EXERCISE AND CONVERSION AGREEMENT
Exhibit
10.2
THIS
EXERCISE AND CONVERSION AGREEMENT is made and entered into as of this
12th
day of
January, 2006 (the “Agreement”) by and among Sentinel Technologies, Inc., a
Delaware corporation (“STI”); Sentinel Operating, L.P., a Texas limited
partnership and an affiliate of STI (“Sentinel”); Tidel Technologies, Inc., a
Delaware corporation (the “Company”); and Laurus Master Fund, Ltd., a Cayman
Island company (the “Security Holder”). Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Purchase Agreement
(defined below).
RECITALS
A. Prior
to
or contemporaneously with the execution and delivery of this Agreement,
Sentinel, the Company and Tidel Engineering, L.P., a Delaware limited
partnership and an affiliate of the Company (“Engineering”), are entering into
an Asset Purchase Agreement, dated as of dated the date hereof (the “Purchase
Agreement”), which provides that, upon the terms and subject to the conditions
set forth therein, Sentinel will purchase the assets of Division from the
Company and Engineering (the “Transaction”).
B. In
connection with the Transaction, and subject to the terms and conditions of
this
Agreement, Security Holder has agreed to convert on or prior to the record
date
(the “Record Date”) $5,400,000 (the “Conversion Amount”) of the outstanding
principal amount of the Note (as hereafter defined) into fully paid and
nonassessable shares of the Company’s common stock (the “Common Stock”) in
accordance with the terms of the Note. For purposes hereof, the term “Note”
means the Convertible Term Note in the initial principal amount of $6,450,000,
dated November 25, 2003 together with an additional $292,987 principal amount
added thereto on November 26, 2004, made by the Company in favor of the
Seller. For the avoidance of doubt, the parties hereto hereby acknowledge that
the Security Holder is not hereby agreeing to exercise any warrants issued
by
the Company in favor of the Security Holder nor to convert into Common Stock
any
amounts owing by the Company to the Security Holder under the Convertible Term
Note in the initial principal amount of $600,000 dated November 26, 2004 made
by
the Company in favor of the Security Holder.
C. As
a
condition to their willingness to enter into the Purchase Agreement, Sentinel
has requested that the Security Holder enter into this Agreement.
D. In
order
to induce Sentinel to enter into the Purchase Agreement, the Security Holder
is
willing to enter into this Agreement.
NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE
I
EXERCISE,
CONVERSION AND VOTING AGREEMENT
Subject
to the satisfaction of the conditions in Section 1.2 of this Agreement, no
more
than three business days prior to the Record Date, but in any event no later
than the Record Date, the Security Holder shall convert into Common Stock an
aggregate principal amount of the Note at least equal to the Conversion Amount
(pursuant to the terms thereof). The Company agrees that, as of a time
immediately prior to the date the Security Holder converts the Conversion Amount
of the Note, it shall and does waive, if any, any provision of any agreement,
contract, arrangement or document entered into by the Company and any of its
affiliates and the Security Holder pursuant to which the Security Holder and
any
of its affiliates is restricted from converting the Conversion Amount of the
Note, but only to the extent required for the Security Holder to convert the
Conversion Amount of the Note. Subject to the terms of this Agreement, Company
shall give effect to the conversion of the Note in accordance with the terms
of
the Note. The Company hereby waives any requirement for notice of conversion,
if
any, set forth in any provision of any agreement, contract, arrangement or
document entered into by the Company and any of its affiliates and the Security
Holder.
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1.2.
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Conditions
to Exercise of Warrants and Conversion of
Notes.
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Security
Holder shall have no obligation to convert the Conversion Amount of the Note
unless:
(a) the
Record Date has been set as no later than January 13, 2006;
(b) the
Security Holder has been notified in writing of the Record Date at least five
business days prior to such Record Date;
(c) the
disinterested members of the Board of Directors of the Company shall have
approved the convening of a special meeting of the stockholders of the Company
for the purpose of approving the Purchase Agreement and the transactions
contemplated thereby (the “Meeting”) and authorized its directors to deliver a
proxy statement (the “Parent Proxy Statement”) relating to the Meeting in
accordance with Section 14 of the Securities and Exchange Act of 1934, as
amended (the “Exchange Act”), to its security holders;
(d)
the
Security Holder shall have received a fully executed copy of the Purchase
Agreement in form and substance as attached hereto as Exhibit
A;
(e) the
Security Holder shall have received a fully executed copy of the Voting
Agreement, dated as of the date hereof, by and among the Company, STI, Sentinel;
Xxxx X. Xxxxxxxx; Xxxxxxx X. Xxxx; Xxxxxxx X. Xxxxxx; Xxxxxxx X. Xxxxxx; Xxxxxx
X. Xxxxxxx; X. Xxxxx Xxxxxxxx; and Xxxx X. Xxxxxxx (the “Management Voting
Agreement”);
(f) the
Security Holder shall have received a copy of the fairness opinion to be issued
in connection with the transactions contemplated by the Purchase Agreement
in
form and substance reasonably satisfactory to the Security Holder, which
fairness opinion Security Holder shall be entitled to rely
upon;
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(g) the
Security Holder shall have received a fully executed copy of the Stock
Redemption Agreement, dated as of the date hereof, between the Company and
the
Security Holder (the “Stock Redemption Agreement”); and
(h) the
Security Holder shall have received a fully executed copy of the Reaffirmation,
Ratification and Confirmation Agreement, dated as of the date hereof, from
the
Company and addressed to the Security Holder acknowledging, ratifying and
confirming the matters set forth therein (the “Reaffirmation
Agreement”).
ARTICLE
II
REPRESENTATIONS
OF THE SECURITY HOLDER
The
Security Holder hereby represents to STI and Sentinel as follows:
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2.1.
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Due
Authorization, Etc.
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This
Agreement has been duly authorized, executed and delivered by the Security
Holder and constitutes the legal, valid and binding obligations of the Security
Holder, enforceable in accordance with its terms, except (i) as such
enforceability may be limited by or subject to any bankruptcy, reorganization,
moratorium or other similar laws affecting creditors’ rights generally and(ii)
as such obligations are subject to general principles of equity. Security Holder
hereby acknowledges that it is the holder of the Note and has not assigned
the
Note to any other party.
ARTICLE
III
REPRESENTATIONS
OF THE COMPANY, ENGINEERING, SENTINEL AND STI
Each
of
the Company, Engineering, STI and Sentinel (collectively, the “Undersigned”)
hereby represents to the Security Holder as to itself,
individually:
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3.1.
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Due
Authorization, Etc.
|
This
Agreement has been duly authorized, executed and delivered by such Undersigned
and constitutes a legal, valid and binding obligation of such Undersigned,
enforceable in accordance with its terms, except (i) as such enforceability
may
be limited by or subject to any bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally and (ii)
as such obligations are subject to general principles of equity.
ARTICLE
IV
COVENANTS
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4.1.
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Covenants
of the Company.
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The
Company shall:
3
(a) set
a
Record Date that is no later than January 13, 2006;
(b) notify
the Security Holder in writing of the Record Date at least five business days
prior to such Record Date;
(c) have
taken, or shall have caused to be taken, all appropriate action on the part
of
each of the Company, Engineering, STI and Sentinel to effectuate the Transaction
and evidence of such actions shall be provided to the reasonable satisfaction
of
Security Holder;
(d) the
Company shall give effect to the conversion of the Note in accordance with
the
terms thereof and promptly deliver to the Security Holder stock certificate(s)
representing shares of Common Stock in an amount equal to conversion of the
Note
up to the Conversion Amount (collectively, the “Shares”);
(e) cause
its
Board of Directors to call the Meeting and authorize its directors to deliver
the Parent Proxy Statement relating to the Meeting to its security
holders;
(f) file
a
preliminary Parent Proxy Statement with
the
Securities and Exchange Commission in accordance with Section 14 of the Exchange
Act;
(g) mail
the
definitive Parent Proxy Statement to the
stockholders of the Company holding as of the Record Date on or prior to
February 28, 2006 (the “Mailing Date”); and
(h) provide
the Security Holder with an affidavit of mailing from the person mailing such
definitive Parent Proxy Statement to the stockholders of the Company within
two
business days of mailing the definitive Parent Proxy Statement.
ARTICLE
V
REDEMPTION
UPON TERMINATION DATE
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5.1.
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Redemption
Upon Termination Date.
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The
Company hereby acknowledges that Security Holder is converting the Note in
reliance upon the covenants of the Company in Article IV hereof, and therefore
agrees that if the Transaction has not been consummated by March 31, 2006 (the
“Termination Date”), the Company shall immediately redeem the Shares issued upon
conversion of the Note for cash in an amount equal to the sum of the Conversion
Amount (the “Redemption Amount”). At any time, on or after March 31, 2006, the
Security Holder is hereby authorized to apply the Collateral Deposit (as defined
in the Cash Collateral Agreement) to the payment of the Redemption Amount due
and owing to Security Holder pursuant to the terms hereof. The Company and
Engineering further agree that the Redemption Amount and all other obligations
hereunder shall be secured by the collateral granted under each security
agreement entered into between the Security Holder and/or the Company,
Engineering and any of their affiliates including, without limitation, the
Cash
Collateral Agreement. The obligations and agreements of any party under this
Section 5.1 shall survive the termination of this Agreement.
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ARTICLE
VI
INDEMNIFICATION
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6.1.
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Indemnification.
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Each
of
the parties hereby indemnifies and holds each other party and its directors,
officers, employees, agents and stockholders (collectively, the “Indemnitees”)
harmless against and in respect of any and all Damages (as defined herein)
that
any Indemnitee actually suffers or incurs as a result of a breach by such party
of any of the representations set forth herein. As used in this Agreement,
the
term “Damages” shall include, as to any Indemnitee, any loss, damage, injury,
liability, charge, cost or expense of any nature actually incurred (including
reasonable attorneys’ and accountants’ fees), paid, suffered or borne by such
Indemnitee as a result of a breach by such party of any of the representations
set forth herein.
ARTICLE
VII
MISCELLANEOUS
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7.1.
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Termination.
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Subject
to Section 5.1 hereof, this Agreement shall terminate automatically and without
any action of any of the parties hereto and be of no further force and effect
upon the earlier to occur of: (i) the Termination Date; (ii) the written mutual
consent of the parties hereto, (iii) the failure of any party to comply with
the
conditions set forth in Section 1.2 which such failure shall have not been
satisfied or waived by the Security Holder on or prior to the Record Date,
or
(iv) the Expiration Date (as defined below). No such termination of this
Agreement shall relieve any party hereto from any liability for any breach
of
this Agreement prior to termination or from any obligation pursuant to a notice
delivered on or before the date of such termination. As used herein, the
“Expiration Date” shall mean the earlier to occur of (a) the occurrence of the
closing of the transactions contemplated by the Purchase Agreement or (b) the
termination of the Purchase Agreement according to its terms.
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7.2.
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Further
Assurance.
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From
time
to time, at the request of another party hereto and without consideration,
each
party hereto shall execute and deliver such additional documents and take all
such further action as may be necessary or desirable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.
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7.3.
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Certain
Events; Successors.
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Each
party agrees that this Agreement and each party’s obligations hereunder shall be
binding upon any person or entity which legally succeeds any party hereto or
to
which legal or beneficial ownership of the Shares shall pass, whether by
operation of law or otherwise, including, without limitation, any party’s
successors or assigns.
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7.4.
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No
Waiver.
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The
failure of any party hereto to exercise any right, power, or remedy provided
under this Agreement or otherwise available in respect hereof at law or in
equity, or to insist upon compliance by any other party hereto with its
obligations hereunder, or any custom or practice of the parties at variance
with
the terms hereof, shall not constitute a waiver by such party of its right
to
exercise any such or other right, power or remedy or to demand such
compliance.
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7.5.
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Notice.
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All
notices and other communications hereunder shall be in writing and shall be
deemed given if delivered personally, the day of transmission if a business
day
or, if not, the next business day thereafter, if delivered by telecopier (with
confirmation of receipt), the next business day if delivered by an
internationally recognized overnight courier service, such as Federal Express,
or the third business day if mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If
to STI
or Sentinel, to:
Sentinel
Technologies, Inc. or Sentinel Operating, L.P.
c/o
LLG,
LLC
0000
Xxxxxx Xxxxxx Xxxx
Xxxxxxxxx
Xxxxx, Xxxxxxxx 00000
Attention:
Xxxxxxx
Xxxxxxx, Chief Financial Officer
Facsimile: (000)
000-0000
with
a
copy to:
Xxxxxxx
Xxx & Xxxxxxxxx, LLC
0000
Xxxxxxx Xxxxxx
Xxxxx
0000
Xxxxxx,
Xxxxxxxx 00000
Attention: Xxxxxx
X.
Xxxxxxx, Esq.
Xxxx
X.X. Xxx, Esq.
Fax:
(000) 000-0000
If
to the
Company:
Tidel
Technologies, Inc.
0000
XxXxxxxx Xxxxx
Xxxxxxxxxx,
Xxxxx 00000
Attn:
Chairman
Fax:
(000) 000-0000
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With
a
copy to :
Xxxx
X.
Xxxxxxxx
Xxxxxx
Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP
Park
Avenue Tower
00
Xxxx
00xx Xxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
(000)
000-0000 phone
(000)
000-0000 fax
xxxxxxxxx@xxxxxxxxx.xxx
If
to the
Security Holder:
Laurus
Master Fund, Ltd.
c/o
M&C Corporate Services Limited
X.X.
Xxx
000 XX
Xxxxxx
Xxxxx
Xxxxxx
Xxxx
South
Church Street
Grand
Cayman, Cayman Islands
Facsimile: 000-000-0000
with
a
copy to:
Laurus
Capital Management, LLC
000
Xxxxx
Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Facsimile:
000-000-0000
Attn:
Xxxx Xxxxxx, Esq.
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7.6.
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Effect
of Headings.
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The
Article and Section headings contained in this Agreement are for convenience
only and shall not affect the construction or interpretation of this
Agreement.
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7.7.
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Severability.
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If
any
term, provision, covenant or restriction of this Agreement is held by a court
of
competent jurisdiction to be invalid, void or unenforceable, then the remainder
of the terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
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7.8.
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Entire
Agreement.
|
This
Agreement contains the entire understanding of the parties in respect of the
subject matter hereof, and supersedes all prior negotiations and understandings
between the parties with respect to such subject matter.
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7.9.
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Assignment
and Binding Effect.
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Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any party hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties, and any such assignment
shall be void, except that STI may assign, in its sole discretion, any or all
of
its rights, interests and obligations hereunder to any direct or indirect
subsidiary of STI or to a successor corporation or other successor entity in
the
event of a merger, acquisition, consolidation or other transfer if each such
assignee, prior to the completion of the assignment, shall have executed and
delivered to Security Holder documents assuming the obligations of STI under
this Agreement, such documents to be satisfactory to Security Holder in its
reasonable discretion and provided further that the Security Holder may assign
any or all of its rights, interests and obligations hereunder to any affiliate,
member or limited or general partner of the Security Holder if each such
assignee, prior to the completion of the assignment, shall have executed and
delivered to STI documents assuming the obligations of the Security Holder
under
this Agreement, such documents to be satisfactory to LLC in its reasonable
discretion. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by the parties and their
respective successors and assigns.
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7.10.
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Governing
Law.
|
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Delaware without reference to such state’s principles of conflicts of
laws.
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7.11.
|
Amendment
and Modification.
|
This
Agreement may not be modified, amended, altered or supplemented except by the
execution and delivery of a written agreement executed by the parties
hereto.
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7.12.
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Specific
Performance; Injunctive Relief.
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(a) The
parties hereto acknowledge that STI will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants or
agreements of the other parties hereto set forth herein. Therefore, it is agreed
that, in addition to any other remedies that may be available to STI upon any
such violation, STI shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to STI at law or in equity and the other parties hereto hereby waive
any requirement for the security or posting of any bond in connection with
such
enforcement.
(b) The
parties hereto acknowledge that Security Holder will be irreparably harmed
and
that there will be no adequate remedy at law for a violation of any of the
covenants or agreements of the other parties hereto set forth herein. Therefore,
it is agreed that, in addition to any other remedies that may be available
to
Security Holder upon any such violation, Security Holder shall have the right
to
enforce such covenants and agreements by specific performance, injunctive relief
or by any other means available to Security Holder at law or in equity and
the
other parties hereto hereby waive any requirement for the security or posting
of
any bond in connection with such enforcement.
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7.13.
|
Counterparts.
|
This
Agreement may be executed in two or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original but all of which shall constitute one and the same
agreement. This Agreement (or any counterpart hereof) may be delivered by a
party by facsimile, which facsimile shall be effectual as if the original
counterpart had been delivered.
*
* * * *
9
IN
WITNESS WHEREOF, STI, Sentinel, the Company and the Security Holder have caused
this Agreement to be executed as of the date first written above.
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SENTINEL
TECHNOLOGIES, INC.
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| /s/ Xxxxxxx X. Xxxxxx | ||
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By:
Xxxxxxx X. Xxxxxx
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Title:
Chief Executive Officer
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SENTINEL
OPERATING, L.P.
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||
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By:
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Sentinel
Cash Systems, L.L.C.,
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its
general partner
|
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| /s/ Xxxxxxx X. Xxxxxx | ||
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By:
Xxxxxxx X. Xxxxxx
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||
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Title:
President
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TIDEL
TECHNOLOGIES, INC.
|
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| /s/ Xxxxxxx X. Xxxx | ||
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By:
Xxxxxxx X. Xxxx
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||
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Title:
Director
|
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LAURUS
MASTER FUND, LTD.
|
||
| /s/ Xxxxxx Grin | ||
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By: Xxxxxx
Grin
|
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Title: Director
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