Tidel Technologies Inc. PRER 14A #1 11-16-2005
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.1)
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Under Rule 14a-12
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TIDEL
TECHNOLOGIES, INC.
(Name
of
Registrant as Specified in Its Charter)
NOT
APPLICABLE
(Name
of
Persons(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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o |
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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(4)
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Proposed
maximum aggregate value of
transaction:
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x |
Fee
paid previously with preliminary
materials:
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o 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 205
Houston,
Texas 77042
,
2005
To
our
stockholders:
You
are
cordially invited to attend a special meeting of stockholders of Tidel
Technologies, Inc. to be held at the offices of Tidel Engineering, L.P., 2310
McDaniel Drive, Carrollton, Texas 75006 on ,
2005 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 automated teller machine
business (ATM Business) to NCR Texas, LLC.
Our
board of directors 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, including a description of
the
asset purchase agreement, the background of the decision to enter into the
asset
purchase agreement, the reasons that our board of directors has decided to
recommend that you approve of the asset sale and the section beginning on page
___titled “Special Considerations Regarding the Proposal to Sell the ATM
Business” describing risk factors relating to this 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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Carrollton,
Texas
,
2005
The
notice and proxy statement are first being mailed to our stockholders on or
about ,
2005.
Tidel
Technologies, Inc.
2900
Wilcrest Drive, Suite 205
Houston,
Texas 77042
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO
BE HELD ON ,
2005
To
our
stockholders:
A
special
meeting of stockholders of Tidel Technologies, Inc. will be held at the offices
of Tidel Engineering, L.P., 2310 McDaniel Drive, Carrollton, Texas 75006
on ,
2005 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 ATM Business pursuant to the asset purchase
agreement attached as Exhibit A to the proxy statement;
and
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2.
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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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Your
board of directors 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 common stock at the close of business on October 31, 2005,
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 ATM 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 ,
2005.
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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Carrollton,
Texas
,
2005
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Exhibit
A - ASSET PURCHASE AGREEMENT
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Exhibit
B - FAIRNESS OPINION
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This
summary term sheet is an overview of selected information contained in the
proxy
statement about the proposed asset sale deemed most material by us and may
not
contain all of the detailed information that may be important to you. To
understand the asset sale fully and for a more complete description of the
legal
terms of the asset sale, you should carefully read this entire document and
the
additional documents to which we refer, including the asset purchase agreement
attached as Exhibit A. This proxy statement is first being mailed on or about
,
2005 to
our stockholders of record as of the close of business on October 31,
2005.
As
used
herein, “Tidel,” “we,” “our,” and “us” refers to Tidel Technologies, Inc. and
its consolidated subsidiaries unless the context requires otherwise. Tidel
Engineering, L.P., or Engineering, is Tidel’s wholly-owned operating subsidiary
and, together with Tidel, is a seller under the asset purchase agreement with
NCR Texas LLC. Tidel and Engineering are referred to in this proxy statement
as
the Sellers.
Tidel
and
Engineering have agreed to sell substantially all of the assets relating to
their ATM Business to NCR Texas under an asset purchase agreement entered into
as of February 19, 2005. A copy of the asset purchase agreement is included
with
this proxy statement as Exhibit A hereto.
The
purchase price for the sale of the ATM Business is approximately $10.2 million,
with $9.7 million thereof payable on closing, with the remaining $0.5 million
subject to a holdback which is to be paid into escrow at the closing pending
the
post-closing calculation of the net asset value adjustment. Under the net asset
value adjustment, the purchase price may be adjusted post-closing under certain
circumstances based on the net value of assets delivered to NCR
Texas.
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Reasons
for the Sale of the ATM Business (see page ___).
During the last several years, our ATM Business has incurred substantial
operating losses. Our board of directors has determined that the
sale of
our ATM Business is critical to Tidel’s ability to meet debt repayment
obligations to Laurus Master Fund, Ltd., or Laurus, and, following
such
repayments, to continue operations until the sale of our remaining
cash
security business. The proceeds from this transaction will be used
to
repay all outstanding indebtedness to Laurus which was approximately
$8.5
million in the aggregate as of November 10, 2005, and the remainder
of the
proceeds will be used for necessary working capital. If our stockholders
fail to approve the sale of the ATM Business, Tidel will default
in the
repayment of scheduled principal payments to Laurus due from November
2005
to November 2007, and Laurus will be able to accelerate all amounts
owing
to it and exercise rights as a secured
creditor.
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Performance
of the ATM Business (see Reasons for the Sale of the ATM Business,
page
___). The
ATM Business asset sale will result in us exiting the ATM industry
and no
longer being subject to the volatile and competitive nature of the
ATM
industry. During the last several years, we have experienced substantial
operating losses. The ATM Business accounted for approximately $11.8
million of our consolidated revenues for the nine months ended June
30,
2005. Our total consolidated revenues were approximately $28.4 million
for
the nine months ended June 30, 2005; however, the ATM Business accounted
for only approximately $3.3 million of gross profit compared with
approximately $7.6 million gross profit generated from the cash security
business for the nine months ended June 30, 2005. The ATM Business
reported a net loss of approximately $(1.0) million for the nine
months
ended June 30, 2005 compared with approximately $4.4 million net
income
reported by the cash security business for the nine months ended
June 30,
2005.
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Principal
Risks and Disadvantages of the Transaction (see page ___).
Our board of directors considered various risks and special considerations
when evaluating the sale of the ATM Business which include, among
others,
that:
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the
ATM Business comprises a very significant portion of our business
and
contributed approximately 55% of our consolidated sales for the fiscal
year ended September 30, 2004;
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we
may be subject to contingent liabilities pursuant to the asset purchase
agreement;
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the
net asset value adjustment under the asset purchase agreement could
result
in us receiving less net proceeds from the sale of the ATM Business
than
we anticipate; and
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following
the asset sale, our only remaining business will be the manufacture
and
sale of electronic cash security systems, which business we are presently
committed to selling, and, following such sale, we will have no remaining
operations.
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Opinions
of the Financial Advisor to the Board of Directors of
Tidel (see
page ___).
Our board of directors engaged Stifel, Nicolaus&
Company, Inc., or Stifel, to act as financial advisor in connection
with
the potential sale of our ATM Business. On October 27, 2005, Stifel
rendered its opinion, to the effect that, as of that date and based
upon
the assumptions made, matters considered and limits of review, as
set
forth in its opinion, the net consideration to be received in the
transaction by Tidel, consisting of the $10.2 million purchase price,
subject to the net asset value adjustment, and transaction costs,
is fair,
from a financial point of view, to Tidel. The full text of the Stifel
opinion which sets forth assumptions made, matters considered and
limitations on the scope of review undertaken, is attached to this
proxy
statement as Exhibit B. The opinion is addressed to the board and
does not
constitute a recommendation to any stockholders as to how to vote
with
respect to matters relating to the sale of our ATM
Business.
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Stockholder
Approval of the Sale of the ATM Business; Vote Required (see
page ___).
We are organized under the corporate laws of the State of Delaware.
Under
Section 271 of the Delaware General Corporation Law, the sale by
us of
“all or substantially all” of our assets requires approval by the
affirmative vote of the holders of a majority of the voting power
of all
outstanding shares of our common stock on the record date. The Delaware
statute does not define the phrase “all or substantially all” and since we
are retaining on-going businesses after the asset sale, the meaning
of the
phrase is not entirely clear in this context. As a result, we are
seeking
approval of our stockholders to the sale of our ATM Business rather
than
risk a challenge to the sale. As of the date of this proxy statement,
the
holders of approximately 8% of outstanding shares of our common stock
(which include all shares held by our executive officers and directors)
on
the record date have indicated their intention to vote in favor of
the
sale of the ATM Business.
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No
Changes to the Rights of Security Holders; No Appraisal Rights
(see page
___).
Our stockholders will not experience any change
in
their rights as stockholders as a result of the sale of our ATM Business.
Neither Delaware law, our certificate of incorporation nor our bylaws
provides for appraisal or other similar rights for dissenting stockholders
in connection with this transaction. Accordingly, our stockholders
will
have no right to dissent and obtain payment for their
shares.
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Accounting
Treatment (see page ___).
The proposed sale of the ATM Business is expected to be accounted
for as a
sale of net assets. The results of operations will be treated as
discontinued operations.
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United
States Federal Income Tax Consequences (see page ___).
We do not expect that the sale of our ATM Business will result in
any
federal income tax consequences to our stockholders. However, Tidel
will
be subject to federal income taxes as a result of the consummation
of the
asset sale as discussed in “Proposal I—The Sale of the ATM
Business—Special Factors—United States Federal Income Tax
Consequences.”
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Each
of
our directors intends to vote at the special meeting in favor of all of the
matters that you are being asked to approve.
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Assets
to be Sold (see page ___).
We are selling substantially all of the assets that relate to our
ATM
Business other than those assets
that are specifically excluded in the asset purchase agreement. The
sale
does not include assets used in our cash security
business.
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Liabilities
to be Assumed (see page ___).
NCR Texas is assuming all accrued debts, accrued property taxes,
liabilities, obligations
and commissions of the Sellers related to the ATM Business, including
without limitation:
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all
liabilities and obligations specifically related to contracts that
arise
after the closing due to events that occur after closing the sale
to NCR
Texas;
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warranty
obligations associated with the ATM Business; and
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obligations
with respect to continuing employees of the ATM Business that have
been
accepted by NCR Texas.
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Liabilities
to be Retained (see page ___).
We will retain all of the liabilities of the ATM Business which are
due to
events that occur prior to closing the sale to NCR
Texas.
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Purchase
price (see page ___).
In exchange for the assets that we are selling, we will receive
approximately $10.2 million in cash, of which $0.5 million will be
held
back subject to a net asset value adjustment. Pursuant to the net
asset
value adjustment, if the net asset value of the ATM Business as of
the
closing date is less than $6.5 million, the purchase price will be
adjusted downward post closing if it is less than 95% of this contracted
amount.
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Representations
and Warranties (see page ___).
We have made a number of representations and warranties to NCR Texas
in
the asset purchase agreement, including, among other things,
representations relating to the accuracy of our financial statements
and
books and records, title to assets, enforceability of contracts,
rights to
intellectual property, absence of litigation, accounts receivable,
tax
matters, absence of undisclosed liabilities, and employee
benefits.
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Closing
Conditions (see page ___).
The asset purchase agreement contains conditions to closing customary
for
agreements of this type, including: (a) the accuracy of our
representations and warranties, (b) the approval by the holders of
a
majority of the outstanding shares of our common stock, (c) the obtaining
of all necessary third party consents required by assigned contracts,
and
(d) the satisfaction of all agreements and covenants required to
be
performed by us prior to closing.
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Termination
(see page ___).
The asset purchase agreement may be terminated prior to closing as
follows:
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by
either party if the closing has not occurred by December 31, 2005,
provided that the terminating party is not in material breach of
the asset
purchase agreement;
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by
either party if the other party has materially breached any of its
representations, warranties, covenants or agreements under the asset
purchase agreement;
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by
either party, if the other party’s conditions to closing are not
met;
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by
NCR Texas if certain employees have not entered into employment agreements
with NCR Texas (this condition has been
satisfied);
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by
NCR Texas if we have not obtained the consent of our landlord to
transfer
the lease for our operating premises by March 22, 2005 and NCR Texas
has
given us notice to terminate by April 1, 2005 (this condition has
been
satisfied); or
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by
mutual consent of the parties.
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No
Negotiation; Transaction Break Fee (see page ___).
Until the closing of the sale of the ATM Business, we have agreed
not to
communicate with other potential buyers of the ATM Business, other
than to
say that we are contractually obligated not to respond.
We are obligated to forward any communications from other prospective
purchasers to NCR Texas. In the event that we breach these provisions
and
within 12 months of such a breach enter into a definitive acquisition
agreement with a third party, we must pay a $2.0 million fee to NCR
Texas.
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Prior
to
closing the sale of the ATM Business, we may consider an unsolicited competing
third party offer to purchase the ATM Business that a majority of Tidel’s board
of directors deems in good faith to be superior to the sale to NCR Texas,
determined from a financial point of view (taking into account, among other
things, all legal, financial, regulatory and other aspects of the proposal
and
identity of the offeror). We must inform NCR Texas of the terms of any such
superior offer and afford NCR Texas an opportunity
to
consummate a sale to it on substantially equivalent financial terms. In the
event that our board determines in good faith that such competing third party
offer remains superior to the sale to NCR Texas and determines to withdraw
from
the asset purchase agreement with NCR Texas and to enter into a definitive
agreement to effect the competing third party transaction, then we must pay
a
$2.0 million fee to NCR Texas.
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Noncompetition
and Nonsolicitation (see page ___).
The asset purchase agreement provides that for a period of five years
after the closing, we will not, directly or indirectly, invest in,
own,
manage, operate, finance, control, advise, aid or assist, render
services
to, any person engaged in the business of manufacturing, assembly,
selling, marketing, distribution or servicing automated teller machines.
In addition, we have agreed not to solicit or hire any employees
of NCR
Texas, and NCR Texas has agreed not to solicit or hire any employees
of
Tidel, for a period of two years after the closing of the sale of
the ATM
Business.
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Indemnification
by Tidel (see page ___).
We have agreed to indemnify NCR Texas for any losses and expenses
resulting from any inaccuracy or breach of our representations and
warranties in the asset purchase agreement, or resulting from a material
failure to perform any covenant in the asset purchase agreement or
resulting from our operation of the ATM Business prior to
closing.
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Q:
What is the proposal relating to the sale of the ATM Business that I will
be voting
on at the special meeting?
A:
You
will be asked to consider and vote upon a proposal to approve the sale by us
of
substantially all of the assets relating to our ATM Business pursuant to the
asset purchase agreement, dated as of February 19, 2005, by and among NCR Texas,
LLC, Tidel, and Engineering. The asset purchase agreement is attached to this
proxy statement as Exhibit A.
Q:
Who is soliciting my proxy?
A:
Our
board of directors.
Q:
How does the board recommend that I vote on the matters
proposed?
A:
Your
board unanimously recommends that stockholders vote “FOR” each of the proposals
submitted at the special meeting. Our board of directors and Laurus Master
Fund,
Ltd. hold shares representing approximately 8% of the shares outstanding as
of
October 31, 2005 and they will vote all these shares in favor of the sale of
the
ATM Business to NCR Texas.
Q:
Will any of the proceeds from the sale of the ATM Business be distributed
to me
as
a stockholder?
A:
No. We
intend to use the proceeds to repay all outstanding indebtedness to Laurus
Master Fund, Ltd., which was approximately $8.5 million on November 10, 2005,
and the remainder of the proceeds will be used to continue operations until
the
sale of our cash security business. Even if the sale of the assets of the ATM
Business occurs, there can be no assurance that we will have sufficient working
capital to continue to operate our cash security business.
Q:
Can I still sell my shares?
A:
Yes.
None of the asset purchase agreement, the sale of our ATM Business 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.
Q:
Who is entitled to vote at the special meeting?
A:
Only
holders of record of our common stock as of the close of business on October
31,
2005 will be entitled to notice of and to vote at the special
meeting.
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 proposal 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.
Just send in a written revocation or a later dated, signed proxy card before
the
special meeting or simply attend the special meeting and vote 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 the instructions on your proxy card.
Q:
What are the United States federal income tax consequences of the sale
of the
ATM Business?
A:
We do
not expect that the sale of our ATM Business will result in any federal income
tax consequences to our stockholders. However, Tidel will be subject to federal
income taxes as a result of the consummation of the asset sale as discussed
in
this proxy statement on page ___.
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
Leonard Carr, Tidel’s Secretary, Vice President and Director of Investor
Relations, at 1-800-753-3440.
Place
and Time. The
meeting will be held at the offices of Tidel Engineering, L.P., 2310 McDaniel
Drive, Carrollton, Texas 75006 on ___, 2005 at 10:00 a.m., local
time.
Record
date and Voting. Our
board
of directors fixed the close of business on October 31, 2005, 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
20,677,210 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.
Purposes
of the special meeting. The
purpose of the special meeting is to vote upon (i) approval of the sale of
substantially all of our ATM Business assets to NCR Texas LLC; and (ii) 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” or “WITHHELD FROM” a matter 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
matter.
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. Neither broker “non-votes” nor abstentions are included in the tabulation
of the voting results on the election of directors or issues requiring approval
of a majority of the votes cast and, therefore, they do not have the effect
of
votes in opposition in such tabulations.
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 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. As of October 31,
2005, there were 20,677,210 shares
of
Tidel’s common stock issued and outstanding. 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 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.
This
section of the proxy statement describes certain aspects of the sale of
substantially all of the assets related to the automated teller machine
business. However, we recommend that you read carefully the complete asset
purchase agreement for the precise legal terms of the agreement and other
information that may be important to you. The asset purchase agreement is
included in this proxy statement as Exhibit 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 Term Sheet.”
Tidel
Technologies, Inc. and Tidel Engineering, L.P.
Tidel
Technologies, Inc. is a Delaware corporation which, through its wholly owned
subsidiary Tidel Engineering, L.P., develops, manufactures, sells and supports
ATM products and electronic cash security products consisting of Timed Access
Cash Controller, or TACC, products and Sentinel products. We refer to our TACC
products and our Sentinel products collectively as cash security products.
Sales
of ATM and cash security products are generally made on a wholesale basis to
more than 200 distributors and manufacturers’ representatives. We often sell
Sentinel products directly to end-users as well as to distributors.
Our
ATM
products are low-cost, cash-dispensing automated teller machines that are
primarily designed for the off-premise, or non-bank, markets. We offer a wide
variety of options and enhancements to the ATM products, including custom
configurations that dispense cash-value products, such as coupons, tickets
and
stored-value cards, accept currency, and perform other functions, such as
check-cashing.
Our
TACC
products are essentially stand-alone safes that dispense cash to an operator
in
preset amounts. As a deterrent to robbers, $50 or less in cash is kept in a
register at any given time. When a customer requires change in denominations
of
$5, $10 and $20 bills, the clerk presses a button on the TACC for the
appropriate denomination and the cash is dispensed in a plastic tube. The time
and frequency it takes to dispense the cash is pre-determined and adjustable
so
that in high-risk times of operations, transaction times can be slowed to act
as
a deterrent against robberies. When excess cash is collected, the clerk simply
places individual bills back into the plastic tubes and loads them into the
TACC
for safe storage. Other available features include envelope drop boxes for
excess cash, dollar scanners, state lottery interfaces, touch pads requiring
user PINs for increased transaction accuracy and an audit trail and reporting
capabilities. Our Sentinel products were introduced in 2002. Our Sentinel
products have all the functionality of the TACC, 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.
As
used
herein, “Tidel,” “we,” “our,” and “us” refers to Tidel Technologies, Inc. and
its consolidated subsidiaries unless the context requires otherwise. Tidel
Engineering, L.P., or Engineering, is Tidel’s wholly-owned operating subsidiary
and, together with Tidel, is a seller under the asset purchase agreement with
NCR Texas LLC. Tidel and Engineering are referred to in this proxy statement
as
the Sellers.
Tidel
has
its principal executive offices at 2900 Wilcrest Drive, Suite 205, Houston,
Texas 77042. The telephone number of Tidel’s principal executive office is (713)
783-8200.
Engineering
has its principal executive offices at 2310 McDaniel Drive, Carrollton, Texas
75006. The telephone number of Engineering’s principal executive office is (972)
484-3358.
NCR
Texas LLC
NCR
Texas
LLC is a wholly-owned subsidiary of NCR Corporation, a Maryland corporation
listed on the New York Stock Exchange that is principally involved in providing
technology and services that help businesses interact, connect and relate with
their customers.
NCR
Corporation has its principal executive offices at 1700 S. Patterson Blvd,
WHQ-1, Dayton, Ohio 45479-0001. The telephone number of its principal executive
offices is (937)-445-5905.
Background
and History of the Proposed Sale
In
March
2004, a Vice President of New Business Development of NCR Corporation contacted
James T. Rash, former chairman and chief executive officer, of Tidel and
discussed a possible transaction whereby NCR would purchase some or all of
Tidel.
Informal
discussions continued between the NCR representative and Mr. Rash for
approximately six months. In furtherance of those discussions, on May 20, 2004,
NCR Corporation entered into a confidentiality agreement with Tidel and began
conducting preliminary due diligence in order to explore whether such a
transaction could be agreed upon. Upon completion of its preliminary due
diligence, NCR Corporation indicated an interest in purchasing Tidel’s ATM
Business assets. On October 1, 2004, NCR and Tidel signed a non-binding letter
of intent whereby NCR Texas would purchase Tidel’s ATM Business assets for a
purchase price of approximately $10 million, subject to the satisfactory
completion of due diligence. On October 5, 2005, NCR Corporation sent a due
diligence request list to Tidel and conducted extensive due diligence for
approximately 45 days.
Upon
conclusion of NCR Corporation’s due diligence in November 2004, counsel for NCR
Corporation delivered an initial draft of an asset purchase agreement pursuant
to which NCR Texas would acquire substantially all of Tidel’s ATM Business
assets for a purchase price of approximately $10.2 million, such price being
subject to adjustment as provided therein. The draft asset purchase agreement
underwent a series a drafts and revisions while we negotiated satisfactory
terms
and conditions.
In
November 2004, Tidel completed a refinancing with Laurus which, among other
things, required Tidel to engage Stifel, Nicolaus & Company, Inc. to act as
financial advisor in connection with the proposed sale of the ATM Business
to
NCR Texas and the sale of Tidel’s remaining cash security business. Tidel
retained Stifel as required and they provided Tidel with a written opinion
as to
the fairness of the sale of the ATM Business to NCR Texas. See “Opinions of the
Financial Advisor to the Board of Directors of Tidel.”
The
board
of directors of Tidel met several times in January and February 2005 to discuss
the proposed terms of the transaction with NCR Texas, negotiations continued,
and the board of directors approved the terms of the final draft version of
the
asset purchase agreement on February 17, 2005. The asset purchase agreement
was
signed on February 19, 2005.
Reasons
for the Sale of the ATM Business
Tidel
is
proposing to sell its automated teller machine, or ATM, business to NCR Texas
because Tidel believes that the sale and the terms of the related asset purchase
agreement are in the best interests of Tidel and its stockholders. Our board
of
directors has determined that the sale of our ATM Business is critical to
Tidel’s ability to meet debt repayments obligations to Laurus and, following
such repayments, to fund necessary working capital to continue operations until
the sale of its remaining cash security business. The proceeds from this
transaction will be used to repay all outstanding indebtedness to Laurus, which
was approximately $8.5 million on November 10, 2005, and the remainder of the
proceeds will be used for necessary working capital. In connection with a
restructuring of certain Laurus indebtedness in November 2004, we entered into
an agreement with Laurus providing that all proceeds of the sale of the ATM
Business to NCR would first be used to repay the Laurus indebtedness, with
any
remainder to be used for necessary working capital. Even if the sale of the
assets of our ATM Business occurs, there can be no assurance that we will have
sufficient working capital to continue to operate our cash security business.
If
the asset sale is not consummated, we will continue to operate the ATM Business
and expect to continue to experience cash demands that exceed our cash flow,
including, beginning December 1, 2005, increased principal repayments on
outstanding indebtedness. We require substantial working capital to fund our
business and meet this debt service and other obligations. The sale of our
ATM
Business is of critical importance to provide us with necessary working
capital.
Our
liquidity has been negatively impacted by our inability to collect the
outstanding receivables and claims as a result of the bankruptcy of one
customer, JRA 222, Inc., d/b/a Credit Card Center, the inability to collect
outstanding receivables from other significant customers, and under-absorbed
fixed costs associated with our production facilities and reduced sales of
our
products resulting from general difficulties in the ATM market. In order to
meet
our liquidity needs during the past four years, it was necessary for us to
obtain financing from Laurus.
Failure
to consummate the sale of the ATM Business will have a material adverse effect
on our business, results of operations and financial condition. If our
stockholders fail to approve the sale of the ATM Business, we will likely
default in the repayment of scheduled principal payments to Laurus due from
November 2005 to November 2007, and Laurus will be able to accelerate all
amounts owing to it and exercise rights as a secured creditor. Further, we
will
continue to be exposed to the highly competitive market risks relating to the
ATM Business, which include, but are not limited to:
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the
growth and capital resources of competitors allows many of our competitors
to offer more extensive advertising and promotional programs than
we
do;
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technological
developments demand high expenditures for product innovation and
development; and
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our
inability to generate sufficient cash flow to support future interest
and,
beginning December 1, 2005, increased principal repayments on outstanding
indebtedness places us at a competitive disadvantage to our competitors
that have less debt.
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In
addition to the above, our ATM Business has experienced significant inventory
write-downs and declines in gross margins, which have resulted in overall
returns for the ATM Business to decline.
During
the last several years, we have experienced substantial operating losses. The
ATM Business reported a net loss of approximately $(1.0) million for the nine
months ended June 30, 2005 compared with approximately $4.4 million net income
reported by the cash security business for the nine months ended June 30,
2005.
The
ATM
Business asset sale will result in us exiting the ATM industry and no longer
being subject to the volatile and competitive nature of the ATM industry. The
ATM Business accounted for approximately $11.8 million of our consolidated
revenues for the nine months ended June 30, 2005. Our total revenues were
approximately $28.4 million for the nine months ended June 30, 2005; however,
the ATM Business accounted for only approximately $3.3 million of gross profit
compared with approximately $7.6 million gross profit generated from the cash
security business for the nine months ended June 30, 2005.
In
arriving at its determination that the asset sale is in the best interest of
Tidel and its stockholders, the Tidel board of directors carefully considered
the terms of the asset purchase agreement as well as the potential impact of
the
asset sale on Tidel. As part of this process, the Tidel board of directors
considered the advice and assistance of its outside financial advisors. In
determining to authorize the asset sale, the Tidel board of directors considered
the factors set forth above as well as the following factors:
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the
opinion dated October 27, 2005 that Tidel received from Stifel, Tidel’s
financial advisor, that the purchase price, consisting of approximately
$10.2 million, subject to the net asset value adjustment under the
asset
purchase agreement, to be received by Tidel pursuant to the asset
purchase
agreement is fair to Tidel from a financial point of
view;
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the
absence of other offers that are superior to NCR Texas’s offer in light of
all the terms and conditions presented by NCR
Texas;
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the
amount of cash included in NCR Texas’s offer;
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beginning
December 1, 2005, monthly principal repayments on our outstanding
indebtedness will increase from $75,000 to
$225,000;
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the
resulting loss of sales and gross profit from the ATM Business;
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the
risk of management and employee disruption associated with the asset
sale;
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the
significant costs involved in consummating the asset sale, including
legal, accounting and other acquisition
costs;
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the
resulting risk after the asset sale from Tidel having a less diversified
business;
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the
risk that Tidel will not be able to satisfy some or all of the conditions
to NCR Texas’ obligation to consummate the asset sale, including the
condition that we must obtain third party consents for any assigned
contracts;
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the
risk that Tidel could be exposed to future indemnification payments
for a
breach or violation of the representations and warranties or covenants
contained in the asset purchase agreement;
and
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the
risk that the purchase price for the ATM Business assets will be
adjusted
downward if there is a sufficient change in the net asset value of
the ATM
Business.
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In
view
of the variety of factors considered in connection with its evaluation of the
asset sale, the Tidel board of directors did not find it practical to, and
did
not quantify or otherwise attempt to assign, relative weights to the specific
factors considered in reaching its conclusions.
Recommendation
of the Board of Directors
The
Tidel
board of directors has determined that the sale of the ATM Business is in the
best interests of Tidel and its stockholders. The Tidel board of directors
has
unanimously approved the asset purchase agreement and unanimously recommends
that stockholders vote in favor of the proposal to approve the sale of the
ATM
Business to NCR Texas pursuant to the terms of the asset purchase agreement
and
the transactions contemplated by the asset purchase agreement.
Opinions
of the Financial Advisor to the Board of Directors of Tidel
Overview
Tidel’s
board of directors engaged Stifel, Nicolaus & Company, Inc., or Stifel, to
act as financial advisor in connection with the potential sale of Tidel or
any
of Tidel’s material assets. On October 27, 2005, Stifel rendered its written
opinion, to the effect that, as of such date and based upon the assumptions
made, matters considered and limits of review, as set forth in its opinion,
the
purchase price, consisting of approximately $10.2 million subject to the net
asset value adjustment, to be received in the transaction by Tidel, is fair,
from a financial point of view, to Tidel.
The
full
text of the Stifel opinion, which sets forth assumptions made, matters
considered and limitations on the scope of review undertaken, is attached to
this proxy statement as Exhibit B and is incorporated herein by reference.
The
description of the Stifel opinion set forth herein is qualified in its entirety
by reference to the full text of the Stifel opinion. Tidel urges its
stockholders to read the Stifel opinion in its entirety.
The
Stifel opinion was provided for the use and benefit of the Tidel board of
directors in its consideration of the transaction and the opinion addresses
only
the fairness to Tidel, from a financial point of view, of the purchase price,
consisting of approximately $10.2 million subject to the net asset value
adjustment, to be received in the transaction by Tidel and transaction costs,
and the opinion does not address the relative merits of the transaction
contemplated by the asset purchase agreement as compared to any alternative
transactions that might be available to Tidel, nor does it address the
underlying business decision by Tidel to engage in the transaction or the terms
of the asset purchase agreement or the documents referred to therein. The Stifel
opinion does not constitute a recommendation as to how any holder of shares
of
common stock should vote on any matter relevant to the transaction. In addition,
Stifel did not opine as to the market value or the prices at which any Tidel
securities may trade at any time in the future.
In
conducting its analysis and arriving at its opinion, Stifel, among other things:
(i) reviewed the asset purchase agreement; (ii) reviewed certain financial
and
other information about the ATM Business that was publicly available, (iii)
reviewed information pertaining to the ATM Business furnished to Stifel by
Tidel’s management, (iv) reviewed the ATM Business’s 2005 through 2010 annual
projections, (v) reviewed other due diligence data provided to NCR and Stifel
by
Tidel regarding Tidel’s technology agreements with vendors, (vi) reviewed orders
of the bankruptcy court issued in connection with the bankruptcy of Tidel’s
client, JRA 222, Inc, d/b/a Credit Card Center and other documents from the
bankruptcy court, Tidel’s building lease, and other company related information,
(vii) met with and held discussions with various members of senior management
of
Tidel, (viii) reviewed the background of the asset sale, (ix) reviewed the
valuations of publicly traded companies that Stifel deemed comparable to the
ATM
Business, (x) prepared a discounted cash flow analysis of the ATM Business,
(xi)
prepared an EBITDA (earnings before interest, taxes, depreciation and
amortization) multiple analysis of the ATM Business, (xii) prepared a book
value
of assets multiple analysis of the ATM Business, (xiii) prepared an equity
multiple analysis of the ATM Business, and (xiv) prepared a tangible equity
multiple analysis of the ATM Business. In addition, Stifel performed such
additional review as Stifel considered appropriate in rendering its
opinion.
In
rendering its opinion, Stifel assumed and relied upon the accuracy and
completeness of all of the information concerning the ATM Business considered
in
connection with its review of the asset sale, and Stifel did not assume any
responsibility for independent verification of such information. Stifel did
not
prepare any independent valuation or appraisal of any of the assets or
liabilities of the ATM Business, nor was Stifel furnished with any such
appraisals. With respect to the limited financial forecast and projection made
available to Stifel and used in its analysis, Stifel assumed that it reflects
the best currently available estimate and judgment of the expected future
financial performance of the ATM Business. Stifel assumed that the ATM Business
is not a party to any pending transactions, including external financings,
recapitalizations or material merger discussions, other than the asset sale
to
NCR Texas and those activities undertaken in the ordinary course of conducting
its business. Stifel’s opinion is necessarily based upon market, economic,
financial and other conditions as they exist and can be evaluated as of the
date
of the asset sale and any change in such conditions would require a
re-evaluation of the Stifel opinion. Stifel assumed the asset sale will be
consummated substantially on the terms discussed in the asset purchase
agreement, that all material conditions therein will be satisfied, and that
there will be no waiver of any material term or condition by any party
thereto.
Accordingly,
the Stifel analyses must be considered as a whole. Considering any portion
of
such analyses or the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the conclusions expressed in the opinion. Stifel made no undertaking to advise
any person of any change in any fact or matter affecting the opinion of which
Stifel becomes aware after the date of the written opinion.
In
its
review, Stifel did not obtain any independent evaluation or appraisal of the
assets or liabilities of Tidel, nor did Stifel conduct a comprehensive physical
inspection of any of the assets of Tidel, nor was Stifel furnished with any
such
evaluations or appraisals for Tidel or reports of such physical inspections
for
Tidel, nor did Stifel assume any responsibility to obtain any such evaluations,
appraisals or inspections for Tidel. The Stifel opinion is based on economic,
monetary, regulatory, market and other conditions existing and which could
be
evaluated as of the date of the written opinion; however, such conditions are
subject to rapid and unpredictable change and such changes could affect the
conclusions expressed in the opinion.
The
Stifel opinion was one of many factors considered by Tidel’s board of directors
in deciding to approve the asset purchase agreement and Tidel’s board of
directors recommends that Tidel stockholders vote for the asset
sale.
Stifel
and Tidel
Tidel’s
board of directors engaged Stifel based on Stifel’s experience as a financial
advisor in connection with mergers and acquisitions and in business and
securities valuations generally. Stifel and its affiliates may own securities
of
Tidel, NCR and/or their subsidiaries and affiliates and may maintain a market
in
the securities of Tidel, NCR and/or their subsidiaries and affiliates and may
publish research reports regarding such securities. In the ordinary course
of
its business, Stifel and its affiliates may trade or hold such securities for
its own account and for the accounts of its customers and, accordingly, may
at
any time hold long or short positions in those securities.
Pursuant
to the terms of the engagement letter between Stifel and Tidel, Stifel received
a fee of $150,000 and reimbursement for anticipated expenses of approximately
$30,000 upon the delivery of its oral and written fairness opinion dated October
27, 2005.
Whether
or not the transaction is consummated, Tidel has also agreed to reimburse Stifel
for certain reasonable and ordinary out-of-pocket expenses, including legal
fees, and to indemnify Stifel and certain related entities against certain
liabilities, including liabilities arising out of or in connection with the
services rendered and to be rendered by Stifel under its engagement with Tidel.
The terms of the fee arrangement with Stifel, which Tidel and Stifel believe
are
customary in transactions of this nature, were negotiated at arms’ length
between Tidel’s board of directors and Stifel.
Proceeds
of the Sale of the ATM Business
The
proceeds from this transaction will be used to repay all outstanding
indebtedness to Laurus Master Fund, Ltd., which was approximately $8.5 million
on November 10, 2005, and the remainder of the proceeds will be used to continue
operations until the sale of our cash security business. Even if the sale of
the
assets of our ATM Business occurs, there can be no assurance that we will have
sufficient working capital to continue to operate our cash security
business.
Stockholder
Approval of the Sale of the ATM Business; Vote Required
Tidel
is
organized under the corporate laws of the State of Delaware. Under Section
271
of the Delaware General Corporation Law, the sale by Tidel of “all or
substantially all” of its assets requires approval by the affirmative vote of
the holders of a majority of the voting power of all outstanding shares of
its
common stock on the record date. The Delaware statute does not define the phrase
“all or substantially all.” As a result, Tidel is seeking approval of its
stockholders rather than risk a challenge to the asset sale. The asset purchase
agreement provides that if the asset purchase agreement fails to receive the
requisite vote for approval at Tidel’s stockholder meeting, either party may
terminate the asset purchase agreement. The asset purchase agreement also
provides that obtaining such approval is a condition to each of Tidel and NCR
Texas being obligated to consummate the asset sale. Our board of directors
and
Laurus Master Fund, Ltd. hold shares representing approximately 8% of the shares
outstanding as of October 31, 2005 and they will vote all these shares in favor
of the sale of the ATM Business to NCR Texas.
No
Changes to the Rights of Security Holders; No Appraisal Rights
Tidel’s
stockholders will not experience any change in their rights as stockholders
as a
result of the sale of the ATM Business. 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 this transaction.
Accordingly, Tidel’s stockholders will have no right to dissent and obtain
payment for their shares.
Government
Approvals and Regulatory Matters
Neither
Tidel nor NCR Texas is aware of any other regulatory requirements or
governmental approvals or actions that may be required to consummate the
acquisition, 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. Should
any such approval or action be required, it is presently contemplated that
such
approval or action would be sought. There can be no assurance, however, that
any
such approval or action, if needed, could be obtained and would not be
conditioned in a manner that would cause the parties to abandon the
acquisition.
Accounting
Treatment of the Proposed Sale
In
accordance with the liquidation basis of accounting, our asset values have
been
adjusted to reflect the proposed sale to NCR Texas. For financial reporting
purposes, the consummation of the asset sale would have produced a gain of
approximately $3.3 million if the transaction had closed on June 30, 2005 in
accordance with the terms of the asset purchase agreement.
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
NCR
Texas.
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 carry forwards may
be
subject to audit and adjustment by the Internal Revenue Service. In the event
the Internal Revenue Service adjusts the net operating loss carry forwards,
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 NCR Texas
pursuant to the asset purchase agreement.
Interests
of Tidel’s Executive Officers and Directors in the Asset Sale
NCR
Texas
has entered into employment agreements with one of our executive officers,
contingent upon the closing of the acquisition. None of our other executive
officers or directors has a personal or business relationship with NCR Texas
or
NCR Corporation. In addition, none of our other executive officers or directors
has any interest in the asset sale, other than as Tidel
stockholders.
Future
Plans
The
board
of directors has committed to a plan to sell Tidel’s cash security business.
Upon the sale of the cash security business, which is anticipated to follow
the
sale of the ATM Business, Tidel would have no remaining operations. There is
no
existing definitive agreement regarding the sale of the cash security business.
Any sale of the cash security business would require separate stockholder
approval.
Tidel
will not distribute any portion of the proceeds from the sale of the
ATM Business
to its stockholders.
Tidel
intends to use the proceeds from the sale of the ATM Business to repay all
outstanding indebtedness to Laurus Master Fund, Ltd. which was approximately
$8.5 million on November 10, 2005, and to use the remaining proceeds for
necessary working capital purposes to continue operations until the sale of
the
remaining cash security business. Even if the sale of the assets of the ATM
Business occurs, there can be no assurance that Tidel will have sufficient
working capital to continue to operate its cash security business.
Agreements
under existing financing arrangement
Tidel
has
agreed with Laurus Master Fund, Ltd., or Laurus, pursuant to existing financing
agreements, that the proceeds of the sale of the ATM Business to NCR Texas
shall
be applied first to obligations owing by Tidel and Engineering to Laurus, which
was approximately $8.5 million in the aggregate on November 10, 2005, and then
to Tidel to fund necessary working capital to continue operations until the
sale
of its cash security business. As of November 10, 2005, Tidel owed approximately
$8.5 million in aggregate principal amount of indebtedness to Laurus, which
consisted of (i) approximately $5.9 million of indebtedness under a convertible
note due November 25, 2006, which bears interest at an annual rate of prime
plus
2%, (ii) approximately $1.5 million of indebtedness under a convertible note
due
November 26, 2007, which bears interest at an annual rate of 14%, (iii)
approximately $0.6 million of indebtedness under a convertible note due November
26, 2005, which bears interest at an annual rate of 10%, (iv) approximately
$0.35 million of indebtedness under a convertible note of Engineering due
November 26, 2005, which bears interest at an annual rate of 14%, and (v)
approximately $0.1 million of deferred accrued interest due November 26, 2007.
All such obligations to Laurus are convertible, at Laurus’ option, subject to
the provisions contained in the transaction documents.
Tidel
has
further agreed with Laurus that any sales of Tidel equity interests or non
ATM
Business assets of Tidel Technologies or its subsidiaries, including
Engineering, consummated on or before November 26, 2009 shall be applied towards
the repayment of any remaining outstanding indebtedness owing to Laurus, if
any,
then to Laurus and Tidel, with Laurus receiving a percentage of the sum of
the
proceeds of such sale plus certain excess proceeds from this proposed sale
of
the ATM Business. This percentage to be paid to Laurus shall be at least 55.5%
but may be a greater percentage depending on the amount of proceeds of any
sale
of Tidel equity interests or non ATM Business assets of Tidel. Any amounts
received by Laurus from such sales shall be credited towards the repayment
of a
reorganization fee of at least $2.0 million which Tidel agreed to pay Laurus
in
connection with Laurus’s agreement to extend financing to Tidel in November
2004. In the event that Laurus has not received the full amount of the
reorganization fee on or before November 26, 2009, then Tidel must pay any
remaining balance due on the reorganization fee to Laurus at such
date.
The
board of directors has identified a sale of the ATM Business as the
most suitable
method to meet its expected/scheduled liquidity needs
In
connection with a restructuring of certain Laurus indebtedness in November
2004,
we entered into an agreement providing that all proceeds of the sale of the
ATM
Business to NCR would be used to repay the Laurus indebtedness, among other
things. If stockholders reject the proposed sale of the ATM Business to NCR
Texas, 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 sale of its ATM Business to NCR Texas. 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, and expects to continue to experience cash demands that exceed
our cash flow. Tidel requires substantial working capital to fund its business
and meet this debt service and other obligations. This transaction is of
critical importance to provide us necessary working capital. Failure to
consummate the sale of the ATM Business will have a material adverse effect
on
our business, results of operations and financial condition.
Tidel’s
success will depend on a less diversified line of business.
The
ATM
Business Tidel proposes to sell constitutes a significant portion of its assets.
As such, Tidel’s asset base and revenues following the sale will change
significantly from those existing prior to this transaction. After the sale
of
the ATM Business Tidel’s sole remaining business will be its cash security
business, which the board has determined to sell although no definitive
agreements have been executed. After the ATM Business asset sale, Tidel expects
to generate substantially all of its sales from its cash security business
until
such time as the cash security business is sold. Tidel cannot assure you that
it
can grow the revenues of its cash security business or maintain its
profitability. Following the sale of its cash security business, 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, to distribute the remaining proceeds
to
stockholders or to acquire a different business. There can be no assurance
that
the option chosen will be beneficial to stockholders. Until the sale of its
cash
security business, Tidel’s revenue and profitability will depend on its ability
to maintain and generate additional customers and to maintain and grow its
cash
security business. A reduction in demand for the products and services of its
cash security business would have a material adverse effect on its business.
The
sustainability of current levels of its cash security business and the future
growth of such revenues, if any, will depend on, among other
factors:
|
—
|
the
overall performance of the economy;
|
|
—
|
competition
within its key markets;
|
|
—
|
customer
acceptance of its products and services; and
|
|
—
|
the
demand for its other products and services.
|
Tidel
cannot assure you that it will maintain or increase its current level of
revenues or profits from its cash security business in future
periods.
The
asset purchase agreement will expose Tidel to contingent
liabilities.
Under
the
asset purchase agreement, Tidel agreed to indemnify NCR Texas for any breach
or
violation of the Sellers’ representations, warranties and covenants contained in
the asset purchase agreement and for other matters, subject to certain
limitations. Significant indemnification claims by NCR Texas could have a
material adverse effect on Tidel’s financial condition.
The
failure to complete the sale of the ATM Business 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
sale
of the ATM Business is subject to a number of contingencies. As a result, Tidel
cannot assure you that the sale of the ATM Business will be completed. If the
sale of the ATM Business is not completed for any reason, the market price
of
Tidel’s common stock may decline.
The
amount of cash Tidel receives in this transaction will vary depending on
a net
asset value adjustment. In certain circumstances, this adjustment
could have
the effect of reducing the consideration to be received by Tidel in
the asset
sale.
The
purchase price is subject to a net asset value adjustment under the asset
purchase agreement, which provides that if the net asset value as of the closing
date is less than $6.5 million, the purchase price will be adjusted downward
if
it is less than 95% of this contracted amount. Therefore, we cannot predict
the
exact amount of the purchase price and thus the proceeds that we will receive
in
connection with the asset sale.
Tidel
will be unable to compete in the ATM Business for five years from
the date
of the closing.
The
asset
purchase agreement provides that for a period of five years after the closing
of
the sale of the ATM Business, the Sellers will not, directly or indirectly,
invest in, own, manage, operate, finance, control, advise, aid or assist, render
services to, any person engaged in the business of manufacturing, assembly,
selling, marketing, distribution or servicing automated teller
machines.
The
following summary of the terms of the asset purchase agreement is qualified
in
its entirety by reference to the asset purchase agreement, a copy of which
is
attached to this proxy statement as Exhibit A.
General
Under
the
terms of the asset purchase agreement, NCR Texas has agreed to purchase
substantially all of the assets, and assume all liabilities which are due to
events which occur subsequent to closing, relating to the ATM Business. The
Sellers will sell the assets of the ATM Business for a purchase price of
approximately $10.2 million in cash, subject to a post-closing net asset value
adjustment. The asset purchase agreement provides for approximately $9.7 million
of the purchase price to be payable on closing, with the remaining $0.5 million
subject to a holdback which is to be paid into escrow at the closing pending
the
calculation of the net asset value adjustment. Pursuant to the net asset value
adjustment, if the net asset value as of the closing date is less than $6.5
million, the purchase price will be adjusted downward post closing if it is
less
than 95% of this contracted amount.
The
ATM Business
Our
ATM
Business consists of the development, manufacture, sale and support of ATM
products. Sales of ATM and cash security products are generally made on a
wholesale basis to more than 200 distributors and manufacturer’s
representatives.
The
ATM
products are low-cost, cash-dispensing automated teller machines that are
primarily designed for the off-premises, or non-bank, markets. Our ATM Business
offers a wide variety of options and enhancements to the ATM products, including
custom configurations that dispense cash-value products, such as coupons,
tickets, and stored-value cards, accept currency and perform other functions
such as check-cashing.
Assets
to be Sold
The
asset
purchase agreement provides that the following assets will be sold to NCR
Texas:
|
—
|
all
contracts related to the ATM Business, including contracts with
distributors and vendors;
|
|
—
|
all
third party commercial software licenses related to the operations
of the
ATM Business;
|
|
—
|
all
inventory related to the ATM Business;
|
|
—
|
the
rights under the commercial leases of facilities in Carrollton, Texas
and
in Mississauga, Ontario;
|
|
—
|
all
transferable licenses, certificates, consents, permits, approvals
and
other authorizations of any authority or body related to the operation
of
the ATM Business;
|
|
—
|
All
of Sellers’ right, title and interest in and to the intellectual property
of the ATM Business;
|
|
—
|
substantially
all equipment and personal property, including machinery furniture,
fixtures, supplies, warehouse and office equipment and materials,
computer
hardware and other tangible personal property related to the operations
of
the ATM Business;
|
|
—
|
all
leases of equipment and machinery related to the ATM Business;
|
|
—
|
specified
accounts, notes and other receivables generated in connection with
the ATM
Business and the rights and benefits of any related security
interests;
|
|
—
|
all
books and records of the ATM Business;
|
|
—
|
all
service manuals and databases related to the ATM Business;
|
|
—
|
Sellers’
backlog on orders related to the ATM Business;
|
|
—
|
Sellers’
claims or causes of actions related to scheduled matters;
|
|
—
|
certain
doubtful accounts of the ATM Business; and
|
|
—
|
certain
assets of Tidel that are also used in Tidel’s cash security business and
that are scheduled in the asset purchase
agreement.
|
The
assets to be sold pursuant to the above listing are scheduled in the asset
purchase agreement.
Liabilities
to be Assumed.
NCR
Texas
is assuming all accrued debts, accrued property taxes, liabilities, obligations
and commissions of the Sellers related to the ATM Business, including without
limitation:
|
—
|
liabilities
and obligations specifically related to contracts that arise after
the
closing due to events that occur after the
closing;
|
|
—
|
warranty
obligations associated with the business; and
|
|
—
|
obligations
with respect to continuing employees of the ATM Business that have
been
accepted by NCR Texas.
|
Representations
and Warranties
The
Sellers have made a number of representations and warranties to NCR Texas in
the
asset purchase agreement, including, among other things, representations
relating to, the accuracy of the Seller’s financial statements and books and
records, title to assets, enforceability of contracts, rights to intellectual
property, absence of litigation, accounts receivable, tax matters, absence
of
undisclosed liabilities, and employee benefits.
Closing
Conditions
The
asset
purchase agreement contains conditions to closing, customary for agreements
of
this type, including: (a) the accuracy of our representations and warranties,
(b) the approval by the holders of a majority of the outstanding shares of
our
common stock, (c) the obtaining of all necessary third party consents required
by assigned contracts, and (d) the satisfaction of all agreements and covenants
required to be performed by the Sellers prior to closing.
Termination
The
asset
purchase agreement may be terminated prior to closing as follows:
|
—
|
by
either party if the closing has not occurred by December 31, 2005,
provided that the terminating party is not in material breach of
the asset
purchase agreement;
|
|
—
|
by
either party if the other party has materially breached any of its
representations, warranties, covenants or agreements under the asset
purchase agreement;
|
|
—
|
by
either party, if the other party’s conditions to closing are not
met;
|
|
—
|
by
NCR Texas if certain employees have not entered into employment agreements
with NCR Texas (this condition has been
satisfied);
|
|
—
|
by
NCR Texas if we have not obtained the consent of our landlord to
transfer
the lease for our operating premises by March 22, 2005 and NCR Texas
has
given notice to terminate to Tidel by April 1, 2005 (this condition
has
been satisfied); or
|
|
—
|
by
mutual consent of the parties.
|
No
Negotiation; Transaction Break Fee
Until
the
closing the sale of the ATM Business, the Sellers have agreed not to communicate
with other potential buyers of the ATM Business, other than to say that they
are
contractually obligated not to respond. The Sellers are obligated to forward
any
communications from other prospective purchasers to NCR Texas. In the event
that
the Sellers breach these provisions and within 12 months of such a breach enter
into a definitive acquisition agreement with a third party, the Sellers must
pay
a $2.0 million fee to NCR Texas.
Prior
to
closing the sale of the ATM Business the Sellers may consider an unsolicited
competing third party offer to purchase the ATM Business that a majority of
Tidel’s board of directors deems in good faith to be superior to the sale to NCR
determined from a financial point of view (taking into account, among other
things, all legal, financial, regulatory and other aspects of the proposal
and
identity of the offeror). The Sellers must inform NCR Texas of the terms of
any
such superior offer and afford NCR Texas an opportunity to consummate a sale
to
it on substantially equivalent financial terms. In the event that Tidel
determines in good faith that such competing third party offer remains superior
to the sale to NCR Texas and determines to withdraw from the asset purchase
agreement with NCR Texas and to enter into a definitive agreement to effect
the
competing third party transaction, then Tidel must pay a $2.0 million fee to
NCR
Texas.
Noncompetition
and Nonsolicitation
The
asset
purchase agreement provides that for a period of five years after the closing,
the Sellers will not, directly or indirectly, invest in, own, manage, operate,
finance, control, advise, aid or assist, render services to, any person engaged
in the business of manufacturing, assembly, selling, marketing, distribution
or
servicing automated teller machines. In addition, the Sellers have agreed not
to
solicit or hire any employees of NCR Texas, and NCR Texas has agreed not to
solicit or hire any employees of Tidel, for a period of two years after the
closing of the sale of the ATM Business.
Indemnification
by Tidel
The
Sellers have agreed to indemnify NCR Texas for any losses and expenses resulting
from any inaccuracy or breach of our representations and warranties in the
asset
purchase agreement, or resulting from a material failure to perform any covenant
in the asset purchase agreement or resulting from Sellers’ operation of the ATM
Business prior to closing.
NCR
Texas
cannot seek indemnification until the total amount of claims exceeds $10,000
in
the case of an individual claim or $50,000, in the aggregate, in the case of
more than one current or prior claim.
The
Board of Directors unanimously recommends that you vote “FOR”
the approval
of the asset purchase agreement and the transactions
contemplated thereby.
Certain
information contained in this proxy statement that does not relate to historical
information may be deemed to constitute forward-looking statements. The words
or
phrases “will likely result,” “are expected to,” “will continue,” “is
anticipated,” “estimate,” “project,” “believe” or similar expressions identify
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended. This proxy statement contains certain
forward-looking statements with respect to the financial condition, results
of
operations, plans, objectives, future performance and business of Tidel and
its
subsidiaries and the effect of the asset sale. Because such statements are
subject to risks and uncertainties, actual results may differ materially from
historical results and those presently anticipated or projected. Stockholders
are cautioned not to place undue reliance on such statements, which speak only
as of the date hereof. Among the factors that could cause actual results in
the
future to differ materially from any opinions or statements expressed with
respect to future periods are those described under the caption “Proposal
I—Special Considerations Regarding the Proposal to Sell the ATM Business.”
Neither Tidel nor any of its subsidiaries undertakes any obligation to release
publicly any revisions to such forward-looking statements to reflect events
or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The
following table sets 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 2000 through 2004 have been derived from our audited consolidated
financial statements included in our filings on Form 10-K for each of the
respective periods.
SELECTED
STATEMENT OF
|
|
Years
Ended September 30,
|
|
OPERATIONS
DATA:
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
Operating
revenues
|
|
$
|
22,514
|
|
$
|
17,794
|
|
$
|
19,442
|
|
$
|
36,086
|
|
$
|
72,931
|
|
Operating
income (loss)
|
|
|
(5,250
|
)
|
|
(6,637
|
)
|
|
(11,552
|
)
|
|
(24,764
|
)
|
|
15,440
|
|
Net
income (loss)
|
|
|
11,318
|
|
|
(9,237
|
)
|
|
(14,078
|
)
|
|
(25,942
|
)
|
|
9,169
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
.65
|
|
|
(0.53
|
)
|
|
(0.81
|
)
|
|
(1.49
|
)
|
|
0.55
|
|
Diluted
|
|
|
.37
|
|
|
(0.53
|
)
|
|
(0.81
|
)
|
|
(1.49
|
)
|
|
0.50
|
|
The
consolidated balance sheet data as of June 30, 2005 and the consolidated
operations data for the nine months ended June 30, 2005 have been derived from
our unaudited consolidated financial statements included in our Form 10-Q for
the quarter ended June 30, 2005.
Continued
Operations
Due
to
the requirement to classify our only two product lines as discontinued
operations, the results of continuing operations consist primarily of the
corporate overhead and debt-related costs.
An
analysis of continuing operations is provided in the following tables:
CONTINUED
OPERATIONS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
June
30,
2005
|
|
September
30,
2004
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,332,201
|
|
$
|
258,120
|
|
Trade
account receivable
|
|
|
250,000
|
|
|
250,000
|
|
Other
receivables
|
|
|
14,171
|
|
|
1,003,723
|
|
Prepaid
expenses and other
|
|
|
18,112
|
|
|
42,153
|
|
Total
current assets
|
|
|
3,614,484
|
|
|
1,553,996
|
|
Property,
plant and equipment, at cost
|
|
|
55,641
|
|
|
44,075
|
|
Accumulated
depreciation
|
|
|
(41,463
|
)
|
|
(37,871
|
)
|
Net
property, plant and equipment
|
|
|
14,178
|
|
|
6,204
|
|
Other
assets
|
|
|
685,211
|
|
|
643,305
|
|
Total
assets
|
|
$
|
4,313,873
|
|
$
|
2,203,505
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current
maturities of long-term debt, net of discount of $0 and $725,259,
respectively
|
|
$
|
2,550,000
|
|
$
|
174,741
|
|
Accounts
payable
|
|
|
287,081
|
|
|
331,576
|
|
Accrued
expenses
|
|
|
2,493,026
|
|
|
2,684,742
|
|
Total
current liabilities
|
|
|
5,330,107
|
|
|
3,191,059
|
|
Long-term
debt, net of current maturities and debt discount of $4,672,836 and
$5,767,988, respectively
|
|
|
1,170,152
|
|
|
—
|
|
Total
liabilities
|
|
$
|
6,500,259
|
|
$
|
3,191,059
|
|
CONTINUED
OPERATIONS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Three
Months Ended June 30, 2005
|
|
Nine
Months Ended June 30, 2005
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Selling,
general and administrative
|
|
|
652,007
|
|
|
325,269
|
|
|
1,334,541
|
|
|
966,263
|
|
Depreciation
and amortization
|
|
|
1,421
|
|
|
1,274
|
|
|
3,592
|
|
|
5,012
|
|
Operating
loss
|
|
|
(653,428
|
)
|
|
(326,543
|
)
|
|
(1,338,133
|
)
|
|
(971,275
|
)
|
Gain
on extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,823,000
|
|
Gain
on sale of securities
|
|
|
—
|
|
|
119,520
|
|
|
—
|
|
|
1,918,012
|
|
Interest
expense
|
|
|
(1,160,459
|
)
|
|
(642,450
|
)
|
|
(5,399,974
|
)
|
|
(2,444,856
|
)
|
Continuing
income (loss) before taxes
|
|
|
(1,813,887
|
)
|
|
(849,473
|
)
|
|
(6,738,107
|
)
|
|
17,324,881
|
|
Income
tax benefit
|
|
|
—
|
|
|
(81,229
|
)
|
|
—
|
|
|
(81,229
|
)
|
Loss
from continuing operations
|
|
$
|
(1,813,887
|
)
|
$
|
(768,244
|
)
|
$
|
(6,738,107
|
)
|
$
|
17,406,110
|
|
An
analysis of the discontinued operations of the ATM Business is as
follows:
DISCONTINUED
OPERATIONS — ATM BUSINESS
SELECTED
BALANCE SHEET DATA
(UNAUDITED)
|
|
June
30,
2005
|
|
September
30,
2004
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
$
|
—
|
|
Trade
accounts receivable, net of allowance of $1,832,877 and $1,069,825,
respectively
|
|
|
1,932,363
|
|
|
1,983,931
|
|
Inventories
|
|
|
4,876,652
|
|
|
3,432,828
|
|
Prepaid
expenses and other
|
|
|
243,387
|
|
|
157,490
|
|
Total
current assets
|
|
|
7,052,402
|
|
|
5,574,249
|
|
Property,
plant and equipment, at cost
|
|
|
4,287,221
|
|
|
4,286,617
|
|
Accumulated
depreciation
|
|
|
(4,175,868
|
)
|
|
(3,977,412
|
)
|
Net
property, plant and equipment
|
|
|
111,353
|
|
|
309,205
|
|
Other
assets
|
|
|
27,297
|
|
|
27,297
|
|
Total
assets
|
|
$
|
7,191,052
|
|
$
|
5,910,751
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,056,774
|
|
$
|
1,686,732
|
|
Other
accrued expenses
|
|
|
1,106,997
|
|
|
836,289
|
|
Total
liabilities
|
|
$
|
2,163,771
|
|
$
|
2,523,021
|
|
DISCONTINUED
OPERATIONS — ATM BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Three
Months Ended June 30, 2005
|
|
Nine
Months Ended June 30, 2005
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
sales
|
|
$
|
4,734,044
|
|
$
|
3,123,145
|
|
$
|
11,833,366
|
|
$
|
11,401,478
|
|
Cost
of sales
|
|
|
3,650,721
|
|
|
2,310,712
|
|
|
8,550,479
|
|
|
8,370,251
|
|
Gross
profit
|
|
|
1,083,323
|
|
|
812,433
|
|
|
3,282,887
|
|
|
3,031,227
|
|
Selling,
general and administrative
|
|
|
1,367,879
|
|
|
1,135,244
|
|
|
4,151,213
|
|
|
3,191,014
|
|
Depreciation
and amortization
|
|
|
48,355
|
|
|
90,195
|
|
|
194,281
|
|
|
361,803
|
|
Operating
loss
|
|
|
(332,911
|
)
|
|
(413,006
|
)
|
|
(1,062,607
|
)
|
|
(521,590
|
)
|
Non-operating
(income) expense
|
|
|
—
|
|
|
2,298
|
|
|
—
|
|
|
40,216
|
|
Net
loss
|
|
$
|
(332,911
|
)
|
$
|
(415,304
|
)
|
$
|
(1,062,607
|
)
|
$
|
(561,806
|
)
|
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,
2005
|
|
September
30,
2004
|
|
ASSETS
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
—
|
|
$
|
—
|
|
Trade
accounts receivable, net of allowance of $32,614 and $6,230,
respectively
|
|
|
600,377
|
|
|
1,076,362
|
|
Inventories
|
|
|
2,073,121
|
|
|
1,350,631
|
|
Prepaid
expenses and other
|
|
|
279,513
|
|
|
93,087
|
|
Total
current assets
|
|
|
2,953,011
|
|
|
2,520,080
|
|
Property,
plant and equipment, at cost
|
|
|
1,134,745
|
|
|
1,091,197
|
|
Accumulated
depreciation
|
|
|
(1,011,854
|
)
|
|
(972,920
|
)
|
Net
property, plant and equipment
|
|
|
122,891
|
|
|
118,277
|
|
Other
assets
|
|
|
25,631
|
|
|
25,631
|
|
Total
assets
|
|
$
|
3,101,533
|
|
$
|
2,663,988
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Current
maturities
|
|
$
|
3,672
|
|
$
|
8,951
|
|
Accounts
payable
|
|
|
1,056,775
|
|
|
1,380,054
|
|
Other
accrued expenses
|
|
|
2,697,387
|
|
|
1,058,001
|
|
Total
current liabilities
|
|
|
3,757,834
|
|
|
2,447,006
|
|
Long-term
debt, net of current maturities
|
|
|
28,709
|
|
|
28,709
|
|
Total
liabilities
|
|
$
|
3,786,543
|
|
$
|
2,475,715
|
|
DISCONTINUED
OPERATIONS — CASH SECURITY BUSINESS
SELECTED
OPERATING DATA
(UNAUDITED)
|
|
Three
Months Ended June 30, 2005
|
|
Nine
Months Ended June 30, 2005
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
sales
|
|
$
|
5,310,146
|
|
$
|
1,495,737
|
|
$
|
16,568,457
|
|
$
|
6,174,821
|
|
Cost
of sales
|
|
|
2,993,849
|
|
|
1,147,326
|
|
|
8,984,878
|
|
|
4,178,427
|
|
Gross
profit
|
|
|
2,316,297
|
|
|
348,411
|
|
|
7,583,579
|
|
|
1,996,394
|
|
Selling,
general and administrative
|
|
|
1,274,518
|
|
|
858,822
|
|
|
3,159,673
|
|
|
2,743,977
|
|
Depreciation
and amortization
|
|
|
7,560
|
|
|
33,360
|
|
|
22,308
|
|
|
14,748
|
|
Operating
income (loss)
|
|
|
1,034,219
|
|
|
(543,771
|
)
|
|
4,401,598
|
|
|
(762,331
|
)
|
Non-operating
expense
|
|
|
570
|
|
|
—
|
|
|
1,227
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
1,033,649
|
|
$
|
(543,771
|
)
|
$
|
4,400,371
|
|
$
|
(762,331
|
)
|
The
following unaudited pro forma financial statements give effect to the sale
of
substantially all of the assets relating to our ATM 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, 2005 has been prepared to reflect the sale of
substantially all of the assets of our ATM Business to NCR Texas as if such
sale
had taken place on October 1, 2003. The unaudited pro forma statements of
earnings (operations) for the nine months ended June 30, 2005 and the fiscal
year ended September 30, 2004 have been prepared assuming that the transaction
occurred as of the beginning of each respective 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 select assets of our ATM
Business as of those dates. 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, 2005.
Costs
and
expenses attributed to the ATM 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 ATM Business. They primarily include costs associated
with accounting and certain executive officer salaries and bonuses and certain
items including investment securities, equity investments, deferred income
taxes, certain portions of excess cost over fair value of assets acquired,
jointly-used fixed assets and debt. The jointly-used fixed assets are Tidel’s
management information systems, which is jointly used by the ATM Business and
Corporate. A portion of the management information systems costs, including
depreciation and amortization expense, are allocated to the segments based
upon
estimates made by management. As such, these financial statements do not reflect
other non-direct cost savings that may occur as a result of focusing our efforts
on just our cash security business going forward.
The
following pro forma data is presented based on the following
assumptions:
|
·
|
The
proceeds from the sale of the ATM Business would have resulted in
Tidel
not entering into the Laurus financing arrangements on November 25,
2004;
and
|
|
·
|
Tidel
will receive approximately $10.2 million in proceeds from the sale
of the
ATM Business of which $6.0 million will be used to fully retire the
$18.0
million, 6% convertible debentures due September 8, 2004. The convertible
debentures were actually retired on November 25, 2003 in connection
with
the Laurus financing.
|
The
following unaudited pro forma consolidated balance sheet represents the June
30,
2005 balance sheet adjusted to reflect the sale of the ATM Business, pursuant
to
the asset purchase agreement, as if such transaction had taken place on October
1, 2003:
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
|
|
As
of June 30, 2005
|
|
ASSETS
|
|
As
Reported
2005
|
|
Pro
Forma
Adjustments
|
|
Pro
Forma
2005
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,332,201
|
(1)
|
$
|
4,686,655
|
|
$
|
8,018,856
|
|
Trade
accounts receivable, net of allowances
|
|
|
250,000
|
|
|
-
|
|
|
250,000
|
|
Notes
and other receivables
|
|
|
14,171
|
|
|
-
|
|
|
14,171
|
|
Prepaid
expenses and other
|
|
|
18,112
|
|
|
-
|
|
|
18,112
|
|
Assets
held for sale
|
|
|
10,292,585
|
(2)
|
|
(7,191,052
|
)
|
|
3,101,533
|
|
Total
current assets
|
|
|
13,907,069
|
|
|
(2,504,397
|
)
|
|
11,402,672
|
|
Property,
plant and equipment, at cost
|
|
|
55,641
|
|
|
-
|
|
|
55,641
|
|
Accumulated
depreciation
|
|
|
(41,463
|
)
|
|
-
|
|
|
(41,463
|
)
|
Net
property, plant and equipment
|
|
|
14,178
|
|
|
-
|
|
|
14,178
|
|
Other
assets
|
|
|
685,211
|
|
|
-
|
|
|
685,211
|
|
Total
assets
|
|
$
|
14,606,458
|
|
$
|
(2,504,397
|
)
|
$
|
12,102,061
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Current
maturities of long term debt
|
|
|
2,550,000
|
(3)
|
|
(2,550,000
|
)
|
|
-
|
|
Accounts
payable
|
|
|
287,081
|
|
|
-
|
|
|
287,081
|
|
Accrued
interest payable
|
|
|
2,106,311
|
(4)
|
|
(2,106,311
|
)
|
|
-
|
|
Other
accrued liabilities
|
|
|
386,715
|
|
|
-
|
|
|
386,715
|
|
Liabilities
held for sale
|
|
|
5,950,314
|
(5)
|
|
(2,163,771
|
)
|
|
3,786,543
|
|
Total
current liabilities
|
|
|
11,280,421
|
|
|
(6,820,082
|
)
|
|
4,460,339
|
|
Long-term
debt, net of current maturities and debt discount
|
|
|
1,170,152
|
(6)
|
|
(1,170,152
|
)
|
|
-
|
|
Total
liabilities
|
|
|
12,450,573
|
|
|
(7,990,234
|
)
|
|
4,460,339
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, authorized 100,000,000 shares; issued
and
outstanding 17,426,210 shares
|
|
|
206,772
|
|
|
-
|
|
|
206,772
|
|
Additional
paid-in capital
|
|
|
30,962,187
|
|
|
-
|
|
|
30,962,187
|
|
Accumulated
deficit
|
|
|
(29,020,232
|
)
|
|
5,485,837
|
|
|
(23,534,395
|
)
|
Receivable
from officer
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Accumulated
other comprehensive loss
|
|
|
7,158
|
|
|
-
|
|
|
7,158
|
|
Total
shareholders' equity (deficit)
|
|
|
2,155,885
|
|
|
5,485,837
|
|
|
7,641,722
|
|
Total
liabilities and shareholders' equity (deficit)
|
|
$
|
14,606,458
|
|
$
|
(2,504,397
|
)
|
$
|
12,102,061
|
|
Notes
to Unaudited Pro Forma Consolidated Balance Sheet:
(1)
|
Adjust
cash to reflect the remaining proceeds of approximately $10.7 million
after paying $6.0 million to retire the 6% Subordinated Convertible
Debentures.
|
(2)
|
Remove
the ATM Business which is classified as assets held for sale resulting
in
only the Cash Security Business classified as assets held for
sale.
|
(3)
|
Remove
the current maturities of the long-term debt with
Laurus.
|
(4)
|
Remove
the accrued interest payable related to the Laurus
debt.
|
(5)
|
Remove
the ATM Business classified as liabilities held for sale resulting
in only
the Cash Security Business classified as liabilities held for
sale.
|
(6)
|
Remove
interest payable related to the outstanding debt facility with
Laurus.
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the Nine Months Ended June 30, 2005
|
|
|
|
As
Reported
|
|
Pro
Forma
Adjustments
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Cost
of sales
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gross
profit
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
1,334,541
|
|
|
-
|
|
|
1,334,541
|
|
Depreciation
and amortization
|
|
|
3,592
|
|
|
-
|
|
|
3,592
|
|
Operating
loss
|
|
|
(1,338,133
|
)
|
|
-
|
|
|
(1,338,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Gain
on sale of assets
|
|
|
|
|
|
3,350,000
|
(1)
|
|
3,350,000
|
|
Gain
on sale of securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
expense, net
|
|
|
(5,399,974)
|
(2)
|
|
5,403,177
|
|
|
3,203
|
|
Total
other income (expense)
|
|
|
(5,399,974
|
)
|
|
8,753,177
|
|
|
3,353,203
|
|
Income
(loss) before taxes
|
|
|
(6,738,107
|
)
|
|
8,753,177
|
|
|
2,015,070
|
|
Income
tax expense
|
|
|
-
|
(3)
|
|
-
|
|
|
-
|
|
Net
income (loss) from continuing operations
|
|
|
(6,738,107
|
)
|
|
8,753,177
|
|
|
2,015,700
|
|
Net
income (loss) from discontinued operations
|
|
|
3,337,763
|
(4)
|
|
1,062,607
|
|
|
4,400,370
|
|
Net
income (loss)
|
|
$
|
(3,400,344
|
)
|
$
|
9,815,784
|
|
$
|
6,415,440
|
|
Basic
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from continuing operations
|
|
$
|
(0.33
|
)
|
|
|
|
$
|
0.10
|
|
Net
income (loss) from discontinuing operations
|
|
|
0.17
|
|
|
|
|
|
0.22
|
|
Net
income (loss)
|
|
$
|
(0.16
|
)
|
|
|
|
$
|
0.32
|
|
Weighted
average common shares outstanding
|
|
|
20,163,250
|
|
|
|
|
|
20,163,250
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1)
|
Record
gain on the sale of the ATM Business assuming Tidel receives $10.7
million
in proceeds in exchange for approximately $7.4 million net assets
related
to the ATM Business resulting in a $3.4 million
gain.
|
(2)
|
Adjust
interest expense on Laurus debt assumes no Laurus debt.
|
(3)
|
No
tax adjustment due to NOL carry
forwards.
|
(4)
|
Adjust
discontinued operation by removing the ATM Business. The corporate
division is reported as continuing operations, and the remaining
TACC
business is reported as income (loss) from discontinued
operations.
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONDENSED 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)
|
$
|
(15,047,292
|
)
|
$
|
7,467,194
|
|
Cost
of sales
|
|
|
17,055,179
|
(2)
|
|
(11,762,082
|
)
|
|
5,293,097
|
|
Gross
profit
|
|
|
5,459,307
|
|
|
(3,285,210
|
)
|
|
2,174,097
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
10,195,095
|
(3)
|
|
(4,709,478
|
)
|
|
5,485,617
|
|
Depreciation
and amortization
|
|
|
513,839
|
(4)
|
|
(425,685
|
)
|
|
88,154
|
|
Operating
loss
|
|
|
(5,249,627
|
)
|
|
1,849,953
|
|
|
(3,399,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
18,823,000
|
(5)
|
|
(412,500
|
)
|
|
18,410,500
|
|
Gain
on sale of assets
|
|
|
-
|
(6)
|
|
3,350,000
|
|
|
3,350,000
|
|
Gain
on sale of securities
|
|
|
1,918,012
|
|
|
|
|
|
1,918,012
|
|
Interest
expense, net
|
|
|
(4,255,042
|
)
(7)
|
|
4,217,124
|
|
|
(37,918
|
)
|
Total
other income
|
|
|
16,485,970
|
|
|
7,154,624
|
|
|
23,640,594
|
|
Income
before taxes
|
|
|
11,236,343
|
|
|
9,004,577
|
|
|
20,240,920
|
|
Income
tax (benefit)
|
|
|
(81,229
|
)
(8)
|
|
-
|
|
|
(81,229
|
)
|
Net
income from continuing operations
|
|
$
|
11,317,572
|
|
$
|
9,004,577
|
|
$
|
20,322,149
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$
|
0.65
|
|
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
11,317,572
|
|
|
|
|
$
|
20,322,149
|
|
Interest
expense on convertible debt
|
|
|
2,898,225
|
|
|
(2,898,225
|
)
|
|
-
|
|
Adjusted
net income for diluted shares
|
|
$
|
14,215,797
|
|
|
|
|
$
|
20,322,149
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.37
|
(9)
|
|
|
|
$
|
1.17
|
|
Weighted
average common and dilutive shares outstanding
|
|
|
38,576,763
|
|
|
|
|
|
17,426,210
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1)
|
Remove
revenues related to ATM Business.
|
(2)
|
Remove
cost of sale related to ATM
Business.
|
(3)
|
Remove
selling, general and administrative expenses related to ATM
Business.
|
(4)
|
Remove
depreciation and amortization related to the ATM
Business.
|
(5)
|
Adjust
for gain on early extinguishment of debt which assumes the sale of
the ATM
Business occurred on October 1, 2003, the beginning of fiscal year
2004.
|
(6)
|
Record
gain on the sale of the ATM Business assuming Tidel receives $10.7
million
in proceeds in exchange for approximately $7.4 million net assets
related
to the ATM Business resulting in a $3.4 million
gain.
|
(7)
|
Adjust
Interest expense which assumes no Laurus debt in fiscal year 2004.
|
(8)
|
No
tax adjustment due to NOL
carryforwards.
|
(9)
|
No
dilution adjustment as a result of not issuing the $6.5 million
convertible debt to Laurus.
|
The
following unaudited financial information represents the operations specific
to
the ATM Business for the fiscal years ended September 30, 2003 and 2004 and
the
nine months ended June 30, 2005.
ATM
BUSINESS
OPERATING
DATA
(UNAUDITED)
|
|
Nine
Months
June
30, 2005
|
|
Fiscal
Year
2004
|
|
Fiscal
Year
2003
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
11,833,366
|
|
$
|
15,047,292
|
|
$
|
10,435,118
|
|
Cost
of Sales
|
|
|
8,550,479
|
|
|
11,762,082
|
|
|
9,675,580
|
|
Gross
profit
|
|
|
3,282,887
|
|
|
3,285,210
|
|
|
759,538
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
4,151,213
|
|
|
4,709,478
|
|
|
3,944,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
194,281
|
|
|
292,543
|
|
|
647,640
|
|
Operating
loss
|
|
|
(1,062,607
|
)
|
|
(1,718,811
|
)
|
|
(3,832,897
|
)
|
Total
Non-Operating Expenses
|
|
|
-
|
|
|
16,456
|
|
|
66,581
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,062,607
|
)
|
$
|
(1,733,267
|
)
|
$
|
(3,899,478
|
)
|
ATM
BUSINESS
BALANCE
SHEET DATA
(UNAUDITED)
|
|
Nine
Months
June
30, 2005
|
|
Fiscal
Year
2004
|
|
Fiscal
Year
2003
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
Accounts
receivable, net
|
|
|
1,932,363
|
|
|
1,983,931
|
|
|
2,828,038
|
|
Inventories
- Net of Allowance for obsolete inventories
|
|
|
4,876,652
|
|
|
3,432,828
|
|
|
5,190,868
|
|
Prepaid
expenses and other
|
|
|
243,387
|
|
|
157,490
|
|
|
156,301
|
|
Total
current assets
|
|
|
7,052,402
|
|
|
5,574,249
|
|
|
8,175,207
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost
|
|
|
4,287,221
|
|
|
4,286,617
|
|
|
4,337,677
|
|
Accumulated
depreciation
|
|
|
(4,175,868
|
)
|
|
(3,977,412
|
)
|
|
(4,216,152
|
)
|
Net
property, plant and equipment
|
|
|
111,353
|
|
|
309,205
|
|
|
121,525
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
27,297
|
|
|
27,297
|
|
|
27,297
|
|
Total
assets
|
|
$
|
7,191,052
|
|
$
|
5,910,751
|
|
$
|
8,324,029
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
1,056,774
|
|
|
1,686,732
|
|
|
1,681,288
|
|
Other
accrued expenses
|
|
|
1,106,997
|
|
|
836,289
|
|
|
1,476,474
|
|
Total
liabilities
|
|
$
|
2,163,771
|
|
$
|
2,523,021
|
|
$
|
3,157,762
|
|
As
of the
date of this proxy statement, management knows of no matters other than those
set forth herein which will be presented for consideration at the special
meeting. If any other matters properly come before the special meeting, or
any
continuation of the special meeting pursuant to adjournment or postponement
thereof, it is the intention of the persons named in the enclosed form of proxy
to vote the shares they represent as the Board may recommend.
The
Company is subject to the reporting requirements of the Securities and Exchange
Act of 1934, as amended, and is required to file periodic reports, proxy
statements and other documents with the Securities and Exchange Commission
(the
“SEC”) relating to its business, financial conditions and other matters. Such
reports, proxy statements and other documents may be examined and copies may
be
obtained from the SEC at 100 F Street, N.E., Washington, D.C. 20549, and at
the
SEC’s Web site at http://www.sec.gov. Copies should be available by mail upon
payment of the SEC’s customary charges by writing to the SEC’s principal offices
at 100 F Street, N.W., Washington, D.C. 20549.
Along
with these proxy materials, we are distributing our Annual Report on Form 10-K
for fiscal 2004 and our Form 10-Qs for the periods ended December 31, 2004,
March 31, 2005 and June 30, 2005, without exhibits, to the stockholders of
record on October 31, 2005 all of which are a part of this proxy statement.
Exhibits to the Annual Report on Form 10-K may be obtained from Tidel upon
request. To obtain any such exhibits or an additional copy of the 10-K without
charge, please contact Leonard Carr, Tidel’s Secretary, 2900 Wilcrest Drive,
Suite 205, Houston, Texas 77042, Tel. (713) 783-8200.
If
you do
not intend to be present at the Special Meeting of Stockholders
on ,
2005 please vote the enclosed proxy at your earliest convenience.
BY
ORDER OF THE BOARD OF DIRECTORS
|
|
|
|
Leonard
Carr
|
|
Secretary
|
|
|
|
Carrollton,
Texas
|
|
30