Tidel Technologies DEF 14A 12-28-2005
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(Rule
14a-101)
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment
No. )
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
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o
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Preliminary
Proxy Statement
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o
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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x
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Definitive
Proxy Statement
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o
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Definitive
Additional Materials
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o
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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
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of
transaction:
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x
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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
November
30, 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 Wednesday, December 28, 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 14 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
November
30, 2005
The
notice and proxy statement are first being mailed to our stockholders on or
about November 30, 2005.
Tidel
Technologies, Inc.
2900
Wilcrest Drive, Suite 205
Houston,
Texas 77042
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO
BE HELD ON DECEMBER 28, 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
Wednesday, December 28, 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 and to approve
any
adjournment of the meeting if deemed necessary, including to permit
the
solicitation of additional proxies if there are not sufficient votes
at
the time of the special meeting to approve the sale of the ATM
Business.
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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
November 30, 2005.
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By
Order of the Board of Directors,
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/s/ Leonard
Carr
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Leonard
Carr
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Secretary
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Carrollton,
Texas
November
30, 2005
Table
of Contents
SUMMARY
TERM SHEET
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3
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Asset
Sale
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3
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Proceeds
from the Asset Sale
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3
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Special
Factors
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3
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Terms
of the Asset Purchase Agreement
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4
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QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING
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6
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GENERAL
INFORMATION
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8
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PROPOSAL
I - THE SALE OF THE ATM BUSINESS
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9
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The
Parties
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9
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Special
Factors
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10
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Special
Considerations Regarding the Proposal to Sell the ATM
Business
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14
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The
Asset Purchase Agreement
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16
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Cautionary
Statement Concerning Forward-Looking Information
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20
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Selected
Historical Consolidated Financial Data
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20
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Unaudited
Pro Forma Financial Statements
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24
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MISCELLANEOUS
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31
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Matters
to be Considered at the Special Meeting
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31
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Available
Information
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31
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REQUEST
TO VOTE, SIGN AND RETURN PROXIES
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31
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Exhibit
A
- ASSET PURCHASE AGREEMENT
Exhibit
B
- FAIRNESS OPINION
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
November 30, 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.
Asset
Sale
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.
Proceeds
from the Asset Sale
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.
Special
Factors (see page 10)
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Reasons
for the Sale of the ATM Business (see page 10).
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
10). 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 11).
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 12).
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 13).
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
13).
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 14).
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 14).
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.
Terms
of the Asset Purchase Agreement (see page 16)
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Assets
to be Sold (see page 17).
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 17).
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.
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 16).
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.
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.
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 18).
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 18).
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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Competing
Bids (see No Negotiation; Transaction Break Fee, page 18).
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 18).
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 19).
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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QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING
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 any 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 14.
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.
GENERAL
INFORMATION
Place
and Time.
The
meeting will be held at the offices of Tidel Engineering, L.P., 2310 McDaniel
Drive, Carrollton, Texas 75006 on Wednesday, December 28, 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; (ii)
adjournment of the special meeting, if necessary, including to permit the
solicitation of additional proxies if there are not sufficient votes at the
time
of the special meeting to approve the sale of the ATM Business; and
(iii)
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.
PROPOSAL
I - THE SALE OF THE ATM BUSINESS
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.”
The
Parties
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.
Special
Factors
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.
Special
Considerations Regarding the Proposal to Sell the ATM
Business
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 AT
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
Asset Purchase Agreement
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 of 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.
Cautionary
Statement Concerning Forward-Looking Information
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.
Selected
Historical Consolidated Financial Data
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.
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
|
)
|
Unaudited
Pro Forma Financial Statements
The
following unaudited pro forma financial statements give effect to the sale
of
substantially all of the assets relating to our 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 June 30, 2005. The unaudited pro forma statements of earnings
(operations) for the nine months ended June 30, 2005 and the fiscal years ended
September 30, 2004, 2003 and 2002, have been prepared excluding our ATM
Business, and are not necessarily indicative of the results of operations for
future periods or the results that actually would have been realized without
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.
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
|
|
|
(7,990,2340
|
|
|
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
expense:
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(5,399,974
|
)
|
|
-
|
|
|
(5,399,974
|
)
|
Total
other expense
|
|
|
(5,399,974
|
)
|
|
-
|
|
|
(5,399,974
|
)
|
Loss
before taxes
|
|
|
(6,738,107
|
)
|
|
-
|
|
|
(6,738,107
|
)
|
Income
tax expense
|
|
|
-
|
(1)
|
|
-
|
|
|
-
|
|
Net
loss from continuing operations
|
|
|
(6,738,107
|
)
|
|
-
|
|
|
(6,738,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss from discontinued operations
|
|
|
3,337,763
|
(2)
|
|
1,062,607
|
|
|
4,400,370
|
|
Net
loss
|
|
$
|
(3,400,344
|
)
|
$
|
1,062,607
|
|
$
|
(2,337,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share:
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(0.33
|
)
|
|
|
|
$
|
(0.33
|
)
|
Net
income from discontinuing operations
|
|
|
0.17
|
|
|
|
|
|
0.22
|
|
Net
loss
|
|
$
|
(0.16
|
)
|
|
|
|
$
|
(0.11
|
)
|
Weighted
average common shares outstanding
|
|
|
20,163,250
|
|
|
|
|
|
20,163,250
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1) No
tax
adjustment due to NOL carryforwards.
(2) 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
income (loss)
|
|
|
(5,249,627
|
)
|
|
1,849,953
|
|
|
(3,399,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
18,823,000
|
|
|
-
|
|
|
18,823,000
|
|
Gain
on sale of securities
|
|
|
1,918,012
|
|
|
-
|
|
|
1,918,012
|
|
Interest
expense, net
|
|
|
(4,255,042
|
)
|
|
-
|
|
|
(4,255,042
|
)
|
Total
other income
|
|
|
16,485,970
|
|
|
-
|
|
|
16,485,970
|
|
Income
before taxes
|
|
|
11,236,343
|
|
|
1,849,953
|
|
|
13,086,296
|
|
Income
tax benefit
|
|
|
(81,229)
|
(5)
|
|
-
|
|
|
(81,229
|
)
|
Net
income from continuing operations
|
|
$
|
11,317,572
|
|
$
|
1,849,953
|
|
$
|
13,167,525
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations
|
|
$
|
0.65
|
|
|
|
|
$
|
0.76
|
|
Weighted
average common shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
11,317,572
|
|
|
|
|
$
|
13,167,525
|
|
Interest
expense on convertible debt
|
|
|
2,898,225
|
|
|
|
|
|
2,898,225
|
|
Adjusted
net income for diluted shares
|
|
$
|
14,215,797
|
|
|
|
|
$
|
16,065,750
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
0.37
|
|
|
|
|
$
|
0.42
|
|
Weighted
average common and dilutive shares outstanding
|
|
|
38,576,763
|
|
|
|
|
|
38,576,763
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1) Remove
revenues related to ATM Business.
(2) Remove
cost of sales 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) No
tax
adjustment due to NOL carryforwards.
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the Fiscal Year Ended September 30, 2003
|
|
|
|
As
Reported
|
|
Pro
Forma
Adjustments
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
17,794,299
|
(1)
|
$
|
(10,435,118
|
)
|
$
|
7,359,181
|
|
Cost
of sales
|
|
|
14,612,447
|
(2)
|
|
(9,675,580
|
)
|
|
4,936,867
|
|
Gross
profit
|
|
|
3,181,852
|
|
|
(759,538
|
)
|
|
2,422,314
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
9,019,016
|
(3)
|
|
(3,944,795
|
)
|
|
5,074,221
|
|
Depreciation
and amortization
|
|
|
799,855
|
(4)
|
|
(647,640
|
)
|
|
152,215
|
|
Operating
income (loss)
|
|
|
(6,637,019
|
)
|
|
3,832,897
|
|
|
(2,804,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(2,599,698
|
)
|
|
-
|
|
|
(2,599,698
|
)
|
Total
other expense
|
|
|
(2,599,698
|
)
|
|
-
|
|
|
(2,599,698
|
)
|
Income
(loss) before taxes
|
|
|
(9,236,717
|
)
|
|
3,832,897
|
|
|
(5,403,820
|
)
|
Income
tax benefit
|
|
|
-
|
(5)
|
|
-
|
|
|
-
|
|
Net
income (loss) from continuing operations
|
|
$
|
(9,236,717
|
)
|
$
|
3,832,897
|
|
$
|
(5,403,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share:
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(0.53
|
)
|
|
|
|
$
|
(0.31
|
)
|
Weighted
average common shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
loss per share:
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(0.53
|
)
|
|
|
|
$
|
(0.31
|
)
|
Weighted
average common and dilutive shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
17,426,210
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1)
|
Remove
revenues related to ATM Business.
|
(2)
|
Remove
cost of sales 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)
|
No
tax adjustment due to NOL
carryforwards.
|
TIDEL
TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO
FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
|
|
For
the Fiscal Year Ended September 30, 2002
|
|
|
|
As
Reported
|
|
Pro
Forma
Adjustments
|
|
Pro
Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,442,224
|
(1)
|
$
|
(11,946,724
|
)
|
$
|
7,495,500
|
|
Cost
of sales
|
|
|
15,051,784
|
(2)
|
|
(10,410,264
|
)
|
|
4,641,520
|
|
Gross
profit
|
|
|
4,390,440
|
|
|
(1,536,460
|
)
|
|
2,853,980
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
12,755,981
|
(3)
|
|
(5,507,958
|
)
|
|
7,248,023
|
|
Provision
for settlement of class action litigation
|
|
|
1,564,490
|
|
|
-
|
|
|
1,564,490
|
|
Depreciation
and amortization
|
|
|
1,158,742
|
(4)
|
|
(950,259
|
)
|
|
208,483
|
|
Impairment
of goodwill and other intangible assets
|
|
|
463,590
|
|
|
-
|
|
|
463,590
|
|
Operating
income (loss)
|
|
|
(11,552,363
|
)
|
|
4,921,757
|
|
|
(6,630,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(2,530,971
|
)
|
|
-
|
|
|
(2,530,971
|
)
|
Write-down
of investment in 3CI
|
|
|
(288,326
|
)
|
|
|
|
|
(288,326
|
)
|
Total
other expense
|
|
|
(2,819,297
|
)
|
|
-
|
|
|
(2,819,297
|
)
|
Income
(loss) before taxes
|
|
|
(14,371,660
|
)
|
|
4,921,757
|
|
|
(9,449,903
|
)
|
Income
tax benefit
|
|
|
(293,982)
|
(5)
|
|
-
|
|
|
(293,982
|
)
|
Net
income (loss) from continuing operations
|
|
$
|
(14,077,678
|
)
|
$
|
4,921,757
|
|
$
|
(9,155,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share:
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(0.81
|
)
|
|
|
|
$
|
(0.53
|
)
|
Weighted
average common shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
17,426,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
loss per share:
|
|
|
|
|
|
|
|
|
|
|
Net
loss from continuing operations
|
|
$
|
(0.81
|
)
|
|
|
|
$
|
(0.53
|
)
|
Weighted
average common and dilutive shares outstanding
|
|
|
17,426,210
|
|
|
|
|
|
17,426,210
|
|
Notes
to Unaudited Pro Forma Statements of Operations:
(1)
|
Remove
revenues related to ATM Business.
|
(2)
|
Remove
cost of sales 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)
|
No
tax adjustment due to NOL
carryforwards.
|
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 Ended
June
30, 2005
|
|
Fiscal
Year Ended
2004
|
|
Fiscal
Year Ended
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 as of
June
30, 2005
|
|
Fiscal
Year as of September 30, 2004
|
|
Fiscal
Year as of September 30, 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
|
|
MISCELLANEOUS
Matters
to be Considered at the Special Meeting
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.
Available
Information
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 years 2003/2004 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.
REQUEST
TO VOTE, SIGN AND RETURN PROXIES
If
you do
not intend to be present at the Special Meeting of Stockholders on Wednesday,
December 28, 2005 please vote the enclosed proxy at your earliest
convenience.
BY
ORDER OF THE BOARD OF DIRECTORS
|
|
/s/
Leonard Carr |
|
Leonard
Carr
|
|
Secretary
|
|
|
|
Carrollton,
Texas
|
|
Exhibit
A
ASSET
PURCHASE AGREEMENT
This
Asset Purchase Agreement (“Agreement”) is made and entered into as of the 19th
day of February, 2005 (the “Effective Date”), by and among NCR Texas LLC, a
single member Delaware LLC wholly owned by NCR Corporation, a Maryland
corporation, having its principal place of business at 1700 S. Patterson Blvd.,
Dayton, Ohio 45479 (“Buyer”), and Tidel Technologies, Inc. a Delaware company,
having its principal place of business in Houston, Texas (“Tidel”), together
with its wholly owned subsidiary Tidel Engineering, LP, a Delaware limited
partnership (“Engineering”) and their respective successors and assigns.
Tidel
and
Engineering shall be collectively referred to as “Sellers”. Capitalized
terms not defined in the context of this Agreement shall have the meanings
specified in Section 28
hereof.
RECITALS:
(A)
WHEREAS,
Sellers are in the business of developing and manufacturing electronic cash
controller safes and automated teller machines, and;
(B)
WHEREAS,
Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers,
all
of the assets relating to, reasonably necessary in, used to support and in
connection with Sellers’ automated teller machine business (referred herein to
as the “Business”), as provided herein, together with certain liabilities as
defined herein (such sale of the Business and certain liabilities by Sellers
to
Buyer referred to herein as the “Transaction”).
NOW,
THEREFORE, in
consideration of the premises above and of the mutual covenants,
representations, warranties, and agreements set forth herein, the parties hereby
agree as follows:
1.
Purchase
and Sale of Purchased Assets.
Except
for the Excluded Assets (as defined herein),
as of
the Closing Date, Sellers will sell, assign, transfer, convey, and deliver
to
Buyer, and Buyer will purchase, accept and assume from Sellers, all of Sellers’
right, title and interest in and to all of the Sellers’ property and assets,
real or personal, tangible or intangible, relating to, reasonably necessary
in
and/or used in connection with the Business as set forth below(collectively,
the
“Purchased Assets”), free and clear of all Encumbrances
(as
defined herein) with the exception of the Excluded Assets. Nothing
contained herein shall require the physical delivery of the Purchased Assets.
The
Purchased Asset shall consist of:
(A)
All
of
Sellers’ right, title and interest in and to all written
customer
contracts, distributor contracts, reseller contracts, and contracts with sales
agents,
to which
either Seller
is a
party that are related to the Business and that are listed in Section 1(A)
of
the Disclosure Schedule, including, but not limited to, contracts, agreements,
outstanding proposals and commitments with such distributors, resellers,
dealers, sales agents (the “Distributor Contracts”);
(B)
All
of
Sellers’ right, title and interest in and to the vendor
purchase
orders and contracts,
that
are
related to the Business
and that
are listed in Section 1(B) of the Disclosure Schedule (the “Vendor
Contracts”);
(C)
All
of
Sellers’ right, title and interest in and to third party commercial computer
software and related maintenance contracts relating to the Business to which
either Seller is a party and that are listed in Section 1(C) of the
Disclosure Schedule (the “Third Party Licenses”);
(D)
All
of
Sellers’ inventory items relating to the Business whether new,
used,
excess
or
obsolete, both
in
and out of service, inventory held for
sale, if
any, including, but not limited to, all inventory currently being held to supply
Sellers’ contractual commitments to customers, and all other similar
items of
inventory all of which are listed in Section 1(D) of the Disclosure Schedule
(the “Inventory”);
(E)
All
of
Sellers’ right, title and interest in and to that certain Commercial Lease
Agreement, dated December 1994, by and between Booth, Inc. and Sellers, for
the
commercial real estate located at 2310 McDaniel Drive, Carrollton, Texas
75006-6843 (the “Transferred Lease”), a copy of which is attached hereto
as
Exhibit A1; and
that
certain agreement between Airport Executive Office, Inc. and Engineering for
the
Business Centre at Suite 200, 2810
Matheson Blvd., E. Mississaugua, Ontario L4W 4X7 attached hereto as Exhibit
A2
(the “Canadian Lease”);
(F)
All
of
Sellers’ right, title and interest in and to any written
contracts
(including any solicitation or outstanding offers for contract), agreements,
outstanding price quotes, commitments from service providers, customers and/or
manufacturers, other
than the Distributor Contracts, Vendor Contracts, Third Party
Licenses,
and the
Transferred Lease that relate to the Business to which either Sellers
is a
party
and
that are
listed in Section 1(F) of the Disclosure Schedule (the “Other Contracts”) (the
Distributor Contracts, Vendor Contracts, Transferred Lease, Third Party
Licenses, and Other Contracts are sometimes referred to collectively as the
“Contracts” and individually as a “Contract”);
(G)
All
of
Sellers’ right, title and interest in and to the licenses, permits,
certificates, approvals, exemptions, franchises, registrations, variances,
accreditations or authorizations that relate to the Business and are listed
in
Section 1(G) of the Disclosure Schedule (the “Permits”);
(H)
All
of
Sellers’ right, title and interest in and to the “Intellectual Property,”
(as
such
term is hereinafter defined) of the Business and as set forth in Section 1(H)
of
the Disclosure Schedule (the “Business Intellectual Property”). “Intellectual
Property” shall mean, for purposes of this Agreement:
patents, patent rights, patent applications, patent disclosures, and inventions
and designs that are not disclosed in any patent, patent application, or patent
disclosure; registered and unregistered trademarks, trade names, and service
marks, brand
marks, brand names,
copyrights, copyright registrations, and any applications therefore; all
designs, diagrams, specifications, schematics, molds, tooling and assembly,
installation and other key processes ;
licenses granted by or to a party; trade secrets relating to or arising from
any
monetary process;
proprietary computer software,
hardware
and databases, including source code and
documentation corresponding thereto and any software and source or
object
code; symbols and logos and all applications therefor, registrations thereof
and
licenses and sublicenses or agreements in respect thereof;
improvements to any of the foregoing (whether or not completed); all
filings, registrations or issuances of any of the foregoing with or by any
federal, state, local or foreign regulatory, administrative or governmental
office; and
other
tangible and intangible proprietary information owned or licensed by
a
party;
including goodwill and going concern value; technology,
and know-how related to, reasonably necessary in
and
used to
support
the
Business and not embodied in any of the foregoing; and
other
tangible and intangible proprietary information owned or licensed by a
party;
(I)
The
machinery, equipment, furniture, fixtures, furnishings, supplies, office
equipment, accessories, vehicles, personal computers, notebook computers,
cellular phones, pagers, copiers, calculators, workstations, office automation
software, printers, facsimile machines, and other property relating to the
Business, and as listed in Section 1(I) of the Disclosure Schedule;
(J)
All
leases
of
equipment, machinery or other tangible personal property to which either Seller
is a party, solely used in conducting the Business as listed in Section 1(J)
of
the Disclosure Schedule (the “Personal Property Leases”);
(K)
Sellers’
marketing and sales materials relating to the Business;
(L)
All
accounts, notes, contracts or other receivables of Sellers generated in
connection with the Business existing as of the Closing Date that are listed
in
Section 1(L) of the Disclosure Schedule and are not listed as Excluded Assets
herein, and rights and benefits of any security interests and corresponding
UCC
Financing Statements that may be filed (the “Accounts Receivable”);
(M)
All
of
Sellers’ books and records relating exclusively to the Business (other than
Sellers’ Tax returns and Sellers’ organizational books and records) including,
without limitation, lists of customers, vendors and suppliers, records with
respect to pricing, volume, billing and payment history, cost, inventory,
machinery and equipment, mailing lists, distribution lists, sales, purchasing
and materials, technical processes, production and testing techniques and
procedures, marketing research, design and manufacturing drawings and
specifications and other engineering data, promotional literature, training,
operations, equipment and other manuals, quotation, correspondence, and other
miscellaneous information, including any such records which are maintained
on
computer or any storage media;
(N)
All
service manuals, databases, and knowledge bases, in their current forms, listed
in Section 1(N)
of the
Disclosure Schedule relating to the operation of the Business as currently
operated by Sellers;
(O)
Sellers’
backlog on
orders
relating to the Business;
(P)
Sellers’
claims, demands, actions or causes of actions, which either Seller has or may
have against any other person or entity relating to the Business, rights to
judgments, and proceeds resulting from the matters listed in Section
1
(P)
of
the Disclosure
Schedule;
and
(Q)
The
following doubtful accounts (the “Seller Doubtful Accounts”), subject to Section
9(H):
|
(i)
|
Accounts
of JRA 222 d/b/a Credit Card Center (“CCC”) and related reserves, except
for the Seller CCC Amounts (as hereinafter defined);
|
|
(ii)
|
Tidel’s
judgment against Andrew Kallok;-.
|
|
(iii)
|
Tidel’s
5/30/03 default judgment against First National On-line Processsing,
for
$61,000 plus interest and cost;
|
|
(iv)
|
Tidel’s
2004 legal action vs. Renegade Technology Group LLC; and
|
|
(v)
|
Other
doubtful accounts and
related assets as
may be listed Section 1(Q)
of the Disclosure Schedule.
|
(R)
All
property and assets of Sellers that are related to (or utilized by) both the
Business and Sellers’
TACC Business (as defined below) that are listed
on
Section
1(R)
of the
Disclosure Schedule.
2.
Excluded
Assets.
Notwithstanding anything to the contrary contained in Section 1 or elsewhere
in
this Agreement, the following assets of Sellers (collectively, the “Excluded
Assets”) are not part of the sale and purchase contemplated hereunder, are
excluded from the Purchased Assets and shall remain the property of Sellers
after the Closing Date:
(A)
All
property and assets of Sellers that are not related to the Business,
including,
without limitation, all property and assets of Sellers
related to Sellers’ timed-access cash controller product division (the “TACC
Business”);
(B)
Except
for the property and assets of Sellers listed in Section 1(R)
of the
Disclosure Schedule, all property and assets of Sellers that are related to
(or
utilized by) both the Business and Sellers’
TACC Business, including but not necessarily limited to the items
listed
on Section
2(B) of the Disclosure Schedule;
(C)
All
rights of either
Seller
under this Agreement
and the
other documents, agreements and instruments executed or delivered in connection
with this Agreement (together with this Agreement, the “Transaction Documents”),
including all monies to be received by either Seller, and all other rights
of
Sellers under the Transaction Documents, including, without limitation, the
Purchase Price (as defined herein);
(D)
all
real
estate and real property leases other than the Transferred Lease and the
Canadian Lease;
(E)
all
minute books, transfer records and corporate seals of Sellers;
(F)
all
cash,
cash equivalents, bank accounts, certificates of deposit, commercial paper,
annuities, treasury notes, bills and other marketable securities of
Sellers;
(G)
all
rights
of Sellers
relating
to
claims,
refunds, causes of action, rights of recovery, rights of set-off,
deposits
and prepaid expenses and claims for refunds and rights to offset of
every
kind and nature whether
or not related
to the Business and related to time periods prior to the Closing Date, except
for Accounts Receivable claims
pertaining to the Business and other matters set out in Section 1(P)
of the
Disclosure Schedule;
(H)
all
of
Sellers’ doubtful accounts not related to the Business and any allowances or
reserves related thereto, as well as the following doubtful accounts of the
Business which shall remain the property of Sellers (the “Seller CCC Amounts”):
(i) approximately
$750,000
held in escrow as part of the CCC bankruptcy case pursuant to the asset purchase
agreement dated September 2001 between Sellers, parent, and CCC; and
(ii) an
approved disbursement by the trustee in the CCC bankruptcy case in the
approximate
amount
of $75,000;
(I)
all
insurance policies of Sellers and rights thereunder,
including, without limitation, all rights to receive proceeds of insurance
policies and all rights of offset, counterclaims and insurance coverage
thereunder;
(J)
any
income tax credits and refunds;
(K)
Intellectual
Property of the Sellers not related to the Business and any rights or
obligations associated therewith;
(L)
all
severance,
pension, retirement and other
Employee
Benefit Plans and administration and services contracts related thereto, or
funding arrangements;
(M)
|
all
of Seller’s distributor contracts, purchase contracts and other
contracts
that are not related to the Business;
|
(N)
|
all
of Seller’s domain names, internet names, net names, web addresses and
internet locators, links to other relevant sites and applicable related
registrations; and
|
(O)
|
the
right to receive mail and other communications addressed to Seller
relating to any of the assets described in the foregoing clauses
(A)
through (N).
|
3.
Limited
Assumption of Liabilities. Except
as
specifically set forth in this Section 3, Buyer is not assuming any obligation
to pay for any of the debts, liabilities, or obligations of either Seller,
whether known or unknown, now or hereafter existing, accrued or contingent,
or
arising out of or related to the Purchased Assets, the Business, or the
consummation of the transactions contemplated in this Agreement. Specifically,
and without limitation, Buyer is not purchasing Sellers’ reserves for excess and
obsolete inventory. On
the
Closing
Date,
Buyer agrees to assume and hereby
agrees to pay, perform and discharge when due, all accrued debts, accrued
property taxes, liabilities, obligations and commissions of Sellers related
to
the Business, including the
following liabilities (collectively,
the “Assumed Liabilities”):
(A)
The
liabilities and obligations specifically related to the Contracts and Permits
that arise after the Closing
Date due
to events that occur after the Closing
Date;
provided, however, in no event shall Buyer assume any liabilities or obligations
to the extent such liabilities or obligations are attributable to any breach
or
default by Sellers under such Contracts or Permits occurring on or before the
Closing
Date.
(B)
Warranty
obligations associated with the Business;
(C)
Unrecognized
revenue of either Sellers accrued prior to Closing described in Section 3(C)
of
the Disclosure Schedule;
(D)
The
current trade accounts payable and accrued liabilities listed in Section 3(D)
of
the Disclosure Schedule (the “Accounts Payable”), but only to the extent such
Accounts Payable are reflected on the Financial
Statements or have been incurred in the ordinary course of business; and
(E)
Obligations
with respect to Accepted Employees (as such term is defined
herein).
4.
Non-Assignment
of Certain Property.
To the
extent that the assignment hereunder of any of the Permits, Personal Property
Leases or Contracts shall require the consent of any other party (or in the
event that any of the same shall be nonassignable) (each, a “Consent Contract”),
neither this Agreement nor any action taken pursuant to its provisions shall
constitute an assignment or an agreement to assign if such assignment or
attempted assignment would constitute a breach thereof; provided, however,
that
in each such case, Sellers shall use their good faith efforts to obtain the
consents of such other party to an assignment to Buyer without being obligated
to pay any fees or to make any other payments to any party to obtain any such
consents. If such consent is not obtained, (i) such Consent Contract shall
not
be deemed assigned at Closing, (ii) Buyer shall act as Sellers’ agent to perform
Sellers’ obligations thereunder and shall so perform, and (iii) Sellers, at
Buyer’s expense, shall cooperate with Buyer in any reasonable arrangement
designed to provide for Buyer the full benefits of any such Consent Contract
including, without limitation, enforcement, for the account and benefit of
Buyer, of any and all rights of Sellers against any other person with respect
to
any such Consent Contract. When such consents to the transfer, conveyance and
assignment of a Consent Contract have been obtained, if ever, such Consent
Contract shall thereupon automatically be transferred, conveyed and assigned
to
Buyer, and the obligations and liabilities of either Seller under such Consent
Contract shall automatically cease to be excluded from the Assumption Agreement
(as hereinafter defined) by reason of this Section 4, without the payment of
any
additional consideration.
5.
Purchase
Price and Allocation.
(A)
Purchase
Price. The
aggregate purchase price for the Purchased Assets (the “Purchase Price”) shall
be Ten Million One
Hundred Seventy Five Thousand Dollars
($10,175,000),
subject to the adjustments set forth in this
Section
5,
plus
the assumption of the Assumed Liabilities.
(B)
Initial
Payment and Holdback Amount. Buyer shall pay the Purchase Price as follows:
(1)
Nine Million Six Hundred
Seventy
Five Thousand
Dollars
($9,675,000)
at
Closing (“Initial Payment”), subject to adjustment as provided in Section 5(F),
by wire transfer in immediately available funds to a bank account of Sellers
as
per written instructions of Sellers given to Buyer at the
Closing; plus (2) the holdback amount (“Holdback Amount”) of Five Hundred
Thousand Dollars ($500,000),
to be
deposited into escrow pursuant and
subject
to this
Section
5
(B).
i.
Buyer
shall deposit the Holdback Amount in a segregated interest-bearing escrow
account,
pursuant to a mutually agreeable Escrow Agreement by
and
among Buyer, Sellers and a reputable Escrow Agent, which Escrow Agent shall
to
be selected by Sellers subject to approval by Buyer.
ii.
Within
three business days prior to the Closing, Sellers shall deliver to Buyer an
estimate of the book value of the Purchased Assets and the Assumed Liabilities
(“Net Asset Value), including a detailed and itemized calculation of such amount
(“Seller’s Estimated Net Asset Value”). Within thirty days following the
Closing, Sellers may, at their option, update the Sellers Estimated Net Asset
Value by delivering an updated schedule to Buyer.
iii.
Within
60
days following the Closing Date, Buyer shall review the Sellers Estimated Net
Asset Value, as updated, and notify Sellers whether it accepts such amount
(the
“Notification”). If Buyer accepts the Seller’s
Estimated Net Asset Value (the “Delivered Net Asset Value”), then if the
Delivered Net Asset Value is within 5% above or below Six Million Five Hundred
Thousand ($6,500,000) (the “Closing Net Asset Value”) (i.e., no less than
$6,175,000
and no
greater than $6,825,000) (the “ Range”) then no adjustment shall be made and the
remaining Holdback Amount shall be paid to Sellers. If the Delivered Net Asset
Value is less than $6,175,000, then the difference between $6,175,000 and the
Delivered Net Asset Value shall be paid out of the Holdback Amount to Buyer
and
the remainder of the Holdback Amount_shall be paid to Sellers. If the difference
exceeds the Holdback Amount, such excess shall be paid by Sellers to Buyer
within three business days. If the Delivered Net Asset Value is greater than
$6,825,000, then the difference between the Delivered Net Asset Value and
$6,825,000 shall be paid by Buyer to Sellers and the Holdback Amount shall
be
paid to Sellers, each within three business days.
iv.
If
the
Notification indicates that Buyer disputes Sellers Estimated Net Asset Value,
and the Notification states that Buyer believes that the Net Asset Value is
below Sellers’ Estimated Net Asset Value and not within the Range then the
Notification shall clearly and in detail show Buyer’s disagreement with Seller’s
Estimated Net Asset Value. In the event Buyer believes the Net Asset Value
is
below the Range, the Notification shall also include a requested Purchase Price
reduction based on the calculation set forth in Section 5(B)(viii)(a “Purchase
Price Reduction”). Within ten (10) Business Days following Sellers’ of receipt
of the Notification, Sellers shall notify Buyer whether they dispute the amount
of such Purchase Price Reduction, and if so, shall set forth the amount they
believe should be deducted or added, if any, and any support therefor (a
“Dispute Notice”) to the Buyer. Buyer and Sellers shall negotiate to agree upon
a mutually agreed upon value for the Purchase Price Reduction or addition to
the
Purchase Price. If, within twenty (20) Business
Days
of
receipt of the Dispute Notice by Sellers to Buyer, Buyer and Sellers are unable
to come to agreement on the amount of such Purchase Price Reduction or addition
to the Purchase Price, then they shall obtain the assistance of Deloitte &
Touche
LLP
(the
“Accountants”), to whom each of Buyer and Sellers shall deliver their respective
estimates of the Purchase Price Reduction or addition to the Purchase Price,
and
such Accountants shall decide which estimate shall prevail. Each of Buyer and
Sellers shall have an opportunity to make a submission to the Accountants along
with the delivery of their respective estimates, with a copy to the other party.
Such other party shall have the opportunity to rebut such submission within
five
(5) days of receipt of such copy. The fees and any expenses of the Accountants
shall be paid within fifteen (15) calendar days of the determination of the
Purchase Price Reduction as follows: (a) if the Accountants adopt the position
of Sellers, then Buyer shall bear such fees and expenses; (b) if the Accountants
adopt the position of Buyer, then Sellers shall bear such fees and expenses.
If
a retainer is required by the Accountants, the retainer shall be split equally
between Buyer and Sellers; provided, however, that the retainer shall be
considered part of the fees and expenses of the Accountants and if either party
has paid a portion of such retainer, that party will be entitled to be
reimbursed by the other party to the extent required by this
Section 5(B).
In the
event that the Accountants are not available or otherwise willing to be engaged
in this matter within 20 Business Days after Buyer’s receipt of the Dispute
Notice, then Buyer and Seller agree to resolve the Purchase Price Reduction
or
any addition to the Purchase Price pursuant to Section 16 hereof. In the event
a
party does not comply with the procedure and time requirements contained herein
or such other procedure or time requirements as the parties otherwise elect
in
writing, the Accountants shall render a decision based solely on the evidence
it
has which was timely filed by either of the parties.
In the
event of any dispute hereunder, any amount not in dispute shall be paid or
released from the Holdback Amount as provided herein, immediately, irrespective
of the dispute regarding other amounts.
v.
In
the
event the Purchase Price Reduction, if any made pursuant to this
Section
5
exceed
the Holdback Amount as finally determined pursuant to Section 5(B)(iv) hereof,
the Escrow Agent shall remit the Holdback Amount to Buyer and the amount of
such
excess shall be paid by Sellers to Buyer by wire transfer in immediately
available funds to a bank account of Buyer.
vi.
Reductions
to or offsets against the Holdback Amount on behalf of Buyer shall only be
made
in the event a Purchase Price Reduction is requested by Buyer and finally
determined pursuant to Section 5(B)(iv) hereof.
vii. If
the
Notification indicates that Buyer disputes Seller’s Estimated Net Asset Value,
as updated and Buyer believes that the Net Asset Value is above the Sellers
Estimated Net Asset Value and above the Range, then Buyers statement of Net
Asset Value shall be the Delivered Net Asset Value, and payments shall be made
pursuant to Section 5(B)(iii).
viii.
In
the
event the Delivered Net Asset Value is within the Range, no Purchase Price
adjustment shall be made. If the Delivered Net Asset Value is less than
$6,175,000, then the Purchase Price Reduction shall be the difference between
$6,175,000 and the Delivered Net Asset Value. If the Net Asset Value is greater
than $6,825,000, then the Purchase Price will be increased by the difference
between the Delivered Net Asset Value and $6,825,000, and such difference shall
be paid by Buyer to Sellers.
ix.
In
determining Net Asset Value, the value of the Purchased Assets shall not be
reduced for excess and obsolete Inventory, or for accrued property
taxes.
(C)
Allocation.
The aggregate
Purchase
Price shall be allocated for
purposes of this Agreement and for federal, state and local tax purposes, to
be
mutually agreed at Closing.
Sellers
and Buyer shall be bound by such allocation for all purposes, shall prepare
and
file (or cause to be prepared and filed) all federal,
state and local Tax Returns (as defined herein)
in a
manner consistent with such allocations, including Internal Revenue
Service
Form
8594, and shall not take any position inconsistent with such allocations in
any
Tax return, proceeding before any Governmental Authority (as
defined herein) or
otherwise.
(D)
Prorations.
At
Closing, the parties hereto shall determine the proration of any
expenses,
if
necessary.
(E)
Fair
Dealing. The parties acknowledge and agree that the transactions, covenants
and
agreements set forth in this Agreement result from arm's length good faith
negotiations among the parties and their respective
representatives.
(F)
Adjustments.
The Purchase Price and Initial Payment shall be adjusted as set forth in Section
5(F) of the Disclosure Schedule.
6.
Representations,
Warranties and Covenants of Sellers.
Sellers
represent and warrant to Buyer as of the Effective Date and agree to represent
and warrant to Buyer as of the Closing Date as follows. The disclosure schedule
attached hereto (the “Disclosure Schedule”) is divided into sections that
correspond to the sections of this Agreement.
(A)
Organization.
Tidel
is a corporation duly organized and validly existing under the Laws of the
State
of Delaware. Engineering
is a limited partnership duly organized and validly existing under the laws
of
the State of Delaware. Both Tidel and Engineering have (i) the
requisite
power
and authority to conduct the Business as now conducted and (ii)
the
necessary corporate power and authority to execute, deliver and perform their
obligations under the Transaction Documents
and to
consummate the transactions contemplated herein.
and
therein. Complete and correct copies of the Certificate of Incorporation and
Bylaws of Tidel and the Articles of Organization and Limited Partnership
Agreement of Engineering have previously been delivered to Buyer (such
documents, the “Sellers’ Organizational Documents”). Each Seller
is
duly qualified to do business in every jurisdiction in which the nature of
its
business makes such qualifications necessary, except where such failure would
not have a Material Adverse Effect.
Each
Seller
has the full right, power, and authority to engage in the Business as it is
now
conducted, and
has
all necessary licenses and permits to operate the Business as it is presently
being operated.
(B)
Authority.
Each
Seller
now has, and at Closing will have, all
requisite organizational
authority to execute,
deliver and perform each Transaction Document to which it is a party, and to
perform its
obligations and consummate the transactions contemplated under the
Transaction Documents to which it is a party,
subject
to receipt of shareholder approval, if the Board of Directors of Tidel
determines that such approval is required.
The
execution and the delivery of each
Transaction Document to which either Seller is a party,
and the
performance of the transactions contemplated by such
Transaction Documents,
have
been duly authorized by each
Seller
and all
necessary corporate or
organizational actions by each
Seller
for the execution,
delivery and performance of each Transaction Document to which such Seller
is a
party and the
consummation of the transactions contemplated hereby
and thereby have been taken, and no further corporate or organizational
authorization will be necessary to authorize the execution and delivery by
each
Seller of, and the performance of its obligations under, each Transaction
Document to which such Seller is a party.
(C)
Execution
and Delivery.
Each
Transaction
Document
to which either Seller is a party has been validly executed and delivered by
such Seller(s) and constitutes valid and binding obligations of each such
Seller, enforceable against each such Seller in accordance with its terms,
except (i) as such enforceability may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally, (ii) as such obligations are subject to
general principles of equity and (iii) as rights to indemnity may be limited
by
federal or state securities laws or by public policy.
(D)
Financial
Statements.
To the
extent Sellers have delivered a
balance
sheet and income statement of Engineering as of September 30, 2004 (the
“Financial Statements”),
Sellers
represent that,
to
Sellers’
actual
knowledge,
and
subject to adjustments recommended by Seller’s independent auditors,
the
Financial Statements (i)
are
true and correct and in accordance with the books of account and records of
Engineering
in all
material respects; (ii)
accurately and fairly reflect in all material respects all assets, liabilities,
income, loss, costs and expenses of Engineering;
and
(iii)
accurately and fairly represent the financial condition of Engineering
in all
material respects. To Sellers’ actual knowledge, Engineering
does not
have any indebtedness or liability, absolute or contingent, which is not
reflected in the financial statements, or that has not been specifically
identified to Buyer, other than liabilities or indebtedness incurred in the
ordinary course of business.
(E)
No
Conflict or Default.
The
execution and performance of this Agreement, the compliance with its provisions
by each Seller, and the transfer of the Purchased Assets to Buyer on the Closing
Date will not conflict with or result in any breach of any of the terms,
conditions, or provisions of any agreement, indenture, mortgage, or other
instrument to which either Seller is a party or by which it is bound,
except
for any such breach which would not in the aggregate reasonably be expected
to
have a Material Adverse Effect or as set forth in Section 6(E) of the Disclosure
Schedule.
Further, the execution and performance of this Agreement, the compliance with
its provisions by Sellers, and the transfer of the Purchased Assets to Buyer
on
the Closing Date will materially comply with all Laws of any Governmental
Authority applicable
to the Business or any of the Purchased Assets
and will
not conflict with, or result in, the breach of any of the terms of any Sellers’
Organizational Documents. Except as set forth in Section 6(E) of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not require the consent of any Person with respect to the rights, licenses,
franchises, leases, contracts or agreements (including but not limited to the
Contracts) of Sellers and will not have a Material Adverse Effect upon any
such
rights, licenses, franchises, leases or agreements.
(F)
Title
to Assets.
Sellers
have
or shall
have good
and
marketable title, or valid leasehold rights (in the case of leased property)
to
all of the Purchased Assets,
free and
clear of all security interests, liabilities, conditions, pledges, liens,
mortgages, licenses in favor of any Person other than either
Seller,
conditional sales contracts, attachments, hypothecations, judgments, easements,
claims, and encumbrances of every kind and nature (collectively,
“Encumbrances”),
except
for those set forth in Section 6(F) of the Disclosure Schedule (the
“Permitted Encumbrances”). At
the
Closing,
Sellers
will
sell, assign, transfer, convey, and deliver good
and
marketable title to the Purchased Assets, or,
in
the case of assets constituting Purchased Assets which are leased or licensed
by
either Seller pursuant to Personal Property Leases or other Contracts, valid
leasehold interests or licenses to such Personal Property Leases or other
Contracts, free and clear of all Encumbrances other than Permitted
Encumbrances.
(G)
Contracts.
All of
the Contracts are in full force and are enforceable against
Tidel or Engineering, as the case may be, in
accordance with their terms. To the Sellers’
knowledge and except as set forth in Section 6(G)
of the
Disclosure Schedule, (i) none
of
the
Contracts is in breach or default due
to
the action of Tidel or Engineering, or to Sellers’ knowledge, of any other party
thereto;
and (ii)
no event exists which is a default or breach due
to
the action of Tidel or Engineering, under
any
of the Contracts, or which after the passage of time or giving of notice or
both
would constitute a breach or default,
due to
the action of Tidel or Engineering. All
duties and obligations required to be performed by any party to the Contracts
prior to Closing have been so performed. Except as set forth in Section
6(G)
of the
Disclosure Schedule, the Contracts are freely assignable, or if the consent
of
the contracting party to the assignment is required, Sellers
shall
have
obtained
such consent prior to Closing, or if the giving of notice of such assignment
is
required, Sellers
have
provided
such notice prior to the Closing. To Sellers’
actual knowledge: (x)
no
party to any of the Contracts is threatened with insolvency; and (y)
there
exists no fact or circumstance which may cause a party to one of the Contracts
to fail to perform such Contract. The execution, delivery, consummation and
performance of this Agreement and the transactions contemplated herein will
not
cause either
Seller
to
be in breach or default of any of the Contracts. Sections 1 (A), (B), (C),
and
(F) of the Disclosure Schedule collectively
constitute
accurate, correct and complete lists of the Contracts.
(H)
No
Other Contracts.
Other
than the Contracts or the Excluded Assets, there are no written or oral or
contractual commitments, contracts, or agreements that relate to the Business
to
which either Seller is a party that will be binding upon Buyer, or that will
affect Buyer or the Purchased Assets, on or after the Closing.
(I)
Permits.
Other
than the Contracts or the Excluded Assets, the Permits listed
in
Section 1(G) of the Disclosure Schedule constitute
all of the licenses, permits, certificates,
approvals, exemptions, franchises, registrations, variances, accreditations
or
authorizations related to, reasonably
necessary in, currently
used
in
or
required for the operation of the Business. The Permits are valid and in full
force and effect and there are no pending
proceedings which could result in the termination, revocation, limitation or
impairment of any of the Permits. Neither
Seller has received notice of any
violations in
respect of any of the Permits.
Section 1(G)
of
the Disclosure Schedule contains an accurate, correct and complete list of
the
Permits that are reasonably
necessary in, currently
used
in
or
required for
the
operation of the Business.
(J)
Intellectual
Property.
Other
than the Contracts or the Excluded Assets, the Business
Intellectual
Property listed in Section 1(H) of the Disclosure Schedule constitutes all
of
the
Intellectual Property owned or licensed by Sellers that is currently used solely
in the conduct of the Business, and any license for any of the foregoing in
each
case. Sellers own, or are
licensed
or otherwise possess
legally
enforceable rights to use the Business
Intellectual Property that is listed in Section 1(H) of the Disclosure Schedule
and such Business Intellectual Property is sufficient for the conduct of the
Business of Sellers as it is currently being conducted on the date hereof.
Except as disclosed in Section 6(J) of the Disclosure Schedule, neither the
manufacture, marketing, license, sale or intended use of any tangible product
currently sold by the Business violates any license or agreement between either
Seller and any third party relating to such product or, to Sellers’ knowledge,
infringes any Intellectual Property right of any other party. Neither Seller
has
received
any written charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that either
Seller
must license or refrain from using any Intellectual
Property
rights
of any Person relating to the Business
Intellectual
Property), nor
is there
any pending claim or litigation contesting the validity of the Business
Intellectual Property or Sellers’ ownership or right to use, sell, license or
dispose of the Business Intellectual Property. Neither Seller has received
any
notice asserting that any of the Business Intellectual Property or the proposed
use, sale, license or disposition thereof conflicts or will conflict with the
rights of any other party, and neither Seller has licensed the use of the
Business Intellectual Property to any third party nor permitted the use by
any
third party of the same in a manner which would infringe the trademark rights
of
Sellers. Sellers
will
make available to Buyer complete and correct copies of all reasonably accessible
user and technical documentation related to the Business
Intellectual Property that is listed in Section 1(H) of the Disclosure Schedule.
Except as disclosed in Section 6(J) of the Disclosure Schedule, neither
Seller has received any notice that any of their current or prior members,
officers, employees or consultants claim an ownership interest in any of the
Business Intellectual Property as a result of having been
involved
in the development of
such
property while employed by or consulting to the Business or
otherwise.
(K)
Inventory.
Except
as
set forth in Section 6(K) of the Disclosure Schedule, Sellers are not in
possession of any inventory that is not owned by one of them. All of the
Inventory has been valued at cost on a first in, first out basis.
(L)
No
Real Property Owned by Sellers.
Sellers
own
no real
property used in the Business. Except
as
set forth
in
Section 6(L) of the Disclosure Schedule, the Transferred Lease may be freely
assigned, assumed or sublet, is valid and in full force and effect, and
to
Sellers’
knowledge there is not pending or threatened any proceedings which could result
in the termination, revocation, limitation or impairment of the Transferred
Lease.
(M)
Litigation.
Except
as set forth in Section 6(M) of the Disclosure Schedule, there is no litigation,
proceeding, or governmental investigation pending in front of any court,
arbitration board, administrative agency, or tribunal against or relating to
Sellers that would prevent or affect the Purchased Assets, the Business, or
the
consummation of this Agreement or the sale, transfer or assignment of the
Purchased Assets by Sellers.
(N)
Compliance
with Law.
Except
as
set forth in Section 6(N) of the Disclosure Schedule, Sellers
have
been and
are
in, and
the Business has been and is being conducted in, compliance in all material
respects
with all Laws
that are
applicable to or binding upon the Business or the Purchased Assets, and Sellers
have
not
received any written or oral notice of any violation or alleged violation of
any
Law.
(O)
Brokers’
Fees.
Sellers
have no liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by the Transaction
Documents.
(P)
No
Material Adverse Change.
Since
September 30, 2004, there have been no changes that would have a Material
Adverse Effect. Since
September 30, 2004, Sellers have operated the Business in the ordinary course
of
business consistent with past practices and Sellers
have used reasonable efforts to keep the Business intact.
(Q)
Accounts
Receivable.
Except
as set forth on Section 1(L)(#2) of the Disclosure Schedule, all Accounts
Receivable of the Business arose from valid transactions and in the ordinary
course of business for goods sold or services rendered and are not subject
to
any valid counterclaims or setoffs known to Sellers with respect to any such
Accounts Receivable. The list of Accounts Receivable listed in Section
1(L)
of the
Disclosure Schedule is a true, accurate and complete list of such accounts
generated in connection with the Business and existing as of the date
thereof.
(R)
Tax
Matters.
For
purposes of this Agreement, (A) the term “Taxes” shall mean all taxes, charges,
fees, levies or other assessments, including, without limitation, income, gross
receipts, excise, property, use, sales, license, payroll and franchise taxes,
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof whether computed on a unitary, combined or any
other basis; and such term shall include any interest and penalties or additions
to tax; and (B) the term “Tax Return” shall mean any report, return or other
information required to be filed with, supplied to or otherwise made available
to a taxing authority in connection with Taxes. Sellers have filed,
and
through the Closing will
duly and
timely file with
the
appropriate taxing authorities, all Tax Returns
required
to be filed by them
and all
such Tax
Returns
are, or
will be when filed, true, complete and correct in all material respects and
Seller has paid or
through
the Closing Date will pay all Taxes shown to be due on such Tax
Returns
which
are due and payable or claimed by any taxing authority to be due and
payable
on such
Tax Returns
through
periods ending on or before
the
Closing Date. All necessary sales Tax exemption certificates have been obtained
by Sellers
and all
such certificates have been properly completed and maintained.
Sellers
have
not
received
notice
of
any
outstanding
audits,
assessments, notices of deficiency, deficiencies, investigations, claims or
demands for Taxes related
to the Business or
proposed deficiencies against either
Seller for any Taxes related to the Business.
No
claims are being asserted with respect to any Taxes of Sellers
related to the Business
for
which Buyer reasonably could be held liable.
Sellers
have complied in all material respects with all applicable Laws relating to
the
payment and withholding of Taxes and have withheld
all
amounts which were required by
law
to
be
withheld from
the
wages or salaries of their
managers, officers and employees
for all
periods ending on or before the Closing Date,
and are
not liable for any Taxes with respect to the managers, officers and employees
of
the Business for failure to comply with such Laws.
(S)
Accounts
Payable.
Except
as
set forth on Section 6(S) of the Disclosure Schedule, all
accounts payable of Sellers related to the Business are current and have been
generated in the ordinary course of business. Except as set forth in
Section 6(S) of the Disclosure Schedule, Sellers have
paid
promptly, when due, all accounts payable
related
to the Business,
including lease payments and rental fees, utility bills, and other obligations
due as a result of the operation of the Business and the ownership of the
Purchased Assets through the Closing Date.
(T)
No
Undisclosed Liabilities.
Except
as
disclosed on Section 6(T) of the Disclosure Schedule, Sellers have
no
material liability related to the operation of the Business, except for
liabilities reflected in the Financial Statements and for current
liabilities
incurred
in the ordinary course of business. Sellers have
no
liability or obligation to refund any economic development incentives received
from any governmental entity.
(U)
Environmental,
Health & Safety Compliance.
To
Sellers’ knowledge, neither the conduct nor operation of the Business, nor any
condition of the Transferred Lease, nor the premises leased by the Transferred
Lease, violates any Law or common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment
(“Environmental, Health, and Safety Requirements”), where
such violation would reasonably be expected to have a Material Adverse Effect
and
Sellers have
not
received any notice stating that the operation or condition of any real property
presently
leased
or operated in connection with the Business is in violation of any
Environmental, Health, and Safety Requirements,
where
such violation would reasonably be expected to have a Material Adverse
Effect.
(V)
Government
Authorizations.
The
governmental authorizations listed in Section 6(V)
of the
Disclosure Schedule collectively constitute all of the authorizations of any
Governmental Authority necessary to permit Sellers to lawfully conduct and
operate the Business in the manner in which they currently conduct and operate
the Business and to permit Sellers to own and use the Purchased Assets in the
manner in which they currently owns and uses such Purchased Assets, except
where
the failure to do so would not have a Material Adverse Effect.
(W)
Relationships
with Affiliates.
Neither
Sellers
nor any
of their
Affiliates
has any
interest in, has owned, of record or as a beneficial owner, or has an equity
interest or any other financial or profit interest in any Person that has (a)
had business dealings or a material financial interest in any transaction with
either
Seller
other than business dealings or transactions disclosed in Section 6(W)
of the
Disclosure Schedule, each of which has been conducted in the ordinary course
of
business with Sellers
at
substantially prevailing market prices and on substantially prevailing market
terms or (b) engaged in competition with Sellers
with
respect to the Business in any market presently served by Sellers.
Except
as
set forth in Section 6(W)
of the
Disclosure Schedule, neither Seller nor any of their
Affiliates
is a
party to any Contract with, or has any claim or right against, either
Seller, (i) providing for the furnishing of services by, (ii) providing for
the
rental of real or personal property from, or (iii) otherwise requiring payments
to (other than for services as managers, officers, directors or employees of
the
Business), any such person or any corporation, partnership, trust or other
entity in which any such person has a substantial interest as a stockholder,
officer, director, trustee or partner.
(X)
Employees.
(i) Each
written plan, program, compensation, or arrangement, for the benefit of the
employees of the Business (the “Employees”) and maintained by either Seller is
listed in Section 6(X)
of the
Disclosure Schedule (the “Employee Benefit Plans”) and copies or descriptions of
each such Employee Benefit Plan have been delivered to Buyer. Buyer will not
have, as a consequence of the transactions contemplated hereby, any liability
or
obligation with respect to or under any agreement between either Seller and
any
of the Employees,
except
for the Accepted Employees (as
such
term is defined herein) to
the
extent contemplated by
Section
9(B)
hereof.
(ii) Each
Employee Benefit Plan maintained by Sellers with respect to the Employees has
been maintained and administered at all times in material compliance with its
terms and all applicable Laws.
(iii) Section 6(X)
of the
Disclosure Schedule contains: (i) a list of the Employees of the Business;
(ii)
the current annual compensation provided by Sellers to each such Employee as
of
the Closing Date; (iii) a list of any increase presently scheduled (including
the effective date thereof) in the rate of compensation of any the Employees;
(iv) the title and location of each such Employee and; (v) a job description
for
each Employee..
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(i)
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Neither
Seller
is
a
party to or bound by any union contract or collective bargaining
agreement
and has not experienced any strike, grievance or any arbitration
proceeding, claim of unfair labor practices filed or, to Sellers’
knowledge,
threatened to be filed or any other material labor
difficulty.
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(ii)
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All
of the Employees are United States citizens, or lawful residents
of the
United States.
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(Y)
No
Disputes.
Except
as set forth on Section 6(Y) of the Disclosure Schedule, to Sellers’
knowledge,
there
are no
material
conflicts or problems with any officer, manager or Key Employee of Sellers
that
would likely result in the termination or resignation of employment of any
such
individual. To Sellers’ knowledge,
there are no material
disputes
with
suppliers that would likely result in the termination of the source of supply
of
a material product and there are no long term commitments with suppliers.
(Z)
Insurance
Coverage.
Sellers
maintain insurance policies for fire, liability and other forms of insurance
covering the Business and the Purchased Assets in amounts and against such
losses and risks as are generally maintained for comparable businesses and
properties and such insurance will be maintained through Closing.
(AA)
No
Other Assets Needed.
The
Purchased Assets constitute
all
material assets that are required to operate the Business as currently being
operated by the Sellers prior
to
the
Closing
other
than the assets listed on Section 2(B) of the Disclosure Schedule.
(BB)
Product
Warranties.
Each
product manufactured, licensed or sold by Sellers has been in substantial
conformity with all contractual commitments and express warranties applicable
to
Sellers, all of which are described in Section 6(BB)
of the
Disclosure Schedule, as well as with all warranties implied by law.
7.
Representations
and Warranties of Buyer and Parent.
Buyer
and Parent represent and warrant to Sellers as of the Effective Date and agree
to represent and warrant to Sellers as of the Closing Date as
follows:
(A)
Organization.
Buyer is
a limited liability company duly organized and validly existing under the laws
of
the
State of Delaware. NCR Corporation (the “Parent”) is a corporation duly
organized and validly existing
under
the Laws of the State of Maryland.
Both
Buyer and Parent have (i) all requisite power and authority to carry on
respective business as it is now being conducted and as contemplated to be
conducted immediately following the Closing, and (ii)
the
necessary corporate power and authority to execute,
deliver and perform its obligations under the Transaction Documents
and to
consummate the transactions contemplated herein
and
therein.
(B)
Authority. Buyer
and
Parent now have, and at Closing will have, all requisite organizational
authority to execute, deliver and perform the Transaction Documents and to
perform its obligations and consummate the transactions contemplated under
the
Transaction Documents to which it is a party. The
execution and the delivery of the
Transaction Documents to which either Buyer or Parent is a party
and the
performance of the transactions contemplated by such
Transaction Documents
have
been duly authorized by Buyer
or
Parent, as the case may be,
and all
necessary
corporate
or
organizational
actions
by Buyer and
Parent for the execution, delivery and performance of the Transaction Documents
to which either of them is a party and the
consummation of the transactions contemplated hereby
and thereby have been taken, and no further corporate or organizational
authorization will be necessary to authorize the execution and delivery by
Buyer
or Parent of, and the performance of its obligations under, each Transaction
Document to which Buyer or Parent is a party. Each
Transaction Document to which either Parent or Buyer is a party has been validly
executed and delivered by either Parent or Buyer, as the case may be, and
constitutes valid and binding obligations of Parent and Buyer, enforceable
against Parent and Buyer in accordance with its terms, except (i) as such
enforceability may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors’ rights
generally, (ii) as such obligations are subject to general principles of equity
and (iii) as rights to indemnity may be limited by federal or state securities
laws or by public policy.
(C)
Approvals.
No
third-party action, waiver, consent or approval is required of any Person for
the execution, delivery and performance of the Transaction Documents by Buyer
or
Parent, and the execution, delivery or performance, and the consummation of
the
transactions contemplated herein or therein do not breach any provision of
Buyer’s Articles
of Organization and Limited Liability Company Operating Agreement and Parent’s
Certificate of Incorporations and Bylaws. No
action, waiver, consent or approval by any Governmental Authority is necessary
to make this Agreement a valid instrument binding on Buyer and Parent in
accordance with its terms.
(D)
Broker
or Finder’s Fee.
Neither
Buyer nor
Parent
has any liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement.
(E)
No
Conflict or Default.
The
execution and performance of this Agreement, the compliance with its provisions
by Buyer and Parent, and the transfer of the Purchased Assets to Buyer on the
Closing Date will not conflict with or result in any breach of any of the terms,
conditions, or provisions of any agreement, indenture, mortgage, or other
instrument to which either Buyer or Parent is a party or by which it is bound.
Further, the execution and performance of this Agreement, the compliance with
its provisions by Buyer and Parent, and the transfer of the Purchased Assets
to
Buyer on the Closing Date will materially comply with all Laws of any
Governmental Authority applicable to the Business or any of the Purchased Assets
and will not conflict with, or result in the breach of any of the terms of
any
of Buyers’ Organizational Documents. The consummation of the transactions
contemplated by this Agreement will not require the consent of any Person with
respect to the rights, licenses, franchises, leases, contracts or agreements
(including but not limited to the Contracts) of either Buyer or
Parent.
(F) Litigation.
There
is no litigation, proceeding or governmental investigation pending in front
of
any court, arbitration board, administrative agency or tribunal against or
relating to Buyer or Parent that would prevent or affect the transactions
contemplated by the Transaction Documents.
(G)
Solvency.
Both
Buyer
and
Parent are
Solvent
(as defined below). Neither
Buyer
nor
Parent
will
fail to
be Solvent as a result of the execution and delivery of the Transaction
Documents.“Solvent”
shall mean, when used with respect to any person or entity, that at the time
of
determination:
(i) it
is then able and expects to be able to pay its debts as they mature;
and
(ii) it
has capital sufficient to carry on its business as conducted and as proposed
to
be conducted.
(H) No
Default.
Neither
Buyer nor Parent is in default with respect to any indebtedness, note,
indenture, loan agreement, mortgage, lease, deed or other agreement to which
Buyer is a party or by which it is bound and neither Buyer nor Parent has
received any notice or demands with respect to the same that would prevent
or
affect the transactions contemplated by the Transaction Documents.
8.
Pre-Closing
Covenants of Sellers.
Sellers
agree
as
follows:
(A)
Maintenance
of the Purchased Assets.
Until
the Closing Date, Sellers shall not lease, sell, or dispose of any of the
Purchased Assets other than in the ordinary course of business consistent with
past practice or otherwise except with the prior written consent of
Buyer.
(B)
Update
of Disclosure Schedule.
Prior
to the Closing Date, Sellers shall supplement or amend all relevant Sections
of
the Disclosure Schedule and/or notify Buyer with respect to any matter
thereafter arising or discovered which, if existing or known on the Effective
Date of this Agreement, would have been required to be set forth or described
in
such Section of the Disclosure Schedule or would have been required to be
disclosed to Buyer under this Agreement. At the Closing Date, Sellers shall
deliver to Buyer a complete Disclosure Schedule, marked to show all of the
changes since the Effective Date (the “Updated Disclosure Schedule”).
(C)
Continuity.
From
the
date hereof to the Closing
Date,
except
(i) for entering into and performing this Agreement, the Services Agreement
and
the other Transaction Documents; (ii) for the effect of the consummation of
the
transactions contemplated hereby and thereby; or (iii) as otherwise consented
to
by Buyer in writing, such consent not to be unreasonably withheld or delayed,
the Sellers shall conduct the Business in the ordinary course in substantially
the same manner in which it has previously been conducted, and shall take or
refrain from taking (as appropriate) the following actions:
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(i)
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Sellers
will use their best efforts to maintain and preserve relationships
with
its present customers and suppliers of the Business and employees;
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(ii)
|
Sellers
will maintain the books, accounts and records on a basis consistent
with
that of prior periods and said books, accounts and records will accurately
reflect activities of Sellers with respect to the Business;
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(iii)
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Sellers
will not do any act or omit to do any act or permit any act or omission
to
act that will cause a material breach of any contract, commitment
or
obligation of either Seller, including but not limited to the Contracts
where such breach would reasonably likely to have a Material Adverse
Effect;
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(iv)
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Sellers
will use their best efforts to prevent the occurrence of any change
or
event which would prevent any of their representations and warranties
contained herein from being true in all material respects at and
as of the
Closing Date;
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(v)
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Sellers
will maintain in full force and effect the insurance coverage under
the
policies set forth in Section 6(Z);
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(vi)
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Sellers
will use their best efforts to cooperate with Buyer and provide access
to
the Buyer to the operations of Sellers related to the Business during
ordinary business hours and upon reasonable advance written notice
from
the Effective Date to the Closing
Date;
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(vii)
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Sellers
will not enter into any settlement of any material litigation or
proceeding relating to the Purchased Assets, the Business or the
Assumed
Liabilities;
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(viii)
|
Sellers
will not incur any material obligation or liability or enter into
any
transaction material to the Business without the prior written consent
of
the Buyer;
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(ix)
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Sellers
will not fail to discharge or satisfy any known
Encumbrance or pay or satisfy any known obligation or liability (whether
absolute, accrued, contingent or otherwise), other than Permitted
Encumbrances, liabilities being contested in good faith and for which
adequate reserves have been provided and Encumbrances arising in
the
ordinary course of business that do not, individually or in the aggregate,
materially interfere with the use, operation, or marketability of
any of
the Purchased Assets,
which may be discharged or satisfied at Closing with a portion of
the
Purchase Price;
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(x)
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Sellers
will not mortgage, pledge or subject to any Encumbrance any of the
Purchased Assets, except for Permitted
Encumbrances and Encumbrances arising in the ordinary course of
business
and consistent with past practice and liens
for Taxes not yet due and payable;
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(xi)
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Sellers
will not dispose of any of the Purchased Assets or enter into any
material
contracts relating to the Business, except in the ordinary course
of
business and consistent with past practices, without the prior written
consent of the Buyer;
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(xii)
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Sellers
will not become or remain in breach or default on any material
obligation;
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(xiii)
|
Sellers
will not write-off as uncollectible any of their Accounts Receivable
relating to the Business or any portion thereof unless otherwise
advised
by Sellers’
independent accountants;
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(xiv)
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Sellers
will not discontinue the sales of any services of the
Business;
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(xv)
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Sellers
will not increase any salary or wage
of
any Employee, other than
regularly scheduled salary increases agreed upon by the Board of
Directors
of Tidel or Engineering (which shall not exceed 2% in the aggregate,
per
annum), or
as
agreed to prior to the Effective Date,
declare or pay any bonus, revise, amend, institute, or terminate
any
employee benefit
of
any Employee other than previously disclosed to Buyer;
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(xvi)
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Sellers
will not enter into any agreement or make any commitment to do any
of the
foregoing;
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(xvii)
|
Sellers
will assist in the transfer of Transferred Employees needed for the
Business; and
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(xviii)
|
Sellers
shall assist Buyer with reasonable integration efforts and
transition.
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(D) Notification.
Sellers
shall promptly notify Buyer in writing if it becomes aware of (a) any fact
or
condition that, in Sellers’ reasonable determination, causes or constitutes a
material breach of any of Sellers’ representations and warranties made as of the
Effective Date or (b) the occurrence after the Effective Date of any fact or
condition that, in Sellers’ reasonable determination, would or would be
reasonably likely to (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had that
representation or warranty been made as of the time of the occurrence of, or
Sellers’ discovery of, such fact or condition.
(E) No
Negotiation.
(i).
Except
as specifically set forth in Section 8(E)(ii), (iii), (iv), (v) or (vi) hereof,
until
the
earlier of the Closing or the termination of this Agreement pursuant to
Section 14 hereof
(the
“Exclusivity Period”),
Sellers
shall
not directly or indirectly, individually or through any of their respective
officers, directors, stockholders, employees, representatives, agents,
affiliates, or otherwise (collectively, the “Representatives”) initiate, solicit
or encourage, consider, evaluate, or respond to (other than to say that Seller
is contractually obligated not to respond, and referring such party to public
disclosure regarding this Agreement, but shall not otherwise respond,
including, without limitation, by way of furnishing non-public information
or
assistance) any proposals, inquiries or offers from any person or entity,
including, but not limited to, any Tidel
stockholder (“Third Party”), or enter into any confidentiality agreement, due
diligence agreement, letter of intent, purchase agreement, merger agreement
or
other arrangement, regarding any proposed sale of all or any portion of the
Purchased Assets or control thereof, whether by means of a sale or exchange
of
shares, sale of assets, whether in whole or in part, merger, recapitalization,
liquidation or otherwise (“Third Party Acquisition”). Except as specifically set
forth in Sections 8(E)i),
ii),
iii),
iv),
v)
or
vi)
hereof,
during the Exclusivity Period, Sellers
shall
not have, and shall take reasonable efforts to cause their
Representatives not to have, any discussions, conversations, negotiations or
other communications relating to any Third Party Acquisition with any Third
Party expressing interest therein, and shall immediately discontinue
negotiations with any Third Party with which it heretofore has engaged in
negotiations or discussions regarding any Third Party Acquisition. During the
Exclusivity Period, Sellers
immediately shall notify Buyer of all terms of any written inquiry, contact,
communication, or proposal by any Third Party with respect to any Third Party
Acquisition that is received by Sellers
or any
of their
Representatives (including Sellers’
response
thereto), and immediately shall provide Buyer with a copy of any such written
inquiry, contact, communication or proposal. With respect to any oral inquiry,
contact, communication or proposal, Sellers
shall
document the same in writing (including Sellers’
response
thereto) and reasonably promptly provide Buyer with a copy of the same.
Sellers
agree
that if
either
Seller shall breach
and
fail
to cure
promptly any material provision of this Section 8(E) and within
twelve (12) months thereafter
enter
into any definitive agreement with a Third Party, including any of its
affiliates, with whom Sellers breached this Section 8(E) regarding a Third
Party
Acquisition, then
upon the
consummation
of such
acquisition, Sellers
immediately shall pay to Buyer by wire transfer (in readily available funds)
Two
Million Dollars $2,000,000.00 (the “Fee”), which Sellers
acknowledge
is
reasonable under the circumstances and designed to compensate Buyer for the
lost
opportunity to consummate the Transaction. This Fee will serve as the exclusive
remedy
to Buyer
hereunder in the event of a breach by Sellers
of the
exclusivity arrangement set forth herein, including, but not limited to, Buyer’s
damages relative to its efforts, expenses and costs incurred in evaluating
the
Transaction. The parties acknowledge that the foregoing provisions do not
necessarily require Sellers to provide Buyer a written summary of on-going
discussions with a third party, nor shall Seller be required to document to
Buyer any oral inquiry, contact, communication or proposal that does not
materially change any inquiry, contact, communication or proposal previously
provided by Buyer.
(ii) Buyer
acknowledges that Sellers are pursuing a potential sale of the TACC Business
and, in connection therewith, have engaged Stifel Nicholas. Buyer further
acknowledges that Sellers’ efforts to sell the TACC Business or any other equity
or assets not related to the Business, including the engagement of Stifel
Nicholas, will not be deemed a breach of the provisions of this Section 8(E),
provided such efforts do not in any way involve the Purchased
Assets.
(iii) The
parties
acknowledge that prior to the Closing, in response to a bona fide unsolicited
written proposal for a Third Party Acquisition that did not result from the
breach of this Section 8(E) (a “Third Party Proposal”) and following
delivery to Buyer of notice and a copy of the Third Party Proposal in compliance
with its obligations under Section 8(E)(i) hereof, the Sellers may
participate in discussions or negotiations with or furnish information (pursuant
to a confidentiality agreement with customary terms comparable to those in
place
between Buyer and Seller) to any Third Party which makes a bona fide written
Third Party Proposal if, and only if, prior to taking such action: (A) a
majority of Tidel’s Board of Directors reasonably determines in good faith
(after consultation with its financial advisors) that the
transactions contemplated by such
Third Party Proposal are
capable
of being completed and would, if consummated, result in a Superior Transaction
(as hereinafter defined) and (B) a majority of Tidel’s Board of Directors
determines in good faith (after receiving the written advice of outside legal
counsel) that it is necessary to pursue
such
Superior
Proposal
in order
to comply with its fiduciary duties to its shareholders under applicable law
and
(C) Sellers comply with the information and notice obligations set forth in
Section 8(E)(i).
For
purposes of this Agreement, “Superior Proposal” means a bona fide Third Party
Proposal to purchase at least two-thirds of the outstanding equity securities
of
either Seller pursuant to a tender offer or exchange offer or to effect any
merger, consolidation, business combination or sale of all or substantially
all
of the Purchased Assets, recapitalization or similar transaction involving
the
Sellers, on terms which a majority of Tidel’s Board of Directors determines in
good faith (after consultation with its financial advisors) to be superior
to
Tidel and its shareholders (in their capacity as shareholders) 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) as
compared to (i) the transactions contemplated hereby and (ii) any alternative
proposed by Buyer in accordance with Section 8(E)(vi) which is reasonably
capable of being consummated (any such transaction being referred to herein
as a
“Superior Transaction”).
(iv) The
Sellers and Buyer agree that, notwithstanding anything to the contrary herein,
prior to the Closing, Tidel and/or its Board of Directors may take the actions
otherwise prohibited by Section 8(E)(i), subject to the conditions of and
as limited by Section 8(E)(iii), if and only if: (A) (i) a Third Party
makes a Superior Proposal,
and
(ii) Tidel complies with its obligations under Section 8(E)(iii) and
(vi) and its disclosure obligations under Section 8(E)(i), (B) all of the
conditions to Tidel’s Board of Directors’ right to withhold or withdraw its
recommendation of this Transaction in accordance with Section 8(E)(vi)
hereof have been complied
with
(including the expiration of the six Business Day period described
therein)
with
the exception of compliance with the requirement to pay the
amounts
contemplated
pursuant
to Section 8(E)(vi) hereof),
which
amount shall be paid when due pursuant to the terms thereof;
and
(C) simultaneously therewith, the Tidel Board of Directors withholds or
withdraws its recommendation of this Agreement in accordance with
Section 8(E)(vi) hereof.
(v) Buyer
agrees that nothing contained in this Section 8(E) shall prohibit Tidel from
taking and disclosing to its shareholders a position contemplated by
Rule 14d-9 and Rule 14e-2 promulgated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), with respect to any tender offer.
(vi) If
at any
time prior to the Closing a Superior Proposal is received by the Sellers and
the
Board of Directors of Tidel reasonably determines in good faith (after receiving
the advice of outside legal counsel) that it is necessary to withhold or
withdraw the Board’s recommendation of this Transaction and to enter into an
agreement to effect the Superior Proposal in order to comply with its fiduciary
duties to its shareholders under applicable law, then the Tidel Board of
Directors may withhold or withdraw its recommendation of this Transaction;
provided that the Tidel Board
of
Directors may not withdraw its
recommendation pursuant to this Section 8(E)(vi) unless and until
(A) six Business Days have elapsed following delivery to Buyer of a written
notice of such determination by the Board of Directors of Tidel, and during
such
six Business Day period Tidel has fully cooperated with Buyer, including,
without limitation, informing Buyer of the terms and conditions of such Superior
Proposal and the identity of the Third Party making such Superior Proposal
and
providing to Buyer copies of all documents required by Section 8(E)(i), with
the
intent of enabling the parties hereto to agree to a modification of the terms
and conditions of this Agreement to provide substantially equivalent value
to
the Sellers as determined in the reasonable and good faith exercise of
the
discretion
of the
Board of Directors of Tidel, so that the transactions contemplated hereby may
be
effected, it being the intent that Buyer be given the opportunity to consummate
the Transaction on substantially equivalent financial terms as any Superior
Proposal, without any requirement to provide more favorable terms thereto;
(B) at the end of such six Business Day period the Third Party Proposal
continues in the good faith judgment of the Board of Directors of Tidel to
constitute a Superior Proposal compared to this Transaction or any other offer
made by Buyer and the Board of Directors of Tidel confirms its determination
(after receiving the advice of outside legal counsel) that it is necessary
to
withhold or withdraw its recommendation of the Transaction and enter into an
agreement to effect the Superior Proposal to comply with its fiduciary duties
to
its shareholders under applicable law; and (C) immediately following such
withdrawal, the Sellers or either of them enter into a definitive acquisition,
merger or similar agreement to effect the Superior Proposal and immediately
following the execution
of a definitive agreement for the Superior Transaction,
Buyer
is paid the Fee by wire transfer of immediately available funds.
(F) Interim
Financial Statements.
Until
the Closing Date, Sellers shall deliver to Buyer within ten (10) Business Days
after the end of each month a copy of the unaudited financial statements of
Engineering or such month prepared in accordance with Generally
Accepted Accounting Principles,
consistently applied, in a manner and containing information consistent with
Sellers’ current practices.
(G) License
of
Name.
On or
before the Closing Date, Tidel shall take all actions
necessary to license the use of the name “Tidel” to Buyer as further set out in
that
certain License Agreement by and between Tidel and Buyer dated as of the date
hereof, attached hereto as Exhibit
B
hereto
(the
“License Agreement”).
(H) Meeting
of Tidel Stockholders.
(i) In
the
event that the Board of Directors of Tidel, in its sole discretion, determines
that the transactions contemplated by this Agreement require the approval of
the
holders of Tidel’s common stock, par value $.01 (the “Common Stock”, and such
holders, the “Tidel Stockholders”), Tidel
will take all action necessary in accordance with applicable law and regulations
and its Certificate of Incorporation and Bylaws to duly call, give notice of,
convene and hold, as promptly as reasonably practicable after the date hereof,
a
meeting (the “Stockholders’ Meeting”) of the Tidel
Stockholders
for the
purpose of obtaining approval of this Agreement and the transactions
contemplated hereby (the “Transactions”) and shall submit this Agreement and the
Transactions for approval by the Tidel Stockholders at such meeting or any
adjournment thereof.
(ii) Unless
the Tidel Board of Directors withholds or withdraws its recommendation of this
Transaction pursuant to and subject to the conditions of Section
8(E)(vi)
above,
Tidel, through its Board of Directors, shall recommend approval of the
Transactions by the Tidel Stockholders at the Stockholders’ Meeting or any
adjournment thereof, shall include such recommendation in the Proxy Statement,
and shall use all commercially reasonable efforts to obtain the approval of
the
Tidel Stockholders. Notwithstanding
any such withdrawal, if approval of the Tidel Stockholders is necessary under
applicable law for the Sellers to consummate the Transaction, Tidel shall be
obligated to convene the stockholders meeting contemplated by this Section
8(H)
as soon as reasonably practicable and shall submit the Transaction to a vote
of
its stockholders as provided herein.
(iii) As
promptly as practicable after the execution of this Agreement, Tidel shall
prepare and file with the Securities and Exchange Commission (“SEC”) proxy
materials as required by applicable law to solicit from the Tidel Stockholders
proxies in favor of the adoption of this Agreement and the approval of the
Transactions (the “Proxy Statement”), and shall use reasonable efforts to have
the Proxy Statement cleared by the SEC. The Proxy Statement shall comply with
applicable provisions of the Securities Act of 1933, as amended (the “Securities
Act”) and the Exchange Act and the rules and regulations thereunder. If at any
time prior to the Stockholder’s
Meeting
any
event shall occur that should be set forth in an amendment of or a supplement
to
the Proxy Statement, Tidel shall prepare and file with the SEC such amendment
or
supplement as soon thereafter as is reasonably practicable. Buyer and Tidel
shall cooperate with each other in the preparation of the Proxy Statement,
and
Tidel shall notify Buyer of the receipt of any comments of the SEC with respect
to the Proxy Statement and of any requests by the SEC for any amendment or
supplement thereto or for additional information, and shall provide to Buyer
promptly copies of all correspondence between Tidel or any representative of
Tidel and the SEC with respect to the Proxy Statement. Buyer and its counsel
shall have the right to review the Proxy Statement and all responses to requests
for additional information by and replies to comments of the SEC before their
being filed with, or sent to, the SEC. Each of Tidel and Buyer agrees to use
commercially reasonable efforts, after consultation with the other parties
hereto, to respond promptly to all such comments of and requests by the SEC
in
an effort to cause the Proxy Statement to be mailed to the holders of Tidel
Stock entitled to vote at the Sellers Stockholders’ Meeting at the earliest
practicable time. Tidel agrees that the information provided by it for inclusion
in the Proxy Statement and each amendment or supplement thereto, at the time
of
mailing thereof and at the time of the Stockholders’ Meeting, will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light
of
the circumstances under which they were made, not misleading.
(iv) Buyer
acknowledges that
as of
the date hereof, Tidel is not current in filing
its
annual
reports on Form 10-K and
quarterly reports on Form 10-Q (collectively, the “SEC Reports”). In satisfying
the covenants in this Section 8, Tidel shall not be required to file any SEC
Reports
that are
currently or may hereinafter become overdue. Additionally, Tidel shall not
be
required to file a Proxy Statement with the SEC to the extent that Tidel is
advised by counsel that such Proxy Statement may not be cleared by the SEC
for
any reason, including, without limitation, as a result of Tidel’s overdue SEC
Reports. The
covenants in this Section 8 are furthermore
subject
to any restrictions or requirements of the rules and regulations of the
SEC.
(v) In
no
event shall Sellers be required to incur expenses in excess of $50,000 to obtain
the legal opinion required by Section 13(B)(ix) of this Agreement. If the
expense to obtain this legal opinion exceeds $50,000, Sellers
shall not be required to obtain such opinion; however, Sellers
and
Buyer may, if they shall so mutually agree,
in each
of their sole discretion, to
each pay
50% of the difference between the total cost of obtaining such opinions and
$50,000.
9.
Additional
Covenants.
Each of
the parties hereto, as the case may be, hereby covenant and agree as
follows:
(A)
Taxes.
(i) Payment;
Filing Returns.
Sellers
shall pay all federal, state and local sales, transfer, excise, value-added,
or
other similar Taxes that may be imposed by reason of the sale, transfer,
assignment, or delivery by Sellers of the Purchased Assets or assumption of
the
Assumed Liabilities. Sellers shall be responsible for the preparation and filing
of all required Tax Returns and shall be liable for the payment of any and
all
Taxes relating to all periods through and including the Closing Date (including
all Taxes resulting from the sale and transfer by the Sellers of Purchased
Assets hereunder).
(ii) Cooperation.
The
parties hereto agree to furnish or cause to be furnished to one another, upon
request, as promptly as practicable, such information and assistance relating
to
the Purchased Assets, the Assumed Liabilities and the Business as is reasonably
necessary for the filing of all Tax Returns, and making of any election related
to Taxes, the preparation for any audit by any Governmental Authority, and
the
prosecution or defense of any claim, suit or proceeding relating to any Tax
Return. The parties hereto shall cooperate with each other in the conduct of
any
audit or other proceeding related to Taxes involving the Business and each
shall
execute and deliver such other documents as are necessary to carry out the
intent of this Section 9 (A)(ii). Buyer shall retain possession of all files
and
records transferred to Buyer hereunder, if any, and coming into existence after
the Closing Date that relate to the Business before the Closing Date, for a
period not to exceed five (5) years from the Closing Date.
(B) Employee
Matters.
(i) Transferred
Employees.
Subject
to and in accordance with the provisions of this Section 9(B), Buyer shall
offer
full-time employment, effective upon the Closing, to certain Employees
identified by Sellers and who Buyer agrees are necessary to operate the Business
and are acceptable to Buyer, as listed on Section 9(B) of the Disclosure
Schedule (the “Transferred Employees”), subject without limitation to Buyer’s
hiring policies. Accordingly, pursuant to Rev. Proc. 96-60, 1996-2 C.B. 399,
provided that Sellers provide Buyer with all necessary payroll records for
the
calendar year which includes the Closing Date, Buyer shall furnish a Form W-2
to
each Transferred Employee disclosing all wages and other compensation paid
prior
to the Closing Date, and Taxes withheld therefrom, and Sellers shall be relieved
of the responsibility to do so. All such information provided by Seller shall
be
accurate, correct and complete.
(ii) Offer
of Employment.
On or
prior to the date of Closing, Buyer shall offer to each of the Transferred
Employees an employment position similar to his or her position with
Sellers
on the Closing Date on terms and conditions substantially equivalent to the
terms and conditions of employment and benefits for current employees of Buyer
in similar job classifications and grades. Buyer shall hire all Transferred
Employees who accept such offer, and shall deliver to Sellers a list of all
of
the Transferred Employees who accept such offer, which list shall be included
in
Section 9(B) of the Disclosure Schedule (the “Accepted Employees”).
The
parties hereto agree to coordinate their efforts in order to effect a smooth
transition of the payroll for the Employees from Sellers to Buyer. Buyer shall
not, however, in any event have any responsibility for any employee litigation
or potential litigation matters, nor
for
any other employment-related claims, including but not limited to claims for
severance, asserted by any employee of Sellers (except for claims brought by
Accepted Employees who accept Buyer’s offer of employment related solely to
Buyer’s actions occurring after such acceptance).
(iii) Eligibility.
Each of
the Transferred Employees shall be eligible to participate in all health,
defined and welfare benefits currently offered by Buyer to its employees,
including, but not limited to, medical, dental, life, disability, vacation
and
401(k) plans (subject to complying with eligibility requirements). For purposes
of administering such plans or programs, past service with Sellers shall
be
deemed
to be service with Buyer for purposes of determining eligibility to participate
and vesting (if applicable), in such welfare plans and programs, unless
otherwise expressly agreed by Buyer in writing. Coverage
for Accepted Employees under Buyer’s benefit plans and programs shall commence
as of 12:01 a.m. on the Closing Date. Sellers
shall retain responsibility for all vacation time for Accepted Employees accrued
on or before the Closing Date and for any claims under its health insurance
policies made by Accepted Employees arising out of insurable losses incurred
or
claims accrued on or prior to the Closing Date.
(iv) Transition.
The
employment of each Accepted Employee by Sellers shall end effective as of the
close of business on the day before the Closing Date and the employment of
the
Accepted Employees by Buyer shall commence at or after 12:01 a.m. on the Closing
Date. Buyer and Sellers
agree to
cooperate in jointly notifying the Employees of the termination of their
employment by Seller and the offer of employment by Buyer.
(v)
Vacation
Benefits.
Buyer
shall offer and pay for all vacation benefits of the Transferred Employees
who
become Accepted Employees accrued while employed by Sellers
but not
taken as of the Closing Date, but only to the extent disclosed in the Disclosure
Schedule. Buyer and Sellers acknowledge and agree that Buyer shall not assume
any liabilities for vacation benefits accrued through the Closing Date for
any
Transferred Employee that does not become an employee of Buyer after the
Closing.
(vi)
COBRA.
Sellers
shall remain solely liable or responsible for all COBRA obligations of Sellers
arising from any qualifying event as defined under Section 4980B(f)(3) of the
Code and ERISA Section 603 occurring on or before the Closing Date.
(vii) Option
Cancellation Agreements.
The
parties acknowledge that Buyer does not hereby assume and shall not have any
liability for the payment of any option payments to Employees hereunder or
the
administration of any options
of
Sellers.
(C) Payment
of Liabilities.
Prior
to the Closing
Date,
Sellers shall pay or otherwise satisfy in the ordinary course of business all
of
its retained liabilities and other obligations associated with the Business.
(D) Noncompetition,
Nonsolicitation and Nondisparagement
(i) Noncompetition
with Buyer.
For a
period of five (5) years after the Closing Date, Sellers shall not anywhere
in
the world (the “Restricted Area”), directly or indirectly, invest in, own,
manage, operate, finance, control, advise, aid or assist, act as a broker for,
render services to, be employed by or guarantee the obligations of any Person
engaged in or planning to become engaged a business similar to the Business
or
the business of manufacturing, assembly, selling, marketing, distribution or
servicing Automated Teller Machines (ATMs) (a “Buyer Competing Business”). In
order to induce Buyer to enter into this Agreement, and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, Sellers
agree that for a period of five (5) years following the Closing Date, Sellers
shall not engage, either directly or indirectly, on their own behalf or as
a
partner, member, owner, director, officer, employee, agent, contractor,
shareholder or otherwise, anywhere within the Restricted Area, in any business
that is involved or engaged, directly or indirectly, in a Buyer Competing
Business. With respect to the covenants and agreements set forth in this Section
9(D), Sellers agree that it may be impossible to measure in monetary terms
the
damages which will accrue to Buyer by reason of an actual breach by it of such
covenants and agreements, that a violation of such covenants and agreements
will
cause irreparable injury to Buyer, and that Buyer shall be entitled, in addition
to any other rights and remedies it may have, at law or in equity, to apply
to a
court of competent jurisdiction for an injunction to restrain Sellers from
violating, or continuing to violate, such covenants and agreements. Nothing
in
this Section 9(D) shall be deemed to limit Buyer’s right to recover damages
caused by any actual breach by Sellers.
(ii) Nonsolicitation.
(a) Buyer
agrees that it shall not, for a period of two (2) years from the Closing Date,
either directly or indirectly on its own behalf or in association with or on
behalf of others, directly
or indirectly, solicit,
entice or induce any employee or independent consultant of Sellers to leave
its
service with Sellers or solicit, entice or induce for employment or
employ, whether as an advisor, independent consultant or otherwise, any person
who was, either at the Closing Date or within a period of three months prior
thereto, an employee of Sellers.
(b) Each
Seller agrees that it shall not, for a period of two (2) years from the Closing
Date, either directly or indirectly on its own behalf or in association with
or
on behalf of others, directly
or indirectly, solicit,
entice or induce any employee or independent consultant of Buyer to leave its
service with Buyer or solicit, entice or induce for employment
or
employ, whether as an advisor, independent consultant or otherwise, any person
who was, either at the Closing Date or within a period of three months prior
thereto, an employee of Buyer.
(c) The
geographic scope of this Section 9(D)(ii) shall extend worldwide to anywhere
the
Buyer or Sellers are doing business, has done business or has plans to do
business, or to such lesser geographic area as a court of competent jurisdiction
may direct.
The
provisions of 9(D)(ii) shall not be deemed to apply to or include general
solicitations of employment that are not specifically directed towards employees
of the other party.
(iii) Nondisparagement.
After
the Closing Date, neither party will disparage any other party hereto or any
of
such party’s managers, directors, officers, employees, representatives or
agents.
(iv) Modification
of Covenant.
If a
final judgment of a court or tribunal of competent jurisdiction determines
that
any term or provision contained in this Section 9(D) is invalid or
unenforceable, then the parties agree that the court or tribunal will have
the
power to reduce the scope, duration or geographic area of the term or provision,
to delete specific words or phrases or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision. This Section 9(D) will be enforceable as so modified after
the expiration of the time within which the judgment may be appealed. This
Section 9(D) is reasonable and necessary to protect and preserve Buyer’s
legitimate business interests in the geographical locations in which the
business operates and the value of the Purchased Assets and to prevent any
unfair advantage conferred on Sellers.
(v) Payment.
In consideration of the Agreements contained in this Section 9(D), Buyer shall
pay Sellers,
or to
certain current named employees of Sellers,
at Sellers’ sole discretion,
a total
of $100,000 paid as of the Closing Date, in exchange for transition cooperation
and non-competition agreements (for 5-year periods each with respect to
non-competition), which $100,000 shall
be
allocated
as
designated
by
Seller’s compensation committee (the “Noncompete Payment”).
(E) Further
Assurances.
Sellers
agrees to cooperate with Buyer and its authorized representatives in connection
with any steps required to be taken as part of Sellers’ respective obligations
under this Agreement, and shall (i) furnish upon request to Sellers such further
information; (ii) execute and deliver to Sellers such other documents; and
(iii)
do such other acts and things, all as Buyer may request for the purpose of
carrying out the intent of this Agreement and the transactions contemplated
thereby.
(F) Collection
of Accounts Receivable.
After
the Closing Date, Buyer shall collect any Accounts Receivable that were
generated in connection with the Business prior to the Closing Date. Sellers
shall promptly remit to Buyer any such payments on the Accounts Receivable
received by Sellers after the Closing Date. After the Closing Date, Buyer shall
have the right to notify any customers who owe Sellers any amounts properly
payable to Buyer to send their payments directly to Buyer.
(G) Necessary
Action.
Sellers
shall each, at its own expense, and subject to Section (J) hereof, both prior
to
and after the Closing, take all necessary action, obtain any consents, approvals
and amendments of agreements required to carry out the transactions contemplated
by this Agreement and to satisfy any conditions for which any of them is
responsible hereunder.
(H) Satisfaction
of Doubtful Accounts.
With
respect to the collection, satisfaction, sale or other monetization of the
Seller Doubtful Accounts as set forth in Section 1(Q),
for a
period of 2 years following the Closing, Buyer shall be entitled to retain
the first Two Million Dollars ($2,000,000) (without reduction for any costs
or
other expenses of collection) of any proceeds or other value received by Buyer
or its Affiliates, but with respect to any amounts received above such amount
(without reduction for any costs or other expenses of collection), if any,
Buyer
and Sellers shall share such proceeds on a 50/50 basis and Sellers’ share shall
be promptly paid by Buyer to Seller within ten Business Days of receipt for
such
proceeds or other value. Buyer shall deliver to Sellers on each of the first
two
anniversaries of the Closing a certificate signed by its Principal Financial
Officer describing any proceeds or other value received, confirming that no
other amounts have been received and confirming that 50% of the proceeds or
other value in excess of $2,000,000 in the aggregate have been paid to
Sellers.
(i)
In
connection with the Sellers’ relocation to another facility following the
Closing Date, the parties acknowledge that it may be difficult for the Sellers
to obtain alternative space on reasonable terms, and accordingly the Buyer
and
NCR Corporation agree to guaranty the payment of a lease for space to conduct
Sellers’ remaining businesses for a period of up to 12 months, or to otherwise
provide such security requested by a prospective landlord for such period.
(ii)
Buyer
and
NCR Corporation further agree that if the costs and expenses of Sellers’
relocation to another location exceed $500,000, then they will pay to Sellers
one half of the amount that such costs and expenses exceed
$500,000.
(iii) The
foregoing (I)(i) and (I)(ii) shall not apply should Buyer not be able to obtain
the Landlord’s consent per 9(J) below.
(I) Seller
Covenant. Sellers shall use their commercially reasonable efforts to obtain
an
opinion from their financial advisor as to whether the transactions contemplated
hereunder are fair to the Tidel Stockholders from a financial point of view
and
shall provide such financial advisor with all information reasonably required
to
render such opinion.
(J) Transferred
Lease. The parties hereto acknowledge and agree that assignment of the
Transferred Lease to Buyer as of the Closing Dates, as provided for herein,
requires consent of the Landlord. While it shall not be a condition of Closing
that such consent be obtained, Seller shall use their best efforts to obtain
the
consent of the Landlord under the Transferred Lease to assign the Transferred
Lease to Buyer within 30 days from the Effective Date of this Agreement,
provided Sellers shall not be required to make any payments in connection with
obtaining such Consent. If consent is not obtained Buyer shall have the option
to terminate this Agreement as set forth in Section 14(B)(vi). If such consent
is not obtained and the Agreement is not terminated, then Buyer shall notify
Sellers within five Business Days whether it wishes to include the Transferrd
Lease in the Purcahsed Assets. If no notice is received, then the Transferred
lease shall remain part of the Purchased Assets.
10. Indemnification.
(A) Sellers
Indemnification.
Sellers
agree to protect, defend, indemnify and hold harmless Buyer and its directors,
officers, employees, agents, managers, shareholders, members, successors and
assigns, from any and all losses, claims, liabilities, obligations,
deficiencies, assessments, fines, costs, and damages (including, without
limitation, interest, penalties, reasonable legal fees and reasonable accounting
fees), whether fixed or contingent, liquidated or unliquidated, matured or
unmatured and all demands, assessments and judgments (collectively, “Damages”),
resulting from, arising from or relating to: (a) any liability of Sellers or
the
Business arising on or before the Closing Date other than the Assumed
Liabilities; (b) any events relating to the Business occurring on or before
the
Closing Date; (c) any misrepresentation, inaccuracy or breach of any warranty
or
representation by Sellers in this Agreement; (d) any material failure of Sellers
to perform any covenant or agreement in the Transaction Documents in a timely
manner and the failure of which remains uncured for a period of ten (10)
Business Days after receipt of written notice from Buyer setting forth in
reasonable detail the nature of such material failure; or
(e)
any forfeitures, fines, penalties, or other sanctions imposed as a result of
noncompliance by Sellers prior to the Closing Date with any Laws applicable
to
the Business or the Purchased Assets.
(B) Indemnification.
Buyer
shall protect, defend, indemnify and hold harmless Sellers
and
their
directors, officers, employees, agents, managers, shareholders, partners,
members, successors and assigns, from and against any and all Damages resulting
from, arising from or relating to: (a) the Assumed Liabilities; (b) any
misrepresentation, inaccuracy or breach of any warranty or representation by
Buyer in this Agreement; (c) the operation or ownership of the Business and
the
Purchased Assets after the Closing
Date;
(d) any
events
relating to the Business occurring after the Closing Date; and (e) any
material
failure of Buyer to perform any covenant or agreement in Transaction
Documents
in a
timely manner and the failure of which remains uncured for a period of ten
(10)
Business Days after the receipt of written notice from Sellers
setting
forth in reasonable detail the nature of such material failure.
(C) Exclusive
Remedy.
The
parties hereby acknowledge and agree that, from and after the Closing, except
for the rights and remedies of Buyer contained in Sections
5(B)
and
16,
their
sole remedy with respect to any and all claims arising under this Agreement
shall be pursuant to the indemnification provisions set forth in this Section.
In furtherance of the foregoing, the parties hereby waive, from and after the
Closing, to the fullest extent permitted by Law, any and all other rights,
claims and causes of action they may have against the other parties hereto,
or
any of the other parties’ officers, directors, employees, agents, managers,
members, shareholders, representatives and Affiliates relating to any
misrepresentation in or breach of any representation or warranty or
nonfulfillment of any covenant, agreement or other obligation contained in
the
Transaction Documents .
(D) Basket.
In no
event may either party make a claim for Damages pursuant to this Section 10
unless and until the total amount of such claim individually exceeds Ten
Thousand Dollars ($10,000), or such claim and other current or prior claims,
in
the aggregate, exceed Fifty Thousand Dollars ($50,000) (the “Basket”), and in
such event, then the Indemnitor (as defined in subsection (G) below) shall
reimburse the Indemnitee (as defined in subsection (G) below) for the amount
of
all Damages incurred by the Indemnitee under this Agreement. Notwithstanding
anything herein to the contrary, the Basket shall not apply with respect to
any
breach of any representation or warranty involving fraud or fraudulent
misrepresentation.
(E) Survival.
(i) With
respect to any and all claims among the parties hereto arising in connection
with this Agreement, the representations, warranties, covenants and agreements
that are set forth in this Agreement shall be continuing and shall survive
the
Closing for a period of nine
(9)
months
except (1) the representations and warranties set out in Sections 6(R),(U)
and
(BB), which shall survive for the period of the applicable statute of
limitations plus thirty (30) days; (2) the representations and warranties set
out in Sections 6
(C)
and (F)
shall
indefinitely survive the Closing; and (3) in the case of a claim for any breach
of any of the representations and warranties contained in this Agreement
involving fraud or fraudulent misrepresentation shall survive and continue
in
full force and effect without limitation of time, subject only to applicable
limitation periods imposed by Law (the period during which the representations
and warranties and covenants and agreements shall survive being referred to
herein with respect to such representations and warranties and covenants and
agreements as the “Survival Period”), but shall thereafter terminate and be of
no further force and effect unless a written notice asserting a claim shall
have
been made pursuant to this Section 10(E) within the Survival Period with respect
to such matter.
(ii) All
claims made hereunder prior to the expiration of the applicable survival period
stated above, but are not yet settled, shall be subject to the indemnification
provisions hereunder.
(F) Procedure
for Indemnification.
If a
party entitled to indemnification under this Agreement (an “Indemnitee”) asserts
that a party obligated to indemnify it under this Agreement (an “Indemnitor”)
has become obligated to such Indemnitee pursuant to this Agreement, or if any
suit, action, investigation, claim or proceeding is begun, made or instituted
as
a result of which the Indemnitor may become obligated to an Indemnitee
hereunder, such Indemnitee shall promptly give written notice to the Indemnitor.
The Indemnitor agrees to defend, contest or otherwise protect the Indemnitee
against any such suit, action, investigation, claim or proceeding at its sole
cost and expense. The Indemnitee shall have the right, but not the obligation,
to participate at its own expense in the defense thereof by counsel of the
Indemnitee’s choice and shall in any event cooperate with and assist the
Indemnitor to the extent reasonably possible. If the Indemnitor fails timely
to
defend, contest or otherwise protect against such suit, action, investigation,
claim or proceeding, the Indemnitee shall have the right to do so, including,
without limitation, the right to make any compromise or settlement thereof,
and
the Indemnitee shall be entitled to recover the entire cost thereof from the
Indemnitor, including, without limitation, reasonable attorneys’ fees,
disbursements and amounts paid as the result of such suit, action,
investigation, claim or proceeding. The
parties shall in no case settle or compromise the other’s Claim or consent to
the entry of judgment, in either case other than solely for money damages,
without the prior written consent of the other party if such settlement,
compromise or judgment would adversely affect the rights of the other party
in
any continuing manner.
11. Condition
Precedent to Buyer’s Obligation to Perform.
The
obligation of Buyer to consummate the transaction contemplated in this Agreement
is subject to the satisfaction or express waiver by Buyer at or prior to the
Closing of the following conditions:
(A) All
organizational approvals necessary to authorize the transaction contemplated
under this Agreement shall have been obtained by Buyer (or obtained by Sellers
and evidence of such approval is delivered to Buyer), including without
limitation either
(i) an opinion reasonably acceptable to the Sellers and Buyer, of Delaware
counsel that is reasonably acceptable to the Sellers and the Buyer, stating
the
approval by the Tidel Stockholders is not required under Law for the
consummation of the transactions contemplated herein; or (ii) the approval
of
the transactions contemplated herein
by proxy
or written consent of a
majority of the holders of the outstanding shares of Common Stock or securities
convertible or exchangeable into Common Stock and having the right to vote
in
such matter
in a
form and substance reasonably acceptable to the Buyer;
(B) All
necessary consents of third parties to the transaction contemplated by the
Transaction Documents shall have been obtained by Sellers or Buyer, as
applicable, including, without limitation, (i) any required consents in the
Contracts, and (ii) any required consents of creditors, lessors, suppliers
and
Governmental Authorities including without limitation those listed in Section
6(V)
of the
Disclosure Schedule, attached hereto, provided however that consent to the
Transferred Lease shall not be a condition to closing;
(C) All
representations and warranties by Sellers in this Agreement or in any document
delivered by Sellers pursuant to this Agreement shall be true and correct in
all
material respects on and as of the Effective Date and the Closing
Date;
(D) Sellers
shall have performed, satisfied and complied with all covenants, agreements,
and
conditions required by this Agreement to be performed or complied with by
them
on or
before the Effective Date and
the
Closing
Date;
(E) Sellers
shall have delivered all of the documents, agreements, instruments and other
items that Sellers are required to deliver at the Closing pursuant to Section
13(B) of this Agreement;
(F) Since
the
Effective Date, there shall not have been commenced or threatened against Buyer,
or against any Affiliate of Buyer, any proceeding (a) involving any challenge
to, or seeking Damages or other relief in connection with, any of the
transactions contemplated under this Agreement or (b) that may have the effect
of preventing, delaying, making illegal, imposing limitations or conditions
on
or otherwise interfering with any of the transactions;
(G) Sellers
shall have provided assistance as requested by Buyer in obtaining, and Buyer
shall have obtained, appropriate amendments to or terminations of any third
party agreements that Buyer and Sellers mutually agree appropriate in their
reasonable discretion, provided, however, Sellers shall not be required to
make
any payment in connection herewith.
12. Conditions
Precedent to Sellers’ Obligation to Perform.
The
obligation of Sellers to consummate the transaction contemplated in this
Agreement is subject to the satisfaction or express waiver by Sellers at or
prior to the Closing of the following conditions:
(A) All
representations and warranties by Buyer in this Agreement or in any document
delivered by Buyer pursuant to this Agreement shall be true and correct
in
all
material respects on
and as
of the Closing Date and the Effective Date;
(B) All
organizational approvals necessary to authorize the transactions contemplated
herein shall have been obtained by Sellers;
(C) Buyer
shall have performed, satisfied and complied with all covenants, agreements,
and
conditions required by this Agreement to be performed or complied with by it
on
or before the Effective Date and the Closing Date;
(D) Buyer
shall have delivered all of the documents, agreements, instruments and other
items that Buyer is required to deliver at the Closing pursuant to Section
13(C)
of this Agreement;
(E) All
organizational approvals necessary to authorize the transaction contemplated
under this Agreement shall have been obtained by Buyer (or obtained by Sellers
and evidence of such approval is delivered to Buyer), including without
limitation either (i) an opinion reasonably acceptable to the Sellers and Buyer,
of Delaware counsel that is reasonably acceptable to the Sellers and the Buyer,
stating the approval by the Tidel Stockholders is not required under Law for
the
consummation of the transactions contemplated herein; or (ii) the approval
of
the transactions contemplated herein by proxy or written consent of a majority
of the holders of the outstanding shares of Common Stock or securities
convertible or exchangeable into Common Stock and having the right to vote
in
such matter in a form and substance reasonably acceptable to the
Buyer.
(F) Since
the
Effective Date, there shall not have been commenced or threatened against Buyer,
or against any Affiliate of Buyer, any proceeding (a) involving any challenge
to, or seeking Damages or other relief in connection with, any of the
transactions contemplated under this Agreement or (b) that may have the effect
of preventing, delaying, making illegal, imposing limitations or conditions
on
or otherwise interfering with any of the transactions.;
(G) The
Buyer
shall make the Noncompete Payment at Closing; and
(H) Sellers
shall have received an opinion from a financial advisor that this transaction
is
fair from a financial point of view to the Tidel Stockholders.
13.
Closing.
(A) The
closing of the transactions contemplated in this Agreement (the “Closing”) shall
take place on or before December 31, 2005 (the “Closing Date”) at the offices of
Sellers in Houston, Texas. If any of the parties determines prior to the Closing
Date that any of the conditions set forth in Sections 11 or 12 have not been
met
and will not be able to be met on or prior to the Closing Date, such party
shall
notify the other in writing at the address set forth in Section 17 below prior
to the Closing Date.
(B) At
the
Closing, Sellers shall deliver or cause to be delivered to Buyer the following
documents, instruments, certificates and agreements (which shall be in form
and
substance reasonably satisfactory to Buyer and its counsel):
(i) A
counterpart to the License Agreement, duly executed by Sellers;
(ii) A
counterpart to the Bill of Sale in a form to be mutually agreed, duly executed
by Sellers;
(iii) A
counterpart to the Assignment and Assumption Agreement in a form to be mutually
agreed (the “Assignment Agreement”), duly executed by Sellers;
(iv) Such
other deeds, bills of sale, assignments and other instruments of sale, in form
and substance reasonably satisfactory to Buyer’s counsel, as shall be required
or as may be desirable to vest in Buyer good and marketable title to the
Purchased Assets, free and clear of all Encumbrances;
(v) A
certificate signed by an authorized officer of each of the Sellers and dated
as
of the Closing Date, certifying that the representations and warranties of
Sellers contained in this Agreement are true and correct on the Closing Date
as
if such representations and warranties were made on the Closing Date;
(vi) An
incumbency and specimen certificate with respect to the officer(s) of Sellers
executing the Transaction Documents to which such entity is a party;
(vii) Certificates
of good
standing
for
Sellers issued not earlier than thirty (30) days prior to the Closing Date
by
the Secretary of State of Delaware or Texas as applicable;
(viii) An
opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP, legal counsel to
Sellers, in
a form
reasonably acceptable to Buyer;
(ix) Either
(i) approval of the Tidel Stockholders to the consummation of the transactions
contemplated herein; or (ii) subject to Section 8(H)(v) hereof, an opinion
that
is acceptable to both Buyer and Sellers of
Delaware
counsel acceptable to both
Buyer
and
Sellers stating that the transactions contemplated herein do not require the
approval of
the
Tidel Stockholders
under
Law;
(x) A
Release
of Liens as may be identified by the Buyer prior to the Closing;
(xi) A
counterpart to
the
Escrow Agreement,
duly
executed by Sellers;
(xii) All
of
the required consents from third Persons set forth in Section 13(B)(xii)
of the
Disclosure Schedule;
and
(xiii)
Execution of certain contracts between Buyer and the individuals listed on
Schedule 13(B)(xii)
of the Disclosure Schedule
(the
“Key
Employment Agreements”), to the extent provided herein.
(C) At
the
Closing, Buyer shall deliver or cause to be delivered to Sellers the following
documents, instruments, certificates and agreements (which shall be in form
and
substance reasonably satisfactory to Sellers and its counsel):
(i) A
counterpart to the Bill of Sale, duly executed by Buyer;
(ii)
A
counterpart to the Assignment Agreement duly executed by Buyer;
(iii) A
counterpart to the License Agreement, duly executed by Buyer;
(iv)
A
certificate signed by an authorized officer of Buyer and dated as of the Closing
Date, certifying that the representations and warranties of Buyer contained
in
this Agreement are true and correct in all material respects on the Closing
Date
as if such representations and warranties were made on the Closing Date;
(v)
An
incumbency and specimen certificate with respect to the officer(s) of Buyer
executing the Transaction Documents to which Buyer is party;
(vi)
The
Initial
Payment
and the Noncompete
Payment;
(vii)
A
counterpart to each of the Key Employment Agreements being entered into by
the
Key Employees to the extent provided herein, duly executed by Buyer;
and
(viii)
A
counterpart to the Escrow Agreement, duly executed by Buyer.
14. Termination.
(A)
Sellers
may, on
or prior to the Closing Date, terminate this Agreement without
liability
if:
(i) there
shall have been a material breach of any representations or warranties set
forth
in this Agreement on the part of Sellers or if any representations or warranties
of Buyer shall have become untrue, provided that Sellers has not materially
breached any of its obligations hereunder; or
(ii) there
shall have been a material breach by Buyer of any of its covenants or agreements
hereunder and such breach would result in a Material Adverse Effect on the
ability of Buyer or Sellers to consummate the transactions contemplated by
this
Agreement, and Buyer has not cured such breach within ten (10) Business Days
after notice by Sellers thereof setting forth in reasonable detail the nature
of
such breach; provided that Sellers has not materially breached any of its
obligations hereunder; or
(iii) any
condition to Closing set forth in Sections
11-13
shall
not have been fulfilled or waived by Sellers by the Closing Date;
or
(iv) if
the
meaning Closing has not occurred by December
31,
2005,
unless
such date is extended by the mutual written consent of Sellers and Buyer;
provided, however, that this right to terminate shall not be available to
Sellers if Sellers’ failure to fulfill in any material respect any covenant or
obligation under this Agreement has been the cause of, or results in, the
failure of the Closing to occur on or before the Closing Date; or any court
of
competent jurisdiction in the United States or other United States federal
or
state governmental entity shall have issued a final order, decree or ruling,
or
taken any other final action, restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree, ruling
or other action is or shall have become non appealable, and if this agreement
is
terminated under this Section 14(A)(iv), neither Buyer nor Seller shall have
any
liability hereunder. Notwithstanding the foregoing, in no event shall Sellers
have any liability in connection with a termination of this Agreement by any
party hereto due to (a) the failure to file a Proxy Statement or obtain the
approval of the Tidel Stockholders to the transactions contemplated herein,
(b)
the failure of Tidel’s Board of Directors to determine that the transactions
contemplated hereby require the approval of the Tidel Stockholders; (c)
the
failure of Tidel to obtain a legal opinion of counsel stating that the approval
of the Tidel Stockholders is not required under any Law, or
(d)
the failure of Seller to assign the Transferred Lease due to failure to receive
consent from the landlord thereunder, provided
in each instance that Seller has applied good faith efforts
to obtain said
consent,
approval
or opinions
pursuant
to the terms hereto; nor shall failure to do any of the foregoing preclude
Sellers from terminating this Agreement; or
(B) Buyer
may, on or prior to the Closing Date, terminate this agreement without liability
if:
(i) there
shall have been a material breach of any representations or warranties set
forth
in this Agreement on the part of Sellers or if any representations or warranties
of the Sellers shall have become untrue provided that Buyer has not materially
breached any of its obligations hereunder;
(ii) there
shall have been a material breach by Sellers of one or more of its covenants
or
agreements hereunder having a Material Adverse Effect on Sellers or materially
adversely affecting (or materially delaying) the ability of Sellers and Buyer
to
consummate transactions contemplated by this Agreement, and Sellers has not
cured such breach within ten (10) Business Days after notice by Buyer thereof
setting forth in reasonable detail the nature of such breach, provided that
Buyer has not materially breached any of its obligations hereunder,
(iii) any
condition to Closing set forth in Section 13 shall not have been fulfilled
or
waived by Buyer by the Closing Date;
(iv) the
Closing has not occurred by December
31, 2005,
unless
such date shall have been extended by the mutual written consent of Sellers
and
Buyer; provided, however, that this right to terminate shall not be available
to
Buyer if Buyer’s failure to fulfill in any material respect any covenant or
obligation under this Agreement has been the cause of, or results in, the
failure of the Closing to occur on or before the Closing Date; or any court
of
competent jurisdiction in the United States or other United States federal
or
state governmental entity shall have issued a final order, decree or ruling,
or
taken any other final action, restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree, ruling
or other action is or shall have become non appealable, and if this agreement
is
terminated under this Section 14(B)(iv), neither Buyer nor Seller shall have
any
liability hereunder.
(v) Buyer
shall not have entered into Employment Agreements with two of the Key Employees
within thirty days following the Effective Date, then Buyer may terminate within
10 days following the end of such 30 day period by providing notice to Sellers
pursuant to Section, provided however if Buyer does not terminate pursuant
to
this Section 12(B)(v) Purchase Price 17; shall be adjusted pursuant to Section
5(F).
(vi) With
reference to section 9(J) regarding the Transferred Lease, Buyer may terminate
this Agreement if the consent of the Landlord is not obtained within 30 days
from the Effective Date.
(C) This
agreement may be terminated by mutual written consent of Seller and Buyer (in
which case neither Buyer nor Seller shall have any liability hereunder).
(D) Procedures
Upon Termination.
In the
event of termination pursuant to this Section 14, written notice shall forthwith
be given to the other party or parties, and the transactions contemplated hereby
shall be abandoned, without further action by any party hereto; provided,
however, that nothing contained herein shall be construed to prevent any parties
hereto from pursuing any remedy available at law or in equity for any breach,
violation, default or other failure of performance of any other party hereto
prior to Closing.
15. Confidentiality.
(A) Confidential
Nature of Information.
Each of
Parent and Buyer, as a party on the one hand, and Sellers, as a party on the
other, agrees that it will treat in confidence all documents, materials and
other information which it shall have obtained regarding the other party during
the course of the negotiations leading to the consummation of the transactions
contemplated by this Agreement (whether obtained before or after the date of
this Agreement), the investigation provided for herein and the preparation
of
this Agreement and other related documents, and, in the event that such
transactions shall not be consummated, each party will return to the other
party
all copies of nonpublic documents and materials which have been furnished in
connection therewith. Such documents, materials and information shall not be
communicated to any third Person (other than, in the case of Buyer, to its
counsel, accountants, financial advisors or lenders, and in the case of Sellers,
to their counsel, accountants or financial advisors). No Person shall use any
confidential information, including, without limitation, with respect to the
Business, any information relating to the Business or customers, suppliers,
contractors, subcontractors and licensors, in any manner whatsoever except
for
(a) the purpose of evaluating the proposed purchase and sale of the Purchases
Assets or the negotiation or enforcement of this Agreement or any agreement
contemplated hereby; (b) where the disclosure of any portion thereof is required
by applicable law or determined to be necessary to comply with any court order
or Governmental Authorization (but only to the extent so required); provided,
however, that such party shall first notify the other party of any such
requirement and, if the other party desires, shall cooperate with that party
to
seek approval to prevent or limit such disclosure; (c) where the disclosure
of
any portion thereof is required in order to obtain any of the consents
contemplated hereby, and both parties agree in writing that such disclosure
is
necessary; (d) where the information becomes generally available to the public
other than as a result of a disclosure by Buyer or Sellers; or (e) where the
information is or becomes lawfully available to Buyer from a source other than
Sellers. Notwithstanding the foregoing, after the Closing, Buyer may use or
disclose any confidential information related to the Purchased Assets or the
Business. Notwithstanding
the foregoing, the parties hereto hereby reaffirm the confidentiality provisions
set forth in that certain Letter of Agreement Regarding Potential Transaction
by
and between Parent and Tidel, dated as of September 30, 2004.
The
parties acknowledge and agree that this Agreement and a description hereof
will
be made publicly available by Tidel upon its execution, but only to the extent
required by applicable federal securities law.
16. Dispute
Resolution.
(A) Injunction.
Each of
the parties hereto acknowledges and agrees that a party may be irreparably
damaged if an Intellectual Property, non-compete, non-solicitation or
non-disparagement (“Special Claims”) provision of this Agreement is not
performed in accordance with their specific terms and that such breach of this
Agreement by the other party could not be adequately compensated in all cases
by
monetary damages alone. Accordingly, in addition to any other right or remedy
to
which any party may be entitled, at law or in equity, any of the parties hereto
shall be entitled to seek to enforce such provision of this Agreement by a
decree of specific performance and to temporary, preliminary and permanent
injunctive relief to prevent any breach or threatened breach of any of the
provisions of this Agreement, without posting any bond or other undertaking.
(B) Arbitration.
In
the
event that there is a dispute arising out of or relating to this Agreement,
the
relationships created by it or the transactions occurring under it, the parties
hereto shall attempt in good faith to resolve such disputes promptly by
negotiation. Any party may give the other parties written notice that a dispute
exists (a “Notice of Dispute”). The Notice of Dispute shall include a brief
statement of such party’s position. Within ten (10) calendar days of the
delivery of the Notice of Dispute, the parties shall meet at a mutually
acceptable time and place, and thereafter as long as they reasonably deem
necessary, to attempt to resolve the dispute. Key documents and other
information or data on which each party relies concerning the dispute shall
be
furnished or made available on reasonable terms to the other party at or before
the first meeting of the Parties as provided by this subsection (B). If the
dispute has not been resolved by negotiation within thirty (30) calendar days
of
the delivery of a Notice of Dispute, or if the parties have failed to meet
within ten (10) calendar days of the Notice of Dispute, then any controversy
or
claim arising out of or relating to this Agreement, other than a Special Claim,
shall be resolved by arbitration in accordance with the following provisions.
Notwithstanding anything contained in this Section 16 to the contrary, any
matter where injunctive relief is sought may be brought by any party to a court
of competent jurisdiction.
(C) Forum
and Jurisdiction.
The
forum for the arbitration shall be Dayton, Ohio. Intellectual Property claims
and injunctive relief claims shall be brought in the U.S. District Court
for
the
Southern District of New York, New York
(the
“Courts”). The parties hereto submit to the jurisdiction of the Courts with
respect to Special Claims. The parties hereto waive all claims of forum non
conveniens or similar doctrines.
(D) Administration.
The
arbitration shall be administered by the American Arbitration Association
(“AAA”), pursuant to its then-current Commercial Arbitration Rules of the AAA
(the “AAA Rules”), as modified by this Agreement and by other provisions that
the parties may jointly agree upon in writing. There
shall be a single arbitrator, mutually selected by the parties. In the event
that the parties cannot mutually select the arbitrator then Sellers shall select
one (1) arbitrator and Buyer shall select one (1) arbitrator and the two
arbitrators selected by the parties shall select a third arbitrator who shall
conduct the arbitration (the “Arbitrator”). The Arbitrator shall (a) be a
licensed attorney with at least fifteen (15) years of experience in corporate
law matters and (b) have experience in the industry in which the Business
operates. If either party brings a claim in a competent court that is required
by this Section 16 to be brought in arbitration, and the party successfully
moves for an order compelling arbitration, the non-prevailing party shall be
obligated to pay the prevailing party’s costs and reasonable attorney fees
associated therewith. Any demand for arbitration shall include detail sufficient
to establish the nature of the dispute (including the claims asserted and the
material issues with respect thereto) and shall be served upon to the other
party.
(E) Decision.
The
decision of the Arbitrator on the merits or any disposition or partial shall
be
in writing, and shall describe in detail the legal reasoning adopted by the
Arbitrator in support of its decision. The Arbitrator shall hear and determine,
in advance of the hearing on the merits, any dispositive or partially
dispositive motions. The Arbitrator’s decision shall be final and binding on the
parties, however, that errors of law may be appealed to the Courts for review
and correction or entered for enforcement.
(F) Discovery.
For the
Arbitration, discovery from the other party shall be limited to requests for
production of documents and to five (5) depositions. No additional formal
discovery from the other party (e.g., interrogatories or requests for
admissions) shall be permitted except by mutual consent or as approved by the
Arbitrator for good cause shown. If disputes are entered into the Courts,
discovery shall be as permitted under the governing law.
(G) Expenses.
Each
party shall bear its own costs of arbitration or litigation hereunder. In the
event of arbitration, the fees and expenses of the Arbitrator shall be shared
equally between the parties.
(H) Remedies;
Award.
The
Arbitrator shall have no authority to award treble, exemplary, consequential
or
punitive damages of any type, or other damages elsewhere excluded in this
Agreement, under any circumstances. In making an award the Arbitrator shall
be
bound by all limitations set forth in this Agreement.
(I) WAIVER
OF JURY TRIAL.
THE
PARTIES HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT
OF
OR RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A COPY OF THIS SECTION
WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR
AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY AND THAT ANY
PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE
CONTEMPLATED TRANSACTIONS SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY
17. Notices.
Any
notices or demands to another party under the terms of this Agreement shall
be
sent (a) by personal service, (b) by United States registered or certified
mail,
postage prepaid and return receipt requested, or (c) by a nationally recognized
overnight courier, and shall be deemed effective (a) immediately upon personal
delivery or (b) five Business Days after deposit in the mail or (c) one Business
Day after deposit with the courier, and addressed to:
If
to Buyer:
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General
Counsel Notices
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NCR
Corporation
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Law
Department
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1700
S. Patterson Blvd., WHQ-1
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Dayton,
Ohio 45479-0001
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If
to Seller:
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Tidel
Technologies, Inc.
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2900
Wilcrest Drive, Suite 205
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Houston,
Texas 77042
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Attn:
Chief Executive Officer
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With
a copy to (which copy shall not constitute notice):
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Olshan
Grundman Frome Rosenzweig & Wolosky LLP
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Park
Avenue Tower
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65
East 55th Street
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New
York, New York 10022
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Attn:
Adam W. Finerman
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Any
party
may change the address to which notices are to be addressed by giving the other
party notice in the manner set forth herein.
18. No
Assignment. This
Agreement, and the covenants herein contained, shall be binding upon, shall
inure to the benefit of, and shall be enforceable by the parties hereto and
their respective successors and permitted assigns. Neither Party may assign
this
Agreement, either in part or in whole, without the prior written consent of
the
other party.
19. Public
Announcements.
Any
public announcement, press release or similar publicity with respect to this
Agreement will be issued, if at all, at such time and in such manner as the
parties may mutually determine. Sellers and Buyer will consult with each other
concerning the means by which Sellers’ employees, customers, suppliers and
others having dealings with Sellers will be informed of the transactions
contemplated by this Agreement, and Buyer will have the right to be present
for
any such communication.
Notwithstanding the foregoing, the parties acknowledge that Tidel will disclose
this Agreement, its terms and conditions, including a copy thereof, but only
to
the extent required pursuant to federal securities law.
20. Waiver.
The
waiver by either party to this Agreement of any breach of any provision of
this
Agreement shall not constitute a continuing waiver or a waiver of any breach
of
any other provision of this Agreement.
21. Severability.
If any
provision of this Agreement is held to be unenforceable for any reason, the
remainder of this Agreement shall, nevertheless, remain in full force and
effect.
22. Governing
Law.
This
Agreement shall be governed in all respects including its validity,
construction, interpretation, breach, performance, termination, and with respect
to matters of arbitrability of disputes and claims, by and in accordance with
the laws of the State of New
York
and any
applicable federal laws. For any actions arising in connection with this
Agreement, the proper venue shall be in any federal or state court in
New
York,
however
the parties agree that any arbitration will be conducted in Dayton,
Ohio.
23. Captions.
Section
captions used herein are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
24. Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed on original, but all of which taken together shall constitute one
Agreement.
25. Entire
Agreement; Amendment. This
Agreement, together with the Schedules and Exhibits attached hereto, supersedes
all other agreements and understandings between the parties, either oral or
written, constitutes the entire agreement of the parties with respect to the
subject matter hereof, and may be amended only by an instrument in writing
executed by all of the parties hereto.
26. Consents
to Assignments.
Subject
to Section 9(J) hereof, nothing in this Agreement or the documents to be
executed and delivered at the Closing shall be deemed to constitute an
assignment or an attempt to assign any Permit, Contract or other agreement
to
which Sellers is a party, if the attempted assignment thereof without the
consent of the other party to such Permit, Contract or other agreement would
constitute a breach thereof or affect in any way the rights of Sellers
thereunder.
27. Expenses.
Each of
the parties shall pay its expenses and costs incurred or to be incurred by
it in
negotiating, closing, and carrying out this Agreement, including, without
limitation, all legal and accounting fees.
28. Definitions.
As used
herein, the following capitalized terms have the following
meanings:
(A) “Affiliate”
means, as to any Person, (a) any subsidiary of such Person and (b) any other
Person which, directly or indirectly, controls, is controlled by, or is under
common control with, such Person and includes, in the case of a Person other
than an individual, each officer, director, general partner or member of such
Person, and each Person who is the beneficial owner of twenty-five percent
(25%)
or more of such Person’s outstanding stock having ordinary voting power of such
Person. For the purposes of this definition, “control” means the possession of
the power to direct or cause the direction of management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
(B) “Business
Day” means any day other than Saturday, Sunday, and any day on which commercial
banks in the State of Texas are authorized by Law to be closed.
(C) “Code”
means the Internal Revenue Code of 1986, as amended and the rules and
regulations adopted thereunder.
(D) “Current
Liabilities” shall include all Accounts Payable, accrued expenses and accrued
Tax liabilities of the Company on the Closing Date net of any and all accrued
interest on any long-term or short-term debt obligations of Sellers.
(E) “ERISA”
means the Employee Retirement Income Security Act of 1974, as amended and the
rules and regulations adopted pursuant thereto.
(F) “GAAP”
means generally accepted accounting principles in the United States of America
as in effect from time to time set forth in the opinions and pronouncements
of
the Accounting Principles Board and the American Institute of Certified Public
Accountants and the statements and pronouncements of the Financial Accounting
Standards Board.
(G) “Governmental
Authority” means any federal, state, local or foreign government or governmental
regulatory body and any of their respective subdivisions, agencies,
instrumentalities, authorities, courts or tribunals.
(H) “Law”
means any federal, state, local or foreign law, ordinance, order, rule,
regulation, license or permit, and any order, writ, judgment, award, injunction,
or decree of any court or arbitrator or any Governmental Authority of the United
States of America, any state or political subdivision thereof or any foreign
Governmental Authority.
(I) “Material
Adverse Effect” means, when used with respect to Sellers, any event, condition,
change, occurrence or circumstance which has a material adverse effect on the
Purchased Assets on the whole, operations, business, or financial or other
condition of the Business on the whole, as now conducted by Sellers.
(J) “Person”
means any individual, corporation, partnership, joint venture, association,
limited liability company, joint stock company, trust, or unincorporated
association, or any Governmental Authority, officer, department, commission,
board, bureau or instrumentality thereof.
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement as of the Effective Date.
NCR
Texas LLC
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Tidel
Technologies, Inc.
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By:
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By:
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Its:
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Tidel
Engineering LP
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For
purposes of Section 9(I) only:
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By:
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NCR
Corporation
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Its:
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By:
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Its:
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Exhibit
B
![Corporate Logo](logo.jpg) |
One
Financial Plaza
501
N. Broadway
St.
Louis, MO 63102
314-342-2000
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PRIVILEGED
AND CONFIDENTIAL
October
27, 2005
The
Board
of Directors
Tidel
Technologies Inc.
2310
McDaniel Drive
Carrollton,
Texas 75006
To
the
Members of the Board of Directors:
You
have
requested our opinion to the effect that the Acquisition (as described below)
is
fair, from a financial point of view, to Tidel Technologies Inc. (“Tidel” or
“the Company”). Pursuant to the Asset Purchase Agreement (the “Agreement”) dated
February 19, 2005, by and among Tidel and NCR Corporation (“NCR”), NCR will
acquire certain assets and liabilities of Tidel’s Automated Teller Machines
(ATM) division described in the Agreement in exchange for cash in the amount
of
$10,175,000. As set forth in the Asset Purchase Agreement, the Purchase Price
is
subject to adjustment based upon the book value of the assets delivered, to
the
extent such value is 5% greater than or less than $6,500,000 (no less than
$6,175,000 and no greater than $6,825,000).
Stifel,
Nicolaus & Company, Incorporated (“Stifel”), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions
of
listed securities, private placements and valuations for corporate and other
purposes. We have acted as sole financial advisor to the Board of Directors
of
Tidel in connection with the rendering of an opinion as to the fairness, from
a
financial point of view, to the Company and its shareholders regarding the
Agreement as described above. The Company has agreed to indemnify us against
certain liabilities arising out of our engagement. We will receive a fee upon
the rendering of this opinion.
During
the period of our engagement in connection with this opinion (the “Opinion
Engagement”) we were also engaged as sole financial advisor to the Board of
Directors of Tidel in connection with the potential sale of the Company’s Timed
Access Cash Controller (“TACC”) division (the “TACC Engagement”). We have
previously informed the Board that Stifel’s managing director responsible for
the Opinion Engagement through September 19, 2005 has received an offer of
employment with the TACC division following the sale of that division, which
an
offer is currently being considered. Effective September 19, 2005 we reassigned
responsibility for the Opinion Engagement to another Stifel managing director
and removed the prior managing director from any further responsibility for
the
Opinion Engagement. We terminated the TACC Engagement effective September 26,
2005 and will receive no fee in connection with the TACC engagement other than
the reimbursement of expenses.
Over
a Century of Knowledge and Service
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MEMBER
SIPC AND MEMBERS, NEW YORK STOCK
EXCHANGE, INC., CHICAGO AND AMERICAN STOCK
EXCHANGES
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In
the
ordinary course of business, Stifel may actively trade in the equity and
derivative securities of Tidel for its own account and/or for the accounts
of
its customers and, accordingly, may at any time hold a long or short position
in
such securities. Stifel has in the past provided and may in the future provide
additional investment banking or other financial advisory services to
Tidel.
In
order
to provide our fairness opinion, we relied on materials provided from a variety
of sources and considered a number of factors involving the ATM division and
the
Company’s current condition.
In
rendering our opinion, we reviewed originals or copies represented to us as
true
copies of the following materials:
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2)
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The
ATM division’s historical year end Income Statements for the fiscal years
ended September 30, 2001, September 30, 2002, September 30, 2003
and
September 30, 2004;
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3)
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The
ATM division’s historical quarterly Income Statements for Q1, Q2, and Q3
2005;
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4)
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The
ATM division’s 2005 and 2006 quarterly estimated
budgets;
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5)
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The
ATM division’s 2005 through 2010 annual projections;
and
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6)
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Other
due diligence data provided to NCR and Stifel by Tidel regarding
Tidel’s
technology agreements with vendors;
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7)
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Orders
of the bankruptcy court issued in connection with Tidel’s Credit Card
Center (“CCC”) bankruptcy and other documents from the bankruptcy court,
the Company’s building lease, and other Company related
information.
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In
addition to the above-listed documents, we analyzed and took into account the
following considerations:
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a)
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The
form of the transaction, which is structured as an asset
transaction;
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b)
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The
ATM division’s operating losses, gross margins, inventory aging, and unit
sales trends and the current and historical status (since 1998) of
the ATM
market and the resulting effects on it from Credit Card Center’s
bankruptcy;
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In
rendering our opinion as to the fairness of the Acquisition, we did the
following:
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i)
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Reviewed
the above-listed documents;
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ii)
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Met
with Tidel’s interim Chief Executive Officer, Mark Levenick; Vice
President, Leonard Carr; and interim Chief Financial Officer, Dale
Peltier;
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a.
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Discussed
the past and current operations and financial condition and the prospects
of the ATM division, including the ATM division’s current customer
base;
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b.
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Discussed
the sale process of the ATM division to potential
acquirers;
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c.
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Discussed
the internal value of the assets being transferred under the Agreement
and
the benefits and detriments of this transaction for
Tidel;
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iii)
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Reviewed
financial data on comparable publicly-traded
companies;
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iv)
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Performed
valuation analyses for the ATM
division:
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a.
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Revenue
multiple analysis;
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b.
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EBITDA
(earnings before interest, taxes, depreciation and amortization)
multiple
analysis;
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c.
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Book
value of assets multiple analysis;
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d.
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Equity
multiple analysis; and
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e.
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Tangible
equity multiple analysis;
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v)
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Performed
a Discounted Cash Flow Analysis;
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vi)
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Reviewed
financial data regarding transactions where the target was comparable
to
the ATM division;
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vi)
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visited
Tidel’s Dallas, Texas facility; and
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vii)
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Performed
such additional review as we deemed
appropriate.
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In
rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning the ATM division considered
in
connection with our review of the Acquisition, and we have not assumed any
responsibility for independent verification of such information. We have not
prepared any independent valuation or appraisal of any of the assets or
liabilities of the ATM division, nor have we been furnished with any such
appraisals. With respect to the limited financial forecast and projection made
available to us and used in our analysis, we have assumed that it reflects
the
best currently available estimate and judgment of the expected future financial
performance of the ATM division. We have assumed that the ATM division is not
a
party to any pending transactions, including external financings,
recapitalizations or material merger discussions, other than the Acquisition
and
those activities undertaken in the ordinary course of conducting its business.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of the Acquisition
and any change in such conditions would require a re-evaluation of this opinion.
We have assumed the Acquisition will be consummated substantially on the terms
discussed in the 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.
It
is
understood that this letter is for the information of the Board of Directors
in
connection with its evaluation of the Acquisition and may not be quoted,
referred to or relied on or used for any other purpose without prior written
consent. We hereby consent to the inclusion of a copy of this letter as an
exhibit to Tidel’s Schedule 14A to be filed with the Securities and Exchange
Commission in connection with the Acquisition.
Based
upon and subject to the foregoing and after considering such other matters
as we
deem relevant, we are of the opinion that as of October 27, 2005, the
Acquisition was fair, from a financial point of view, to Tidel.
Sincerely,
STIFEL,
NICOLAUS & COMPANY, INCORPORATED
PLEASE
REFER TO THE REVERSE SIDE FOR TELEPHONE AND
INTERNET
VOTING INSTRUCTIONS
TIDEL
TECHNOLOGIES, INC.
2900
Wilcrest Drive, Suite 205
Houston,
Texas 77042
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This
Proxy is Solicited on Behalf of the Board of
Directors
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The
undersigned hereby appoints Robert D. Peltier and Leonard L. Carr as proxies,
each with the power to appoint his substitute, and hereby authorizes them,
and
each of them acting singly, to represent and vote for and on behalf of the
undersigned, as designated below, all the shares of Common Stock of Tidel
Technologies, Inc. (the “Company”) held of record by the undersigned on October
31, 2005 which the undersigned may be entitled to vote on all matters properly
coming before the special meeting of Stockholders to be held on Wednesday,
December 28, 2005, or any adjournment or postponement thereof, as set forth
in
the related Notice of Special Meeting of Stockholders and Proxy Statement,
both
of which have been received by the undersigned.
Please
specify your vote by checking
the box
to the left of your choice for the proposal.
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(I)
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To
approve the sale of substantially all of the assets of the Company’s ATM
Business:
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FOR
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¨
AGAINST
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ABSTAIN
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(II)
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To
approve adjournments of the special meeting if deemed necessary
to
facilitate the approval of the sale of substantially all of the
assets of
the Company’s ATM Business, including to permit the solicitation of
additional proxies if there are not sufficient votes at the time
of the
special meeting to approve the sale of the ATM
Business:
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¨
FOR
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¨
AGAINST
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¨
ABSTAIN
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This
proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted
FOR
the proposals.
PLEASE
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please
sign exactly as your name appears below. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee
or
guardian, please give full title as such. If a corporation, please sign in
full
corporate name by the President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
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Signature
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Signature
if held jointly
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Dated:
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,
2005
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TELEPHONE
AND INTERNET VOTING INSTRUCTIONS
You
can vote by telephone OR Internet! Available 24 hours a day 7 days a
week!
Instead
of mailing your proxy, you may choose one of the two voting methods outlined
below to vote your proxy.
To
vote using the telephone (within U.S. and Canada)
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To
vote using the Internet
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●
Call toll free 1-866-731-VOTE (8683) in the United States or Canada
any
time on a touch tone telephone. There is NO CHARGE to you for the
call.
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●
Go to the following web site: WWW.COMPUTERSHARE.COM/US/PROXY
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●
Follow the simple instructions provided by the recorded
message.
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●
Enter the information requested on your computer screen and following
the
simple instructions
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If
you
vote by telephone or the internet, please DO NOT mail back this proxy
card.
Proxies
submitted by telephone or the Internet must be received by 5:30 p.m., Central
Time, on December 27, 2005.
THANK
YOU
FOR VOTING