Exhibit 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO TIDEL TECHNOLOGIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
$600,000
CONVERTIBLE TERM NOTE
NOVEMBER 26, 2004
FOR VALUE RECEIVED, TIDEL TECHNOLOGIES, INC., a Delaware corporation (the
"BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o M & C
Corporate Services Limited, P.O. Box 309 GT, Xxxxxx House, South Church Street,
Xxxxxx Town, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or
its registered assigns or successors in interest, on order, the aggregate
principal sum of SIX HUNDRED THOUSAND DOLLARS ($600,000), or such lesser amount
as shall equal the outstanding principal amount hereof (the "PRINCIPAL AMOUNT"),
together with any accrued and unpaid interest hereon, on November 26, 2005 (the
"MATURITY DATE") if not sooner paid.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof between the Borrower and the Holder (the "PURCHASE AGREEMENT"),
pursuant to which this Note has been issued.
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1. INTEREST RATE AND INTEREST PAYMENT. Subject to Article IV hereof,
interest payable on the unpaid principal balance of this Note shall accrue at a
rate per annum (the "CONTRACT RATE") equal to ten percent (10%), computed on the
basis of the actual number of days elapsed and a year of 360 days. Interest
shall be payable monthly, in arrears, commencing on November 1, 2004 and on the
first business day of each consecutive calendar month thereafter until the
Maturity Date (and on the Maturity Date) or, if earlier, upon any acceleration,
partial prepayment or full prepayment of this Note.
ARTICLE II
BORROWER PAYMENT OPTIONS
2.1. OPTIONAL REDEMPTION IN CASH. The Borrower will have the option of
prepaying this Note in full ("OPTIONAL REDEMPTION") by paying to the Holder a
sum of money equal to one hundred and one percent (101%) of the principal amount
outstanding at such time of this Note together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the Holder arising
under this Note or the Purchase Agreement or any Related Agreement (as defined
in the Purchase Agreement) (the "REDEMPTION AMOUNT") outstanding on the day
written notice of redemption (the "NOTICE OF REDEMPTION") is given to the
Holder, which Notice of Redemption shall specify the date for such Optional
Redemption (the "REDEMPTION PAYMENT DATE"). A Notice of Redemption shall not be
effective with respect to any portion of this Note for which the Holder has a
pending election to convert pursuant to Section 3.1 and the Redemption Amount
shall be determined as if such election to convert had been completed
immediately prior to the date of the Notice of Redemption. The Redemption
Payment Date shall not be earlier than the day after the date of the Notice of
Redemption and not later than seven (7) days after the date of the Notice of
Redemption. On the Redemption Payment Date, the Redemption Amount must be paid
in immediately available funds to the Holder. In the event the Borrower fails to
pay the Redemption Amount by the Redemption Payment Date, then such Redemption
Notice will be null and void.
ARTICLE III
CONVERSION RIGHTS
3.1. HOLDER'S CONVERSION RIGHTS. While any amounts are owed under this
Note, including accrued interest, the Holder shall have the right, but not the
obligation, to convert all or any portion of the then aggregate outstanding
principal amount of this Note, together with all accrued but unpaid interest and
fees due thereon, into shares of Common Stock subject to the terms and
conditions set forth in this Article III (a "CONVERSION"). The Holder may
exercise such right by delivery to the Borrower of a written, executed and
completed notice of conversion in the form of EXHIBIT A hereto (a "NOTICE OF
CONVERSION") not less than three (3) days prior to the date upon which such
conversion shall occur. For purposes hereof, the "FIXED CONVERSION PRICE" means
$0.30, subject to adjustment in accordance with the terms of this Note.
3.2. CONVERSION LIMITATION. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares (as hereafter defined) which would exceed the difference between the
number of shares of Common Stock beneficially owned by such Holder or issuable
upon the conversion of any other note held by such Holder or the exercise of
warrants held by such Holder and 4.99% of the outstanding shares of Common Stock
of the Borrower. For the purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended and Regulation 13d-3 thereunder. The
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Holder may void the Conversion Share limitation described in this Section 3.2
upon 75 days prior notice to the Borrower or without any notice requirement upon
an Event of Default.
3.3. PROCEDURE FOR CONVERSION. (a) In the event that the Holder elects to
convert this Note into Common Stock, the Holder shall give notice of such
election by delivering a Notice of Conversion to the Borrower and such Notice of
Conversion shall provide a breakdown in reasonable detail of the Principal
Amount, accrued interest and fees being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records and shall provide written notice thereof to
the Borrower within two (2) business days after the Conversion Date. Each date
on which a Notice of Conversion is delivered or telecopied to the Borrower in
accordance with the provisions hereof shall be deemed a Conversion Date (the
"CONVERSION DATE").
(b) Pursuant to the terms of the Notice of Conversion, the Borrower shall
cause the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the Holder's
designated broker with the Depository Trust Corporation ("DTC") through its
Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business
days after receipt by the Borrower of the Notice of Conversion (the "DELIVERY
DATE"). To the extent the Borrower is not eligible to use the DWAC system, the
Borrower shall give instructions to the Borrower's transfer agent to deliver the
certificates representing the Conversion Shares to the Holder promptly, and in
no event later than the Delivery Date. In the case of the exercise of the
Conversion rights set forth herein the Conversion privilege shall be deemed to
have been exercised and the Conversion Shares issuable upon such Conversion
shall be deemed to have been issued upon the date of receipt by the Borrower of
the Notice of Conversion. The Holder shall be treated for all purposes as the
record holder of such Common Stock, unless the Holder provides the Borrower
written instructions to the contrary.
3.4. CONVERSION MECHANICS.
(a) Except as otherwise provided herein, the number of shares of Common
Stock to be issued upon each Conversion of this Note shall be such whole number
of shares of Common Stock as is equal to the quotient of that portion of the
principal and interest and fees to be converted, if any, divided by the Fixed
Conversion Price, subject to adjustment as provided herein (such Common Stock,
the "CONVERSION SHARES").
(b) FRACTIONAL SHARES. No fractional shares of Conversion Shares shall be
issued upon any Conversion of this Note. In lieu of any fractional share to
which Holder would otherwise be entitled, the Borrower shall pay Holder cash
equal to the product of such fraction multiplied by the fair market value as of
the date of Conversion of a share of Conversion Shares, as determined in good
faith by the Board of Directors of the Borrower (the "BOARD").
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(c) ADJUSTMENT. The Fixed Conversion Price and number and kind of shares or
other securities to be issued upon conversion is subject to adjustment from time
to time upon the occurrence of certain events, as follows:
(i) RECLASSIFICATION, ETC. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or other
change.
(ii) STOCK SPLITS, COMBINATIONS AND DIVIDENDS. If the shares of Common
Stock outstanding at any time after the date hereof are subdivided or combined
into a greater or smaller number of shares of Common Stock (other than a change
in par value, from par value to no par value or from no par value to par value),
or if a dividend is paid on the Common Stock in shares of Common Stock, the
Fixed Conversion Price shall be proportionately reduced in case of subdivision
of shares or stock dividend or proportionately increased in the case of
combination of shares, in each such case by the ratio which the total number of
shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.
(iii) SHARE ISSUANCES. If the Borrower shall at any time prior to the
conversion or repayment in full of the Principal Amount issue any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock ("EQUIVALENTS") to a person other than the Holder (except (A)
pursuant to Sections 3.4(c) (i) or (ii) hereof; or (B) pursuant to options,
warrants, or other obligations to issue shares outstanding on the date hereof as
set forth in the Schedules to the Purchase Agreement (the "NEW SHARES") for a
consideration per share or having an exercise, conversion or exchange price (the
"OFFER PRICE") less than the Fixed Conversion Price in effect at the time of
such issuance), then the Fixed Conversion Price shall be immediately reset to
such lower Offer Price. For purposes hereof, the issuance of any security of the
Borrower convertible into or exercisable or exchangeable for Common Stock shall
result in an adjustment to the Fixed Conversion Price only upon the conversion,
exercise or exchange of such securities.
(A) In the case of the issuance of New Shares for a consideration
in whole or in part for cash, the consideration received by the Borrower upon
such issuance will be deemed to be the amount of cash paid therefor plus the
value of any property other than cash received by the Borrower, determined as
provided in subsection 3.4 (c) (iv)(B) hereof.
(B) In the case of the issuance of New Shares for a consideration
in whole or in part in property other than cash, the value of such property
other than cash will be deemed to be the fair market value of such property as
determined in good faith by the Board, irrespective of any accounting treatment.
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(C) In the case of the issuance of Equivalents, the aggregate
maximum number of shares of New Stock deliverable upon exercise, exchange or
conversion, as the case may be, of such Equivalents will be deemed to have been
issued at the time such Equivalents were issued and for a consideration equal to
the consideration, if any, received by the Borrower upon the issuance of such
Equivalents plus the maximum purchase price provided in such Equivalents (the
consideration in each case to be determined in the manner provided in
subsections 3.4(c)(iv)(A) and 3.4(c)(iv)(B) hereof);
(D) During the period the conversion right exists, the Borrower
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the full conversion
of this Note. The Borrower represents that upon issuance, such shares will be
duly and validly issued, fully paid and non-assessable. The Borrower agrees that
its issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and
issuing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note.
3.5. REORGANIZATIONS, CONSOLIDATIONS, ETC.
In the event, at any time after the date hereof, of any capital
reorganization, or any reclassification of the capital stock of the Borrower
(other than a change in par value or from par value to no par value or from no
par value to par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), or the consolidation or merger of the
Borrower with or into another person (other than a consolidation or merger in
which the Borrower is the continuing corporation and which does not result in
any change in the powers, designations, preferences and rights (or the
qualifications, limitations or restrictions, if any) of the capital stock of the
Borrower as amended from time to time) (any such transaction, an "EXTRAORDINARY
TRANSACTION"), then all of the amounts owed under this Note shall be exercisable
for the kind and number of shares of stock or other securities or property of
the Borrower, or of the corporation resulting from or surviving such
Extraordinary Transaction, that a holder of the number of shares of Conversion
Shares deliverable (immediately prior to the effectiveness of the Extraordinary
Transaction) upon conversion of the amounts owed under this Note would have been
entitled to receive upon such Extraordinary Transaction. The provisions of
Section 3.4(c)(iii) shall similarly apply to successive Extraordinary
Transactions. The provisions of this Section 3.5 shall not be deemed Holder's
consent to any transaction otherwise prohibited by the terms of the Purchase
Agreement or any Related Agreement (as defined in the Purchase Agreement).
ARTICLE IV
EVENTS OF DEFAULT
If an Event of Default (as defined below) occurs and is continuing, the
Borrower's rights under Section 2.1 shall immediately cease and be of no further
effect until such time as the Event of Default has been cured, or has been
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waived by the Holder. Upon the occurrence and continuance of an Event of Default
beyond any applicable grace period, the Holder may make all sums of principal,
interest and other fees then remaining unpaid hereon and all other amounts
payable hereunder due and payable within five (5) days after written notice from
Holder to Borrower (each occurrence being a "DEFAULT NOTICE PERIOD"). If, with
respect to any Event of Default other than a payment default described in
Section 4.1 below, within the Default Notice Period the Borrower cures the Event
of Default in a manner acceptable to the Holder, the Event of Default will be
deemed to no longer exist and any rights and remedies of Holder pertaining to
such Event of Default will be of no further force or effect. After the
occurrence and during the continuance of an Event of Default which has not been
cured during any applicable grace period, the term "CONTRACT RATE" shall mean
eighteen percent (18%) per annum.
The occurrence of any of the following events is an "EVENT OF DEFAULT":
4.1. FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The Borrower fails
to pay when due any installment of principal, interest or other fees hereon in
accordance herewith, within three (3) business days following the due date for
such amount, or the Borrower fails to pay when due any amount due under any
other promissory note issued by the Borrower, within ten (10) business days
following the due date for such amount.
4.2. BREACH OF COVENANT. The Borrower or any of its Subsidiaries breaches
any material covenant or other term or condition of this Note, the Purchase
Agreement or any Related Agreement (as defined in the Purchase Agreement) to
which it is a party in any material respect.
4.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material representation
or warranty of the Borrower or any of its Subsidiaries made herein, in the
Purchase Agreement, or in any Related Agreement (as defined in the Purchase
Agreement)to which it is a party shall be materially false or misleading and
shall not be cured for a period of ten (10) days after the occurrence thereof.
4.4. RECEIVER OR TRUSTEE. The Borrower or any of its Subsidiaries shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.
4.5. JUDGMENTS. Any money judgment, writ or similar final process shall be
entered or filed against the Borrower or any of its Subsidiaries or any of its
property or other assets for more than $250,000, and shall remain unvacated,
unbonded or unstayed for a period of thirty (30) days.
4.6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
of its Subsidiaries.
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4.7. STOP TRADE. An SEC stop trade order or Principal Exchange trading
suspension of the Common Stock shall be in effect for 5 consecutive days or 5
days during a period of 10 consecutive days, excluding in all cases a suspension
of all trading on a Principal Exchange (as defined below), provided that the
Borrower shall not have been able to cure such trading suspension within 30 days
of the notice thereof or list the Common Stock on another Principal Market
within 60 days of such notice. The "PRINCIPAL EXCHANGE" for the Common Stock
shall include the National Quotation Bureau's Pink Sheets (so long as the Common
Stock is permitted to be listed thereon in accordance with the terms of Section
6.2 of the Purchase Agreement), NASD OTC Bulletin Board, NASDAQ SmallCap Market,
NASDAQ National Market System, American Stock Exchange, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock), or any securities exchange or other
securities market on which the Common Stock is then being listed or traded.
4.8. FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note, or if required, a replacement Note if such failure to
timely deliver Common Stock shall not be cured within two (2) business days or
such failure to deliver a replacement Note is not cured within seven (7)
business days.
4.9. DEFAULT UNDER OTHER AGREEMENTS. An Event of Default or similar term
occurs under and as defined in (i) the Purchase Agreement or any Related
Agreement, (ii) that certain Convertible Term Note issued by the Company to the
Holder dated November 25, 2003 (as amended, modified or supplemented from time
to time, the "2003 Convertible Term Note"), (iii) the Securities Purchase
Agreement entered into by the Company and the Holder in connection with the 2003
Convertible Term Note (as amended, modified or supplemented from time to time,
the "2003 Purchase Agreement"), (iv) any Related Agreement (as defined in the
2003 Purchase Agreement), as each are amended, modified or supplemented from
time to time, (v) that certain Purchase Order Finance and Security Agreement,
dated as of the date hereof, among the Holder, the Borrower and certain
subsidiaries of the Borrower (as amended, modified or supplemented from time to
time, the "Purchase Order Agreement") or (vi) any Loan Document (as defined in
the Purchase Order Agreement).
4.10 CHANGE IN CONTROL. The occurrence of a change in the controlling
ownership of the Borrower.
ARTICLE V
CONVERSION PRIVLEDGES
5.1. CONVERSION PRIVILEGES. The Conversion privileges set forth in Article
III shall remain in full force and effect immediately from the date hereof and
until this Note is paid in full.
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ARTICLE VI
MISCELLANEOUS
6.1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6.2. NOTICES. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address provided in the Purchase Agreement executed in
connection herewith, with a copy to Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx
LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attn: Xxxx X. Xxxxxxxx, Esq.,
facsimile number (000) 000-0000 and to the Holder at the address provided in the
Purchase Agreement for such Holder, with a copy to Xxxx X. Xxxxxx, Esq., 000
Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx number (212)
541-4434, or at such other address as the Borrower or the Holder may designate
by ten days advance written notice to the other parties hereto. A Notice of
Conversion shall be deemed given when made to the Borrower pursuant to the
Purchase Agreement.
6.3 AMENDMENT PROVISION. The term "NOTE" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented, and any
successor instrument issued pursuant to Section 3.3 hereof, as it may be amended
or supplemented.
6.4. ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Purchase Agreement.
6.5. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Note shall be brought only in
the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of the
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
8
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Borrower in any
other jurisdiction to collect on the Borrower's obligations to Holder, to
realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court order in favor of Xxxxxx.
6.6. MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and the remainder, if any,
refunded to the Borrower.
6.7. SECURITY INTEREST AND GUARANTY. The holder of this Note has been
granted a security interest in certain assets of the Borrower and its
subsidiaries more fully described in the Security Agreement, as amended,
modified or supplemented from time to time, the Partnership Interest Pledge
Agreement, as amended, modified or supplemented from time to time, and the
Equity Pledge Agreement, as amended, modified or supplemented from time to time.
The obligations under this Note are guaranteed by certain subsidiaries of the
Borrower as set forth in the Guaranty, as amended, modified or supplemented from
time to time.
6.8. CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
[Balance of page intentionally left blank; signature page follows.]
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IN WITNESS WHEREOF, each Borrower has caused this Convertible Term Note to
be signed in its name effective as of this 26th day of November, 2004.
TIDEL TECHNOLOGIES, INC.
By: /s/ Xxxx X. Xxxxxxxx
----------------------------------
Name: Xxxx X. Xxxxxxxx
---------------------------------
Title: President
--------------------------------
WITNESS:
/s/ Xxxxxxx X. Xxxx
-------------------------------
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EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Holder in order to convert all or part of the Note into
Common Stock
[Name and Address of Holder]
The Undersigned hereby elects to convert $_________ of the principal due on the
Maturity Date under the Convertible Term Note issued by TIDEL TECHNOLOGIES, INC.
dated November__, 2004 by delivery of Shares of Common Stock of TIDEL
TECHNOLOGIES, INC. on and subject to the conditions set forth in Article III of
such Note.
(A) Date of Conversion:
--------------------------
(B) Shares To Be Delivered:
-----------------------
Date: ____________
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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