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x
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Preliminary
Proxy Statement
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o
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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o
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Definitive
Proxy Statement
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o
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Definitive
Additional Materials
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o
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Soliciting
Material Under Rule 14a-12
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TIDEL
TECHNOLOGIES, INC.
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(Name
of Registrant as Specified in Its Charter)
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NOT
APPLICABLE
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(Name
of Persons(s) Filing Proxy Statement, if Other Than the
Registrant)
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o
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No
fee required.
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x
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of
transaction:
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(5)
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Total
fee paid: $1,936.70
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| x |
Fee
paid previously with preliminary
materials:
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| o |
Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the form or schedule and the date of its
filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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By
Order of the Board of Directors,
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Leonard
Carr
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Secretary
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1.
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To
consider and to vote on a proposal to approve the sale of substantially
all of the assets of our electronic cash security business, consisting
of
(a) timed access cash controllers, (b) the Sentinel products, (c)
the
servicing, maintenance and repair of the timed access cash controllers
or
Sentinel products and (d) all other assets and business operations
associated with the foregoing, pursuant to the amended and restated
asset
purchase agreement attached as Annex A to the proxy
statement;
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2.
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To
consider and to vote on a proposal to file a certificate of amendment
to
our certificate of incorporation to change our name from “Tidel
Technologies, Inc.” to “Secure Alliance Holdings Corporation” (or, if that
name is unavailable, to “Sentry Group Holdings
Corporation”);
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3.
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To
approve adjournments of the special meeting if deemed necessary to
facilitate the approval of the sale of substantially all of the assets
of
our cash security business and the name change amendment to our
certificate of incorporation, including to permit the solicitation
of
additional proxies if there are not sufficient votes at the time
of the
special meeting to establish a quorum or to approve the sale of our
cash
security business or the name change amendment to our certificate
of
incorporation; and
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4.
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To
transact such other business as may properly be brought before the
special
meeting or any adjournment or postponement
thereof.
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By
Order of the Board of Directors,
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Leonard
Carr
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Secretary
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SUMMARY
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4
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The
Purchase Price and Cash Adjustments
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4
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Proceeds
from the Asset Sale
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4
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If
the Asset Sale
Occurs, Tidel will be left as a Non-Operating, Shell Public
Company
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4
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Background
of the Asset Sale
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5
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Effects
of the Asset Sale
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8
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Parties
to the Asset Sale
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9
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Voting
Agreements
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9
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Background
to Laurus’ Equity Position
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9
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Reasons
for the Asset Sale
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10
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The
Special Meeting
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11
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Recommendations
of the Independent Committee
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12
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Recommendation
of the Company’s Board of Directors
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12
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Opinion
of Capitalink
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13
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Financing
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13
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Interests
of the Company’s Directors and Executive Officers in the Asset
Sale
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14
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Material
United States Federal Income Tax Consequences
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14
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Regulatory
Approvals
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14
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No
Solicitation of Transactions
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14
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Conditions
to Asset Sale
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15
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Termination
of the Asset Purchase Agreement
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15
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Buyer
Fee
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16
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No
Right of Appraisal
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16
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QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING
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17
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GENERAL
INFORMATION
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19
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CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
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21
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SPECIAL
FACTORS
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22
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Tidel
does not expect to distribute any portion of the proceeds from
the Asset
Sale to its stockholders
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22
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Fee
Payable to Laurus
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22
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Laurus
would receive a substantially smaller fee if the Company sold
the Cash
Security business after November 26, 2009
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23
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Laurus
Stock Redemption
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24
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The
Initial
Asset Purchase Agreement was amended and restated, principally
to reduce
the purchase price payable thereunder
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25
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Our
principal stockholder, Laurus, has interests in the Asset Sale
which are
different from, or in addition to, our other stockholders
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25
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The
board of directors has identified the Asset Sale as the most
suitable
method to meet its expected /scheduled
liquidity needs
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26
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Tidel
will have no operations following the Asset Sale
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27
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Failure
to complete the Asset Sale may have an adverse effect on our
stock
price
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27
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Status
of CSS litigation
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27
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THE
ASSET SALE (PROPOSAL 1)
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29
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Background
of the Asset Sale
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29
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Proceeds
from the Asset Sale
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36
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Effects
of the Asset Sale
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36
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The
Parties to the Asset Sale
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37
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Voting
Agreements
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38
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Background
to Laurus’ Equity Position
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38
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Reasons
for the Asset Sale
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39
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Recommendations
of the Independent Committee
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43
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Recommendation
of the Company’s Board of Directors
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44
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Required
Vote
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44
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Opinion
of Capitalink
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44
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Purpose
of the Asset Sale
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53
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Financing
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54
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Interests
of the Company’s Directors and Executive Officers in the Asset
Sale
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56
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Indemnification
and Insurance
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57
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Material
United States Federal Income Tax Consequences
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58
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Regulatory
Approvals
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58
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THE
ASSET PURCHASE AGREEMENT
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59
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Closing
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59
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Representations
and Warranties
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59
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Conduct
of Our Business Pending the Asset Sale
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61
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Post
Closing Covenants
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62
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Exclusivity;
No Solicitation of Transactions
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62
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Special
Meeting
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63
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Conditions
to Obligations of Buyer
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64
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Conditions
to Obligations of the Sellers
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65
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Termination
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65
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Laurus
Voting Agreement
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66
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Officer
and Director Voting Agreement
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66
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Buyer
Fee
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66
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Amendment
and Waiver
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66
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DIVIDEND
POLICY
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68
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REORGANIZATION
OF BOARD
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68
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
MANAGEMENT
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68
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RELATED
PARTY TRANSACTIONS
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70
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NO
RIGHT OF APPRAISAL
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71
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APPROVAL
OF AMENDMENT TO CERTIFICATE OF INCORPORATION (PROPOSAL 2)
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72
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Required
Vote
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72
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Recommendation
of our Board of Directors
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72
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ADJOURNMENT
OF THE SPECIAL MEETING (PROPOSAL 3)
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73
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Required
Vote
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73
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Recommendation
of our Board of Directors
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73
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Selected
Historical Consolidated Financial Data
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74
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WHERE
YOU CAN FIND ADDITIONAL INFORMATION
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91
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INCORPORATION
BY REFERENCE
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91
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OTHER
MATTERS
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92
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Annex
A
|
Amended
and Restated Asset Purchase Agreement
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Annex
B
|
Opinion
of Capitalink, LC
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Annex
C
|
Form
of Certificate of Amendment to Certificate of
Incorporation
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|
·
|
as
of December 31, 2005, Laurus held only 1,251,000 shares of our
common
stock, representing only 6.1% of our outstanding
stock;
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|
·
|
in
connection with the Asset Sale and the Asset Purchase Agreement
and
pursuant to the terms of the exercise and conversion agreement,
Laurus
converted $5.4 million of Tidel convertible debt that it held
into
18,000,000 shares of our common
stock;
|
| · |
the
terms of the convertible notes held by Laurus required that
Laurus provide
at least 75 days notice to Tidel prior to converting the notes
in amounts
that would cause Laurus to hold in excess of 4.99% of Tidel's
outstanding
shares and this 75-day notice requirement was waived in the exercise
and conversion agreement;
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|
·
|
the
conversion rate for the $5.4 million of convertible debt was
$0.30 per
share, which is slightly lower than the $0.33 per share price
of our
common stock at the time of the conversion. A conversion rate
of $0.40 was
set when we issued the convertible note to Laurus in November
2003 as part
of the 2003 Laurus Financing. We lowered the conversion rate
to $0.30 in
August 2004 in connection with Laurus’s agreement to forbear from
exercising all remedies available to it under the 2003 Laurus
Financing
documents as a result of an event of default at such
time;
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|
·
|
Laurus
held convertible debt with a principal amount in excess of $9.75
million,
but converted $5.4 million, with the remaining amount being repaid
on
January 13, 2006;
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|
·
|
following
Laurus’ conversion of such $5.4 million in debt on January 13, 2006 into
18,000,000 shares, Laurus held shares representing approximately
49.8% of
our common stock;
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|
·
|
the
record date with respect to the vote regarding the Asset Sale
was
initially set for January 13, 2006, the day after the date
the Initial
Asset Purchase Agreement was entered into, and was subsequently
changed
to August 7,
2006;
|
|
·
|
we
have agreed to repurchase from Laurus, upon the closing of the
Asset Sale,
all shares of our common stock that are held by Laurus at a per
share
price of not less than $.20 and not greater than $.34;
and
|
|
·
|
if
the Asset Sale does not occur by September 30, 2006, we have
agreed to
immediately redeem from Laurus the 18,000,000 shares of common
stock
issued to Laurus at a redemption price of $.30 per share, or
$5.4 million
in the aggregate.
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·
|
filing
with or transmitting to our Secretary at the principal executive
offices
of the Company, at or before the special meeting, an instrument
or
transmission of revocation that is dated a later date than the
proxy;
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|
·
|
sending
a later-dated proxy relating to the same shares to our Secretary
at the
principal executive offices of the Company, at or before the special
meeting;
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|
·
|
submitting
a later-dated proxy by the Internet or by telephone, at or before
the
special meeting; or
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|
·
|
attending
the special meeting and voting in person by
ballot.
|
|
·
|
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
|
|
·
|
it
would recommend to the board of directors the approval and adoption
of the
Asset Purchase Agreement and the
Amendment.
|
|
·
|
determined
that the Asset Purchase Agreement, the Asset Sale and related transactions
are advisable and fair to and in the best interests of the Company
and its
unaffiliated stockholders;
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|
·
|
approved
and adopted the Asset Purchase Agreement and the Amendment;
and
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|
·
|
recommended
that Tidel’s stockholders vote “FOR” the approval and adoption of the
Asset Purchase Agreement and “FOR” the approval and adoption of the
Amendment.
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|
·
|
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
agreed to make the following payments to four executives who
will remain
with the Cash Security business following the Asset Sale: $350,000
to
Mark K. Levenick, $50,000 to M. Flynt Moreland, $50,000 to Troy
D.
Richard and $20,000 to Robert M. Gutierrez, in connection with
the
termination of each such person’s employment with the Sellers and upon the
closing of the Asset Sale. These payments had previously been
approved as
stay bonuses prior to the sale of the Cash Security business
to Buyer
being proposed. We also have agreed to make payments comprising
termination and severance and stay bonuses to certain employees
and a
consultant who will not remain with the Cash Security business
following
the Asset Sale;
|
|
·
|
the
Asset Purchase Agreement requires that we provide indemnification
for our
current and former directors and officers for six years following
the
Asset Sale with a proviso that if Tidel is dissolved or ceases
to exist
for any reason prior to the end of such six-year period, we will
extend
our then in effect directors’ and officers’ and fiduciaries’ liability
insurance policy on commercially reasonable terms and conditions
and with
insurance coverage as comparable as possible with the insurance
policy
then in effect for the current officers and directors of Tidel
and our
subsidiaries; and
|
| · |
On
July 7, 2006, the board of directors approved the payment of $100,000
to each non-employee director of the Company, including Raymond
P.
Landry, in recognition of the extraordinary efforts of, and time
spent by, such directors in connection with Tidel business
matters, as
well as the sale of our ATM business to NCR Corporation and
the Asset
Sale.
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|
·
|
the
receipt of Company stockholder
approval;
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|
·
|
the
absence of governmental orders, not subsequently vacated, that
have the
effect of making the Asset Sale illegal or that otherwise restrict,
prevent or prohibit the closing of the Asset
Sale;
|
|
·
|
the
performance by each of the parties of its covenants under the
Asset
Purchase Agreement in all material
respects;
|
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·
|
the
receipt by Sellers and Buyer of all necessary consents or approvals
required under third-party contracts;
and
|
|
·
|
the
accuracy of the parties’ representations and warranties in the Asset
Purchase Agreement in all material respects, including the absence
of
certain material adverse effects with respect to
Sellers.
|
|
·
|
by
either Sellers or Buyer, as the case may be, upon giving written
notice to
Sellers, in the case of Buyer, or to Buyer, in the case of Sellers,
in the
event (A) Sellers in the case of Buyer, and Buyer in the case of
Sellers,
have breached any representation, warranty, or covenant contained
in the
Asset Purchase Agreement in any material respect, and the terminating
party has notified the breaching party of the breach, and the breach
has
continued without cure for a period of 30 days after the notice
of breach
or if (B) the Asset Sale shall not have occurred on or before the
eight-month anniversary of the Asset Purchase
Agreement;
|
|
·
|
by
Buyer by written notice to Sellers if Sellers, contrary to the
terms of
the Asset Purchase Agreement, fail to deal exclusively with Buyer
in
respect of the sale of the Cash Security business or fail to file
a proxy
and recommend the Asset Sale to a stockholders’ meeting of the Company;
or
|
|
·
|
by
Buyer by written notice to Sellers if a majority of the Company’s
non-affiliated directors shall have failed to make or have withdrawn
their
recommendation of the Asset Purchase Agreement or the transactions
contemplated thereby or shall have approved or recommended an alternative
acquisition proposal.
|
|
·
|
the
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.
|
|
·
|
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”).
|
|
(1)
|
the
value on the closing date of the Asset Sale
of
|
|
·
|
the
sum of the value of all assets of the Company that would be valued
by the
Company in connection with a liquidation of the Company following
the
closing of the Asset Sale (after giving effect to such closing),
including, but not limited to:
|
|
(i)
|
all
cash and cash equivalents held by the
Company,
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|
(ii)
|
all
marketable securities held by the Company,
and
|
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(iii)
|
all
other remaining tangible and intangible assets held directly or indirectly
by the Company valued at fair market
value,
|
|
·
|
minus
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 2006 Laurus
Agreement,
|
|
(iv)
|
all
other liabilities of the Company and its
subsidiaries,
|
|
(v)
|
payments
due to independent members of our board in an aggregate amount not
to
exceed $400,000, 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.
|
|
·
|
The
representations and warranties of the Company would not survive
the
closing of the Asset Sale;
|
|
·
|
A
break-up/termination fee of $400,000 was agreed
to;
|
|
·
|
The
terms of when such a break-up fee would be due were
narrowed;
|
|
·
|
The
liabilities to be assumed by Buyer were
broadened;
|
|
·
|
The
provision in the draft Initial Asset Purchase Agreement providing
for a
post-closing escrow account to cover Sellers’ breaches of representations
was eliminated; and
|
|
·
|
The
Buyer’s obligations under the draft Initial Asset Purchase Agreement
were
not subject to a financing
contingency.
|
| · |
the
Company’s current and future earnings are heavily dependent on one
customer;
|
| · |
due
to ownership and organization changes at this customer, this
customer has
lowered its Sentinel product line budget from 1,500 to 1,200
units for
fiscal year 2006;
|
| · |
in
addition, two other key customers significantly reduced their
orders for
the Company’s Sentinel products subsequent to the execution of the Initial
Asset Purchase Agreement;
|
| · |
Tidel’s
revenue has decreased approximately $3.5 million, or 18.2%, from
fiscal
year 2005 to the twelve month period ended March 31, 2006;
and
|
| · |
sales
of the Company’s legacy cash controller devices for the first six months
of fiscal year 2006 were approximately 20% below the corresponding
period
in 2005 and 20% below
budget.
|
|
·
|
as
of December 31, 2005, Laurus held only 1,251,000 shares of our
common
stock, representing only 6.1% of our outstanding
stock;
|
|
·
|
in
connection with the Asset Sale and Asset Purchase Agreement and
pursuant
to the terms of the exercise and conversion agreement, Laurus converted
$5.4 million of Tidel convertible debt it that it held into 18,000,000
shares of our common stock;
|
| · |
the
terms of the convertible notes held by Laurus required that Laurus
provide
at least 75 days notice to Tidel prior to converting the notes
in amounts
that would cause Laurus to hold in excess of 4.99% of Tidel's
outstanding
shares and this 75-day notice requirement was waived in the exercise
and
conversion agreement.
|
|
·
|
the
conversion rate for the $5.4 million of convertible debt was $0.30
per
share, which is slightly lower than the $0.33 per share price of
our
common stock at the time of the conversion. A conversion rate of
$0.40 was
set when we issued the convertible note to Laurus in November 2003
as part
of the 2003 Laurus Financing. We lowered the conversion rate to
$0.30 in
August 2004 in connection with Laurus’s agreement to forbear from
exercising all remedies available to it under the 2003 Laurus Financing
documents as a result of an event of default at such
time;
|
|
·
|
Laurus
held convertible debt with a principal amount in excess of $9.75
million,
but agreed only to convert $5.4 million, with the remaining amount
being
repaid on January 13, 2006;
|
|
·
|
following
Laurus’ conversion of such $5.4 million in debt on January 13, 2006 into
18,000,000 shares, Laurus held shares representing approximately
49.8% of
our common stock;
|
|
·
|
the
record date with respect to the vote regarding the Asset Sale
was
initially set for January 13, 2006, the day after the date the
Initial
Asset Purchase Agreement was entered into, and was subsequently
changed to
August 7, 2006;
|
|
·
|
we
have agreed to repurchase from Laurus, upon the closing of the
Asset Sale,
all shares of our common stock that are held by Laurus at a per
share
price of not less than $.20 and not greater that $.34;
and
|
|
·
|
if
the Asset Sale does not occur by September 30, 2006, we have agreed
to
immediately redeem from Laurus the 18,000,000 shares of common
stock
issued to Laurus at a redemption price of $.30 per share, or $5.4
million
in the aggregate.
|
|
·
|
the
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 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
independent committee’s belief that the Asset Sale is more favorable to
the Company’s stockholders than any other alternative reasonably available
to it and the Company’s stockholders, including the alternative of
remaining a stand-alone, independent company and the proposals
made by the
other bidders in our auction process, as well as the risks and
uncertainties associated with those
alternatives;
|
|
·
|
a
significant portion of the Company’s business relies on a few large
customers, and there is a significant customer concentration risk,
whereby
a significant portion of the sales are made to a few customers.
This
presents a significant risk to the business if a customer, for
any reason,
determines to no longer purchase the Company’s products (or to reduce
purchases), which could occur if the customer is bought by another
business, changes its business, or for any other reason stops or
delays
purchases of the Company’s products. Tidel experienced such a problem in
2001 when the largest customer for the Company’s ATM business, JRA 222,
Inc., d/b/a Credit Card Center (“CCC”), filed for protection under Chapter
11 of the United States Bankruptcy Code in June 2001 with over
$27 million
in accounts receivable owing to
Tidel;
|
|
·
|
the
Cash Security business has continued to experience liquidity shortfalls
from time to time, and the Company has limited ability to obtain
additional financing on reasonable terms for sufficient working
capital;
|
|
·
|
on
June 9, 2005, CSS filed a lawsuit against Tidel and Engineering
in the
United States District Court of the Northern District of Illinois,
Eastern
Division. CSS alleges that the Sentinel product sold by Engineering
infringes on one or more patent claims found in CSS patent U.S.
Patent No.
6,885,281 (the ‘281 patent). CSS seeks injunctive relief against future
infringement, unspecified damages for past infringement and attorney’s
fees and costs. Tidel was released from this lawsuit, but Engineering
remains a defendant. Engineering is vigorously defending this litigation.
All litigation involves uncertainty, and while Engineering is vigorously
defending this action, there is no assurance as to what the final
outcome
will be;
|
|
·
|
the
Laurus Financings to which Tidel is a party are extremely restrictive
and
impose numerous requirements on us, including limitations on our
ability
to obtain additional financing, the requirement to retain a financial
advisor regarding strategic alternatives for the Cash Security
business
and the requirement to accept an offer to sell the Cash Security
business
under certain conditions as provided in the 2004 Laurus Fee
Agreement;
|
|
·
|
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 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
financial results of the Cash Security business have deteriorated
since
the signing of the Initial Asset Purchase Agreement in January
2006, which
the independent committee believed, based on various factors discussed
herein, justified the revised purchase
price;
|
|
·
|
the
Asset Sale will allow Tidel to discharge all outstanding indebtedness
and
other obligations owing to Laurus and to terminate our financing
arrangements with Laurus and satisfy all outstanding obligations
to Laurus
upon the payment of the $8,508,963 sale fee under the 2006 Laurus
Agreement. Following the consummation of all transactions described
herein, Tidel will have no further obligations to Laurus, and Laurus
will
cease to be a stockholder of Tidel, or have the ability to exercise
control over Tidel;
|
|
·
|
pursuant
to the terms of the stock redemption agreement, Laurus has agreed
to the
cancellation as of the closing of the Asset Sale of the outstanding
warrants that it holds to purchase 4,750,000 shares of our common
stock at
an exercise price of $.30 per share. The independent committee
believes
that this cancellation is a favorable development for the unaffiliated
stockholders of the Company;
|
|
·
|
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 (and the payment
to Buyer
of $400,000) if required to comply with its fiduciary duties
under
applicable law, to change its recommendation that the Company’s
stockholders vote in favor of the approval and adoption of the
Asset
Purchase Agreement;
|
|
·
|
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
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.
|
|
·
|
if
the Company waited until after November 26, 2009 in order to
sell the Cash
Security business, the amounts payable to Laurus under the 2004
Laurus Fee
Agreement in respect of such a sale would be substantially
reduced;
|
|
·
|
the
purchase price of $17,500,000 under the Initial Asset Purchase
Agreement
has been reduced to $15,500,000, less adjustments for ongoing
litigation
and working capital adjustments, following negotiations with
Buyer and
Laurus and the entry into the Asset Purchase
Agreement;
|
|
·
|
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
Company will no longer exist as an operating
company;
|
|
·
|
the
Company’s stockholders will not participate in any future earnings
or
growth of the Cash Security
business;
|
|
·
|
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.
|
|
·
|
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;
|
|
·
|
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, based upon the responses it received
to
the efforts of Stifel to identify a suitable strategic transaction
for the
Cash Security business, that the purchase price payable under the
Asset
Purchase Agreement was the highest price that Buyer was willing to
pay in
the Asset Sale; and
|
|
·
|
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.
|
|
·
|
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
|
|
·
|
it
would recommend to the board of directors the approval and adoption
of the
Asset Purchase Agreement.
|
|
·
|
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 and the factors considered by the independent
committee. In considering the recommendation of our board of directors
with respect to the Asset Sale, you should be aware that some of
the
Company’s directors and executive officers and its principal stockholder,
Laurus, have interests in the Asset Sale that are different from,
or in
addition to, the interests of our stockholders generally. See “Special
Factors -- Fee Payable to Laurus” and “Special Factors -- Our principal
stockholder, Laurus, has interests in the Asset Sale which are
different
from, or in addition to, our other stockholders.” For the factors
considered by our board of directors in reaching its decision to
approve
and adopt the Asset Purchase Agreement, see “The Asset Sale -- Reasons for
the Asset Sale.”
|
|
·
|
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, 2005, the Quarterly Report on
Form 10-Q
for the three months ended March 31, 2006, and the Current Reports
on Form
8-K filed on January 19, 2006 (as amended on January 31, 2006) and
on March 7, 2006.
|
|
·
|
Reviewed
non-public information and other data with respect to Tidel and
the Cash
Security Business, including various internal financial management
reports.
|
|
·
|
Reviewed
the range of the purchase price payable under the Asset
Sale.
|
|
·
|
Considered
the historical financial results and present financial condition
of the
Cash Security business.
|
|
·
|
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.
|
|
·
|
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 $6.0 million in fiscal year 2005. Normalized earnings
before
interest, taxes, depreciation and amortization, or EBITDA, also
increased
over the review period in line with revenues and gross margin from
approximately $0.5 million in fiscal year 2002 to approximately
$1.5
million in fiscal year 2005.
|
|
·
|
However,
revenue and EBITDA have decreased approximately $3.5 million and
approximately 2.6 million, or 18.2% and 62.3% respectively, from
fiscal
year 2005 to the last twelve month period ended March 31,
2006.
|
|
·
|
This
decrease in revenue and EBITDA is mainly attributed to ownership
and
organization changes at a major customer who lowered their Sentinel
product line budget from 1,500 to 1,200 units for fiscal year 2006.
In
addition, sales of the legacy Cash Controllers for the first six
months of
fiscal year 2006 were approximately 20% below the corresponding
period in
2005 and 20% below budget.
|
|
·
|
The
enterprise value to last twelve month revenue multiple ranged from
0.46
times to 3.71 times, with a mean of 1.88
times.
|
|
·
|
The
enterprise value to calendar year 2006 revenue multiple ranged
from 1.22
times to 2.36 times, with a mean of 1.58
times.
|
|
·
|
The
enterprise value to last twelve month EBITDA multiple ranged from
7.7
times to 14.9 times, with a mean of 12.0
times.
|
|
·
|
The
enterprise value to calendar year 2006 EBITDA multiple ranged from
7.0
times to 11.4 times, with a mean of 10.2
times.
|
|
·
|
The
enterprise value to calendar year 2007 EBITDA multiple ranged from
6.0
times to 11.3 times, with a mean of 9.1
times.
|
|
·
|
The
enterprise value to mean fiscal year 2004 and fiscal year 2005
EBITDA
multiple ranged from 7.8 times to 13.4 times, with a mean of 11.9
times.
|
|
·
|
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.
|
|
·
|
Between
0.80 and 1.0 times last twelve month 2006
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
6.0 and 8.0 times last twelve months 2006
EBITDA.
|
|
·
|
Between
5.0 and 7.0 times calendar year 2006
EBITDA.
|
|
·
|
Between
4.0 and 6.0 times calendar year 2007
EBITDA
|
|
Target
|
Acquiror
|
|
Lipman
Electronics Engineering, Inc.
|
Verifone
Holdings, Inc.
|
|
Cash
Systems, Inc.
|
Institutional
Investors
|
|
ATM
Network Services
|
Global
Access Corp.
|
|
Global
Cash Access Holdings, Inc.
|
Summit
Partners, Tudor Ventures
|
|
Frisco
Bay Industries Ltd.
|
Stanley
Works
|
|
Financial
Technologies
|
NetBank,
Inc.
|
|
Kyrus
Corporation
|
Agilysys,
Inc.
|
|
·
|
The
enterprise value to last twelve month revenue multiple ranged from
0.24
times to 2.15 times, with a mean of 1.05
times.
|
|
·
|
The
enterprise value to last twelve month EBITDA multiple ranged from
3.5
times to 10.7 times, with a mean of 8.4
times.
|
|
·
|
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.
|
|
·
|
The
leveraged buyout firm target return is expected to be between 30.0%
and
35.0%.
|
|
·
|
The
Cash Security business is sold at the end of fiscal 2010 at an
EBITDA
multiple of 5.5 times to 6.5 times a projected fiscal 2010 EBITDA
of
approximately $4.4 million.
|
|
·
|
Total
debt of approximately $7.5 million is used to leverage the
investment.
|
|
·
|
$8,508,963
sale fee to be paid to Laurus pursuant to the 2006 Laurus Agreement
in the
event the Asset Sale occurs, in full satisfaction of all amounts
payable
to Laurus (including fees payable under the 2004 Laurus Fee Agreement
in
respect of the sale of our ATM business division and the Asset
Sale);
|
| · |
$470,000
in aggregate amount to be paid as termination payments to four
officers of
Sellers (including a payment of $350,000 to Mark K. Levenick,
our Interim
Chief Executive Officer) upon the closing of the Asset
Sale;
|
| · |
$300,000
in aggregate amount to the non-employee directors of the Company
in
recognition of the extraordinary efforts of, and substantial
time spent
by, such directors in connection with Tidel business matters,
as well as
the sale of the Company’s ATM business to NCR Corporation and the Asset
Sale; and
|
| · |
$____
million to pay related fees and expenses of the Company in
connection with
the Asset Sale and related
transactions.
|
|
·
|
Accounting
fees and expenses;
|
|
·
|
Advisory
fees and expenses;
|
|
·
|
Legal
fees and expenses;
|
|
·
|
Printing,
solicitation and mailing costs;
|
|
·
|
SEC
filing fee; and
|
|
·
|
Miscellaneous
expenses.
|
|
-
|
$5,000,000
convertible at a $20,000,000 valuation of the Buyer
Affiliate;
|
|
-
|
$5,000,000
convertible at a $25,000,000 valuation of the Buyer Affiliate;
and
|
|
-
|
$10,000,000
convertible at a $150,000,000 valuation of the Buyer’s
Affiliate.
|
|
·
|
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;
|
|
·
|
On
June 9, 2006, we agreed to make the following payments to four
executives
who will remain with the Cash Security business following the
Asset Sale:
$350,000 to Mark K. Levenick, $50,000 to M. Flynt Moreland, $50,000
to Troy D. Richard and $20,000 to Robert M. Gutierrez, in connection
with
the termination of each such person’s employment with the Sellers and upon
the closing of the Asset Sale. Under the agreement with each
executive, we
agreed to make the termination payment upon the closing of the
Asset Sale
in consideration for terminating such executive’s employment agreement and
all rights thereunder (including any rights to vacation pay or
other
benefits) other than for accrued pay. Each payment had previously
been
approved by the Company’s compensation committee, prior to the sale of the
Cash Security business to Buyer being proposed, as a stay bonus
in respect
of such executive continuing his employment with the Company
until the
closing of the sale of the Company’s ATM business division and the Asset
Sale. Under the terms of each agreement, each executive agrees
that all
stock options held by him to purchase the Company’s common stock, to the
extent exercisable and not previously terminated, may be exercised
by him
at any time prior to 90 days following the closing of the Asset
Sale. In
addition, each agreement provides that in the event the Asset
Purchase
Agreement is terminated or the Asset Sale is not consummated,
the
agreement would have no effect and the executive’s employment agreement
will continue in accordance with its
terms;
|
|
·
|
We
also have agreed to make payments comprising termination and
severance and
stay bonuses to certain employees and a consultant who will not
remain
with the Cash Security business following the Asset
Sale;
|
|
·
|
The
Asset Purchase Agreement requires that we provide indemnification
for our
current and former directors and officers for six years following
the
Asset Sale with a proviso that if Tidel is dissolved or ceases
to exist
for any reason prior to the end of such six-year period, we will
extend
our then in effect directors’ and officers’ and fiduciaries’ liability
insurance policy on commercially reasonable terms and conditions
and with
insurance coverage as comparable as possible with the insurance
policy
then in effect for the current officers and directors of Tidel
and our
subsidiaries; and
|
|
·
|
On
July 7, 2006, the board of directors approved the payment of
$100,000 to
each non-employee director of the Company, including Raymond
P.
Landry, in recognition of the extraordinary efforts of, and time
spent by, such directors in connection with Tidel business matters,
as
well as the sale of the Company’s ATM business to NCR Corporation and the
Asset Sale.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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 term“Tidel”
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.
|
|
·
|
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.
|
|
·
|
the
representations and warranties of Sellers in the Asset Purchase
Agreement
shall be true and correct in all material
respects;
|
|
·
|
Sellers
shall have performed and complied with all of the covenants in
the Asset
Purchase Agreement in all material
respects;
|
|
·
|
Sellers
shall have procured all of the third-party consents required to
be
obtained in connection with the Asset
Sale;
|
|
·
|
no
action, suit, or proceeding shall be pending or threatened in respect
of
the Asset Sale;
|
|
·
|
no
material adverse effect shall have
occurred;
|
|
·
|
there
shall not have been an adverse change or impact with respect to
Sellers or
Buyer in connection with ongoing
litigation;
|
|
·
|
stockholders
holding at least a majority of our common stock outstanding at
the close
of business on the record date shall have approved the Asset Purchase
Agreement and the Amendment;
|
|
·
|
Sellers
shall have delivered the assets to be acquired by Buyer under the
Asset
Sale, free of all liens and shall provided Buyer with evidence
of the
release of all liens affecting such
assets;
|
|
·
|
Sellers,
Tidel Cash Systems, Inc. and Tidel Services, Inc. shall have changed
their
respective names such that they do not contain the terms “Tidel” or
“Sentinel” or any derivations thereof and shall have provided to Buyer
evidence thereof reasonably satisfactory to Buyer;
and
|
|
·
|
Sellers
shall have terminated the employment agreements of its executive
officers
on terms reasonably satisfactory to
Buyer.
|
|
·
|
the
representations and warranties of Buyer in the Asset Purchase Agreement
shall be true and correct in all material
respects;
|
|
·
|
Buyer
shall have performed and complied with all of the covenants in
the Asset
Purchase Agreement in all material
respects;
|
|
·
|
no
action, suit, or proceeding shall be pending or threatened in respect
of
the Asset Sale; and
|
|
·
|
stockholders
holding at least a majority of our common stock outstanding at
the close
of business on the record date shall have approved the Asset Purchase
Agreement and the Amendment.
|
|
·
|
by
mutual written consent of the
parties;
|
|
·
|
by
either Sellers or Buyer, as the case may be, upon giving written
notice to
Sellers in the case of Buyer, and to Buyer in the case of Sellers,
in the
event (A) Sellers in the case of Buyer, and Buyer in the case of
Sellers,
have breached any representation, warranty, or covenant contained
in the
Asset Purchase Agreement in any material respect, and the terminating
party has notified the breaching party of the breach, and the breach
has
continued without cure for a period of 30 days after the notice
of breach
or if (B) the Asset Sale shall not have occurred on or before the
eight-month anniversary of the Asset Purchase
Agreement;
|
|
·
|
by
Buyer by written notice to Sellers if Sellers, contrary to the
terms of
the Asset Purchase Agreement, fail to deal exclusively with Buyer
in
respect of the sale of the Company’s Cash Security business or fail to
file a proxy and recommend the Asset Sale to a stockholders’ meeting of
the Company; or
|
|
·
|
by
Buyer by written notice to Sellers if a majority of the Company’s
non-affiliated directors shall have failed to make or have withdrawn
their
recommendation of the Asset Purchase Agreement or the transactions
contemplated thereby or shall have approved or recommended an alternative
acquisition proposal.
|
|
·
|
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.
|
|
·
|
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.
|
|
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 the record
date.
|
|
(2)
|
The
number of shares currently beneficially owned by Laurus as of the
record
date is reflected above. On January 13, 2006, Laurus converted $5.4
million in aggregate principal amount of convertible Sellers’ debt it held
into 18,000,000 shares of our common stock pursuant to the terms
of the
underlying debt and the exercise and conversion agreement. The exercise
and conversion agreement also provides that if
the Asset Sale does not occur by September 30, 2006, Tidel will
immediately redeem from Laurus the 18,000,000 shares of our common
stock
issued to Laurus
on
January 13, 2006. For more information on these transactions with
Laurus
see “Related Party Transactions” and “Special Factors.” The address of
Laurus is c/o M&C Corporate Services Ltd., P.O. Box 309 GT, Ugland
House, South Church Street, George Town, Grand Cayman, Cayman
Islands.
|
|
(3)
|
Includes
275,000 shares which could be acquired within 60 days upon exercise
of
outstanding options at exercise prices of (i) $1.25 per share as
to
100,000 shares, (ii) $1.875 per share as to 75,000 shares and (iii)
$2.50
per share as to 100,000 shares.
|
|
(4)
|
A
former executive officer, Michael F. Hudson, accepted a new employment
position on January 1, 2006 with the purchaser of our ATM division
and
terminated his employment with Sellers. No shares held by Mr. Hudson
are included on the above
table.
|
|
|
Years
Ended September 30,
|
|||||||||||||||
|
SELECTED
STATEMENT OF OPERATIONS DATA:(1)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Net
income (loss)(2)
|
$
|
(3,286
|
)
|
$
|
11,318
|
$
|
(9,237
|
)
|
$
|
(14,078
|
)
|
$
|
(25,942
|
)
|
||
|
Net
income (loss) per share:
|
||||||||||||||||
|
Basic
|
(.16
|
)
|
.65
|
(0.53
|
)
|
(0.81
|
)
|
(1.49
|
)
|
|||||||
|
Diluted
|
(.16
|
)
|
.37
|
(0.53
|
)
|
(0.81
|
)
|
(1.49
|
)
|
|||||||
|
|
As
of September 30,
|
|||||||||||||||
|
SELECTED
BALANCE SHEET DATA:(1)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Current
assets
|
$
|
16,908
|
$
|
10,129
|
$
|
11,773
|
$
|
17,263
|
$
|
28,797
|
||||||
|
Current
liabilities
|
13,177
|
8,190
|
32,109
|
28,487
|
28,547
|
|||||||||||
|
Working
capital (deficit)
|
3,731
|
1,939
|
(20,336
|
)
|
(11,224
|
)
|
250
|
|||||||||
|
Total
assets
|
17,537
|
10,778
|
14,430
|
19,907
|
33,837
|
|||||||||||
|
Total
short-term notes payable and long-term debt (net of
discount)
|
4,421
|
175
|
2,279
|
20,000
|
23,424
|
|||||||||||
|
Shareholders’
equity (deficit)
|
2,263
|
2,588
|
(17,679
|
)
|
(8,580
|
)
|
5,194
|
|||||||||
|
(1)
|
All
amounts are in thousands, except per share dollar
amounts.
|
|
(2)
|
Income
tax expense (benefit) was $0, $(81,229), $0, $(293,982), and $(3,416,030)
, for the years ended September 30, 2005, 2004, 2003, 2002 and 2001,
respectively.
|
|
|
March
31, 2006
|
September
30, 2005
|
|||||
|
ASSETS
|
(unaudited)
|
|
|||||
|
Current
Assets:
|
|
|
|||||
|
Cash
and cash equivalents
|
$
|
1,852,530
|
$
|
1,003,663
|
|||
|
Restricted
cash
|
5,400,000
|
—
|
|||||
|
Trade
accounts receivable, net
|
—
|
250,000
|
|||||
|
Notes
and other receivables
|
17,513
|
12,965
|
|||||
|
Prepaid
expenses and other
|
86,857
|
170,231
|
|||||
|
Assets
held for sale, net of accumulated depreciation of $1,303,436 and
$5,236,167, respectively
|
4,952,426
|
15,471,113
|
|||||
|
Total
current assets
|
12,309,326
|
16,907,972
|
|||||
|
|
|||||||
|
Property
and equipment, at cost
|
—
|
55,641
|
|||||
|
Accumulated
depreciation
|
—
|
(42,848
|
)
|
||||
|
Net
property and equipment
|
—
|
12,793
|
|||||
|
|
|||||||
|
Other
assets
|
674,411
|
615,763
|
|||||
|
Total
assets
|
$
|
12,983,737
|
$
|
17,536,528
|
|||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Current
maturities of long-term debt
|
$
|
—
|
$
|
2,325,000
|
|||
|
Accounts
payable
|
390,091
|
431,876
|
|||||
|
Accrued
interest payable
|
2,000,000
|
2,135,852
|
|||||
|
Shares
subject to redemption
|
5,400,000
|
—
|
|||||
|
Other
accrued expenses
|
18,836
|
290,871
|
|||||
|
Liabilities
related to assets held for sale
|
3,552,961
|
7,993,154
|
|||||
|
Total
current liabilities
|
11,361,888
|
13,176,753
|
|||||
|
|
|||||||
|
Long-term
debt, net of current maturities and debt discount of $3,746,531
at
September 30, 2005
|
—
|
2,096,457
|
|||||
|
Total
liabilities
|
11,361,888
|
15,273,210
|
|||||
|
|
|||||||
|
Commitments
and contingencies
|
|||||||
|
|
|||||||
|
Shareholders’
Equity:
|
|||||||
|
Common
stock, $.01 par value, authorized 100,000,000 shares; issued and
outstanding 38,677,210 shares and 20,677,210 shares,
respectively
|
386,772
|
206,772
|
|||||
|
Additional
paid-in capital
|
30,782,187
|
30,962,187
|
|||||
|
Accumulated
deficit
|
(29,638,135
|
)
|
(28,905,810
|
)
|
|||
|
Accumulated
other comprehensive income
|
91,025
|
169
|
|||||
|
Total
shareholders’ equity
|
1,621,849
|
2,263,318
|
|||||
|
Total
liabilities and shareholders’ equity
|
$
|
12,983,737
|
$
|
17,536,528
|
|||
|
|
Three
Months Ended March 31,
|
Six
Months Ended March 31,
|
|||||||||||
|
|
2006
|
2005
|
2006
|
2005
|
|||||||||
|
Revenues
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||
|
|
|||||||||||||
|
Selling,
general and administrative
|
618,893
|
375,334
|
1,992,917
|
682,533
|
|||||||||
|
Depreciation
and amortization
|
1,312
|
1,299
|
2,678
|
2,171
|
|||||||||
|
Operating
loss
|
(620,205
|
)
|
(376,633
|
)
|
(1,995,595
|
)
|
(684,704
|
)
|
|||||
|
|
|||||||||||||
|
Other
income (expense):
|
|||||||||||||
|
Interest
expense, net of interest income
|
(3,033,161
|
)
|
(1,165,173
|
)
|
(4,195,572
|
)
|
(4,239,516
|
)
|
|||||
|
Gain
on collection of receivable previously reserved
|
598,496
|
—
|
598,496
|
—
|
|||||||||
|
Additional
expenses related to the CCC bankruptcy settlement
|
(75,000
|
)
|
—
|
105,000
|
—
|
||||||||
|
Other
|
(7,455
|
)
|
—
|
(7,455
|
)
|
—
|
|||||||
|
Total
other income (expense)
|
(2,517,120
|
)
|
(1,165,173
|
)
|
(3,499,531
|
)
|
(4,239,516
|
)
|
|||||
|
Loss
before taxes
|
(3,137,325
|
)
|
(1,541,806
|
)
|
(5,495,126
|
)
|
(4,924,220
|
)
|
|||||
|
|
|||||||||||||
|
Income
tax expense
|
—
|
—
|
—
|
—
|
|||||||||
|
Income
(loss) from continuing operations
|
(3,137,325
|
)
|
(1,541,806
|
)
|
(5,495,126
|
)
|
(4,924,220
|
)
|
|||||
|
|
|||||||||||||
|
Discontinued
operations:
|
|||||||||||||
|
Income
(loss) discontinued operations
|
(38,714
|
)
|
410,174
|
1,150,292
|
2,637,024
|
||||||||
|
Gain
on sale of ATM business
|
3,612,509
|
—
|
3,612,509
|
—
|
|||||||||
|
Total
income (loss) from discontinued operations
|
3,573,795
|
410,174
|
4,762,801
|
2,637,024
|
|||||||||
|
Net
income (loss)
|
$
|
436,470
|
$
|
(1,131,632
|
)
|
$
|
(732,325
|
)
|
$
|
(2,287,196
|
)
|
||
|
|
|||||||||||||
|
Basic
earnings (loss) per share:
|
|||||||||||||
|
Income
(loss) from continuing operations
|
$
|
0.09
|
$
|
(0.07
|
)
|
$
|
(0.19
|
)
|
$
|
(0.25
|
)
|
||
|
Income
(loss) from discontinued operations
|
0.10
|
0.02
|
0.17
|
0.14
|
|||||||||
|
Net
income (loss)
|
$
|
0.01
|
|||||||||||