<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
FOR NINE MONTH PERIOD ENDED FEBRUARY 29, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-24569
------------------
CASH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4558331
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
organization)
1434 W. 11TH STREET, LOS ANGELES, CA 90015
(Address of principal executive offices) (Zip Code)
</TABLE>
(213) 745-2000
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_].
--------------------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
On April 19, 2000, there were 3,519,824 shares of common stock, $ .01 par value,
issued and outstanding.
<PAGE>
CASH TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE NO.
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of February 29, 2000(unaudited) and
May 31, 1999.................................................................................................... 3
Consolidated Statements of Operations for the three month period ended
February 29, 2000 and 1999 (unaudited).......................................................................... 4
Consolidated Statements of Operations for the nine month period ended
February 29, 2000 and 1999 (unaudited).......................................................................... 4
Consolidated Statements of Cash Flows for the nine month period ended
February 29, 2000 and 1999 (unaudited).......................................................................... 5
Notes to Consolidated Financial Statements for the nine month period ended
February 29, 2000 and 1999 (unaudited).......................................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................................... 18
Item 2. Changes in Securities............................................................................................... 18
Item 3. Default Upon Senior Securities...................................................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders................................................................. 20
Item 5. Exhibits and Reports on Form 8-K.................................................................................... 20
SIGNATURES................................................................................................................... 21
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 29 MAY 31
2000 1999
-------------------- --------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,639,622 $ 1,028,586
Cash Restricted - 44,610
Accounts Receivable 325,175 136,277
Inventories 77,748 201,555
Prepaid expenses and other current assets 6,725 9,256
-------------------- --------------------
Total Current Assets 2,049,270 1,420,284
COINBANK MACHINES HELD FOR SALE 1,359,453 1,577,065
PROPERTY AND EQUIPMENT (net) 1,249,790 1,393,689
CAPITALIZED SOFTWARE COSTS 805,490 -
OTHER ASSETS 228,256 56,682
-------------------- --------------------
TOTAL ASSETS 5,692,259 4,447,720
==================== ====================
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of Notes Payable 1,259,214 1,172,732
Current maturities of Capital Lease Obligations 24,801 42,563
Accounts Payable 227,750 208,620
Accrued expenses & other current liabilities 492,404 388,588
-------------------- --------------------
Total Current Liabilities 2,004,169 1,812,503
Notes Payable less current maturities 4,822,817 2,564,723
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS EQUITY (DEFICIENCY):
Common Stock 35,198 34,887
Redeemable Preferred Stock 1,122,188 -
Additional Paid In Capital 13,875,447 11,323,780
Accumulated Deficit (16,167,560) (11,288,173)
-------------------- --------------------
Total stockholders' equity (deficiency) (1,134,727) 70,494
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDER EQUITY (DEFICIENCY) $ 5,692,259 $ 4,447,720
==================== ====================
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 29 NINE MONTHS ENDED FEBRUARY 29
2000 1999 2000 1999
------------- ----------------- ------------ -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
GROSS REVENUES* $ 10,178,312 $ 10,552,415 $ 31,817,231 $ 36,231,138
============ ============ ============ ============
NET REVENUES $ 220,913 203,919 $ 985,440 696,088
COST OF REVENUES 285,388 175,059 1,031,278 505,559
------------- ------------ ------------ ------------
GROSS PROFIT/LOSS (64,475) 28,860 (45,838) 190,529
NON-CASH COMPENSATION 317,159 - 317,159 -
SELLING, GENERAL, & ADMIN EXP. 1,092,301 1,220,514 $ 3,655,733 3,317,226
DEPRECIATION & AMORTIZATION EXP. 51,547 81,799 84,497 196,020
------------ ------------ ------------ ------------
OPERATING LOSS (1,525,482) (1,273,453) (4,103,227) (3,322,717)
OTHER INCOME - - 923,438 -
DEEMED INTEREST - STOCKS/WARRANTS 852,632 - 852,632 -
INTEREST EXPENSE 115,732 100,369 316,657 421,672
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (2,493,846) (1,373,822) (4,349,078) (3,744,389)
INCOME TAXES - 2,400 7,669 2,400
------------ ------------ ------------ ------------
NET LOSS (2,493,846) (1,376,222) (4,356,747) (3,746,789)
============ ============ ============ ============
Deemed Dividends to preferred Shareholders 21,787 - 522,640 -
Net income (loss) Allocable to common
shareholders (2,515,633) (1,376,222) (4,879,387) (3,746,789)
Basic and diluted net loss per share $ (0.72) $ (0.39) $ (1.40) $ (1.07)
Basic and diluted weighted average
shares of common stock outstanding 3,508,242 3,488,665 3,495,191 3,488,665
============ ============ ============ ============
*Gross revenues include the value of coin and currency processed and does not present revenue under
generally accepted accounting principles
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED FEBRUARY 29
2/29/00 2/28/99
------------------ -------------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss (4,356,747) (3,746,789)
Adjustments to reconcile net loss to net cash used by
operating activities:
Cashless Exercise - Stock Options 317,159 -
Deemed Interest 852,632 -
Compensation Expense 579,816 -
Depreciation and amortization 176,027 196,020
Impairment of CoinBank Machines held for Sale 14,090 (511)
Changes in operating assets and liabilities:
Accrued interest 42,188 -
Account receivable (188,899) (968)
Inventories Coin/Currency 123,807 (19,963)
Inventories CoinBank Machines 183,574 -
Prepaid expenses and other current assets 2,531 22,755
Other assets (37,573) 349,189
Capitalized Software (805,490) -
Accounts payable 19,130 (158,219)
Accrued expenses and other current liabilities (214,285) (102,282)
------------------ -------------
Net cash (used) by operating activities (3,292,040) (3,460,767)
------------------ -------------
INVESTING ACTIVITIES:
Property and Equipment (12,181) (629,962)
Restricted Cash 44,610 (2,139)
Sale of Equipment - 2,759
------------------ -------------
Net cash provided (used) by investing activities 32,429 (629,342)
------------------ -------------
FINANCING ACTIVITIES:
Deferred financing cost (134,000) (134,000)
Payments on capital lease obligation (17,762) (47,648)
Repayments on long-term debt (791,279) (2,114,885)
Proceeds - PPM 3,375,000 -
Net proceeds from issuance of common stock - 9,478,326
Net proceeds from issuance of preferred stock 1,122,188 -
Discounts - Stocks/Warrants 316,500 -
------------------ -------------
Net cash provided by financing activities 3,870,647 7,181,793
------------------ -------------
CHANGE IN CASH AND CASH EQUIVALENTS 611,036 3,091,683
Cash and Cash Equivalent, Beginning of period 1,028,586 210,723
------------------ -------------
Cash and Cash Equivalent, End of period 1,639,622 3,302,406
================== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes 7,669 -
Cash paid for interest 274,469 421,672
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION
Reclasssification of depreciation from
fixed assets-CoinBank machines 357,470 -
Conversion of debt to equity - 1,412,106
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CASH TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: GENERAL
PRESENTATION OF INTERIM INFORMATION:
- ------------------------------------
In the opinion of the management of Cash Technologies, Inc. (the
"Company"), the accompanying unaudited condensed consolidated financial
statements include all normal adjustments considered necessary to present fairly
the financial position as of February 29, 2000 and the results of operation and
cash flows for the Nine months ended February 29, 2000 and 1999. Interim results
are not necessarily indicative of results to be expected for any subsequent
quarter or for the entire fiscal year.
The condensed consolidated financial statements and notes are presented as
permitted by Form 10-QSB. These condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted pursuant to
such SEC rules and regulations. These financial statements should be read in
conjunction with the Company's audited financial statements and the accompanying
notes included in the Company's Form 10-KSB for the year ended May 31, 1999,
filed with the SEC. The results of operations for the three-month and nine-month
period ended February 29, 2000, are not necessarily indicative of the results to
be expected for any subsequent quarter or for the entire fiscal year.
BASIS OF PRESENTATION:
- ----------------------
The unaudited condensed consolidated financial statements of Cash
Technologies, Inc. and its subsidiaries National Cash Processors Inc., CoinBank
Automated Systems, Inc. and CoinBank Automation Handels GmbH, Salzburg, Austria,
(collectively, the "Company") included herein, reflect all adjustments,
consisting only of normal recurring adjustments which, in the opinion of
management are necessary to present fairly the Company's financial position,
results of operations and cash flows, for the periods presented.
NOTE 2. COMMITMENTS AND CONTINGENCIES
In January 1997, the Company entered into a five-year licensing and
manufacturing services agreement with Geld Bearbeitungs Systeme GmbH, an
Austrian corporation (''Geld''). Pursuant to that agreement Geld granted the
Company the exclusive, perpetual right to use certain technology incorporated in
CoinBank machines in North and South America and Asia, provided that the Company
purchases a minimum quantity of coin-counting components used in CoinBank
machines over the term of the agreement.
In August 1998, the Company entered into a three-year distribution
agreement with Geld, subject to successive one-year renewal periods. Pursuant to
that agreement Geld granted the Company the exclusive right to distribute and
sell cash processing equipment in all areas of the world not covered by the
January
6
<PAGE>
1997 agreement between Geld and the Company (the ''Territory''), except to
certain financial institutions in Austria, provided that the Company purchases a
minimum number of cash processing machines from Geld over a specified period
during the initial three-year term of the April 1997 agreement.
In March 1999, the Company entered into a letter of intent to acquire 51%
of the capital stock of the Geld (the "Acquisition") and at that time the
parties were completing their due diligence and financial statements while
continuing to negotiate the terms of a definitive purchase agreement, as well as
side agreements such as the terms of the employment agreements for key
employees.
The Company and Geld have recently been in a dispute regarding the 1998
Distribution Agreement. The dispute involves primarily the quantity of machines
to be produced by Geld for the European market. The dispute does not affect the
Company's North American rights pursuant to the January 1997, Licensing
Agreement. Additionally the Company and Geld are in dispute over certain matters
related to the license and manufacturing agreement. In September 1999, the
Company initiated a suit against Geld regarding certain rights under the
licensing agreement and the acquisition. There can be no assurance that the
dispute can be resolved. The proposed acquisition of Geld may not occur or may
be delayed until resolution of these disputes are accomplished.
The Company has negotiated an agreement with Tecwings Industrialisierung
und Electronickproduktion GmbH for the continued manufacturing of CoinBank
machines.
In December 1997, Vindex USA, Inc. filed a complaint against CoinBank
Automated Systems, Inc.("CAS"), a subsidiary of the Company, in the Superior
Court of California, Los Angeles County, seeking to recover $40,000, an
unspecified amount of commissions and interest accrued thereon allegedly due it
under the terms of a consulting agreement it alleges was breached by the
Company. The court rendered a judgement in favor of Vindex USA, however the
company has made motion for a new trial.
NOTE 3: STOCKHOLDERS EQUITY
In order to raise funds for working capital and the development of the
Company's E-Commerce Message Management Architecture (EMMA) system, on July 27,
1999, the Company commenced a private offering pursuant to Section 4(2) of the
Securities Act of 1933 and Regulation D. The Company was offering up to 52,500
units, each unit comprised of (I) 10 shares of Series A 8% Cumulative
Convertible Redeemable Preferred Stock and (II) 5 Series A Common Stock Purchase
Warrants. Each share of the Series A Preferred Stock is convertible into one
share of Common Stock. The Series A Warrants are exercisable at $12.00 per
share. The securities in the private offering were being sold in reliance upon
the availability of an exemption from the registration provisions of the
Securities Act of 1933 by virtue of the Company's intended compliance with the
provisions of sections 4(2), 4(6) thereof and rule 506 adopted by the Securities
and Exchange Commission thereunder. The securities may not be transferred or
resold except pursuant to registration under the Securities Act of 1933 or an
exemption therefrom.
On November 30, 1999, the Company completed this offering and received
gross proceeds of $1,122,188. The Company also paid sales commission of $69,825
in January of 2000. The Company has issued (i) 118,125 shares of Series A 8%
Cumulative Convertible Redeemable Preferred Stock and (ii) 53,809 Series A
Common Stock Purchase Warrants (exercisable at $12.00 per share).
The Company recorded deemed dividends of $522,640 for the Preferred Stock
issued for the period. This amount was based on (i) the difference between the
closing market price and the offering price of the
7
<PAGE>
Preferred Stock plus (ii) the value of the Warrants associated with the
Preferred Stock, valued using the Black Scholes model.
The Company issued one hundred thousand (100,000) Stock Purchase Warrants
to Starr Securities at $10.375 each for consulting services including advice
related to future merger, acquisition, financing and other capital transactions.
These options have been valued at $190,856 using the Black Scholes model and are
recorded as deferred offering costs.
The Company issued Gunn Allen Securities twenty five thousand (25,000)
Stock Purchase Warrants at $10.375 for services related to assisting the Company
with future capital transactions in late August of 1999. These options were not
recorded in the first quarter of 1999 and were subsequently recorded in the
second quarter of 1999. These options have been valued at $47,714 using the
Black Scholes model and this amount was recorded as an expense.
The Company also issued Gunn Allen Securities one hundred thousand
(100,000) Stock Purchase Warrants at $11.3125 for services related to assisting
the Company with future capital transactions in September of 1999. These options
have been valued at $208,099 using the Black Scholes model and this amount was
recorded as an expense.
The Company also issued WAB Capital twenty five thousand (25,000) Stock
Purchase Warrants at $12.9375 for consulting and research services in November
of 1999. These options have been valued at $51,291 using the Black Scholes
model and this amount was recorded as an expense.
The Company also issued Howard Brand thirty thousand (30,000) Stock
Purchase Warrants at $11.3125. These options have been valued at $62,431 using
Black Scholes model and this amount is being expensed over a one year period.
The Company has recorded an expense of $31,214 for the nine months ended
February 29, 2000.
During the three months ended February 29, 2000, the company issued 31,159
shares of common stock in conjunction with the exercise of stock options by our
employees. In order to effect a cashless transaction, an additional 58,059
incentive stock options were forfeited. These Shares of Common Stock are
restricted for a period of one year from the date of exercise. This cashless
transaction resulted in a charge to noncash compensation of $317,159.
The Company issued 337,500 Stock Purchase Warrants in connection with the
second debt offering. See Note 7.
NOTE 4: RELATED PARTY TRANSACTION
The Company obtained a long-term loan for $500,000 from Gunn Allen
Securities. The loan was due either (i) on December 31, 2000, (ii) the date that
the company completes any debt or equity financing, but (iii) prior to December
31, 2001. The sum of $500,000 was repaid from the proceeds of the January 2000,
private offering, together with interest from the date thereof at the rate of
ten percent (10%) per annum, computed on the basis of a 365-day year using
actual days elapsed. The loan was repaid in January, 2000.
8
<PAGE>
NOTE 5: GOING CONCERN
The Company has prepared the financial statements included herewith
assuming that the Company will continue as a going concern. Although the Company
raised additional capital in 1998 and in 1999, it has not generated sufficient
revenue-producing activity to sustain its operations. Accordingly, the Company
must realize a satisfactory level of profitability from its current and future
operation in order to remain a viable entity. The Company's auditors have
included an explanatory paragraph in their report for the year ended May
31,1999, indicating there is substantial doubt regarding the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
any uncertainty.
NOTE 6: OTHER INCOME
On October 1, 1999, the Company and Coinstar, Inc. agreed to settle all
outstanding litigation between them. Under the terms of the settlement, the
Company received payment from Coinstar of $600,000 in cash and 30,000 shares of
common stock of Coinstar, for a total of $923,438. In October 1999, the shares
were recorded at a market price of $323,428 and in January 2000, they were sold
for $353,170, recognizing a gain of $29,732.
NOTE 7: LONG-TERM DEBT
In order to raise funds for the development of EMMA, on December 31, 1999,
the company commenced a private offering pursuant to Section 4(2) of the
Securities Act of 1933 and Regulation D ("the Offering"). The Company engaged
Gunn Allen Financial, Inc. as placement agent and paid commissions of 10% and
reimbursement of expenses. Pursuant to this offering 67.5 Units were sold. Each
Unit consists of (i) a Secured Convertible Promissory Note in the principal
amount of $50,000 convertible into Common Stock at a conversion price of $9.50
per share and (ii) Series B Redeemable Warrants to purchase an aggregate of
5,000 Warrant Shares at an exercise price of $13.00 per share. The securities in
the private offering memorandum were sold in reliance upon the availability of
an exemption from the registration provisions of the Securities Act of 1933 by
virtue of the Company's intended compliance with the provisions of sections
4(2), 4(6) thereof and rule 506 adopted by the Securities and Exchange
Commission thereunder. The securities may not be transferred or resold except
pursuant to registration under the Securities Act or an exemption therefrom.
The Company completed the Offering on January 5, 2000 and raised $3,375,000
in gross proceeds. The Company incurred approximately $400,000 in offering
expenses, consisting of legal costs, sales commissions and other related costs.
The Offering was comprised of both debt and equity components. The debt
offering had a beneficial conversion feature of $852,632, which was recorded as
deemed interest. The warrants issued in conjunction with the debt created
$316,500 of deferred interest expense of which $35,167 was amortized during the
three months ended February 29, 2000.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT
In addition to historical information, the information included in this Form 10-
QSB contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the ''Securities Act''), and Section 21E of
the Securities Exchange Act of 1934, as amended (the ''Exchange Act''), such as
those pertaining to the Company's capital resources, performance and results of
operations. Forward-looking statements involve numerous risks and uncertainties
and should not be relied upon as predictions of future events. Certain such
forward-looking statements can be identified by the use of forward-looking
terminology such as "believe", "expects", "may", "will", "should", "seeks",
"approximately", "intends", "plans", "pro forma", "estimates" or "anticipates"
or the negative thereof or other variations thereof or comparable terminology,
or by discussions of strategy, plans or intentions. Such forward-looking
statements are necessarily dependent on assumptions, data or methods that may be
incorrect or imprecise and may be incapable of being realized. The following
factors, among others, could cause actual results and future events to differ
materially from those set forth or contemplated in the forward-looking
statements: market acceptance of the Company's products, limited marketing
experience, uncertainty of product development, dependence upon new technology,
need for qualified management personnel and competition. The success of the
Company also depends upon economic trends generally, governmental regulation,
legislation, and population changes. Readers are cautioned not to place undue
reliance on forward-looking statements, which reflect management's analysis
only. The Company assumes no obligation to update forward-looking statements.
See also the Company's reports filed from time to time with the Securities and
Exchange Commission pursuant to the Securities Act or the Exchange Act.
DESCRIPTION OF BUSINESS
Cash Technologies, Inc., a Delaware Corporation, was incorporated in
August, 1995, however its cash processing operations were commenced by its now
wholly-owned subsidiary, National Cash Processors, Inc. ("NCP"), a Delaware
corporation, which was incorporated in May, 1994. NCP became a subsidiary of the
Company in January 1996. The U.S. CoinBank operations are conducted through the
Company's wholly owned subsidiary, CoinBank Automated Systems, Inc. ("CAS"), a
Delaware corporation, incorporated in November 1995. The European CoinBank
operations are conducted through the Company's wholly-owned subsidiary CoinBank
Automation Handels GmbH, incorporated in Austria in February, 1998. Unless the
context otherwise requires, references herein to the Company refer to Cash
Technologies, Inc. and its wholly-owned subsidiaries.
At the present time, the Company is primarily focused on the development of
its E-Commerce Message Management Architecture (EMMA(TM)) transaction processing
software and its ATM-X(TM) enhanced ATM. This software platform will provide
transaction processing for Internet and non-Internet based transactions such as
electronic bill payment, check cashing, the issuance of money orders, pre-paid
phone cards and the dispensing of event tickets and other functions on automated
teller machines (ATMs) and similar devices. Various Internet based transactions
can also be facilitated by EMMA, including automated account activation, ATM-
card purchasing and other financial services.
The Company recently announced its plan to expand its EMMA system provide
essential Business-To-Business (B2B) services to small and midsize companies.
Services will include interconnectivity between otherwise incompatible financial
systems, settlement of purchase transactions and other
10
<PAGE>
specialized activities, made possible through the functionality of the EMMA
transaction processing platform. EMMA's capabilities allow it to route,
translate and manage financial and non-financial messages seamlessly between
networks and clients using otherwise incompatible protocols.
The Company currently generates revenues through the purchase of United
States coin and currency which is acquired in bulk at a small discount from face
value and then counted, sorted, wrapped and re-sold primarily to a variety of
retail businesses at face value plus a small fee or deposited to the Federal
Reserve Bank for credit to the Company's account. The Company also generates
revenues from CoinBank machine sales and the fees from the operation of self-
service CoinBank Machines. The Company's expenses have exceeded net revenues
since inception. For the fiscal year ended May 31, 1997, 1998, and 1999, the
Company sustained net losses of $1,547,805, $2,727,145 and $5,711,964,
respectively. The Company incurred net losses of $2,493,846 and $4,356,747 for
the three and nine-month periods ended February 29, 2000, respectively.
The Company records as revenue the service fee charged for coin and
currency processed on behalf of a customer. The Company also records as revenue
the service fee charged to persons using CoinBank machines and revenues from the
sale of CoinBank machines. Gross revenues include the value of coin and currency
processed and do not represent revenue under generally accepted accounting
principles.
Due to its e-commerce systems development effort, the Company will continue
to be required to make certain up-front expenditures. The Company anticipates
that losses will continue for the foreseeable future.
Revenues generated from the sale of CoinBank machines were approximately
31% of net revenues compared to fee income from "free placement" machines, which
accounted for approximately 69% of net revenues for the nine months ended
February 29, 2000. The Company anticipates that transaction and licensing fees
derived from the EMMA transaction processing system will eventually become the
largest source of the Company's future revenues.
The Company was awarded a contract to count, process and purchase currency
for the Los Angeles County Metropolitan Transportation Authority ("LACMTA") for
a fee of approximately 1% of all currency processed commencing on April 1, 2000,
and with subsequent renewals, ending on March 31, 2005. The Company expects to
purchase and process between $35 and $40 million dollars of currency on this
contract during fiscal 2000. The Company records as revenue the service fee
charged for the processing of currency.
11
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 29, 2000, COMPARED TO THREE MONTHS ENDED FEBRUARY
28, 1999.
Gross revenues include the value of the cash processed, CoinBank machine
sales and fee income for the three months ended February 29, 2000, amounted to
$10,178,312 compared to $10,552,415 for the comparable 1999 period. The decrease
in gross revenue was primarily attributable to the normal periodic fluctuation
in the value of currency processed for LACMTA during the three months period and
Company's planned reduction of certain pilot "free placement" CoinBank machine
customers during the third quarter of fiscal 2000. As a result of the
elimination of "free placement" CoinBank machines, net revenues for the 2000
period increased to $220,913 or 2.17% of gross revenues, compared to $203,919,
or 1.93% of gross revenues for 1999 period.
Cost of revenues for the three months ended February 29, 2000, was $285,388
compared to $175,059 during the comparable 1999 period. The increase in direct
costs was primarily the result of the reclassification of certain direct labor,
telephone and depreciation expenses into the Cost of Revenues from Selling,
General and Administrative Expenses.
Gross loss for the three months ended February 29, 2000, was $(64,475)
compared to a gross profit of $28,860 for the three months ended February 28,
1999. Gross profit was impacted by the reclassification of SG&A expenses
referred to in Cost of Revenues.
Non-cash compensation expense for the three months ended February 29, 2000,
was $317,159 compared to none during the 1999 period. This expense was due to
the company issuing 31,159 shares of common stock in conjunction with the
cashless exercise of stock options by the employees
Selling, General and Administrative expenses for the three months ended
February 29, 2000, decreased to $1,092,301 compared to $1,220,514 for the three
months ended February 28, 1999. These expenses consist primarily of wages (and
wage related costs), outside contractor expenses, travel/promotional expenses,
professional services and facilities/office related expenses. During this period
$368,052 of software development expenses were capitalized, the result of
portions of the Company's transaction processing platform that have reached
commercial viability.
Depreciation and amortization expenses for the three months ended February
29, 2000, and 1999, were $51,547 and $81,799. The decrease in depreciation was
the result of reclassifying depreciation into Cost of Revenues.
Interest expense for the three months ended February 29, 2000, and 1999,
was $115,732 and $100,369. Moreover a deemed interest expense of $852,632 was
also recognized in conjunction with the beneficial conversion of debt,
associated with the second private placement.
As a result of the foregoing, net losses for the three months ended
February 29, 2000, and 1999, were $2,493,846 and $1,376,222, respectively.
12
<PAGE>
NINE MONTHS ENDED FEBRUARY 29, 2000, COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
1999.
Gross revenues, including the value of cash processed, and CoinBank machine
sales and fee income for the nine months ended February 29, 2000, amounted to
$31,817,231 compared to $36,231,138 for the comparable 1999 period. The decrease
in gross revenue was primarily attributable to the normal periodic fluctuation
in the value of currency processed for LACMTA during the nine month period and
Company's planned reduction of "free placement" CoinBank machine customers
during the third quarter of fiscal 2000. As a result of the sale of CoinBank
machines, the elimination of "free placement" CoinBank machines, net revenues
for the 2000 period increased to $985,440 or 3.10% of gross revenues, compared
to $696,088, or 1.92% of gross revenues for 1999 period.
Cost of revenues for the nine months ended February 29, 2000, was
$1,031,278 compared to $505,559 during the comparable 1999 period. The increase
in direct costs was primarily the result of the reclassification of direct
labor, telephone and depreciation expenses into the Cost of Revenues from
Selling, General and Administrative Expenses and the cost of CoinBank machines
sold during the period.
Gross loss for the nine months ended February 29, 2000, was $(45,838)
compared to a gross profit of $190,529 for the nine months ended February 28,
1999. Gross profit was impacted by the reclassification of SG&A expenses
referred to in Cost of Revenues. The reclassification and increased cost was
partially offset by a positive contribution from CoinBank machine sales as well
as reductions in direct labor and supply costs associated with the elimination
of "free placement" CoinBank machine customers referred to in Gross Revenues.
Non-cash compensation expense for the nine months ended February 29, 2000,
was $317,159 compared to none during the 1999 period. This expense was due to
the company issuing 31,159 shares of common stock in conjunction with the
cashless exercise of stock options by the employees
Selling, General and Administrative expenses for the nine months ended
February 29, 2000, increased to $3,655,733 compared to $3,317,226 for the nine
months ended February 28, 1999. These expenses consist primarily of wages (and
wage related costs), outside contractor expenses, travel/promotional expenses,
professional services and facilities/office related expenses. During this period
$805,490 of software development expenses were capitalized, the result of
portions of the Company's transaction processing platform having reached
commercial viability.
Depreciation and amortization expenses for the nine months ended February
29, 2000, and 1999, were $84,497 and $196,020. The decrease in depreciation was
the result of reclassifying depreciation into Cost of Revenues.
Interest expense for the nine months ended February 29, 2000, and 1999, was
$316,657 and $421,672. The decrease in interest expense was due to reduced debt
early in fiscal 2000. Moreover a deemed interest expense of $852,632 was also
recognized in conjunction with the beneficial conversion of debt, associated
with the second private placement.
Other Income for the nine months ended February 29, 2000 was $923,438
compared to $0 for the same period in 1999. This income was the result of the
settlement of a lawsuit with Coinstar, Inc. The Company received payment from
Coinstar of $600,000 in cash and 30,000 shares of common stock of Coinstar for a
total value of $923,438.
The Company has sold approximately 42 of the machines held for sale between
July 1, 1999 and February 29, 2000. The Company believes that the number of
Coinbank machines held for sale will
13
<PAGE>
continue to be justified based upon current sales and sales projections.
Nevertheless, there is no guarantee these sales will occur. If the Company fails
to sell a sufficient number of machines to justify the current ones held for
sale, then in future periods, the company may be required to take an impairment
charge.
As a result of the foregoing, net losses for the nine months ended February
29, 2000, and 1999, were $4,356,747 and $3,746,789, respectively.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been and will continue to be
significant and its cash requirements have been exceeding its cash flow from
operations. At February 29, 2000, the Company had unrestricted cash and cash
equivalents of $1,639,622 compared to unrestricted cash and cash equivalents of
$3,302,406 at February 28, 1999. Since inception, the Company has satisfied its
working capital requirements through limited cash flow generated from
operations, the issuance of equity and debt securities, and various borrowings.
Net cash used in operating activities was $3,292,040 for the nine months
ended February 29, 2000, as compared to net cash used in operating activities of
$3,460,768 for the nine months ended February 28, 1999. The decrease in net cash
used in operating activities, during the 2000 period was primarily the result of
increases in: accounts payable, $19,130, accrued expenses of $214,285 and
accounts receivable of $188,899.
Net cash provided by investing activities was $32,429 for the nine months
ended February 29, 2000, as compared to net cash used by investing activities of
$629,342 for the nine months ended February 28, 1999. The increase in net cash
provided in investing activities was attributable to reduction in additional
purchases of equipment and release of restricted cash.
Net cash provided by financing activities for the nine months ended
February 29, 2000, was $3,870,647 as compared to net cash provided by financing
activities of $7,181,793 for the nine months ended February 28, 1999. The amount
of $3,870,958 primarily consists of financing costs and debt repayment offset by
proceeds from the private placement offering outlined below. The decrease in net
cash provided by financing activities for the 1999 period was primarily
attributable to the Company's Initial Public Offering plus the exercise of the
over allotment option, which netted approximately $9.5 million.
In order to raise funds for working capital and the development of the
Company's E-Commerce Message Management Architecture (EMMA) system, on July 27,
1999, the Company commenced a private offering pursuant to Section 4(2) of the
Securities Act of 1933 and Regulation D. The Company was offering up to 52,500
units, each unit comprised of (I) 10 shares of Series A 8% Cumulative
Convertible Redeemable Preferred Stock and (II) 5 Series A Common Stock Purchase
Warrants. Each share of the Series A Preferred Stock is convertible into one
share of Common Stock. The Series A Warrants are exercisable at $12.00 per
share. The securities in the private offering were being sold in reliance upon
the availability of an exemption from the registration provisions of the
Securities Act of 1933 by virtue of the Company's intended compliance with the
provisions of sections 4(2), 4(6) thereof and rule 506 adopted by the Securities
and Exchange Commission thereunder. The securities may not be transferred or
resold except pursuant to registration under the Securities Act of 1933 or an
exemption therefrom.
As of November 30, 1999, the Company completed this offering and received
gross proceeds of $1,122,188. The Company also paid sales commission of $69,825
in January of 2000. The Company has issued or will issue (I) 118,125 shares of
Series A 8% Cumulative Convertible Redeemable Preferred Stock and (II) 53,809
Series A Common Stock Purchase Warrants (at $12.00 each).
On October 1, 1999, the Company and Coinstar, Inc. agreed to settle all
outstanding litigation between them. Under the terms of the settlement, the
Company received payment from Coinstar of $600,000 in cash and 30,000 shares of
common stock of Coinstar. The Company granted Coinstar a non-exclusive license
to certain technology related to bulk coin processing and certain other rights.
The parties agreed to dismiss all claims in the suit with prejudice. In October
1999, the shares were recorded at
15
<PAGE>
market price of $323,428 and in January 2000, they were sold for $353,170,
recognizing a gain of $29,732.
In order to raise funds for the development of EMMA, on December 31, 1999,
the company commenced a private offering pursuant to Section 4(2) of the
Securities Act of 1933 and Regulation D. The Company engaged Gunn Allen
Financial, Inc. as placement agent and paid commissions of 10% and reimbursement
of expenses. Pursuant to this offering up to 67.5 units were sold. Each Unit
consists of (i) a Secured Convertible Promissory Note in the principal amount of
$50,000 convertible into Common Stock at a conversion price of $9.50 per share
and (ii) Series B Redeemable Warrants to purchase an aggregate of 5,000 Warrant
Shares at an exercise price of $13.00 per share. The securities in the private
offering memorandum were sold in reliance upon the availability of an exemption
from the registration provisions of the Securities Act of 1933 by virtue of the
Company's intended compliance with the provisions of sections 4(2), 4(6) thereof
and rule 506 adopted by the Securities and Exchange Commission thereunder. The
securities may not be transferred or resold except pursuant to registration
under the Securities Act or an exemption therefrom.
The Company completed the offering on January 5, 2000 and raised $3,375,000
in gross proceeds. The Company incurred approximately $400,000 in offering
expenses, consisting of legal costs, sales commissions and other related costs.
The Offering was comprised of both debt and equity components. The debt
offering had a beneficial conversion feature of $852,632, which was recorded as
deemed interest. The warrants issued in conjunction with the debt created
$316,500 of deferred interest expense of which $35,167 was amortized during the
three months ended February 29, 2000.
Based on the Company's current proposed plans and assumptions, the Company
anticipates that the net proceeds of its private offering will be sufficient to
satisfy its contemplated cash requirements for approximately three to four
months. In the event that the Company's plans change or its assumptions prove
to be inaccurate (due to unanticipated expenses, decreased demand for its
services or otherwise), the Company could be required to obtain additional
financing sooner than currently anticipated. The Company is currently
negotiating additional financing, however there can be no assurance that these
negotiations will successfully result in additional financing when needed, on
commercially reasonable terms, or at all.
As previously disclosed, the Company continues to be engaged in discussions
regarding an acquisition of all or part of the Company (including stock and
assets transfers). The Board of Directors has not been requested to consider
any definitive transaction. No letters of intent have been entered into by the
Company. There can be no assurance that any such transactions will be
consummated or that the terms will be favorable to the Company or its
shareholders.
The Company continues to suffer recurring losses from operations as of
February 29, 2000, and has not generated sufficient revenue producing activity
to sustain its operations. The Company's independent certified public
accountants have included a modification to their opinion, which indicated there
is substantial doubt about the Company's ability to continue as a going concern.
The Company is attempting to raise additional capital to meet future working
capital requirement and launch new products, but may not be able to do so.
While the Company is confident that it will raise the additional capital
required, should the Company not be able to do so, it may have to curtail
operations.
16
<PAGE>
YEAR 2000 EFFECT
The Company, like most other companies, is faced with the "Year 2000
Issue". The Year 2000 issue has developed because some computer programs were
written using a two-digit field rather than a four-digit field to define the
applicable year. As a result, any computer program that affects the Company's
activities may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a variety of problems depending upon the system(s)
affected. Potential problems include temporary inability to process
transactions, transfer funds, or engage in similar business activities. The
potential problems associated with the Year 2000 Issue may cause widespread
disruption of business worldwide because of the interdependence on computer and
communication systems.
The Company has completed an initial assessment of potential Year 2000
for its own computer systems and business processes. Based upon this
assessment, the Company believes its computer software, hardware and its
embedded technologies will present limited Year 2000 Issues. Additionally, the
Company has not experienced any material problems with the Year 2000 change.
As of April 19, 2000, management is not aware of any problems that have
affected the company, its hardware, software or its operations as a result of
any year 2000 issues.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 1, 1999, the Company and Coinstar, Inc. agreed to settle all
outstanding litigation between them. Under the terms of the settlement, the
Company received payment from Coinstar of $600,000 in cash and 30,000 shares of
common stock of Coinstar for a total of $923,438. The Company granted Coinstar a
non-exclusive license to certain technology related to bulk coin processing and
certain other rights. The parties agreed to dismiss all claims in the suit with
prejudice. In October 1999, the shares were recorded at market price of
$323,428 and in January 2000, they were sold for $353,170, recognizing a gain
of $29,732.
In December 1997, Vindex USA, Inc. filed a complaint against CAS, a
subsidiary of the Company, in the Superior Court of California, Los Angeles
County seeking to recover $40,000, an unspecified amount of commissions and
interest accrued thereon allegedly due it under the terms of a consulting
agreement it alleges was breached by the Company. The court rendered a judgement
in favor of Vindex USA, however the Company has made a motion for a new trial.
ITEM 2. CHANGE IN SECURITIES
In order to raise funds for working capital and the development of the
Company's E-Commerce Message Management Architecture (EMMA) system, on July 27,
1999, the Company commenced a private offering pursuant to Section 4(2) of the
Securities Act of 1933 and Regulation D. In the event that the Company had been
assisted by selling agents, it intended to pay commissions of 10% to those
eligible to receive them. The Company was offering up to 52,500 units, each
unit comprised of (I) 10 shares of Series A 8% Cumulative Convertible Redeemable
Preferred Stock and (II) 5 Series A Common Stock Purchase Warrants. Each
share of the Series A Preferred Stock is convertible into one share of Common
Stock. The Series A Warrants are exercisable at $12.00 per share. The
securities in the private offering were being sold in reliance upon the
availability of an exemption from the registration provisions of the Securities
Act of 1933 by virtue of the Company's intended compliance with the provisions
of sections 4(2), 4(6) thereof and rule 506 adopted by the Securities and
Exchange Commission thereunder. The securities may not be transferred or resold
except pursuant to registration under the Securities Act of 1933 or an exemption
therefrom.
On November 30, 1999, the Company completed this offering and received
gross proceeds of $1,122,188. The Company also paid sales commission of $69,825
in January of 2000. The Company has issued or will issue (I) 118,125 shares of
Series A 8% Cumulative Convertible Redeemable Preferred Stock and (II) 53,809
Series A Common Stock Purchase Warrants (at $12.00 each).
In order to raise funds for the development of EMMA, on December 31, 1999,
the company commenced a private offering pursuant to Section 4(2) of the
Securities Act of 1933 and Regulation D. The Company engaged Gunn Allen
Financial, Inc. as placement agent and paid commissions of 10% and reimbursement
of expenses. Pursuant to this offering 67.5 Units were sold. Each Unit consists
of (i) a Secured Convertible Promissory Note in the principal amount of $50,000
convertible into Common Stock at a conversion price of $9.50 per share and (ii)
Series B Redeemable Warrants to purchase an aggregate of 5,000 Warrant Shares at
an exercise price of $13.00 per share. The securities in the private offering
memorandum were sold in reliance upon the availability of an exemption from the
registration provisions of the Securities Act of 1933 by virtue of the Company's
intended compliance with the provisions of
18
<PAGE>
sections 4(2), 4(6) thereof and rule 506 adopted by the Securities and Exchange
Commission thereunder. The securities may not be transferred or resold except
pursuant to registration under the Securities Act or an exemption therefrom.
The Company completed the offering on January 5, 2000 and raised $3,375,000
in gross proceeds. The Company incurred approximately $400,000 in offering
expenses, consisting of legal costs, sales commissions and other related costs.
The Offering was comprised of both debt and equity components. The debt
offering had a beneficial conversion feature of $852,632, which was recorded as
deemed interest. The warrants issued in conjunction with the debt created
$316,500 of deferred interest expense of which $35,167 was amortized during the
three months ended February 29, 2000.
During the three months ended February 29, 2000, the company issued 31,159
shares of common stock in conjunction with the exercise of stock options by its
employees. In order to affect a cashless transaction, an additional 58,059
incentive stock options were forfeited. These Shares of Common Stock are
restricted for a period of one year from the date of exercise.
19
<PAGE>
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
4.3 Form of Series B Redeemable Warrant
10.1 Forms of 10% Secured Convertible Promissory Note
10.2 Form of Security Agreement
10.3 Form of Registration Rights Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K
None
20
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10QSB for the
fiscal quarter ended February 29, 2000, to be signed on its behalf by the
undersigned, thereunto duly authorized the 19th day of April 2000.
CASH TECHNOLOGIES, INC.
By: /S/ Bruce Korman
________________________________________
Bruce Korman
President and Chief Executive Officer
By: /S/ Howard Brand
________________________________________
Howard Brand
Chief Financial Officer
21
<PAGE>
EXHIBIT 4.3
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
EXERCISABLE UNTIL ON OR BEFORE
5:00 P.M., NEW YORK TIME, AUGUST 31, 2002
No. _______ ________ Warrants
CASH TECHNOLOGIES, INC.
SERIES B REDEEMABLE WARRANT
1. This warrant certificate (the "Warrant Certificate") certifies that
________________________ or registered assigns, is the registered holder of
Series B Redeemable Warrants to purchase, at any time until 5:00 P.M. New York
City time on August 31, 2002 (the "Expiration Date"), up to _____________ fully-
paid and non-assessable shares, subject to adjustment in accordance with Article
6 hereof (the "Warrant Shares"), of the common stock, par value $.001 per share
(the "Common Stock"), of Cash Technologies, Inc., a Delaware corporation (the
"Company"), subject to the terms and conditions set forth herein. The warrants
represented by this Warrant Certificate and any warrants resulting from a
transfer or subdivision of the warrants represented by this Warrant Certificate
shall sometimes hereinafter be referred to, individually, as a "Warrant" and,
collectively, as the "Warrants." This Warrant Certificate is one of a series of
Warrant Certificates being issued as part of a private offering (the "Private
Financing") pursuant to the Company's Confidential Private Offering Memorandum
dated December 31, 1999.
Exercise of Warrants. Each Warrant is initially exercisable to purchase one
- --------------------
Warrant Share at an initial exercise price of $13.00 per Warrant Share, subject
to adjustment as set forth in Article 6 hereof, payable in cash or by check to
the order of the Company, or any combination of cash or check. Upon surrender
of this Warrant Certificate with the annexed Form of Election to
<PAGE>
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Warrant Shares purchased, at the Company's
principal offices (presently located at 1434 West 11th Street, Los Angeles,
California 90015), the registered holder of the Warrant Certificate (the
"Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Warrant Shares so purchased. The purchase rights
represented by this Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares). In the
case of the purchase of less than all the Warrant Shares purchasable under this
Warrant Certificate, the Company shall cancel this Warrant Certificate upon its
surrender and shall execute and deliver a new Warrant Certificate of like tenor
for the balance of the Warrant Shares purchasable hereunder.
2. Redemption by Company.
---------------------
Following the completion of a registration under the Securities Act of
1933, as amended, of the Warrant Shares, and such registration statement is then
effective and allows for the resale of the Warrant Shares by the Holder, the
Company may, on not less than 20 days' prior written notice, redeem this Warrant
at a price of $.01 per Warrant, provided that the last reported sale price of
--------
the Company's Common Stock, as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading or as
reported in the National Market System or such other exchange or registered
securities association on which the Common Stock is traded or quoted, has
averaged at least $18.00 per share for the 20 consecutive trading days ending at
least five days prior to the date on which notice is given (subject to any
adjustment as provided in Section 7 hereof).
In case the Company shall exercise its right to redeem the Warrants, it
shall give or cause to be given notice to the Holders of the Warrants, by
mailing to such Holders a notice of redemption, first class, postage prepaid, at
their last address as shall appear on the records of the Company. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Holder receives such notice.
The notice of redemption shall specify (i) the redemption price, (ii) the
redemption date, which shall in no event be less than thirty (30) days after the
date of mailing of such notice, and (iii) the place where the Warrant shall be
delivered and the redemption price shall be paid. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the employee or agent of the Company responsible for delivery of the notice,
that such notice of redemption has been mailed shall, in the absence of fraud,
be prima facie evidence of the acts stated therein. The redemption price
payable to the Holders shall be mailed to such persons at their addresses of
record.
<PAGE>
3. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for the Warrant Shares purchased pursuant to such
exercise shall be made forthwith without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 3
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and, upon exercise of the Warrants, the
certificates representing the Warrant Shares shall be executed on behalf of the
Company by the manual or facsimile signature of those officers required to sign
such certificates under applicable law.
This Warrant Certificate and, upon exercise of the Warrants, in part or in
whole, certificates representing the Warrant Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"), and
may not be offered or sold except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent applicable,
pursuant to Rule 144 under the Act (or any similar rule under such Act
relating to the disposition of securities), or (iii) upon the delivery
by the holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the issuer, stating that an exemption from
registration under such Act is available."
4. Restriction on Transfer of Warrants. The Holder of this Warrant
-----------------------------------
Certificate, by its acceptance thereof, represents and warrants to, and
covenants and agrees with the Company that the Warrants and the Warrant Shares
issuable upon exercise of the Warrants are being acquired for the Holder's own
account as an investment and not with a view to the resale or distribution
thereof and that the Warrants and the Warrant Shares are not registered under
the Act or any state securities or blue sky laws and, therefore, may not be
transferred unless such securities are either registered under the Act and any
applicable state securities law or an exemption from such registration is
available. The Holder of this Warrant Certificate acknowledges that the Holder
is an "accredited investor" within the meaning of Regulation D promulgated under
the Act who has been provided with an opportunity to ask questions of
representatives of the Company concerning the Company and that all such
questions were answered to the satisfaction of the Holder. In connection with
any purchase of Warrant Shares the Holder agrees to execute any
<PAGE>
documents which may be reasonably required by counsel to the Company to comply
with the provisions of the Act and applicable state securities laws.
1. Registration Rights. The Holder shall be entitled to all of the
-------------------
rights and subject to all of the obligations set forth in the Registration
Rights Agreement of the Company, dated as of the initial closing date for the
Private Financing.
2. Price.
-----
2.1. Initial and Adjusted Exercise Price. The initial exercise price of
-----------------------------------
each Warrant shall be $13.00 per Warrant Share. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 7 hereof.
2.2. Exercise Price. The term "Exercise Price" herein shall mean the
--------------
initial exercise price or the adjusted exercise price, depending upon the
context.
2.3. Adjustments of Exercise Price and Number of Warrant Shares.
----------------------------------------------------------
2.4. Dividends and Distributions. In case the Company shall at any time
---------------------------
after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution,
the Exercise Price in effect immediately prior to such dividend or distribution
shall be reduced to a price determined by dividing an amount equal to the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution multiplied by the Exercise Price in effect immediately prior to
such dividend or distribution, by the total number of shares of Common Stock
outstanding immediately after such dividend or distribution. For purposes of
any computation to be made in accordance with the provisions of this Section
7.1, the Common Stock issuable by way of dividend or distribution shall be
deemed to have been issued immediately after the opening of business on the date
following the date fixed for determination of shareholders entitled to receive
such dividend or distribution.
2.5. Subdivision and Combination. In case the Company shall at any time
---------------------------
subdivide or combine the outstanding Common Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
2.6. Adjustment in Number of Warrant Shares. Upon each adjustment of the
--------------------------------------
Exercise Price pursuant to the provisions of this Article 7, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest full shares of Common Stock by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
<PAGE>
2.7. Reclassification, Consolidation, Merger. etc. In case of any
--------------------------------------------
reclassification or change of the outstanding shares of Common Stock (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 subdivision or combination), or in the case of
any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in nominal value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the Warrant Shares
issuable upon exercise of the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of Warrant Shares issuable upon
exercise of the Warrants and (y) the Exercise Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holder had exercised the Warrants.
2.8. Determination of Outstanding Shares. The number of shares of Common
-----------------------------------
Stock at any one time outstanding shall include the aggregate number of shares
issued or issuable upon the exercise of outstanding options, rights, warrants
and upon the conversion or exchange of outstanding convertible or exchangeable
securities.
3. Exchange and Replacement of Warrant Certificates. This Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender hereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Shares in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
4. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu thereof.
5. Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue certificates representing fractions of shares of Common Stock
and shall not be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock.
<PAGE>
6. Reservation of Shares. The Company covenants and agrees that it will
---------------------
at all times reserve and keep available out of its authorized share capital,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock as shall be equal to the number of Warrant
Shares issuable upon the exercise of the Warrants, for issuance upon such
exercise, and that, upon exercise of the Warrants and payment of the Exercise
Price therefor, all Warrant Shares issuable upon such exercise shall be duly and
validly issued, fully paid, nonassessable and not subject to the preemptive
rights of any shareholder.
7. Notices to Warrant Holders. Nothing contained in this Agreement shall
--------------------------
be construed as conferring upon the Holder or Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise then out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of Common Stock or other shares of capital stock of
the Company or securities convertible into or exchangeable for shares
of Common Stock or other shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor;
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed; or
(d) the Company or an affiliate of the Company shall propose to issue
any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the stockholders
of the Company;
then, in any one or more of said events, the Company shall give
written notice of such event at least twenty (20) days prior to the
date fixed as a record date or the date of closing the transfer books
for the determination of the stockholders entitled to such dividend,
distribution, convertible or exchangeable securities or subscription
rights, options or warrants, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as
the case may be. Failure to give such notice or any defect therein
shall not
<PAGE>
affect the validity of any action taken in connection with the
declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription
rights, options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
Notwithstanding the foregoing, the Company agrees that it shall
promptly deliver to the Holder copies of all financial statements,
reports and proxy statements which the Company is required to send to
its stockholders generally.
1. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Article 1 of this
Agreement or to such other address as the Company may designate by
notice to the Holders.
2. Successors. All the covenants and provisions of this Agreement by
----------
or for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
3. Governing Law.
-------------
3.1. Choice of Law. This Agreement shall be deemed to have been made and
-------------
delivered in the State of Delaware and shall be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of Delaware.
3.2. Jurisdiction and Service of Process. The Company and the Holder
-----------------------------------
each (a) agrees that any legal suit, action or proceeding arising out of or
relating to this Warrant Certificate, or any other agreement entered into
between the Company and the Holder pursuant to the Private Financing shall be
instituted exclusively in the New York State Supreme Court, County of New York,
or in the United States District Court for the Southern District of New York (b)
waives any objection which the Company or such Holder may have now or hereafter
based upon forum non conveniens or to the venue of any such suit, action or
proceeding, and (c) irrevocably consents to the jurisdiction of the New York
State Supreme Court, County of New York and the United States District Court for
the Southern District of New York in any such suit, action or proceeding. The
Company and the Holder each further agrees (a) to accept and acknowledge service
of any and all process which may be served in any such suit, action or
proceeding in the New York State Supreme Court, County of New York or in the
United States District Court for the
<PAGE>
Southern District of New York and (b) agrees that service of process upon the
Company or the Holder mailed by certified mail to their respective addresses
shall be deemed in every respect effective service of process upon the Company
or the Holder, as the case may be, in any suit, action or proceeding. FURTHER,
BOTH THE COMPANY AND HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE
THE TERMS OF THIS WARRANT CERTIFICATE AND IN CONNECTION WITH ANY DEFENSE,
COUNTERCLAIM OR CROSS-CLAIM ASSERTED IN ANY SUCH ACTION.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the ____ day of _________, 2000.
CASH TECHNOLOGIES, INC.
By: ______________________________
Name:
Title:
[SEAL]
Attest:
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ________ Warrant Shares and
herewith tenders in payment for such Warrant Shares cash or a certified check
payable to the order of Cash Technologies, Inc. in the amount of $_________, all
in accordance with the terms hereof. The undersigned requests that a
certificate for such Warrant Shares be registered in the name of
______________________, whose address is ______________________
_________________________, and that such certificate be delivered to
__________________, whose address is _________________________________________.
Dated: ________ Signature:
-----------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
_________________________________
_________________________________
(Insert Social Security or Other
Identifying Number of Holder)
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells, assigns
and transfers unto
________________________________________________________________________________
____________________________ (Please print name and address of transferee) this
Warrant Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ____________________, Attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ________ Signature:
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
<PAGE>
________________________________________
________________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
EXHIBIT 10.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES UNLESS THE ISSUER RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THIS NOTE REASONABLY SATISFACTORY TO THE ISSUER
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR THAT THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER
THE ACT.
CASH TECHNOLOGIES, INC.
SECURED CONVERTIBLE PROMISSORY NOTE
$_______ January 3, 2000
Los Angeles, California
FOR VALUE RECEIVED, Cash Technologies, Inc., a Delaware corporation
("Cashtech") and its wholly owned subsidiaries Coinbank Automated Systems, Inc.,
a Delaware corporation ("Coinbank") and National Cash Processors, Inc., a
Delaware corporation ("NCP" and together with Coinbank sometimes referred to
individually as a "Subsidiary" and together as the "Subsidiaries"), all with an
address at 1434 West 11th Street, Los Angeles, CA 90015 ( Cashtech, Coinbank and
NCP are hereinafter referred to collectively as the "Company" or "Payor" unless
the context indicates otherwise), with its principal office at 1434 West 11th
Street, Los Angeles, California 90015, promises to pay to the order of
______________________ (the "Payee" or the "Holder"), or registered assigns, the
principal amount of ________________ on July 31, 2001 (the "Maturity Date"),
and unpaid interest on the unpaid principal balance hereof from the date of this
Note at the rate of 10% per annum, payable on the last day of each calender
quarter commencing March 31, 2000. Payments of principal and interest shall be
made in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public or private debts.
1. Terms of Repayment
1.1 All payments received on account of this Note shall be applied first
to the payment of accrued interest on this Note and then to the reduction of the
unpaid principal balance of this Note. Interest shall be computed on the basis
of a year of 360 days, for the actual number of days elapsed. Payor may prepay
principal and interest on this Note upon 30 days prior notice to the Holder.
<PAGE>
1.2 If payment of the outstanding principal amount of this Note, together
with accrued unpaid interest thereon at the applicable rate of interest (as set
forth herein), is not made on the earlier to occur of (i) the Maturity Date (as
such date may be extended pursuant to the extension options set forth in Section
4 hereof) and (ii) the Accelerated Maturity Date (defined below), then interest
shall accrue on the outstanding principal amount due under this Note and on any
unpaid accrued interest due on this date of the payment in full of such amounts
(including from and after the date of the entry of judgment in favor of the
Holder in an action to collect this Note) at an annual rate equal to the lesser
of 18% or the maximum rate of interest permitted by applicable law.
1.3 Notwithstanding anything to the contrary contained in this Note, Payor
shall not be obligated pay, and the Holder shall not be entitled to charge,
collect, or receive, interest in excess of the maximum rate allowed by
applicable law. During any period of time in which the interest rate specified
herein exceeds such maximum rate, any amounts of interest collected by the
Holder in excess of such maximum rate shall be deemed to apply to principal and
all payments of interest and principal shall be recalculated to allow for such
characterization.
1.4 In the event that the date for the payment of any amount payable under
this Note falls due on a Saturday, Sunday or public holiday under the laws of
the State of California, the time for payment of such amount shall be extended
to the next succeeding business day and interest shall continue to accrue on any
principal amount so effected until the payment thereof on such extended due
date.
1.5 This Note is issued pursuant to a Subscription Agreement between Cash
Tech and the Payee of even date herewith (the "Purchase Agreement"), pursuant to
which the Payee is purchasing, from the Company units (the "Units"), each Unit
consisting of (i) this Note and (ii) Series B redeemable warrants to acquire up
to 5,000 shares of the Company's Common Stock, at an exercise price of $13.00
per share (the "Warrants"). This Note is one of a series of notes (the "Notes")
being issued in connection with the Company's offering ("Offering") of Units
pursuant to the Company's Confidential Private Offering Memorandum dated
December 31, 1999. A copy of the Purchase Agreement is available for inspection
at the Company's principal office. Notwithstanding any provision to the
contrary contained herein, this Note is subject and entitled to certain terms,
conditions, covenants and agreements contained in the Purchase Agreement. Any
transferee or transferees of this Note, by their acceptance hereof, assume the
obligations of the Payee in the Purchase Agreement with respect to the
conditions and procedures for transfer of this Note. Reference to the Purchase
Agreement shall in no way impair the absolute and unconditional obligation of
the Company to pay both principal and interest hereon as provided herein. All
capitalized terms not defined herein shall have the meanings ascribed thereto in
the Purchase Agreement.
2. Security. This Note is the direct obligation of the Company and is secured
by all of the Collateral contemplated by that certain Security Agreement dated
________, ____ by and among the Company, the holders of the Notes and GunnAllen
Financial, Inc. ("GunnAllen Financial") as Agent for the holders of the Notes
(the "Security Agreement").
<PAGE>
3. Conversion Rights
-----------------
3.1 The Holder shall have the right prior to the date on which this Note
is paid in full, to convert at any time, or from time to time, any part of the
outstanding principal amount of this Note into fully paid and non-assessable
shares of the Common Stock par value $.001 per share, of Cashtech (the
"Conversion Rights") at the Conversion Price (as defined below) determined as
provided in this Section 3. Promptly after the surrender of this Note,
accompanied by a Notice of Conversion of Convertible Note in the form attached
hereto as Exhibit A, properly completed and duly executed by the Holder (a
---------
"Conversion Notice"), Cashtech shall issue and deliver to or upon the order of
the Holder that number of shares of Common Stock for the balance of this Note
converted as shall be determined in accordance herewith.
3.2 The number of shares of Common Stock to be issued upon each conversion
of this Note shall be determined by dividing (i) the amount of Principal to be
converted by (ii) the Conversion Price in effect on the date the Conversion
Notice is delivered to Cashtech by the Holder.
3.3 Conversion Price. The conversion price shall be $9.50, subject to
----------------
adjustment from time to time upon the happening of certain events (as adjusted,
the "Conversion Price") as set forth below.
3.4 Subdivision. If Cashtech, at any time while Notes remain outstanding,
-----------
shall (i) subdivide the Common Stock (or effect a similar transaction), the
Conversion Price shall be proportionately reduced or (ii) effect a reverse stock
split or similar transaction, the Conversion Price shall be proportionately
increased, as the case may be, as of the effective date of such subdivision,
reverse stock split or similar transaction, or, if Cashtech shall take a record
of holders of its Common Stock for the purpose of any such transaction, as of
such record date, whichever is earlier (provided if such transaction does not
actually occur, such adjustment shall not be made).
3.5 Stock Dividends. If Cashtech at any time while any Notes are
---------------
outstanding shall pay a dividend in shares of, or make other distribution of
shares of, the Common Stock, then the Conversion Price shall be adjusted, as of
the date Cashtech shall take a record of the holders of its Common Stock for the
purpose of receiving such dividend or other distribution (or if no such record
is taken, as at the date of such payment or other distribution), to that price
determined by multiplying the Conversion Price in effect immediately prior to
such payment or other distribution by a fraction (a) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (b) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
3.6 Reclassification, Consolidation or Merger. At any time while this
-----------------------------------------
Note remains outstanding, in case of any reclassification or change of Common
Stock (other than a change in
<PAGE>
par value, or from par value to no par value per share, or from no par value per
share to par value or as a result of a subdivision or combination of Common
Stock) or in case of any consolidation or merger of Cashtech with or into
another corporation (other than a merger with another corporation in which
Cashtech is a continuing corporation and which does not result in any
reclassification or change, other than a change in par value, or from par value
to no par value per share, or from no par value per share to par value, or as a
result of a subdivision or combination Common Stock), or in the case of any sale
or transfer to another corporation of the property of Cashtech as an entirety or
substantially as an entirety, Cashtech, or such successor or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefor, execute new notes providing that the holders of the
Notes shall have the right to exercise such new notes (upon terms not less
favorable to the holders than those then applicable to the Notes) and to receive
upon such exercise, in lieu of each share of Common Stock theretofore issuable
upon exercise of the Notes, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, sale or transfer by the Holder of one share of Common
Stock issuable upon exercise of the Notes had the Notes been converted
immediately prior to such reclassification, change, consolidation, merger, sale
or transfer. Such new notes shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 3. The provisions of this Section 3.6 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, sales and
transfers.
3.7 Method of Conversion. Except as otherwise provided in this Note or
--------------------
agreed to by the Holder, this Note may be converted by the Holder in whole at
any time or in part (provided such partial conversion is at least $20,000) from
time to time by (i) submitting to Cashtech a Conversion Notice (by facsimile
dispatched on the Conversion Date and confirmed by U.S. mail or overnight mail
service sent within two business days thereafter) and (ii) surrendering this
Note with the mailed confirmation of the Conversion Notice at the principal
office of Cashtech. Upon partial exercise of the Conversion Rights, a new note
containing the same date and provisions as this Note shall be issued by Cashtech
to the Holder for the balance due hereunder which shall not have been converted.
3.8 Restrictions on Shares. This Note has been issued by the Company
----------------------
pursuant to the exemption from registration under the Securities Act of 1933
(the "Act"). The shares of Common Stock issuable upon conversion of this Note
may not be offered, sold or otherwise transferred unless (i) they first shall
have been registered under the Act and applicable state securities laws or (ii)
Cashtech shall have been furnished with an opinion of legal counsel (in form,
substance and scope reasonably acceptable to Cashtech) to the effect that such
sale or transfer is exempt from the registration requirements of the Act. Each
certificate for shares of Common Stock issuable upon conversion of this Note
that have not been so registered and that have not been sold pursuant to an
exemption that permits removal of the applicable legend, shall bear a legend
substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
<PAGE>
(THE "ACT"). THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND
TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, Cashtech shall remove the foregoing
legend from the certificate or issue to such Holder a new certificate therefor
free of any transfer legend, if (i) with such request, Cashtech shall have
received an opinion of counsel, reasonably satisfactory to the Maker in form,
substance and scope, to the effect that any such legend may be removed from such
certificate or (ii) a registration statement under the Act covering such
securities is in effect. The Holder of this Note shall be entitled to the
rights granted by the Cashtech pursuant to the terms of the Registration Rights
Agreement entered into by Cashtech in connection with the Offering.
3.9 Reservation of Shares. The Company shall at all times have authorized
---------------------
and reserved, for the purpose of issuance, a sufficient number of shares of
Common Stock to provide for the issuance of shares of Common Stock underlying
the then outstanding aggregate Principal amount of the Notes.
4. Covenants. The Company covenants and agrees that for so long as any
portion of the indebtedness evidenced by this Note, whether principal, accrued
and unpaid interest or any other amount at any time due hereunder, remains
unpaid:
4.1 Negative Covenants. The Company will not, without the prior written
consent of GunnAllen Financial:
(a) Sell, transfer or in any other manner dispose of, or purchase
or acquire, any business, assets, capital stock or other property, except (i) in
the ordinary course of its business, or (ii) if (A) the transaction is a bona
fide transaction in which fair market value is received by the Company, (B) no
Event of Default or Default (each defined hereinafter) has occurred and is
continuing or would occur after giving effect to such transaction, and (C)
payment of the principal amount of the Notes and accrued and unpaid interest
thereon through the date of such payment shall have been made or provided for
from the net proceeds of such transaction.
(b) Make any loan or advance to any person who is or hereafter
becomes an officer, director or shareholder of the Company or any affiliate of
any such person, other than for reasonable advances for expenses to be incurred
by officers, directors, employees and consultants of the Company in the ordinary
course of the business of the Company.
<PAGE>
(c) Purchase or otherwise redeem any Common Stock or other equity
securities of the Company (other than the Warrants contained in the Units) or
declare or pay any dividends in cash or other assets on any of its Common Stock
or other equity securities.
(d) Issue, create, incur, assume, permit, guarantee or suffer to
exist any indebtedness or other obligations for money borrowed or capital lease
obligations, except for (i) indebtedness under the Notes and any extension,
renewal or refinancing thereof; (ii) trade indebtedness incurred in the ordinary
course of business; and (iii) indebtedness or other obligations for money
borrowed which are subordinated in all respects, including, but not limited to,
priority upon liquidation, to the Notes.
(e) Pay (other than in accordance with the terms thereof), or
voluntarily prepay, any amounts under any indebtedness or other obligations for
money borrowed, or capital lease obligations, whenever incurred or created and
whether or not such indebtedness becomes due, past due or accelerated, except
for (i) all of the Notes on a pro-rata basis, (ii) trade indebtedness incurred
in the ordinary course of business; and (iii) indebtedness owed to General
Electric Capital Corporation.
(f) (i) Amend the certificate or articles of incorporation or by-
laws of the Cash Tech, Coinbank or NCP in any manner which would impair or
reduce the rights of the holders of the Notes, (ii) effect a merger or
consolidation in which the Company is not the surviving entity or (iii)
liquidate, wind up its affairs or dissolve.
(g) Create, permit or suffer to exist any lien, charge or security
interest in any of its assets, except for (i) the security interest created by
the Security Agreement; and (ii) Permitted Liens. As used herein, "Permitted
Liens" means any of the following: (a) liens for taxes, assessments and
governmental charges or levies (i) not yet in default or (ii) that are being
contested in good faith and by appropriate proceedings diligently conducted,
provided that in the case of liens under this clause (ii), reserves or other
- --------
appropriate provisions shall have been established therefor in accordance with
generally accepted accounting principles ("GAAP") and enforcement of any such
liens shall have been effectively stayed or fully bonded pending the final
determination of such proceeding, (b) liens imposed by law, such as
materialmen's, mechanics' carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business securing obligations
that are not overdue for a period of more than 60 days or which, if overdue, are
being contested in good faith and by appropriate proceedings diligently
conducted, provided that reserves or other appropriate provisions shall have
--------
been established therefor in accordance with GAAP and enforcement of any such
lien is effectively stayed or fully bonded pending the final determination of
such proceeding, (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or statutory
obligations; (d) easements, zoning restrictions or other restrictions, rights-
of-way, minor encroachments, covenants or encumbrances on real property imposed
by law or arising in the ordinary course of business that do not arise out of
the incurrence of any indebtedness and that do not and could not reasonably be
expected to materially detract from the value of the affected property or
interfere materially with the ordinary conduct of business of the Company or
materially impair the use thereof to the indebtedness; (e) judgments and other
<PAGE>
similar liens arising in connection with court proceedings in an amount not in
excess of $50,000, provided the execution or other enforcement of such liens is
effectively stayed or fully bonded pending the final determination of the
proceeding referred to below and the claims secured thereby are being contested
in good faith and by appropriate proceedings; and (f) liens (other than liens
created or imposed under the Employee Retirement Income Security Act of 1974, as
amended) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tender, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive in any case of
obligations incurred in connection with the borrowing of money or the obtaining
of advances or credit) and (g) liens of General Electric Capital Corporation
pursuant to the Master Security Agreement dated February 4, 1997.
(h) Directly or indirectly, enter into any transaction with or for
the benefit of an affiliate (other than the reasonable compensation of an
affiliate for services as an officer, director or employee).
4.2 Affirmative Covenants. The Company will:
(a) Pay and discharge all lawful taxes, assessments and
governmental charges or levies imposed upon it, upon its income and profits or
upon any of its assets, before the same shall become in default, as well as all
lawful claims for labor, materials and supplies which, if unpaid, might become a
lien or charge upon such properties or any part thereof, provided, however, that
the Company will not be required to pay and discharge any such tax, assessment,
charge, levy or claim so long as (i) the validity, applicability and/or the
amount thereof shall be contested in good faith by appropriate proceedings, (ii)
the Company, shall have set aside on its books adequate reserves in accordance
with GAAP with respect to any such tax, assessment, charge, levy or claim so
contested, and (iii) enforcement of any lien on any assets of the Company
associated with any such taxes, assessments, charges, levies or claims shall
have been effectively stayed or fully bonded pending the final determination of
any such proceedings.
(b) Do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises and
to comply in all material respects with all laws, regulations and orders of each
governmental authority having jurisdiction over the Company (it being
acknowledged that the Company may nevertheless effectuate its Reincorporation).
(c) Promptly following the occurrence of a Default (as defined
herein), furnish to the Holder and the Secured Party a statement of the
Company's President or Chief Financial Officer setting forth the details of such
Default and the action which the Company proposes to take with respect thereto.
<PAGE>
(d) At all times maintain true and complete records and books of
account in which all of the financial transactions of the Company are duly
recorded in conformance with GAAP.
(e) At all times reserve and keep available out of its authorized
shares of Common Stock, solely for the pur-pose of issuance upon exercise of the
Warrants, such number of shares of Common Stock as shall be issuable upon the
exercise of the Warrants (the "Warrant Shares").
(f) Take all action which may be necessary or expedient to assure
that, upon exercise of any of the Warrants, all Warrant Shares issuable upon
such conversion will be duly and validly issued, fully paid, non-assessable and
not subject to the preemptive rights of any stockholder.
(g) Use the proceeds from the sale of the Notes primarily for
working capital to develop the Company's Emma and ATM-X technology. A portion of
the proceeds allocated to working capital will be used to pay the fees and
expenses of GunnAllen Financial, in its capacity as placement agent (pursuant to
a separate placement agent agreement with the Company), in connection with such
sale of the Notes.
(h) Commencing January 1, 2000, the Company shall provide to
GunnAllen Financial, copies of the Company's quarterly and annual reports as
filed with the Securities and Exchange Commission no later than 3 days after
such filing, and copies of the Company's other information, documents and
reports which the Company is required to file with the Securities and Exchange
Commission (the "Commission") pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall provide GunnAllen Financial with the
annual and quarterly reports and information, documents and other reports which
are specified in Sections 13 and 15(d) of the Exchange Act, within 45 days of
the end of each fiscal quarter or within90 days of each fiscal year end,
whichever is applicable. All such financial statements and reports shall be
prepared in accordance with GAAP consistently applied and shall be certified by
the Company's Chief Financial Officer as having been so prepared from the
Company's books and records and as presenting fairly the consolidated and
consolidating financial positions of the Company and its subsidiaries at the end
of the relevant fiscal period and the consolidated and consolidating results of
operations and cash flows for the Company and its subsidiaries for the period
then ended.
(i) Furnish to GunnAllen Financial such reports as to the
Collateral (as defined in the Security Agreement) for the Notes as GunnAllen
Financial may reasonably request from time to time.
(j) Cooperate with the Holder and GunnAllen Financial and execute
such further instruments and documents as the Holder and GunnAllen Financial
shall reasonably request to carry out to their satisfaction the transactions
contemplated by this Note.
<PAGE>
(k) Permit GunnAllen Financial to visit and inspect any of the
properties of the Company to examine the books of account of the Company (and to
make copies thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Company with, and to be advised as to the same by,
its and their officers, at all such reasonable times and intervals as GunnAllen
Financial may reasonably request.
(l) Comply in all material respects with (i) the applicable laws
and regulations wherever its business is conducted, (ii) the provisions of its
charter documents and by-laws (giving effect to the Reincorporation), (iii) all
agreements and instruments by which it or any of its properties may be bound and
(iv) all applicable decrees, orders and judgements.
(m) Continue to retain Bruce Korman as the Chairman and Chief
Executive Officer of the Company.
(n) Maintain liquid assets totalling $100,000 at all times.
(o) Cause any Subsidiary organized after the date of the Note to be
bound by the terms hereof and the Security Agreement to the same extent as the
Company.
5. Events of Default. If any of the following events (each an "Event of
Default") shall occur:
5.1 The Company fails to pay the principal of, any installment of interest
accrued on, or any other amount at anytime owing under, the Note or any of the
other Notes, as and when the same becomes due and payable hereunder or
thereunder and/or under the Security Agreement; or
5.2 Either of Cashtech, Coinbank or NCP defaults in the due observance or
performance of or breach any of its covenants contained in this Note or any of
the other Notes, the Security Agreement, and/or any registration rights
agreement entered into by Cashtech pertaining to the Warrant Shares (other than
a Default involving the payment of money due under this Note, any of the other
Notes or the Security Agreement) and such default is not cured within 10
business days after the occurrence of such default; or
5.3 The Company or any Subsidiary thereof shall (i) becomes insolvent,
(ii) apply for or consent to the appointment of, or the taking of possession by,
a receiver, trustee or similar official of or for itself or of or for all or a
substantial part of its property, (iii) make an assignment for the benefit of
its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code,
as now or hereafter in effect (the "Code"), (v) file a petition seeking to take
advantage of any other bankruptcy, insolvency, moratorium, reorganization or
other similar law of any jurisdiction ("Other Laws"), (vi) acquiesce as to, or
fail to controvert in a timely or appropriate manner, an involuntary case filed
against the Company or such Subsidiary under the Code, or (vii) take any
corporate action in furtherance of any of the foregoing; or
<PAGE>
5.4 A proceeding or involuntary case shall be commenced, without the
application or consent of the Company or any Subsidiary thereof, in any court of
competent jurisdiction (i) under the Code, (ii) seeking liquidation,
reorganization, dissolution, winding up or composition or readjustment of its
debts under any Other Laws, or (iii) seeking the appointment of a trustee,
receiver or similar official for it or for all or any substantial part of its
assets, and any such proceeding or case shall continue undismissed, or unstayed
and in effect, for a period of 90 days; or
5.5 A final judgment for the payment of money shall be rendered by a court
of competent jurisdiction against the Company or any Subsidiary thereof, and the
Company or such Subsidiary shall not discharge the same, or procure a stay of
execution thereof within 30 days from the date of entry thereof and within such
30 day period or such longer period during which execution of such judgment
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal, and such judgment, together with all other judgments
against the Company (including all subsidiaries), shall exceed in the aggregate
$50,000 in excess of any insurance as to the subject matter of such judgments,
as to which coverage has not been declined or the underlying claim rejected by
the applicable insurer; or
5.6 The liquidation or dissolution of the Company or any Subsidiary
thereof or any vote in favor thereof by the board of directors and shareholders
of the Company; or
5.7 A proceeding is commenced to foreclose a security interest in or lien
on any asset of the Company or any Subsidiary thereof as a result of a default
in the payment or performance of any indebtedness of the Company or such
Subsidiary in excess of $100,000, together with accrued unpaid interest thereon
and related costs (other than the Notes); or
5.8 An attachment or garnishment is levied against the assets of the
Company or any Subsidiary thereof involving an amount in excess of $100,000 and
the lien created by such levy is not vacated, bonded or stayed within 10
business days after such lien has attached to such assets; or
5.9 The Company or any Subsidiary thereof defaults in the payment
(regardless of amount) when due of the principal of, interest on, or any other
liability on account of, any indebtedness of the Company or such Subsidiary
(other than the Notes) having an unpaid principal amount in excess of $100,000,
or a default occurs in the performance or observance by the Company or any
Subsidiary thereof of any covenant or condition (other than for the payment of
money) contained in any note (other than this Note) or agreement evidencing or
pertaining to any such indebtedness, which causes the maturity of such
indebtedness to be accelerated or permits the holder or holders of such
indebtedness to declare the same to be due prior to the stated maturity thereof;
5.10 Any representation, warranty or statement of fact made by the Company
in the Notes, or the Security Agreement or in any certificate or financial
statement delivered by the Company to the Holder or GunnAllen Financial at any
time proves to be false or misleading in any material respect when made or
deemed made by the Company; or
<PAGE>
5.11 The Company or any of its Subsidiaries sells all or substantially all
of its assets or merges or is consolidated with another corporation in which the
Company or such Subsidiary, as the case may be, is not the surviving
corporation; provided, however, the Company may sell its Coinbank Subsidiary
without being in violation hereof provided that at least 50% of any cash
proceeds received by the Company from the sale of Coinbank are utilized to
reduce the outstanding principal amount of the Notes, or to repay amounts due to
General Electric Capital Corporation, as determined in the discretion of the
Board of Directors of Cashtech; then, and in any such event the Holder of this
Note may by written notice to the Company declare the entire unpaid principal
amount of this Note outstanding together with accrued interest thereon due and
payable, and the same shall, unless such default be cured within twenty (20)
days after such notice, forthwith become due and payable upon the expiration of
such twenty (20) day period, without presentment, demand, protest, or other
notice of any kind, all of which are expressly waived.
As used in this Note, "Accelerated Maturity Date" means any date prior to the
Maturity Date on which the principal of and any accrued and unpaid interest on
this Note is declared to be, or becomes, due pursuant to this Section 4 and
"Default" means any event that is or, with the passage of time or the giving of
notice or both, would be, an Event of Default.
6. Suits for Enforcement and Remedies. If any one or more Events of Default
shall occur, the Holder may proceed to (i) protect and enforce Holder's rights
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, condition or agreement contained in this Note or in
any agreement or document referred to herein or in aid of the exercise of any
power granted in this Note or in any agreement or document referred to herein,
(ii) enforce the payment of this Note, or (iii) enforce any other legal or
equitable right of the Holder. No right or remedy herein or in any other
agreement or instrument conferred upon the Holder of this Note is intended to be
exclusive of any other right or remedy, and each and every such right or remedy
shall be cumulative and shall be in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
7. Restriction on Transfer. This Note has been acquired for investment and
has not been registered under the securities laws of the United States of
America or any state thereof. Accordingly, neither this Note nor any interest
therein may be offered for sale, sold or transferred in the absence of
registration and qualification of this Note under applicable federal and state
securities laws or an opinion of counsel of the Holder reasonably satisfactory
to the Company that such registration and qualification are not required.
8. Prepayment. The principal of and accrued interest on this Note may be
prepaid in full at any time without premium or penalty upon thirty days prior
notice.
9. Holder Deemed Owner. The Company may deem and treat the registered Holder
hereof as the absolute owner of this Note (whether or not this Note shall be
overdue and notwithstanding any notice of ownership or writing hereon made by
anyone other than the
<PAGE>
Company, for the purpose of receiving payment hereof or thereof or on account
hereof and for all other purposes) and the Company shall not be affected by
notice to the contrary.
10. Corporate Obligation. It is expressly understood that this Note is solely
a corporate obligation of the Company, and that any and all personal liability,
either at common law or in equity or by constitution or statute, of, and any and
all such rights and claims against, every promoter, subscriber, incorporator,
shareholder, officer, or director, as such, are hereby expressly waived and
released by the Holder hereof by the acceptance of this Note and as a part of
the consideration for the issue hereof.
11. Miscellaneous
11.1 The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. No provision of
this Note shall alter or impair the obligations of the Company hereby.
11.2 If, following the occurrence of an Event of Default, the Holder of
this Note shall seek to enforce the collection of any amount of principal and/or
accrued interest on this Note, there shall be immediately due and payable by the
Company, in addition to the then unpaid principal of, and accrued unpaid
interest on, this Note, all costs and expenses incurred by the Holder of this
Note in connection therewith, including, without limitation, reasonable
attorneys' fees and disbursements.
11.3 No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver or as an acquiescence
in any Default, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy.
11.4 This Note may not be modified or discharged (other than by payment),
except by a writing duly executed by the Company and Holder.
11.5 The headings of various sections and subsections of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
11.6 All notices required to be given to any of the parties hereunder
shall be in writing and shall be deemed to have been sufficiently given for all
purposes when presented personally to such party, sent by telecopier (with the
original timely mailed), or sent by registered, certified or express mail,
return receipt requested, to such party at its address set forth below:
<PAGE>
If to the Company, to:
Cash Technologies, Inc.
1434 West 11th Street
Los Angeles, CA 90015
Telecopier No.: (213) 745-2030
with a copy to:
Brian C. Daughney, Esq.
Goldstein & DiGioia, LLP
369 Lexington Avenue-18th Floor
New York, NY 10017
Telecopier No.: (212) 557-0295
If to the Payee, to:
with copies to:
GunnAllen Financial, Inc.
1715 North Westshore Blvd., Suite 700
Tampa. FL 33609
Attn: Howard Davis
Telecopier No.: (813) 282-1275
or hereafter given to the other party hereto pursuant to the provisions of this
Note.
11.7 The Company may not delegate its obligations under this Note and such
attempted delegations shall be null and void. The Holder may assign, pledge or
otherwise transfer this Note without prior written consent of the Company. This
Note inures to the benefit of Payee, its successors and its assignee of this
Note and binds the Company, and its successors and assigns, and the terms
"Payee" and "the Company" whenever occurring herein shall be deemed and
construed to include such respective successors and assigns.
11.8 This Note shall continue to be effective or be reinstated, as the
case may be, if at any time any payment made pursuant to it is rescinded or must
otherwise be returned by the Holder upon bankruptcy or reorganization or
otherwise of the Company, all as though such payment had not been made.
11.9 THE COMPANY AND THE HOLDER EACH (I) AGREES THAT ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE SHALL BE INSTITUTED
EXCLUSIVELY IN THE APPROPRIATE STATE COURT, COUNTY OF LOS ANGELES OR IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF LOS ANGELES, CALIFORNIA, (II)
WAIVES ANY OBJECTION WHICH THE COMPANY MAY HAVE NOW OR HEREAFTER BASED UPON
FORUM
<PAGE>
NON CONVENIENS OR TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND (III)
IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE STATE COURT, COUNTY OF LOS
ANGELES, CALIFORNIA AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF LOS
ANGELES IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE COMPANY AND THE HOLDER EACH
FURTHER AGREES TO ACCEPT AND ACKNOWLEDGE SERVICE OF ANY AND ALL PROCESS WHICH
MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE COURT, COUNTY
OF LOS ANGELES OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF LOS
ANGELES AND AGREES THAT SERVICE OF PROCESS UPON THE COMPANY OR THE HOLDER,
MAILED BY CERTIFIED MAIL TO THEIR RESPECTIVE ADDRESSES, SUCH SERVICE TO BECOME
EFFECTIVE THREE BUSINESS DAYS AFTER SUCH MAILING, WILL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE COMPANY OR THE HOLDER, AS THE CASE
MAY BE, IN ANY SUIT, ACTION OR PROCEEDING. FURTHER, BOTH THE COMPANY AND THE
HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THIS NOTE AND IN
CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH
ACTION.
11.10 This Note is exchangeable, without expense, upon the surrender
hereof by the Holder at the principal executive office of the Company, for two
or more new Notes of like tenor and date (except for the principal amounts
thereof) representing in the aggregate the same principal amount as this Note,
in such denominations as shall be designated by the Holder thereof at the time
of such surrender, provided that such new Notes shall be issuable in minimum
denominations of $10,000 and integral multiples thereof.
11.11 This Note shall be construed in accordance with and governed by the
laws of the State of California without regard to principles of conflicts of
law, and cannot be changed, discharged or terminated orally but only by an
instrument in writing signed by the party against whom enforcement of any
change, discharge or termination is sought.
11.12 Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Note, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Note, if mutilated, the
Company will make and deliver a new Note of like date and tenor, in lieu hereof.
11.13. Payor may not delegate its obligations under this Note and such
attempted delegations shall be null and void. The Payor may assign, pledge or
otherwise transfer this Note without prior written consent of Payor. This Note
inures to the benefit of Payee, its successors and its assignee of this Note and
binds Payor, and its successors and assigns, and the term "Payee"whenever
occurring herein shall be deemed and construed to include such respective
successors and assigns.
<PAGE>
11.14. The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever. No provision of
this Note shall alter or impair the obligations of the Payor hereby.
11.15. No forbearance, indulgence, delay or failure to exercise any right
or remedy with respect to this Note shall operate as a waiver or as an
acquiescence in any Event of Default, nor shall any single or partial exercise
of any right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
PAYOR:
CASH TECHNOLOGIES, INC. COINBANK AUTOMATED SYSTEMS, INC.
By: /s/ Bruce Korman, President By: /s/ Bruce Korman, President
----------------------------- -----------------------------
Bruce Korman, President Bruce Korman, President
NATIONAL CASH PROCESSORS, INC.
By: /s/ Bruce Korman, President
-------------------------------
Bruce Korman, President
<PAGE>
EXHIBIT 10.2
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made as of the 5th day of January,
2000 among CASH TECHNOLOGIES, INC. with an address at 1434 West 11th Street, Los
Angeles, California 90015 (the "Company"), and GunnAllen Financial, Inc., a
Florida corporation with an address at 1715 North Westshore Blvd., Suite 700,
Tampa, Florida 33607, as agent (the "Agent") for the Note Holders (as defined
below).
RECITALS
A. Certain persons (the "Note Holders" have agreed to lend the Company an
aggregate of up to $3,350,000 (the "Loan") and the Company desires to borrow
such funds from the Note Holders pursuant to the terms of certain Secured
Convertible Promissory Notes issued by the Company to the Note Holders in the
aggregate principal amount of up to $3,375,000 (the "Notes") pursuant to the
Company's Confidential Private Offering Memorandum dated December 31, 1999 (the
"Offering").
B. In order to induce the Note Holders to make the Loan, the Company has
agreed to grant to the Note Holders a security interest and lien in and to all
of the Company's assets for purposes of securing payment and performance of its
obligations under the Notes and this Security Agreement, as the same may be
amended, modified, supplemented, restated, extended, renewed or refinanced at
any time or from time to time in accordance with their terms (the "Secured
Obligations").
C. NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
<PAGE>
1. Grant of Security Interest. To secure to the Note Holders the prompt
and full payment and performance of the Secured Obligations, the Company hereby
grants to the Note Holders a first priority continuing security interest and
lien in and to all of the assets of the Company of all kinds and descriptions,
wherever the same may now or hereafter be located, now existing and/or owned and
hereafter arising or acquired, or in which the Company may acquire an interest
(to the extent of such interest), including, without limitation: all (i)
accounts; (ii) chattel paper; (iii) contract rights; (iv) documents; (v) general
intangibles, including, without limitation, all rights to receive payment of
money or property not constituting "accounts" under the UCC (as defined below),
whether under any contract, undertaking or arrangement or pursuant to any law
rule or regulation (including, without limitation, tax refunds, condemnation and
damage awards, judgments, royalties and license fees), all trade secrets,
proprietary information, tradenames, copyrights, copyright applications, patent
applications, patents, trademarks, trademark registrations, computer software,
service marks and applications therefor and all other rights, interests and
property generally understood to constitute intellectual property and all rights
as licensor or licensee under intellectual property license agreements
(including, without limitation, United States patent applications numbered
60/062,751, 09/328,529, 60/067,123 and 09/347,069 (vi) instruments; (vii)
equipment; (viii) inventory; (ix) goods; (x) (to the extent not otherwise
included in clause (vii) above) equipment, fixtures, furniture and furnishings
now or hereafter located upon any real property of the Company, and used or
usable in connection with any future occupancy or use of such property; (xi)
deposits and any other indebtedness at any time held or owing by any bank to or
for the credit or the account of the Company; (xii) claims or payments made
under any insurance policy; (xiii) investment property (as defined in the UCC),
including, without limitation, rights in investment securities, whether
certificated or uncertificated and rights in securities commodities accounts;
(xiv) interest of the Company in any goods, the sale or lease of which shall
have given or shall give rise to, and in all guaranties and other property
securing the payment of or performance under, any accounts, contracts, general
intangibles or any chattel paper or instruments referred to above; (xv) all
replacements, substitutions, additions or accessions to or for any of the
foregoing; (xvi) (to the extent related to the property described above) books,
files, records and other papers and documents, including, without limitation, to
the extent so related, all tapes, computer runs, computer programs and other
papers and documents in the possession or control of the Company or any computer
bureau from time to time acting for the Company; (xvii) (to the extent not
otherwise included) all attachments, accessories, accessions, substitutions and
replacements of or to any or all of the foregoing types of tangible Collateral
(as defined below); and (xviii) (to the extent not otherwise included) proceeds
and products of any and all of the foregoing (collectively, the "Collateral").
The Agent will file, and the Company consents to such filing, the appropriate
forms to perfect the Note Holders' security interest in the Collateral in
compliance with the UCC. "UCC," as used herein, means the Uniform Commercial
Code as in effect on the date of this Agreement in the State of California.
ii. Covenants and Warranties. The Company represents, warrants, covenants
and agrees as follows:
<PAGE>
(i) The Company is the sole owner of the Collateral, free and clear of any
liens, security interests or other encumbrances (other than liens solely on
specific equipment subject to equipment leases (such equipment having a fair
market value of not more than $500,000 in the aggregate)) (collectively, the
"Permitted Liens");
(ii) Performance of this Agreement does not conflict with or result in a
breach of any agreement to which the Company is bound;
(iii) The Company will not (i) change the location of its chief executive
office or other places of business or remove its books and records from such
location, or (ii) remove any equipment or inventory from any location in which
it may be located (except for sales in the ordinary course of business), (c)
change its identity or corporate structure to such an extent that any financing
statement filed by or on behalf of the Note Holders would become misleading,
unless, in each of the foregoing cases the Company shall have given the Agent
and the Note Holders at least 30 days prior written notice thereof in reasonable
detail and shall do all things necessary to maintain the first priority status
of the Note Holders' security interest in the Collateral contemplated hereby;
(iv) If any Event of Default (as defined in the Notes) shall occur, the Note
Holders may exercise any and all rights and remedies of a secured party after
default under the UCC;
(v) No security agreement or financing statement with respect to all or any
part of the Collateral is on file or of record in any public office, except
security agreements or financing statements in respect of Permitted Liens. When
appropriate financing statements have been filed by or on behalf of the Note
Holders against the Company, the security interest granted pursuant to this
Agreement will constitute a perfected security interest (to the extent such
liens can be perfected by filing) in the Collateral in favor of the Note
Holders, which security interest will be prior to all other security interests
in and liens on the Collateral (other than Permitted Liens) and which security
interest is enforceable as such against all creditors of the Company;
(vi) The Company agrees to pay, and to hold the Note Holders and the Agent
harmless from any and all liabilities, costs and expenses (including without
limitation, reasonable legal fees and expenses) (i) with respect to fees, taxes
or other costs incurred with respect to recording UCC financing statements and
(ii) in connection with any of the transactions contemplated by this Agreement
or the enforcement of the Agent's or the Note Holders' rights hereunder, except
those liabilities, costs and expenses arising out of the gross misconduct of the
Agent or the Note Holders. In any suit, proceeding or action brought by the
Agent or Note Holders under any account for any sum owing thereunder, or to
enforce any provisions of any account for any sum owing thereunder, or to
enforce any provisions of any account or contract, the Agent and Note Holders
shall be indemnified by the Company from and against all expense, loss or damage
suffered by the Agent and Note Holders in any such action, except for expenses,
loss or damage arising out of the gross misconduct of the Agent or the Note
Holders (in the case of indemnified amounts which would otherwise be owing to
the Agent or the Note Holders);
<PAGE>
(vii) All information heretofore, herein or hereafter supplied to the
Agent and Note Holders by or on behalf of the Company with respect to the
Collateral is accurate and complete in all material respects; and
(viii) Any subsidiary formed or acquired by the Company shall, upon the
formation or acquisition thereof, join and be bound by this Agreement in the
same manner and to the same extent as the Company.
iii. Inspection Rights. The Company hereby grants to the Agent and the Note
Holders and their respective employees, representatives and agents the right to
visit, during reasonable hours upon prior reasonable written notice to the
Company, any of the Company's properties and/or facilities holding, utilizing
and/or representing any of the Collateral, and to inspect the records relating
thereto upon reasonable written notice to the Company and as often as may be
reasonably requested.
iv. Further Assurances; Attorney in Fact. At any time and from time to
time, upon the written request of a Note Holder or the Agent, at the sole
expense of the Company, the Company will promptly and duly execute and deliver
such further instruments and documents and take such further action as the Note
Holder or Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the UCC in effect in any jurisdiction with respect
to the liens created hereby. The Company hereby authorizes the Agent on behalf
of the Note Holders to file any such financing or continuation statement without
the signature of the Company, as the case may be, to the extent permitted by
applicable law, and the Agent agrees to provide the Company with a copy of any
such statement filed by the Agent. The Company hereby irrevocably appoints the
Agent as the Company's attorney in fact for the purpose of signing the Company's
name to any such financing and continuation statements. A carbon, photograph or
other reproduction of this Security Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
v. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under this Agreement:
(i) An Event of Default (as defined in the Notes) occurs under any of the
Notes; or
(ii) The Company breaches any warranty or agreement made by the Company in
this Agreement which breach is not cured in a timely manner as provided herein.
vi. Remedies. Without limiting the generality of the remedies available to
the Note Holders, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law
referred to below) to or upon the Company (all and each of which demand,
presentments, protests, advertisements and notices are hereby
<PAGE>
waived), the Note Holders (or the Agent on behalf of the Note Holders) may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Note Holders or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Note
Holders (or the Agent on behalf of the Note Holders) shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold. The Company further agrees, at the Note Holders' request (or the
Agent's request on behalf of the Note Holders), to assemble the Collateral and
make it available to the Note Holders at the places which the Note Holders (or
the Agent on behalf of the Note Holders) shall reasonably select, whether at the
Company's premises or elsewhere. The Note Holders (or the Agent on behalf of the
Note Holders) shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all reasonable
costs and expenses of every kind incurred therein or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Note Holders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Secured Obligations, in such order as the Note Holders may elect; and
only after such application and after the payment by the Note Holders of any
other amount required by any provision of law, including, without limitation,
any provision of the UCC, need the Note Holders account for the surplus, if any,
to the Company. To the extent permitted by applicable law, the Company waives
all claims, damages and demands it may acquire against the Note Holders arising
out of the exercise by the Note Holders (or the Agent on behalf of the Note
Holders) of any rights thereof hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least five (5) days before such sale or
other disposition. The Company shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Secured Obligations and the reasonable fees and disbursements of any
attorneys employed by the Note Holders (or the Agent on behalf of the Note
Holders) to collect such deficiency.
vii. Attorneys' Fees. If any action relating to this Agreement is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys fees, costs and disbursements.
viii. Amendments. This Agreement may be amended only by a written instrument
signed by the parties hereto.
ix. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
<PAGE>
x. California Law. This Agreement shall be governed by the laws of the
State of California, without regard for choice of law provisions thereof.
xi. Consent to Jurisdiction; Waiver of Jury Trial.
xii. The Company, the Note Holders and the Agent each (i) agrees
that any legal suit, action or proceeding arising out of or relating to this
Agreement shall be instituted exclusively in the appropriate State Court, County
of Los Angeles or in the United States District Court for the District of Los
Angeles, (ii) waives any objection which the Company may have now or hereafter
based upon forum non conveniens or to the venue of any such suit, action or
proceeding, and (iii) irrevocably consents to the jurisdiction of the State
Courts, County of Los Angeles and the United States District Court for the
District of Los Angeles in any such suit, action or proceeding. The Company,
the Note Holders and the Agent each further agrees to accept and acknowledge
service of any and all process which may be served in any such suit, action or
proceeding in the State Court, County of Los Angeles or in the United States
District Court for the District of Los Angeles and agrees that service of
process upon the Company, the Note Holders and the Agent, mailed by certified
mail to their respective addresses, such service to become effective three (3)
business days after such mailing, will be deemed in every respect effective
service of process upon the Company, the applicable Note Holders or the Agent,
as the case may be, in any suit, action or proceeding. FURTHER, THE COMPANY,
THE NOTE HOLDERS AND THE AGENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO
ENFORCE THIS AGREEMENT AND IN CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR
CROSSCLAIM ASSERTED IN ANY SUCH ACTION.
xiii. The Agent. By its acceptance of the Notes and this Agreement, each
Note Holder agrees as follows:
(i) The Agent shall be deemed to be authorized on behalf of each Note Holder to
act on behalf of such Note Holder under this Agreement and, in the absence of
written instructions from the Note Holders received from time to time by the
Agent (with respect to which the Agent agrees that it will, subject to the last
two sentences of this Section 12(a), comply, except as otherwise advised by
counsel), to exercise such powers hereunder as are specifically delegated to or
required of the Agent by the terms hereof, together with such powers reasonably
incidental thereto. The Agent shall have no duty to ascertain or inquire as to
the performance or observance of any of the terms of this Agreement or the Notes
by the Company. Each Note Holder will indemnify the Agent from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may at any time be imposed upon, incurred by, or asserted
against the Agent in any way based upon, relating to or arising out of this
Agreement, the Notes or any other agreement or document executed and delivered
to the Note Holders or the Agent by the Company ("Other Documents"), including
the reimbursement of the Agent for all out-of-pocket expenses (including
reasonable attorneys' fees) incurred by the Agent hereunder or in connection
<PAGE>
herewith or in enforcing the Secured Obligations of the Company under this
Agreement in all cases as to which the Agent is not reimbursed by the Company;
provided, however, that the Note Holders shall not be liable for the payment
- --------
of any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements determined by a
court of competent jurisdiction in a final nonappealable judgment to have
resulted solely from the Agent's willful misconduct. The Agent shall not be
required to take any action under this Agreement or under the Notes, or to
prosecute or defend any suit in respect of this Agreement or the Notes, unless
the Agent is indemnified to its reasonable satisfaction by the Note Holders
against loss, costs, liability and expense. If any indemnity in favor of the
Agent shall become impaired, the Agent may call for additional indemnity and
cease to do the acts indemnified against until such additional indemnity is
given.
(ii) Neither the Agent nor any of its directors, officers, partners, employees
or agents or any officers, directors, employees, consultants of such parties,
shall be liable to the Note Holders for any action taken or omitted to be taken
by it under this Agreement, the Notes or the Other Documents, or in connection
herewith or therewith, except for the Agent's own willful misconduct. The Agent
shall not be responsible to any Note Holders for any recitals, statements,
representations or warranties in this Agreement, the Notes or the Other
Documents or any certificate or other document delivered in connection herewith
or for the authorization, execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, or sufficiency of the Notes, this
Agreement or any of the Other Documents, the financial condition of the Company
or the condition or value of any of the Collateral under this Agreement, or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of any of the Notes, this Agreement
or the Other Documents, the financial condition of the Company or the existence
or possible existence of any default or Event of Default (as defined in the
Notes) thereunder. The Agent shall be entitled to rely upon advice of counsel
concerning legal matters and upon any notice, consent, certificate, statement or
writing which it believes to be genuine and to have presented by a proper
person.
(iii) The Agent may resign as such at any time upon at least 10 days' prior
notice to the Company and the Note Holders, such resignation not be effective
until a successor Agent is in place. If the Agent at any time shall resign, the
Note Holders may appoint a Note Holder as a successor agent who shall thereupon
become the Agent hereunder. If within 10 days after the retiring Agent's giving
of notice of resignation, no successor Agent shall have been so appointed, and
shall have accepted such appointment, then the retiring Agent may, on behalf of
the Note Holders, appoint a financial institution or a limited purpose trust
company as the successor Agent, and the Company shall pay the successor Agent's
reasonable fees for serving as successor Agent. Upon the acceptance of any
appointment as agent hereunder by a successor Agent, such successor Agent shall
be entitled to receive from the retiring Agent such documents of transfer and
assignment as such successor Agent may reasonably request, and shall thereupon
succeed to and become vested with all rights, powers, privileges and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations under this Agreement.
<PAGE>
(iv) The Note Holders may at any time and for any reason replace the Agent
with a successor Agent selected by them, upon at least 10 days' written notice
to the Agent, the Company and the holders of the Notes. Should the successor
Agent be a financial institution or a limited purpose trust company, the
Company, by its acceptance of this Agreement, shall be deemed to have agreed to
pay the successor Agent's reasonable fees, if any, for serving as successor
Agent. Upon the acceptance of any appointment as agent hereunder by a successor
Agent, such successor Agent shall be entitled to receive from the terminated
agent such documents of transfer and assignment as such successor Agent may
reasonably request, and shall thereupon succeed to and become vested with all
rights, powers, privileges and duties of the terminated Agent, and the
terminated Agent shall be discharged from its duties and obligations under this
Agreement.
xiv. Notice. Any notice or other communication required to be given to any
of the parties hereto shall be in writing and shall be given by certified or
express mail, return receipt requested, to such party addressed at his or its
address set forth opposite its signature on the signature page hereof.
xv. Rights of Secured Party. The Agent shall have the same rights and
powers with respect to the Notes held by it or any of its affiliates, as any
other Note Holder may exercise as if it were not the Agent. The Company hereby
waives, and each Note Holder shall be deemed to waive, any right to disqualify
any Note Holder from serving as the Agent or any claim against any Holder for
serving as the Agent.
xvi. Prorata Participation by the Note Holders. The Note Holders shall
share ratably in the distribution of benefits and any expenditures relating to
this Agreement based on the ratio of the principal amount of their respective
Notes to the total Loan amount.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
i. Address of Company: COMPANY:
Cash Technologies, Inc. CASH TECHNOLOGIES, INC.
1434 West 11th Street
Los Angeles, CA 90015
Attention: Bruce Korman
By:
Name:
Title:
ii. Address of the Agent: SECURED PARTY:
GunnAllen Financial, Inc. GUNNALLEN FINANCIAL, INC.
1715 North West Shore Blvd
Suite 700
Tampa, Florida 33607
Attention: Rick Frueh By:
Name:
Title:
<PAGE>
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of December,
1999, executed and delivered by Cash Technologies, Inc., a Delaware corporation
(the "Company") which has its principal place of business at 1434 West 11th
Street, Los Angeles, CA 90015, in favor of the Holders (as defined below).
RECITALS
WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Company, pursuant to terms and conditions set forth in the Confidential
Private Offering Memorandum of the Company, dated December 31, 1999, including
the exhibits thereto and any and all supplements thereof and amendments thereto,
and all documents incorporated by reference therein (collectively, the
"Memorandum") is offering (the "Offering") up to sixty (60) units (the "Units"),
each Unit consisting of (i) $50,000 principal amount Secured Convertible
Promissory Notes (the "Notes") of the Company convertible into shares ("Notes
Shares") of its Common Stock, par value $001 per share ("Common Stock") and (ii)
Series B Redeemable warrants (the "Warrants") to purchase up to an aggregate of
5,000 shares (the "Warrant Shares") of Common Stock.
WHEREAS, the terms and conditions of the Offering provide for the execution
and delivery of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Company, the Company hereby
agrees as follows:
<PAGE>
1. Piggyback Registration.
(a) If at any time after completion of the Offering (which shall be
deemed to be the date on which the final closing is held or expiration of the
Offering period, whichever is later), the Company proposes to prepare and file
with the Securities and Exchange Commission (the "SEC") one or more registration
statements or amendments, including post-effective amendments, or supplements
thereto covering any equity or debt securities of the Company, or any such
securities of the Company held by its stockholders, other than in connection
with a merger or acquisition or pursuant to a registration statement on Form S-4
or Form S-8 or any successor form (for purposes of this Section 1, collectively,
a "Piggyback Registration Statement"), the Company will give written notice of
its intention to do so by registered or certified mail ("Notice"), at least
twenty (20) business days prior to the filing of each such Piggyback
Registration Statement, to each Person (as defined below) who holds Notes
Convertible into Note Shares, Note Shares Warrant Shares and/or Warrants
exercisable for Warrant Shares (such Note Shares Warrant Shares, collectively
referred to herein as the "Registerable Shares") and each of the successors,
assigns and transferees of each of such Persons (individually, a "Holder" and
collectively, "Holders"). "Person" as used herein shall mean any individual,
sole proprietorship, partnership, corporation, association, joint venture,
trust, unincorporated entity or other entity, or the government of any country
or sovereign state, or of any state, province, municipality or other political
subdivision thereof. The Company shall include all of the Registerable Shares
held by such Holder or Holders ("Piggyback Securities") in the proposed
Piggyback Registration Statement and the Company shall use its best efforts to
cause such Piggyback Registration Statement to be declared effective under the
Securities Act of 1933, as amended (the "Act"), by the SEC, so as to permit the
public resale by the Requesting Holders of their Piggyback Securities pursuant
thereto, at the Company's sole cost and expense and at no cost or expense to the
Requesting Holder (other than any underwriting or other commissions, discounts
or fees of any counsel or advisor to the Holder which shall be payable by the
Holder, as further provided in Section 4(d) hereof) (the "Piggyback
Registration"). The Company shall not be required to include the Registerable
Share in more than one registration statement filed with the SEC.
(b) Notwithstanding the preceding provisions of this Section, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 1 (irrespective of whether any written request
for inclusion of Piggyback Securities shall have already been made) to elect not
to file any proposed Piggyback Registration Statement filed pursuant to this
Section 1, or to withdraw the same after the filing but prior to the effective
date thereof.
1. Demand Registration.
(a) At any time commencing six (6) months after the final closing of
the Offering until August 3, 2002, any Holder or combination of Holders whose
aggregate number of Registerable Shares constitute a majority of the
Registerable Shares held by all of the Holders
<PAGE>
(a "Majority Holder") shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 1 above), exercisable
by written notice to the Company (the "Demand Registration Request"), to have
the Company prepare and file with the SEC on one occasion, at the sole expense
of the Company, a Registration Statement on Form SB-2 or such other appropriate
form (the "Demand Registration Statement") and such other documents, including a
prospectus, as may be necessary (in the opinion of counsel for the Company), in
order to comply with the provisions of the Act, so as to permit the public
resale by the Holder of the Registerable Shares pursuant thereto.
(b) The Company covenants and agrees to give written notice of any
Demand Registration Request to all Holders of Registerable Shares within twenty
(20) business days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 2(b), Holders of Registerable Shares may request that the Company
include their Registerable Shares in the Registration Statement to be filed
pursuant to Section 2(a) above by notifying the Company of their decision to
include such Registerable Shares within twenty (20) business days of their
receipt of the Company's notice.
(c) Anything herein contained to the contrary notwithstanding, the
provisions of this Agreement shall not apply to, and the term "Registerable
Shares" as used in this Agreement shall not include, Warrant Shares after they
have been sold by a Holder pursuant to an effective Registration Statement under
the Act or pursuant to Rule 144.
2. Registerable Shares. For purposes of this Agreement, the term
"Registerable Shares" shall also include any securities issued or issuable with
respect to the Warrants or Warrant Shares by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise.
3. Additional Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
(a) In connection with any registration under Section 2 above, the
Company shall file the Demand Registration Statement as expeditiously as
possible, but in no event later than sixty (60) business days following receipt
of a Demand Registration Request, and use its best efforts to have such Demand
Registration Statement declared effective at the earliest possible time.
(b) In connection with any registration of Registerable Shares
pursuant to Sections 1 or 2 above, the Company shall furnish each Holder of
Registerable Shares included in a Registration Statement with such reasonable
number of copies of such Registration Statement, related preliminary prospectus
and prospectus meeting the requirements of the Act, and other documents
necessary or incidental to the registration and public offering of such
Registerable Shares, as shall be reasonably requested by the Holder to permit
the Holder to make a public distribution of such Registerable Shares.
<PAGE>
(c) Once effective, the Company covenants and agrees to use its best
efforts to maintain the effectiveness of any Registration Statement until the
earlier of (i) the date that all of the Registerable Shares have been sold
pursuant to the Demand Registration Statement or Rule 144 of the General Rules
and Regulations promulgated under the Act ("Rule 144"), or (ii) the date that
the Holders of the Registerable Shares receive an opinion of counsel to the
Company that all of the Registerable Shares may be freely traded (without
limitation or restriction as to quantity or timing and without registration
under the Act) pursuant to Rule 144 or otherwise or (iii) August 31, 2003,
except that, the Company may suspend the use of any Registration Statement for a
period not to exceed 45 days in any 12-month period for valid business reasons
(not including avoidance of the Company's obligations hereunder), including the
acquisition or divestiture of assets, public filings with the SEC, pending
corporate developments and similar events.
(d) If any stop order shall be issued by the SEC in connection with
any Registration Statement filed pursuant to Sections 1 or 2 above, the Company
will use its best efforts to obtain the removal of such order.
(e) The Company shall pay all costs, fees, and expenses in connection
with all Registration Statements filed pursuant to Sections 1 and 2 above,
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses; provided, however, that the Holders
-------- ------
shall be solely responsible for the fees of any counsel retained by the Holders
in connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Registerable Shares sold by the
Holders pursuant thereto.
(e) The Company will use its best efforts to qualify any Registerable
Shares included in a Registration Statement for sale in such states as the
Holders of such securities shall reasonably request, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to general service of process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
4. Indemnification.
(a) In the event of any registration of any the Registerable Shares under
the Act, the Company shall indemnify and hold harmless each Holder, the
affiliates of each such Holder, the directors, partners, officers, employees and
agents of each such Holder and any person who controls any such Holder within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any and all losses, claims, damages or liabilities,
joint
<PAGE>
or several, to which they or any of them may become subject under the Act,
the Exchange Act or other Federal or State statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) caused by, arising out of or based on any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement under which such securities were registered under the
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and agrees to reimburse each such indemnified party, as incurred,
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that (i) the Company will not be liable in any case to the
- -------- -------
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such Holder
specifically for inclusion therein, (ii) the Company will not be liable to any
indemnified party under this indemnity agreement with respect to any
Registration Statement or Prospectus to the extent that any such loss, claim,
damage or liability of such indemnified party results from the use of the
Prospectus during a period when the use of the Prospectus has been suspended in
accordance with Section 2(c) hereof, provided that the Holders received prior
notice of such suspension, which notice shall be deemed to have been received by
such Holders within 48 hours after the giving thereof; and (iii) the Company
shall not be liable to any indemnified party with respect to any preliminary
Prospectus to the extent that any such loss, claim, damage or liability of such
indemnified party results from the fact that such indemnified party sold
Registerable Securities to a person as to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the Prospectus or
of the Prospectus as then amended or supplemented in any case where such
delivery is required by the Act, if the loss, claim, damage or liability of such
indemnified party results from an untrue statement or omission of a material
fact contained in the preliminary Prospectus which was corrected in the
Prospectus or in the Prospectus as then amended or supplemented. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have. The Company also agrees to indemnify and provide contribution to each
person who may be deemed to be an underwriter (for purposes of the Act) with
respect to the Registerable Shares ("Underwriter" or "Underwriters"), their
officers and directors, and each person who controls each such Underwriter, on
substantially the same basis as that of the indemnification of and contribution
to the Holders provided in this Section 5.
<PAGE>
(a) As a condition to including any of the Registerable Shares in any
registration statement filed pursuant to this Agreement, the Holder of the
Registerable Shares, as a prospective seller of the Registerable Shares hereby
agrees to indemnify and hold harmless (in the same manner and to the same extent
as set forth in subdivision (a) of this Section 5) the Company, each director of
the Company, each officer, employee or agent of the Company and each Underwriter
of the Registerable Shares and each other person or entity, if any, which
controls the Company or such Underwriter within the meaning of the Act, with
respect to any statement or alleged statement in, or omission or alleged
omission from, such registration statement, any preliminary Prospectus,
Prospectus or summary Prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Holder for use in the preparation of
such registration statement, preliminary Prospectus, Prospectus, summary
Prospectus, amendment or supplement. Any such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by Holder. Anything in this Agreement contained
to the contrary notwithstanding the liability of each Holder for indemnification
or contribution hereunder shall be limited to the amount of proceeds received by
such Holder in the Offering giving rise to such liability.
(b) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
--------
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 5, except to the extent that the indemnifying party
is materially prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right to
employ separate counsel (including local counsel), and the indemnifying party
shall bear the reasonable fees, costs and expenses of such separate counsel (and
local counsel) if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have
<PAGE>
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. An
indemnified party shall not settle or compromise any action for which it seeks
indemnification or contribution hereunder without the prior written consent of
the indemnifying party, which consent shall not be unreasonably withheld. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in Section 5(a) or 5(b)
is unavailable to or insufficient to hold harmless an indemnified party for any
reason, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Registration Statement which
resulted in such losses.
(e) The provisions of this Section 5 shall remain in full force and
effect regardless of any investigation made by or on behalf of any Holder or the
Company or any other persons who are entitled to indemnification pursuant to the
provisions of this Section 5, and shall survive the sale by a Holder of
Registerable Shares pursuant to the Registration Statement.
5. Amendments. This Agreement may not be amended, modified or supplemented,
and waivers of or consents to departures from the provisions of this Agreement
may not be given, unless it would not have an adverse effect upon the rights of
any of the Holders and the Company has obtained the written consent of Holders
then holding a majority of the Registerable Shares.
6. Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications (which shall include publication) to any
person provided for hereunder shall be in writing and shall be given by hand
delivery, registered or certified mail or by any courier providing overnight
delivery (i) if to the Company or the initial Holder, at the address set forth
in the Subscription Agreement and (ii) if to a subsequent Holder, to the address
set forth on the books and records of the Company. All such notices, requests
or communications shall not be effective until received.
<PAGE>
7. Assignment. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto. In addition, and whether or not any
express assignment shall have been made, the provisions of this Agreement which
are for the benefit of Holder shall also be for the benefit of and enforceable
by any subsequent holder of the Registerable Shares. Holder agrees, by
accepting any portion of the Registerable Shares after the date hereof, to the
provisions of this Agreement.
1. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
(a) Each of the Company and Holder hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of any State Court in Los
Angeles County, California and the United States District Court for the District
of Los Angeles (the "Los Angeles Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Los Angeles
Courts and agrees not to plead or claim that such litigation brought in any Los
Angeles Courts has been brought in an inconvenient forum.
2. Counterparts. This Agreement may be executed by facsimile and may be signed
simultaneously in any number of counterparts, each of which shall be deemed an
original, but all such counterparts shall together constitute one and the same
instrument.
3. Entire Agreement. This Agreement embodies the entire agreement of between
the Company relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
4. Severability. If any provision of this Agreement, or the application of
such provisions to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
5. Third Party Beneficiaries. The Holders from time to time shall each be a
third party beneficiary of the agreements of the Company contained herein.
<PAGE>
6. Headings. The headings which are contained in this Agreement are for the
sole purpose of convenience of reference, and shall not limit or otherwise
affect the interpretation of any of the provisions hereof.
6. Further Assurances. The Company will from time to time after the date
hereof take any and all actions, and execute, acknowledge and deliver any and
all documents and instruments, at its cost and expense, as any Holder may from
time to time reasonably request in order to more fully perfect or protect the
rights intended to be granted to it hereunder.
7. Interpretation. As used in this Agreement, unless the context otherwise
requires: words describing the singular number shall include the plural and vice
versa; words denoting any gender shall include all genders; words denoting
natural persons shall include corporations, partnerships and other entities, and
vice versa; and the words "hereof", "herein" and "hereunder", and words of
similar import, shall refer to this Agreement as a whole, and not to any
particular provision of this Agreement.
8. Waiver. The failure of the Company or any Holder to at any time enforce
any of the provisions of this Agreement shall not be deemed or construed to be a
waiver of any such provision, nor to in any way affect the validity of this
Agreement or any provision hereof or the right of the Company or any Holder to
thereafter enforce each and every provision of this Agreement.
9. IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Agreement as of the date first above written.
CASH TECHNOLOGIES, INC.
By:
- -------------------------- ------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-2000 MAY-31-1999
<PERIOD-START> JUN-01-1999 JUN-01-1998
<PERIOD-END> FEB-29-2000 FEB-28-1999
<CASH> 1,639,622 1,073,196
<SECURITIES> 0 0
<RECEIVABLES> 325,175 136,277
<ALLOWANCES> 0 0
<INVENTORY> 77,748 201,555
<CURRENT-ASSETS> 2,049,270 1,420,284
<PP&E> 1,249,790 1,393,689
<DEPRECIATION> 84,497 196,020
<TOTAL-ASSETS> 5,692,259 4,447,720
<CURRENT-LIABILITIES> 2,004,169 1,812,503
<BONDS> 0 0
3,495,191 3,488,665
0 0
<COMMON> 1,122,188 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 5,692,259 4,447,720
<SALES> 985,440 696,088
<TOTAL-REVENUES> 31,817,231 36,231,138
<CGS> 1,031,278 505,559
<TOTAL-COSTS> 31,863,069 36,040,609
<OTHER-EXPENSES> 3,655,733 3,317,226
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 316,657 421,672
<INCOME-PRETAX> (4,349,078) (3,744,389)
<INCOME-TAX> 7,669 2,400
<INCOME-CONTINUING> (4,356,747) (3,746,789)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,356,747) (3,746,789)
<EPS-BASIC> (1.40) (1.07)
<EPS-DILUTED> 0 0
</TABLE>
