UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant  x
Filed by a Party other than the Registrant  o

Check the appropriate box:

 
x
Preliminary Proxy Statement

 
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 
o
Definitive Proxy Statement

 
o
Definitive Additional Materials

 
o
Soliciting Material Under Rule 14a-12

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):

  o
No fee required.

  x
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 
(1)
Title of each class of securities to which transaction applies:
 


 
(2)
Aggregate number of securities to which transaction applies:
 


 
(3)
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):

The purchase price payable under the asset sale consists of a cash payment of $17.5 million, subject to certain adjustments. Solely for purposes of calculating the amount of the filing fee, the registrant estimates a purchase price of approximately $18.1 million. The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, equals $107 per each $1,000,000 of the value of the transaction.



 
(4)
Proposed maximum aggregate value of transaction:

$18,100,000
 


 
(5)
Total fee paid: $1,936.70
 


 
o
Fee paid previously with preliminary materials:
 


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.
 


 
(1)
Amount previously paid:
 


 
(2)
Form, Schedule or Registration Statement No.:
 


 
(3)
Filing Party:
 


 
(4)
Date Filed:
 




PRELIMINARY COPY SUBJECT TO COMPLETION
DATED FEBRUARY 3, 2006

Tidel Technologies, Inc.
2900 Wilcrest Drive, Suite 205
Houston, Texas 77042
__________, 2006

To our stockholders:

You are cordially invited to attend a special meeting of stockholders of Tidel Technologies, Inc. to be held at _______________________________________ on                                   , 2006 at 10:00 a.m., local time. At this meeting, we intend to seek stockholder approval of the sale of substantially all of the assets of our cash security business to Sentinel Operating, L.P. and to change our name from “Tidel Technologies, Inc.” to “[__________], Inc.” (or, if that name is unavailable, to “[__________], Inc.”).

Our board of directors (with interested directors abstaining) has unanimously approved all of the proposals described in the proxy statement and is recommending that stockholders also approve them.

Please review in detail the attached proxy statement for a more complete statement regarding the proposal to approve the asset sale (proposal 1 in the proxy statement), including a description of the 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 the asset sale and the section beginning on page 14 titled “Special Factors” describing special factors relating to the asset sale.

Your vote is very important to us, regardless of the number of shares you own. Whether or not you plan to attend the special meeting, please vote as soon as possible to make sure your shares are represented at the meeting.

On behalf of our board of directors, I thank you for your support and urge you to vote “FOR” each of the proposals described in the proxy statement.


 
By Order of the Board of Directors,
 
     
 
Leonard Carr
 
 
Secretary
 


Houston, Texas
_______________, 2006

The notice and proxy statement are first being mailed to our stockholders on or about ____________________, 2006.



Tidel Technologies, Inc.

2900 Wilcrest Drive, Suite 205
Houston, Texas 77042

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON                , 2006

To our stockholders:

A special meeting of stockholders of Tidel Technologies, Inc. will be held at ______________________________________ on                                   , 2006 at 10:00 a.m., local time. At this meeting you will be asked:

 
1.
To consider and to vote on a proposal to approve the sale of substantially all of the assets of our cash security business, consisting of (a) timed access cash controllers (b) the Sentinel products, (c) the servicing, maintenance and repair of the timed access cash controllers or Sentinel products and (d) all other assets and business operations associated with the foregoing, pursuant to the asset purchase agreement attached as Annex A to the proxy statement;

 
2.
To consider and to vote on a proposal to file a certificate of amendment to our certificate of incorporation to change our name from “Tidel Technologies, Inc.” to “[__________], Inc.” (or, if that name is unavailable, to “[__________], Inc.”);

 
3.
To approve adjournments of the special meeting if deemed necessary to facilitate the approval of the sale of substantially all of the assets of our cash security business and the name change amendment to our certificate of incorporation, including to permit the solicitation of additional proxies if there are not sufficient votes at the time of the special meeting to establish a quorum or to approve the sale of our cash security business or the name change amendment to our certificate of incorporation; and

 
4.
To transact such other business as may properly be brought before the special meeting or any adjournment or postponement thereof.

The independent committee of our board of directors, which is comprised solely of directors who have no economic or other interest in the purchaser under the asset purchase agreement, unanimously found that the asset purchase agreement, the asset sale and related transactions were advisable and fair to and in the best interests of us and our unaffiliated stockholders, and recommended to the board of directors the approval and adoption of the asset purchase agreement. Our board of directors (with interested directors abstaining) has unanimously approved, and recommends that an affirmative vote be cast in favor, of each of the proposals listed on the proxy card and described in the enclosed proxy statement.

Only holders of record of our common stock at the close of business on January 13, 2006, will be entitled to notice of and to vote at the special meeting or any adjournment thereof.

You are urged to review carefully the information contained in the enclosed proxy statement prior to deciding how to vote your shares at the special meeting.




Because of the significance of the sale of our cash security business, your participation in the special meeting, in person or by proxy, is especially important. We hope you will be able to attend the special meeting.

Whether or not you plan to attend the special meeting, please complete, sign, date, and return the enclosed proxy card promptly.

If you attend the special meeting, you may revoke your proxy and vote in person if you wish, even if you have previously returned your proxy card. Simply attending the special meeting, however, will not revoke your proxy; you must vote at the special meeting. If you do not attend the special meeting, you may still revoke your proxy at any time prior to the special meeting by providing a later dated proxy or by providing written notice of your revocation to our company’s Secretary. Your prompt cooperation will be greatly appreciated.

The notice and proxy statement are first being mailed to stockholders on or about _________, 2006.

Please follow the voting instructions on the enclosed proxy card to vote either by mail, telephone or electronically by the Internet.


 
By Order of the Board of Directors,
   
 
Leonard Carr
 
Secretary


Houston, Texas
________________, 2006
 
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TABLE OF CONTENTS

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Asset Purchase Agreement

Opinion of Capitalink, LC

Form of Certificate of Amendment to Certificate of Incorporation
 
ii


SUMMARY

The following summary highlights selected information from this proxy statement and may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that item. In this proxy statement, the terms “Tidel,” “Company,” “we,” “our,” “ours,” and “us” refer to Tidel Technologies, Inc., a Delaware corporation, and its subsidiaries. Tidel Engineering, L.P., or Engineering, is a Delaware limited partnership and is Tidel’s indirect wholly-owned operating subsidiary.

The proposed transaction is the sale, or the Asset Sale, of substantially all of the assets of our electronic cash security systems business, or the Cash Security business, consisting of (a) timed access cash controllers (b) the Sentinel products, (c) the servicing, maintenance and repair of the timed access cash controllers or Sentinel products and (d) all other assets and business operations associated with the foregoing pursuant to the asset purchase agreement, dated as of January 12, 2006, or the Asset Purchase Agreement, by and among Tidel, Engineering, and Sentinel Operating, L.P., or Buyer, a buyer controlled by a management buyout group that includes Mark K. Levenick, our Interim Chief Executive Officer and a member of our Board of Directors, and Raymond Landry, a member of our Board of Directors. Tidel and Engineering are referred to in this proxy statement as the Sellers. The Asset Sale would also represent the sale of substantially all of our assets. We refer to Mr. Levenick and Mr. Landry as management participants in this proxy statement given their relationship with Buyer. We refer in this proxy statement to our stockholders other than Laurus Master Fund, Ltd. and the management participants as unaffiliated stockholders. The term independent committee refers to the committee of those directors who have no interest in the Buyer, economic or otherwise, and which was formed to negotiate the terms of the Asset Purchase Agreement, the Asset Sale and related transactions with the management participants.
 
Parties to the Asset Sale (Page 18)

Tidel Technologies, Inc.
Tidel Engineering, L.P.

Tidel, through Engineering, develops, manufactures, sells and supports electronic cash security systems, consisting of Timed Access Cash Controller, or TACC, products and the Sentinel products (together, the “Cash Security” products), which are designed for the management of cash within various specialty retail markets, primarily in the United States. TACC and Sentinel products are often sold directly to end-users as well as distributors for the management of cash within various specialty retail markets. On January 3, 2006, we completed the sale of our automated teller machine business to NCR EasyPoint, LLC. The general partner of Engineering is Tidel Cash Systems, Inc., a direct wholly-owned subsidiary of Tidel.

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.

Sentinel Operating, L.P.

Buyer is a Texas limited partnership, which is indirectly controlled by Mark K. Levenick, Raymond P. Landry and Jeffrey R. Galgano. Buyer was formed solely for the purpose of entering into the Asset Purchase Agreement and consummating the transactions contemplated by the Asset Purchase Agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the Asset Purchase Agreement.

1


After the closing of the Asset Sale Buyer will have its principal executive offices at 2025 Beltline Road, Suite 114, Carrollton Texas 75006. The telephone number of Buyer’s principal executive offices will be (972) 484-3358.
 
The Special Meeting

Time, Place and Purpose (Page 11)

The special meeting will be held on __________, ___, 2006, starting at 10:00 a.m., local time, at ____________________________________________________.

You will be asked to consider and vote upon approval and adoption of the Asset Purchase Agreement and the filing of an amendment, or the Amendment, to the Company’s certificate of incorporation to change the Company’s name from “Tidel Technologies, Inc.” to “[__________], Inc.” (or, if that name is unavailable, to “[__________], Inc.”). In addition, you will be asked to approve the adjournment of the special meeting if deemed necessary in order to permit the solicitation of additional proxies if there are not sufficient votes at the time of the special meeting to establish a quorum or to approve the Asset Sale or the Amendment.

The persons named in the accompanying proxy card will also have discretionary authority to vote upon other business, if any, that properly comes before the special meeting and any adjournments of the special meeting.

Record Date and Quorum (Page 11)

You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on January 13, 2006, the record date for the special meeting. You will have one vote for each share of our common stock that you owned on the record date. As of the record date, there were 38,677,210 shares of our common stock outstanding and entitled to be voted.

A quorum of the holders of the outstanding shares of our common stock must be present for the special meeting to be held. A quorum is present if the holders of a majority of the outstanding shares of our common stock entitled to vote are present at the meeting, either in person or represented by proxy. Abstentions and broker non-votes are counted as present for the purpose of determining whether a quorum is present. A broker non-vote occurs on an item when a broker is not permitted to vote on that item without instructions from the beneficial owner of the shares and no instructions are given.

Required Vote (Page 11)

For us to consummate the transactions contemplated by the Asset Purchase Agreement, including the Asset Sale and the Amendment, stockholders holding at least a majority of our common stock outstanding at the close of business on the record date must vote “FOR” the approval and adoption of the Asset Purchase Agreement, the Asset Sale and the transactions contemplated thereby and “FOR” the Amendment. All of our stockholders are entitled to one vote per share. A failure to vote your shares of Tidel common stock, an abstention or a broker non-vote will have the same effect as a vote against the Asset Sale and against the Amendment.

2


Laurus Master Fund, Ltd., or Laurus, has entered into a voting agreement under which it has agreed to vote all of the shares of Tidel common stock that it owns and any shares over which it exercises voting control in favor of the approval and adoption of the Asset Purchase Agreement and the Amendment and against any competing transactions proposed to the Company’s stockholders. Tidel and certain Tidel officers and directors have entered into a voting agreement under which such officers and directors agreed to vote all the shares of Tidel common stock that they own, and any shares over which they exercise voting control, in favor of the approval and adoption of the Asset Purchase Agreement and the Amendment. As a result of these arrangements, as of the record date, Laurus and our officers and directors have agreed to vote an aggregate of 19,860,905 shares, representing approximately 51.4% of the shares of our common stock entitled to vote at the special meeting, in favor of the approval and adoption of the Asset Purchase Agreement and the Amendment. Such votes are sufficient to approve and adopt the Asset Purchase Agreement and the Amendment, regardless of the vote of any other person.

Share Ownership of Directors and Executive Officers (Page 45)

As of the record date, the directors and current executive officers of Tidel beneficially owned in the aggregate 609,905 shares, representing approximately 1.6% of the shares of our common stock entitled to vote at the special meeting. Tidel’s officers and directors have entered into a voting agreement under which such officers and directors agreed to vote, and have granted to Buyer proxies for this purpose, all the shares of Tidel common stock that they own and any shares over which they exercise voting control in favor of the approval and adoption of the Asset Purchase Agreement and the Amendment.

Proxies; Revocation (Page 11)

Any Tidel registered stockholder (meaning a stockholder that holds stock in its own name) entitled to vote may submit a proxy by telephone or the Internet or by returning the enclosed proxy card by mail, or may vote in person by appearing at the special meeting. If your shares are held in “street name” by your broker, you should instruct your broker on how to vote your shares using the instructions provided by your broker. If you do not provide your broker with instructions, your shares will not be voted and that will have the same effect as a vote against the Asset Sale, the transactions contemplated thereby and against the Amendment.

Any Tidel registered stockholder who executes and returns a proxy card (or submits a proxy via telephone or the Internet) may revoke the proxy at any time before it is voted in any one of the following ways:

 
·
filing with or transmitting to our Secretary at the principal executive offices of the Company, at or before the special meeting, an instrument or transmission of revocation that is dated a later date than the proxy;

 
·
sending a later-dated proxy relating to the same shares to our Secretary at the principal executive offices of the Company, at or before the special meeting;

 
·
submitting a later-dated proxy by the Internet or by telephone, at or before the special meeting; or

 
·
attending the special meeting and voting in person by ballot.
 
3


Simply attending the special meeting will not constitute revocation of a proxy. If you have instructed your broker to vote your shares, the above-described options for revoking your proxy do not apply and instead you must follow the directions provided by your broker to change your instructions.
 
Effects of the Asset Sale (Page 34)

If the Asset Purchase Agreement, the Asset Sale and the other transactions contemplated thereby are approved and adopted by our stockholders and the other conditions to closing are satisfied, we will be a shell public company with no operations and we will consider all available alternatives, including the acquisition of a new business or the dissolution of the Company and liquidation of it assets, the discharge of any remaining liabilities, and the eventual distribution of remaining assets to our stockholders in the event that Company may be liquidated. If the Company decides to dissolve and liquidate its assets such action would require the approval of the holders of the majority of its then outstanding shares and we cannot give any assurances as to the amount of liquidation proceeds that might eventually be distributed to you. Also, in the event the Asset Sale is approved, adopted and consummated, we have agreed to redeem from Laurus all 19,251,000 shares of our common stock that it currently holds at a per share price not less than $.20 per share nor greater than $.34 per share following the determination of our assets in accordance with a formula set forth in the stock redemption agreement. Under the terms of an exercise and conversion agreement we entered into with Laurus dated January 12, 2006, if the Asset Sale does not occur by March 31, 2006, we will immediately redeem from Laurus the 18,000,000 shares of our common stock issued to Laurus on January 13, 2006 upon Laurus’ conversion of $5,400,000 of our outstanding indebtedness it held. Pursuant to the terms of a stock redemption agreement with Laurus dated January 12, 2006, Laurus has agreed (i) to the cancellation as of the closing of the Asset Sale of the outstanding warrants that it holds to purchase 4,750,000 shares of our common stock at an exercise price of $.30 per share, and (ii) not to exercise such warrants prior to the earlier to occur of March 31, 2006 and the date on which the Asset Purchase Agreement is terminated. See “Special Factors --Laurus Stock Redemption” for a more detailed description of the proposed redemption of our shares held by Laurus.

Under the terms of the Agreement Regarding NCR Asset Sale and Other Assets Sales, dated as of November 26, 2004 between the Company and Laurus, we must pay to Laurus fees in respect of the Asset Sale which we estimate will range between $9 million and $11 million. See “Special Factors --Fee Payable to Laurus” for a more detailed description of the fees payable to Laurus, including how they will be calculated.
 
Recommendations of the Independent Committee (Page 25)

The independent committee of our board of directors unanimously found that after due consideration of all relevant factors:
 
 
·
the Asset Purchase Agreement, the Asset Sale and related transactions are advisable and fair to and in the best interests of the Company and its unaffiliated stockholders; and

 
·
recommended to the board of directors the approval and adoption of the Asset Purchase Agreement and the Amendment.
 
Board Recommendation (Page 25)

After careful consideration, our board of directors (with interested directors abstaining) has:
 
4


 
·
determined that the Asset Purchase Agreement, the Asset Sale and related transactions are advisable and fair to and in the best interests of the Company and its unaffiliated stockholders;

 
·
approved and adopted the Asset Purchase Agreement and the Amendment; and

 
·
recommended that Tidel’s stockholders vote “FOR” the approval and adoption of the Asset Purchase Agreement and “FOR” the approval and adoption of the Amendment.
 
In reaching its conclusion regarding the fairness of the Asset Sale to our unaffiliated stockholders and its decision to approve and adopt the Asset Purchase Agreement and related transactions and recommend the approval and adoption of the Asset Purchase Agreement and related transactions by our stockholders, our board of directors noted the recommendations of the independent committee, as well as other factors. In considering the recommendation of our board of directors with respect to the Asset Sale, you should be aware that some of the Company’s directors and executive officers and its principal stockholder, Laurus, have interests in the Asset Sale that are different from, or in addition to, the interests of our stockholders generally. “Special Factors -- Fee Payable to Laurus” and “Special Factors -- Our principal stockholder, Laurus, has interests in the Asset Sale which are different from, or in addition to, our other stockholders.” However, the board of directors evaluated the Asset Purchase Agreement, the Asset Sale and the related transactions only from the perspective of our unaffiliated stockholders, and therefore did not consider the interests of Laurus or the management participants (who are considered affiliated stockholders). For the factors considered by our board of directors in reaching its decision to approve and adopt the Asset Purchase Agreement, see “The Asset Sale -- Reasons for the Asset Sale.”
 
Required Vote 

The approval of the Asset Purchase Agreement, the Asset Sale and related transactions, including the Amendment, requires the approval of a majority of the holders of our outstanding shares of common stock. Shares that are voted “FOR” or “AGAINST” the proposal or marked “ABSTAIN” will be counted towards the vote requirement. Broker non-votes, if any, will not be counted towards the vote requirement. Laurus and our officers and directors have agreed to vote an aggregate of 19,860,905 shares, representing approximately 51.4% of the shares of our common stock entitled to vote at the special meeting, in favor of the approval and adoption of the Asset Purchase Agreement, the Asset Sale and related transactions, including the Amendment. Such votes are sufficient to approve and adopt the Asset Purchase Agreement, the Asset Sale and related transactions, including the Amendment, regardless of the vote of any other person.
 
Opinion of Capitalink (Page 26 and Annex B)

Capitalink, L.C., or Capitalink, has delivered its opinion to the independent committee of our board of directors, as of the date of its opinion and based upon and subject to the factors and assumptions set forth therein, the Asset Sale consideration to be received by the Company pursuant to the Asset Purchase Agreement is fair, from a financial point of view, to the Company’s unaffiliated stockholders.

The opinion of Capitalink is addressed to the independent committee of our board of directors for their benefit and use, is directed only to the consideration to be paid in the Asset Sale and does not constitute a recommendation to the board of directors or any of our stockholders as to how to vote in connection with the Asset Purchase Agreement. The opinion of Capitalink does not address the Company’s underlying business decision to pursue the Asset Sale, the relative merits of the Asset Sale as compared to any alternative business strategies that might exist for the Company, the financing of the Asset Sale or the effects of any other transaction in which the Company might engage. The full text of the written opinion of Capitalink, dated December 30, 2005, which sets forth the procedures followed, limitations on the review undertaken, matters considered and assumptions made in connection with such opinion, is attached as Annex B to this proxy statement. We recommend that you read the opinion carefully in its entirety.

5


Financing (Page 35)

Tidel estimates that the total amount of funds necessary to consummate the Asset Sale and related transactions will be approximately $__________.

Laurus and Messrs. Levenick and Landry have entered into a non-binding term sheet concerning the provision of acquisition financing to Buyer in respect of the Asset Sale, as described in further detail under “The Asset Sale -- Financing -- Buyer Financing.”
 
Interests of the Company’s Directors and Executive Officers in the Asset Sale

Our directors and executive officers may have interests in the Asset Sale that are different from, or in addition to, yours, including the following:

 
·
Mark K. Levenick, our Interim Chief Executive Officer and a member of our board, and Raymond P. Landry, a member of our board, have been offered employment positions with Buyer to take effect following the Asset Sale;

 
·
we have agreed to make payments of $470,000 in the aggregate to four of our executive officers and/or employees, Mark K. Levenick, M. Flynt Moreland, Troy D. Richard and Robert M. Gutierrez, in connection with the termination of their employment with the Sellers and upon the closing of the Asset Sale; and

 
·
the Asset Purchase Agreement provides for indemnification for our current and former directors and officers for six years following the Asset Sale with a proviso that if Tidel is dissolved or ceases to exist for any reason prior to the end of such six-year period, we will extend our then in effect directors’ and officers’ and fiduciaries’ liability insurance policy on commercially reasonable terms and conditions and with insurance coverage as comparable as possible with the insurance policy then in effect for the current officers and directors of Tidel and our subsidiaries.
 
Material United States Federal Income Tax Consequences (Page 36)

We do not expect that the Asset Sale will result in any federal income tax consequences to our stockholders. However, Tidel may be subject to federal income taxes as a result of the consummation of the Asset Sale.
 
Regulatory Approvals (Page 36)

We are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the Asset Purchase Agreement or completion of the Asset Sale.
 
No Solicitation of Transactions (Page 40)

The Asset Purchase Agreement restricts our ability to solicit or engage in discussions or negotiations with third parties regarding specified transactions involving the Company. Notwithstanding these restrictions, under certain limited circumstances required for our board of directors to comply with its fiduciary duties, our board of directors may respond to an unsolicited written bona fide proposal for an alternative acquisition, change its recommendation of the Asset Sale and terminate the Asset Purchase Agreement and enter into an agreement with respect to a superior proposal after paying the termination fee specified in the Asset Purchase Agreement.

6


Conditions to Asset Sale (Page 42)

Before we can complete the Asset Sale, a number of conditions must be satisfied. These include, among other things:

 
·
the receipt of Company stockholder approval;

 
·
the absence of governmental orders, not subsequently vacated, that have the effect of making the Asset Sale illegal or that otherwise restrict, prevent or prohibit the closing;

 
·
the performance by each of the parties of its covenants under the Asset Purchase Agreement in all material respects;

 
·
the receipt by the Sellers and Buyer of all necessary consents or approvals required under third-party contracts; and

 
·
the accuracy of the parties’ representations and warranties in the Asset Purchase Agreement in all material respects, including the absence of a material adverse effect with respect to Sellers.
 
Other than the conditions pertaining to the Company stockholder approval and the absence of governmental orders, either the Sellers on the one hand, or Buyer on the other hand, may elect to waive conditions to their respective performance and complete the Asset Sale. None of Sellers or Buyer, however, has any intention to waive any condition as of the date of this proxy statement.
 
Termination of the Asset Purchase Agreement (Page 43)

Sellers and Buyer may agree in writing to terminate the Asset Purchase Agreement at any time without completing the Asset Sale, even after the stockholders of Tidel have approved and adopted the Asset Purchase Agreement. The Asset Purchase Agreement may also be terminated at any time prior to the effective time of the Asset Sale in certain other circumstances, including:

 
·
by either Sellers or Buyer, as the case may be, upon giving written notice to Sellers, in the case of Buyer, or to Buyer, in the case of Sellers, in the event (A) Sellers in the case of Buyer, and Buyer in the case of Sellers, have breached any representation, warranty, or covenant contained in the Asset Purchase Agreement in any material respect, and the terminating party has notified the breaching party of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or if (B) the Asset Sale shall not have occurred on or before September 12, 2006;

 
·
by Buyer by written notice to Sellers if Sellers, contrary to the terms of the Asset Purchase Agreement, fail to deal exclusively with Buyer in respect of the sale of the Company’s Cash Security business or fail to file a proxy and recommend the Asset Sale to a stockholders’ meeting of the Company; or

 
 
·
by Buyer by written notice to Sellers if a majority of the Company’s non-affiliated directors shall have failed to make or have withdrawn their recommendation of the Asset Purchase Agreement or the transactions contemplated thereby or shall have approved or recommended an alternative acquisition proposal.
 
Buyer Fee (Page 44)

The Company has agreed to pay Buyer a fee of $400,000 in cash if a parent payment event occurs, in addition to any damages to which Buyer may be entitled to under the Asset Purchase Agreement.

The Asset Purchase Agreement defines a parent payment event as the termination of the Asset Purchase Agreement in the event the Sellers (A) fail to deal exclusively with Buyer in respect of the sale of the Company’s Cash Security business or fail to file a proxy and recommend the Asset Sale to a stockholders’ meeting of the Company, or (B) consummate, publicly announce, or execute documentation providing for any acquisition proposal other than the Asset Sale pursuant to the terms of the Asset Purchase Agreement, provided that such consummation, announcement or execution occurs prior to July 12, 2007.
 
Laurus Voting Agreement (Page 43)

Laurus has entered into a voting agreement with Buyer under which it has agreed to vote all of the shares of Tidel common stock that it owns and any shares over which it exercises voting control in favor of the approval and adoption of the Asset Purchase Agreement and against any competing transactions proposed to our stockholders.
 
Officer and Director Voting Agreement (Page 44)

Our executive officers and directors have entered into a voting agreement with Buyer under which each of these persons has agreed to vote all, and has granted to Buyer a proxy for this purpose, of their shares of Tidel common stock that they own and any shares over which they exercise voting control in favor of the approval and adoption of the Asset Purchase Agreement and against any competing transactions proposed to our stockholders.
 
No Right of Appraisal (Page 48)

You will not experience any change in your rights as a stockholder as a result of the Asset Sale or the Amendment. Neither Delaware law, our certificate of incorporation nor our bylaws provides for appraisal or other similar rights for dissenting stockholders in connection with the Asset Sale or the Amendment. Accordingly, you will have no right to dissent and obtain payment for your shares.


8


QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

Q: What are the proposals that I will be voting on at the special meeting?
A: You will be asked to consider and vote upon proposals to approve: the Asset Sale, the Amendment; the adjournment of the special meeting, if necessary, including to permit the solicitation of additional proxies if there are not sufficient votes at the time of the special meeting to approve the Asset Sale or the Amendment, and such other business as may properly be brought before the special meeting and any adjournment or postponement thereof.

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 (with interested directors abstaining) unanimously recommends that stockholders vote “FOR” each of the proposals submitted at the special meeting. Our board of directors and executive officers and our principal stockholder, Laurus, hold shares representing approximately 51.4% of the shares outstanding as of January 13, 2006 and they have agreed to vote all these shares in favor of the Asset Sale and the transactions contemplated thereby, including the Amendment. Such votes are sufficient to approve and adopt the Asset Sale and the Amendment, regardless of the vote of any other person.

Q: Will any of the proceeds from the Asset Sale be distributed to me as a stockholder?
A: No. We will use the proceeds from the Asset Sale to pay amounts payable to Laurus under a fee agreement we entered into with Laurus in November 2004. See “Special Factors -- Fee Payable to Laurus.” In addition, we have agreed to redeem from Laurus all shares of common stock held by Laurus, at a per share price not less than $.20 per share nor greater than $.34 per share following the determination of our assets in accordance with a formula set forth in a stock redemption agreement we entered into with Laurus. See “Special Factors -- Laurus Stock Redemption.” Following the payment of these amounts to Laurus, it is our present intention to review Tidel’s financial position at that time and consider all options including, without limitation, the distribution of the remaining proceeds to stockholders or the acquisition of a new business.

Q: Can I still sell my shares?
A: Yes. None of the Asset Purchase Agreement, the Asset Sale or any of the other matters discussed in this proxy statement will affect your right to sell or otherwise transfer your shares of our common stock.

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 January 13, 2006 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 proposals to be acted upon. Thus, you must give your broker or nominee specific instructions for him to vote your shares. If you do not give your broker or nominee specific instructions, your shares will not be voted, and will not be counted in determining the number of shares necessary for approval. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares.

Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. 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.

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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 Asset Sale?
A: We do not expect that the Asset Sale will result in any federal income tax consequences to our stockholders. However, Tidel may be subject to federal income taxes as a result of the consummation of the Asset Sale.

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.
 
10


GENERAL INFORMATION 

Place and Time. The meeting will be held at ______________________ on _________, ______________, 2006 at 10:00 a.m., local time.

Record date and Voting. Our board of directors fixed the close of business on January 13, 2006, as the record date for the determination of holders of our outstanding shares entitled to notice of and to vote on all matters presented at the special meeting. Such stockholders will be entitled to one vote for each share held on each matter submitted to a vote at the special meeting. As of the record date, there were 38,677,210 shares of our common stock, $0.01 par value per share, issued and outstanding, each of which is entitled to one vote on each matter to be voted upon. You may vote in person or by proxy.

Purposes of the special meeting. The purpose of the special meeting is to vote upon (i) approval of the Asset Sale; (ii) approval of the Amendment, (iii) adjournment of the special meeting, if necessary, including to permit the solicitation of additional proxies if there are not sufficient votes at the time of the special meeting to approve the Asset Sale or the Amendment; and (iv) such other business as may properly be brought before the special meeting and any adjournment or postponement thereof.

Quorum. The required quorum for the transaction of business at the special meeting is a majority of the votes eligible to be cast by holders of shares of our common stock issued and outstanding on the record date. Shares that are voted “FOR,” “AGAINST” a proposal or marked “ABSTAIN” are treated as being present at the special meeting for purposes of establishing a quorum and are also treated as shares entitled to vote at the special meeting with respect to such proposal.

Abstentions and Broker Non-Votes. Broker “non-votes” and the shares of common stock as to which a stockholder abstains are included for purposes of determining whether a quorum of shares of common stock is present at a meeting. A broker “non-vote” occurs when a nominee holding shares of common stock for the beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner. Since the first two proposals require the approval of the holders of a majority of our shares outstanding, both broker “non-votes” and abstentions would have the same effect as votes against such proposals. With respect to the third proposal, to approve the adjournment of the special meeting if deemed necessary, neither broker “non-votes” nor abstentions are included in the tabulation of the voting results and, therefore, they do not have the effect of votes against such proposal.

Voting of Proxies. Our board of directors is asking for your proxy. Giving the board of directors your proxy means you authorize it to vote your shares at the special meeting in the manner you direct. You may vote for or against the proposals or abstain from voting. All valid proxies received prior to the special meeting will be voted. All shares represented by a proxy will be voted, and where a stockholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will be voted in accordance with the specification so made. If no choice is indicated on the proxy, the shares will be voted “FOR” the Asset Sale and “FOR” the Amendment and as the proxy holders may determine in their discretion with respect to any other matters that properly come before the special meeting. A stockholder giving a proxy has the power to revoke his or her proxy, at any time prior to the time it is voted, by delivering to the Secretary of Tidel a written instrument that revokes the proxy or a validly executed proxy with a later date, or by attending the special meeting and voting in person. The form of proxy accompanying this proxy statement confers discretionary authority upon the named proxyholders with respect to amendments or variations to the matters identified in the accompanying Notice of Special Meeting and with respect to any other matters which may properly come before the special meeting. As of the date of this proxy statement, management knows of no such amendment or variation or of any matters expected to come before the special meeting which are not referred to in the accompanying Notice of Special Meeting.

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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 $______ plus out-of-pocket expenses.
 
12


CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the expected completion and timing of the Asset Sale and other information relating to the Asset Sale. There are forward-looking statements throughout this proxy statement, including, among others, under the headings “Summary,” “Special Factors,” “The Asset Sale -- Opinion of Capitalink” and in statements containing the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “estimates” or other similar expressions. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of the Company. In addition to other factors and matters contained in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

Considerations Relating to the Asset Purchase Agreement and the Asset Sale:

 
·
the failure to satisfy the conditions to consummation of the Asset Sale, including the receipt of the required Tidel stockholder approval;

 
·
the occurrence of any event, change or other circumstances that could give rise to the termination of the Asset Purchase Agreement;

 
·
the failure of the Asset Sale to close for any other reason;

 
·
the outcome of legal proceedings that may be instituted against us and others in connection with the Asset Purchase Agreement; and

 
·
the amount of the costs, fees, expenses and charges related to the Asset Sale.

Other Factors:

 
·
risks, uncertainties and factors set forth in our reports and documents filed with the Securities and Exchange Commission, or the SEC, (which reports and documents should be read in conjunction with this proxy statement; see “Where You Can Find Additional Information”).
 
All forward-looking statements contained or incorporated by reference in the proxy statement speak only as of the date of this proxy statement or as of such earlier date that those statements were made and are based on current expectations or expectations as of such earlier date and involve a number of assumptions, risks and uncertainties that could cause the actual result to differ materially from such forward-looking statements. Except as required by law, we undertake no obligation to update or publicly release any revisions to these forward-looking statements or reflect events or circumstances after the date of this proxy statement.
 
13


SPECIAL FACTORS
 
Tidel does not expect to distribute any portion of the proceeds from the Asset Sale to its stockholders

Under the terms of the Agreement Regarding NCR Asset Sale and Other Assets Sales, dated as of November 26, 2004, or the Laurus Fee Agreement, by and between the Company and Laurus, the Company must pay Laurus fees, or the Laurus Fee, in respect of the Asset Sale. The Company estimates the Laurus Fee payable to Laurus will be in the range of $9 million to $11 million. See “Special Factors --Fee Payable to Laurus” for a more detailed description of the Laurus Fee Agreement. A copy of the Laurus Fee Agreement is included as an exhibit to our Current Report on Form 8-K/A filed January 31, 2006 which is incorporated by reference into this proxy statement and a copy of which is distributed with this proxy statement.

Pursuant to the terms of a stock redemption agreement, dated as of January 12, 2006, with Laurus, we have agreed to repurchase from Laurus, upon the closing of the Asset Sale, all 19,251,000 shares of our common stock held by Laurus at a per share price not less than $.20 per share nor greater than $.34 per share following the determination of our assets in accordance with a formula set forth in the stock redemption agreement. See “Special Factors --Laurus Stock Redemption” for a more detailed description of the proposed redemption of our shares held by Laurus. A copy of the Laurus stock redemption agreement is included as an exhibit to our Current Report on Form 8-K/A filed January 31, 2006 which is incorporated by reference into this proxy statement and a copy of which is distributed with this proxy statement.

Following the Asset Sale, the Company will be a shell public company with no operations and the Company will consider all alternatives available to it, including the acquisition of a new business or the dissolution of the Company and liquidation of it assets, the discharge of any remaining liabilities, and the eventual distribution of remaining assets to our stockholders. At this time, the Company cannot give any assurances as to the amount of liquidation proceeds that might eventually be distributed to stockholders or the timing of such distribution, if any. If the Company decides to dissolve and liquidate its assets such action would require the approval of the holders of the majority of its then outstanding shares and we cannot give any assurances as to the amount of liquidation proceeds that might eventually be distributed to you.
 
Fee Payable to Laurus

The Company agreed under the Laurus Fee Agreement that any sales of the Company’s Cash Security business assets on or before November 26, 2009 shall be applied: first, towards the repayment of any remaining outstanding indebtedness owing to Laurus; second, to Laurus in an amount equal to the applicable excess proceeds percentage, calculated as described below, of the sum of the excess proceeds of the Asset Sale plus the proceeds of the Company’s sale of its ATM business division, minus certain specified payments; and third, to Tidel the remainder of any excess proceeds not distributed to Laurus under clause second. The applicable excess proceeds percentage in respect of the Asset Sale will likely be at least 55.87%, given the amount of the purchase price payable under the Asset Purchase Agreement, but may be a greater percentage depending on the amount of proceeds of the Asset Sale.

If Laurus receives excess proceeds from Tidel asset sales in excess of $2 million, such excess proceeds payments shall be credited towards the repayment of a reorganization fee of at least $2 million under the Laurus Fee Agreement. In the event that Laurus does not receive the $2 million reorganization fee on or before November 26, 2009, then the Company must pay any remaining balance due on the reorganization fee to Laurus at such date.

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The Asset Purchase Agreement provides for a cash purchase price of $17.5 million, less $100,000 as consideration for Sellers’ potential liability in connection with ongoing litigation and is subject to net working capital and cash on hand purchase price adjustments. In certain circumstances, these adjustments could have the effect of reducing the consideration to be received by Tidel in the Asset Sale. 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. The Company sold substantially all of the assets of its ATM division to an affiliate of NCR Corporation on January 3, 2006 for a purchase price of approximately $10.4 million, which is currently subject to a post closing net asset value adjustment. The table below sets out a range of values for the excess proceeds percentage applicable to the total excess proceeds receivable by the Company under the sale of its ATM division to NCR Corporation and the Asset Sale and the corresponding Laurus Fee payable for each such value.
 
If total net proceeds to Tidel from the sale of both its ATM division to NCR on Jan. 3, 2006 and from the Asset Sale is:
Then applicable excess proceeds percentage is
Corresponding range of Laurus Fee
     
Greater than or equal to $14,000,000 and less than $17,000,000
55.87%
$7,821,800 to $9,487,899
     
Greater than or equal to $17,000,000 and less than $18,500,000
56.01%
$9,521,700 to $10,361,849
     
Greater than or equal to $18,500,000 and less than $19,500,000
56.1%
$10,378,500 to $10,939,499
     
Greater than or equal to $19,500,000 and less than $22,000,000
56.3%
$10,978,500 to $12,385,999
     
Greater than or equal to $22,000,000 and less than $25,000,000
56.5%
$12,430,000 to $14,124,999
     
Greater than or equal to $25,000,000 and less than $27,000,000
56.7%
$14,175,000 to $15,308,999
     
Greater than or equal to $27,000,000 and less than $28,000,000
56.8%
$15,336,000 to $15,903,999
 
The Laurus Fee would be substantially less if the Company sold the Cash Security business after November 26, 2009

Under the terms of the Laurus Fee Agreement, a sale of the Company’s assets after November 26, 2009, would only require the Company to pay to Laurus a fee of $2,000,000.

After considering all alternatives open to the Company, the Company’s financial performance and the risk of delaying a sale of the Cash Security business, it is the judgment of the Company’s board of directors that the decision to sell the Cash Security business prior to November 26, 2009 at the present time is in the best interests of the Company and its unaffiliated stockholders.
 
Laurus Stock Redemption

Under the terms of the stock redemption agreement we entered into with Laurus on January 12, 2006, we have agreed to repurchase from Laurus, upon the closing of the Asset Sale, all shares of our common stock held by Laurus at a per share price of not less than $.20 per share nor greater than $.34 per share following the determination of our assets in accordance with the formula set forth below.

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The stock redemption agreement with Laurus provides that the purchase price for the shares of our common stock to be repurchased from Laurus shall consist of the per share price (as defined below) multiplied by the 19,251,000 shares of our common stock owned by Laurus. The per share price shall equal the quotient obtained by dividing (1) the value on the closing date of the Asset Purchase Agreement of (A) the sum of the value of all assets of the Company that would be valued by the Company in connection with a liquidation of the Company following the closing of the Asset Sale (after giving effect to such closing), including, but not limited to: (i) all cash and cash equivalents held by the Company, (ii) all marketable securities held by the Company, and (iii) all other remaining tangible and intangible assets held directly or indirectly by the Company valued at fair market value minus (B) the sum of (i) all fees and expenses of the Company and its subsidiaries in connection with the sale of the Company’s ATM business division and the Asset Sale through the Asset Sale closing date, (ii) all payments and obligations due to, or on behalf of, present and former employees of the Company and its subsidiaries incurred through the Asset Sale closing date, (iii) all amounts paid or payable to Laurus pursuant to the Laurus Fee Agreement, (iv) all other liabilities of the Company and its subsidiaries, (v) payments due to independent members of our Board in an aggregate amount not to exceed $400,000, and (vi) a good faith estimate of the costs and expenses which would be incurred in connection with the liquidation of the Company including, without limitation, legal fees, directors and officers insurance, all fees and expenses relating to SEC and governmental filings and related expenses, by (2) the total number of shares of our common stock outstanding on the Asset Sale closing date. Notwithstanding the foregoing, the per share price shall not be less than $.20 per share nor greater than $.34 per share. Based upon the 19,251,000 shares owned by Laurus as of January 13, 2006, Laurus can thus expect to receive an aggregate sum between $3,850,200 and $6,545,340 upon the redemption of these shares.

Under the terms of an exercise and conversion agreement we entered into with Laurus dated January 12, 2006, if the Asset Sale does not occur by March 31, 2006, we will immediately redeem from Laurus the 18,000,000 shares of our common stock issued to Laurus on January 13, 2006. Pursuant to the terms of the stock redemption agreement with Laurus, Laurus has agreed (i) to the cancellation as of the closing of the Asset Sale of the outstanding warrants that it holds to purchase 4,750,000 shares of our common stock at an exercise price of $.30 per share, and (ii) not to exercise such warrants prior to the earlier to occur of March 31, 2006 and the date on which the Asset Purchase Agreement is terminated.
 
Our principal stockholder, Laurus, has interests in the Asset Sale which are different from, or in addition to, our other stockholders

Laurus, which held 19,251,000, or 49.8%, of our outstanding shares of common stock as of the record date and which is our principal stockholder, will receive proceeds under the Asset Sale upon our payment to it of the Laurus Fee and upon our redemption of the shares of our common stock which it holds. In addition, we understand that Laurus may provide debt financing to Buyer in order to fund Buyer’s purchase obligations under the Asset Purchase Agreement. Laurus will receive fees from Buyer as a result of providing such debt financing.
 
The board of directors has identified the Asset Sale as the most suitable method to meet its expected/scheduled liquidity needs

If stockholders reject the proposed Asset Sale to Buyer, Tidel will be faced with a critical liquidity challenge and urgent need for additional capital. In that situation, Tidel’s board of directors would be forced to consider alternatives which it believes are likely to be substantially less favorable than the proposed Asset Sale. Tidel currently knows of no alternative sales or capital raising transactions or strategies that, in the opinion of our board of directors, would be likely to produce a more meaningful value for stockholders. Given Tidel’s limited inventory, personnel and cash, and the funds which would be needed to continue operations, our board of directors believes it would be difficult to continue our business or identify another appropriate potential purchaser who could acquire Tidel. Our board of directors expects Tidel to continue to experience cash demands that exceed our cash flow as Tidel requires substantial working capital to fund its business and meet its debt service and other obligations. Failure to consummate the Asset Sale will have a material adverse effect on our business, results of operations and financial condition.

16


Tidel will have no operations following the Asset Sale 

Following the Asset Sale, Tidel will have substantially no operations. It is the present intention of the board of directors to review Tidel’s financial position at that time and consider all options including, without limitation, 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 the Company’s business.
 
The Asset Purchase Agreement may expose Tidel to contingent liabilities. 

The failure to complete the Asset Sale may result in a decrease in the market value of Tidel’s common stock and may create substantial doubt as to Tidel’s ability to grow and implement its current business strategies.

The Asset Sale is subject to a number of contingencies. As a result, Tidel cannot assure you that the Asset Sale will be completed. If the Asset Sale is not completed for any reason, the market price of Tidel’s common stock may decline.
 
17


THE ASSET SALE
(PROPOSAL 1)

This section of the proxy statement describes certain aspects of the Asset Sale. However, we recommend that you read carefully the complete Asset Purchase Agreement for the precise legal terms of the Asset Sale and other information that may be important to you. The asset purchase agreement is included in this proxy statement as Annex A. Unless otherwise defined in this section, all capitalized terms used in this section have the meanings ascribed to them in the section titled “Summary.”
 
The Parties to the Asset Sale

Tidel Technologies, Inc.
Tidel Engineering, L.P.

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 our TACC products, but each has been designed to also reduce the risk of internal theft and increase in-store management efficiencies through its state-of-the-art integration with a store’s point-of-sale, or POS, and accounting systems. Our engineering, sales and service departments work closely with distributors and their customers to continually analyze and fulfill their needs, enhance existing products and develop new products.

Engineering, is Tidel’s indirect wholly-owned operating subsidiary and, together with Tidel, is a seller under the Asset Purchase Agreement.

Tidel has its principal executive offices at 2900 Wilcrest Drive, Suite 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.

Sentinel Operating, L.P.

Buyer is a Texas limited partnership that was formed solely for the purpose of entering into the Asset Purchase Agreement and consummating the transactions contemplated by the Asset Purchase Agreement. It has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the Asset Purchase Agreement.

After the closing of the Asset Sale Buyer will have its principal executive offices at 2025 Beltline Road, Suite 114, Carrollton Texas 75006. The telephone number of Buyer’s principal executive offices will be (972) 484-3358.

18


Background of the Asset Sale 

In November 2004, Tidel completed a refinancing with Laurus which, among other things, required Tidel to accept an offer to buy all or substantially all of its assets, equity interests or other property pursuant to one asset sale or a group of asset sales so long as the aggregate gross proceeds offered met specified financial criteria. In addition, the terms of the Laurus refinancing required Tidel to engage Stifel, Nicolaus & Company, Inc., or Stifel, to provide a fairness opinion to the Company in connection with the sale of the Company’s ATM business to NCR Corporation, or NCR, and to act as financial advisor in connection with the strategic alternatives for the Cash Security business. In contemplation of the financing with Laurus, Tidel and Stifel executed an engagement letter on October 21, 2004.

In accordance with the terms of its engagement, Stifel contacted 153 potential buyers, approximately half of whom were financial sponsors and half of whom were strategic buyers, regarding the potential buyers’ interest in pursuing a transaction with Tidel with respect to the Cash Security business. Between April and June 2005, the Company and Stifel negotiated and executed confidentiality agreements with 57 interested parties that requested confidential information relevant to a potential transaction with Tidel and the Company received 15 non-binding expressions of interest from parties. During this time period, Stifel also distributed an executive summary concerning Tidel to each interested party, once it executed a confidentiality agreement.

On June 14, 2005, representatives of Stifel met with our board of directors and discussed the results of Stifel’s efforts on behalf of Tidel concerning the strategic alternatives for the Cash Security business, including the terms indicated in the 15 expressions of interest. Based on their evaluation of the 15 expressions of interest, our board of directors determined to continue discussions with eight of the 15 parties. Our board of directors decided not to pursue discussions with the other parties based primarily on the price ranges that had been provided and the terms offered to Tidel.

Between late June and mid July, 2005, Tidel management made presentations to eight of the interested parties. All eight interested parties were invited to meet with senior members of Tidel management led by Mark. K. Levenick, the Chief Executive Officer of Engineering, as well as to visit Tidel’s offices in Carrollton, Texas, and to review a data room the Company had established for this purpose. The management presentations included a general overview of the Company’s Cash Security business, its product and service offerings, its customers, and discussions about historical and projected financial performance. The data room contained printed copies of all documents relevant to the Cash Security business and each party was provided an electronic copy of all materials contained in the data room subject to the terms of the confidentiality agreement that each party had executed with us.

On July 19, 2005, the board of directors discussed the status of the strategic alternative process, including the number of persons that expressed interest in the opportunity, and six of the eight interested parties provided the Company with non-binding letters of intent as to the Cash Security business. Stifel discussed the responses it had received with the board of directors. Based on the consideration offered and the terms submitted, the Company selected a financial sponsor entity as a potential purchaser from the group of six interested parties. This potential purchaser submitted a letter from its financial backers indicating their capability to consummate a purchase of the Cash Security business. In early August 2005, this potential purchaser notified the Company that its original equity financial backer had withdrawn its support for a potential transaction involving our Cash Security business and that it had located another equity financial backer who was willing to support a transaction with respect to our Cash Security business. Senior members of our management made additional presentations to the new prospective equity financial backer during which this new equity financial backer expressed reservations concerning the status of ongoing litigation involving Engineering and the status of its principal customer.

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Subsequently, this prospective purchaser and its financial backers submitted a proposal to the Company with a requirement that Laurus consent to support the transaction and take whatever actions were necessary to cause the transaction to be consummated. After several discussions with Laurus, Mr. Landry received a communication from Laurus on August 26, 2005 to the effect that Laurus would support a management buyout of the Company with a group composed of Mr. Levenick, Mr. Landry, and Mr. Jeffrey R. Galgano, who was affiliated with Stifel, with Laurus to provide the financing to the management participants.

Thereafter, on August 26, 2005, Mr. Landry notified other members of our board, Messrs. Griggs and Clay, of the Laurus proposal and Mr. Landry resigned as chairman of the Company’s audit committee in order to pursue the prospective transaction. On September 6, 2005, Laurus informed the Company that it would not support a transaction involving the financial sponsor potential purchaser and Laurus provided a non-binding term sheet to Messrs. Levenick and Landry outlining the terms on which Laurus would provide acquisition financing to the management participants.

On September 8, 2005, Mr. Galgano notified Stifel of his interest in pursuing a transaction with Messrs. Levenick and Landry and on September 21, 2005 Stifel resigned as financial advisor to Tidel and ceased advising the Company in respect of the strategic alternatives for the Cash Security business.

Given the interests of Messrs. Levenick and Landry in the potential transaction, an independent committee of our board of directors was formed in order to negotiate with Buyer the terms of any sale of the Cash Security business.

On September 26, 2005, the independent committee judged the management proposal of the management participants to be superior to all prior proposals and entered into a letter of intent with Messrs. Levenick and Landry under which the independent committee outlined the preliminary terms of a potential sale of the Cash Security business to Buyer, including a purchase price of $18,750,000 which would include $17,500,000 for 100% of the assets and business of the Cash Security business and up to $1,250,000 for working capital if it was reflected on the Company’s balance sheet at closing. The letter of intent also provided that (a) financing for the transaction would be provided by Laurus and that there would be no other financing contingency, (b) Messrs. Levenick and Landry would be given 15 days to complete their due diligence in respect of the Asset Sale, and (c) the Company would not to initiate or participate in any discussions or negotiations with, or provide any information or assistance to, or enter into any agreement with any person or entity concerning the sale or transfer of Tidel or Engineering for a period of 60 days after September 27, 2005.

Buyer retained the law firm of Hensley Kim & Edgington, LLC, Denver, Colorado, or HKE, to advise it in respect of the Asset Sale and Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, New York, or Olshan, advised the Company and the independent committee in respect of the Asset Sale.

On November 3, 2005, an initial draft of the Asset Purchase Agreement, prepared by HKE, was delivered to the Company. The independent committee reviewed the draft Asset Purchase Agreement. The members of the committee discussed the terms of the draft Asset Purchase Agreement with Olshan, including terms that would permit the board of directors to satisfy its fiduciary duties in the event that an unsolicited competing transaction were proposed following the execution of a Asset Purchase Agreement.

From November 3, 2005 to January 12, 2006, the independent committee and Buyer continued to negotiate the terms of the Asset Purchase Agreement and other agreements and documents contemplated by the Asset Purchase Agreement through telephone calls and other communications between their respective representatives and counsel and through the exchange of draft documents. The independent committee and Buyer engaged in intensive negotiations regarding numerous points, including without limitation, concerning the requirement that Buyer’s obligations under the Asset Purchase Agreement be subject to a financing contingency, which Buyer eventually agreed to remove.

20


On November 29, 2005, in light of the ongoing negotiations and the Company’s efforts to close the sale of its ATM business, the parties agreed to extend the exclusivity period under the letter of intent until January 31, 2006.

The independent committee interviewed other investment advisory firms with a view to selecting a firm that would advise the independent committee as to the fairness to the Company’s unaffiliated stockholders from a financial point of view of the sale of Cash Security business. The independent committee selected Capitalink to render this opinion to it and entered into an engagement letter with Capitalink on December 7, 2005.

On December 31, 2005, a meeting of the independent committee was held, which was followed by a meeting the board of directors. Messrs. Griggs and Clay, as the sole independent committee members, were present at the meeting of the independent committee, as were representatives from Olshan and Capitalink. A general discussion among the members of the committee then ensued as to the terms of the Asset Purchase Agreement. Following this discussion, the independent committee unanimously found that after due consideration of all relevant factors, the Asset Purchase Agreement and the Asset Sale and related transactions were advisable and fair to and in the best interests of the Company and its unaffiliated stockholders, and recommended to the independent committee and to the board of directors the approval and adoption of the Asset Purchase Agreement.

The full board met next, with representatives of Olshan and Capitalink all present. The full board noted the recommendation of the independent committee in favor of the approval and the adoption of the Asset Purchase Agreement. Both Mr. Levenick and Mr. Landry noted that in light of their respective pending employment and investment arrangements with Buyer and its parent, it would be appropriate for each such director to abstain from the board of directors’ vote with respect to the Asset Purchase Agreement, and Mr. Levenick and Mr. Landry abstained from voting on this matter. The board considered the fiduciary obligations of the board of directors in light of the proposed Asset Sale, including the efforts undertaken by the board of directors to explore alternative transactions; the duty owed by the directors to evaluate the Asset Purchase Agreement, the Asset Sale and all related transactions on behalf of the Company’s unaffiliated stockholders; and the fact that the independent committee, which is wholly comprised of independent directors not affiliated with Buyer, had determined that the Asset Purchase Agreement, the Asset Sale and related transactions are advisable and are fair to and in the best interests of the Company and its unaffiliated stockholders and had recommended the adoption and approval of the Asset Purchase Agreement; the rights negotiated by the independent committee to terminate the proposed Asset Sale to accept an alternative superior transaction under certain circumstances; and the efforts of the board of directors and its committee to be fully informed and to exercise due care in their deliberations and efforts. The board of directors discussed a number of factors including the proposed terms of the Asset Purchase Agreement, the risks and merits of the Asset Sale and the risks and merits of not pursuing the Asset Sale.

A representative of Capitalink then summarized for the board of directors various aspects of the proposed Asset Sale, a financial analysis of the Company’s Cash Security business, an analysis of companies that Capitalink viewed as generally comparable to the Company’s Cash Security business, an analysis of transactions that Capitalink viewed as generally comparable to a sale of the Company’s Cash Security business, a leveraged buyout analysis and a discounted cash flow analysis of the Company’s Cash Security business. The independent committee of the board of directors requested that Capitalink render an opinion as to whether the proposed Asset Sale consideration to be received by the Company was fair from a financial point of view to the Company’s unaffiliated stockholders. Capitalink then delivered to the independent committee of Company’s board of directors an opinion that, as of December 30, 2005 and based upon and subject to the factors and assumptions set forth in the opinion, the Asset Sale consideration to be received by the Company pursuant to the Asset Purchase Agreement is fair, from a financial point of view, to the Company’s unaffiliated stockholders. The full text of the written opinion of Capitalink, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached as Annex B to this proxy statement. The members of the board of directors present at the meeting (excluding Messrs. Levenick and Landry, who had previously abstained) then unanimously found that after due consideration of all relevant factors, the Asset Purchase Agreement and the Asset Sale and related transactions were advisable and fair to and in the best interests of the Company and its unaffiliated stockholders and recommended that the Company’s stockholders vote for the approval and adoption of the Asset Purchase Agreement.

21


The Asset Purchase Agreement was executed by the Company, Engineering and Buyer and the related agreements were executed by the parties thereto, in each case, as of January 12, 2006. On January 18, 2006, the Company disclosed its entry into the Asset Purchase Agreement in its Annual Report on Form 10-K for the year ended September 30, 2005. On January 19, 2006 the Company issued a press release announcing the transaction and filed a Current Report on Form 8-K with the SEC, which it subsequently amended on January 21, 2006, which included the Asset Purchase Agreement and other relevant agreements as exhibits thereto.
 
Reasons for the Asset Sale

In reaching its conclusion regarding the fairness of the Asset Sale to our unaffiliated stockholders and its decision to approve and adopt the Asset Purchase Agreement and recommend the approval and adoption of the Asset Purchase Agreement by our stockholders, the board of directors of the Company consulted with management and its financial and legal advisors. The board of directors considered the following factors and potential benefits of the Asset Sale, each of which it believed supported its decision:

 
·
the fact that the Asset Sale consideration is all cash, so that the transaction will allow the Company to immediately realize a fair value, in cash, for its remaining business and will provide the Company’s stockholders certainty in assessing the value of Buyer’s bid;

 
·
the Asset Sale is the result of an active auction process in which the Company had contact with 153 potential bidders;

 
·
historical and current information concerning the Company’s Cash Security business, financial performance and condition, operations, technology, management and competitive position, and current industry, economic and market conditions, including the Company’s prospects if it were to remain an independent company;

 
·
the board’s belief that the Asset Sale is more favorable to the Company’s stockholders than any other alternative reasonably available to it and the Company’s stockholders, including the alternative of remaining a stand-alone, independent company and the proposals made by the other bidders in our auction process, as well as the risks and uncertainties associated with those alternatives;

 
·
the decision of Laurus, which held shares representing 49.8% of our outstanding common stock on the record date, to support the Asset Sale and its entry into a voting agreement with Buyer under which it agreed to vote its shares in favor of the Asset Sale;


 
·
the presentation of Capitalink, including its opinion that, as of the date of its opinion and based upon and subject to the factors and assumptions set forth in such opinion, the Asset Sale consideration to be received by the Company pursuant to the Asset Purchase Agreement is fair, from a financial point of view, to the Company’s unaffiliated stockholders (see “The Asset Sale -- Opinion of Capitalink” and Annex B to this proxy statement);

 
·
the financial and other terms and conditions of the Asset Purchase Agreement, the fact that they were the product of arm’s-length negotiations between the parties, and the fact that the independent committee (which is comprised solely of independent directors) unanimously recommended the approval and adoption of the Asset Purchase Agreement;

 
·
the terms of the Asset Purchase Agreement, including without limitation:

 
·
the provisions of the Asset Purchase Agreement that allow the board of directors, under certain limited circumstances if required to comply with its fiduciary duties under applicable law, to change its recommendation that the Company’s stockholders vote in favor of the approval and adoption of the Asset Purchase Agreement;

 
·
the provisions of the Asset Purchase Agreement that allow the Company, under certain limited circumstances if required by the board of directors to comply with its fiduciary duties under applicable law, to furnish information to and conduct negotiations with third parties;

 
·
the provisions of the Asset Purchase Agreement that provide the board of directors the ability to terminate the Asset Purchase Agreement in order to accept a financially superior proposal (subject to certain conditions contained in the Asset Purchase Agreement and the payment to Buyer of $400,000); and

 
·
the conclusion of the board of directors that the requirement to pay Buyer $400,000 in the event that the Asset Purchase Agreement is terminated under certain circumstances was reasonable in light of the benefits of the Asset Sale, the auction process conducted by the Company and commercial practice; and

 
·
the fact that the completion of the Asset Sale requires the approval and adoption of the holders of a majority of the Company’s common stock outstanding on the record date.

The board of directors also considered and balanced against the potential benefits of the Asset Sale the following potentially adverse factors concerning the Asset Sale:

 
·
the fact that if the Company waited until after November 26, 2009 in order to sell its Cash Security business, the amounts payable to Laurus under the Laurus Fee Agreement in respect of such a sale would be substantially reduced;

 
·
the risk that the Asset Sale might not be completed in a timely manner or at all, including the risk that the Asset Sale will not occur if Buyer fails to obtain financing;

 
·
the interests of the Company’s management in the Asset Sale;

 
·
the fact that the Company will no longer exist as an operating company;


 
·
the fact that the Company’s stockholders will not participate in any future earnings or growth of the Cash Security business;

 
·
the fact that the Company was entering into an Asset Purchase Agreement with a newly formed entity with essentially no assets and, accordingly, that the Company will have no recourse for a failure by Buyer to close or for a breach of the Asset Purchase Agreement;

 
·
the restrictions on the conduct of the Company’s business prior to completion of the Asset Sale, requiring the Company to conduct its business only in the ordinary course, subject to specific limitations or Buyer’s consent, which may delay or prevent the Company from undertaking business opportunities that may arise pending completion of the Asset Sale;

 
·
the restrictions on the board’s ability to solicit or engage in discussions or negotiations with a third party regarding specified transactions involving the Company and the requirement that the Company pay Buyer $400,000 in certain cases in the event of a termination of the Asset Purchase Agreement on the part of Sellers;

 
·
the risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the Asset Sale; and

 
·
the possibility of management and employee disruption associated with the Asset Sale.

In addition, the board of directors believed that sufficient procedural safeguards were and are present to ensure the fairness of the Asset Sale to the unaffiliated stockholders. These procedural safeguards include the following:

 
·
the independent committee, which consists entirely of directors who are not officers or employees of Tidel, acted to represent solely the interests of the unaffiliated stockholders and to negotiate with Buyer and Laurus on behalf of such stockholders;

 
·
no member of the independent committee has an interest in the proposed Asset Sale different from that of our other stockholders, other than the fact that members of the independent committee may receive up to $400,000 in the aggregate following the Asset Sale in recognition of their extraordinary service to the Company and members of the independent committee will be entitled to customary indemnification and officer and director liability insurance coverage under the terms of the Asset Sale;

 
·
the independent committee received legal advice from Olshan, as legal advisor, which has extensive experience in transactions similar to the Asset Sale;

 
·
the Asset Sale was unanimously approved by the directors present at the meeting called for that purpose, which included all of the directors except Mark K. Levenick and Raymond P. Landry who abstained from voting on that matter;

 
·
the independent committee requested and received from Capitalink an opinion that the consideration to be paid pursuant to the Asset Purchase Agreement was fair from a financial point of view to our unaffiliated stockholders;

 
·
the independent committee, with the assistance of its legal advisor, conducted extensive negotiations with Buyer and had the authority to reject the terms of the Asset Sale. As a result of these negotiations, the independent committee believed that the purchase price payable under the Asset Purchase Agreement was the highest price that Buyer was willing to pay in the Asset Sale;


 
·
the Company’s ability, subject to compliance with the terms and conditions of the Asset Purchase Agreement, to terminate the Asset Purchase Agreement prior to the completion of the Asset Sale in order to approve any alternative transaction proposed by a third party that is a “superior proposal,” as defined in the Asset Purchase Agreement; and

 
·
the fact that the unaffiliated stockholders have the right to vote on the Asset Purchase Agreement.
 
After taking into account all of the factors set forth above, as well as others, the board of directors agreed that the benefits of the Asset Sale outweighed the risks and that the Asset Purchase Agreement, the Asset Sale and the related transactions contemplated by the Asset Purchase Agreement are advisable and are fair to and in the best interests of the Company and its unaffiliated stockholders. The board of directors has approved and adopted the Asset Purchase Agreement and recommends that the Company’s stockholders vote to approve and adopt the Asset Purchase Agreement at the Special Meeting.

The board of directors did not assign relative weights to the above factors or the other factors considered by it. In addition, the board of directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the board of directors may have given different weights to different factors.
 
Recommendations of the Independent Committee

The independent committee unanimously found that after due consideration of all relevant factors:

 
·
the Asset Purchase Agreement, the Asset Sale and related transactions are advisable and fair to and in the best interests of the Company and its unaffiliated stockholders;

 
·
recommended to the board of directors the approval and adoption of the Asset Purchase Agreement; and

 
·
the Asset Sale represented the most favorable alternative reasonably available to the Company and its unaffiliated stockholders.
 
Recommendation of the Company’s Board of Directors

The board of directors of the Company has determined (with interested directors abstaining) that the Asset Purchase Agreement, the Asset Sale and related transactions:

 
·
are advisable and are fair to and in the best interests of the Company and its unaffiliated stockholders and has approved and adopted the Asset Purchase Agreement; and

 
·
recommends that Tidel’s stockholders vote “FOR” the approval and adoption of the Asset Purchase Agreement.
 
25


Required Vote 

The approval of the Asset Purchase Agreement, the Asset Sale and related transactions requires the approval of a majority of the holders of our outstanding shares of common stock. Shares that are voted “FOR” or “AGAINST” the proposal or marked “ABSTAIN” will be counted towards the vote requirement. Broker non-votes, if any, will not be counted towards the vote requirement. Laurus and our officers and directors have agreed to vote an aggregate of 19,860,905 shares, representing approximately 51.4% of the shares of our common stock entitled to vote at the special meeting, in favor of the approval and adoption of the Asset Purchase Agreement, the Asset Sale and related transactions. Such votes are sufficient to approve and adopt the Asset Purchase Agreement, the Asset Sale and related transactions, regardless of the vote of any other person.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 1.
 
Opinion of Capitalink

Capitalink made presentations to both the independent committee of our board of directors and to our board of directors on December 31, 2005 and subsequently delivered its written opinion to the independent committee of our board of directors, which stated that, as of December 30, 2005, and based upon and subject to the assumptions made, matters considered, and limitations on its review as set forth in the opinion, the Asset Sale consideration to be received by the Company pursuant to the Asset Purchase Agreement is fair, from a financial point of view, to the Company’s unaffiliated stockholders. The amount of the purchase price payable under the Asset Sale was determined pursuant to negotiations between us and Buyer and not pursuant to recommendations of Capitalink. The full text of the written opinion of Capitalink is attached as Annex B and is incorporated by reference into this proxy statement.

You are urged to read the Capitalink opinion carefully and in its entirety for a description of the assumptions made, matters considered, procedures followed and limitations on the review undertaken by Capitalink in rendering its opinion. The summary of the Capitalink opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

The Capitalink opinion is not intended to be and does not constitute a recommendation to you as to how you should vote or proceed with respect to the Asset Sale.

Capitalink was not requested to opine as to, and the opinion does not in any manner address, the relative merits of the Asset Sale as compared to any alternative business strategy that might exist for us, our underlying business decision to proceed with or effect the Asset Sale, and other alternatives to the Asset Sale that might exist for us.

In arriving at its opinion, Capitalink took into account an assessment of general economic, market and financial conditions, as well as its experience in connection with similar transactions and securities valuations generally. In so doing, among other things, Capitalink:

 
·
Reviewed the Asset Purchase Agreement.

 
·
Reviewed publicly available financial information and other data with respect to Tidel, including the Annual Report on Form 10-K (and amendments thereto) for the year ended September 30, 2004, the Quarterly Report on Form 10-Q for the nine months ended June 30, 2005, the Proxy Statement on Schedule 14A filed November 30, 2005, and the Current Report on Form 8-K filed November 30, 2005.



 
·
Reviewed non-public information and other data with respect to Tidel, including various internal financial management reports.

 
·
Reviewed the range of the purchase price payable under the Asset Sale.

 
·
Considered the historical financial results and present financial condition of the Cash Security business.

 
·
Reviewed and analyzed the Cash Security business’s projected unlevered free cash flows and prepared a discounted cash flow analysis.

 
·
Reviewed and analyzed certain financial characteristics of publicly-traded companies that were deemed to have characteristics comparable to the Cash Security business.

 
·
Reviewed and analyzed certain financial characteristics of target companies in transactions where such target company was deemed to have characteristics comparable to that of the Cash Security business.

 
·
Reviewed the Cash Security business’s projected future cash flows and prepared a leveraged buyout analysis.

 
·
Reviewed an analysis prepared by Stifel regarding the marketing of the Cash Security business for sale, including bids received.
 
Capitalink also performed such other analyses and examinations as it deemed appropriate and held discussions with Tidel management in relation to certain financial and operating information furnished to Capitalink, including financial analyses with respect to their respective business and operations.

In arriving at its opinion, Capitalink relied upon and assumed the accuracy and completeness of all of the financial and other information that was used without assuming any responsibility for any independent verification of any such information. Further, Capitalink relied upon the assurances of Tidel management that they were not aware of any facts or circumstances that would make any such information inaccurate or misleading. With respect to the financial information and projections utilized, Capitalink assumed that such information has been reasonably prepared on a basis reflecting the best currently available estimates and judgments, and that such information provides a reasonable basis upon which it could make an analysis and form an opinion. Capitalink did not make a physical inspection of the properties and facilities of Tidel and did not make or obtain any evaluations or appraisals of the assets and liabilities (contingent or otherwise) of Tidel or the Cash Security business. In addition, Capitalink did not attempt to confirm whether Tidel or the Cash Security business had good title to their respective assets. Capitalink assumed that the Asset Sale will be consummated in a manner that complies in all respects with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statues, rules and regulations. Capitalink assumes that the Asset Sale will be consummated substantially in accordance with the terms set forth in the Asset Purchase Agreement, without any further amendments thereto, and that any amendments, revisions or waivers thereto will not be detrimental to the unaffiliated stockholders.

Capitalink’s opinion is necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of, December 30, 2005. Accordingly, although subsequent developments may affect its opinion, Capitalink has not assumed any obligation to update, review or reaffirm its opinion.

27


In connection with rendering its opinion, Capitalink performed certain financial, comparative and other analyses as summarized below. Each of the analyses conducted by Capitalink was carried out to provide a different perspective on the Asset Sale, and to enhance the total mix of information available. Capitalink did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to the fairness, from a financial point of view, of the purchase price payable under the Asset Sale to unaffiliated stockholders. Further, the summary of Capitalink’s analyses described below is not a complete description of the analyses underlying Capitalink’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Capitalink made qualitative judgments as to the relevance of each analysis and factor that it considered. In addition, Capitalink may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described above should not be taken to be Capitalink’s view of the value of Cash Security business’s assets. The estimates contained in Capitalink’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses or assets neither purport to be appraisals nor do they necessarily reflect the prices at which businesses or assets may actually be sold. Accordingly, Capitalink’s analyses and estimates are inherently subject to substantial uncertainty. Capitalink believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors collectively, could create an incomplete and misleading view of the process underlying the analyses performed by Capitalink in connection with the preparation of its opinion.

The analyses performed were prepared solely as part of Capitalink’s analysis of the fairness, from a financial point of view, of the purchase price payable under the Asset Sale to the unaffiliated stockholders, and were provided to our board of directors in connection with the delivery of Capitalink’s opinion. The opinion of Capitalink was just one of the many factors taken into account by our board of directors in making its determination to approve the Asset Sale, including those described elsewhere in this proxy statement.

Cash Security Business Financial Review
Capitalink undertook a review of the Cash Security business’s historical financial data in order to understand and interpret its operating and financial performance and strength. As part of this analysis, the Cash Security business’s revenue and earnings are adjusted to remove any unusual or extraordinary sources of revenue and expenses. The adjustments provide a more accurate portrayal of the Cash Security business’s underlying operating earnings and financial performance. Capitalink noted the following:

 
·
Net revenue has increased significantly over the review period from approximately $7.7 million in fiscal year 2002 to approximately $19.4 million in fiscal year 2005 representing a compound annual growth rate of 35.9%. This increase in revenue is attributed to the increase in the number of Sentinel units sold, particularly in fiscal year 2005 when an estimated 1,867 units were sold, compared with 240 in fiscal year 2003 and 191 in fiscal year 2004.

 
·
Gross profit increased from approximately $3.0 million in fiscal year 2002 to approximately $8.6 million in fiscal year 2005. Normalized earnings before interest, taxes, depreciation and amortization, or EBITDA, also increased over the review period in line with revenues and gross margin from approximately $0.5 million in fiscal year 2002 to approximately $4.1 million in fiscal year 2005.


 
·
The Company expects continued future increases in sales, as a result of increased demand for the Sentinel product (primarily due to a major contract with a single customer) and upgrades to existing TACC locations.
 
Purchase Price Payable Under the Asset Sale Review
The purchase price payable under the Asset Sale consists of a cash payment of $17.5 million plus a working capital and cash adjustment, and less an adjustment for litigation.

Utilizing a draft balance sheet for the Cash Security business as of September 30, 2005, Capitalink estimated a pro forma purchase price payable under the Asset Sale of approximately $18.1 million (which includes a working capital adjustment of approximately $0.7 million and an adjustment for litigation of approximately $0.1 million).

Valuation Overview
Based upon a review of the historical financial data and certain other qualitative data for the Cash Security business, Capitalink utilized several valuation methodologies to determine a range of values for the Cash Security business. Capitalink utilized the discounted cash flow, the comparable company, the comparable transaction and leveraged buyout analyses (all of which are discussed in more detail hereinafter) to derive an indicated equity value for the Cash Security business.

Capitalink weighted the four approaches equally and then deducted the $0.1 million adjustment for litigation to arrive at an indicated equity value range of approximately $15.6 million and approximately $19.2 million.

Capitalink noted that the September 30, 2005 pro forma purchase price payable under the Asset Sale of approximately $18.1 million was within the Cash Security business’s indicated equity value range.

Cash Security Business Discounted Cash Flow Analysis
A discounted cash flow analysis estimates value based upon a company’s projected future free cash flow discounted at a rate reflecting risks inherent in its business and capital structure. Unlevered free cash flow represents the amount of cash generated and available for principal, interest and dividend payments after providing for ongoing business operations.

While the discounted cash flow analysis is the most scientific of the methodologies used, it is dependent on projections and is further dependent on numerous industry-specific and macroeconomic factors.

Capitalink utilized the forecasts provided by Tidel management, which project a gradual increase in revenues from fiscal year 2005 to fiscal year 2008 from approximately $19.4 million to $26.2 million, respectively. This represents a compound annual growth rate of approximately 10.4% over the period.

The forecasts also project an improvement in EBITDA from fiscal year 2005 to fiscal year 2008 from approximately $4.1 million to $6.4 million, respectively. This represents an improvement in the Company’s EBITDA margin from 21.2% to 24.5% and a compound annual growth rate of 15.8%. The projections also assume the Cash Security business is moved from its existing facilities to a new premise, and includes assumptions for the moving expenses and the new lease expenses.

In order to arrive at a present value, Capitalink utilized discount rates ranging from 24.5% to 25.5%. This was based on an estimated weighted average cost of capital of 25.3% (based on the Company’s estimated weighted average cost of debt of 10.0% and 27.9% estimated cost of equity). The cost of equity was derived utilizing the Ibbotson build up method utilizing appropriate industry risk and size premiums and a company specific risk factor of 4.0%, which takes into account the Cash Security business’s limited history of operating profits, significant customer and product concentration and risks related to a major contract.

29


Capitalink presented a range of terminal values at the end of the forecast period by applying a range of terminal exit multiples based on revenue and EBITDA as well as long term perpetual growth rates.

Utilizing terminal revenue multiples of between 0.80 times and 1.00 times, terminal EBITDA multiples of between 3.5 times and 4.5 times and long term perpetual growth rates of between 4.0% and 5.0%, Capitalink calculated a range of indicated enterprise values by weighting the above indications equally.

Capitalink deducted net debt of approximately $31,000 (related to vehicle leases) to derive an indicated equity value range of approximately $18.1 million to approximately $21.1 million.

Cash Security Business Comparable Company Analysis
A selected comparable company analysis reviews the trading multiples of publicly traded companies that are similar to the Cash Security business with respect to business and revenue model, operating sector, size and target customer base.

Due to the difficulty of finding publicly listed companies that matched the operating characteristics of the Cash Security business, Capitalink broadened its search to include companies that manufacture and market safe and vault systems, ATM and POS related products (primarily to grocery and chain stores), and other specialized electronic cash related products, or the Comparable Companies.

All of the Comparable Companies are classified under the SIC code 3578 (Calculating and Accounting Machines, Except Computers). Capitalink also noted that most of the Comparable Companies manufacture and sell a number of different products and offer various other related services to their customers. In comparison, the Cash Security business sells two primary products, of which the Sentinel product made up over 70% of total sales. In addition, customer concentration is very high with one contract generating approximately 80% of total Sentinel sales.

All of the Comparable Companies are larger than the Cash Security business, with last twelve month revenue ranging from approximately $25.9 million to approximately $2.5 billion, compared with approximately $19.4 million for the Cash Security business.

From an EBITDA basis, the Cash Security business is more profitable than most of the Comparable Companies, with last twelve month EBITDA margins ranging from approximately (38.5)% to approximately 25.5%, compared with approximately 21.2% for the Cash Security business. Capitalink noted that the EBITDA margins for the Comparable Companies are generally lower than the Cash Security business partly because the Cash Security business’s expenses do not include public company costs.

Capitalink also noted that with the exception of CashGuard AB, all of the Comparable Companies have had at least three years of positive profitability. In comparison, fiscal year 2005 is the first year that the Cash Security business has become profitable.

30


Multiples utilizing market value and enterprise value were used in the analyses. For comparison purposes, all operating profits including EBITDA were normalized to exclude unusual and extraordinary expenses and income.

Capitalink noted the following with respect to the multiples generated:

 
·
The enterprise value to last twelve month revenue multiple ranged from 0.51 times to 2.68 times, with a mean of 1.64 times.

 
·
The enterprise value to calendar year 2005 revenue multiple ranged from 0.46 times to 2.21 times, with a mean of 1.39 times.

 
·
The enterprise value to calendar year 2006 revenue multiple ranged from 0.36 times to 1.95 times, with a mean of 1.25 times.

 
·
The enterprise value to last twelve month EBITDA multiple ranged from 7.3 times to 10.8 times, with a mean of 9.2 times.

 
·
The enterprise value to calendar year 2005 EBITDA multiple ranged from 7.2 times to 12.0 times, with a mean of 9.1 times.

 
·
The enterprise value to calendar year 2006 EBITDA multiple ranged from 6.1 times to 9.8 times, with a mean of 8.1 times.

 
·
The enterprise value to mean fiscal year 2004 and fiscal year 2005 EBITDA multiple ranged from 8.2 times to 15.8 times, with a mean of 11.0 times.
 
Capitalink selected an appropriate multiple range for the Cash Security business by examining the range indicated by the Comparable Companies and then applied this multiple range to the Cash Security business’s ranges of last twelve month 2005 revenue, calendar year 2006 revenue, last twelve month 2005 EBITDA, calendar year 2006 EBITDA, and mean EBITDA.

Capitalink noted that the financials used in calculating the multiples of the Comparable Companies include public company costs. Therefore, the calculated Comparable Company multiples would be higher than appropriate for the Cash Security business, whose financials do not include public company costs.

Capitalink expects the Cash Security business’s valuation multiples to be significantly below the mean of the Comparable Companies due a number of factors:

 
·
The Cash Security business has little operating profit history.

 
·
Current and future EBITDA is heavily dependent on one product line.

 
·
Current and future EBITDA is heavily dependent on one customer.

 
·
The product sold by the Cash Security business is highly specialized.

 
·
Lack of public company costs, as noted above.

Based on the above factors, the multiple ranges selected for the Company were as follows:

 
 
·
Between 0.80 and 1.0 times last twelve month 2005 revenue.

 
·
Between 0.65 and 0.85 times calendar year 2006 revenue.

 
·
Between 6.0 and 8.0 times Mean EBITDA (fiscal year 2004-fiscal year 2005).

 
·
Between 3.5 and 4.5 times last twelve month 2005 EBITDA.

 
·
Between 3.0 and 4.0 times calendar year 2006 EBITDA.
 
Based on the selected multiple ranges, Capitalink calculated a range of enterprise values for the Cash Security business by weighting the above indications equally.

Capitalink deducted net debt of approximately $31,000 (related to vehicle leases) to derive an indicated equity value range of approximately $13.8 million to approximately $18.0 million.

None of the Comparable Companies have characteristics identical to the Cash Security business. An analysis of publicly traded comparable companies is not mathematical; rather it involves complex consideration and judgments concerning differences in financial and operating characteristics of the Comparable Companies and other factors that could affect the public trading of the Comparable Companies.

Cash Security Business Comparable Asset Sale Analysis
A comparable transaction analysis involves a review of merger, acquisition and asset purchase transactions involving target companies that are in related industries to the Cash Security business. The comparable transaction analysis generally provides the widest range of value due to the varying importance of an acquisition to a buyer (i.e., a strategic buyer willing to pay more than a financial buyer) in addition to the potential differences in the transaction process (i.e., competitiveness among potential buyers).

Capitalink located five transactions announced since September 2003 involving target companies involved in the manufacture and sale of electronics safes and vaults, POS and ATM systems and other specialized electronic cash equipment, or the Comparable Asset Sales, and for which detailed financial information was available.

Based on the information disclosed with respect to the targets in the each of the Comparable Asset Sales, Capitalink calculated and compared the enterprise values as a multiple of last twelve month revenue and last twelve month EBITDA.

Capitalink noted the following with respect to the multiples generated:

 
·
The enterprise value to last twelve month revenue multiple ranged from 0.24 times to 1.17 times, with a mean of 0.83 times.

 
·
The enterprise value to last twelve month EBITDA multiple ranged from 3.5 times to 10.7 times, with a mean of 8.1 times.

Capitalink expects the Cash Security business’s valuation multiples to be significantly below the mean of the Comparable Asset Sales due a number of factors:

 
·
The Cash Security business has little operating profit history.


 
·
Current and future EBITDA is heavily dependent on one product line.

 
·
Current and future EBITDA is heavily dependent on one customer.

 
·
The product sold by the Cash Security business is highly specialized.
 
Capitalink determined a range of indicated enterprise values for the Cash Security business by selecting a range of valuation multiples based on the Comparable Asset Sales, and then applied them to the Cash Security business’s last twelve month revenue and last twelve month EBITDA.

Taking into account such factors, Capitalink selected a multiple range for the Cash Security business’s last twelve month revenue of between 0.80 and 1.0 times, and last twelve month EBITDA of between 4.0 and 5.0 times. Based on the selected multiple ranges, Capitalink calculated a range of enterprise values for the Company by weighting the above indications equally.

Capitalink deducted net debt of approximately $31,000 (related to vehicle leases) to derive an indicated equity value range of approximately $16.0 million to approximately $20.0 million.

None of the target companies in the Comparable Asset Sales have characteristics identical to the Cash Security business. Accordingly, an analysis of comparable business combinations is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the target companies in the Comparable Asset Sales and other factors that could affect the respective acquisition values.

Cash Security Business Leveraged Buyout Analysis
A leveraged buyout analysis examines the free cash flows of the Cash Security business, and determines the price a leveraged buyout firm might theoretically be willing to pay in a leveraged buyout transaction in order to generate acceptable internal rates of return.

The leveraged buyout analysis assumes the leveraged buyout firm would be able to realize a return on its investment in the Cash Security business through a sale or public offering of the Cash Security business at the end of fiscal year 2010.

Capitalink utilized projections provided by Tidel management from fiscal year 2006 to fiscal year 2007, and assumed 10% revenue growth in each of fiscal year 2008, fiscal year 2009 and fiscal year 2010.

The key assumptions utilized in this analysis are as follows:

 
·
The leveraged buyout firm target return is expected to be between 30.0% and 35.0%.

 
·
The Cash Security business is sold at the end of fiscal 2010 at an EBITDA multiple of 4.0 times to 5.0 times.

 
·
Total debt of $8.0 million is used to leverage the investment.
 
Based on the leveraged buyout analysis, Capitalink determined an implied indicated equity value range for the Cash Security business of between approximately $14.9 million and $18.0 million.

Based on the information and analyses set forth above, Capitalink delivered its written opinion to our board of directors, which stated that, as of December 30, 2005, based upon and subject to the assumptions made, matters considered, and limitations on its review as set forth in the opinion, the purchase price payable under the Asset Sale is fair, from a financial point of view, to the unaffiliated stockholders. Capitalink is an investment banking firm that, as part of its investment banking business, regularly is engaged in the evaluation of businesses and their securities in connection with mergers, acquisitions, corporate restructurings, private placements, and for other purposes. We determined to use the services of Capitalink because it is a recognized investment banking firm that has substantial experience in similar matters. Capitalink does not beneficially own any interest in Tidel or Engineering and has not provided either company with any other services.

33


Pursuant to the terms of the engagement letter between Capitalink and Tidel, Capitalink received a fee of $75,000 from the Company and reimbursement by the Company for expenses upon the delivery of its fairness opinion dated December 30, 2005. The terms of the fee arrangement with Capitalink, which Tidel and Capitalink believe are customary in transactions of this nature, were negotiated at arms’ length between the independent committee and Capitalink.
 
Purpose of the Asset Sale

The purpose of the Asset Sale for Tidel is to enable it to immediately realize the value of its remaining business. In this respect, the independent committee and the board of directors believed that the Asset Sale was more favorable to the Company’s stockholders than any other alternative reasonably available because of the uncertain returns to such stockholders in light of the Company’s business, operations, financial condition, strategy and prospects, as well as the risks involved in achieving those prospects, and general industry, economic and market conditions, both on a historical and on a prospective basis. In particular, the independent committee and the board of directors believe that we face several challenges in our efforts to increase stockholder value, including competition from companies with substantially greater scale. For these reasons, and the other reasons discussed under “The Asset Sale -- Reasons for the Asset Sale,” the independent committee and the board of directors each have determined that the Asset Purchase Agreement, the Asset Sale and related transactions are advisable and are fair to and in the best interests of the Company and its unaffiliated stockholders.
 
Effects of the Asset Sale

If the Asset Purchase Agreement, the Asset Sale and the other transactions contemplated thereby are approved and adopted by our stockholders and the other conditions to closing are satisfied, we will be a shell public company with no operations and we will consider all available alternatives, including the acquisition of a new business or the dissolution of the Company and liquidation of it assets, the discharge of any remaining liabilities, and the eventual distribution of remaining assets to our stockholders. If the Company decides to dissolve and liquidate its assets such action would require the approval of the holders of the majority of its then outstanding shares and we cannot give any assurances as to the amount of liquidation proceeds that might eventually be distributed to you. Also, in the event the Asset Sale is approved and adopted and consummated, we have agreed to redeem from Laurus all 19,251,000 shares of our common stock that it currently holds at a per share price not less than $.20 per share nor greater than $.34 per share following the determination of our assets in accordance with a formula set forth in the stock redemption agreement. See “Special Factors --Laurus Stock Redemption” for a more detailed description of the proposed redemption of our shares held by Laurus. We must pay to Laurus fees in respect of the Asset Sale which we estimate will range between $9 million and $11 million. See “Special Factors --Fee Payable to Laurus” for a more detailed description of the fees payable to Laurus, including how they will be calculated.

34


Financing

Fees and Expenses of the Asset Sale

The Company estimates that the total amount of funds necessary to complete the Asset Sale and the related transactions is anticipated to be approximately $______ million which includes approximately:

 
·
$______ million to be paid to Laurus in respect of the Laurus Fee;

 
·
$______ million to be paid to Laurus upon the redemption of all the shares of our common stock that it holds;

 
·
$470,000 in aggregate amount to be paid as a termination payments to four officers of Sellers upon the closing of the Asset Sale;

 
·
up to $400,000 payable to our independent directors in respect of their extraordinary services to the Company; and

 
·
$____ million to pay related fees and expenses of the Company in connection with the Asset Sale and related transactions.

The expenses estimated to be incurred in connection with the Asset Sale are as follows:

 
·
Accounting fees and expenses;

 
·
Advisory fees and expenses;

 
·
Legal fees and expenses;

 
·
Printing, solicitation and mailing costs;

 
·
SEC filing fee; and

 
·
Miscellaneous expenses.
 
If the Asset Sale is consummated, these payments are expected to be funded by available cash of the Company.

If the Asset Sale is not consummated, we would be obligated to make some of these payments out of available cash of the Company. In addition, if the Asset Sale is not consummated under certain circumstances described under “The Asset Purchase Agreement -- Buyer Fee,” we may be obligated to pay Buyer $400,000.

Buyer Financing

Laurus and the management participants have entered into a non-binding term sheet concerning the provision of acquisition financing to Buyer in respect of the Asset Sale. In connection with this financing Laurus would receive from an affiliate of Buyer a secured convertible promissory note and an option to purchase stock of such affiliate. The final terms and conditions of the acquisition financing are subject to negotiations between Laurus and Buyer’s affiliates and the execution and delivery of definitive agreements.

35


Termination Payments 

We have agreed to make payments of $470,000 in the aggregate to four of our officers and employees, Mark K. Levenick, M. Flynt Moreland, Troy D. Richard and Robert M. Gutierrez, in connection with the termination of their employment with the Sellers and upon the closing of the Asset Sale.
 
Indemnification and Insurance

The Asset Purchase Agreement provides that all rights to indemnification or exculpation existing in favor of the employees, agents, directors or officers of Tidel and its subsidiaries in effect on the date of the Asset Purchase Agreement will continue in full force and effect for a period of six years after the Asset Sale; and that Tidel, for a period of six years after the Asset Sale, will maintain directors’ and officers’ and fiduciaries’ liability insurance covering the officers and directors of Tidel and its subsidiaries as of the date of the Asset Purchase Agreement on comparable terms and coverage as is in effect for the officers and directors of Tidel and its subsidiaries on the date of the Asset Sale and if Tidel is dissolved prior to the termination of this six year period, Tidel shall first extend to and pay Tidel’s directors’ and officers’ and fiduciaries’ liability insurance policy on commercially reasonable terms for all directors and officers of Tidel as of the date of the Asset Purchase Agreement.
 
Material United States Federal Income Tax Consequences

The proposed Asset Sale will be a transaction taxable to Tidel for United States consolidated federal income tax purposes. Tidel will recognize taxable income equal to the amount realized on the sale in excess of Tidel’s tax basis in the assets sold. The amount realized on the sale will consist of the cash received in exchange for the assets sold, plus the amount of liabilities assumed by Buyer.

Although the Asset Sale will result in a taxable gain to Tidel, we expect the majority of the taxable gain will be offset to the extent of net operating losses. The taxable gain will differ from the gain to be reported in the Tidel financial statements due to temporary tax differences and certain other differences between the tax laws and generally accepted accounting principles.

While Tidel believes that it will be able to apply the tax net operating loss carry forwards without limitation against the taxable gain from the sale of the assets, the availability and amount of net operating loss carryforwards may be subject to audit and adjustment by the Internal Revenue Service. In the event the Internal Revenue Service adjusts the net operating loss carryforwards, Tidel may incur an increased tax liability on a consolidated basis on the sale of the assets.

Tidel stockholders will experience no federal income tax consequences as a result of the consummation of the proposed sale of the assets by Tidel to Buyer pursuant to the Asset Purchase Agreement.
 
Regulatory Approvals

The Company is not aware of any regulatory requirements or governmental approvals or actions that may be required to consummate the Asset Sale, except for compliance with the applicable regulations of the Securities and Exchange Commission in connection with this proxy statement and the Delaware General Corporation Law in connection with the Asset Sale.

36


THE ASSET PURCHASE AGREEMENT

The following summarizes material provisions of the Asset Purchase Agreement, a copy of which is attached to this proxy statement as Annex A. This summary does not purport to be complete and may not contain all of the information about the Asset Purchase Agreement that is important to you. We encourage you to read carefully the Asset Purchase Agreement in its entirety because the rights and obligations of the parties are governed by the express terms of the Asset Purchase Agreement and not by this summary or any other information contained in this proxy statement.

The description of the Asset Purchase Agreement in this proxy statement has been included to provide you with information regarding its terms. The Asset Purchase Agreement contains representations and warranties made by and to the Company, Engineering and Buyer as of specific dates. The statements embodied in those representations and warranties were made for purposes of that contract between the parties and are subject to qualifications and limitations agreed by the parties in connection with negotiating the terms of that contract, including qualifications set forth on the disclosure schedules to the Asset Purchase Agreement. In addition, certain representations and warranties were made as of a specified date, may be subject to contractual standards of materiality different from those generally applicable to stockholders, or may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts.
 
Closing

Closing under the Asset Purchase Agreement will occur on the business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated thereby, including the approval and adoption of the Asset Sale by the holders of a majority of the Company’s common stock outstanding on the record date.
 
Representations and Warranties

The Sellers make various representations and warranties in the Asset Purchase Agreement that are subject, in some cases, to specified exceptions and qualifications. Our representations and warranties relate to, among other things:

 
·
Our filings for recent periods with the Securities and Exchange Commission under the Securities Exchange Act of 1934 will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading;

 
·
Our financial statements, including the accuracy thereof;

 
·
The absence of any material adverse change since June 30, 2005, including, without limiting the scope of this representation, our entry into agreements or the occurrence of specified events either involving more than $10,000 or outside our ordinary course of business;

 
·
The absence of undisclosed liabilities relating to our Cash Security business;

 
·
Our compliance in all material respects with all applicable laws;

 
·
Taxes, including as to our proper, accurate and timely filing and payment of taxes;


 
·
Leased realty, including that we are in compliance under our leases of realty, including as a result of the Asset Sale, and that we have not transferred interests in our leased realty to other persons and that our leased realty is in good condition and repair;

 
·
Real property use in connection with the Cash Security business, including that we hold all material permits that are appropriate for us to use our leased realty;

 
·
Intellectual property, including that we have the right to use all intellectual property desirable for the operation of our Cash Security business as presently conducted or as presently proposed to be conducted, that we have not infringed on the intellectual property rights of third parties;

 
·
Tangible assets, including that all tangible assets necessary for the operation of our Cash Security business have been maintained in accordance with normal industry practice and are in good operating condition and repair;

 
·
Inventory, including that all of our inventory is merchantable and fit for the purpose for which it was procured or manufactured, and none of it is slow-moving, obsolete, damaged, or defective subject to the reserve for inventory writedown on our June 30, 2005 balance sheet;

 
·
Contracts, including that all our material contracts, generally speaking our contracts involving amounts in excess of $10,000, are, and following the Asset Sale, will continue to be, legal, valid, binding, enforceable, and in full force and effect; and are freely assignable to Buyer;

 
·
Insurance, including that we have in full force and effect insurance policies insuring the properties and assets of our Cash Security business;

 
·
Litigation, including as to the absence of any litigation affecting our Cash Security business that would reasonably be expected to result in any material adverse change;

 
·
Product warranties and product liabilities, including that each product manufactured, sold, leased, or delivered by our Cash Security business has been in conformity with all product warranties and there is no liability or basis for future liability for damages to third parties for such products;

 
·
Employee matters including, that no employee of the Cash Security business is party to any agreement with third parties that would limit the performance of such employees’ duties with the Sellers and that there are no labor disputes occurring or to Sellers’ knowledge, threatened;

 
·
Employee benefit plans, including that each such plan has been maintained, funded and administered in accordance with the terms of such plan, and that there have been no prohibited transactions with respect to such plan and that Buyer will have no liability with respect to such plan;

 
·
Environmental, health, and safety requirements, including that each of Sellers, and their respective predecessors and affiliates has complied and is in material compliance with all environmental, health, and safety requirements; and

 
·
Customers and suppliers, including that no customer of, or material supplier to, the Cash Security business has indicated that it shall stop, or decrease the rate of, supplying materials, products or services to the Cash Security business.
 

For the purposes of the Asset Purchase Agreement, a “material adverse effect” or “material adverse change” with respect to us means any effect or change that would be (or could be reasonably expected to be) materially adverse to the business, assets, condition (financial or otherwise), operating results, operations, or business prospects of Sellers or our Cash Security business (regardless of whether or not such adverse effect or change can be or has been cured at any time or whether Buyer has knowledge of such effect or change).

You should be aware that these representations and warranties are made by Sellers to Buyer, may be subject to important limitations and qualifications set forth in the Asset Purchase Agreement and the disclosure schedules thereto and do not purport to be accurate as of the date of this proxy statement.

The Asset Purchase Agreement also contains various representations and warranties made by Buyer that are subject, in some cases, to specified exceptions and qualifications. The representations and warranties relate to, among other things, Buyers due organization and existence, its power and authority to enter into and perform the Asset Purchase Agreement and the transactions contemplated thereby, and that Buyer’s execution and delivery of the Asset Purchase Agreement, and that its consummation of the transactions contemplated thereby will not contravene any agreement or organizational document of Buyer:

The representations and warranties of each of the parties to the Asset Purchase Agreement will expire upon the closing of the Asset Sale.
 
Conduct of Our Business Pending the Asset Sale

For the period between January 12, 2006 and the completion of the Asset Sale, we have agreed:
 
 
·
not to engage in any practice, take any action, or enter into any transaction outside the ordinary course of business;

 
·
to keep our business and properties substantially intact, including our present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees;

 
·
to permit representatives of Buyer to have reasonable access to all premises, personnel, records, and contracts of Sellers; and

 
·
to take all actions that a reasonably prudent person would undertake with respect to litigation involving Engineering and Corporate Safe Specialists, Inc. and to diligently defend this litigation, provided, however, that any material actions with respect to this litigation will require the prior written consent of Buyer, which consent is not be unreasonably withheld.
 
Post Closing Covenants

Buyer and Sellers have agreed that following the closing of the Asset Sale:
 
 
·
the parties will take such further actions as the other party may reasonably request, all at the sole cost and expense of the requesting party;

 
·
Sellers shall not use the termTidel” or “Sentinel” or any derivations thereof as part of their respective names;


 
·
In the event a party is contesting or defending any matter arising out of the Asset Sale, the other party will cooperate with the contesting or defending party;

 
·
Sellers shall not do anything that would harm the business relationships between its customers, suppliers and other business associates and Buyer after closing the Asset Sale;

 
·
For a period of five years from and after the Asset Sale, Sellers shall not compete in any business that the Company’s Cash Security business conducts as of the closing of the Asset Sale and shall not solicit any employee of Buyer to leave the employment of Buyer or solicit any customer or potential customer of Buyer to cease or reduce its business with Buyer;

 
·
Buyer shall undertake and have the sole right to direct on behalf of itself and Sellers, the defense of ongoing litigation involving Engineering with counsel of its choice, provided that in the event Sellers shall incur any adverse consequences in connection with the litigation subsequent to the Asset Sale, then Buyer shall indemnify Sellers from and against the entirety of any such adverse consequences to the extent they are incurred as a result of the breach of the Asset Purchase Agreement or the negligent action or inaction of Sellers;

 
·
All rights to indemnification or exculpation now existing in favor of the employees, agents, directors or officers of Tidel and its subsidiaries in effect on the date of the Asset Purchase Agreement will continue in full force and effect for a period of six years after the Asset Sale; and

 
·
Tidel, for a period of six years after the Asset Sale, will maintain directors’ and officers’ and fiduciaries’ liability insurance covering the officers and directors of Tidel and its subsidiaries as of the date of the Asset Purchase Agreement on comparable terms and coverage as is in effect for the officers and directors of Tidel and its subsidiaries on the date of the Asset Sale and if Tidel is dissolved prior to the termination of this six year period, Tidel shall first have extended and paid Tidel’s directors’ and officers’ and fiduciaries’ liability insurance policy on commercially reasonable terms for all directors and officers of Tidel as of the date of the Asset Purchase Agreement.
 
Exclusivity; No Solicitation of Transactions

Sellers have agreed that neither they nor any of their representatives shall solicit or facilitate any acquisition proposal relating to the Cash Security business, or afford access to the business, properties, assets, books or records of Sellers or cooperate in any way with any third party that is seeking to make an acquisition proposal relating to the Cash Security business. Sellers have also agreed to immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any third party conducted prior to the date of the Asset Purchase Agreement.

For purposes of the Asset Purchase Agreement, an “acquisition proposal” includes any transaction other than the conversion of Seller’s debt by Laurus, any offer, tender offer, proposal or inquiry relating to, or any third party indication of interest in, any acquisition of any Seller’s assets or over five percent of any class of equity or voting securities of Sellers or their subsidiaries, or a merger, business combination or other similar transaction involving Sellers or any their subsidiaries, or any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Asset Sale.

Notwithstanding the agreement granting Buyer exclusive rights to consummate the purchase of the Cash Security business, provided Sellers are in compliance with the exclusivity agreement with Buyer, the Asset Purchase Agreement allows the Company’s board of directors to engage in discussions with, and provide non public information to, a third party that has made a superior proposal concerning the Cash Security business, so long as Buyer is also furnished with such nonpublic information. Following receipt of such a superior proposal, the Company’s board of directors may fail to make, withdraw or modify in a manner adverse to Buyer its recommendation to its stockholders to support the Asset Sale, and may submit such superior proposal to a vote of its stockholders if a majority of its non-affiliated directors determine in good faith, after considering written advice of outside legal counsel and the financial advisor to the Company’s board of directors that the board must take such action to comply with its fiduciary duties under applicable law. In addition, the Company must keep Buyer informed on a current basis as to the status of any superior proposal and notify Buyer promptly, but in no event later than 24 hours, after receipt by Buyer of any acquisition proposal.


In the event the Company receives a superior proposal, the Company and its board of directors may not negotiate in respect of such superior proposal and do the other things described in the preceding paragraph until the Company has negotiated in good faith with Buyer with respect to the terms of the transactions contemplated by the Asset Purchase Agreement for a period of 10 business days from the date Buyer receives written notice of all material terms and conditions of the Superior Proposal (including any documents related thereto). In the event the Company subsequently receives any amendments or changes to such Superior Proposal, the Company and its board of directors shall not take any of the actions described in the preceding paragraph until the Company has negotiated in good faith with Buyer with respect to the terms of the transactions contemplated by the Asset Purchase Agreement for a period of 10 business days from the date Buyer receives written notice of all material terms and conditions of such original superior proposal, as amended or changed (including any documents related thereto) and such written notice shall specify if the Company and its board of directors intend to take any actions described in the preceding paragraph.

For purposes of the Asset Purchase Agreement, a “superior proposal” means any bona fide, unsolicited written acquisition proposal on terms that a majority of the Company’s non-affiliated directors determine in good faith are more favorable and provide greater value to all of the Company’s stockholders than as provided under the Asset Purchase Agreement and which is reasonably likely to be consummated on such terms and for which financing, to the extent required, is then fully committed
 
Special Meeting

Under the Asset Purchase Agreement, the Company has agreed:

 
·
to duly call, give notice of, convene and hold a meeting of our stockholders as soon as reasonably practicable for the purpose of voting on the approval and adoption of the Asset Purchase Agreement and transactions contemplated under it, including the Amendment;

 
·
to promptly prepare and file with the SEC, use its commercially reasonable best efforts to have cleared by the SEC and thereafter mail to its stockholders as promptly as practicable, a proxy statement and all other proxy materials for such meeting;

 
·
to use its commercially reasonable best efforts to obtain the necessary approvals by its stockholders of the Asset Purchase Agreement and the transactions contemplated thereby and the Amendment; and

 
·
to hire MacKenzie Partners, Inc., or another proxy solicitor of equivalent stature, to assist the Company in the solicitation of votes and proxies for the stockholder meeting.
 
 
Laurus has entered into and the Company’s executive officers and directors has entered into voting agreements with Buyer under which Laurus and the Company’s executive officers and directors have agreed to vote the shares of Company common stock that such person’s own and control in favor of the Asset Purchase Agreement and the Amendment at the meeting of the Company’s stockholders called to approve and adopt the Asset Purchase Agreement.
 
Conditions to Obligations of Buyer

The obligations of Buyer to effect the Asset Sale are subject to the satisfaction of the following conditions:
 
 
·
the representations and warranties of Sellers in the Asset Purchase Agreement shall be true and correct in all material respects;

 
·
Sellers shall have performed and complied with all of the covenants in the Asset Purchase Agreement in all material respects;

 
·
Sellers shall have procured all of the third-party consents required to be obtained in connection with the Asset Sale;

 
·
no action, suit, or proceeding shall be pending or threatened in respect of the Asset Sale;

 
·
no material adverse effect shall have occurred;

 
·
there shall not have been an adverse change or impact with respect to Sellers or Buyer in connection with ongoing litigation;

 
·
stockholders holding at least a majority of our common stock outstanding at the close of business on the record date shall approved the Asset Purchase Agreement and the Amendment;

 
·
Sellers shall have delivered the assets to be acquired by Buyer under the Asset Sale, free of all liens and shall provided Buyer with evidence of the release of all liens affecting such assets;

 
·
Sellers, Tidel Cash Systems, Inc. and Tidel Services, Inc. shall have changed their respective names such that they do not contain the terms “Tidel” or “Sentinel” or any derivations thereof and shall have provided to Buyer evidence thereof reasonably satisfactory to Buyer; and

 
·
Sellers shall have terminated the employment agreements of its executive officers on terms reasonably satisfactory to Buyer.
 
Conditions to Obligations of the Sellers

The obligation of the Sellers to effect the Asset Sale is subject to the satisfaction of the following additional conditions:

 
·
the representations and warranties of Buyer in the Asset Purchase Agreement shall be true and correct in all material respects;


 
·
Buyer shall have performed and complied with all of the covenants in the Asset Purchase Agreement in all material respects;

 
·
no action, suit, or proceeding shall be pending or threatened in respect of the Asset Sale; and

 
·
stockholders holding at least a majority of our common stock outstanding at the close of business on the record date shall approved the Asset Purchase Agreement and the Amendment.
 
Either Sellers or Buyer may elect to waive conditions to their respective performance and complete the Asset Sale. As of the date of this proxy statement neither Sellers nor Buyer is aware of any material uncertainty as to any of the conditions to the completion of the Asset Sale.
 
Termination

The Asset Purchase Agreement may be terminated and the Asset Sale may be abandoned at any time prior to the closing of the Asset Sale:

 
·
by mutual written consent of the parties;

 
·
by either Sellers or Buyer, as the case may be, upon giving written notice to Sellers in the case of Buyer, and to Buyer in the case of Sellers, in the event (A) Sellers in the case of Buyer, and Buyer in the case of Sellers, have breached any representation, warranty, or covenant contained in the Asset Purchase Agreement in any material respect, and the terminating party has notified the breaching party of the breach, and the breach has continued without cure for a period of 30 days after the notice of breach or if (B) the Asset Sale shall not have occurred on or before September 12, 2006;

 
·
by Buyer by written notice to Sellers if Sellers, contrary to the terms of the Asset Purchase Agreement, fail to deal exclusively with Buyer in respect of the sale of the Company’s Cash Security business or fail to file a proxy and recommend the Asset Sale to a stockholders’ meeting of the Company; or

 
·
by Buyer by written notice to Sellers if a majority of the Company’s non-affiliated directors shall have failed to make or have withdrawn their recommendation of the Asset Purchase Agreement or the transactions contemplated thereby or shall have approved or recommended an alternative acquisition proposal.
 
Laurus Voting Agreement

Laurus has entered into a voting agreement with Buyer under which it has agreed to vote all of the shares of Tidel common stock that its owns, and any shares over which they exercise voting control, in favor of the approval and adoption of the Asset Purchase Agreement and related transactions, including the Amendment, and against any competing transactions proposed to the Company’s stockholders. The full text of the voting agreement is included as an exhibit to our Current Report on Form 8-K/A filed January 31, 2006 which is incorporated by reference into this proxy statement and a copy of which is distributed with this proxy statement.

 
Officer and Director Voting Agreement

Our officers and directors have entered into a voting agreement with Buyer under which each of these persons has agreed to vote, and has granted a proxy to Buyer for this purpose, all of their shares of Tidel common stock that they own and any shares over which they exercise voting control in favor of the approval and adoption of the Asset Purchase Agreement and related transactions, including the Amendment, and against any competing transactions proposed to the Company’s stockholders. The full text of the voting agreement is included as an exhibit to our Current Report on Form 8-K/A filed January 31, 2006 which is incorporated by reference into this proxy statement and a copy of which is distributed with this proxy statement.
 
Buyer Fee

In the event a parent payment event occurs, the Company has agreed to pay Buyer $400,000, within two business days, in addition to any damages to which it may be entitled to under the Asset Purchase Agreement.

The Asset Purchase Agreement defines a parent payment event as the termination of the Asset Purchase Agreement in the event the Sellers (A) fail to deal exclusively with Buyer in respect of the sale of the Company’s Cash Security business or to file a proxy and recommend the Asset Sale to a stockholders’ meeting of the Company, or (B) consummate, publicly announce, or execute documentation providing for any acquisition proposal other than the Asset Sale pursuant to the terms of the Asset Purchase Agreement, provided that such consummation, announcement or execution occurs prior to July 12, 2007.
 
Amendment and Waiver

The Asset Purchase Agreement may be amended by the parties thereto in writing at any time before or after approval and adoption of the Asset Purchase Agreement by the stockholders of the Company, but, after any such approval and adoption, no amendment will be made that by law requires further approval by the Company’s stockholders without first obtaining such approval.

Until the closing of the Asset Sale, the parties may, to the extent legally allowed:

 
·
extend the time for the performance of any of the obligations or other acts of the other parties in the Asset Purchase Agreement;

 
·
waive in writing any inaccuracies in the representations and warranties contained in the Asset Purchase Agreement and the disclosure schedules to the Asset Purchase Agreement; and

 
·
waive in writing compliance with any of the agreements or conditions contained in the Asset Purchase Agreement.

 
DIVIDEND POLICY

We have not paid any dividends in the past two years, and do not anticipate paying dividends in the foreseeable future. Since November 25, 2003, we have been restricted from paying dividends pursuant to our financing arrangements with Laurus.
 
REORGANIZATION OF BOARD

Upon the Asset Sale, two of our current directors, Mark K. Levenick and Raymond P. Landry, will resign from our board of directors and, by action of our board of directors, we will amend our bylaws to reduce the size of our board of directors to two directors.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT

The following table and the notes thereto set forth certain information regarding the beneficial ownership of the Company’s common stock as of January 13, 2006, by:

 
·
each current director of the Company;

 
·
the chief executive officer and the four other most highly compensated executive officers whose salary and bonus for the fiscal year ended September 30, 2005 were in excess of $100,000 (collectively, the “named executive officers”).

 
·
all named executive officers and directors of the Company as a group; and

 
·
each other person known to the Company to own beneficially more than five percent of the outstanding Common Stock.
 
The only transactions in our common stock involving such persons in this past 60 days has been Laurus’ entry into an exercise and conversion agreement with us dated January 12, 2006 pursuant to which Laurus converted on January 13, 2006 $5,400,000 of our outstanding indebtedness that it held into 18,000,000 shares of our common stock. The exercise and conversion agreement also provides that if the Asset Sale does not occur by March 31, 2006, Tidel will immediately redeem from Laurus the 18,000,000 shares of our common stock issued to Laurus on January 13, 2006. Pursuant to the terms of a stock redemption agreement we entered into with Laurus dated January 12, 2006, we agreed to repurchase from Laurus, upon the closing of the Asset Sale, all shares of our common stock held by Laurus at a per share price of not less than $.20 per share nor greater than $.34 per share following the determination of our assets in accordance with the formula set forth therein. For more detailed information concerning these transactions with Laurus see “Special Factors -- Laurus Stock Redemption” and “Related Party Transactions.” Pursuant to the terms of the stock redemption agreement with Laurus, Laurus has agreed (i) to the cancellation as of the closing of the Asset Sale of the outstanding warrants that it holds to purchase 4,750,000 shares of our common stock at an exercise price of $.30 per share, and (ii) not to exercise such warrants prior to the earlier to occur of March 31, 2006 and the date on which the Asset Purchase Agreement is terminated.

The Company has determined beneficial ownership in accordance with the rules of the SEC. The number of shares beneficially owned by a person includes shares of common stock of the Company that are subject to stock options that are either currently exercisable or exercisable within 60 days following January 13, 2006. These shares are also deemed outstanding for the purpose of computing the percentage of outstanding shares owned by the person. However, these shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, to the Company’s knowledge, each stockholder has sole voting and dispositive power with respect to the securities beneficially owned by that stockholder. Unless a footnote indicates otherwise, the address of each person listed below is c/o Tidel Technologies, Inc., 2900 Wilcrest Drive, Suite 205, Houston, Texas 77042. As of January 13, 2006, there were 38,677,210 shares of common stock of the Company outstanding.



Name and Address of Beneficial Owner
 
Amount and Nature of Beneficial Ownership
 
Percent of Class(1)
 
Laurus Master Fund, Ltd
   
19,251,000
(2)   
 
 
 
49.8
%
Mark K. Levenick
   
390,000
(3)   
 
 
 
1.0
%
Jerrell G. Clay
   
181,405
       
*
 
Raymond P. Landry
   
38,500
       
*
 
Stephen P. Griggs
   
       
*
 
Robert D. Peltier
   
---
         
*
 
Directors and Executive Officers as a group (5 persons)(4)
   
609,905
       
1.6
%
 
*
Less than one percent.
(1)
Based upon 38,677,210 shares outstanding as of January 13, 2006.
(2)
The number of shares currently beneficially owned by Laurus as of January 13, 2006 is reflected above. On January 13, 2006, Laurus converted $5,400,000 in aggregate principal amount of convertible Sellers’ debt it held into 18,000,000 shares of our common stock pursuant to the terms of the underlying debt and an exercise and conversion agreement, dated as of January 12, 2006. The exercise and conversion agreement also provides that if the Asset Sale does not occur by March 31, 2006, Tidel will immediately redeem from Laurus the 18,000,000 shares of our common stock issued to Laurus on January 13, 2006. For more information on these transactions with Laurus see “Related Party Transactions” and “Special Factors.” The address of Laurus is c/o M&C Corporate Services Ltd., P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands.
(3)
Includes 275,000 shares which could be acquired within 60 days upon exercise of outstanding options at exercise prices of (i) $1.25 per share as to 100,000 shares, (ii) $1.875 per share as to 75,000 shares and (iii) $2.50 per share as to 100,000 shares.
(4)
A former executive officer, Michael F. Hudson, accepted a new employment position on January 1, 2006 with the purchaser of our ATM division and terminated his employment with Sellers. No shares held by Mr. Hudson are included on the above table.
 
 
RELATED PARTY TRANSACTIONS

Laurus

We entered into an exercise and conversion agreement with Laurus dated January 12, 2006 pursuant to which Laurus converted on January 13, 2006 $5,400,000 of our outstanding indebtedness it held into 18,000,000 shares of our common stock. Following Laurus’ conversion of such debt, Laurus holds 19,251,000 shares representing approximately 49.8% of our outstanding shares of common stock.

On January 13, 2006, we repaid all of our remaining outstanding debt to Laurus in the principal amount of $2,617,988 plus accrued but unpaid interest in the amount of $113,333. In connection therewith, we paid a prepayment penalty to Laurus in the amount of $59,180.

In addition, we entered into a stock redemption agreement with Laurus dated January 12, 2006 under which we have agreed to repurchase from Laurus, upon the closing of the Asset Sale, all 19,251,000 shares of our common stock held by Laurus at a per share price of not less than $.20 per share nor greater than $.34 per share following the determination of our assets in accordance with a formula set forth in the stock redemption agreement. See “Special Factors --Laurus Stock Redemption” for a more detailed description of the proposed redemption of our shares held by Laurus.

Following the share repurchase under the Laurus stock redemption agreement, Laurus will cease to hold any equity interest in the Company. Pursuant to the terms of the stock redemption agreement with Laurus, Laurus has agreed (i) to the cancellation as of the closing of the Asset Sale of the outstanding warrants that it holds to purchase 4,750,000 shares of our common stock at an exercise price of $.30 per share, and (ii) not to exercise such warrants prior to the earlier to occur of March 31, 2006 and the date on which the Asset Purchase Agreement is terminated.

If the Asset Sale does not occur by March 31, 2006, then pursuant to the terms of the exercise and conversion agreement we entered into with Laurus, we have agreed to immediately redeem from Laurus the 18,000,000 shares of our common stock issued to Laurus upon Laurus’ conversion pursuant to the exercise and conversion agreement of $5,400,000 of our debt.

We and Laurus also entered into a cash collateral deposit letter, and a reaffirmation, ratification and confirmation agreement, each dated January 12, 2006. Pursuant to the cash collateral deposit letter, we agreed that a portion of the $8,200,000 of proceeds, or the deposit amount, from the January 2006 sale of our automated teller machine business that were on deposit with Laurus for repayment of outstanding Company indebtedness to Laurus would be applied to repay all amounts owing to Laurus under (i) the portion of the note, dated November 25, 2003, in the initial principal amount of $6,450,000, together with an additional $292,987 principal amount added thereto on November 26, 2004, remaining after Laurus’ conversion of $5,400,000 of outstanding indebtedness it held into shares of our common stock, (ii) a convertible term note, dated November 26, 2004 in the aggregate principal amount of $600,000, which was convertible into shares of common stock of the Company at a conversion price of $0.30 per share and (iii) a convertible term note, dated November 26, 2004, in the aggregate principal amount of $1,500,000, which was convertible into shares of common stock of the Company at a conversion price of $3.00 per share, collectively, the notes. Thereafter, the notes were deemed to have been indefeasibly repaid and the deposit amount was reduced to $5,330,507. Under the cash collateral deposit letter, such remaining deposit amount together with an additional cash deposit of $69,493 from the Company, or an aggregate amount of $5,400,000, will be used as collateral to secure our obligations to Laurus under, among other things, the stock redemption agreement and the exercise and conversion agreement. Pursuant to the reaffirmation, ratification and confirmation agreement, we acknowledged and reaffirmed our obligation to pay to Laurus simultaneously with the closing of the Asset Sale the Laurus Fee pursuant to the Laurus Fee Agreement and which shall not be less than $5,000,000 nor more than $11,000,000 and which we estimate will be between $9,000,000 and $11,000,000. See “Special Factors --Fee Payable to Laurus” for a more detailed description of the Laurus Fee.

 
Laurus or its affiliates may provide financing to Buyer in respect of the Asset Sale. See “Special Factors -- Financing -- Buyer Financing.”
 
NO RIGHT OF APPRAISAL

Tidel’s stockholders will not experience any change in their rights as stockholders as a result of the Asset Sale. Neither Delaware law, Tidel’s certificate of incorporation nor Tidel’s bylaws provides for appraisal or other similar rights for dissenting stockholders in connection with the Asset Sale. Accordingly, Tidel’s stockholders will have no right to dissent and obtain payment for their shares.


APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION (PROPOSAL 2)

The Asset Purchase Agreement requires that prior to closing the Asset Sale, the Company file an amendment to its certificate of incorporation to change its name such that it does not contain the terms “Tidel” or “Sentinel” or any derivations thereof. Our board of directors has proposed that the Company’s name be changed from “Tidel Technologies, Inc.” to “[__________], Inc.”, and at the special meeting, you will be asked to approve an amendment to our certificate of incorporation to implement this change. The proposed amendment provides that if the name “[_________], Inc.” is not available in Delaware, we will be authorized to change the name to “[__________], Inc.” instead.

A copy of the proposed certificate of amendment is attached as Annex C to this proxy statement. You are urged to read the certificate of amendment carefully as it is the legal document that governs the amendment to our certificate of incorporation. Although we are asking for stockholder approval of this proposal, if for any reason the Asset Sale is not completed, this proposal will not be implemented.
 
Required Vote 

The approval of the Amendment requires the approval of a majority of the holders of our outstanding shares of common stock. Shares that are voted “FOR” or “AGAINST” the proposal or marked “ABSTAIN” will be counted towards the vote requirement. Broker non-votes, if any, will not be counted towards the vote requirement. Laurus and our officers and directors have agreed to vote an aggregate of 19,860,905 shares, representing approximately 51.4% of the shares of our common stock entitled to vote at the special meeting, in favor of the approval and adoption of the Amendment. Such votes are sufficient to approve and adopt the Amendment, regardless of the vote of any other person.
 
Recommendation of our Board of Directors 

Our board of directors (with interested directors abstaining) has concluded unanimously that the Amendment is in the best interests of our stockholders and recommends that our stockholders approve this proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2.


ADJOURNMENT OF THE SPECIAL MEETING (PROPOSAL 3)

Tidel may ask its stockholders to vote on a proposal to adjourn the special meeting, if necessary or appropriate, in order to allow for the solicitation of additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the Asset Purchase Agreement and the Amendment.
 
Required Vote 

The approval of the adjournment proposal requires the approval of a majority of the holders of the shares of common stock voting at the special meeting. Shares that are voted “FOR” or “AGAINST” the proposal will be counted towards the vote requirement. Neither broker “non-votes” nor abstentions are included in the tabulation of the voting results and, therefore, they do not have the effect of votes against such proposal.
 
Recommendation of our Board of Directors 

Our board of directors (with interested directors abstaining) has concluded unanimously that the adjournment proposal is in the best interests of our stockholders and recommends that our stockholders approve this proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 3.


SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following 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 2001 through 2005 have been derived from our audited consolidated financial statements included in our filings on Form 10-K for each of the respective periods.

The Consolidated Financial Statements for 2001 through 2002 were audited by KPMG LLP. The Consolidated Financial Statements for 2003 through 2005 were audited by Hein & Associates LLP.
 
 
 
Years Ended September 30,
 
SELECTED STATEMENT OF OPERATIONS DATA:(1)
 
2005
 
2004
 
2003
 
2002
 
2001
 
Net income (loss)(2)
 
$
(3,286
)
$
11,318
 
$
(9,237
)
$
(14,078
)
$
(25,942
)
Net income (loss) per share:
                     
Basic
   
(.16
)
 
.65
   
(0.53
)
 
(0.81
)
 
(1.49
)
Diluted
   
(.16
)
 
.37
   
(0.53
)
 
(0.81
)
 
(1.49
)

 
 
As of September 30,
 
SELECTED BALANCE SHEET DATA:(1)
 
2005
 
2004
 
2003
 
2002
 
2001
 
Current assets
 
$
16,908
 
$
10,129
 
$
11,773
 
$
17,263
 
$
28,797
 
Current liabilities
   
13,177
   
8,190
   
32,109
   
28,487
   
28,547
 
Working capital (deficit)
   
3,731
   
1,939
   
(20,336
)
 
(11,224
)
 
250
 
Total assets
   
17,537
   
10,778
   
14,430
   
19,907
   
33,837
 
Total short-term and long-term debt (net of discount)
   
4,421
   
175
   
2,279
   
20,000
   
23,424
 
Shareholders’ equity (deficit)
   
2,263
   
2,588
   
(17,679
)
 
(8,580
)
 
5,194
 

(1)
All amounts are in thousand except per share dollar amounts.
(2)
Income tax expense (benefit) was $0, $(81,229), $0, $(293,982), and $(3,416,030) for the years ended September 30, 2005, 2004, 2003, 2002, and 2001, respectively.
 

Continuing Operations

Due to the requirement to classify our only two product lines as discontinued operations, the results of continuing operations consist primarily of the corporate overhead and debt-related costs.

An analysis of continuing operations and assets and liabilities is provided in the following tables:

CONTINUING OPERATIONS
SELECTED BALANCE SHEET DATA

   
Years Ended September 30,
 
 
 
2005
 
2004
 
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
 
$
1,003,663
 
$
258,120
 
Trade accounts receivable, net
   
250,000
   
250,000
 
Other receivables
   
12,965
   
1,003,723
 
Prepaid expenses and other
   
170,231
   
42,153
 
Total current assets
   
1,436,859
   
1,553,996
 
Property, plant and equipment, at cost
   
55,641
   
44,075
 
Accumulated depreciation
   
(42,848
)
 
(37,871
)
Net property, plant and equipment
   
12,793
   
6,204
 
Other assets
   
615,763
   
643,305
 
Total assets
 
$
2,065,415
 
$
2,203,505
 
LIABILITIES
         
Current Liabilities:
         
Current maturities of long-term debt, net of discount of $0 and $725,259, respectively
 
$
2,325,000
 
$
174,741
 
Accounts payable
   
431,876
   
331,576
 
Accrued interest payable
   
2,135,852
   
793,577
 
Reserve for settlement of class action litigation
   
   
1,564,490
 
Other accrued liabilities
   
290,871
   
326,675
 
Total current liabilities
   
5,183,599
   
3,191,059
 
Long-term debt, net of current maturities and debt discount of $3,746,531 and $5,767,988, respectively
   
2,096,457
   
 
Total liabilities
 
$
7,280,056
 
$
3,191,059
 
 

CONTINUING OPERATIONS
SELECTED OPERATING DATA

 
 
Years Ended September 30,
 
 
 
2005
 
2004
 
2003
 
Revenues
 
$
 
$
 
$
 
Selling, general and administrative
   
1,805,484
   
2,011,257
   
1,889,907
 
Depreciation and amortization
   
4,977
   
4,146
   
10,742
 
Operating loss
   
(1,810,461
)
 
(2,015,403
)
 
(1,900,649
)
Gain on extinguishment of debt
   
   
18,823,000
   
 
Gain on sale of securities
   
   
1,918,012
   
 
Interest expense
   
(6,549,069
)
 
(4,200,668
)
 
(2,466,536
)
Continuing income (loss) before taxes
   
(8,359,530
)
 
14,524,941
   
(4,367,185
)
Income tax benefit
   
   
(81,229
)
 
 
Net Income (loss) from continuing operations
 
$
(8,359,530
)
$
14,606,170
 
$
(4,367,185
)
 

DISCONTINUED OPERATIONS — ATM BUSINESS
SELECTED BALANCE SHEET DATA

   
As of September 30,
 
 
 
2005
 
2004
 
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
 
$
 
$
 
Trade accounts receivable, net
   
2,310,262
   
1,983,931
 
Inventories
   
7,323,439
   
3,432,828
 
Prepaid expenses and other
   
392,972
   
157,490
 
Total current assets
   
10,026,673
   
5,574,249
 
Property, plant and equipment, at cost
   
4,337,677
   
4,286,617
 
Accumulated depreciation
   
(4,216,152
)
 
(3,977,412
)
Net property, plant and equipment
   
121,525
   
309,205
 
Other assets
   
27,297
   
27,297
 
Total assets
 
$
10,175,495
 
$
5,910,751
 
LIABILITIES
         
Current Liabilities:
         
Accounts payable
 
$
1,681,288
 
$
1,686,732
 
Other accrued expenses
   
1,814,634
   
836,289
 
Total liabilities
 
$
3,495,922
 
$
2,523,021
 


DISCONTINUED OPERATIONS — ATM BUSINESS
SELECTED OPERATING DATA

 
 
Years Ended September 30,
 
 
 
2005
 
2004
 
2003
 
Net sales
 
$
15,497,834
 
$
15,047,292
 
$
10,435,118
 
Cost of sales
   
9,508,120
   
11,762,082
   
9,675,580
 
Gross profit
   
5,989,714
   
3,285,210
   
759,538
 
Selling, general and administrative
   
4,768,880
   
4,709,478
   
3,944,795
 
Depreciation and amortization
   
255,967
   
292,543
   
647,640
 
Operating income (loss)
   
964,867
   
(1,716,811
)
 
(3,832,897
)
Non-operating expense
   
   
16,456
   
66,581
 
Net income (loss)
 
$
964,867
 
$
(1,733,267
)
$
3,899,478
 
 

DISCONTINUED OPERATIONS — CASH SECURITY BUSINESS
SELECTED BALANCE SHEET DATA

   
Years Ended September 30,
 
 
 
2005
 
2004
 
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents
 
$
 
$
 
Trade accounts receivable, net
   
1,856,523
   
1,076,362
 
Inventories
   
3,137,818
   
1,350,631
 
Prepaid expenses and other
   
198,057
   
93,087
 
Total current assets
   
5,192,398
   
2,520,080
 
Property, plant and equipment, at cost
   
1,097,604
   
1,091,197
 
Accumulated depreciation
   
(1,020,015
)
 
(972,920
)
Net property, plant and equipment
   
77,589
   
118,277
 
Other assets
   
25,631
   
25,631
 
Total assets
 
$
5,295,618
 
$
2,663,988
 
LIABILITIES
         
Current Liabilities:
         
Current maturities
 
$
1,852
 
$
8,951
 
Accounts payable
   
1,397,394
   
1,380,054
 
Other accrued expenses
   
3,069,278
   
1,058,001
 
Total current liabilities
   
4,468,524
   
2,447,006
 
Long-term debt, net of current maturities
   
28,708
   
28,709
 
Total liabilities
 
$
4,497,232
 
$
2,475,715
 


DISCONTINUED OPERATIONS — CASH SECURITY BUSINESS
SELECTED OPERATING DATA

 
 
Years Ended September 30,
 
 
 
2005
 
2004
 
2003
 
Net sales
 
$
19,435,222
 
$
7,467,194
 
$
7,359,181
 
Cost of sales
   
10,870,947
   
5,350,108
   
4,936,867
 
Gross profit
   
8,564,275
   
2,117,086
   
2,422,314
 
Selling, general and administrative
   
4,449,550
   
3,550,491
   
3,184,314
 
Depreciation and amortization
   
29,868
   
84,008
   
141,473
 
Operating income (loss)
   
4,084,857
   
(1,517,413
)
 
(903,473
)
Non-operating income ( expense )
   
(23,884
)
 
37,918
   
66,581
 
Net income (loss)
 
$
4,108,741
 
$
(1,555,331
)
$
(970,054
)
 

The following financial information represents the operations specific to the Cash Security business for the fiscal years ended September 30, 2005, 2004 and 2003.
 
DISCONTINUED OPERATIONS - CASH SECURITY BUSINESS
SELECTED BALANCE SHEET DATA

   
As of September 30,
 
 
 
2005
 
2004
 
2003
 
ASSETS
                
Current Assets:
                
Cash and cash equivalents
 
$
 
$
 
$
 
Trade accounts receivable, net
   
1,856,523
   
1,076,362
   
972,965
 
Inventories - Net of Allowance for obsolete inventories
   
3,137,818
   
1,350,631
   
2,184,755
 
Prepaid expenses and other
   
198,057
   
93,087
   
214,403
 
Total current assets
   
5,192,398
   
2,520,080
   
4,146,035
 
Property, plant and equipment, at cost
   
1,097,604
   
1,091,197
   
1,070,291
 
Accumulated depreciation
   
(1,020,015
)
 
(972,920
)
 
(873,078
)
Net property, plant and equipment
   
77,589
   
118,277
   
197,213
 
Other assets
   
25,631
   
25,631
   
25,631
 
Total assets
 
$
5,295,618
 
$
2,663,988
 
$
4,368,879
 
 
                   
LIABILITIES
                   
Current Liabilities:
                   
Current Maturities of Long Term Debt
 
$
1,852
 
$
8,951
 
$
 
Accounts payable
   
1,397,394
   
1,380,054
   
819,921
 
Other accrued expenses
   
3,069,278
   
1,058,001
   
492,862
 
Total Current Liabilities
   
4,468,524
   
2,447,006
   
1,312,783
 
Long-term debt, net of current maturities
   
28,708
   
28,709
   
 
Total liabilities
 
$
4,497,232
 
$
2,475,715
 
$
1,312,783
 
 
 
UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following unaudited pro forma financial statements give effect to the sale of substantially all of the assets relating to our Cash Security business. The unaudited pro forma consolidated balance sheet and statements of earnings filed with this proxy statement are presented for illustrative purposes only. The pro forma balance sheet as of September 30, 2005 has been prepared to reflect the sale of substantially all of the assets of our Cash Security business to Buyer as if such sale had taken place on September 30, 2005. The unaudited pro forma statements of earnings (operations) for the fiscal years ended September 30, 2005, 2004 and 2003, have been prepared excluding our Cash Security 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 Cash Security business as of those dates. The pro forma financial statements should be read in conjunction with the audited financial statements filed in our Form 10-K for the year ended September 30, 2005.

Costs and expenses attributed to the Cash Security business include direct costs primarily associated with that business as well as interest and certain shared expenses, including treasury, legal and human resources, based upon estimated usage. Certain items are maintained at Tidel’s corporate headquarters and are not allocated to the Cash Security business. They primarily include costs associated with accounting; certain executive officer salaries and bonuses; investment securities; equity investments; deferred income taxes; certain portions of excess cost over fair value of assets acquired; and  jointly-used fixed assets and debt. The jointly-used fixed assets are Tidel’s management information systems, which is jointly used by the Cash Security business and corporate headquarters. 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 September 30, 2005
 
   
 As Reported
     
Pro Forma
Adjustments
 
 Pro Forma
 
ASSETS
                   
Current Assets:
                   
Cash and cash equivalents
 
$
1,003,663
   
(1)
 
$
4,594,337
 
$
5,598,000
 
Trade accounts receivable, net of allowances
   
250,000
       
   
250,000
 
Notes and other receivables
   
12,965
       
   
12,965
 
Prepaid expenses and other
   
170,231
       
   
170,231
 
Assets held for sale
   
15,471,113
   
(2)
   
(15,471,113
)
 
 
Total current assets
   
16,907,972
       
(10,876,776
)
 
6,031,196
 
Property, plant and equipment, at cost
   
55,641
       
   
55,641
 
Accumulated depreciation
   
(42,848
)
       
   
(42,848
)
Net property, plant and equipment
   
12,793
       
   
12,793
 
Other assets
   
615,763
       
   
615,763
 
Total assets
 
$
17,536,528
        
$
(10,876,776
)
$
6,659,752
 
LIABILITIES AND SHAREHOLDERS' EQUITY
                 
Current Liabilities:
                 
Current maturities of long term debt
 
$
2,325,000
   
(3)
 
$
(2,325,000
)
$
 
Accounts payable
   
431,876
       
   
431,876
 
Accrued interest payable
   
2,135,852
   
(4)
   
(2,135,852
)
 
 
Other accrued liabilities
   
290,871
       
   
290,871
 
Liabilities held for sale
   
7,993,154
   
(5)
   
(7,993,154
)
 
 
Total current liabilities
   
13,176,753
       
(12,454,006
)
 
772,747
 
Long-term debt, net of current maturities and debt discount
   
2,096,457
   
(6)
   
(2,096,457
)
 
 
Total liabilities
   
15,273,210
         
(14,550,463
)
 
772,747
 
Commitments and contingencies
                 
Shareholders' Equity :
                 
Common stock, $.01 par value, authorized 100,000,000 shares; issued and outstanding 20,667,210 shares
   
206,772
   
(7)
   
(12,150
)
 
194,262
 
Additional paid-in capital
   
30,962,187
   
(7)
   
(6,532,490
)
 
24,429,697
 
Accumulated deficit
   
(28,905,810
)
       
10,218,687
   
(18,687,123
)
Accumulated other comprehensive loss
   
169
         
   
169
 
Total shareholders' equity
   
2,263,318
         
3,673,687
   
5,937,005
 
Total liabilities and shareholders' equity
 
$
17,536,528
       
$
(10,876,776
)
$
6,659,752
 
 
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