
Stockholders Meeting
|
27
|
(j)
|
Name
Change.
|
27
|
(k)
|
Perfection
of Ownership of Intellectual Property.
|
27
|
(l)
|
Maintenance
of Leased Real Property.
|
28
|
(m)
|
Leases.
|
28
|
(n)
|
Claim.
|
28
|
|
|
|
§6.
Post-Closing Covenants.
|
28
|
(a)
|
General.
|
28
|
(b)
|
Litigation
Support.
|
28
|
(c)
|
Transition.
|
28
|
(d)
|
Confidentiality.
|
29
|
(e)
|
Covenant
Not to Compete or Solicit.
|
29
|
(f)
|
Defense
of CSS Claim.
|
29
|
(g)
|
Indemnification.
|
29
|
(h)
|
Directors’
and Officers’ Insurance.
|
30
|
(i)
|
Employee
Non-competition and Confidentiality Agreements.
|
30
|
(j)
|
Bank
Accounts.
|
30
|
|
|
|
§7.
Conditions to Obligation to Close.
|
30
|
(a)
|
Conditions
to Buyer’s Obligation.
|
30
|
(b)
|
Conditions
to Sellers’ Obligation.
|
32
|
|
|
|
§8.
Survival and Termination.
|
33
|
(a)
|
Survival
of Representations and Warranties.
|
33
|
(b)
|
Termination
of Agreement.
|
33
|
(c)
|
Effect
of Termination.
|
33
|
|
|
|
§9.
Miscellaneous.
|
34
|
(a)
|
Press
Releases and Public Announcements.
|
34
|
(b)
|
No
Third-Party Beneficiaries.
|
34
|
(c)
|
Entire
Agreement.
|
34
|
(d)
|
Succession
and Assignment.
|
34
|
(e)
|
Counterparts.
|
34
|
(f)
|
Headings.
|
34
|
(g)
|
Notices.
|
34
|
(h)
|
Governing
Law.
|
35
|
(i)
|
Amendments
and Waivers.
|
35
|
(j)
|
Severability.
|
36
|
(k)
|
Expenses.
|
36
|
(l)
|
Construction.
|
36
|
(m)
|
Incorporation
of Exhibits and Schedules.
|
36
|
(n)
|
Specific
Performance.
|
36
|
(o)
|
Submission
to Jurisdiction.
|
37
|
(p)
|
Tax
Matters.
|
37
|
(q)
|
Tax
Disclosure Authorization.
|
37
|
Exhibit
A—Forms of Assignments
Exhibit
B—Form of Opinion of Sellers’ Counsel
Exhibit
C—Target Adjusted December 31, 2005 Balance Sheet
Disclosure
Schedule—Exceptions to Sellers’ Representations and Warranties
AMENDED
AND RESTATED ASSET PURCHASE AGREEMENT
This
Amended and Restated Asset Purchase Agreement (this “Agreement”)
is
entered into as of June 9, 2006, by and among Sentinel Operating, L.P., a Texas
limited partnership (“Buyer”),
Tidel
Technologies, Inc., a Delaware corporation (“Parent”),
and
Tidel Engineering, L.P., a Delaware limited partnership (“Target”,
and
collectively with Parent, “Sellers”,
and
individually, a “Seller”).
Buyer, Parent and Target are referred to collectively herein as the
“Parties”
and
individually as a “Party”.
RECITALS
WHEREAS,
Buyer, Parent and Target entered into that certain Asset Purchase Agreement
dated as of January 12, 2006 (the “Original
Agreement”)
which
contemplated a transaction in which Buyer would purchase all of the Acquired
Assets (and assume only the Assumed Liabilities) of Division in consideration
for the Purchase Price; and
WHEREAS,
pursuant to Section 9(i) of the Original Agreement, the Parties desire to enter
into this Agreement to amend and restate the Original Agreement.
NOW,
THEREFORE, in consideration of the premises and the mutual promises herein
made,
and in consideration of the representations, warranties, and covenants herein
contained, the Parties agree as follows:
AGREEMENT
“Acquired
Assets”
means
all right, title, and interest in and to all of the assets constituting
Division, including
all of
the assets of Target and Division’s (a) tangible personal property including,
but not limited to, computers, servers, office equipment, machinery, equipment,
inventories of raw materials and supplies, manufactured and purchased parts,
goods in process and finished goods, furniture, automobiles, trucks, tractors,
trailers, tools, jigs, and dies, (b) Intellectual Property (including all rights
of Sellers to the names “Tidel” and “Sentinel”), goodwill associated therewith,
trademarks, service marks and all other marks (whether registered or
unregistered), licenses and sublicenses granted and obtained with respect
thereto, and rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all jurisdictions,
(c) leases, subleases, and rights thereunder, (d) agreements, contracts,
indentures, mortgages, instruments, Liens, guaranties, other similar
arrangements, and rights thereunder, (e) accounts, notes, and other receivables,
(f) securities, (g) claims, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set-off, and rights of
recoupment (including any such item relating to the payment of Taxes), (h)
franchises, approvals, permits, licenses, orders, registrations, certificates,
variances, and similar rights obtained from governments and governmental
agencies, (i) books, records, ledgers, files, documents, correspondence, lists,
plats, architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, studies, reports, and other printed
or
written materials, and (j) the Key Man Policy; provided,
however,
that
the Acquired Assets shall not include (i) the Excluded Assets, (ii) the
organizational documents and charters, qualifications to conduct business as
a
foreign entity, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals, minute books,
stock transfer books, blank stock certificates, and other documents relating
to
the organization, maintenance, and existence of Sellers’ legal entities, (iii)
any of the rights of Sellers under this Agreement (or under any side agreement
between Sellers and Buyer entered into on or after the date of this Agreement),
or (iv) commercial liability insurance contracts and policies.
“Acquisition
Proposal”
means,
other than the transactions contemplated by this Agreement or the NCR Purchase
Agreement or the exercise of warrants or conversion of debt by Laurus Master
Fund, Ltd. and its Affiliates pursuant to the Voting Agreements, any offer,
proposal or inquiry relating to, or any third party indication of interest
in,
(a) any acquisition or purchase, direct or indirect, of any assets of Target
or
Division or over five percent (5%) of any class of equity or voting securities
of Parent or any equity or voting securities of any Subsidiaries of Parent
other
than AnyCard International, Inc., (b) any tender offer (including a self-tender
offer) or exchange offer that, if consummated, would result in such third
party’s beneficially owning five percent (5%) or more of any class of equity or
voting securities of Parent or any equity or voting securities of any
Subsidiaries of Parent other than AnyCard International, Inc., (c) a merger,
consolidation, share exchange, business combination, sale of substantially
all
the assets, reorganization, recapitalization, liquidation, dissolution or other
similar transaction involving Sellers or any Subsidiaries of Parent other than
AnyCard International, Inc., or (d) any other transaction the consummation
of
which could reasonably be expected to impede, interfere with, prevent or
materially delay the transaction contemplated hereby or that could reasonably
be
expected to dilute materially the benefits to Buyer of the transactions
contemplated hereby.
"Adverse
Consequences"
means
all damages, penalties, fines, costs, reasonable amounts paid in settlement,
losses, expenses, and fees, including court costs and reasonable attorneys'
fees
and expenses.
“Affiliate”
has
the
meaning set forth in Rule 12b-2 of the regulations promulgated under the
Securities Exchange Act.
“Affiliated
Group”
means
any affiliated group within the meaning of Code §1504(a) or any similar group
defined under a similar provision of state, local, or foreign law.
“Agreement”
has
the
meaning set forth in the preface above.
“Amendment”
has
the
meaning set forth in §5(i)(i) below.
“Asbestos
Liabilities”
means
any Liabilities arising from, relating to, or based on the presence or alleged
presence of asbestos or asbestos-containing materials in any product or item
designed, manufactured, sold, marketed, installed, stored, transported, handled,
or distributed at any time, or otherwise based on the presence or alleged
presence of asbestos or asbestos-containing materials at any property or
facility or in any structure, including without limitation, any Liabilities
arising from, relating to or based on any personal or bodily injury or
illness.
“Assumed
Liabilities”
means
any Liabilities set forth in §1of the Disclosure Schedule under the heading of
“Assumed Liabilities” and any Liability of Sellers in connection with issued and
outstanding checks drawn on the Bank Accounts that have not cleared the Bank
Accounts prior to the closing of the Bank Accounts pursuant to §2(g)(ii) below;
provided,
however,
that
the Assumed Liabilities shall not include (a) any Liability of Sellers for
Taxes
(with respect to Division or otherwise), (b) any Liability of Sellers for
income, transfer, sales, use, and other Taxes arising in connection with the
consummation of the transactions contemplated hereby (including any income
Taxes
arising because of Sellers transferring the Acquired Assets and Seller’s
obligations under §9(k) below with respect to Taxes), (c) any Liability of
Sellers for the unpaid Taxes of any Person under Treasury Regulation §1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee
or
successor, by contract or otherwise, (d) any obligation of Sellers to indemnify
any Person (including any of partners of Target or stockholders of Parent)
by
reason of the fact that such Person was a director, officer, employee, manager,
partner or agent of Sellers or any of their respective Subsidiaries or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such indemnification
is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such indemnification is pursuant
to
any statute, charter document, bylaw, agreement, or otherwise), (e) any
Liability of Sellers for costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, (f) any Liability or
obligation of Sellers under this Agreement (or under any side agreement between
Sellers and Buyer entered into on or after the date of this Agreement), (g)
any
Liabilities for Leases, other than Liabilities for Leases specifically
identified in §1of the Disclosure Schedule, (h) other than the Termination
Payments, any Liabilities for payroll, withholdings tax, severance or any other
payments or compensation owed to employees of Sellers or any Subsidiaries of
Parent including any payments that are not deductible under Code §280G, and (i)
any Liabilities arising out of Employee Benefit Plans, Employee Pension Plans
or
Employee Welfare Benefit Plans.
“Bank
Account Amounts”
has
the
meaning set forth in §2(g)(ii) below.
“Bank
Accounts”
has
the
meaning set forth in §2(g)(ii) below.
“Basis”
means
any past or present fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction that forms or could form the basis for any specified
consequence.
“Buyer”
has
the
meaning set forth in the preface above.
“Cash
Adjustment”
has
the
meaning set forth in §2(g)(i) below.
“Closing”
has
the
meaning set forth in §2(d) below.
“Closing
Date”
has
the
meaning set forth in §2(d) below.
“COBRA”
means
the requirements of Part 6 of Subtitle B of Title I of ERISA and Code §4980B and
of any similar state law.
“Code”
means
the Internal Revenue Code of 1986, as amended.
“Confidential
Information”
means
any information concerning the business and affairs of Division that is not
already generally available to the public.
“CSS
Claim”
has
the
meaning set forth in §3(m)(ii) below.
“Disclosure
Schedule”
has
the
meaning set forth in §3 below.
“Division”
means
Sellers’ electronic cash security systems business, consisting of (a) timed
access cash controllers (b) the Sentinel products, (c) the servicing,
maintenance and repair of the timed access cash controllers or Sentinel products
and (d) all other assets and business operations associated with the
foregoing.
“Division
Subsidiary”
has
the
meaning set forth in §3(f) below.
“Draft
Allocation”
has
the
meaning set forth in §2(h)(i) below.
“Employee
Benefit Plan”
means
any “employee benefit plan” (as such term is defined in ERISA §3(3)) and any
other employee benefit plan, program or arrangement of any kind.
“Employee
Pension Benefit Plan”
has
the
meaning set forth in ERISA §3(2).
“Employee
Welfare Benefit Plan”
has
the
meaning set forth in ERISA §3(1).
“Employment
Agreements”
means
(a) the Employment Agreement by and between Target and Mark Levenick dated
January 1, 2000, (b) the Employment Agreement by and between Target and M.
Flynt
Moreland dated January 1, 2000, (c) the Employment Agreement by and between
Target and Troy D. Richard dated June 26, 2002, and (d) the Employment Agreement
by and between Target and Robert M. Gutierrez dated January 1,
2000.
“Environmental,
Health, and Safety Requirements”
shall
mean, as amended and as now and hereafter in effect, all federal, state, local,
and foreign statutes, regulations, ordinances, and other provisions having
the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations, and all common law concerning
public health and safety, worker health and safety, pollution, or protection
of
the environment, including, without limitation, all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous materials,
substances, or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation.
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended.
“ERISA
Affiliate”
means
each entity that is treated as a single employer with Sellers for purposes
of
Code §414.
“Excluded
Assets”
means
any of Sellers’ (a) cash and cash equivalents on hand or on deposit in banks,
(including, without limitation, certificates of deposit, commercial paper,
treasury bills, and money market accounts), marketable securities, or
inter-company or inter-affiliate accounts, and any similar accounts, (b) life
insurance contracts or policies (other than the Key Man Policy) and any
insurance proceeds or insurance claims made by Sellers relating to Acquired
Assets that are repaired, replaced or restored to substantially the same or
an
improved condition as compared to their respective conditions prior to the
casualty by Sellers prior to the Closing and conveyed to Buyer hereunder; (c)
promissory notes, amounts due from employees, bonds, letters of credit,
certificates of deposit, other similar items, and any cash surrender value
in
regard thereto; (d) any Employee Benefit Plan, Employee Pension Benefit Plan
and
any Employee Welfare Benefit Plan; (e) all tax returns and supporting materials,
all original financial statements and supporting materials, all books and
records that Sellers are required by law to retain, and all records relating
to
the sale of the Acquired Assets; (f) any interest in and to any refunds or
overpayments of federal, or local franchise, income, or other taxes for periods
prior to the Closing Date; (g) all claims, rights and interest in and to any
refunds of federal, state or local franchise, income or other taxes or fees
for
any period prior to the Closing Date; (h) any contract, lease, or agreement
other than the agreements set forth on §1 of the Disclosure Schedule (excluding
the Employment Agreements, which are Excluded Assets); (i) duplicate copies
of
the books and records necessary to enable Sellers to file their tax returns
and
reports; and (j) assets to be sold pursuant to the NCR Purchase
Agreement.
“Expenses”
has
the
meaning set forth in §9(k)(ii) below.
“Fiduciary”
has
the
meaning set forth in ERISA §3(21).
“Final
Allocation”
has
the
meaning set forth in §2(h)(ii) below.
“Financial
Statements”
has
the
meaning set forth in §3(g)(ii)(A) below.
“GAAP”
means
United States generally accepted accounting principles as in effect from time
to
time, consistently applied.
“Improvements”
has
the
meaning set forth in §3(l)(iv) below.
“Indemnity
Period”
has
the
meaning set forth in §6(g)(i) below.
“Intellectual
Property”
means
all of the following used by, or relating to, Division in any jurisdiction
throughout the world: (a) all inventions (whether patentable or unpatentable
and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade
names, corporate names, Internet domain names and subdomains (including
“tidel.com”), and rights in telephone numbers, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all
mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information,
and
business and marketing plans and proposals), (f) all computer software, firmware
and applications (including source code, executable code, data, databases,
and
related documentation), (g) all advertising and promotional materials, (h)
all
other proprietary rights, and (i) all copies and tangible embodiments thereof
(in whatever form or medium).
“Key
Man Policy”
means
Sellers’ key man life insurance policy insuring the life of Mark K.
Levenick.
“Knowledge”
means
actual knowledge after reasonable investigation.
“Leased
Real Property”
means
all leasehold or subleasehold estates and other rights to use or occupy any
land, buildings, structures, improvements, fixtures, or other interest in real
property held by Division.
“Leases”
means
all leases, subleases, licenses, concessions and other agreements (written
or
oral), including all amendments, extensions, renewals, guaranties, and other
agreements with respect thereto, pursuant to which Division holds any Leased
Real Property, including the right to all security deposits and other amounts
and instruments deposited by or on behalf of Sellers thereunder.
“Liability”
means
any liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
Taxes.
“Lien”
means
any mortgage, pledge, lien, charge, conditional sales contract, interests of
third parties, attachment, hypothecation, liability, judgment, easement, other
security interest or any encumbrance of any kind.
“Material
Adverse Effect”
or
“Material
Adverse Change”
means
any effect or change that would be (or could be reasonably expected to be)
materially adverse to the business, assets, condition (financial or otherwise),
operating results, operations, or business prospects of Sellers or Division
(regardless of whether or not such adverse effect or change can be or has been
cured at any time or whether Buyer has knowledge of such effect or change on
the
date hereof); provided,
however,
that the
financial condition, operating results or business prospects of Sellers or
Division of which Buyer has knowledge as of the date of this Agreement shall
not
be deemed a Material Adverse Effect or Material Adverse Change.
“Most
Recent Balance Sheet”
means
the balance sheet contained in the quarterly report filed by Parent on Form
10-Q
for the quarter ended December31, 2005.
“Motion”
has
the
meaning set forth in §5(i)(i) below.
“NCR
Purchase Agreement”
means
the Asset Purchase Agreement entered into on February 19, 2005 by and among
NCR
EasyPoint LLC (f/k/a NCR Texas LLC), NCR Corporation, Parent and Target, as
amended.
“Non-Affiliated
Directors”
means
directors of Parent who are not Affiliates of Buyer.
“Ordinary
Course of Business”
means
the ordinary course of business of Sellers and Division consistent with past
custom and practice (including with respect to quantity and
frequency).
“Original
Agreement”
has
the
meaning set forth in the recitals above.
“Owned
Real Property”
means
all land, together with all buildings, structures, improvements and fixtures
located thereon, including all electrical, mechanical, plumbing and other
building systems, fire protection, security and surveillance systems,
telecommunications, computer wiring, and cable installations, utility
installations, water distribution systems, and landscaping, together with all
easements and other rights and interests appurtenant thereto (including air,
oil, gas, mineral, and water rights), owned by Division or Sellers.
“Parent”
has
the
meaning set forth in the preface above.
“Parent
Indemnified Parties”
has
the
meaning set forth in §6(g)(i) below.
“Parent
Payment Event”
means
(a) the termination of this Agreement pursuant to §8(b)(iv) or §8(b)(v), or (b)
Sellers consummate, publicly announce, or execute documentation providing for
any Acquisition Proposal; provided
that
such consummation, announcement or execution occurs prior to the 18 month
anniversary of the date of the termination of this Agreement pursuant to
§8(b)(ii) or §8(b)(iii)(B).
“Parent
Proxy Statement”
has
the
meaning set forth in §3(g)(i)(C) below.
“Parent
Stockholders Meeting”
has
the
meaning set forth in §5(i)(i) below.
“Party”
has
the
meaning set forth in the preface above.
“Patent
Agencies”
has
the
meaning set forth in §5(k) below.
“Person”
means
an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, any other business entity, or a governmental entity (or any
department, agency, or political subdivision thereof).
“Prohibited
Transaction”
has
the
meaning set forth in ERISA §406 and Code §4975.
“Purchase
Price”
has
the
meaning set forth in §2(f)(i) below.
“Real
Property Laws”
has
the
meaning set forth in §3(l)(vi) below.
“Real
Property Permits”
has
the
meaning set forth in §3(l)(vii) below.
“Reimbursement
Amount”
has
the
meaning set forth in §9(k)(ii) below.
“Representatives”
has
the
meaning set forth in §5(g)(i) below
“SEC”
means
the United States Securities and Exchange Commission.
“SEC
Documents”
has
the
meaning set forth in §3(g)(i)(A) below.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Securities
Exchange Act”
means
the Securities Exchange Act of 1934, as amended.
“Stockholder
Approval”
has
the
meaning set forth in §7(a)(xvii) below.
“Subsidiary”
means,
with respect to any Person, any corporation, limited liability company,
partnership, association, or business entity of which (a) if a corporation,
a
majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers, or trustees thereof is at the time owned or controlled, directly
or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof or (b) if a limited liability company,
partnership, association, or other business entity (other than a corporation),
a
majority of the partnership or other similar ownership interests thereof is
at
the time owned or controlled, directly or indirectly, by that Person or one
or
more Subsidiaries of that Person or a combination thereof and for this purpose,
a Person or Persons own a majority ownership interest in such a business entity
(other than a corporation) if such Person or Persons shall be allocated a
majority of such business entity’s gains or losses or shall be or control any
managing director or general partner of such business entity (other than a
corporation). The term “Subsidiary”
shall
include all Subsidiaries of such Subsidiary.
“Superior
Proposal”
means
any bona fide, unsolicited written Acquisition Proposal on terms that a majority
of the Non-Affiliated Directors determine in good faith, after considering
the
written advice of the financial advisor and outside legal counsel to Parent’s
board of directors, and taking into account all of the terms and conditions
of
the Acquisition Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation, are more favorable and provide
greater value to all of the Parent’s stockholders than as provided under this
Agreement and which is reasonably likely to be consummated on such terms and
for
which financing, to the extent required, is then fully committed.
“Target”
has
the
meaning set forth in the preface above.
“Tax”
or
“Taxes”
means
any federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code §59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, whether computed on a separate or consolidated,
unitary or combined basis or in any other manner, including any interest,
penalty, or addition thereto, whether disputed or not and including any
obligation to indemnify or otherwise assume or succeed to the Tax liability
of
any other Person.
“Tax
Return”
means
any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto,
and
including any amendment thereof.
“Termination
Payments”
means
the payments to be made by Buyer at Closing on behalf of and as directed by
Sellers as set forth by Sellers on §1 of the Disclosure Schedule under the
heading of “Termination Payments” to be paid as consideration on behalf of and
as directed by Sellers for termination of the Employment Agreements, but shall
include only the obligation to make such payments and shall not include any
other liabilities or obligations in connection therewith, including without
limitation tax or withholding liabilities or obligations.
“Third
Party”
means
any Person as defined in §13(d) of the Securities Exchange Act, other than
Parent, Target and their respective Subsidiaries and Affiliates.
“Transaction
Agreements”
has
the
meaning set forth in §3(b) below.
“Treasury
Regulations”
means
the Treasury Regulations promulgated under the Code.
“Voting
Agreements”
means
that certain Exercise and Conversion Agreement dated as of the date of this
Agreement by and among Buyer, Sentinel Technologies, Inc., a Delaware
corporation (“Sentinel
Technologies”),
Parent, and Laurus Master Fund, Ltd, a Cayman Islands company (“Laurus”);
that
certain Voting Agreement dated as of the date of this Agreement by and among
Buyer, Sentinel Technologies, Parent, and Laurus; and that certain Voting
Agreement dated as of the date of this Agreement by and among Buyer, Sentinel
Technologies, Parent and the officers and directors of Parent.
(a)
Purchase
and Sale of Assets.
On
and
subject to the terms and conditions of this Agreement, Buyer agrees to purchase
from Sellers, and Sellers agree to sell, transfer, convey, and deliver to Buyer,
all of the Acquired Assets, free and clear of all Liens, at the Closing for
the
consideration specified below in this §2.
(b)
Assumption
of Liabilities.
On
and
subject to the terms and conditions of this Agreement, Buyer agrees to assume
and become responsible for only the Assumed Liabilities at the Closing. Buyer
will not assume or have any responsibility, however, with respect to any
Liability of Sellers or any Subsidiaries of Parent not included within the
definition of Assumed Liabilities.
(c)
Purchase Price.
At
the
Closing, Buyer agrees to pay to Sellers a purchase price for the Acquired Assets
calculated as set forth below in this §2(c), payable in cash by wire transfer or
delivery of other immediately available funds (the “Purchase
Price”).
The
Purchase Price shall be an amount equal to $15,500,000 (i) minus $100,000 as
consideration for Buyer’s potential liability in connection with the CSS Claim
if the CSS Claim has not been dismissed pursuant to a final non-appealable
court
order prior to the Closing, and (ii) minus $1,629,968 representing the Target’s
negative working capital at December 31, 2005; resulting in a final Purchase
Price of $13,770,032. In addition, at the Closing Buyer shall pay the Cash
Adjustment to Sellers and Sellers shall pay the Bank Account Amount to Buyer
as
set forth in Section 2(g) below.
(d)
Closing.
The
closing of the transactions contemplated by this Agreement (the “Closing”)
shall
take place at the offices of Hensley Kim & Edgington, LLC, 1660 Lincoln
Street, Suite 3050, Denver, Colorado 80264, commencing at 9:00 a.m. local time
on the business day following the satisfaction or waiver of all conditions
to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) and the determination of the Purchase Price
pursuant to this §2 or such other date as the Parties may mutually determine
(the “Closing
Date”).
(e)
Deliveries at Closing.
At
the
Closing, (i) Sellers will deliver to Buyer the various certificates,
instruments, and documents referred to in §7(a) below; (ii) Buyer will deliver
to Sellers the various certificates, instruments, and documents referred to
in
§7(b) below; (iii) Sellers will execute, acknowledge (if appropriate), and
deliver to Buyer (A) assignments (including Intellectual Property transfer
documents) in the forms attached hereto as Exhibit A and (B) such other
instruments of sale, transfer, conveyance, and assignment as Buyer and its
counsel may reasonably request; (iv) Buyer will deliver to Sellers the Purchase
Price and the Cash Adjustment; (v) Sellers shall deliver to Buyer the Bank
Account Amount; and (vi) Buyer will make the Termination Payments.
(f)
December
Balance Sheet.
The
Parties agree that the balance sheet attached hereto as Exhibit C is an accurate
balance sheet prepared in accordance with GAAP for the Target as of December
31,
2005, as adjusted to reflect assumptions and agreements of the Parties with
respect to the Acquired Assets and Assumed Liabilities.
(g)
Cash
Adjustments.
(i)
At
the Closing, Buyer agrees to pay to Sellers the amount of cash Parent has
provided to Target to operate since December 31, 2005 calculated as set forth
below in this §2(g), payable in cash by wire transfer or delivery of other
immediately available funds (the “Cash
Adjustment”).
The
Cash Adjustment shall be an amount equal to $1,941,718 as the amount of Target’s
cash on hand at December 31, 2005 (A) plus $467,000 advanced by Parent to Target
in January 2006, and (B) plus $50,000 as an allocation to Seller of Target’s
profits for the first fiscal quarter of 2006; resulting in a final Cash
Adjustment of $2,458,718.
(ii)
At
the Closing, Sellers agree to close all of the Division’s bank accounts with JP
Morgan Chase Bank, N.A., as well as all other accounts with any other banking
or
similar institutions (the “Bank
Accounts”)
and to
pay to Buyer by wire transfer or delivery of other immediately available funds
an amount equal to the amount of cash in the Bank Accounts as of the Closing
(the “Bank
Account Amount”).
Buyer
and Sellers shall jointly instruct the banks at which the Bank Accounts were
located to honor all checks drawn on the Bank Accounts subsequent to the closing
of the Bank Accounts with proceeds from the Buyer’s bank accounts and Sellers
shall have no further liability for such checks.
(h)
Purchase
Price Allocation.
(i)
Within 60 days after the Closing Date, Buyer will prepare an allocation of
the
Purchase Price (and all other capitalized costs) among the Acquired Assets
in
accordance with Code §1060 and the Treasury Regulations thereunder (and any
similar provision of state, local or foreign law, as appropriate), and deliver
to Parent a written draft of the allocation (the “Draft
Allocation”).
Sellers shall timely and properly prepare, execute, file and deliver all such
documents, forms and other information as Buyer may reasonably request to
prepare the Draft Allocation.
(ii)
If
Parent has any objections to the Draft Allocation, Parent shall deliver a
written detailed statement describing its objections to Buyer within 15 days
after receiving the Draft Allocation. Buyer and Parent shall use reasonable
efforts to resolve any such objections themselves. If the Parties do not obtain
a final resolution within 30 days after Buyer has received the statement of
objections, however, Buyer and Parent shall select an accounting firm mutually
acceptable to the Parties to resolve any remaining objections. If Buyer and
Parent are unable to agree on the choice of an accounting firm, they will select
a nationally-recognized accounting firm by lot (after excluding their respective
regular outside accounting firms). The determination of any accounting firm
so
selected shall be set forth in writing and shall be conclusive and binding
upon
the Parties. Buyer shall revise the Draft Allocation in writing as appropriate
to reflect the resolution of any objections thereto pursuant to this §2(h)(ii).
The “Final
Allocation”
shall
mean the written Draft Allocation together with any revisions thereto pursuant
to this §2(h)(ii).
(iii)
In
the event the Parties submit any unresolved objections to an accounting firm
for
resolution as provided in §2(h)(ii) above, Buyer and Sellers shall equally share
responsibility for the fees and expenses of the accounting firm.
(iv)
Buyer and Sellers and their Affiliates shall report, act, and file Tax Returns
(including, but not limited to Internal Revenue Service Form 8594) in all
respects and for all purposes consistent with the Final Allocation. Neither
Buyer nor Sellers shall take any position (whether in audits, tax returns or
otherwise) that is inconsistent with the Final Allocation unless required to
do
so by applicable law.
§3. |
Sellers’
Representations and Warranties.
|
Each
of
Sellers jointly and severally represents and warrants to Buyer that the
statements contained in this §3 are correct and complete as of the date of the
Original Agreement and will be correct and complete as of the Closing Date
(as
though made then and as though the Closing Date were substituted for the date
of
this Agreement throughout this §3), except as set forth in the disclosure
schedule accompanying this Agreement (the “Disclosure
Schedule”).
The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this §3.
(a)
Organization.
Other
than Target, each of Parent and Parent’s Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the State
of
Delaware. Target is a limited partnership duly organized, validly existing,
and
in good standing under the laws of the State of Delaware. Sellers are duly
authorized to conduct business and are in good standing under the laws of each
jurisdiction where such qualification is required except to the extent that
any
failure to be so qualified would not result in a Material Adverse Effect.
Sellers have full power and authority and all licenses, permits, consents,
approvals and authorizations necessary to carry on the businesses in which
they
are engaged and in which they presently propose to engage and to own and use
the
properties owned and used by them, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on
Sellers. §3(a) of the Disclosure Schedule lists the directors and officers each
of Sellers. Sellers have delivered or made available to Buyer correct and
complete copies of the certificate of incorporation and bylaws of Parent and
the
certificate of limited partnership and limited partnership agreement of Target
(each as amended to date). The minute books (containing the records of meetings
or actions of the stockholders, partners, board of directors, and any
committees), the stock certificate books, the stock record books and other
records detailing the actions of each of Sellers, as applicable, are correct
and
complete. Parent is not in violation of any provision of its certificate of
incorporation or bylaws. Target is not in violation of any provision of its
certificate of limited partnership or limited partnership
agreement.
(b)
Authorization
of Transaction.
Parent
has full power and authority (including full corporate power and authority)
to
execute and deliver this Agreement, the Voting Agreements and all other
agreements contemplated hereunder (collectively, the “Transaction
Agreements”)
and to
perform its obligations thereunder. Other than the Voting Agreements, Target
has
full power and authority (including full limited partnership power and
authority) to execute and deliver the Transaction Agreements and to perform
its
obligations thereunder. Other than compliance with any applicable requirements
of the Securities Act or the Securities Exchange Act and as set forth on §3(b)
of the Disclosure Schedule, Sellers need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government,
governmental agency or any third party in order to enter into the Transaction
Agreements or to consummate the transactions contemplated thereunder. Tidel
Cash
Systems, Inc. and Tidel Services, Inc. have full power and authority as the
partners of Target to approve and adopt this Agreement and the transactions
contemplated hereby. The execution, delivery and performance of the Transaction
Agreements and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of Sellers and
Subsidiaries of Parent (including, without limitation, approval of Parent’s
board of directors and the approval Tidel Cash Systems, Inc. and Tidel Services,
Inc. as the partners of Target), subject only to the approval and adoption
of
this Agreement and the transactions contemplated hereby at the Parent
Stockholders Meeting. Each of the Transaction Agreements have been, or will
be,
duly executed and delivered by each of Sellers and constitute, or will
constitute when executed and delivered, the legal, valid and binding obligation
of each of Sellers, enforceable against each of Sellers in accordance with
their
terms, except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors’ rights
generally, and is subject to general principles of equity. The board of
directors of Parent has (A) declared this Agreement and the transactions
contemplated hereby advisable and fair to and in the best interest of Sellers
and stockholders of Parent, (B) approved this Agreement and the other
Transaction Agreements in accordance with the law of the State of Delaware,
(C) resolved to recommend the approval of this Agreement by stockholders of
Parent and (D) directed that this Agreement be submitted to the
stockholders of Parent for approval at the Parent Stockholders
Meeting.
(c)
Non-contravention.
Neither
the execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in §2 above), will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which Sellers
are subject or any provision of the certificate of incorporation or bylaws
of
Parent or the certificate of limited partnership or the limited partnership
agreement of Target or (ii) conflict with, result in a breach of, constitute
a
default under, result in the acceleration of, create in any party the right
to
accelerate, terminate, modify, or cancel, or require any notice under any
material agreement, contract, lease, license, instrument, or other arrangement
to which either of Sellers is party or by which either of Sellers is bound
or to
which any of their respective assets is subject (or result in the imposition
of
any Lien upon any of its assets).
(d)
Brokers’
Fees and Fairness Opinion.
Except
for Capitalink, L.C., a copy of whose engagement agreement has been provided
to
Buyer, there is no investment banker, broker, finder or other intermediary
that
has been retained by or is authorized to act on behalf of Sellers who might
be
entitled to any fee or commission from Sellers or any of their Affiliates in
connection with the transactions contemplated by this Agreement. Parent has
received the opinion of Capitalink, L.C., financial advisor to Sellers, to
the
effect that, as of the date of this Agreement, the transactions contemplated
by
this Agreement are fair to the stockholders of Parent from a financial point
of
view.
(e)
Title
to Assets.
Subject
to the approval of this Agreement and the transactions contemplated hereby
by
the stockholders of Parent and except as set forth on §3(e) of the Disclosure
Schedule, Sellers have good and marketable title to all of the Acquired Assets,
free and clear of any Liens or restrictions on transfer. The Acquired Assets
constitute all material assets required to operate, and currently used in the
operation of Division.
(f)
Subsidiaries.
Other
than Target, each of Parent’s direct or indirect Subsidiaries other than AnyCard
International, Inc. (each a “Division
Subsidiary”)
is a
corporation or limited partnership duly organized, validly existing, and in
good
standing under the laws of the jurisdiction of its organization. Each Division
Subsidiary is duly authorized to conduct business and is in good standing under
the laws of each jurisdiction where such qualification is required except to
the
extent that the failure to be so qualified would not constitute a Material
Adverse Effect. Each Division Subsidiary has full corporate or limited
partnership power and authority and all licenses, permits, and authorizations
necessary to carry on the business in which it is engaged and in which it
presently proposes to engage and to own and use the properties owned and used
by
it. Sellers have delivered to Buyer correct and complete copies of the charter,
bylaws, certificate of limited partnership and limited partnership agreement
of
each Division Subsidiary (as amended to date). Target has no Subsidiaries.
Other
than Target, none of the Acquired Assets are owned or held by any Subsidiaries
of Parent. Other than administrative functions, the business and operations
of
Division have been solely conducted through Target.
(g)
SEC
Filings and Financial
Statements.
(i)
SEC
Filings.
(A)
Parent has delivered or made available to Buyer true and complete copies of
Parent’s (i) combined annual report on Form 10-K for its fiscal years ended
September 30, 2004 and 2003, (ii) quarterly reports on Form 10-Q for its fiscal
quarters ended June 30, 2005, March 31, 2005 and December 31, 2004, (iii) its
proxy or information statements relating to meetings of, or actions taken
without a meeting by, the stockholders of Parent held since June 30, 2002,
and
(iv) all of its other reports, statements, schedules and registration statements
(and all exhibits, attachments, schedules and appendixes filed with the
foregoing) filed with the SEC since September 30, 2004 (collectively, the
“SEC
Documents”).
(B)
As of
its filing date (or, if amended or superseded by a filing prior to the date
hereof, on the date of such filing), each SEC Document filed pursuant to the
Securities Exchange Act did not, and each such SEC Document filed subsequent
to
the date hereof will not, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(C)
The
proxy statement of Parent to be filed with the SEC in connection with the Parent
Stockholders Meeting (the “Parent
Proxy Statement”)
and
any amendments or supplements thereto will, when filed, comply as to form in
all
material respects with the applicable requirements of the Securities Exchange
Act. At the time the Parent Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of Parent, and at the time such
stockholders vote on the approval and adoption of this Agreement and the
transactions contemplated hereby, the Amendment and the Motion, and at the
Closing, the Parent Proxy Statement, as supplemented or amended, if applicable,
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. The
representations and warranties contained in this subsection will not apply
to
statements or omissions included in the Parent Proxy Statement based upon
information furnished to Parent in writing by Buyer specifically for use
therein.
(ii)
Financial Statements.
(A)
The
audited consolidated financial statements and unaudited consolidated interim
financial statements of Parent included in the SEC Documents (the “Financial
Statements”)
complied as to form in all material respects with the applicable rules and
regulations of the SEC with respect thereto and fairly present, in conformity
with GAAP applied on a consistent basis (except as may be indicated in the
notes
thereto), the consolidated financial position of Parent and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial
statements).
(B)
Except as set forth in the SEC Documents, the books and records of Parent
(i) have been maintained in accordance with good business practices on a
basis consistent with prior years, (ii) state in reasonable detail the
material transactions and dispositions of the assets of Parent and Parent’s
Subsidiaries and (iii) accurately and fairly reflect the basis for the
consolidated financial statements of Parent filed with the SEC with each of
Parent’s reports on Forms 10-K and 10-Q set forth in §3(g)(i) above.
(h)
Events
Subsequent to Most Recent Balance Sheet.
Since
the
date of the Most Recent Balance Sheet, there has not been any Material Adverse
Change. Without limiting the generality of the foregoing and solely with respect
to the Division and except as set forth on §3(h) of the Disclosure Schedule,
since that date:
(i)
Sellers have not sold, leased, transferred, or assigned any of their assets,
tangible or intangible, other than for a fair consideration in the Ordinary
Course of Business;
(ii)
Sellers have not entered into any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) either involving
more than $10,000 or outside the Ordinary Course of Business;
(iii)
no
party (including Sellers) has accelerated, terminated, modified, or cancelled
any agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) involving more than $10,000 to which either
of
Sellers is a party or by which either of them is bound;
(iv)
Sellers have not imposed or permitted to exist any Lien upon any of its assets,
tangible or intangible;
(v)
Sellers have not made any capital expenditure (or series of related capital
expenditures) either involving more than $10,000 or outside the Ordinary Course
of Business;
(vi)
Sellers have not made any capital investment in, any loan to, or any acquisition
of the securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) either involving more than $10,000 or
outside the Ordinary Course of Business;
(vii)
Sellers have not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(viii)
Sellers have not cancelled, compromised, waived, or released any right or claim
(or series of related rights and claims) either involving more than $10,000
or
outside the Ordinary Course of Business;
(ix)
Sellers have not transferred, assigned, or granted any license or sublicense
of
any rights under or with respect to any Intellectual Property;
(x)
there
has been no change made or authorized in the certificate of incorporation or
bylaws of Parent or the certificate of limited partnership or limited
partnership agreement of Target;
(xi)
Sellers have not experienced any material damage, destruction, or loss (whether
or not covered by insurance) to their property;
(xii)
other than the termination of the Employment Agreements, Sellers have not made
any loan to, or entered into any other transaction with, any of the directors,
officers, and employees of Sellers or any Subsidiaries of Parent;
(xiii)
other than the termination of the Employment Agreements, Sellers have not
entered into any employment contract or collective bargaining agreement, written
or oral, or modified the terms of any such existing contract or
agreement;
(xiv)
other than the payment of reasonable and customary end of year holiday bonuses,
Sellers have not granted any increase in the base compensation of any of the
directors, officers, and employees of Sellers outside the Ordinary Course of
Business;
(xv)
other than the termination of the Employment Agreements, Sellers have not
adopted, amended, modified, or terminated any bonus, profit sharing, incentive,
severance, or other plan, contract, or commitment for the benefit of any of
the
directors, officers, and employees of Sellers (or taken any such action with
respect to any other Employee Benefit Plan);
(xvi)
other than the termination of the Employment Agreements, Sellers have not made
any other change in employment terms for any of the directors, officers, and
employees of Sellers outside the Ordinary Course of Business;
(xvii)
there has not been any other material occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of
Business;
(xviii)
Sellers have not discharged a material Liability or Lien outside the Ordinary
Course of Business;
(xix)
Sellers have not disclosed any Confidential Information except pursuant to
a
valid, binding and enforceable non-disclosure agreement;
(xx)
there has not been any change in any method of accounting or accounting
principles or practice by Sellers, except for any such change required by reason
of a concurrent change in GAAP or Regulation S-X under the Securities Exchange
Act;
(xxi)
there has not been any Tax election made or changed, any annual Tax accounting
period changed, any method of Tax accounting adopted or changed, any amended
Tax
Returns or claims for Tax refunds filed, any closing agreement entered into,
any
Tax claim, audit or assessment settled, or any right to claim a Tax refund,
offset or other reduction in Tax liability surrendered; and
(xxii)
Sellers have not committed to any of the foregoing.
(i)
Undisclosed
Liabilities.
Except
as
set forth on §3(i) of the Disclosure Schedule, Sellers do not have any Liability
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of
them
giving rise to any Liability) relating to Division, except for (i) Liabilities
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes
thereto) and (ii) Liabilities that have arisen after the date of the Most Recent
Balance Sheet in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach
of
contract, breach of warranty, tort, infringement, or violation of law).
(j)
Legal
Compliance.
Each
of
Sellers, and their respective predecessors and Affiliates has complied in all
material respects with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder
and including the Foreign Corrupt Practices Act, 15 U.S.C. §78dd-1, et seq.) of
federal, state, local, and foreign governments (and all agencies thereof),
and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging
any
failure so to comply.
(k)
Tax
Matters.
(i)
Sellers have timely filed all Tax Returns that Sellers were required to file.
All such Tax Returns were correct and complete in all material respects. All
Taxes owed by Sellers (whether or not shown on any Tax Return) have been paid
unless they are currently being contested in good faith as set forth on §3(k)(i)
of the Disclosure Schedule and a reserve therefore is set forth on the Most
Recent Balance Sheet. Sellers are not beneficiaries of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction in which Sellers do not file Tax Returns that Sellers are
or
may be subject to taxation by that jurisdiction. There are no Liens on any
of
the assets of Division or Sellers that arose in connection with any failure
(or
alleged failure) to pay any Tax.
(ii)
Sellers have withheld and paid all Taxes required to have been withheld and
paid
in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party and all Forms W-2 and
1099 required with respect thereto have been properly completed and timely
filed.
(iii)
Sellers do not, and no officer or director of Sellers or any Subsidiaries of
Parent (or any employee responsible for Tax matters expect any authority to
assess any additional Taxes with respect to Sellers for any period for which
Tax
Returns have been filed. There is no dispute or claim concerning any Tax
Liability of Sellers either (A) claimed or raised by any authority in writing
or
(B) as to which Sellers, or any officer or director of Sellers or any
Subsidiaries of Parent (or employees responsible for Tax matters), has Knowledge
based upon personal contact with any agent of such authority. §3(k)(iii) of the
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed by Sellers for taxable periods ended on or after September 30,
2002, indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. Sellers have delivered
or
made available to Buyer correct and complete copies of all income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by Sellers since September 30, 2002.
(iv)
Sellers have not waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or
deficiency.
(v)
None
of the Assumed Liabilities or the Termination Payments is, or will become,
an
obligation to make a payment that is not deductible under Code §280G.
(l)
Real
Property.
(i)
Sellers have no Owned Real Property and no Owned Real Property or any interest
therein is used by Division in operating its business as currently conducted
or
as proposed to be conducted. Division is not a party to any agreement or option
to purchase any real property or interest therein.
(ii)
§3(l)(ii) of the Disclosure Schedule sets forth the address of each parcel of
Leased Real Property, and a true and complete list of all Leases for each such
Leased Real Property (including the date and name of the parties to such Lease
document). Sellers have delivered to Buyer a true and complete copy of each
such
Lease document, and in the case of any oral Lease, a written summary of the
material terms of such Lease. With respect to each of the Leases:
(A)
such
Lease is legal, valid, binding, enforceable and in full force and
effect;
(B)
the
transactions contemplated by this Agreement do not require the consent of any
other party to such Lease, will not result in a breach of or default under
such
Lease, and will not otherwise cause such Lease to cease to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the Closing;
(C)
Sellers’ possession and quiet enjoyment of the Leased Real Property under such
Lease has not been disturbed and there are no disputes with respect to such
Lease;
(D)
Neither Sellers, nor any other party to the Lease is in breach of or default
under such Lease, and no event has occurred or circumstance exists that, with
the delivery of notice, the passage of time or both, would constitute such
a
breach or default, or permit the termination, modification or acceleration
of
rent under such Lease;
(E)
no
security deposit or portion thereof deposited with respect to such Lease has
been applied in respect of a breach of or default under such Lease that has
not
been redeposited in full;
(F)
Sellers do not owe, and will not owe in the future, any brokerage commissions
or
finder's fees with respect to such Lease;
(G)
the
other party to such Lease is not an Affiliate of, and otherwise does not have
any economic interest in, Sellers;
(H)
Sellers have not subleased, licensed or otherwise granted any Person the right
to use or occupy the Leased Real Property or any portion thereof;
(I)
Sellers have not collaterally assigned or granted any other Lien in such Lease
or any interest therein; and
(J)
there
are no Liens on the estate or interest created by such Lease.
(iii)
The
Leased Real Property identified in §3(l)(iii) of the Disclosure Schedule
comprises all of the real property used or intended to be used in Division's
business.
(iv)
To
Sellers’ Knowledge, all buildings, structures, fixtures, building systems and
equipment, and all components thereof, including the roof, foundation,
load-bearing walls and other structural elements thereof, heating, ventilation,
air conditioning, mechanical, electrical, plumbing and other building systems,
environmental control, remediation and abatement systems, sewer, storm and
waste
water systems, irrigation and other water distribution systems, parking
facilities, fire protection, security and surveillance systems, and
telecommunications, computer wiring, and cable installations, included in the
Leased Real Property (the “Improvements”)
are in
good condition and repair and sufficient for the operation of Division's
business. To Sellers’ Knowledge, there are no structural deficiencies or latent
defects affecting any of the Improvements and there are no facts or conditions
affecting any of the Improvements that would, individually or in the aggregate,
interfere in any respect with the use or occupancy of the Improvements or any
portion thereof in the operation of Division's business as currently conducted
thereon.
(v)
To
Sellers’ Knowledge, there is no condemnation, expropriation or other proceeding
in eminent domain, pending or threatened, affecting any parcel of Leased Real
Property or any portion thereof or interest therein. To Sellers’ Knowledge,
there is no injunction, decree, order, writ or judgment outstanding, nor any
claim, litigation, administrative action or similar proceeding, pending or
threatened, relating to the ownership, lease, use or occupancy of the Leased
Real Property or any portion thereof, or the operation of Division's business
as
currently conducted thereon.
(vi)
The
Leased Real Property is in material compliance with all applicable building,
zoning, subdivision, health and safety and other land use laws, including the
Americans with Disabilities Act of 1990, as amended, and all insurance
requirements affecting the Leased Real Property (collectively, the “Real
Property Laws”),
and
the current use and occupancy of the Leased Real Property and operation of
Division's business thereon does not materially violate any Real Property Laws.
Sellers have not received any notice of violation of any Real Property Law
and,
to Sellers’ Knowledge, there is no Basis for the issuance of any such notice or
the taking of any action for such violation.
(vii)
To
Sellers’ Knowledge, all material water, oil, gas, electrical, steam, compressed
air, telecommunications, sewer, storm and waste water systems and other utility
services or systems for the Leased Real Property have been installed and are
operational and sufficient for the operation of Division's business as currently
conducted thereon.
(viii)
All material certificates of occupancy, permits, licenses, franchises, approvals
and authorizations (collectively, the “Real
Property Permits”)
of all
governmental authorities, board of fire underwriters, association or any other
entity having jurisdiction over the Leased Real Property that are required
or
appropriate to use or occupy the Leased Real Property or operate Division's
business as currently conducted thereon, have been issued and are in full force
and effect. §3(l)(viii) of the Disclosure Schedule lists all material Real
Property Permits held by Sellers with respect to each parcel of Leased Real
Property. Sellers have delivered to Buyer a true and complete copy of all Real
Property Permits. Sellers have not received any notice from any governmental
authority or other entity having jurisdiction over the Leased Real Property
threatening a suspension, revocation, modification or cancellation of any Real
Property Permit and, to Sellers’ Knowledge, there is no Basis for the issuance
of any such notice or the taking of any such action. The Real Property Permits
are transferable to Buyer without the consent or approval of the issuing
governmental authority or entity; no disclosure, filing or other action by
Sellers is required in connection with such transfer, and Buyer shall not be
required to assume any additional liabilities or obligations under the Real
Property Permits as a result of such transfer.
(ix)
To
Sellers’ Knowledge, the classification of each parcel of Leased Real Property
under applicable zoning laws, ordinances and regulations permits the use and
occupancy of such parcel and the operation of Division's business as currently
conducted thereon, and permits the Improvements located thereon as currently
constructed, used and occupied.
(m)
Intellectual
Property.
(i)
Sellers own and possess or have the right to use pursuant to a valid and
enforceable written license, sublicense, agreement, or permission all
Intellectual Property necessary or desirable for the operation of Division
as
presently conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by Sellers immediately prior to the Closing
will be owned or available for use by Buyer on identical terms and conditions
immediately subsequent to the Closing. Sellers have taken all necessary and
desirable action to maintain and protect each item of Intellectual Property
that
it owns or uses.
(ii)
Sellers have not interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of third parties.
Other
than the complaint filed by Corporate Safe Specialists, Inc. against Sellers
on
June 9, 2005 (the “CSS
Claim”),
none
of Sellers, any Subsidiaries of Parent or any of their officers and directors
(and employees with responsibility for Intellectual Property matters) have
ever
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that Sellers must license or refrain from using any Intellectual Property rights
of any third party) that has not been resolved pursuant to a final
non-appealable court order or binding effective settlement and release agreement
that does not have a Material Adverse Effect. To Sellers’ Knowledge, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of Sellers.
(iii)
§3(m)(iii) of the Disclosure Schedule identifies each patent or registration
which has been issued to Sellers with respect to any of their Intellectual
Property, identifies each pending patent application or application for
registration Sellers have made with respect to any of their Intellectual
Property, and identifies each license, sublicense, agreement, or other
permission that Sellers have granted to any third party with respect to any
of
their Intellectual Property (together with any exceptions). Sellers have
delivered or made available to Buyer correct and complete copies of all such
patents, registrations, applications, licenses, sublicenses, agreements, and
permissions (as amended to date) and have made available to Buyer correct and
complete copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. §3(m)(iii) of the Disclosure
Schedule also identifies each registered or unregistered trademark, service
mark, trade name, corporate name or Internet domain name, computer software
item
(other than commercially available off-the-shelf software purchased or licensed
for less than a total cost of $10,000 in the aggregate) and each material
registered or unregistered copyright used by Sellers in connection with the
business of Division. With respect to each item of Intellectual Property
required to be identified in §3(m)(iii) of the Disclosure Schedule:
(A)
Sellers own and possess all right, title, and interest in and to the item,
free
and clear of any Lien, license, or other restriction or limitation regarding
use
or disclosure;
(B)
the
item is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(C)
except for the CSS Claim, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to Sellers’ Knowledge, is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item, and there are no grounds for the same;
(D)
Sellers have not agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the item;
and
(E)
no
loss or expiration of the item is threatened, pending, or reasonably
foreseeable, except for patents or copyrights expiring at the end of their
statutory terms (and not as a result of any act or omission by Sellers,
including, without limitation, a failure by Sellers to pay any required
maintenance fees).
(iv)
§3(m)(iv) of the Disclosure Schedule identifies each item of Intellectual
Property that any third party owns and that Division uses pursuant to license,
sublicense, agreement, or permission. Sellers have delivered or made available
to Buyer correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each item
of
Intellectual Property required to be identified in §3(m)(iv) of the Disclosure
Schedule:
(A)
the
license, sublicense, agreement, or permission covering the item is legal, valid,
binding, enforceable, and in full force and effect;
(B)
the
license, sublicense, agreement, or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby (including the
assignments and assumptions referred to in §2 above);
(C)
Sellers are not and, to Sellers’ Knowledge, no other party to the license,
sublicense, agreement, or permission is in breach or default, and no event
has
occurred that with notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration thereunder;
(D)
no
party to the license, sublicense, agreement, or permission has repudiated any
provision thereof;
(E)
with
respect to each sublicense, the representations and warranties set forth in
subsections (A) through (D) above are true and correct with respect to the
underlying license;
(F)
to
Sellers’ Knowledge, the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G)
no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or
demand is pending or, to Seller’s Knowledge, is threatened that challenges the
legality, validity, or enforceability of the underlying item of Intellectual
Property, and, to Sellers’ Knowledge, there are no grounds for the same;
and
(H)
Sellers have not granted any sublicense or similar right with respect to the
license, sublicense, agreement, or permission.
(v)
Except for the CSS Claim, to Sellers’ Knowledge: (A) Sellers have not in the
past nor will interfere with, infringe upon, misappropriate, or otherwise come
into conflict with, any Intellectual Property rights of third parties as a
result of the continued operation of the business of Division as presently
conducted and as presently proposed to be conducted; (B) there are no facts
that
indicate a likelihood of any of the foregoing; and (C) no notices regarding
any
of the foregoing (including, without limitation, any demands or offers to
license any Intellectual Property from any third party) have been
received.
(vi)
Sellers have taken all necessary and desirable actions to maintain and protect
all of the Intellectual Property and will continue to maintain and protect
all
of the Intellectual Property so as not to adversely affect the validity or
enforceability thereof. To the Knowledge of Sellers, the owners of any of the
Intellectual Property licensed to Sellers in connection with the business of
Division have taken all necessary and desirable actions to maintain and protect
the Intellectual Property covered by such license.
(vii)
Sellers have complied with and are presently in compliance in all material
respects with all foreign, federal, state, local, governmental (including,
but
not limited to, the Federal Trade Commission and State Attorneys General),
administrative or regulatory laws, regulations, guidelines and rules applicable
to any Intellectual Property and Sellers shall take all steps necessary to
ensure such compliance until the Closing.
(n)
Tangible
Assets.
Sellers
own or lease all buildings, machinery, equipment, and other tangible assets
necessary for the conduct of the business of Division as presently conducted
and
as presently proposed to be conducted. Each such tangible asset is free from
all
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently is
used
and presently is proposed to be used.
(o)
Inventory.
The
inventory of Division is owned by Sellers and consists of raw materials and
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth
on
the face of the Most Recent Balance Sheet (rather than in any notes thereto)
as
adjusted for the passage of time through the Closing Date in accordance with
the
past custom and practice of Division.
(p)
Contracts.
§3(p)
of
the Disclosure Schedule lists the following contracts and other agreements
relating to Division:
(i)
any
agreement (or group of related agreements) for the lease of personal property
to
or from any Person providing for lease payments in excess of $10,000 per
annum;
(ii)
any
agreement (or group of related agreements) for the purchase or sale of raw
materials, commodities, supplies, products, or other personal property, or
for
the furnishing or receipt of services, the performance of which will extend
over
a period of more than one year, result in a loss to Division, or involve
consideration in excess of $10,000;
(iii)
any
agreement concerning a partnership or joint venture;
(iv)
any
agreement (or group of related agreements) under which it has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized
lease obligation, in excess of $10,000 or under which it has imposed a Lien
on
any of its assets, tangible or intangible;
(v)
any
agreement concerning confidentiality or non-competition;
(vi)
any
material agreement involving either Seller on the one hand and any Affiliate
of
Parent or Parent’s Subsidiaries on the other hand;
(vii)
any
profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other plan or arrangement for the benefit of the
current or former directors, officers, and employees of Sellers or any
Subsidiaries of Parent;
(viii)
any collective bargaining agreement;
(ix)
any
agreement for the employment of any individual on a full-time, part-time,
consulting, or other basis providing annual compensation in excess of $50,000
or
providing any severance benefits;
(x)
any
agreement under which it has advanced or loaned any amount to any of the
directors, officers, and employees of Sellers or Subsidiaries of Parent outside
the Ordinary Course of Business;
(xi)
any
agreement under which the consequences of a default or termination could have
a
Material Adverse Effect;
(xii)
any
settlement, conciliation or similar agreement, the performance of which will
involve payment after the Closing Date of consideration in excess of
$10,000;
(xiii)
any agreement under which Sellers have advanced or loaned any other Person
amounts in the aggregate exceeding $10,000; or
(xiv)
any
other agreement (or group of related agreements) the performance of which
involves consideration in excess of $10,000.
Sellers
have delivered or made available to Buyer a correct and complete copy of each
agreement (as amended to date) listed in §3(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue
to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in §2 above); (C) no
party is in breach or default, and no event has occurred that with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement. Other than as explicitly identified
in §3(p) of the Disclosure Schedule, all such contracts are freely assignable to
Buyer.
(q)
Notes
and Accounts Receivable.
All
notes
and accounts receivable of Sellers relating to Division are reflected properly
on their books and records, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and will be collected in accordance
with their terms at their recorded amounts except as set forth on §3(q) of the
Disclosure Schedule, subject only to the reserve for bad debts set forth on
the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with
the
past custom and practice of Division.
(r)
Powers
of Attorney.
There
are
no outstanding powers of attorney executed on behalf of Sellers.
(s)
Insurance.
Sellers
have in full force and effect insurance policies insuring the properties and
assets of Division (including the Acquired Assets). With respect to each such
insurance policy: (A) the policy is legal, valid, binding, enforceable, and
in
full force and effect; (B) neither Sellers nor, to Sellers’ Knowledge, any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred that,
with notice or the lapse of time, would constitute such a breach or default,
or
permit termination, modification, or acceleration, under the policy; and (C)
neither Sellers nor, to Sellers’ Knowledge, any other party to the policy has
repudiated any provision thereof. Sellers currently are covered, and have been
covered during the past five (5) years, by insurance in scope and amount
customary and reasonable for the business in which it has engaged during the
aforementioned period.
(t)
Litigation.
§3(t)
of
the Disclosure Schedule sets forth each instance in which Sellers (i) are
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge relating to Division or (ii) are a party or, to Sellers’ Knowledge, are
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in §3(t) of the Disclosure Schedule would reasonably be
expected to result in any Material Adverse Change. None of Sellers or the
directors and officers of Sellers or any Subsidiaries of Parent (and employees
with responsibility for litigation matters) have any reason to believe that
any
such action, suit, proceeding, hearing, or investigation may be brought or
threatened against Sellers.
(u)
Product
Warranty.
Each
product manufactured, sold, leased, or delivered by Division has been in
conformity with all applicable contractual commitments and all express and
implied warranties, and Sellers do not have any Liability (and there is no
Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability) for replacement or repair thereof or other damages in connection
therewith, subject only to the reserve for product warranty claims set forth
on
the face of the Most Recent Balance Sheet (rather than in any notes thereto)
as
adjusted for the passage of time through the Closing Date in accordance with
the
past custom and practice of Division. No product manufactured, sold, leased,
or
delivered by Division is subject to any guaranty, warranty, or other indemnity
beyond the applicable standard terms and conditions of sale or lease.
(v)
Product
Liability.
Sellers
do not have any Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or
demand against any of them giving rise to any Liability) arising out of any
injury to individuals or property as a result of the ownership, possession,
or
use of any product manufactured, sold, leased, or delivered by
Division.
(w)
Employees.
(i)
With
respect to the business of Division:
(A)
there
is no collective bargaining agreement or relationship with any labor
organization;
(B)
to
the Knowledge of Sellers, no executive or manager of Division (1) has any
present intention to terminate his or her employment, or (2) is a party to
any
confidentiality, non-competition, proprietary rights or other such agreement
between such employee and any Person besides Sellers that would be material
to
the performance of such employee’s employment duties, or the ability of Sellers
or Buyer to conduct the business of Division;
(C)
no
labor organization or group of employees has filed any representation petition
or made any written or oral demand for recognition;
(D)
to
the Knowledge of Sellers, no union organizing or decertification efforts are
underway or threatened and no other question concerning representation
exists;
(E)
no
labor strike, work stoppage, slowdown, or other material labor dispute has
occurred, and none is underway or, to the Knowledge of Sellers,
threatened;
(F)
there
is no workman’s compensation liability, experience or matter that would
reasonably be expected to have a Material Adverse Effect;
(G)
there
is no employment-related charge, complaint, grievance, investigation, inquiry
or
obligation of any kind, pending or, to Sellers’ Knowledge, threatened in any
forum, relating to an alleged violation or breach by Sellers (or their officers
or directors) of any law, regulation or contract; and
(H)
no
employee or agent of Sellers has committed any act or omission giving rise
to
material liability for any violation or breach identified in subsection (G)
above.
(ii)
Except as set forth in §3(w)(ii) of the Disclosure Schedule, (A) there are no
employment contracts or severance agreements with any employees of Sellers
engaged in the operation of Division, and (B) there are no written personnel
policies, rules or procedures applicable to employees of Sellers engaged in
the
operation of Division.
(iii)
With respect to this transaction, any notice required under any law or
collective bargaining agreement has been given, and all bargaining obligations
with any employee representative have been, or prior to the Closing Date will
be, satisfied. Sellers have not implemented any plant closing or layoff of
employees that could implicate the Worker Adjustment and Retraining Notification
Act of 1988, as amended, or any similar foreign, state, or local law, regulation
or ordinance, and no such action will be implemented without advance
notification to Buyer.
(iv)
Buyer will not have as a consequence of any transaction contemplated by the
Transaction Agreements, any liability or obligation with respect to or under
any
agreement between either of Sellers and any employee.
(x)
Employee
Benefit Plans.
(i)
§3(x)(i) of the Disclosure Schedule lists each Employee Benefit Plan that
Sellers maintain, to which Sellers contribute or have any obligation to
contribute, or with respect to which Sellers have any Liability. Sellers have
not, nor has any Subsidiary or Affiliate of Parent, been parties to a
multi-employer defined benefit plan within the meaning of ERISA.
(A)
Each
such Employee Benefit Plan (and each related trust, insurance contract, or
fund)
has been maintained, funded and administered in accordance with the terms of
such Employee Benefit Plan and the terms of any applicable collective bargaining
agreement and complies in form and in operation in all respects with the
applicable requirements of ERISA, the Code, and other applicable
laws.
(B)
All
required reports and descriptions (including Form 5500 annual reports, summary
annual reports, and summary plan descriptions) have been timely filed and/or
distributed in accordance with the applicable requirements of ERISA and the
Code
with respect to each such Employee Benefit Plan. The requirements of COBRA
have
been met with respect to each such Employee Benefit Plan and each Employee
Benefit Plan maintained by Sellers or an ERISA Affiliate that is an Employee
Welfare Benefit Plan subject to COBRA.
(C)
All
contributions (including all employer contributions and employee salary
reduction contributions) that are due have been made within the time periods
prescribed by ERISA and the Code to each such Employee Benefit Plan that is
an
Employee Pension Benefit Plan and all contributions for any period ending on
or
before the Closing Date that are not yet due have been made to each such
Employee Pension Benefit Plan or accrued in accordance with the past custom
and
practice of Sellers. All premiums or other payments for all periods ending
on or
before the Closing Date have been paid with respect to each such Employee
Benefit Plan that is an Employee Welfare Benefit Plan.
(D)
Each
such Employee Benefit Plan that is intended to meet the requirements of a
“qualified plan” under Code §401(a) has received a determination from the
Internal Revenue Service that such Employee Benefit Plan is so qualified, and
nothing has occurred since the date of such determination that could adversely
affect the qualified status of any such Employee Benefit Plan. All such Employee
Benefit Plans have been or will be timely amended for the requirements of the
Tax legislation commonly known as “GUST” and “EGTRRA” and have been or will be
submitted to the Internal Revenue Service for a favorable determination letter
on the GUST requirements within the remedial amendment period prescribed by
GUST.
(E)
There
have been no Prohibited Transactions with respect to any such Employee Benefit
Plan or any Employee Benefit Plan maintained by Sellers or an ERISA Affiliate.
No Fiduciary has any Liability for breach of fiduciary duty or any other failure
to act or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to the administration or the investment of the
assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending or, to Sellers’ Knowledge, threatened.
(F)
Sellers have delivered or made available to Buyer correct and complete copies
of
the plan documents and summary plan descriptions, the most recent determination
letter received from the Internal Revenue Service, the most recent annual report
(Form 5500, with all applicable attachments), and all related trust agreements,
insurance contracts, and other funding arrangements that implement each such
Employee Benefit Plan.
(ii)
Buyer will not have as a consequence of any transaction contemplated by the
Transaction Agreements, any liability or obligation with respect to or under
any
Employee Benefit Plan.
(y)
Guaranties.
Neither
of Sellers is a guarantor or otherwise is liable for any Liability (including
indebtedness) of any other Person.
(z)
Environmental,
Health, and Safety Matters.
(i)
Each
of Sellers, and their respective predecessors and Affiliates has complied and
is
in material compliance with all Environmental, Health, and Safety
Requirements.
(ii)
Without limiting the generality of the foregoing, each of Sellers and their
respective Affiliates has obtained and materially complied with, and is in
material compliance with, all permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements for
the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth in §3(z)(ii) of the
Disclosure Schedule.
(iii)
Neither Sellers nor their respective predecessors or Affiliates have received
any written or oral notice, report or other information regarding any actual
or
alleged violation of Environmental, Health, and Safety Requirements, or any
Liabilities, including any investigatory, remedial or corrective obligations,
relating to any of them or their facilities arising under Environmental, Health,
and Safety Requirements.
(iv)
None
of the following exists at any property or facility owned or operated by
Sellers: (1) underground storage tanks, (2) asbestos-containing material in
any
form or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal
areas.
(v)
Neither Sellers nor their respective predecessors or Affiliates have treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, manufactured, distributed, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) so as to give rise to any current or future Liabilities, including
any Liability for fines, penalties, response costs, corrective action costs,
personal injury, property damage, natural resources damages or attorney’s fees,
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, the Solid Waste Disposal Act, as amended, or any other
Environmental, Health, and Safety Requirements.
(vi)
Neither this Agreement nor the consummation of the transactions that are subject
of this Agreement will result in any obligations for site investigation or
cleanup, or notification to or consent of government agencies or third parties,
pursuant to any of the so-called “transaction-triggered” or “responsible
property transfer” Environmental, Health, and Safety Requirements.
(vii)
Neither Sellers nor any of their respective predecessors or Affiliates have
designed, manufactured, sold, marketed, installed, or distributed products
or
other items containing asbestos and none of such entities is or will become
subject to any Asbestos Liabilities.
(viii)
Neither Sellers nor any of their respective predecessors or Affiliates have
assumed or otherwise become subject to, any Liability including without
limitation any obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.
(ix)
To
Sellers’ Knowledge, no facts, events or conditions relating to the past or
present facilities, properties or operations of Sellers or any of their
respective predecessors or Affiliates will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise to
any
investigatory, remedial or corrective obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any other Liabilities pursuant
to Environmental, Health, and Safety Requirements, including without limitation
any Liability relating to on-site or off-site releases or threatened releases
of
hazardous materials, substances or wastes, personal injury, property damage
or
natural resources damage.
(x)
Sellers have furnished or made available to Buyer all environmental audits,
reports and other material environmental documents relating to their or their
respective predecessors’ or Affiliates’ past or current properties, facilities,
or operations that are in their possession or under their reasonable
control.
(aa)
Certain
Business Relationships.
Other
than this Agreement and the limited partnership agreement of Target, none of
Parent’s stockholders, Subsidiaries of Parent, directors and officers of Sellers
or any Subsidiaries of Parent, or any of their Affiliates has been involved
in
any business arrangement or relationship with Sellers or any Subsidiary of
Parent within the past 12 months, and other than Target, none of Parent’s
stockholders, Subsidiaries of Parent, directors and officers of Sellers or
any
Subsidiaries of Parent, or any of their Affiliates own any asset, tangible
or
intangible, that is used in the business of Division as currently conducted
or
as currently proposed to be conducted.
(bb)
Customers
and Suppliers.
Since
the
date of the Most Recent Balance Sheet, no material supplier of Division has
indicated that it shall stop, or decrease the rate of, supplying materials,
products or services to Division, and no customer of Division has indicated
that
it shall stop, or decrease the rate of, buying materials, products or services
from Division.
§4. |
Buyer’s
Representations and Warranties.
|
Buyer
represents and warrants to Sellers that the statements contained in this §4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this §4).
(a)
Organization
of Buyer.
Buyer
is
a limited partnership duly organized, validly existing, and in good standing
under the laws of the State of Delaware.
(b)
Authorization
of Transaction.
Buyer
has
full power and authority to execute and deliver this Agreement and the other
Transaction Agreements to which it is a party and to perform its obligations
thereunder. Buyer need not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government, governmental
agency or any third party in order to enter into the Transaction Agreements
or
to consummate the transactions contemplated thereunder. The execution, delivery
and performance of the Transaction Agreements and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of Buyer. Each of the Transaction Agreements have been,
or
will be, duly executed and delivered by Buyer and constitute, or will constitute
when executed and delivered, the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with their terms, except that such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors’ rights generally, and is
subject to general principles of equity.
(c)
Non-contravention.
Neither
the execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in §2 above), will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which Buyer
is
subject or its certificate of limited partnership or its limited partnership
agreement, or other governing documents or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in
any party the right to accelerate, terminate, modify, or cancel, or require
any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which Buyer is a party or by which it is bound or to which any
of
its assets are subject. Buyer does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement (including the assignments and assumptions
referred to in §2 above).
(d)
Brokers’
Fees.
There
is
no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of Buyer who might be entitled
to
any fee or commission from Buyer or any of its Affiliates in connection with
the
transactions contemplated by this Agreement.
§5. |
Pre-Closing
Covenants.
|
The
Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing:
(a)
General.
Each
of
the Parties will use, and will cause each of their respective Subsidiaries
to
use, their best efforts to take all actions and to do all things necessary
in
order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the Closing conditions
set
forth in §7 below).
(b)
Notices
and Consents.
Sellers
shall give any notices to third-parties, and Sellers shall use their best
efforts to obtain any third party consents that Buyer may request in connection
with the matters referred to in §3(c) above. Each of the Parties shall give any
notices to, make any filings with, and use their best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in §3(c) and §4(c)
above.
(c)
Operation
of Business.
Other
than the termination of the Employment Agreements, Sellers shall not engage
in
any practice, take any action, or enter into any transaction outside the
Ordinary Course of Business. Without limiting the generality of the foregoing,
Sellers shall not otherwise engage in any practice, take any action, or enter
into any transaction of the sort described in §3(h) above.
(d)
Preservation
of Business.
Sellers
shall, and shall cause Division to, keep their business and properties
substantially intact, including their present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e)
Full
Access.
Sellers
shall permit representatives of Buyer to have full access at all reasonable
times upon reasonable notice, and in a manner so as not to interfere with the
normal business operations of Sellers, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of
Sellers.
(f)
Notice
of Developments.
Each
Party will give prompt written notice to the other Parties of any material
adverse development causing a breach of any of its own representations and
warranties in §3 and §4 above. No disclosure by any Party pursuant to this
§5(f), however, shall be deemed to amend or supplement the Disclosure Schedule
or to prevent or cure any misrepresentation, breach of warranty, or breach
of
covenant.
(g)
Exclusivity.
(i)
Neither of Sellers shall, nor shall any of their officers, directors, employees,
partners, stockholders, Affiliates, Subsidiaries, investment bankers, attorneys,
accountants, consultants or other agents or advisors (the “Representatives”),
directly or indirectly, (A) solicit, initiate or take any action to facilitate
or encourage the submission of any Acquisition Proposal, (B) enter into or
participate in any discussions or negotiations with, furnish any information
relating to Sellers or Division or afford access to the business, properties,
assets, books or records of Sellers or Division or otherwise cooperate in any
way with, or knowingly assist, participate in, facilitate or encourage any
effort by any third party that is seeking to make, or has made, an Acquisition
Proposal, (C) grant any waiver or release under any standstill or similar
agreement with respect to any class of equity securities of Sellers or any
Subsidiary of Parent or (D) enter into any agreement with respect to an
Acquisition Proposal.
(ii) Notwithstanding
§5(g)(i) above and subject to §5(g)(iv) below, if Sellers and the
Representatives have not breached or violated any provision of this §5(g), the
board of directors of Parent, directly or indirectly through the
Representatives, may engage in negotiations or discussions with any Third Party
that, without prior solicitation by or negotiation with Parent, has made a
Superior Proposal and furnish to such Third Party nonpublic information relating
to Parent or any of its Subsidiaries pursuant to a confidentiality agreement
(a
copy of such confidentiality agreement being provided for informational purposes
only to Buyer); provided
that
Buyer shall be furnished with such nonpublic information prior to or
simultaneously with the furnishing thereof to such Third Party (to the extent
such nonpublic information has not been previously furnished by Sellers to
Buyer). Following receipt of such Superior Proposal, Parent’s board of directors
may fail to make, withdraw or modify in a manner adverse to Buyer its
recommendation to its stockholders referred to in §5(i)(i) below, submit such
Superior Proposal to a vote of its stockholders, and/or take any non-appealable,
final action that any court of competent jurisdiction orders Parent to take,
but
in each case referred to in the foregoing subsections (A) through (D) of
§5(g)(i) above only if a majority of the Non-Affiliated Directors determine
in
good faith, after considering written advice of the outside legal counsel and
financial advisor to Parent’s board of directors that the board must take such
action to comply with its fiduciary duties under applicable law. Nothing
contained herein shall prevent Parent’s board of directors from complying with
Rule 14e-2(a) or Rule 14d-9 under the Securities Exchange Act with regard to
an
Acquisition Proposal or from making other disclosures to Parent’s stockholders
if required under applicable law; provided,
however,
that
any such actions shall comply with the other requirements of this §5(g).
(iii) Parent’s
board of directors shall not take any of the actions referred to in subsections
(A) through (D) of §5(g)(i) above unless Parent shall have delivered to Buyer a
prior written notice advising Buyer that it intends to take such action, and
Parent shall continue to keep Buyer informed, on a current basis, with respect
to such Superior Proposal after taking such action. In addition, Parent shall
notify Buyer promptly (but in no event later than 24 hours) after receipt by
Parent (or any of its Representatives) of any Acquisition Proposal, any
indication that a third party is considering making an Acquisition Proposal
or
of any request for information relating to Parent or any of its Subsidiaries
or
for access to the business, properties, assets, books or records of Parent
or
any of its Subsidiaries by any third party that may be considering making,
or
has made, an Acquisition Proposal. Parent shall provide such notice orally
and
within one (1) business day in writing and shall identify the third party
making, and the terms and conditions of, any such Acquisition Proposal,
indication or request. Parent shall provide within one (1) business day of
receipt a copy of any documentation of the terms of any such inquiry, proposal
or offer, and thereafter shall keep Buyer informed, on a current basis, of
the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations (including by delivering any further documentation
of the type referred to above). Parent shall, and shall cause the
Representatives to, cease immediately and cause to be terminated any and all
existing activities, discussions or negotiations, if any, with any third party
conducted prior to the date hereof with respect to any Acquisition Proposal
and
shall use all reasonable efforts to cause any such third party (or its agents
or
advisors) in possession of confidential information about Parent or its
Subsidiaries to return or destroy all such information.
(iv) In
the
event Parent receives a Superior Proposal, Parent and its board of directors
shall not take any actions referred to under §5(g)(ii) above until Parent has
negotiated in good faith with Buyer with respect to the terms of the
transactions contemplated by this Agreement for a period of 10 business days
from the date Buyer receives written notice of all material terms and conditions
of the Superior Proposal (including any documents related thereto) as set forth
in §5(g)(iii) above. In the event Parent subsequently receives any amendments or
changes to such Superior Proposal, Parent and its board of directors shall
not
take any actions referred to under §5(g)(ii) above until Parent has negotiated
in good faith with Buyer with respect to the terms of the transactions
contemplated by this Agreement for a period of 10 business days from the date
Buyer receives written notice of all material terms and conditions of such
original Superior Proposal, as amended or changed (including any documents
related thereto) as set forth in §5(g)(iii) above and such written notice shall
specify if Parent and its board of directors intend to take any actions referred
to under §5(g)(ii) above.
(h)
Maintenance
of Acquired Assets.
Sellers
shall maintain the Acquired Assets in substantially the same condition as
existed on the date of this Agreement, ordinary wear and tear
excepted.
(i)
Parent Stockholders Meeting
(i)
Parent shall cause a meeting of its stockholders (the “Parent
Stockholders Meeting”)
to be
duly called and held as soon as reasonably practicable for the purpose of voting
on the approval and adoption of (A) this Agreement and the transactions
contemplated hereby, (B) an amendment to Parent’s certificate of incorporation
to change Parent’s name such that it does not contain the terms “Tidel” or
“Sentinel” or any derivations thereof (the “Amendment”)
and
(C) any motion for adjournment or postponement of the Parent Stockholder Meeting
to another time or place to permit, among other things, further solicitation
of
proxies if necessary to establish a quorum or to obtain additional votes in
favor of this Agreement and the transactions contemplated hereby and the
Amendment (the “Motion”).
Subject to §5(g)(ii) above, the board of directors of Parent shall recommend
approval and adoption of the items set forth in subsections (A), (B) and (C)
of
this §5(i)(i). The only matters on the ballot at the Parent Stockholders Meeting
shall be the matters set forth above in subsections (A), (B) and (C) of this
§5(i)(i). In connection with the Parent Stockholders Meeting, Parent shall
Error! Bookmark not defined. promptly prepare and file with the SEC, use its
commercially reasonable best efforts to have cleared by the SEC and thereafter
mail to its stockholders as promptly as practicable, the Parent Proxy Statement
and all other proxy materials for such meeting, Error! Bookmark not defined.
use
its commercially reasonable best efforts to obtain the necessary approvals
by
its stockholders of this Agreement and the transactions contemplated hereby
and
the Amendment, (3) otherwise comply with all legal requirements applicable
to
such meeting, and (4) hire MacKenzie Partners, Inc., or another proxy solicitor
of equivalent stature, to assist Parent in the solicitation of votes and proxies
for the Parent Stockholder Meeting.
(ii)
Notwithstanding anything to the contrary contained in this Agreement, unless
this Agreement shall be terminated in accordance with §8 hereof, and in
accordance with the applicable provisions of the law of the State of Delaware,
(A) Parent shall be obligated to call, give notice of and hold the Parent
Stockholders Meeting regardless of the commencement, disclosure, announcement
or
submission to it of any Acquisition Proposal, or of any failure to make,
withdrawal or modification by Parent’s board of directors of its recommendation
as required by §5(i)(i) above and (B) subject to §5(g) above, Parent shall not
submit to the vote of its stockholders any Acquisition Proposal, or propose
to
do so.
(iii)
The
Parent Proxy Statement and any amendments or supplements thereto will, when
filed, comply as to form in all material respects with the applicable
requirements of the Securities Exchange Act. At the time the Parent Proxy
Statement or any amendment or supplement thereto is first mailed to stockholders
of Parent, and at the time such stockholders vote on the approval and adoption
of this Agreement and the transactions contemplated hereby, the Amendment and
the Motion, and at the Closing, the Parent Proxy Statement, as supplemented
or
amended, if applicable, will not contain any untrue statement of a material
fact
or omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not
misleading. The covenants contained in this subsection will not apply to
statements or omissions included in the Parent Proxy Statement based upon
information furnished to Parent in writing by Buyer specifically for use
therein.
(j)
Name
Change.
Parent
shall change its name and shall cause Tidel Cash Systems, Inc., Tidel Services,
Inc. and Target to change their respective names such that their respective
names do not contain the terms “Tidel” or “Sentinel” or any derivations thereof.
Parent and its subsidiaries shall amend any authorization to conduct business
as
foreign entity in any jurisdiction and any assumed names to reflect the
foregoing name changes.
(k)
Perfection
of Ownership of Intellectual Property.
Sellers
shall take all necessary and advisable actions to perfect Sellers’ chain of
title and sole ownership of all rights, title and interests, free and clear
of
all interests of third parties and Liens, in all Intellectual Property,
including (i) obtaining and recording with the United States Patent and
Trademark Office or other similar agencies in foreign jurisdictions
(collectively, “Patent
Agencies”)
any
necessary and advisable assignments from any inventors or prior owners of any
Intellectual Property and (ii) recording the change of ownership with any
applicable Patent Agencies of any Intellectual Property to Target.
(l)
Maintenance
of Leased Real Property.
Sellers
will maintain the Leased Real Property, including all of the Improvements,
in
substantially the same condition as existed on the date of this Agreement,
ordinary wear and tear excepted, and shall not demolish or remove any of the
existing Improvements, or erect new improvements on the Leased Real Property
or
any portion thereof, without the prior written consent of Buyer.
(m)
Leases.
Sellers
will not amend, modify, extend, renew or terminate any Lease or enter into
any
new lease, sublease, license or other agreement for the use or occupancy of
any
real property without the prior written consent of Buyer.
(n)
Claim.
Sellers
shall take all actions that a reasonably prudent person would undertake with
respect to the CSS Claim and shall diligently defend the CSS Claim; provided,
however,
that
any material actions with respect to the CSS Claim shall require the prior
written consent of Buyer, which consent shall not be unreasonably withheld.
§6.
|
Post-Closing
Covenants.
|
The
Parties agree as follows with respect to the period following the
Closing:
(a)
General.
In
case
at any time after the Closing any further actions are necessary or desirable
to
carry out the purposes of the Transaction Agreements, each of the Parties will
take such further actions (including the execution and delivery of such further
instruments and documents) as another Party may reasonably request, all at
the
sole cost and expense of the requesting Party. Sellers shall not, and Parent
shall cause its Subsidiaries not to, use the term“Tidel”
or
“Sentinel” or any derivations thereof as part of their respective names. Sellers
acknowledge and agree that from and after the Closing, Buyer will be entitled
to
possession of all documents, books, records (including Tax records), agreements,
and financial data of any sort relating to Division.
(b)
Litigation
Support.
In
the
event and for so long as any Party is actively contesting or defending against
any action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand in connection with (i) the transactions contemplated under the
Transaction Agreements, (ii) the CSS Claim, (iii) the Bank Accounts, or (iv)
any
fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving Sellers, the other Party will cooperate with
the
contesting or defending Party and its counsel in the contest or defense, make
available its personnel, and provide such testimony and access to its books
and
records as shall be necessary in connection with the contest or defense, all
at
the sole cost and expense of the contesting or defending Party.
(c)
Transition.
Sellers
shall not, nor shall any of Parent’s Subsidiaries or any of their officers and
directors, take any action that is designed or intended to have the effect
of
discouraging any lessor, licensor, customer, supplier, vendor or other business
associate of Division from maintaining the same business relationships with
Buyer after the Closing as it maintained with Division prior to the Closing.
Sellers shall refer all customer inquiries relating to Division to Buyer from
and after the Closing. After the Closing, Sellers shall direct any inquiries
regarding payment of any accounts receivable that were included in the Acquired
Assets to Buyer and shall immediately remit any amounts received by Sellers
in
payment of such accounts receivable to Buyers by in cash by wire transfer or
other immediately available funds.
(d)
Confidentiality.
Sellers
shall treat and hold as such all of the Confidential Information, refrain from
using any of the Confidential Information except in connection with this
Agreement, and deliver promptly to Buyer or destroy, at the request and option
of Buyer, all tangible embodiments (and all copies) of the Confidential
Information that are in its possession. In the event either of Sellers is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand,
or
similar process) to disclose any Confidential Information, Sellers will notify
Buyer promptly of the request or requirement so that Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
§6(d). If, in the absence of a protective order or the receipt of a waiver
hereunder, Sellers are, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
Sellers may disclose the Confidential Information to the tribunal; provided,
however, that
Sellers shall use their best efforts to obtain, at the reasonable request of
Buyer, an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed as
Buyer shall designate.
(e)
Covenant
Not to Compete or Solicit.
For
a
period of five years from and after the Closing Date, Sellers shall not, nor
allow any of their Subsidiaries to, engage directly or indirectly in any
business that Division conducts as of the Closing Date; provided,
however,
that no
owner of less than one percent (1%) of the outstanding stock of any publicly
traded corporation shall be deemed to engage solely by reason thereof in its
business. For a period of five years from and after the Closing Date, Sellers
shall not, nor allow any of their Subsidiaries, to solicit any employee of
Buyer
to leave the employment of Buyer or solicit any customer or potential customer
of Buyer to cease or reduce its business with Buyer; provided,
however,
that no
owner of less than one percent (1%) of the outstanding stock of any publicly
traded corporation shall be deemed to be soliciting any employees, customers
or
potential customers of Buyer solely by reason thereof. If the final judgment
of
a court of competent jurisdiction declares that any term or provision of this
§6(e) is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with
a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision,
and
this Agreement shall be enforceable as so modified after the expiration of
the
time within which the judgment may be appealed.
(f)
Defense
of CSS Claim.
(i)
Buyer
shall undertake, and shall have the sole right to direct on behalf of itself
and
Sellers, the defense of the CSS Claim for Sellers with counsel of its
choice.
(ii)
Sellers shall not take any action, consent to the entry of any judgment or
enter
into any settlement with respect to the CSS Claim without the prior written
consent of Buyer.
(iii)
In
the event Sellers shall incur any Adverse Consequences in connection with the
CSS Claim subsequent to the Closing Date, then Buyer shall indemnify Sellers
from and against the entirety of any such Adverse Consequences; provided,
however,
that
Buyer shall not be obligated to indemnify Seller for any Adverse Consequences
incurred as a result of the breach of this Agreement or the negligent action
or
inaction of Sellers.
(g)
Indemnification.
(i)
Parent agrees that all rights to indemnification or exculpation now existing
in
favor of the employees, agents, directors or officers of Parent and its
Subsidiaries (the “Parent
Indemnified Parties”)
as
provided in their respective charter documents, bylaws, certificate of limited
partnership or limited partnership agreement as in effect on the date of this
Agreement shall continue in full force and effect for a period of six (6) years
from and after the Closing Date (the “Indemnity
Period”);
provided,
however,
that,
in the event any claim or claims are asserted or made within the Indemnity
Period, all rights to indemnification in respect of any such claim or claims
shall continue to final and non-appealable disposition of any and all such
claims. Any determination required to be made with respect to whether the Parent
Indemnified Party’s conduct complies with the standards set forth in such
charter documents, bylaws , certificate of limited partnership or limited
partnership agreement or otherwise shall be made by independent counsel selected
by the Parent Indemnified Parties, which counsel shall be reasonably
satisfactory to Parent (whose fees and expenses shall be paid by Parent), which
such determination shall be final and binding on the parties thereto.
(ii)
During the Indemnity Period, Parent shall indemnify and hold harmless the Parent
Indemnified Parties in respect of acts or omissions occurring at or prior to
the
Closing to the fullest extent permitted by Delaware law or any other applicable
laws or provided under Parent’s and its Subsidiaries’ charter, bylaws,
certificate of limited partnership or limited partnership agreement in effect
on
the date of this Agreement; provided
that
such indemnification shall be subject to any limitation imposed from time to
time under applicable law.
(iii)
If
Parent or any of its successors or assigns (A) consolidates with or merges
into
any other Person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (B) transfers or conveys all or
substantially all of its properties and assets to any Person, then, and in
each
such case, to the extent necessary, proper provision shall be made so that
the
successors and assigns of Parent shall assume the obligations set forth in
this
§6(g).
(iv)
The
rights of each Parent Indemnified Party under this §6(g) shall be in addition to
any rights such Person may have under the charter, bylaws, certificate of
limited partnership or limited partnership agreement of Parent or any of its
Subsidiaries, or under Delaware law or any other applicable laws or under any
agreement of any Parent Indemnified Party with Parent or any of its
Subsidiaries. These rights shall survive consummation of the transactions
contemplated by this Agreement and are intended to benefit, and shall be
enforceable by, each Parent Indemnified Party.
(h)
Directors’
and Officers’ Insurance.
During
the Indemnity Period, Parent shall maintain in effect directors’ and officers’
and fiduciaries’ liability insurance covering the officers and directors of
Parent and its Subsidiaries as of the date of this Agreement on comparable
terms
and conditions and with comparable insurance coverage as is then in effect
for
the current officers and directors of Parent and its Subsidiaries. Parent agrees
that if Parent is dissolved or ceases to exist for any reason prior to the
termination of the Indemnity Period, prior to such dissolution or cessation
Parent shall extend Parent’s then in effect directors’ and officers’ and
fiduciaries’ liability insurance policy on commercially reasonable terms and
conditions and with insurance coverage as comparable as possible with the
insurance policy then in effect for the current officers and directors of Parent
and Subsidiaries, and such extension shall provide such insurance coverage
to
all directors and officers of Parent as of the date of this Agreement. Parent
shall prepay all premiums in connection with such extension. These rights shall
survive consummation of the transactions contemplated by this Agreement and
are
intended to benefit, and shall be enforceable by, each Parent Indemnified Party.
(i)
Employee
Non-competition and Confidentiality Agreements.
Sellers
agree that any and all non-competition and confidentiality agreements between
Sellers and their Affiliates on the one hand and employees of Sellers and their
Affiliates on the other hand shall be null and void and of no further force
and
effect with respect to such employees who become employees of Buyer and its
Affiliates.
(j)
Bank
Accounts.
In
the
event Sellers shall incur any Adverse Consequences in connection with checks
drawn on and properly presented for payment from the Bank Accounts subsequent
to
the Closing, then Buyer shall indemnify Sellers from and against the entirety
of
any such Adverse Consequences. If any such Adverse Consequences result from
an
act of fraud for which Sellers are insured, then Buyer’s obligation to indemnify
Sellers for any such Adverse Consequences shall be reduced by the amount of
insurance proceeds received by Sellers in connection therewith; provided,
however,
that if
Sellers have not received any such insurance proceeds within three months after
the commission of the act of fraud at issue, Buyer shall pay to Seller the
entire amount of such Adverse Consequences; provided
further
that if
Sellers shall subsequently receive any such insurance proceeds, Seller shall
promptly pay all such insurance proceeds to Buyer. Sellers will take such
further actions (including the execution and delivery of such further
instruments and documents and the filing and pursuit of insurance claims) as
Buyer may reasonably request in connection with the Bank
Accounts.
§7. |
Conditions
to Obligation to Close.
|
(a)
Conditions
to Buyer’s Obligation.
Buyer’s
obligation to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i)
the
representations and warranties set forth in §3 above shall be true and correct
in all material respects at and as of the Closing Date, except to the extent
that such representations and warranties are qualified by the term “material,”
or contain terms such as “Material Adverse Effect” or “Material Adverse Change,”
in which case such representations and warranties (as so written, including
the
term “material” or “Material”) shall be true and correct in all respects at and
as of the Closing Date;
(ii)
Sellers shall have performed and complied with all of the covenants hereunder
in
all material respects through the Closing, except to the extent that such
covenants are qualified by the term “material,” or contain terms such as
“Material Adverse Effect” or “Material Adverse Change,” in which case Sellers
shall have performed and complied with all of such covenants (as so written,
including the term “material” or “Material”) in all respects through the
Closing;
(iii)
Sellers and Division shall have procured all of the third-party consents
specified in §5(b) above;
(iv)
no
action, suit, or proceeding shall be pending or threatened before any court
or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of
any
of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) adversely affect the right of Buyer to own the Acquired Assets
and to operate the former business of Division, or (D) have a Material Adverse
Effect;
(v)
there
shall not have been, or the occurrence of any events which could reasonably
be
expect to have, a Material Adverse Effect;
(vi)
there shall not have been, or the occurrence of any events which could
reasonably be expected to have, an adverse change or impact with respect to
Sellers or Buyer in connection with the CSS Claim;
(vii)
this Agreement and the transactions contemplated hereby and the Amendment shall
have been approved and adopted by the stockholders of Parent in accordance
with
the laws of the State of Delaware (the “Stockholder
Approval”);
(viii)
Sellers shall have delivered to Buyer a certificate to the effect that each
of
the conditions specified above in §7(a)(i)-(vii) is satisfied in all
respects;
(vix)
Sellers shall have executed and delivered the Assignments in substantially
the
forms attached hereto as Exhibit A to Buyer;
(x)
Buyer
shall have received from counsel to Sellers an opinion in form and substance
as
set forth in Exhibit B attached hereto, addressed to Buyer and on which Buyer’s
lenders shall be entitled to rely, and dated as of the Closing
Date;
(xi)
Sellers shall have provided to Buyer evidence of the release of the following
Liens, such evidence to be satisfactory to Buyer in its sole discretion: (A)
Lien of Laurus Master Fund Ltd. on all of the assets of Sellers, Tidel Cash
Systems, Inc. and Tidel Services, Inc. filed with the Secretary of State of
the
State of Delaware; (B) state tax Lien on Parent filed with the Clerk of Harris
County, Texas; (C) Lien of Wallis State Bank on all accounts, inventory,
equipment, intangibles, cash, cash equivalents and other property of Sellers
and
Tidel Cash Systems, Inc. filed with the Secretary of State of the State of
Delaware; (D) Lien of JP Morgan Chase Bank on all accounts, inventory,
equipment, intangibles, cash, cash equivalents and other property of Sellers
filed with the Clerk of Harris County, Texas; and (E) Lien of Chase Bank of
Texas on all accounts, inventory, equipment, intangibles, cash and other
property of Tidel Cash Systems, Inc. filed with the Clerk of Dallas County,
Texas;
(xii)
Sellers shall have provided to Buyer evidence of the release, such evidence
to
be satisfactory to Buyer in its sole discretion, of all liens recorded at the
United States Patent and Trademark Office on any Intellectual Property,
including, but not limited to the liens held by Saudi International Bank,
Al-Bank Al-Saudi Al-Alami Limited; Wallis State Bank; The Frost National Bank
d/b/a Creekwood Capital Group; and Creekwood Capital Corporation;
(xiii)
Sellers shall have provided to Buyer evidence of assignments perfecting Sellers’
sole ownership of all rights, title and interests, free and clear of all
interests of third parties and Liens, in all Intellectual Property, such
evidence to be satisfactory to Buyer in its sole discretion, including (A)
evidence of recordation with Patent Agencies of any necessary and advisable
assignments from any inventors or prior owners of any Intellectual Property
(including without limitation all patent applications included in the
Intellectual Property) and (B) evidence of the recordation with any applicable
Patent Agencies of the change of ownership of any Intellectual Property to
Target;
(xiv)
Parent, Target, Tidel Cash Systems, Inc. and Tidel Services, Inc. shall have
changed their respective names such that they do not contain the terms “Tidel”
or “Sentinel” or any derivations thereof and shall have provided to Buyer
evidence thereof reasonably satisfactory to Buyer; and further shall have
amended any authorizations to conduct business as foreign entity in any
jurisdiction and any assumed names to reflect the foregoing and provided to
Buyer evidence thereof reasonably satisfactory to Buyer;
(xv)
Sellers shall have terminated the Employment Agreements on terms reasonably
satisfactory to Buyer;
(xvi)
all
actions to be taken by Sellers in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions contemplated hereby
shall be reasonably satisfactory in form and substance to Buyer;
(xvii)
Sellers shall deliver to Buyer a non-foreign affidavit dated as of the Closing
Date, sworn under penalty of perjury and in form and substance required under
the Treasury Regulations issued pursuant to Code §1445 stating that neither of
Sellers are a “foreign person” as defined in Code §1445; and
(xviii)
Sellers shall have delivered to Buyer a certificate of the secretary or an
assistant secretary of each of Sellers, dated the Closing Date, in form and
substance reasonably satisfactory to Buyer, as to: (A) no amendments to the
certificate of incorporation and bylaws of Parent or the certificate of limited
partnership and limited partnership agreement of Target since the date of this
Agreement; (B) the resolutions of the board of directors (or other authorizing
body) (or a duly authorized committee thereof) of Sellers authorizing the
execution, delivery, and performance of this Agreement and the transactions
contemplated hereby and the closing of the Bank Accounts and the transfer of
the
Bank Account Amount to Buyer; (C) incumbency and signatures of the officers
of
Sellers executing this Agreement or any other agreement contemplated by this
Agreement; and (D) the requisite number of votes of the Parent’s stockholders
approved and adopted this Agreement, the transactions contemplated by this
Agreement and the Amendment at the Parent Stockholders Meeting.
Buyer
may
waive any condition specified in this §7(a) if it executes a writing so stating
at or prior to the Closing.
(b)
Conditions
to Sellers’ Obligation.
Sellers’
obligation to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(i)
the
representations and warranties set forth in §4 above shall be true and correct
in all material respects at and as of the Closing Date, except to the extent
that such representations and warranties are qualified by the term “material,”
or contain terms such as “Material Adverse Effect” or “Material Adverse Change,”
in which case such representations and warranties (as so written, including
the
term “material” or “Material”) shall be true and correct in all respects at and
as of the Closing Date;
(ii)
Buyer shall have performed and complied with all of its covenants hereunder
in
all material respects through the Closing, except to the extent that such
covenants are qualified by the term “material,” or contain terms such as
“Material Adverse Effect” or “Material Adverse Change,” in which case Buyer
shall have performed and complied with all of such covenants (as so written,
including the term “material” or “Material”) in all respects through the
Closing;
(iii)
no
action, suit, or proceeding shall be pending or threatened before any court
or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of
any
of the transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation;
(v)
Buyer
shall have delivered to Sellers a certificate to the effect that each of the
conditions specified above in §7(b)(i)-(iii) is satisfied in all respects;
(vi)
the
Stockholder Approval shall have been obtained; and
(vii)
all
actions to be taken by Buyer in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Sellers.
Sellers
may waive any condition specified in this §7(b) if they execute a writing so
stating at or prior to the Closing.
§8. |
Survival
and Termination.
|
(a)
Survival
of Representations and Warranties.
None
of
the representations and warranties of Buyer and Sellers contained in this
Agreement shall survive the Closing.
(b)
Termination
of Agreement.
Subject
to §9(k) below, certain of the Parties may terminate this Agreement as provided
below:
(i)
Buyer
and Sellers may terminate this Agreement by mutual written consent at any time
prior to the Closing;
(ii)
Buyer may terminate this Agreement by giving written notice to Sellers at any
time prior to the Closing (A) subject to §8(b)(iv) and §8(b)(v) below, in the
event either of Sellers have breached any representation, warranty, or covenant
contained in this Agreement in any material respect, Buyer has notified Sellers
of the breach, and the breach has continued without cure for a period of 30
days
after the notice of breach or (B) if the Closing shall not have occurred on
or
before the date that is the eight month anniversary of the date of this
Agreement (unless the failure results primarily from Buyer itself breaching
any
representation, warranty, or covenant contained in this Agreement);
(iii)
Sellers may terminate this Agreement by giving written notice to Buyer at any
time prior to the Closing (A) in the event Buyer has breached any
representation, warranty, or covenant contained in this Agreement in any
material respect, Sellers have notified Buyer of the breach, and the breach
has
continued without cure for a period of 30 days after the notice of breach or
(B)
if the Closing shall not have occurred on or before the date that is the eight
month anniversary of the date of this Agreement (unless the failure results
primarily from Sellers breaching any representation, warranty, or covenant
contained in this Agreement);
(iv)
Buyer may terminate this Agreement by giving written notice to Sellers if
Sellers breach their obligations under §5(g) or §5(i) above; or
(v)
Buyer
may terminate this Agreement by giving written notice to Sellers if a majority
of the Non-Affiliated Directors shall have failed to make or have withdrawn,
or
modified in a manner adverse to Buyer, their approval or recommendation of
this
Agreement or the transactions contemplated hereby, or shall have failed to
reaffirm their approval or recommendation of this Agreement or the transactions
contemplated hereby within five (5) business days after a request by Buyer
to do so, or shall have approved or recommended an alternative Acquisition
Proposal.
(c)
Effect
of Termination.
If
any
Party terminates this Agreement pursuant to §8(b) above, all rights and
obligations of the Parties hereunder shall terminate without any Liability
of
any Party to the other Party (except for any Liability of any Party then in
breach and as set forth in §9(k) below). The provisions of this §8(c), §6(g),
§6(h) and §9 shall survive any termination of this Agreement pursuant to this
§8.
(a)
Press
Releases and Public Announcements.
No
Party
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of the
other
Party;
provided, however,
that
any Party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its publicly
traded securities (in which case the disclosing Party will use its reasonable
best efforts to advise the other Party prior to making the
disclosure).
(b)
No
Third-Party Beneficiaries.
Except
as
provided in §6(g) and §6(h) above, this Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors
and permitted assigns.
(c)
Entire
Agreement.
This
Agreement (including the documents referred to herein) constitutes the entire
agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral,
to
the extent they relate in any way to the subject matter hereof.
(d)
Succession
and Assignment.
This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Party; provided
however,
that
Buyer may (i) assign any or all of its rights and interests hereunder to one
or
more of its Affiliates, (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which cases Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder),
or
(iii) assign its rights and benefits under this Agreement to its lender as
collateral for such its obligations to such lender and Sellers agree to execute
a consent and agreement to such assignment in a form reasonably satisfactory
to
Sellers.
(e)
Counterparts.
This
Agreement may be executed in two or more counterparts (including by means of
facsimile), each of which shall be deemed an original but all of which together
will constitute one and the same instrument.
(f)
Headings.
The
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this
Agreement.
(g)
Notices.
All
notices, requests, demands, claims, and other communications hereunder shall
be
in writing. Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly given (i) when delivered personally to the recipient,
(ii)
one business day after being sent to the recipient by reputable overnight
courier service (charges prepaid), (iii) one business day after being sent
to
the recipient by facsimile transmission or electronic mail, or (iv) four
business days after being mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid, and addressed to the
intended recipient as set forth below:
If
to
Sellers:
Tidel
Technologies, Inc.
2900
Wilcrest Drive, Suite 205
Houston,
Texas 77042
Facsimile
Number:
Attn:
Chief Executive Officer
Copy
to:
Olshan
Grundman Frome Rosenzweig & Wolosky LLP
Park
Avenue Tower
65
East
55th
Street
New
York,
New York 10022
Facsimile
Number: (212) 451-2222
Attention:
Adam Finerman, Esq.
If
to
Buyer:
Sentinel
Operating, L.P.
c/o
LLG,
LLC
9423
Desert Willow Road
Highlands
Ranch, Colorado 80129
Attn:
Chief Financial Officer
Copy
to:
Hensley
Kim & Edgington, LLC
1660
Lincoln Street, Suite 3050
Denver,
Colorado 80264
Facsimile
Number: (720) 377-0777
Attention:
John P.J. Kim, Esq.
Darren R. Hensley Esq.
Any
Party
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Party notice
in
the manner herein set forth.
(h)
Governing
Law.
This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of Delaware without giving effect to any choice or conflict
of
law provision or rule that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(i)
Amendments
and Waivers.
No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by Buyer and Sellers. Parent may consent to
any
such amendment at any time prior to the Closing with the prior authorization
of
its board of directors; provided,
however,
that any
amendment effected after Parent’s stockholders have approved this Agreement will
be subject to the restrictions contained in the applicable provisions of the
laws of the State of Delaware. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be valid unless the same shall be in writing and
signed by the Party making such waiver nor shall such waiver be deemed to extend
to any prior or subsequent default, misrepresentation, or breach of warranty
or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant.
(j)
Severability.
Any
term
or provision of this Agreement that is invalid or unenforceable in any situation
in any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability of
the
offending term or provision in any other situation or in any other
jurisdiction.
(k)
Expenses.
(i)
Except as otherwise provided herein, each of Buyer and Sellers shall bear its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. Without
limiting the generality of the foregoing, all transfer, documentary, sales,
use,
stamp, registration and other such Taxes, and all conveyance fees, recording
charges and other fees and charges (including any penalties and interest)
incurred in connection with the consummation of the transactions contemplated
by
this Agreement shall be paid by Sellers when due, and Sellers shall, at their
own expense, file all necessary Tax Returns and other documentation with respect
to all such Taxes, fees and charges, and, if required by applicable law, the
Parties will, and will cause their Affiliates to, join in the execution of
any
such Tax Returns and other documentation.
(ii)
If a
Parent Payment Event occurs, Parent shall pay $400,000 to Buyer (by wire
transfer of immediately available funds) no later than two (2) business days
after the occurrence of such Parent Payment Event. Nothing contained in this
§9(k)(ii) shall limit or preclude Buyer from pursuing any other available
remedies it may have against Sellers.
(iii)
Sellers acknowledge that the agreement contained in §9(k)(ii) above is an
integral part of the transactions contemplated by this Agreement and that,
without this agreement, Buyer would not enter into this Agreement. Accordingly,
if Sellers fail to promptly pay the amount due pursuant to §9(k)(ii) above,
Sellers shall also pay any costs and expenses incurred by Buyer in connection
with a legal action to enforce this Agreement that results in a judgment against
a Seller for such amount; provided, however, that if such legal action results
in a judgment that neither Seller owes Buyer such amount, Buyer shall pay any
costs and expenses incurred by Seller in connection with the defense of such
legal action.
(l)
Construction.
The
Parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or disfavoring any
Party by virtue of the authorship of any of the provisions of this Agreement.
Any reference to any federal, state, local, or foreign statute or law shall
be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word “including” shall mean including
without limitation. Nothing in the Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein unless
the
Disclosure Schedule identifies the exception with reasonable particularity
and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception
to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The Parties
intend that each representation, warranty, and covenant contained herein shall
have independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) that the
Party
has not breached shall not detract from or mitigate the fact that the Party
is
in breach of the first representation, warranty, or covenant.
(m)
Incorporation
of Exhibits and Schedules.
The
Exhibits and Schedules identified in this Agreement are incorporated herein
by
reference and made a part hereof.
(n)
Specific
Performance.
Each
Party acknowledges and agrees that the other Party would be damaged irreparably
in the event any provision of this Agreement is not performed in accordance
with
its specific terms or otherwise breached, so that a Party shall be entitled
to
injunctive relief to prevent breaches of the provisions of this Agreement and
to
enforce specifically this Agreement and the terms and provisions hereof in
addition to any other remedy to which such Party may be entitled, at law or
in
equity. In particular, the Parties acknowledge that the business of Division
is
unique and recognize and affirm that in the event Sellers breach this Agreement,
money damages would be inadequate and Buyer would have no adequate remedy at
law, so that Buyer shall have the right, in addition to any other rights and
remedies existing in its favor, to enforce its rights and the other Parties’
obligations hereunder not only by action for damages but also by action for
specific performance, injunctive, and/or other equitable relief.
(o)
Submission
to Jurisdiction.
Each
of
the Parties submits to the jurisdiction of any state or federal court sitting
in
the State of Texas in any action or proceeding arising out of or relating to
this Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each Party also agrees not to
bring any action or proceeding arising out of or relating to this Agreement
in
any other court. Each of the Parties waives any defense of inconvenient forum
to
the maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with respect
thereto. Any Party may make service on the other Party by sending or delivering
a copy of the process to the Party to be served at the address and in the manner
provided for the giving of notices in §9(g) above. Nothing in this §9(o),
however, shall affect the right of any Party to serve legal process in any
other
manner permitted by law or in equity. Each Party agrees that a final judgment
in
any action or proceeding so brought shall be conclusive and may be enforced
by
suit on the judgment or in any other manner provided by law or in equity.
(p)
Tax
Matters.
(i)
Sellers shall be responsible for the preparation and filing of all Tax Returns
for Sellers for all periods as to which Tax Returns are due after the Closing
Date (including the consolidated, unitary, and combined Tax Returns for Sellers
that include the operations of Division for any period ending on or before
the
Closing Date). Sellers shall make all payments required with respect to any
such
Tax Return.
(ii)
Buyer and Sellers agree to utilize, or cause their respective Affiliates to
utilize, the standard procedure set forth in Rev. Proc. 2004-53 with respect
to
wage reporting.
(q)
Tax
Disclosure Authorization.
Notwithstanding
anything herein to the contrary, the Parties (and each Affiliate and Person
acting on behalf of any Party) agree that each Party (and each employee,
representative, and other agent of such Party) may disclose to any and all
Persons, without limitation of any kind, the transaction’s tax treatment and tax
structure (as such terms are used in Code §§6011 and 6112 and regulations
thereunder) contemplated by this agreement and all materials of any kind
(including opinions or other tax analyses) provided to such Party or such Person
relating to such tax treatment and tax structure, except to the extent necessary
to comply with any applicable federal or state securities laws; provided,
however,
that
such disclosure may not be made until the earlier of date of (A) public
announcement of discussions relating to the transaction, (B) public announcement
of the transaction, or (C) execution of an agreement to enter into the
transaction. This authorization is not intended to permit disclosure of any
other information including (without limitation) (A) any portion of any
materials to the extent not related to the transaction’s tax treatment or tax
structure, (B) the identities of participants or potential participants, (C)
the
existence or status of any negotiations, (D) any pricing or financial
information (except to the extent such pricing or financial information is
related to the transaction’s tax treatment or tax structure), or (E) any other
term or detail not relevant to the transaction’s tax treatment or the tax
structure.
*
* * *
IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of the
date first above written.
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SENTINEL
OPERATING, L.P.
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By:
Sentinel Cash Systems, L.L.C.
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Its:
General Partner
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By:
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/s/
Raymond P. Landry
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Raymond
P. Landry
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President
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TIDEL
TECHNOLOGIES, INC.
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By:
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/s/
Jerrell G. Clay
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Name:
Jerrell G. Clay
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Title:
Director
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TIDEL
ENGINEERING, L.P.
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By:
Tidel Cash Systems, Inc.
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Its:
Managing General Partner
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By:
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/s/
Leonard Carr
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Name:
Leonard Carr
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Title: Vice
President and Secretary
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Annex
B
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Capitalink,
L.C.
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One
Alhambra Plaza
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Suite
1410
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Coral
Gables, Florida 33134
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Phone
305-446-2026
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Fax
305-446-2926
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www.capitalinklc.com
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May
24
2006
Independent
Committee of the
Board
of
Directors
Tidel
Technologies, Inc.
299
Wilcrest Drive
Suite
205
Houston,
TX 77042
Gentlemen:
We
have
been advised that, pursuant to a draft of the Revised Asset Purchase Agreement
(the “Revised Agreement”) to be entered into by and among Sentinel Operating,
L.P. (the “Buyer”), Tidel Technologies, Inc. (the “Company” or “Tidel”) and
Tidel Engineering, L.P. (“Tidel Engineering”), the Buyer will acquire
substantially all of the operating assets, excluding cash, and certain of the
liabilities (the “Transaction”) of the Company’s cash security division (the
“Cash Securities Division”). The purchase price shall be an amount equal to
$15.5 million in cash, (i) minus $100,000 in consideration for Buyer’s potential
liability in connection with the CSS Claim, and (ii) minus a December 31, 2005
working capital adjustment of $1,629,968 (the “Purchase Price”). In addition,
the parties have negotiated a $2,458,718 cash adjustment to be paid by the
Buyer
at closing (the “Cash Adjustment”). Collectively, the Purchase Price and the
Cash Adjustment are hereinafter the “Purchase Proceeds.”
The
Buyer
is a newly formed company owned by a group of investors including Mark K.
Levenick, Raymond P. Landry, and Jeff Galgano. The Buyer will be funded by
Laurus Master Fund, Ltd. (“Laurus”), a holder of Tidel common stock and
warrants. Mr. Levenick is a current shareholder and the current President and
Chief Executive Officer of Tidel, and Mr. Landry is a current shareholder and
a
director of Tidel. Tidel’s shareholders other than Laurus and Messrs. Levenick
and Landry, are hereinafter defined as the “Unaffiliated
Shareholders”.
We
have
been retained to render an opinion as to whether, on the date of such opinion,
the Purchase Proceeds are fair, from a financial point of view, to the
Unaffiliated Shareholders.
We
have
not been requested to opine as to, and the opinion does not in any manner
address, the relative merits of the Transaction as compared to any alternative
business strategy that might exist for the Company, the decision on whether
the
Company should complete the Transaction, or other alternatives to the
Transaction that might exist for the Company. The amount of the Purchase Price,
Cash Adjustment and Purchase Proceeds were determined pursuant to negotiations
between the Company, the Buyer and their respective advisors, and not pursuant
to recommendations of Capitalink.
Mergers
& Acquisitions | Fairness Opinions & Valuations | Restructuring |
Capital Raising | Financial Advisory
Independent
Committee of the Board of Directors
Tidel
Technologies, Inc.
May
24,
2006
Page
2
In
arriving at our opinion, we took into account an assessment of general economic,
market and financial conditions as well as our experience in connection with
similar transactions and securities valuations generally and, among other
things:
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·
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Reviewed
the Revised Agreement.
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·
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Reviewed
publicly available financial information and other data with respect
to
Tidel, including the Annual Report on Form 10-K (and amendments thereto)
for the year ended September 30, 2005, the Quarterly Report on Form
10-Q
for the three months ended December 31, 2005 and the Current Report
on
Form 8-K filed March 7, 2006.
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·
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Reviewed
non-public information and other data with respect to Tidel and the
Cash
Security Division, including draft financial statements for the three
months ended March 31, 2006 and various internal financial management
reports.
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·
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Considered
the historical financial results and present financial condition
of the
Cash Security Division.
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·
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Reviewed
and analyzed the Cash Security Division’s projected unlevered free cash
flows and prepared a discounted cash flow analysis.
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·
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Reviewed
and analyzed certain financial characteristics of publicly-traded
companies that were deemed to have characteristics comparable to
the Cash
Security Division.
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·
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Reviewed
and analyzed certain financial characteristics of target companies
in
transactions where such target company was deemed to have characteristics
comparable to that of the Cash Security
Division.
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·
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Reviewed
the Cash Security Division’s projected future cash flows and prepared a
leveraged buyout analysis.
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·
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Reviewed
an analysis prepared by Stifel, Nicolaus & Company, Incorporated
regarding the marketing of the Cash Security Division for sale, including
bids received.
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·
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Reviewed
and discussed with representatives of the Company certain financial
and
operating information furnished by them, including financial analyses
with
respect to the Company’s business and
operations.
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·
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Performed
such other analyses and examinations as were deemed
appropriate.
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In
arriving at our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used by
us
without assuming any responsibility for any independent verification of any
such
information and we have further relied upon the assurances of Company management
that they are not aware of any facts or circumstances that would make any such
information inaccurate or misleading. With respect to the financial information
utilized, we assumed that such information has been reasonably prepared on
a
basis reflecting the best currently available estimates and judgments, and
that
such information provides a reasonable basis upon which we could make our
analysis and form an opinion. We have not made a physical inspection of the
properties and facilities of the Company or the Cash Securities Division and
have not made or obtained any evaluations or appraisals of the assets or
liabilities (contingent or otherwise) of the Company or the Cash Security
Division. We have not attempted to confirm whether the Company or the Cash
Security Division have good title to their respective assets.
Independent
Committee of the Board of Directors
Tidel
Technologies, Inc.
May
24,
2006
Page
3
We
assumed that the Transaction will be consummated in a manner that complies
in
all respects with the applicable provisions of the Securities Act of 1933,
as
amended, the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statues, rules and regulations. We assumed that
the
Transaction will be consummated substantially in accordance with the terms
set
forth in the Revised Agreement, without any further amendments thereto, and
that
any amendments, revisions or waivers thereto will not be detrimental to the
Unaffiliated Shareholders.
Our
analysis and opinion are necessarily based upon market, economic and other
conditions, as they exist on, and could be evaluated as of May 24, 2006.
Accordingly, although subsequent developments may affect our opinion, we do
not
assume any obligation to update, review or reaffirm our opinion.
Our
opinion is for the use and benefit of the Company’s Independent Committee of the
Board of Directors in connection with its consideration of the Transaction
and
is not intended to be and does not constitute a recommendation to any
shareholder of the Company whether such shareholder should take any action,
if
required, such as voting on any matter, in connection with the Transaction.
Capitalink does not express any opinion as to the future performance of the
Company or the Cash Security Division or the price at which the Company’s common
stock would trade at any time in the future.
Based
upon and subject to the foregoing, it is our opinion that, as of the date of
this letter, the Purchase Proceeds are fair, from a financial point of view,
to
the Unaffiliated Shareholders.
In
connection with our services, we have previously received a retainer and will
receive the balance of our fee upon the rendering of this opinion. Our fee
is
not contingent on the completion of the Transaction. In addition, we previously
provided services to Tidel, having received a fee for a fairness opinion issued
in connection with a previous proposed transaction with the Buyer. We have
not
provided any other services to the Company or Tidel Engineering. Neither
Capitalink nor its principals beneficially own any interest in the Company.
In
addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of the rendering this opinion.
Our
opinion is for the use and benefit of the Independent Committee of the Board
of
Directors and is rendered in connection with its consideration of the
Transaction and may not be used by the Company for any other purpose or
reproduced, disseminated (except that a copy of this opinion may be delivered
to
Laurus), quoted or referred to by the Company at any time, in any manner or
for
any purpose, without the prior written consent of Capitalink, except that this
opinion may be reproduced in full in, and references to the opinion and to
Capitalink and its relationship with the Company may be included in filings
made
by the Company with the Securities and Exchange Commission, if required by
Securities and Exchange Commission rules, and in any proxy statement or similar
disclosure document disseminated to shareholders if required by the Securities
and Exchange Commission rules.
Very
truly yours,
Capitalink,
L.C.
[THIS
PAGE INTENTIONALLY LEFT BLANK]
Annex
C
AMENDMENT
TO CERTIFICATE OF INCORPORATION TO CHANGE NAME FROM “TIDEL TECHNOLOGIES, INC.”
TO “SECURE ALLIANCE HOLDINGS CORPORATION” (OR “SENTRY GROUP HOLDINGS
CORPORATION”)
Article
I
of the Certificate of Incorporation, as amended, of the corporation shall be
amended to read in its entirety as follows:
*
* * *
*
“The
name
of the corporation is Secure Alliance Holdings Corporation.”
*
* * *
*
In
the
event the name “Secure Alliance Holdings Corporation” is not available in
Delaware, Article I of the Articles of Incorporation, as amended, of the
corporation shall be amended to read in its entirety as follows:
“The
name
of the corporation is Sentry Group Holdings Corporation.”
PLEASE
REFER TO THE REVERSE SIDE FOR TELEPHONE AND
INTERNET
VOTING INSTRUCTIONS
TIDEL
TECHNOLOGIES, INC.
2900
Wilcrest Drive, Suite 105
Houston,
Texas 77042
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This
Proxy is Solicited on Behalf of the Board of
Directors
|
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The
undersigned hereby appoints Jerrell G. Clay and Stephen P. Griggs as proxies,
each with the power to appoint his substitute, and hereby authorizes them,
and
each of them acting singly, to represent and vote for and on behalf of
the
undersigned, as designated below, all the shares of Common Stock of Tidel
Technologies, Inc. (the “Company”) held of record by the undersigned on August
7, 2006 which the undersigned may be entitled to vote on all matters properly
coming before the special meeting of Stockholders to be held on Monday,
September 25 2006, or any adjournment or postponement thereof, as set forth
in
the related Notice of Special Meeting of Stockholders and Proxy Statement,
both
of which have been received by the undersigned.
YOUR
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2 &
3.
Please
specify your vote by checking
the box
to the left of your choice for the proposal.
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1.
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To
approve the sale of substantially all of the assets of the
Company’s
electronic cash security systems business, consisting of (a)
timed access
cash controllers (b) the Sentinel products, (c) the servicing,
maintenance
and repair of the timed access cash controllers or Sentinel
products and
(d) all other assets and business operations associated with
the
foregoing, pursuant to the amended and restated asset purchase
agreement,
dated as of June 9, 2006, by and between the Company, Tidel
Engineering,
L.P. and Sentinel Operating, L.P., as the same may be amended,
and the
transactions contemplated thereby:
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¨
FOR
|
¨
AGAINST
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¨ ABSTAIN
|
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2.
|
To
approve the filing of the certificate of amendment to the Company’s
certificate of incorporation to change the Company’s name from “Tidel
Technologies, Inc.” to “Secure Alliance Holdings Corporation” (or, if that
name is unavailable, to “Sentry Group Holdings
Corporation”):
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¨
FOR
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¨
AGAINST
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¨ ABSTAIN
|
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3.
|
To
approve adjournments of the special meeting if deemed necessary
to
facilitate the approval of the sale of substantially all of
the assets of
the Company’s electronic cash security business and the name change
amendment to the Company’s certificate of incorporation, including to
permit the solicitation of additional proxies if there are
not sufficient
votes at the time of the special meeting to establish a quorum
or to
approve the sale of the Company’s electronic cash security business and
the name change amendment to the Company’s certificate of
incorporation:
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FOR
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AGAINST
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¨ ABSTAIN
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This
proxy, when properly executed, will be voted in the manner directed by
the
undersigned stockholder. If no direction is made, this proxy will be voted
FOR
the proposals.
PLEASE
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please
sign exactly as your name appears below. When shares are held by joint
tenants,
both should sign. When signing as attorney, executor, administrator, trustee
or
guardian, please give full title as such. If a corporation, please sign
in full
corporate name by the President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
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Signature
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Signature
if held jointly
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Dated:
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,
2006
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TELEPHONE
AND INTERNET VOTING INSTRUCTIONS
You
can vote by telephone OR Internet! Available 24 hours a day 7 days a
week!
Instead
of mailing your proxy, you may choose one of the two voting methods outlined
below to vote your proxy.
To
vote using the telephone (within U.S. and Canada)
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To
vote using the Internet
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Call toll free 1-866-731-VOTE (8683) in the United States or
Canada any
time on a touch tone telephone. There is NO CHARGE to you for
the
call.
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Go to the following web site: WWW.COMPUTERSHARE.COM/US/PROXY
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Follow the simple instructions provided by the recorded
message.
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Enter the information requested on your computer screen and following
the
simple instructions
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If
you
vote by telephone or the Internet, please DO NOT mail back this proxy
card.
Proxies
submitted by telephone or the Internet must be received by 1:00 a.m., Central
Time, on September 25, 2006.
THANK
YOU
FOR VOTING