<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file Number 000-17288
TIDEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-2193593
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5847 San Felipe, Suite 900
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (713) 783-8200
----------------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
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 requirement for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the 13,261,201 shares of Common Stock held by
non-affiliates of the Registrant based on the closing sale price on December 20,
1999 of $3.00 was $39,783,603.
The number of shares of Common Stock outstanding as of the close of business on
December 20, 1999 was 16,137,968.
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TIDEL TECHNOLOGIES, INC.
TABLE OF CONTENTS*
ANNUAL REPORT ON FORM 10-K
---------------------------------------------------
<TABLE>
<CAPTION>
PAGE
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PART I
<S> <C> <C>
Item 1. Business.......................................................................... 1
Item 2. Properties........................................................................ 5
Item 3. Legal Proceedings................................................................. 5
Item 4. Submission of Matters to
a Vote of Security Holders..................................................... 5
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters......................................... 6
Item 6. Selected Financial Data........................................................... 6
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations...................................................... 7
Item 8. Financial Statements and Supplementary Data....................................... 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................................ 12
PART III
Item 10. Directors and Executive Officers of
the Registrant................................................................. 12
Item 11. Executive Compensation............................................................ 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................................... 15
Item 13. Certain Relationships and Related
Transactions................................................................... 17
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K........................................................ 17
Signature Page .......................................................................... 18
</TABLE>
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* This Table of Contents is inserted for convenience of reference only and is
not a part of this Report as filed.
<PAGE> 3
PART I
ITEM 1. BUSINESS
BACKGROUND
Tidel Technologies, Inc. (the "Company") was incorporated under the laws of
the State of Delaware in November 1987 under the name of American Medical
Technologies, Inc., succeeding a corporation established in British
Columbia, Canada in May 1984. The Company changed its name to Tidel
Technologies, Inc. in July 1997.
On September 30, 1992, the Company acquired all of the issued and
outstanding capital stock of Tidel Engineering, Inc., a manufacturer of
automated teller machines, electronic cash security systems and underground
fuel storage monitoring and leak detection devices for a purchase price of
$4,746,848. These operations currently represent the sole business of the
Company.
DESCRIPTION OF BUSINESS ACTIVITIES
The Company develops, manufactures, sells and supports products designed
for specialty retail marketers, including automated teller machines and
related software (the "ATM" products); electronic cash security systems
(the "Timed Access Cash Controller" or "TACC" products); and underground
fuel storage monitoring and leak detection devices (the "Environmental
Monitoring System" or "EMS" products). The following is a description of
each product line manufactured by the Company.
AUTOMATED TELLER MACHINE PRODUCTS
The Company entered the ATM market in October 1992 with the introduction of
the industry's first cash-dispensing ATM that utilized cost-effective,
dial-up modem communications, known as AnyCard. Sales of the original
AnyCard model accounted for approximately 30% of the Company's revenues
from its introduction until the development of its successor, the AnyCard
sc (single cassette) model.
Sales of the single-cassette product commenced in November 1995 and
comprised the majority of the Company's revenues until June 30, 1997, at
which time the AnyCard td (tower design) model was introduced. The AnyCard
td utilized the same electronics and software platform as the AnyCard sc,
but was housed in a newly designed cabinet that offered both single and
multiple cassette models. Sales of the AnyCard tds (single cassette) and
tdm (multiple cassette) models comprised the majority of the Company's
revenues from their introduction through September 30, 1998.
In October 1998, the Company introduced its new Ignition Series products
consisting of the IS-1000, a single cassette model, and the IS-6000, a
multiple cassette model. These products now comprise all of the Company's
ATM sales, as inventories of all other ATM products were liquidated in the
year ended September 30, 1999, and the Company does not intend to produce
any of the predecessor products in the future. During the year ended
September 30, 1999, the Company had sales of ATM products to two major
customers that accounted for more than 10% of sales in the amounts of
$18,554,624 and $4,781,236, respectfully.
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During the year ended September 30, 1999, the Company introduced a new
product, the Chameleon, which is a web-enabled, interactive, multimedia
kiosk that provides users with e-commerce and point-of-sale functionality
in addition to traditional ATM features. Sales of this product in
commercial quantities will commence in fiscal 2000, and the development of
application software and additional features will be ongoing.
TIMED ACCESS CASH CONTROLLER PRODUCTS
The Company's original product is its electronic cash controller known as
TACC, which acts as both a drop safe and a cash dispenser. This product
serves as a depository for cash which is stored in plastic tubes that can
be retrieved at preprogrammed intervals. The TACC products have been
instrumental in the reduction of losses due to crime in many segments of
the retail industry, including convenience stores, retail gasoline,
specialty retailers, hospitality and entertainment.
Management believes its TACC products are highly regarded in the retail
market and have become standard equipment in virtually all new construction
by major convenience store operators and gasoline retailers. TACC products
are in use in all 7-Eleven stores, as well as in more than 100,000 other
locations in the United States and 30 other countries. Current models allow
for a computer interface which can be used in conjunction with lottery and
point-of-sale systems.
Sales of TACC products comprised 14% of the Company's revenues for the year
ended September 30, 1999.
ENVIRONMENTAL MONITORING SYSTEM PRODUCTS
The Company's EMS products are designed to provide leak detection and fuel
management of underground petroleum storage tanks and their associated
piping systems to petroleum retailers and other owners and operators of
underground storage tanks. The EMS can print reports of requested data,
verify fuel inventories, provide instant notification of alarm conditions
such as leaks and monitor up to eight storage tanks simultaneously,
providing a cost efficient method of monitoring fuel inventories. In
addition, the EMS console has communication ports for interface with
point-of-sale terminals, modems and computers.
Sales of EMS products were less than 2% of total revenues in fiscal 1999,
and management has terminated marketing of EMS products to shift focus to
the ATM and TACC products. However, the Company will continue to supply
parts to existing EMS customers on a very limited basis.
RESEARCH AND DEVELOPMENT
To protect against product obsolescence by reason of emerging technologies
and ensure development of the most advanced products possible, the Company
has a continuing program of research and development. Management believes
the Company has established an excellent record of product conception,
design, development, field testing and commercial production. The research
and development budget for fiscal 2000 is approximately $3,100,000. Total
research and development expenditures were approximately $1,700,000,
$1,400,000 and $1,200,000 for the years ended September 30, 1999, 1998 and
1997, respectively.
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MANUFACTURING
The Company manufactures and assembles its products, produces spare parts,
and renovates or repairs its products at its facility in Carrollton, Texas.
The assembly operations consist of configuring components received from
various vendors with the Company's proprietary hardware and software. Upon
completion of product assembly, the equipment undergoes functional testing
and final quality assurance inspection. The Company normally fills and
ships customer orders within 45 days of receipt, and therefore no
significant backlog generally exists.
SALES AND MARKETING
The Company markets its ATM and TACC products in the United States through
Company controlled national accounts and a network of more than 150
independent distributors and dealers. The distributor network facilitates
coverage of both large national accounts and diversified end-user groups.
The Company markets its TACC products overseas through approximately 20
distributors. The international market lags the U.S. by several years with
respect to cash management systems. The international market for petroleum
and convenience stores is heavily influenced by the Company's traditional
domestic customer base, allowing the Company and its international
distributors to leverage and develop markets in many diverse geographical
areas.
At this time, the Company is distributing automated teller machines in
Canada and is presently expanding its marketing efforts to include
additional foreign countries in the future.
SERVICE
The Company coordinates a national service network of individual service
dealers to provide electronic and mechanical support for all of its
products in use. There are approximately 500 such service dealers for ATM
and TACC products and 60 for EMS products. In addition, the Company has an
agreement with NCR Corporation to provide comprehensive services, including
first-line maintenance and field upgrades, to all of the Company's ATM
customers in the United States.
INTELLECTUAL PROPERTIES
The Company's success depends, in part, on its ability to obtain patents,
maintain trade secret protection and operate without infringing the
proprietary rights of others. The Company owns United States patents for
certain of its products (see "PATENTS AND TRADEMARKS" below) and has filed
United States and foreign patent applications for other proprietary
products and expects to continue to file product, process and use patent
applications with respect to products or improvements developed in the
future. There can be no assurance, however, that such patent applications
will be filed or, if filed, that patents will be issued to the Company or,
if issued, will be adequate to protect its products. In addition, it is not
possible to predict the degree of protection that patents will afford. It
is possible that patents issued to or licensed by the Company will be
successfully challenged, that the Company may unintentionally infringe
patents of third parties or that the Company may have to alter its products
or processes or pay licensing fees or cease certain activities to take into
account patent rights of third parties, thereby causing additional
unexpected costs and delays which may have a material adverse effect on the
Company's business.
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In addition, competitors may obtain additional patents and proprietary
rights relating to products or processes used in, necessary to, competitive
with or otherwise related to those availed of by the Company. The scope and
validity of these patents and proprietary rights, the extent to which the
Company may be required to obtain licenses under these patents or under
other proprietary rights and the cost and availability of licenses are
unknown, but these factors may limit the Company's ability to market its
existing or future products. See "LICENSES" below.
The Company also relies upon unpatented trade secrets and no assurance can
be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access
to the Company's trade secrets or disclose such technology or that the
Company can meaningfully protect its rights to its unpatented trade
secrets.
PATENTS AND TRADEMARKS
The Company owns two patents relating to each of its ATM products, TACC
products and EMS products. The Company also owns the registered trademarks
"AnyCard", "TACC", "Tidel Systems" and "TS and Design".
LICENSES
The Company grants various distributors a non-exclusive right and license,
with the right to grant sublicenses, to use the names "Tidel" and "Tidel
AnyCard", together with any associated trademarks, logos or insignias, for
the limited purpose of marketing, selling and distributing the Company's
products.
GOVERNMENTAL REGULATIONS
The Company's EMS unit is produced and sold to provide total compliance and
documentation to the Environmental Protection Agency ("EPA") and other
regulatory agencies to ensure customers' compliance with all applicable
regulations relating to the detection and prevention of petroleum leaks in
tanks and piping systems. The potential liability from a leaking
underground storage tank is the primary motivating factor influencing the
decision to install a leak detection device. The EPA and other federal
agencies are responsible for the regulation and enforcement of petroleum
storage and piping systems and the potential leaks therefrom.
The Company's EMS systems are subject to numerous other state and local
regulations relating to the storage and dispensing of petroleum products.
COMPETITION
Competition in the automated teller machine manufacturing business is
substantial with Diebold, Incorporated and NCR Corporation dominating the
marketplace. Direct competition to the Company in the off-premises
automated teller machine market consists of other companies such as Triton
Systems, Inc., Fujitsu Corporation, Cross Technologies, Inc. and
Siemens-Nixdorf. Management believes that the quality and value offered by
its ATM product line allow it to compete effectively in the off-premise
market.
Direct competition to the Company in the domestic cash controller market
comes principally from NKL Industries, McGunn Safe Company, Armor Safe
Company and AutoVend.
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EMPLOYEES
The Company employed 144 and 122 persons at September 30, 1999 and 1998,
respectively. None of the Company's employees are subject to collective
bargaining agreements. The Company has not experienced any strikes or work
stoppages and considers its relationships with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in approximately
4,100 square feet at 5847 San Felipe, Suite 900, Houston, Texas 77057.
The Company's subsidiaries occupy approximately 65,000 square feet of space
in a one story building in Carrollton, Texas, under a lease expiring in
January 2005. The facility houses the principal administrative offices and
all manufacturing, testing, product design and research and development
operations. The subsidiaries also lease approximately 10,000 square feet of
warehouse space in Carrollton, Texas, under a month-to-month lease.
At September 30, 1999, the Company owned tangible property and equipment
costing approximately $3,912,000. Such amount is comprised primarily of
manufacturing tools, manual and robotic welding equipment, computer
equipment and systems, and vehicles used in servicing and delivery
functions.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are each subject to certain litigation and
claims arising in the ordinary course of business. In the opinion of the
management of the Company, the amounts ultimately payable, if any, as a
result of such litigation and claims will not have a materially adverse
effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on July 22, 1999, in Dallas,
Texas, the following proposals were adopted by the margins indicated:
a) Election of Directors to hold office until the next annual meeting of
stockholders and until their successors are elected and qualified.
<TABLE>
<CAPTION>
Number of Shares
----------------
For Withheld
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<S> <C> <C>
James T. Rash........................................ 14,014,799 160,955
James L. Britton, III................................ 13,680,799 494,955
Jerrell G. Clay...................................... 13,680,799 494,955
Mark K. Levenick..................................... 13,680,799 494,955
</TABLE>
b) Ratification of the selection of KPMG LLP as the Company's independent
auditors for fiscal year 1999.
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<TABLE>
<S> <C>
For.................................................. 14,087,369
Against.............................................. 28,860
Abstentions.......................................... 59,525
</TABLE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICES
The Company's common stock trades on the Nasdaq Stock Market under the
symbol "ATMS". The following table sets forth the quarterly high and low
closing sales price for the Company's common stock for the two-year period
ended September 30, 1999:
<TABLE>
<CAPTION>
Quarter Ended High Low
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<S> <C> <C>
September 30, 1999................................... 2 1/2 1 17/32
June 30, 1999........................................ 2 7/8 1 15/16
March 31, 1999....................................... 2 31/32 1 3/4
December 31, 1998.................................... 1 25/32 1 1/16
September 30, 1998................................... 3 1/2 1 1/2
June 30, 1998........................................ 3 1/2 2 9/16
March 31, 1998....................................... 4 2 1/4
December 31, 1997.................................... 4 3/8 2 13/16
</TABLE>
DIVIDENDS
The Company has not paid any dividends in the past, and does not anticipate
paying dividends in the foreseeable future. In addition, the Company's
wholly owned subsidiary is restricted from paying dividends to the Company
pursuant to the subsidiary's revolving credit agreement with a bank.
HOLDERS
At September 30, 1999, 78% of the total 16,067,968 shares outstanding of
the Company's common stock were held of record by central depository
corporations and broker-dealers for the accounts of others; however, as far
as the Company can determine, its common stock is owned by approximately
4,000 persons.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below is derived from the
Consolidated Financial Statements of the Company. This data should be read
in conjunction with the Consolidated Financial Statements and the notes
thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" appearing elsewhere in this Report.
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<TABLE>
<CAPTION>
Year Ended September 30,
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SELECTED STATEMENT OF INCOME DATA: (1) 1999 1998 1997 1996 1995
---------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 45,873 $ 33,608 $ 30,153 $ 20,111 $ 10,860
Operating income (loss).............................. 5,117 4,325 2,590 1,598 (3,853)
Net income (loss) (2)................................ 2,936 4,240 2,117 1,215 (3,418)
Net income (loss) per share:
Basic............................................. $ 0.18 $ 0.27 $ 0.15 $ 0.10 $ (0.29)
Diluted........................................... $ 0.17 $ 0.25 $ 0.14 $ 0.10 $ (0.29)
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
SELECTED BALANCE SHEET DATA: (1) 1999 1998 1997 1996 1995
---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current assets....................................... $ 25,551 $ 20,966 $ 15,894 $ 9,815 $ 6,165
Current liabilities.................................. 7,528 5,528 6,517 7,594 5,526
Working capital...................................... 18,023 15,438 9,377 2,221 639
Total assets......................................... 28,696 24,247 18,263 12,363 8,193
Total short-term notes payable and long-term debt.... 5,375 5,363 4,603 4,769 2,654
Shareholders' equity................................. 15,922 13,484 8,092 4,129 2,027
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------
SELECTED QUARTERLY Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31
FINANCIAL DATA: (1) 1999 1999 1999 1998 1998 1998 1998 1997
--------------- --------- -------- -------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $ 16,146 $ 12,380 $ 10,286 $ 7,061 $ 8,497 $ 9,935 $ 9,148 $ 6,028
Gross profit........... 5,178 4,062 3,379 2,342 2,768 3,755 3,458 2,199
Net income (2)......... 1,099 959 626 252 948 1,536 1,468 288
Net income per share:
Basic............... $ 0.07 $ 0.06 $ 0.04 $ 0.02 $ 0.06 $ 0.10 $ 0.09 $ 0.02
Diluted (3)......... $ 0.06 $ 0.06 $ 0.04 $ 0.02 $ 0.06 $ 0.09 $ 0.09 $ 0.02
</TABLE>
(1) All amounts are in thousands, except per share dollar amounts.
(2) Income tax expense (benefit) was $1,800,000 and ($307,251) in 1999 and
1998, respectively.
(3) The sum of the quarterly amounts of diluted earnings per share does not
necessarily equal diluted earnings per share for the entire fiscal year due
to variations in the stock prices utilized in the calculations at the end
of each period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues were $45,873,000 for the year ended September 30,
1999, representing an increase of $12,265,000, or 36%, from fiscal 1998 and
$15,720,000, or 52%, from fiscal 1997. Operating income for the year was
$5,117,000 as compared to $4,325,000 in fiscal 1998 and $2,590,000 in
fiscal 1997. Net income for the periods was not comparable inasmuch as
fiscal 1997 had no income tax, fiscal 1998 included a tax benefit of
$307,000, and fiscal 1999 included an income tax expense of $1,800,000.
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The significant sales growth was due to the continued strong demand for the
Company's ATM products. The gross profit from these sales, offset somewhat
by increased operating expenses, provided the overall improvement in
operating income.
PRODUCT REVENUES
A breakdown of net sales by individual product line is provided in the
following table:
<TABLE>
<CAPTION>
(dollars in 000's)
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1999 1998 1997
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<S> <C> <C> <C>
ATM .............................. $35,570 $22,971 $21,000
TACC ............................. 6,579 6,477 5,783
EMS .............................. 554 1,355 967
Parts, service and other ......... 3,170 2,805 2,403
------- ------- -------
$45,873 $33,608 $30,153
======= ======= =======
</TABLE>
ATM sales have significantly increased in the past year due to broad
customer acceptance of the new Ignition Series and the addition of new
distributors to the Company's customer base.
TACC sales have increased gradually during the three-year period as sales
efforts in domestic markets have intensified.
All marketing activities for EMS products have terminated, and the Company
is phasing out of this segment of business.
Parts, service and other revenues vary directly with sales of finished
goods, and have increased accordingly.
GROSS PROFIT, OPERATING EXPENSES AND NON-OPERATING ITEMS
A comparison of certain operating information is provided in the following
table:
<TABLE>
<CAPTION>
(dollars in 000's)
---------------------------------------------
1999 1998 1997
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<S> <C> <C> <C>
Gross profit......................................... $ 14,960 $ 12,180 $ 10,695
Selling, general and administrative.................. 9,030 7,366 7,628
Depreciation and amortization........................ 813 489 474
Operating income..................................... 5,117 4,325 2,590
Interest expense..................................... 381 392 473
Income before taxes.................................. 4,736 3,933 2,117
Income tax expense (benefit)......................... 1,800 (307) --
Net income........................................... 2,936 4,240 2,117
</TABLE>
Gross profit on product sales increased $2,780,000 and $4,265,000 from 1998
and 1997, respectively, to $14,960,000 in 1999. The gross margin in 1999
was 32.6% of product sales, compared to 36.2% in 1998 and 35.5% in 1997.
The decrease in 1999 compared to 1998 resulted from a decline in average
sales prices for ATM products of $512. In 1998, the average sales prices
for ATM products decreased $586 from 1997, but gross margin improved
slightly due to reduced manufacturing overheads from the prior year.
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Selling, general and administrative expenses were $9,030,000 in 1999, an
increase of $1,664,000 from 1998, as a result of higher salaries and
increased legal expenses. These costs were 19.7% of sales in 1999, a
decrease from the 1998 and 1997 levels of 21.9% and 25.3%, respectively.
The percentage decline relates primarily to increased sales volumes.
Depreciation and amortization was $813,000, $489,000, and $474,000 for the
years ended September 30, 1999, 1998 and 1997. The increase in 1999
compared to 1998 and 1997 related to additions of property, plant and
equipment.
Interest expense decreased from $473,000 in 1997 to $392,000 in 1998, and
to $381,000 in 1999 due to the lower cost of borrowings resulting from the
Company's new revolving credit facility.
Income tax expense (benefit) in 1998 was attributable to a fourth quarter
reduction in valuation allowance estimates to reflect the probable
utilization of the Company's remaining deferred tax assets. This resulted
in the recognition of a deferred income tax benefit of $947,000 which, when
offset with current tax expense of $640,000, resulted in a net income tax
benefit of $307,000. In 1999, the Company recorded a provision for income
tax expense of $1,800,000, representing an effective tax rate of 38%.
LIQUIDITY AND CAPITAL RESOURCES
The financial position of the Company continues to improve primarily as a
result of profitable operations and the infusion of capital from the
exercise of warrants, as reflected in the following key indicators as of
September 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(dollars in 000's)
--------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Working capital...................................... $ 18,023 $ 15,438 $ 9,377
Total assets......................................... 28,696 24,247 18,263
Shareholders' equity................................. 15,922 13,484 8,092
</TABLE>
The improvement in working capital in 1999 is principally due to net cash
provided by operating activities of $2,207,022 for the year ended September
30, 1999.
In 1999, the Company amended its existing credit agreement with a bank,
providing for borrowings up to $7,000,000 at the prime rate, with certain
LIBOR alternatives, until September 30, 2001. Despite a significant
increase in revenues, the Company's borrowings pursuant to the revolving
credit agreement were minimal during the year. At September 30, 1999,
$4,894,634 was outstanding compared to $4,754,604 at September 30, 1998.
See Note 8 to Notes to Consolidated Financial Statements for a description
of all outstanding debt and maturities.
The Company continues to own 698,464 shares of 3CI common stock subsequent
to its divestiture of a majority interest in February 1994. Although the
market value of 3CI common stock has recently declined, the Company does
not believe that such decline represents a permanent impairment of the
investment. The Company has no immediate plans for the disposal of the
shares, and accordingly, the shares may be utilized to collateralize
borrowings. At present, 680,818 shares are pledged to secure an outstanding
note payable in the principal amount of $480,000.
The Company's registration statement covering the offering and sale by
selling shareholders of the common stock underlying all of the Company's
5,517,500 outstanding warrants was declared effective
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on January 29, 1997. As of September 30, 1999, the Company had outstanding
warrants to purchase 1,425,692 shares of common stock at exercise prices
ranging from $.50 to $2.19 per share, which expire at various dates through
July 2002, and if exercised would generate proceeds to the Company of
approximately $1,400,000.
The Company's research and development budget for fiscal 2000 has been
estimated at $3,100,000. The majority of these expenditures are applicable
to enhancements of the existing product lines, development of new automated
teller machine products and the development of new technology to facilitate
the dispensing of products such as postage stamps, money orders, and
prepaid telephone cards, as well as multiple denominations of currency.
Total research and development expenditures were approximately $1,700,000,
$1,400,000, and $1,200,000 for the years ended September 30, 1999, 1998 and
1997, respectively.
With its present capital resources, its continuing earnings and cash flow
from operations, its potential capital from the exercise of warrants, and
availability of $2,100,000 from its borrowing facility, the Company
believes it should have sufficient resources to meet its operating needs
for the foreseeable future and to provide for debt maturities and capital
expenditures.
The Company has never paid dividends on shares of its common stock, and
does not anticipate paying dividends in the foreseeable future. In
addition, the Company's wholly owned subsidiary is restricted from paying
dividends to the Company pursuant to the subsidiary's revolving credit
agreement with a bank.
SEASONALITY
The Company can experience seasonal variances in its operations and
historically has its lowest dollar volume sales months between November and
February. The Company's operating results for any particular quarter may
not be indicative of the results for the future quarter or for the year.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes new accounting and reporting standards
requiring that all derivative instruments (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet
as either an asset or liability measured at its fair value. SFAS 133
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate, and assess
the effectiveness of transactions that receive hedge accounting. SFAS 133,
as amended, is effective for all fiscal years beginning after June 15,
2000. The Company has not yet determined the impact; if any, SFAS 133 will
have on its financial position or results of operations, and plans to adopt
this standard during the year ending September 30, 2001.
THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result,
computer programs that have date sensitive software may recognize a date
using "00" as the year 1900, rather than the year 2000. This could result
in system
10
<PAGE> 13
failures or miscalculations causing disruptions in the operations of the
Company, including, but not limited to, a temporary inability to process or
transmit data or engage in normal business activities.
The Company has defined Year 2000 Compliant to mean that a process will
continue to run in the same manner when dealing with dates on or after
January 1, 2000, as it did before January 1, 2000. As of January 11, 2000,
the Company has not encountered any problems as a result of the year 2000
issue.
To determine the Company's state of readiness, management conducted an
evaluation of the Company's computer systems, software and embedded
technologies to identify those that could be affected by the Year 2000
Issue. The evaluation, which was focused on the Company's products and most
critical internal operating functions, revealed that the Company's
accounting and manufacturing software were the major resources containing
Year 2000 compliance issues. These resources were repaired during the year
ended September 30, 1999.
The Company has determined that there should be no Year 2000 Issues for
TACC products already sold. The Company has determined that there should be
no Year 2000 Issues for EMS products sold since June 5, 1991. EMS products
sold prior to June 5, 1991, were manufactured by a predecessor and have not
been tested by the Company. In addition, certain EMS 3000 products contain
hardware manufactured by a third party. This third party component
equipment has not been tested by the Company. While none of the predecessor
EMS products or EMS products containing third party component equipment are
still under warranty by the Company, customer problems, if any, will be
addressed as incurred.
The Company has tested the hardware and software platforms for its ATM
products already sold, excluding the Company's initial AnyCard tube-type
model ATM. The discontinued tube-type model ATM contains a point-of-sale
interface manufactured by a third party. In addition, this model is
dependent on a certain third party host processor for its date and time
information during a transaction. Neither the point-of-sale interface nor
the systems of the third party host processor have been tested by the
Company. The Company believes, however, that there are less than 1,500
tube-type models still in service and customer problems, if any, will be
addressed as incurred.
While the Company has tested the hardware and software platforms for its
ATM products, these products are dependent on data that is transmitted to
the product during use. This information is transmitted from financial
institutions via a system of private and shared computer networks. While
the federal government has instituted strict Year 2000 compliance
guidelines and remediation timetables for financial institutions, there can
be no assurance that the systems of financial institutions, as well as the
systems of the various private and shared computer networks will be timely
converted and that the Company's ATM products will be able to conduct
transactions in a normal manner, if at all.
Expenditures in fiscal 1999 for the Year 2000 Issue were approximately
$25,000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates as a result of
significant financing through its issuance of variable-rate and fixed-rate
debt. If market interest rates were to increase 1% in fiscal 2000, there
would be no material impact on the Company's consolidated results of
operations or financial position.
11
<PAGE> 14
FORWARD-LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and
uncertainty, (including without limitation, the Company's future gross
profit, selling, general and administrative expense, the Company's
financial position, working capital and seasonal variances in the Company's
operations, as well as general market conditions) though the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the
forward-looking statements included in this Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be
achieved.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 below for an index of the financial statements and schedules
included as a part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The table below gives certain information regarding each director and each
executive officer of the Company serving at September 30, 1999. There are,
to the knowledge of the Company, no agreements or understandings by which
these individuals were so selected. No family relationships exist between
any directors or executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James T. Rash 59 Chairman, Chief Executive and Financial Officer,
and Director
Mark K. Levenick 40 Chief Operating Officer,
President of the operating subsidiaries,
and Director
Michael F. Hudson 47 Executive Vice President
James L. Britton, III 64 Director
Jerrell G. Clay 58 Director
Charles E. Engelman 65 Advisory Director
</TABLE>
12
<PAGE> 15
BUSINESS BACKGROUNDS
The following is a summary of the business background and experience of
each of the persons named above:
James T. Rash joined the Company in July 1987 and served as Chief Financial
Officer and as a Director until February 1989. Since that time he has
served continuously as Chairman of the Board of Directors and Chief
Executive Officer, and he has served as Chief Financial Officer since
January 1995. He was also Chairman and Chief Executive Officer of 3CI from
the date of its acquisition by the Company until February 1994. Mr. Rash
earned a Bachelor of Business Administration degree from the University of
Texas at Austin.
Mark K. Levenick, a director since March 1995, has been an executive with
the Company's wholly owned subsidiary and its predecessors for more than
the preceding 5 years, and has served as Chief Operating Officer of the
Company since July 1997. Mr. Levenick is a recognized authority in
underground storage tank management and related environmental matters. He
earned a Bachelor of Science degree from the University of Wisconsin at
Whitewater.
Michael F. Hudson has served as Executive Vice President of the Company's
wholly owned subsidiary since September 1993 and of the Company since July
1997. Prior to joining the Company, Mr. Hudson held various positions with
the Southland Corporation and its affiliates for more than 18 years,
concluding as President and Chief Executive Officer of MoneyQuick, a large
non-bank ATM network. Mr. Hudson is a recognized authority in the ATM
industry.
James L. Britton, III, a director since December 1990, has for more than
the past 5 years managed his own investments. Mr. Britton earned a Bachelor
of Business Administration degree from the University of Texas at Austin.
Jerrell G. Clay, a director since December 1990, has for more than the
preceding 5 years been the President of III Mark Financial, Inc., an
independent marketing company designed to supply products and services to
life insurance and equity sales organizations, and one of its predecessors.
Mr. Clay is also a member of the Management Advisory Committee of
Protective Life Insurance Company of Birmingham, Alabama.
Charles E. Engelman, an advisory director since July 1999, has for more
than the past 5 years managed his own investments, including controlling
interest of a worldwide manufacturer of high pressure valves and tanks. Mr.
Engelman earned a degree in Engineering from the University of Texas at
Austin.
DIRECTOR COMPENSATION
Directors of the Company receive $1,000 per meeting as compensation for
their services as members of the Board of Directors. Directors who serve on
board committees receive $500 per committee meeting. In addition, the
directors, including the advisory director, were each granted warrants to
13
<PAGE> 16
purchase of 50,000 shares of the Company's common stock at exercise prices
ranging from $1.25 to $2.19 per share during the year ended September 30,
1999.
BOARD OF DIRECTORS COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee, each composed of Messrs. Britton and Clay, both of
whom are non-officer directors. The Audit Committee is charged with
reviewing the Company's financial statements, the scope and performance of
the audit and non-audit services provided by the Company's independent
auditors and overseeing the Company's internal accounting procedures. The
Compensation Committee administers the Company's employee stock option
plans, and reviews and evaluates matters with respect to the payment of
direct salaries and incentive compensation to the Company's executive
officers and senior management personnel.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the amount of all cash and other
compensation paid by the Company for services rendered during the fiscal
years ended September 30, 1999, 1998 and 1997 to Messrs. Rash, Levenick and
Hudson [such individuals being all of the Company's executive officers, as
such term is defined in Item 402 of Regulation S-K, whose compensation
exceeded $100,000]:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Name and Principal
Position Year Salary Bonus Options
------------------- ---- ------ ----- -------
<S> <C> <C> <C> <C>
James T. Rash 1999 $182,292 $ 90,000 100,000
Chief Executive and 1998 $182,292 $ -- --
Financial Officer 1997 $182,292 $ -- --
Mark K. Levenick 1999 $250,000 $ 85,500 100,000
Chief Operating Officer 1998 $195,000 $ 97,500 --
1997 $193,962 $ 97,500 100,000
Michael F. Hudson 1999 $195,000 $ 66,690 67,000
Executive Vice President 1998 $125,000 $ 62,500 --
1997 $124,538 $ 62,500 67,000
</TABLE>
The following table provides the number of options granted and the
respective valuations to the Company's executive officers during the year
ended September 30, 1999:
14
<PAGE> 17
OPTION GRANTS IN THE
YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Individual Grants
-------------------------------- Potential Realizable Value at
% of Total Assumed Annual Rates of Stock Price
Number Options Appreciation for Option Term
of Shares Granted to -----------------------------------
Underlying Employees Exercise Expiration 5% 10%
Name Options in 1999 Price Date ($) ($)
---- ---------- ---------- -------- ---------- --- --------
<S> <C> <C> <C> <C> <C> <C>
James T. Rash 100,000 22.6% $1.25 11/13/08 $78,600 $199,200
Mark K. Levenick 100,000 22.6% $1.25 11/13/08 $78,600 $199,200
Michael F. Hudson 67,000 15.1% $1.25 11/13/08 $52,662 $133,464
</TABLE>
The following table provides the number of options exercisable by the
respective optionees and the respective valuations at September 30, 1999:
OPTIONS EXERCISABLE AND RELATED VALUES
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised in-the-Money
Options at Options at
September 30, 1999 September 30, 1999
(Shares) ($)
---------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James T. Rash 80,000 100,000 $ 22,500 $ 71,875
Mark K. Levenick 100,000 200,000 61,562 71,875
Michael F. Hudson 50,000 134,000 40,625 48,156
</TABLE>
No options were exercised by executive officers pursuant to the Company's
employee stock option plans during the years ended September 30, 1999, 1998
and 1997.
EMPLOYMENT AGREEMENTS
Messrs. Levenick and Hudson, both executive officers of the Company, have
employment agreements with the Company's wholly owned operating company,
Tidel Engineering, L.P., which provide for minimum annual salaries of
$195,000 and $125,000, respectively, over a three-year term ending July
2000, with certain change of control provisions. Similarly, three
non-executive employees have employment agreements with the Company's
wholly owned operating company which provide for minimum annual salaries
ranging from $75,000 to $100,000 for the same term, which also contain
change of control provisions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 20, 1999, the number of
shares of common stock beneficially owned by (i) the only persons known to
the Company to be the beneficial owners of more than 5% of its voting
securities and (ii) each director individually and by the directors and
officers of
15
<PAGE> 18
the Company as a group. Except as otherwise indicated, and subject to
applicable community property laws, each person has sole investment and
voting power with respect to the shares shown. Ownership information is
based upon information furnished by the respective holders and contained in
the Company's records.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of Percent
Title of Beneficial Beneficial of
Class Owner Ownership Class (1)
-------- ---------- ---------- ---------
<S> <C> <C> <C>
Common Stock Alliance Developments 1,437,362 8.9%
One Yorkdale Road
Suite 510
North York, Ontario
M6A 3A1
Common Stock James L. Britton, III 863,500 (2) 5.3%
3272 Westheimer, #3
Houston, Texas 77098
Common Stock James T. Rash 680,000 (3) 4.2%
5847 San Felipe, Suite 900
Houston, Texas 77057
Common Stock Jerrell G. Clay 366,605 (2) 2.3%
5847 San Felipe, Suite 900
Houston, Texas 77057
Common Stock Mark K. Levenick 350,000 (4) 2.1%
2310 McDaniel Dr.
Carrollton, Texas 75006
Common Stock Michael F. Hudson 59,000 (5) *
2310 McDaniel Dr.
Carrollton, Texas 75006
Common Stock Directors and Officers 2,269,105 (6) 13.4%
as a group (5 persons)
</TABLE>
* Less than one percent.
(1) Based upon 16,137,968 shares outstanding as of December 20, 1999.
(2) Includes 150,000 shares which could be acquired within 60 days upon
exercise of outstanding warrants at exercise prices of (i) $0.625 per
share as to 50,000 shares, (ii) $1.00 per share as to 50,000 shares and
(iii) $1.25 per share as to 50,000 shares.
(3) Includes 230,000 shares which could be acquired within 60 days upon
exercise of outstanding options and warrants at exercise prices of (i)
$0.625 per share as to 50,000 shares, (ii) $1.00 per share as to 50,000
shares, (iii) $1.25 per share as to 50,000 and (iv) $1.6875 per share as
to 80,000 shares.
(4) Includes 250,000 shares which could be acquired within 60 days upon
exercise of outstanding warrants and options at exercise prices of (i)
$0.625 per share as to 50,000 shares, (ii) $0.875 per share as to
16
<PAGE> 19
25,000 shares, (iii) $1.00 as to 50,000 shares, (iv) $1.25 per share as
to 70,000 shares, (v) $1.4375 per share as to 25,000 shares and (vi)
$1.75 per share as to 30,000 shares.
(5) Includes of 50,000 shares which could be acquired within 60 days upon
exercise of outstanding options at exercise prices of (i) $0.875 per
share as to 25,000 shares and (ii) $1.4375 per share as to 25,000
shares.
(6) Includes the 150,000 shares for each of the two individuals referred to
in Note (2) above, the 230,000 shares referred to in Note (3) above, the
250,000 shares referred to in Note (4) above, and the 50,000 shares
referred to in Note (5) above obtainable upon exercise of outstanding
warrants and options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, the Company provides certain administrative and clerical
services to three entities with whom James T. Rash, Chairman, and Jerrell
G. Clay, Director, have an affiliation. Fees earned by the Company for
these services totaled $26,000 for the year ended September 30, 1999.
Amounts due to the Company from these entities totaled $260,532 and
$234,000 at September 30, 1999 and 1998, respectively.
On March 30, 1997, the Company received notes with an aggregate principal
balance of $743,000 in connection with the exercise of warrants to purchase
common stock by James T. Rash, James L. Britton, III, Jerrell G. Clay and
Mark K. Levenick, all directors of the Company. As of September 30,1999,
$382,063 was outstanding pursuant to the notes. These notes are due March
31, 2000, bear interest at 10% and are secured by 500,000 shares of the
Company's common stock issued thereunder.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The audited consolidated financial statements and related financial
statement schedules of the Company and report of its independent certified
public accountants responsive to the requirements of Item 8 of Form 10-K
are included herein as part of this Report. Such audited financial
statements, related financial statement schedules, and reports as set forth
in the accompanying index include, in the opinion of management of the
Company, all required disclosures in the notes thereto.
EXHIBITS
The Exhibits filed as a part of this Report are listed in the attached
Index to Exhibits.
REPORTS ON FORM 8-K
The Company filed no report on Form 8-K during the last quarter of the
fiscal year ended September 30, 1999.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TIDEL TECHNOLOGIES, INC.
(Company)
January 11, 2000 /s/ JAMES T. RASH
-----------------
James T. Rash
President and Principal Executive Officer
/s/ JAMES T. RASH
-----------------
James T. Rash
Principal Financial and Accounting Officer
Pursuant to requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JAMES T. RASH Director January 11, 2000
- ---------------------------------
James T. Rash
/s/ JAMES L. BRITTON, III Director January 11, 2000
- ---------------------------------
James L. Britton, III
/s/ JERRELL G. CLAY Director January 11, 2000
- ---------------------------------
Jerrell G. Clay
/s/ MARK K. LEVENICK Director January 11, 2000
- ---------------------------------
Mark K. Levenick
</TABLE>
18
<PAGE> 21
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS OF TIDEL TECHNOLOGIES, INC.
AND SUBSIDIARIES
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets - September 30, 1999 and 1998 F-3
Consolidated Statements of Income for the years ended
September 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Comprehensive Income for the
years ended September 30, 1999, 1998 and 1997 F-5
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES OF TIDEL TECHNOLOGIES, INC.
AND SUBSIDIARIES
The following schedules are filed as part of this Annual Report on Form 10-K:
Schedule I Condensed Financial Information of Registrant S-1
Schedule II Valuation and Qualifying Accounts S-6
</TABLE>
All other schedules are omitted because they are not required, are not
applicable or the required information is presented elsewhere herein.
F-1
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tidel Technologies, Inc.:
We have audited the consolidated financial statements of Tidel
Technologies, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tidel
Technologies, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG LLP
Houston, Texas
December 10, 1999
F-2
<PAGE> 23
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
ASSETS 1999 1998
------------ ------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,423,844 $ 1,400,148
Trade accounts receivable, net of allowance of
$566,917 and $693,613, respectively 15,137,056 10,246,075
Notes and other receivables 897,368 1,174,055
Inventories 6,128,741 6,705,756
Deferred tax assets 738,691 1,058,692
Prepaid expenses and other 225,599 381,528
------------ ------------
Total current assets 25,551,299 20,966,254
Investment in 3CI, at market value 261,924 917,083
Property, plant and equipment, at cost 3,912,348 2,843,723
Accumulated depreciation (1,932,575) (1,550,387)
------------ ------------
Net property, plant and equipment 1,979,773 1,293,336
Intangible assets, net of accumulated amortization of
$1,039,364 and $813,190, respectively 661,709 797,032
Deferred tax asset 195,390 207,575
Other assets 45,974 65,361
------------ ------------
Total assets $ 28,696,069 $ 24,246,641
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 128,000 $ 128,000
Accounts payable 5,285,591 3,014,278
Accrued liabilities 2,114,314 2,385,929
------------ ------------
Total current liabilities 7,527,905 5,528,207
Long-term debt 5,246,634 5,234,604
------------ ------------
Total liabilities 12,774,539 10,762,811
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 16,067,968 and
15,860,468 shares, respectively 160,680 158,605
Additional paid-in capital 14,299,373 14,144,553
Retained earnings 3,149,328 213,364
Stock subscriptions receivable (382,063) (382,063)
Accumulated other comprehensive loss (1,305,788) (650,629)
------------ ------------
Total shareholders' equity 15,921,530 13,483,830
------------ ------------
Total liabilities and shareholders' equity $ 28,696,069 $ 24,246,641
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 24
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 45,873,341 $ 33,607,533 $ 30,152,873
Cost of sales 30,912,917 21,427,255 19,458,044
------------ ------------ ------------
Gross profit 14,960,424 12,180,278 10,694,829
Selling, general and administrative 9,030,171 7,366,444 7,630,782
Depreciation and amortization 813,332 489,201 474,274
------------ ------------ ------------
Operating income 5,116,921 4,324,633 2,589,773
Interest expense, net 380,957 392,258 472,553
------------ ------------ ------------
Income before taxes 4,735,964 3,932,375 2,117,220
Income tax expense (benefit) 1,800,000 (307,251) --
------------ ------------ ------------
Net income $ 2,935,964 $ 4,239,626 $ 2,117,220
============ ============ ============
Basic earnings per share:
Net income $ 0.18 $ 0.27 $ 0.15
============ ============ ============
Weighted average common shares
outstanding 16,008,639 15,569,849 13,663,819
============ ============ ============
Diluted earnings per share:
Net income $ 0.17 $ 0.25 $ 0.14
============ ============ ============
Weighted average common and
dilutive shares outstanding 16,968,412 16,896,688 15,414,309
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income $ 2,935,964 $ 4,239,626 $ 2,117,220
Other comprehensive income (loss):
Unrealized (loss) gain on investment in 3CI (655,159) 342,774 (340,409)
----------- ----------- -----------
Comprehensive income $ 2,280,805 $ 4,582,400 $ 1,776,811
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 26
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
SHARES ADDITIONAL EARNINGS TOTAL
ISSUED AND COMMON PAID-IN (ACCUMULATED SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT) OTHER EQUITY
--------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1996 12,397,404 123,974 10,801,273 (6,143,482) (652,994) 4,128,771
Conversion of note payable
to common stock 120,000 1,200 58,800 -- -- 60,000
Exercise of warrants, net of
registration costs 2,333,646 23,337 2,524,087 -- -- 2,547,424
Issuance of warrants -- -- 3,252 -- -- 3,252
Net income -- -- -- 2,117,220 -- 2,117,220
Stock subscriptions receivable -- -- -- -- (424,437) (424,437)
Unrealized loss on
investment in 3CI -- -- -- -- (340,409) (340,409)
---------- ------------ ----------- ----------- ---------- -----------
Balance, September 30, 1997 14,851,050 148,511 13,387,412 (4,026,262) (1,417,840) 8,091,821
Exercise of warrants 1,009,418 10,094 757,141 -- -- 767,235
Net income -- -- -- 4,239,626 -- 4,239,626
Payments of stock
subscriptions receivable -- -- -- -- 42,374 42,374
Unrealized gain on
investment in 3CI -- -- -- -- 342,774 342,774
---------- ------------ ----------- ----------- ---------- -----------
Balance, September 30, 1998 15,860,468 158,605 14,144,553 213,364 (1,032,692) 13,483,830
Exercise of warrants 207,500 2,075 154,820 -- -- 156,895
Net income -- -- -- 2,935,964 -- 2,935,964
Unrealized loss on
investment in 3CI -- -- -- -- (655,159) (655,159)
---------- ------------ ----------- ----------- ---------- -----------
Balance, September 30, 1999 16,067,968 $ 160,680 $14,299,373 $ 3,149,328 $(1,687,851) $15,921,530
========== ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 27
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,935,964 $ 4,239,626 $ 2,117,220
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 813,332 489,201 474,274
Deferred taxes 332,186 (947,457) (318,810)
(Gain) loss on sale of property, plant and equipment (12,195) (400) 28,283
Changes in assets and liabilities:
Trade accounts receivable, net (4,890,981) (1,513,995) (3,497,773)
Notes and other receivables 276,687 (640,104) (116,278)
Inventories 577,015 (2,497,396) (866,874)
Prepaids and other assets 175,316 (136,378) (36,875)
Accounts payable and accrued liabilities 1,999,698 (168,122) 2,102,843
----------- ----------- -----------
Net cash provided by (used in) operating activities 2,207,022 (1,175,025) (113,990)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,282,875) (724,844) (660,928)
Proceeds from sale of property, plant and equipment 12,195 400 40,050
Increase in intangible assets (81,571) (116,385) --
Increase in investment in 3CI -- (20,804) --
----------- ----------- -----------
Net cash used in investing activities (1,352,251) (861,633) (620,878)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings of long-term debt 140,030 1,740,000 4,549,604
Repayments of notes payable (128,000) (980,697) (4,616,439)
Proceeds from exercise of warrants 156,895 767,235 1,765,674
Proceeds from issuance of warrants -- -- 3,252
Payments of stock subscription notes -- 360,937 --
----------- ----------- -----------
Net cash provided by financing activities 168,925 1,887,475 1,702,091
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,023,696 (149,183) 967,223
Cash and cash equivalents at beginning of period 1,400,148 1,549,331 582,108
----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,423,844 $ 1,400,148 $ 1,549,331
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 459,636 $ 462,297 $ 547,069
=========== =========== ===========
Cash paid for taxes, net of refunds receivable $ 1,539,549 $ 451,182 $ 92,470
=========== =========== ===========
Supplemental disclosure of noncash financing activities:
Notes received for warrant conversions $ -- $ -- $ 743,000
=========== =========== ===========
Conversion of note payable to common stock $ -- $ -- $ 60,000
=========== =========== ===========
Noncash exercise of warrants $ -- $ -- $ 38,750
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 28
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Tidel Technologies, Inc. (the "Company") is a Delaware corporation which,
through its wholly owned subsidiaries, develops, manufactures, sells and
supports automated teller machines and related software, electronic cash
security systems, and underground fuel storage monitoring and leak detection
devices primarily in the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany items have been
eliminated in consolidation.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform with the current year presentation format.
CASH AND CASH EQUIVALENTS
For purposes of consolidated financial statement presentation and reporting cash
flows, all liquid investments with original maturities at date of purchase of
three months or less are considered cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the standard cost method and includes materials, labor and production overhead
which approximates an average cost method. Reserves are provided to adjust any
slow moving materials or goods to net realizable values.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets.
Expenditures for major renewals and betterments are capitalized; expenditures
for repairs and maintenance are charged to expense as incurred.
INTANGIBLE ASSETS
All intangible assets are amortized using the straight-line method over a period
ranging from 5 to 10 years, with the exception of goodwill, which is amortized
over 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company's long-lived assets and certain identifiable intangibles and
goodwill are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of any assets may not be recoverable. In
performing the review for recoverability, the Company estimates the future cash
flows expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized.
F-8
<PAGE> 29
WARRANTIES
Certain products are sold under warranty against defects in materials and
workmanship for a period of one to two years. A provision for estimated warranty
costs is included in accrued liabilities and is charged to operations at the
time of sale.
REVENUE RECOGNITION
Revenues are generally recognized when products are shipped to customers. When
customers, under the terms of specific orders, request that the Company
manufacture and invoice goods on a bill and hold basis, the Company recognizes
revenues based on the completion date required in the order and actual
completion of the manufacturing process.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development costs charged to expense approximated $1,700,000, $1,400,000 and
$1,200,000 for the years ended September 30, 1999, 1998 and 1997.
FEDERAL INCOME TAXES
Income taxes are accounted for under the asset and liability method, whereby
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in determining
income or loss in the period that includes the enactment date.
INVESTMENT SECURITIES
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"), the Company classifies its investment in 3CI Complete Compliance
Corporation ("3CI") as available for sale, with unrealized gains and losses
excluded from earnings and recorded as a component of other comprehensive
income.
NET INCOME PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"), the Company computes and presents both
basic and diluted earnings per share ("EPS") amounts. Basic EPS is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period, and excludes the effect of
potentially dilutive securities (such as options, warrants and convertible
securities) which are convertible into common stock. Dilutive EPS reflects the
potential dilution from options, warrants and convertible securities.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), requires companies to recognize stock-based
expense based on the estimated fair value of employee stock options.
Alternatively, SFAS No. 123 allows companies to retain the current approach set
forth in APB Opinion 25, "Accounting for Stock Issued to Employees", provided
that expanded footnote disclosure is presented. The Company has not adopted the
fair value method of accounting for stock-based compensation under SFAS No. 123,
but has provided the pro forma disclosure required therein.
F-9
<PAGE> 30
USE OF ESTIMATES
The preparation of the accompanying consolidated financial statements requires
the use of estimates by management in determining the Company's assets and
liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the period. Actual results could
differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments", requires the disclosure of estimated fair
values for financial instruments. Fair value estimates are made at discrete
points in time based on relevant market information. These estimates may be
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. The Company
believes that the carrying amounts of its financial instruments included in
current assets and current liabilities approximate the fair value of such items
due to their short-term nature. The carrying amount of long-term debt
approximates its fair value because the interest rates approximate market.
(2) MAJOR CUSTOMERS AND CREDIT RISKS
The Company generally retains a security interest in the underlying equipment
that is sold to customers until it receives payment in full. In addition, one
major customer has pledged additional collateral to the Company. The Company
would incur an accounting loss equal to the carrying value of the accounts
receivable, less any amounts recovered from liquidation of collateral, if a
customer failed to perform according to the terms of the credit arrangements.
During the year ended September 30, 1999, the Company had sales to two major
customers that accounted for more than 10% of sales in the amounts of
$18,554,624 and $4,781,236. During the year ended September 30, 1998, the
Company had such sales to two major customers in the amounts of $3,526,941 and
$3,520,910. During the year ended September 30, 1997, the Company had such sales
to one major customer in the amount of $3,970,227.
Foreign sales accounted for 5%, 4% and 5% of the Company's total sales during
the years ended September 30, 1999, 1998 and 1997, respectively. Foreign sales
are transacted in U.S. dollars.
(3) NOTES AND OTHER RECEIVABLES
Notes and other receivables consisted of the following at September 30, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Federal income tax refunds........................... $ -- $ 621,049
Non-trade notes and accounts......................... 897,368 553,006
------------- ------------
$ 897,368 $ 1,174,055
============= ============
</TABLE>
In connection with the exercise of warrants to purchase common stock by certain
directors on March 30, 1997, the Company received promissory notes with an
aggregate principal balance of $743,000. The notes are due March 31, 2000, bear
interest at an annual rate of 10%, and are secured by 500,000 shares of the
Company's common stock issued thereunder. At September 30, 1999, the notes had
an aggregate balance of $382,063 which has been recorded as stock subscriptions
receivable and included as a separate component of shareholders' equity.
F-10
<PAGE> 31
At September 30, 1999, the Company had a note due from a non-affiliated
corporation with an outstanding principal balance of $163,058. The note bears
interest at 12% per annum and is secured by the personal guaranty of the
majority shareholder of the corporation and a pledge of outstanding common stock
of the corporation. The note matures March 31, 2000. Non-trade accounts also
include amounts due from related parties as described in Note 15.
(4) INVENTORIES
Inventories consisted of the following at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Raw materials........................................ $ 5,200,887 $ 3,993,447
Work in process...................................... 36,749 484,884
Finished goods....................................... 590,852 2,542,177
Other................................................ 384,963 180,248
------------ ------------
6,213,451 7,200,756
Inventory reserve.................................... (84,710) (495,000)
------------ ------------
$ 6,128,741 $ 6,705,756
============ ============
</TABLE>
(5) INVESTMENT IN 3CI
The Company owned 698,464 shares of 3CI common stock at September 30, 1999 and
1998 with a market value of $261,924 ($.375 per share) and $917,083 ($1.313 per
share), respectively. In accordance with the provisions of SFAS No. 115, the
Company recorded an unrealized loss of $655,159 and an unrealized gain of
$342,774 as components of other comprehensive income, net of tax at September
30, 1999 and 1998, respectively.
In addition, the Company owns 226,939 warrants to purchase 3CI common stock at
$1.50 per share exercisable through April 2000, which have no carrying value.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998 Useful Life
------------- ------------ -------------
<S> <C> <C> <C>
Machinery and equipment.............................. $ 2,235,371 $ 1,342,038 2 - 10 years
Computer equipment and systems....................... 958,332 967,857 2 - 7 years
Furniture, fixtures and other improvements........... 718,645 533,828 3 - 5 years
------------ ------------
$ 3,912,348 $ 2,843,723
============ ============
</TABLE>
Depreciation expense was $596,438, $368,825 and $327,661 for the years ended
September 30, 1999, 1998 and 1997, respectively. Repairs and maintenance expense
was $112,637, $56,330 and $95,338 for the years ended September 30, 1999, 1998
and 1997, respectively.
(7) INTANGIBLE ASSETS
Intangible assets consisted of the following at September 30, 1999 and 1998:
F-11
<PAGE> 32
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Electronic cash security systems:
Software.......................................... $ 350,000 $ 350,000
Proprietary technology............................ 417,000 417,000
Other................................................ 350,849 259,998
Goodwill............................................. 583,224 583,224
Accumulated amortization............................. (1,039,364) (813,190)
------------- -------------
$ 661,709 $ 797,032
============= =============
</TABLE>
(8) LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Revolving credit note payable to bank, due
September 30, 2001, interest payable monthly at
prime (8.25% and 8.5% at September 30, 1999 and
1998, respectively)............................... $ 4,894,634 $ 4,754,604
Term note payable to bank, payable in quarterly
installments of $32,000 plus accrued interest
at 8.4% through May 31, 2003...................... 480,000 608,000
------------- -------------
Total long-term debt................................. 5,374,634 5,362,604
Less: current maturities.......................... (128,000) (128,000)
------------- -------------
Long-term debt, less current maturities.............. $ 5,246,634 $ 5,234,604
============ ============
</TABLE>
The Company has a credit agreement with a bank which provides for a $7,000,000
revolving line of credit, of which $2,105,366 was unused and available at
September 30, 1999, and a $640,000 term loan. The facility is secured by
substantially all of the assets of the Company and its subsidiaries. Borrowings
under the revolving line of credit are limited to the balance of eligible
accounts receivable and inventory, and accrue interest at the prime rate with
certain LIBOR alternatives. The term loan is payable in quarterly principal
installments of $32,000 together with accrued interest at 8.4% per annum.
Borrowings under the revolving line of credit mature in September 2001 and the
term loan matures in May 2003. The credit agreement includes covenants which
among other things, require the maintenance of specified financial ratios,
restrict payments of dividends and limit the amount of capital expenditures. The
Company was in compliance with all covenants at September 30, 1999.
The scheduled maturities of long-term debt outstanding at September 30, 1999 are
summarized as follows: $128,000 in 2000, $5,022,634 in 2001, $128,000 in 2002
and $96,000 in 2003.
(9) ACCRUED LIABILITIES
Accrued liabilities consisted of the following at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Wages and related benefits........................... $ 822,928 $ 758,745
Reserve for warranty charges......................... 714,325 612,525
Taxes:
Federal income................................. 175,000 --
State franchise................................ -- 428,307
Sales and use.................................. 97,514 180,657
Ad valorem..................................... 159,460 150,807
Other................................................ 145,087 254,888
------------ ------------
$ 2,114,314 $ 2,385,929
============ ============
</TABLE>
F-12
<PAGE> 33
(10) WARRANTS
The Company's registration statement covering the offering and sale by selling
shareholders of the common stock underlying all of the Company's then
outstanding warrants was declared effective on January 29, 1997. The warrants
related to grants made in connection with debt and equity issues, acquisitions,
directors' remuneration and various services rendered. From the effective date
through September 30, 1999, warrants to purchase 3,550,564 shares have been
exercised generating proceeds to the Company of $3,471,554, net of registration
costs of $109,982, and warrants to purchase 791,244 shares have expired
unexercised. During the year ended September 30, 1999, 207,500 warrants were
exercised generating proceeds of $156,895.
During the year ended September 30, 1999, the Company issued warrants to
purchase 250,000 shares of common stock for directors' remuneration at exercise
prices ranging from $1.25 to $2.19; such prices being equal to the fair market
value of the common stock at the date of the grants. At September 30, 1999, the
Company had outstanding warrants to purchase 1,425,692 shares of common stock
which expire at various dates through July 2002. The warrants have exercise
prices ranging from $0.50 to $2.19 per share and, if exercised, would generate
proceeds to the Company of approximately $1,400,000.
(11) EMPLOYEE STOCK OPTION PLANS
The Company adopted a Long-Term Incentive Plan in 1997 (the "1997 Plan")
pursuant to which the Company's Board of Directors may grant stock options to
officers and key employees. The 1997 Plan authorizes grants of options to
purchase up to 1,000,000 shares of common stock. Options are granted with an
exercise price equal to the fair market value of the common stock at the date of
grant. Options granted under the 1997 Plan vest over four-year periods and
expire no later than 10 years from the date of grant. At September 30, 1999,
there were 277,500 additional shares available for grant under the 1997 Plan.
The Company's predecessor employee stock option plan, the 1989 Incentive Stock
Option Plan (the "1989 Plan"), was terminated in June 1999. At the date of
termination of the 1989 Plan, there were outstanding options to purchase 438,250
shares of common stock, all of which were outstanding at September 30, 1999.
The weighted-average fair value per share of stock options granted during 1999,
1998 and 1997 was $.78, $1.39 and $1.98, respectively, on the date of grant,
using the Black Scholes model with the following assumptions: risk-free interest
rate of 6.0%, expected life of 4 years, expected volatility of 80.16%, and an
expected dividend yield of 0% for the 1999 granted options; a risk-free interest
rate of 5.62%, expected life of 4 years, expected volatility of 75.66%, and an
expected dividend yield of 0% for the 1998 granted options; and a risk-free
interest rate of 6.49%, expected life of 4 years, expected volatility of
118.05%, and an expected dividend yield of 0% for the 1997 granted options.
The Company applied APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income:
As reported....................................... $ 2,935,964 $ 4,239,626 $ 2,117,220
Pro forma......................................... 2,717,847 4,087,605 1,963,959
Basic earnings per share:
As reported....................................... 0.18 0.27 0.15
Pro forma......................................... 0.17 0.26 0.14
Diluted earnings per share:
As reported....................................... 0.17 0.25 0.14
Pro forma......................................... 0.16 0.24 0.13
</TABLE>
F-13
<PAGE> 34
At September 30, 1999, the range of exercise prices was $0.69 to $1.69 per share
under the 1989 Plan and $1.25 to $2.50 per share under the 1997 Plan. At
September 30, 1999 and 1998, the weighted-average remaining contractual life of
the outstanding options was 6.8 and 6.7 years, respectively. Stock option
activity during the periods indicated was as follows:
<TABLE>
<CAPTION>
Number of Weighted average
shares exercise price
---------- ----------------
<S> <C> <C>
Balance at October 1, 1996........................... 468,250 1.33
Granted........................................... 291,300 2.50
---------
Balance at September 30, 1997........................ 759,550 1.78
Granted........................................... 10,000 2.31
Canceled.......................................... (15,000) (1.16)
---------
Balance at September 30, 1998........................ 754,550 1.80
Granted........................................... 442,400 1.25
Canceled.......................................... (36,200) (1.70)
---------
Balance at September 30, 1999........................ 1,160,750 1.59
=========
</TABLE>
At September 30, 1999 and 1998, the number of options exercisable was 438,250
and 453,250, respectively, at a weighted-average price of $1.34 per share.
(12) INCOME TAXES
Income tax expense (benefit) attributable to income from operations consisted of
the following for the years ended September 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Federal current tax expense.......................... $ 1,376,010 $ 225,755 $ 318,810
State current tax expense............................ 91,804 414,451 --
Federal deferred tax expense (benefit)............... 233,854 (849,125) (318,810)
State deferred tax expense (benefit)................. 98,332 (98,332) --
------------ ------------- ------------
$ 1,800,000 $ (307,251) $ --
============ ============= ============
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying the
U.S. statutory federal income tax rate of 34% to pretax income from operations
as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- --------------
<S> <C> <C> <C>
Computed "expected" tax expense...................... $ 1,610,228 $ 1,337,007 $ 719,855
Change in valuation allowances....................... -- (1,938,458) (691,099)
State taxes, net of benefit.......................... 125,490 208,639 --
Nondeductible items and permanent differences........ 56,632 36,355 29,000
Other................................................ 7,650 49,206 (57,756)
------------ ------------- -------------
$ 1,800,000 $ (307,251) $ --
============ ============= =============
</TABLE>
F-14
<PAGE> 35
The tax effects of temporary differences that were the sources of the deferred
tax assets consisted of the following at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Intangible assets................................. $ 176,091 $ 207,575
Accounts receivable............................... 192,752 256,428
Inventories....................................... 204,642 292,136
Investment in 3CI................................. 560,474 329,842
Accrued expenses.................................. 368,633 437,826
Other............................................. --
Net operating loss carryforward................... -- 23,038
------------ ------------
Total gross deferred tax assets................ 1,502,592 1,596,109
Less: valuation allowance......................... (560,474) (329,842)
------------ ------------
Net deferred tax assets........................ 942,118 1,266,267
Other deferred tax liabilities.................... 8,037 --
------------ ------------
Net deferred tax assets.............................. $ 934,081 $ 1,266,267
============ ============
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The Company has established a valuation allowance for
such deferred tax assets to the extent such amounts are not expected to be
utilized.
(13) EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted computations for the years ended September 30, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
Weighted
Net Average Shares Per Share
Income Outstanding Amount
------------ -------------- -----------
<S> <C> <C> <C>
Year Ended September 30, 1999:
Basic earnings per share............................. $ 2,935,964 16,008,639 $ 0.18
Effect of dilutive warrants and options.............. -- 959,773 (0.01)
--------------------------------- ------------
Diluted earnings per share........................... $ 2,935,964 16,968,412 $ 0.17
============ ============ ===========
Year Ended September 30, 1998:
Basic earnings per share............................. $ 4,239,626 15,569,849 $ 0.27
Effect of dilutive warrants and options.............. -- 1,326,839 (0.02)
------------------- ------------- -----------
Diluted earnings per share........................... $ 4,239,626 16,896,688 $ 0.25
============ ============ ===========
Year Ended September 30, 1997:
Basic earnings per share............................. $ 2,117,220 13,663,819 $ 0.15
Effect of dilutive warrants, options and
convertible notes................................. 1,200 1,750,490 (0.01)
---------------- ------------- -----------
Diluted earnings per share........................... $ 2,118,420 15,414,309 $ 0.14
============ ============ ===========
</TABLE>
(14) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are each subject to certain litigation and
claims arising in the ordinary course of business. In the opinion of the
management of the Company, the amounts ultimately payable, if any, as a result
of such litigation and claims will not have a materially adverse effect on the
Company's financial position.
F-15
<PAGE> 36
The Company leases office and warehouse space, transportation equipment and
other equipment under terms of operating leases which expire through 2005.
Rental expense under these leases for the years ended September 30, 1999, 1998
and 1997 was approximately $366,128, $382,000 and $355,000, respectively. The
Company has approximate future lease commitments as follows:
<TABLE>
<CAPTION>
Amount
------------
<S> <C>
Year Ending September 30:
2000.............................................. $ 370,024
2001.............................................. 298,654
2002.............................................. 294,901
2003.............................................. 294,901
2004.............................................. 294,069
Thereafter .......................................... 97,968
------------
$ 1,650,517
============
</TABLE>
(15) RELATED PARTY TRANSACTIONS
From time to time, the Company provides certain administrative and clerical
services to three entities with which certain directors have an affiliation.
Fees earned by the Company for these services totaled approximately $26,000,
$42,000 and $72,000 for the years ended September 30, 1999, 1998 and 1997,
respectively. Amounts due to the Company from these entities totaled $260,532
and $234,100 at September 30, 1999 and 1998, respectively.
F-16
<PAGE> 37
SCHEDULE I
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 148,962 $ 116,095
Notes and other receivables 761,410 415,227
Prepaid expenses and other assets 48,970 670,935
------------ ------------
Total current assets 959,342 1,202,257
Investment in 3CI, at market value 261,924 917,083
Property, plant and equipment, at cost 125,394 106,839
Accumulated depreciation (85,411) (68,799)
------------ ------------
Net property, plant and equipment 39,983 38,040
Investment in subsidiaries, at equity 14,001,431 10,408,994
Receivables from subsidiaries 1,418,142 1,814,032
Other assets 6,015 6,015
------------ ------------
Total assets $ 16,686,837 $ 14,386,421
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 128,000 $ 128,000
Accounts payable 41,591 191,735
Accrued liabilities 243,716 102,856
------------ ------------
Total current liabilities 413,307 422,591
Long-term debt 352,000 480,000
------------ ------------
Total liabilities 765,307 902,591
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, authorized 100,000,000
shares; issued and outstanding 16,068,968 and
15,860,468 shares, respectively 160,680 158,605
Additional paid-in capital 14,299,373 14,144,553
Retained earnings 3,149,328 213,364
Stock subscriptions receivable (382,063) (382,063)
Accumulated other comprehensive loss (1,305,788) (650,629)
------------ ------------
Total shareholders' equity 15,921,530 13,483,830
------------ ------------
Total liabilities and shareholders' equity $ 16,686,837 $ 14,386,421
============ ============
</TABLE>
See accompanying notes to condensed financial information of registrant.
S-1
<PAGE> 38
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and expenses:
Selling, general and administrative 992,790 738,433 710,281
Depreciation and amortization 16,612 13,474 27,694
----------- ----------- -----------
Operating loss (1,009,402) (751,907) (737,975)
Interest income (expense), net 29,929 (18,322) (159,100)
----------- ----------- -----------
Loss before equity in income of subsidiaries and taxes (979,473) (770,229) (897,075)
Equity in income of subsidiaries 3,590,437 3,895,705 1,804,475
----------- ----------- -----------
Income before taxes 2,610,964 3,125,476 907,400
Income tax benefit 325,000 1,114,150 1,209,820
----------- ----------- -----------
Net income 2,935,964 4,239,626 2,117,220
Other comprehensive income (loss):
Unrealized (loss) gain on investment in 3CI (655,159) 342,774 (340,409)
----------- ----------- -----------
Comprehensive income $ 2,280,805 $ 4,582,400 $ 1,776,811
=========== =========== ===========
</TABLE>
See accompanying notes to condensed financial information of registrant.
S-2
<PAGE> 39
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,935,964 $ 4,239,626 $ 2,117,220
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 16,612 13,474 27,694
Deferred taxes (325,000) (1,114,150) (1,209,820)
Equity in income of subsidiaries (3,590,437) (3,895,705) (1,804,475)
Changes in assets and liabilities:
Notes and other receivables (346,183) (92,540) (237,660)
Prepaid expenses and other assets 946,965 (609,325) (37,942)
Receivables from subsidiaries 395,890 835,308 --
Accounts payable and accrued liabilities (9,284) (56,908) 82,857
----------- ----------- -----------
Net cash provided by (used in) operating activities 24,527 (680,220) (1,062,126)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (18,555) (11,512) (7,573)
Increase in investment in 3CI -- (20,804) --
Investment in subsidiaries (2,000) -- --
----------- ----------- -----------
Net cash used in investing activities (20,555) (32,316) (7,573)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable -- 640,000 895,000
Repayments of notes payable (128,000) (972,000) (1,956,250)
Proceeds from exercise of warrants 156,895 767,235 1,765,674
Proceeds from issuance of warrants -- -- 3,252
Payments of stock subscription notes -- 360,937 --
----------- ----------- -----------
Net cash provided by financing activities 28,895 796,172 707,676
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 32,867 83,636 (362,023)
Cash and cash equivalents at beginning of year 116,095 32,459 394,482
----------- ----------- -----------
Cash and cash equivalents at end of year $ 148,962 $ 116,095 $ 32,459
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 48,751 $ 93,559 $ 243,402
=========== =========== ===========
Cash paid for taxes, net of refunds receivable $ 1,055,730 $ 451,182 $ 92,470
=========== =========== ===========
Supplemental disclosure of noncash financing activities:
Conversion of note payable to common stock $ -- $ -- $ --
=========== =========== ===========
Notes received for warrant conversions $ -- $ -- $ 743,000
=========== =========== ===========
Noncash exercise of warrants $ -- $ -- $ 38,750
=========== =========== ===========
</TABLE>
See accompanying notes to condensed financial information of registrant.
S-3
<PAGE> 40
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(A) LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Term note payable to bank, payable in quarterly
installments of $32,000 plus accrued interest
at 8.4% through May 31, 2003, secured by
substantially all of the assets of the parent
company and subsidiaries.......................... $ 480,000 $ 608,000
------------ -----------
Total long-term debt................................. 480,000 608,000
Less: current maturities.......................... (128,000) (128,000)
------------ -----------
Long-term debt, less current maturities.............. $ 352,000 $ 480,000
============ ===========
</TABLE>
(B) GUARANTEES
The parent company and its subsidiaries have guaranteed the revolving credit
note issued by its wholly owned operating company, Tidel Engineering, L.P., to a
bank in the maximum principal amount of $7,000,000 due September 30, 2001 (the
"Revolving Credit Note"). At September 30, 1999, $4,894,634 was outstanding
pursuant to the Revolving Credit Note.
(C) DIVIDENDS FROM SUBSIDIARIES
No dividends have been paid to the parent company by its subsidiaries as of
September 30, 1999. The Company's wholly owned operating company, Tidel
Engineering, L.P., is restricted from paying dividends to the parent company and
its subsidiaries pursuant to the Revolving Credit Note.
(D) INCOME TAXES
The parent company and its subsidiaries (collectively the "Companies") have
entered into a tax sharing agreement providing that each of the Companies will
be responsible for its tax liability for the years that the Companies were
included in the parent company's consolidated income tax returns. Income taxes
have been allocated to each of the Companies based on its pretax income and
calculated on a separate company basis. Further, the agreement provides for
reimbursements to the parent company for payment of the consolidated tax
liability based on the allocations, and compensates each of the Companies for
use of its losses or tax credits. As a result of the agreement, the parent
company recognized tax benefits of $325,000, $1,114,150 and $1,209,820 for the
years ended September 30, 1999, 1998 and 1997, respectively.
S-4
<PAGE> 41
TIDEL TECHNOLOGIES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
(E) AFFILIATED TRANSACTIONS
From time to time, the parent company provides certain administrative and
clerical services to three entities with which certain directors have an
affiliation. Fees earned by the parent company for these services totaled
approximately $26,000, $42,000 and $72,000 for the years ended September 30,
1999, 1998 and 1997, respectively. Amounts due to the Company from these
entities totaled $260,532 and $234,100 at September 30, 1999 and 1998,
respectively.
On March 30, 1997, the Company received notes with an aggregate principal
balance of $743,000 in connection with the exercise of warrants to purchase
common stock by certain directors. As of September 30, 1999, $382,063 was
outstanding pursuant to the notes.
The subsidiaries paid management fees to the parent company in the aggregate
amount of $180,000 per annum in each of the years ended September 30, 1999, 1998
and 1997. In addition, the parent company bills the subsidiaries for direct
expenses paid on their behalf and from time to time makes interest bearing
advances for working capital purposes.
S-5
<PAGE> 42
SCHEDULE II
TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the year ended September 30, 1999:
Allowance for doubtful accounts $ 693,613 $ -- $ -- $ 126,696 $ 566,917
Inventory reserve 495,000 80,000 -- 490,290 84,710
---------- ---------- ---------- ---------- ----------
$1,188,613 $ 80,000 $ -- $ 616,986 $ 651,627
========== ========== ========== ========== ==========
For the year ended September 30, 1998:
Allowance for doubtful accounts $ 750,347 $ 50,000 $ 16,435 $ 123,169 $ 693,613
Inventory reserve 512,000 40,000 -- 57,000 495,000
---------- ---------- ---------- ---------- ----------
$1,262,347 $ 90,000 $ $ 180,169 $1,188,613
========== ========== ========== ========== ==========
For the year ended September 30, 1997:
Allowance for doubtful accounts $ 184,900 $ 600,000 $ -- $ 34,553 $ 750,347
Inventory reserve 476,000 36,000 -- -- 512,000
---------- ---------- ---------- ---------- ----------
$ 660,900 $ 636,000 $ -- $ 34,553 $1,262,347
========== ========== ========== ========== ==========
</TABLE>
S-6
<PAGE> 43
INDEX TO EXHIBITS
EXHIBITS
Except as otherwise indicated, the following documents are incorporated by
reference as Exhibits to this Report [the inclusion of certain Exhibits herein
through incorporation by reference to "Form 10 of the Company" refer in each
case to the indicated Exhibits as listed in Item 15.2 of the Company's Form 10
dated November 7, 1988 as amended by Form 8 dated February 2, 1989]:
Exhibit
Number Description
------- ------------
3.01. Copy of Certificate of Incorporation of American
Medical Technologies, Inc. (filed as Articles of
Domestication with the Secretary of State, State of
Delaware on November 6, 1987 and incorporated by
reference to Exhibit 2 to Form 10 of the Company).
3.02. Copy of By-Laws of the Company (incorporated by
reference to Exhibit 3 to Form 10 of the Company).
3.03 Amendment to Certificate of Incorporation dated July
16, 1997 (incorporated by reference to Exhibit 3 of
the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1997).
4.01. Copy of form of series BOD common stock purchase
warrants of the Company issued to each of the seven
directors of the Company as of October 23, 1995, each
such warrant providing for the purchase of 50,000
shares of common stock at an exercise price of $0.625
per share (incorporated by reference to Exhibit 4.15.
of the Company's Report on Form 10-K for the year
ended September 30, 1995).
*4.02. Credit Agreement dated April 1, 1999 by and
among Tidel Engineering, L.P., Tidel Technologies,
Inc. and Chase Bank of Texas, N.A.
*4.03. Promissory Note dated April 1, 1999 executed by Tidel
Engineering, L.P. payable to the order of Chase Bank
of Texas Commerce, N.A.
*4.04. Term Note dated April 1, 1999, executed by Tidel
Engineering, L.P. and Tidel Technologies, Inc.
payable to the order of Chase Bank of Texas, N.A.
*4.05. Security Agreement (Personal Property) dated as of
April 1, 1999, by and between Tidel Engineering, L.P.
and Chase Bank of Texas, N.A.
- ----------------
* - Filed herewith
E-1
<PAGE> 44
*4.06. Security Agreement (Personal Property) dated as of
April 1, 1999, by and between Tidel Cash Systems,
Inc. and Chase Bank of Texas, N.A.
*4.07. Security Agreement (Personal Property) dated as of
April 1, 1999, by and between Tidel Services, Inc.
and Chase Bank of Texas, N.A.
*4.08. Unconditional Guaranty Agreement dated April 1, 1999
executed by Tidel Technologies, Inc. for the benefit
of Chase Bank of Texas, N.A.
*4.09. Unconditional Guaranty Agreement dated April 1, 1999
executed by Tidel Services, Inc. for the benefit of
Chase Bank of Texas, N.A.
*4.10. Unconditional Guaranty Agreement dated April 1, 1999
executed by Tidel Cash Systems, Inc. for the benefit
of Chase Bank of Texas, N.A.
*4.11. Pledge and Security Agreement (Stock) dated April 1,
1999 executed by Tidel Technologies, Inc. for the
benefit of Chase Bank of Texas, N.A.
*4.12 Pledge and Security Agreement (Limited Partnership
Interest) dated April 1, 1999 executed by Tidel
Services, Inc. for the benefit of Chase Bank of
Texas, N.A.
*4.13. Pledge and Security Agreement (Limited Partnership
Interest) dated April 1, 1999 executed by Tidel Cash
Systems, Inc. for the benefit of Chase Bank of Texas,
N.A.
*4.14. Patent Assignment dated as of March 31, 1999 executed
by Tidel Engineering, Inc. to Tidel Engineering, L.P.
*4.15. Patent Security Agreement dated April 1, 1999
executed by Tidel Engineering, L.P. for the benefit
of Chase Bank of Texas, N.A.
*4.16. Trademark Assignment dated as of March 31, 1999
executed by Tidel Engineering, Inc. to Tidel
Engineering, L.P.
*4.17. Trademark Security Agreement dated April 1, 1999
executed by Tidel Engineering, L.P. for the benefit
of Chase Bank of Texas, N.A.
*4.18. Revolving Credit Note dated September 30, 1999
executed by Tidel Engineering, L.P. payable to the
order of Chase Bank of Texas, Inc.
*4.19. First Amendment to Credit Agreement dated April 1,
1999 by and between Tidel Engineering, L.P., Tidel
Technologies, Inc. and Chase Bank of Texas, N.A.
- ----------------
* - Filed herewith
E-2
<PAGE> 45
10.01. Copy of 1989 Incentive Stock Option Plan of the
Company (incorporated by reference to Appendix A of
the Company's Proxy Statement filed under Regulation
14A with respect to the Annual Meeting of
Shareholders held June 13, 1989).
10.02. Copy of Lease Agreement dated February 21, 1992
between the Company, as Lessee, and San Felipe Plaza,
Ltd., as Lessor, related to the occupancy of the
Company's executive offices (incorporated by
reference to Exhibit 10.10. of the Company's Report
on Form 10-K for the year ended September 30, 1992).
10.03. Copy of Lease dated as of December 9, 1994 (together
with the Addendum and Exhibits thereto) between
Booth, Inc., a Texas corporation, as Landlord and
Tidel Engineering, Inc., as Tenant, covering
approximately 65,000 square feet of manufacturing and
office premises at 2310 McDaniel Drive, Carrollton,
Texas (incorporated by reference to Exhibit 10.7. of
the Company's Report on Form 10-K for the year ended
September 30, 1994).
10.04. Copy of Agreement dated October 30, 1991 between ACS
and Tidel Engineering, Inc. (incorporated by
reference to Exhibit 10.14. of the Company's Report
on Form 10-K for the year ended September 30, 1992).
10.05. Copy of EFT Processing Services Agreement dated
February 3, 1995 by, between and among Affiliated
Computer Services, Inc. ("ACS"), AnyCard
International, Inc. and the Company related to the
electronic fund transfer services to be provided by
ACS to AnyCard (incorporated by reference to Exhibit
10.9. of the Company's Report on Form 10-K for the
year ended September 30, 1995).
10.06. Copy of Amendment No. 1 dated as of September 14,
1995 to Exhibit 10.05. above (incorporated by
reference to Exhibit 10.10. of the Company's Report
on Form 10-K for the year ended September 30, 1995).
10.07. Copy of Purchase Agreement dated February 3, 1995
between ACS and AnyCard International, Inc. related
to the purchase by ACS of AnyCard Systems
(incorporated by reference to Exhibit 10.11. of the
Company's Report on Form 10-K for the year ended
September 30, 1995).
10.08. Copy of Amendment No. 1 dated as of September 14,
1995 to Exhibit 10.07. above (incorporated by
reference to Exhibit 10.12. of the Company's Report
on Form 10-K for the year ended September 30, 1995).
E-3
<PAGE> 46
10.09. Secured Promissory Note dated March 30, 1997 executed
by James L. Britton, III and payable to the order of
the Company (incorporated by reference to Exhibit
10.01 of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.10. Secured Promissory Note dated March 30, 1997 executed
by Jerrell G. Clay and payable to the order of the
Company (incorporated by reference to Exhibit 10.02
of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.11. Secured Promissory Note dated March 30, 1997 executed
by Mark K. Levenick and payable to the order of the
Company (incorporated by reference to Exhibit 10.03
of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.12. Secured Promissory Note dated March 30, 1997 executed
by James T. Rash and payable to the order of the
Company (incorporated by reference to Exhibit 10.04
of the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10.13. Form of Stock Pledge Agreement dated March 30, 1997
executed by each of the four directors of the Company
in favor of the Company (incorporated by reference to
Exhibit 10.05 of the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1997).
10.14. Copy of Amendment No. 2 dated as of September 15,
1997 to Exhibit 10.02. above (incorporated by
reference to Exhibit 10.14. of the Company's report
on Form 10-K for the year ended September 30, 1997).
10.15. Form of employment agreement dated July 16, 1997 by
and between Tidel Engineering, Inc. and Michael F.
Hudson, Eugene W. Moore, M. Flynt Moreland and
Roberto M. Gutierrez (incorporated by reference to
Exhibit 10.15. of the Company's report on Form 10-K
for the year ended September 30, 1997).
10.16. Form of employment agreement dated July 16, 1997 by
and between Tidel Engineering, Inc. and Mark K.
Levenick (incorporated by reference to Exhibit 10.16.
of the Company's report on Form 10-K for the year
ended September 30, 1997).
21. The Registrant has three subsidiaries doing business
in the names set forth below:
State of Percent
Name Incorporation Owned
---- ------------- -------
Tidel Cash Systems, Inc. Delaware 100%
AnyCard International, Inc. Delaware 100%
Tidel Services, Inc. Delaware 100%
*27 Financial Data Schedule.
- ----------------
* - Filed herewith
E-4
<PAGE> 1
EXHIBIT 4.02
CREDIT AGREEMENT
made and entered into
April 1, 1999
by and among
TIDEL ENGINEERING, L.P.,
TIDEL TECHNOLOGIES, INC.
and
CHASE BANK OF TEXAS, N.A.,
a national banking association
<PAGE> 2
Index to Credit Agreement
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions..............................................................................................1
1.1 Certain Defined Terms...........................................................................1
Adjusted LIBOR Rate.............................................................................1
Affiliate.......................................................................................1
Alternate Base Rate.............................................................................1
Alternate Base Rate Borrowing...................................................................2
Annual Audited Financial Statements.............................................................2
Annual Consolidating Financial Statements.......................................................2
Applicable Lending Office.......................................................................3
Applicable Margin...............................................................................3
Applications....................................................................................3
Assessment Rate.................................................................................3
Availability....................................................................................3
Base CD Rate....................................................................................3
Borrower........................................................................................3
Borrowing Base..................................................................................3
Borrowing Base Certificate......................................................................4
Business Day....................................................................................4
Business Entity.................................................................................4
Capital Lease Obligations.......................................................................4
Closing Date....................................................................................4
Code............................................................................................5
Collateral......................................................................................5
Commitments.....................................................................................5
Commitment Fee..................................................................................5
Compliance Certificate..........................................................................5
Consequential Loss..............................................................................5
Consolidated....................................................................................5
Contingent Obligation...........................................................................5
Current Sum.....................................................................................6
Discontinued Operations.........................................................................6
Domestic Lending Office.........................................................................6
EBITDA..........................................................................................6
Eligibility Reserves............................................................................6
Eligible Inventory..............................................................................6
Eligible Receivables............................................................................7
Environmental Claim.............................................................................8
Environmental Liabilities.......................................................................8
Environmental Permit............................................................................9
ERISA...........................................................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ERISA Affiliate.................................................................................9
Event of Default................................................................................9
Excess Interest Amount..........................................................................9
Federal Funds Effective Rate....................................................................9
Financial Officer...............................................................................9
Fixed Rate......................................................................................9
GAAP...........................................................................................10
General Partner................................................................................10
Governmental Authority.........................................................................10
Guarantors.....................................................................................10
Guaranty.......................................................................................10
Hazardous Substance............................................................................10
Highest Lawful Rate............................................................................10
Indebtedness...................................................................................10
Initial Public Offering........................................................................11
Interest Coverage Ratio........................................................................11
Interest Expense...............................................................................11
Interest Option................................................................................11
Interest Payment Dates.........................................................................11
Interest Period................................................................................12
Interest Reserves..............................................................................12
Investment.....................................................................................12
Joinder Agreement..............................................................................12
Legal Requirement..............................................................................12
Letters of Credit..............................................................................12
Letter of Credit Advances......................................................................12
Letter of Credit Exposure Amount...............................................................12
LIBOR Borrowing................................................................................12
LIBOR Lending Office...........................................................................13
LIBOR Rate.....................................................................................13
Lien...........................................................................................13
Limited Partner................................................................................13
Loan Documents.................................................................................13
Loans..........................................................................................13
Lockbox Agreement..............................................................................13
Material Adverse Effect........................................................................13
Monthly Unaudited Financial Statements.........................................................14
Net Amount of Eligible Receivables.............................................................14
Net Income.....................................................................................14
Notes..........................................................................................14
Obligations....................................................................................14
Organizational Documents.......................................................................14
Parties........................................................................................15
Past Due Rate..................................................................................15
PBGC...........................................................................................15
Permitted Affiliate Transactions...............................................................15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Permitted Dispositions.........................................................................15
Permitted Investments..........................................................................16
Permitted Investment Securities................................................................16
Person.........................................................................................16
Plan...........................................................................................16
Prime Rate.....................................................................................17
Principal Office...............................................................................17
Prior Term Loan................................................................................17
Prior Term Note................................................................................17
Proper Form....................................................................................17
Property.......................................................................................17
Quarterly Unaudited Financial Statements.......................................................17
Rate Selection Date............................................................................17
Rate Selection Notice..........................................................................18
Receivables....................................................................................18
Refinancing Indebtedness.......................................................................18
Regulation D...................................................................................18
Regulatory Change..............................................................................18
Reportable Event...............................................................................18
Request for Extension of Credit................................................................18
Requirements of Environmental Law..............................................................18
Responsible Officer............................................................................19
Revolving Commitment...........................................................................19
Revolving Loan Maturity Date...................................................................19
Revolving Loans................................................................................19
Revolving Note.................................................................................19
Security Agreements............................................................................19
Security Documents.............................................................................19
Statutory Reserves.............................................................................20
Stock..........................................................................................20
Subordinated Indebtedness......................................................................20
Subsidiary.....................................................................................20
Tangible Net Worth.............................................................................20
Term Loan......................................................................................20
Term Loan Commitment...........................................................................21
Term Loan Maturity Date........................................................................21
Term Loan Payment Date.........................................................................21
Term Note......................................................................................21
Three-Month Secondary CD Rate..................................................................21
Ultimate Parent................................................................................21
Unused Revolving Commitment....................................................................21
1.2 Accounting Terms and Determinations............................................................21
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
2. Revolving Loans; Letters of Credit; Revolving Note; Payments; Prepayments;
Interest Rates..........................................................................................22
2.1 Revolving Commitment...........................................................................22
2.2 Revolving Loans................................................................................23
2.3 Commitment and Other Fees......................................................................23
2.4 Termination and Reductions of Revolving Commitment.............................................24
2.5 Mandatory and Voluntary Prepayments............................................................25
2.6 Revolving Note; Payments.......................................................................26
2.7 Application of Payments and Prepayments........................................................27
2.8 Interest Rates for Revolving Loans.............................................................27
2.9 Special Provisions Applicable to LIBOR Borrowings..............................................28
2.10 Letters of Credit..............................................................................32
2.11 Recapture......................................................................................35
2.12 Use of Proceeds................................................................................35
3. Term Loan; Term Note; Payments; Prepayments; Interest Rates.............................................35
3.1 Term Loan Commitment...........................................................................35
3.2 Mandatory and Voluntary Prepayments............................................................35
3.3 Term Note; Payments............................................................................36
3.4 Application of Payments and Prepayments........................................................37
3.5 Interest Rate for Term Loan....................................................................37
3.6 Special Provisions Applicable to the Term Loan.................................................37
3.7 Use of Proceeds................................................................................37
4. Collateral..............................................................................................38
4.1 Security Documents.............................................................................38
4.2 Filing and Recording...........................................................................38
5. Conditions..............................................................................................38
5.1 All Loans......................................................................................38
5.2 First Loan.....................................................................................39
6. Representations and Warranties..........................................................................42
6.1 Organization; Capitalization...................................................................42
6.2 Financial Statements...........................................................................42
6.3 Enforceable Obligations; Authorization.........................................................42
6.4 Other Debt.....................................................................................43
6.5 Litigation.....................................................................................43
6.6 Taxes..........................................................................................43
6.7 No Material Misstatements......................................................................43
6.8 Subsidiaries...................................................................................43
6.9 Representations by Others......................................................................43
6.10 Permits, Licenses, Etc.........................................................................44
6.11 ERISA..........................................................................................44
6.12 Title to Properties; Possession Under Leases...................................................44
6.13 Assumed Names..................................................................................44
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
6.14 Investment Company Act.........................................................................45
6.15 Public Utility Holding Company Act.............................................................45
6.16 Indebtedness Agreements........................................................................45
6.17 Environmental Matters..........................................................................45
6.18 No Change in Credit Criteria or Collection Policies............................................46
6.19 Solvency.......................................................................................46
6.20 Status of Receivables and Other Collateral.....................................................46
6.21 Y2K Representation.............................................................................47
7. Affirmative Covenants...................................................................................48
7.1 Businesses and Properties......................................................................48
7.2 Taxes..........................................................................................48
7.3 Financial Statements and Information...........................................................48
7.4 Inspection.....................................................................................50
7.5 Further Assurances.............................................................................50
7.6 Books and Records..............................................................................50
7.7 Insurance......................................................................................50
7.8 ERISA..........................................................................................51
7.9 Use of Proceeds................................................................................51
7.10 Guarantors; Joinder Agreements.................................................................52
7.11 Notice of Events...............................................................................52
7.12 Environmental Matters..........................................................................52
7.13 End of Fiscal Year.............................................................................52
7.14 Pay Obligations and Perform Other Covenants....................................................53
7.15 Collection of Receivables; Application of Lockbox Agreement Proceeds...........................53
7.16 Additional Receivables Documentation...........................................................54
7.17 Y2K Covenant...................................................................................54
7.18 Further Information............................................................................55
8. Negative Covenants......................................................................................55
8.1 Indebtedness...................................................................................55
8.2 Liens..........................................................................................56
8.3 Contingent Liabilities.........................................................................58
8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets............................58
8.5 Nature of Business.............................................................................59
8.6 Transactions with Related Parties..............................................................59
8.7 Investments; Loans.............................................................................59
8.8 ERISA Compliance...............................................................................60
8.9 Credit Extensions..............................................................................60
8.10 Change in Accounting Method....................................................................60
8.11 Interest Coverage Ratio........................................................................60
8.12 Tangible Net Worth.............................................................................60
8.13 Capital Expenditures...........................................................................61
8.14 Sales of Receivables...........................................................................61
8.15 Sale and Lease-Back Transactions...............................................................61
8.16 Change of Name or Place of Business............................................................61
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
8.17 Availability...................................................................................61
8.18 Distribution of Capital........................................................................61
9. Events of Default and Remedies..........................................................................62
9.1 Events of Default..............................................................................62
9.2 Remedies Cumulative............................................................................65
10. Miscellaneous...........................................................................................65
10.1 No Waiver......................................................................................65
10.2 Notices........................................................................................65
10.3 Governing Law..................................................................................66
10.4 Survival; Parties Bound........................................................................66
10.5 Counterparts...................................................................................66
10.6 Limitation of Interest.........................................................................66
10.7 Survival.......................................................................................68
10.8 Captions.......................................................................................68
10.9 Expenses, Etc..................................................................................68
10.10 Indemnification................................................................................68
10.11 Amendments, Waivers, Etc.......................................................................69
10.12 Successors and Assigns.........................................................................69
10.13 Entire Agreement...............................................................................70
10.14 Severability...................................................................................70
10.15 Disclosures....................................................................................70
10.16 Taxes..........................................................................................70
10.17 Waiver of Claims...............................................................................72
10.18 Right of Setoff................................................................................72
10.19 Waiver of Right to Jury Trial..................................................................72
10.20 Additional Provisions Regarding Collection of Receivables;
Control of Inventory and other Collateral......................................................72
10.21 Joint and Several Obligations..................................................................74
10.22 Venue; Service of Process......................................................................74
10.23 No Other Agreements............................................................................75
10.24 Restatement of Credit Agreement................................................................75
</TABLE>
vi
<PAGE> 8
EXHIBITS
A - Revolving Note Form (Section. 1.1)
B - Term Note Form (Section. 1.1)
C - Standard Lockbox Agreement (Section 1.1)
D - Compliance Certificate (Section 1.1)
E - Request for Extension of Credit (Section 1.1)
F - Rate Selection Notice (Section 2.8[b][1])
G - Secretary's Certificate of General Partner (Section 4.2[c])
H - Borrowing Base Certificate Form (Section 6.3[g])
SCHEDULES
6.5 - Material Litigation
6.12 - Leases of Real Property
6.13 - List of Assumed Names
6.16 - Indebtedness & Capital Leases
6.17 - Environmental Matters
8.2 - Liens
8.6 - List of Existing Transaction with Related Parties
vii
<PAGE> 9
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (together with all amendments, modifications and
supplements hereto and restatements hereof, this "Agreement") is made and
entered into as of 12:01 a.m., April 1, 1999, by and among TIDEL ENGINEERING,
L.P. ("Borrower"), a Delaware limited partnership, TIDEL TECHNOLOGIES, INC., a
Delaware corporation ("Ultimate Parent"), and CHASE BANK OF TEXAS, N.A., a
national banking association (the "Lender").
W I T N E S S E T H:
THAT, in consideration of the mutual covenants, agreements and
undertakings herein contained, the parties hereto agree as follows:
1. Definitions.
1.1 Certain Defined Terms. Unless a particular word or phrase is
otherwise defined or the context otherwise requires, capitalized words and
phrases used in the Loan Documents have the meanings provided below.
Adjusted LIBOR Rate shall mean, with respect to any LIBOR Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the sum of (a) the product of (i) the sum of
the LIBOR Rate in effect for such Interest Period and (ii) Statutory Reserves
and (b) the Applicable Margin.
Affiliate of any Person shall mean any other Person which controls or
is controlled by or under common control with such Person and, without limiting
the generality of the foregoing, includes (a) any Person which beneficially owns
or holds five percent (5%) or more of any class of voting securities of such
Person or five percent (5%) of the equity interest in such Person, (b) any
Person of which such Person beneficially owns or holds five percent (5%) or more
of any class of voting securities or in which such Person beneficially owns or
holds five percent (5%) or more of the equity interest in such Person, and (c)
any director, officer or employee of such Person. For purposes of this
definition, "control" (including "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of securities, partnership or other ownership interests,
by contract or otherwise.
Alternate Base Rate shall mean, for any day, a rate per annum (rounded
upwards to the nearest 1/16 of 1%) equal to the sum of the following:
(a) the greater of (i) the Prime Rate (computed on the basis of the
actual number of days elapsed over a year of 360 days, as the case may be) in
effect on such day, (ii) the Federal Funds Effective Rate (computed on the basis
of the actual number of days elapsed over a 360-day year) in effect for such day
plus 1/2 of 1%, and (iii) the Base CD Rate in effect for such day plus 1%, and
CREDIT AGREEMENT - Page 1
<PAGE> 10
(b) the Applicable Margin.
For purposes of this Agreement, any change in the Alternate Base Rate due to a
change in the Prime Rate, Federal Funds Effective Rate or the Three-Month
Secondary CD Rate shall be effective on the effective date of such change in the
Prime Rate, Federal Funds Effective Rate or the Three-Month Secondary CD Rate,
respectively. If for any reason the Lender shall have determined (which
determination shall be conclusive and binding, absent manifest error) that it is
unable to ascertain the Federal Funds Effective Rate or Base CD Rate, or both,
for any reason, including the inability or failure of the Lender to obtain
sufficient quotations in accordance with the terms hereof, the Alternate Base
Rate shall be determined without regard to clauses (a)(ii) or (a)(iii), or both,
as appropriate, until the circumstances giving rise to such inability no longer
exist.
Alternate Base Rate Borrowing shall mean as of any date, that portion
of the principal balance of the Revolving Loans bearing interest at the
Alternate Base Rate as of such date.
Annual Audited Financial Statements shall mean the annual audited
Consolidated and consolidating financial statements of a Person, including all
notes thereto, which statements shall include a balance sheet as of the end of
such fiscal year and an income statement, a retained earnings statement and a
statement of cash flows for such fiscal year, all setting forth in comparative
form the corresponding figures from the previous fiscal year, all prepared in
conformity with GAAP and accompanied by a report and opinion of independent
certified public accountants with a "Big 6" accounting firm or other accounting
firm of similar national standing and reputation, which report shall not contain
any qualification except with respect to new accounting principles mandated by
the Financial Accounting Standards Board and shall state that such financial
statements, in the opinion of such accountants, present fairly, in all material
respects, the financial position of such Person as of the date thereof and the
results of its operations and cash flows for the period covered thereby in
conformity with GAAP. The Annual Audited Financial Statements for the Borrower
and its Subsidiaries shall be prepared on a Consolidated and consolidating basis
in accordance with GAAP. All such Annual Audited Financial Statements shall be
accompanied by a certificate of such accountants that in making the appropriate
audit and/or investigation in connection with such report and opinion, such
accountants did not become aware of any Default or Event of Default, or if in
the opinion of such accountant any such Default or Event of Default exists, a
description of the nature and status thereof.
Annual Consolidating Financial Statements shall mean the annual audited
consolidating financial statements of a Person, including all notes thereto,
which statements shall include a balance sheet as of the end of such fiscal year
and an income statement, a retained earnings statement and a statement of cash
flows for such fiscal year, all setting forth in comparative form the
corresponding figures from the previous fiscal year, all prepared in conformity
with GAAP by a "Big 6" accounting firm or other accounting firm of similar
national standing and reputation.
CREDIT AGREEMENT - Page 2
<PAGE> 11
Applicable Lending Office shall mean, the Domestic Lending Office in
the case of an Alternate Base Rate Borrowing and the LIBOR Lending Office in the
case of a LIBOR Borrowing.
Applicable Margin shall mean with respect to any LIBOR Borrowing, two
and one-half percent (2.50%), and with respect to any Alternate Base Rate
Borrowing, zero percent (0.00%); provided, however, when and if the daily
collection and application procedure for Receivables is implemented and is
continuing in accordance with the provisions of Section 7.15(b) hereof, each
applicable percentage above shall be increased by one quarter of one percent
(0.25%).
Applications shall mean all applications and agreements for Letters of
Credit, or similar instruments or agreements, in Proper Form, now or hereafter
executed by any Person in connection with any Letter of Credit now or hereafter
issued or to be issued under the terms hereof at the request of any Person.
Assessment Rate shall mean the annual assessment rate (net of refunds
and rounded upwards, if necessary, to the next 1/16 of 1%) estimated by the
Lender (in good faith, but in no event in excess of statutory or regulatory
maximums) to be payable by the Lender to the Federal Deposit Insurance
Corporation (or any successor) for insurance by such Corporation (or such
successor) of time deposits made in dollars at the Lender's domestic offices
during the current calendar year.
Availability shall mean at any time
(a) the lesser at such time of (i) the Revolving Commitment (as such
amount may be reduced in accordance with the provisions of this Agreement) and
(ii) the Borrowing Base, less
(b) the sum of (i) the aggregate amount of the Lender's Current Sum at
such time, (ii) the aggregate amount of accrued interest outstanding under the
Revolving Loans at such time and (iii) all other Obligations (other than the
Term Loan) outstanding hereunder or any other Loan Documents at such time.
Base CD Rate shall mean the sum of (a) the product of (i) the sum of
the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate.
Borrower shall have the meaning assigned to such term in the preamble
of this Agreement.
Borrowing Base shall mean, as of any date, the amount of the then most
recent computation of the Borrowing Base, determined by calculating the amount
equal to the sum of
(a) eighty percent (80%) of the Net Amount of Eligible Receivables at
such date, plus
(b) the lesser of (i) fifty percent (50%) of the Eligible Inventory,
and (ii) $2,500,000.
CREDIT AGREEMENT - Page 3
<PAGE> 12
For purposes of this definition, Eligible Receivables and Eligible Inventory, in
each case, and as of the date of any determination, shall be determined after
deduction of all Eligibility Reserves and Interest Reserves then effective with
respect to such items. The Borrowing Base will be computed initially hereunder
on a weekly basis (based on all information reasonably available to the Lender,
including without limitation, the periodic reports and listings delivered to the
Lender in accordance with Section 7.3(f) hereof); and a weekly Borrowing Base
Certificate from a Responsible Officer of the General Partner presenting the
Borrower's computation of the Borrowing Base will be periodically delivered to
the Lender in accordance with Section 7.3(g) hereof. When and if the daily
collection and application procedure for Receivables is implemented and is
continuing in accordance with the provisions of Section 7.15(b) hereof, the
Borrowing Base will be computed on a daily basis (based on all information
reasonably available to the Lender, including without limitation, the periodic
reports and listings delivered to the Lender in accordance with Sections 7.3(f)
and 7.15(d) hereof), and a weekly Borrowing Base Certificate from a Responsible
Officer of the General Partner shall continue to be periodically delivered to
the Lender in accordance with Section 7.3(g) hereof.
Borrowing Base Certificate shall mean a certificate substantially in
the form of Exhibit H attached hereto.
Business Day shall mean a day when the principal office in Dallas,
Texas of the Lender is open for business and banks in New York City are
generally open for business.
Business Entity shall mean corporations, partnerships, joint ventures,
joint stock associations, business trusts and other business entities.
Capital Expenditures shall mean, with respect to any Person for any
period, the capital expenditures of such person during such period determined in
accordance with GAAP, consistently applied, and shall in any event include,
without limitation, all expenditures made and liabilities incurred for the
acquisition of any fixed asset, or improvement, replacement, substitution or
addition thereto, which has a useful life of more than one year, and Capital
Lease Obligations.
Capital Lease Obligations shall mean the obligations of a Person to pay
rent or other amounts under a lease of (or other agreement conveying the right
to use) real and/or personal Property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP (including Statement of Financial Accounting Standards No. 13
of the Financial Accounting Standards Board, as amended) and, for purposes of
this Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP (including such Statement No. 13).
Closing Date shall mean April 1, 1999.
Code shall mean the Internal Revenue Code of 1986, as amended, as now
or hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder by the Internal Revenue Service.
CREDIT AGREEMENT - Page 4
<PAGE> 13
Collateral shall mean all collateral and security as described in the
Security Documents.
Commitments shall mean the Revolving Commitment and the Term Loan
Commitment, collectively.
Commitment Fee shall have the meaning assigned to it in Section 2.3(a).
Compliance Certificate shall mean a certificate substantially in the
form of Exhibit D attached hereto.
Consequential Loss shall mean, with respect to (a) the Borrower's
payment of principal of a LIBOR Borrowing on a day other than the last day of
the applicable Interest Period, (b) the Borrower's failure to borrow a LIBOR
Borrowing on the date specified by the Borrower for any reason, or (c) any
cessation of the Adjusted LIBOR Rate to apply to the Revolving Loans or any part
thereof pursuant to Section 2.9 hereof, in each case whether voluntary or
involuntary, any loss, expense, penalty, premium or liability incurred by the
Lender as a result thereof, including without limitation, any interest paid by
the Lender to lenders of funds borrowed by it to make or carry the Revolving
Loans and any other costs and expenses sustained or incurred in liquidating or
employing deposits from third parties acquired to effect or maintain the
Revolving Loans. "Consequential Loss" also shall mean, with respect to the
Borrower's payment of principal of the Term Loan on a day other than a Term Loan
Payment Date, whether voluntary or involuntary, any loss, expense, penalty,
premium or liability incurred by the Lender as a result thereof, including
without limitation, any interest paid by the Lender to lenders of funds borrowed
by it to make or carry the Term Loan and any other costs and expenses sustained
or incurred in liquidating or employing deposits from third parties acquired to
effect or maintain the Term Loan.
Consolidated shall mean, for any Person, as applied to any financial or
accounting term, such term determined on a consolidated basis in accordance with
GAAP (except as otherwise required herein) for such Person and all Subsidiaries
thereof.
Contingent Obligation shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee the payment or performance of
any Indebtedness, leases, dividends or other obligations (collectively "primary
obligations") of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, including without limitation, any obligation of the
Person for whom Contingent Obligations is being determined, whether or not
contingent, (a) to purchase any such primary obligation or other property
constituting direct or indirect security therefor, (b) assume or contingently
agree to become or be secondarily liable in respect of any such primary
obligation, (c) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital for the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (d) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation, or (e) otherwise to assure or hold harmless the owner of such
primary obligation against loss in respect thereof; provided, however, that the
term "Contingent
CREDIT AGREEMENT - Page 5
<PAGE> 14
Obligation" shall not include (x) endorsements of checks or other negotiable
instruments in the ordinary course of business or (y) issuance of indemnities in
the ordinary course of business.
Current Sum shall mean on any day the sum of (a) the outstanding
principal balance of the Lender's Revolving Note on such day plus (b) the Letter
of Credit Exposure Amount on such day.
Discontinued Operations shall mean, as of any day, operations of the
Borrower or any of its Subsidiaries which have been discontinued, and which, as
of such day, have been fully terminated, disposed of or liquidated.
Domestic Lending Office shall mean the office of the Lender specified
as its "Domestic Lending Office" opposite its name on the signature pages
hereof, or such other office of the Lender as the Lender may from time to time
specify to the Borrower.
EBITDA shall mean with respect to any Person for any period the sum of
(i) Net Income, (ii) Interest Expense, (iii) depreciation and amortization of
assets, and (iv) federal, state and local income taxes, in each case of such
Person for such period, computed and calculated in accordance with GAAP
consistently applied.
Eligibility Reserves shall mean such amounts as the Lender, in the
exercise of its sole discretion, may from time to time establish against the
gross amounts of Eligible Receivables or Eligible Inventory to reflect risk or
contingencies arising after the Closing Date which may affect such items.
Eligible Inventory means an amount equal to the lesser of (i) the
original cost to Borrower, or (ii) the fair market value, of all its domestic
raw materials and finished goods inventory owned by it at the time in question,
determined on a first-in first-out basis in accordance with GAAP, (provided
that, the cost or fair market value, as the case may be, of finished goods
inventory eligible for inclusion in the Borrowing Base shall not exceed
thirty-five percent (35.00%) of cost or fair market value, as the case may be,
of raw materials eligible for inclusion in the Borrowing Base) so long as such
inventory (a) is owned by Borrower free and clear of all Liens other than Liens
permitted under Section 8.2 and, if held or stored on leased premises, is
subject to the terms of a landlord's waiver and agreement executed by the
landlord of such premises in form and substance acceptable to the Lender, (b) is
fully and adequately insured with the Lender named as loss payee pursuant to
Section 7.7 and is located in the United States, (c) is not on lease or
consignment or furnished under any contract of service from or to any Person to
or from Borrower, (d) is subject to an enforceable and duly perfected first
priority security interest in favor of the Lender, (e) is not in transit, (f) is
in good and merchantable condition, meets all standards or regulations imposed
by any Governmental Authority, where or when applicable, having regulatory
authority over such goods, their use and/or sale and is either currently usable
or currently saleable in the normal course of Borrower's business and is not, in
the opinion of the Lender, work-in-process, unsaleable, damaged, slow moving,
discontinued or non-current production, obsolete or otherwise not readily
usable, and (g) is not a demonstration unit nor an AnyCard II.
CREDIT AGREEMENT - Page 6
<PAGE> 15
Eligible Receivables shall mean, as at any date of determination
thereof, Receivables created by the Borrower (but only to the extent that such
Receivables are Collateral hereunder and are subject to a first priority
perfected Lien in favor of the Lender) in the ordinary course of business
arising out of the sale of goods or rendering of services by the Borrower, which
do, and at all times shall continue to, satisfy the standards of eligibility
applicable thereto as established by the Lender in accordance with the terms
hereof. Standards of eligibility for Receivables may be fixed and revised from
time to time by the Lender in the Lender's reasonable, exclusive judgment;
provided, that the Lender shall give the Borrower notice within a reasonable
time after giving effect to any change in such standards of eligibility. In
general, without limiting the foregoing, an Eligible Receivable must comply with
all of the following requirements: (a) all payments due on the Receivable have
been billed and invoiced in a timely fashion and in the normal course of
business; (b) no payment is outstanding on the Receivable for more than 90 days
after the date of invoice; (c) the payments due on 50% or more of all
Receivables of the applicable account debtor are less than 90 days past the date
of invoice; (d) the total Receivables owing to the Borrower by the applicable
account debtor constitute 10% or less of the aggregate Receivables owing to the
Borrower by all account debtors, or if the total Receivables of the applicable
account debtor exceed 10% of the aggregate of all Receivables owing to the
Borrower and its Subsidiaries by all account debtors, the Receivables of the
applicable account debtor up to such respective percentage limit shall be deemed
to constitute Eligible Receivables (subject to compliance with all other
applicable standards of eligibility) and the Receivables of the applicable
account debtor exceeding such respective percentage limit shall be included
within Eligible Receivables (subject to compliance with all other applicable
standards of eligibility) only if the Receivables exceeding such respective
percentage limit are backed or secured by credit insurance reasonably
satisfactory to the Lender in all respects and such credit insurance has been
assigned to the Lender upon terms reasonably acceptable to the Lender in its
discretion; (e) the Receivable is free and clear of all security interests,
liens, charges and encumbrances of any nature whatsoever (except for the Lien in
favor of the Lender); (f) the Receivable arose from a completed, outright and
lawful sale of goods, to which title has passed to the applicable account debtor
on an absolute sales basis, or from the rendering of services by or on behalf of
the Borrower; (g) the Receivable constitutes an "account" within the meaning of
the Uniform Commercial Code of the state in which the Borrower's principal
offices are located; (h) the Borrower is not aware that the Receivable arises
out of a bill and hold (other than Receivables which have been specifically
identified to the Lender and for which, as a condition of eligibility,
appropriate documentation has been delivered to the Lender), consignment or
progress billing arrangement or is subject to any setoff, contra, offset,
deduction, dispute, charge-back, credit, counterclaim or other defense arising
out of the transactions represented by the Receivable or independently thereof
(such Receivable to be excluded only to the extent of such setoff, contra,
offset, etc., subject to compliance with all other standards of eligibility);
(i) the applicable account debtor has finally accepted the goods or services
from the sale out of which the Receivable arose and has not objected to such
account debtor's liability thereon or returned, rejected or repossessed any of
such goods, except for complaints made or goods returned in the ordinary course
of business for which, in the case of goods returned, goods of equal or greater
value have been shipped in return (such Receivable to be excluded to the extent
of such objection, return, rejection or repossession, subject to compliance with
all other standards of eligibility); (j) the applicable account debtor is not
any Governmental Authority, unless there has been in compliance reasonably
satisfactory to the Lender in all respects with the Assignment of
CREDIT AGREEMENT - Page 7
<PAGE> 16
Claims Act or similar state statutes; (k) the applicable account debtor is not
an Affiliate of the Borrower or any Subsidiary; (l) the account debtor must be
located in the United States, except for Receivables insured or backed by credit
insurance or a letter of credit in form and substance reasonably acceptable to
the Lender in all respects; (m) the Receivable complies with all material Legal
Requirements (including without limitation, all usury laws, fair credit
reporting and billing laws, fair debt collection practices and rules, and
regulations relating to truth in lending and other similar matters); (n) the
Receivable is in full force and effect and constitutes a legal, valid and
binding obligation of the applicable account debtor enforceable in accordance
with the terms thereof; (o) the Receivable is denominated in and provides for
payment by the applicable account debtor in U.S. dollars; (p) the Receivable has
not been and is not required to be charged or written off as uncollectible in
accordance with GAAP; (q) if the Receivable is owing by an account debtor for
which the Borrower must have filed a "Notice of Business Activities Report" or
similar report in a state or states where failure to comply with such filing of
notice precludes bringing suit against the applicable account debtor, the
Borrower must have filed such requisite activities report or other similar
report and otherwise be in compliance with such Legal Requirement to the extent
necessary to allow the Borrower to bring suit against the applicable account
debtor in the applicable state or states; and (r) the Lender is satisfied in its
reasonable discretion with the credit standing of the applicable account debtor
in relation to the amount of credit extended.
Environmental Claim shall mean any third party (including any
Governmental Authority) action, lawsuit, claim or proceeding (including claims
or proceedings at common law) which seeks to impose or alleges any liability for
(i) noise; (ii) preservation, protection, conservation, pollution, contamination
of, or releases or threatened releases of, Hazardous Substances into the air,
surface water, ground water or land or the clean-up, abatement, removal,
remediation or monitoring of such pollution, contamination or Hazardous
Substances; (iii) generation, recycling, reclamation, handling, treatment,
storage, disposal or transportation of Hazardous Substances (as defined under
the Resource Conservation and Recovery Act and its regulations, as amended from
time to time); (iv) exposure to Hazardous Substances; (v) the safety or health
of employees or other Persons in connection with any of the activities specified
in any other subclause of this definition; or (vi) the manufacture, processing,
distribution in commerce, presence or use of Hazardous Substances. An
"Environmental Claim" includes a common law action, as well as a proceeding to
issue, modify or terminate an Environmental Permit, or to adopt or amend a
regulation, to the extent that such a proceeding attempts to redress violations
of the applicable permit, license, or regulation as alleged by any Governmental
Authority.
Environmental Liabilities shall mean all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including: remedial, removal,
response, abatement, restoration (including natural resources), investigative,
or monitoring liabilities, personal injury and damage to property, natural
resources or injuries to persons, and any other related costs, expenses, losses,
damages, penalties, fines, liabilities and obligations, and all costs and
expenses necessary to cause the issuance, reissuance or renewal of any
Environmental Permit including attorney's fees and court costs. Environmental
Liability shall mean any one of them.
CREDIT AGREEMENT - Page 8
<PAGE> 17
Environmental Permit shall mean any permit, license, approval or other
authorization under any applicable law, regulation and other requirement of the
United States or of any state, municipality or other subdivision thereof
relating to pollution or protection of health or the environment, including
laws, regulations or other requirements relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, Hazardous
Substances or toxic materials or wastes into ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, recycling, presence, use, treatment, storage, disposal, transport,
or handling of wastes, pollutants, contaminants or Hazardous Substances.
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules, regulations, rulings and
interpretations adopted by the Internal Revenue Service or the Department of
Labor thereunder.
ERISA Affiliate shall mean any trade or business (whether or not
incorporated) which together with the Borrower or any Subsidiary of the Borrower
would be treated as a single employer under the provisions of Title I or Title
IV of ERISA.
Event of Default shall mean any of the events specified in Section 9.1
hereof or otherwise specified as a Default in any other Loan Document, provided
there has been satisfied any requirement in connection with any such event for
the giving of notice or the lapse of time, or both, and Default shall mean any
of such events, whether or not any such requirement for the giving of notice, or
the lapse of time, or both, has been satisfied.
Excess Interest Amount shall have the meaning attributed to such term
in Section 2.11 hereof.
Federal Funds Effective Rate shall mean, for any day, a rate per annum
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the day of such
transactions received by the Lender from three Federal funds brokers of
recognized standing selected by it.
Financial Officer shall mean, with respect to any Person, the Financial
Officer of such Person.
Fixed Rate means eight and four-tenths percent (8.4%) per annum.
GAAP shall mean, as to a particular Person, those principles and
practices (a) which are recognized as generally accepted accounting principles
by the Financial Accounting Standards Board or any successor organization, (b)
which are applied for all periods after the date hereof in a manner consistent
with the manner in which such principles and practices were applied to the most
recent audited financial statements of the relevant Person furnished to the
Lender, and (c) which are consistently applied for all periods after the date
hereof so as to reflect properly the financial condition, and results of
operations and changes in financial position, of such Person. If any changes in
accounting principles from those used in preparation of the financial statements
CREDIT AGREEMENT - Page 9
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periodically required to be delivered to the Lender by the terms of this
Agreement are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions by or other required by the Financial Accounting
Standards Board or any successor or organization, and any of such changes
results in a change of the method of calculation of, or affect the results of
such calculation of, any financial covenant or financial standard or term found
herein, then the parties hereto agree to continue to calculate financial
covenants, standards and terms hereunder in accordance with GAAP as in existence
on the Closing Date.
General Partner means Tidel Cash Systems, Inc., a Delaware corporation,
and sole general partner of Borrower.
Governmental Authority shall mean any foreign governmental authority,
the United States of America, any state of the United States and any political
subdivision of any of the foregoing, and any agency, instrumentality,
department, commission, board, bureau, central bank, authority, court or other
tribunal, in each case whether executive, legislative, judicial, regulatory or
administrative, having jurisdiction over the Lender, the Borrower, any
Subsidiary of the Borrower, or their respective Property.
Guarantors shall mean each and every Person executing a Guaranty from
time to time.
Guaranty shall mean each and every guaranty of the Obligations from
time to time executed and delivered to the Lender by any Guarantor, as amended,
supplemented, modified, joined in pursuant to a Joinder Agreement and restated
from time to time.
Hazardous Substance shall mean any hazardous or toxic waste, substance
or product or material defined or regulated from time to time by any applicable
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law," including solid waste (as defined under RCRA or its
regulations, as amended from time to time), petroleum and any fraction thereof,
any radioactive materials and waste.
Highest Lawful Rate shall mean the maximum non-usurious rate of
interest permitted to be charged by the Lender under applicable laws (if any) of
the United States or any state from time to time in effect.
Indebtedness shall mean, as to any Person, without duplication: (a) all
indebtedness (including principal, interest, fees and charges) of such Person
for borrowed money; (b) any other indebtedness which is evidenced by a bond,
debenture or similar instrument; (c) all Capital Lease Obligations of such
Person; (d) all obligations of such Person for the deferred purchase price of
Property or services (except current trade accounts payable arising in the
ordinary course of business); (e) all obligations of such Person in respect of
outstanding letters of credit, acceptances and similar obligations created for
the account of such Person; (f) all indebtedness, liabilities, and obligations
secured by any Lien on any Property owned by such Person even though such Person
has not assumed or has not otherwise become liable for the payment of any such
indebtedness, liabilities or obligations secured by such Lien; (g) net
liabilities of such Person under interest rate cap agreements, interest rate
swap agreements, foreign currency exchange agreements and other hedging
agreements or arrangements (calculated on a basis
CREDIT AGREEMENT - Page 10
<PAGE> 19
satisfactory to the Lender and in accordance with accepted practice); and (h)
all other indebtedness, liabilities and obligations of such Person which are
required to be included or listed in the liabilities section of such Person's
balance sheet according to GAAP; provided, that such term shall not mean or
include any Indebtedness in respect of which monies sufficient to pay and
discharge the same in full (either on the expressed date of maturity thereof or
on such earlier date as such Indebtedness may be duly called for redemption and
payment) shall be deposited with a depository, agency or trustee acceptable to
the Lender in trust for the payment thereof.
Initial Public Offering shall mean the first firm commitment
underwritten public offering of common stock to the general public under the
Securities Act of 1933 which results in the common stock of Borrower being
listed and publicly traded in the NASDAQ national market, American Stock
Exchange or New York Stock Exchange.
Interest Coverage Ratio shall mean, as of any date that the Interest
Coverage Ratio is calculated, the ratio of (a) the remainder of (i) EBITDA of
the Borrower, minus (ii) Capital Expenditures of the Borrower, to (b) cash
Interest Expense, for the four (4) most recent consecutive fiscal quarters of
the Borrower ending on or immediately prior to the date of determination of the
Interest Coverage Ratio.
Interest Expense shall mean, with respect to any Person for any period,
the interest expense of such Person during such period determined in accordance
with GAAP, consistently applied, and shall in any event include, without
limitation, (a) the amortization of debt discounts, (b) the amortization of all
fees payable in connection with the incurrence of Indebtedness to the extent
included in interest expense, (c) the portion of any Capital Lease Obligation
allocable to interest expense, (d) all fixed and calculable dividend payments on
preferred stock, and (e) payments of interest expense in kind.
Interest Option shall have the meaning given to such term in Section
2.8(a) hereof.
Interest Payment Dates shall mean (a) the first Business Day of each
calendar month prior to the Revolving Loan Maturity Date, commencing on [May] 1,
1999, and (b) the Revolving Loan Maturity Date. In addition to the Interest
Payment Dates described in the preceding sentence, an Interest Payment Date for
all LIBOR Borrowings shall be the last day of the Interest Period applicable
thereto.
Interest Period shall mean, as to any LIBOR Borrowing, the period
commencing on the date of such LIBOR Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is one (1), two (2), three (3) or six (6) months
thereafter, as the Borrower may elect in accordance herewith; provided, however,
that (a) if an Interest Period would end on a day that is not a Business Day,
such Interest Period shall be extended to the next succeeding Business Day
unless, with respect to LIBOR Borrowings, such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day, (b) no Interest Period shall end later
than the Revolving Loan Maturity Date, and (c) interest shall
CREDIT AGREEMENT - Page 11
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accrue from and including the first day of an Interest Period to, but excluding,
the last day of such Interest Period.
Interest Reserves shall mean an amount equal to all accrued and unpaid
interest on the Loans and other Obligations.
Investment shall mean the purchase or other acquisition of any
securities or Indebtedness of, or the making of any loan, advance, transfer of
Property or capital contribution to, any Person.
Joinder Agreement shall mean any agreement, in Proper Form, executed by
a Subsidiary of the Borrower from time to time in accordance with Section 7.10
hereof, pursuant to which such Subsidiary joins in the execution and delivery of
a Guaranty.
Legal Requirement shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
Lender shall have the meaning assigned to such terms in the preamble of
this Agreement.
Letters of Credit shall mean all standby letters of credit and
documentary sight letters of credit issued by the Lender for the account of the
Borrower pursuant to the terms set forth in this Agreement.
Letter of Credit Advances shall mean all sums which may from time to
time be paid by the Lender pursuant to any and all of the Letters of Credit,
together with all other sums, fees, reimbursements or other obligations which
may be due to the Lender pursuant to any of the Letters of Credit.
Letter of Credit Exposure Amount shall mean at any time the sum of (i)
the aggregate undrawn amount of all Letters of Credit outstanding at such time
plus (ii) the aggregate amount of all Letter of Credit Advances for which the
Lender has not been reimbursed and which remain unpaid at such time.
LIBOR Borrowing shall mean, as of any date, that portion of the
principal balance of the Revolving Loans bearing interest at the Adjusted LIBOR
Rate as of such date.
LIBOR Lending Office shall mean the office of the Lender specified as
its "LIBOR Lending Office" opposite or below its name on the signature pages
hereof, or (if no such office is specified, its Domestic Lending Office), or
such other office of the Lender as the Lender may from time to time specify in
writing to the Borrower.
LIBOR Rate shall mean, with respect to any LIBOR Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the rate at which dollar deposits approximately
equal in principal amount to the Lender's portion of such LIBOR Borrowing and
for a maturity equal to the applicable Interest Period are offered in
CREDIT AGREEMENT - Page 12
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immediately available funds to the London branch of the Lender by leading
lenders in the London interbank market for Eurodollars at approximately 11:00
a.m., London time, two (2) Business Days prior to the first day of such Interest
Period.
Lien shall mean, with respect to any asset of any Person, (a) any
mortgage, pledge, charge, encumbrance, security interest, collateral assignment
or other lien or restriction of any kind on such asset, whether based on common
law, constitutional provision, statute or contract, (b) the interest of any
vendor or a lessor under any conditional sale agreement, title retention
agreement or capital lease relating to such asset, (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities, or (d) any other right of or arrangement with any
creditor to have such creditor's claim satisfied out of such assets, or the
proceeds therefrom, prior to the general creditors of such Person owning such
assets.
Limited Partner means Tidel Services, Inc., a Delaware corporation, and
sole limited partner of Borrower.
Loan Documents shall mean this Agreement, the Notes, the Applications,
the Security Documents, the Guaranties, the Joinder Agreements, the Letters of
Credit, all instruments, certificates and agreements now or hereafter executed
or delivered to the Lender pursuant to any of the foregoing, and all amendments,
modifications, renewals, extensions, increases and rearrangements of, and
substitutions for, any of the foregoing.
Loans shall mean the Revolving Loans made pursuant to Section 2.1
hereof and the Term Loan made pursuant to Section 3.1 hereof. Loan shall mean
any one of the Loans.
Lockbox Agreement shall collectively mean one or more lockbox
agreements, in Proper Form, to be executed and delivered to the by the Borrower
and each of its Subsidiaries required by the Lender, together with all
modifications and/or replacements thereof which are approved in writing by the
Lender. As of the Closing Date, the Borrower has previously executed and
delivered to the Lender a Lockbox Agreement in substantially the form attached
hereto as Exhibit C.
Material Adverse Effect shall mean a material adverse effect on (a) the
business, assets, operations, financial or other condition of the Borrower and
its Subsidiaries, taken as a whole, (b) the ability of the Borrower and the
Guarantors, taken as a whole, or the Borrower individually, to perform or pay
the Obligations in accordance with the terms hereof or of any other Loan
Document, or (c) the Lender's Lien on any material portion of the Collateral or
the priority of such Lien.
Monthly Unaudited Financial Statements shall mean the unaudited
Consolidated and consolidating financial statements of a Person, which
Statements shall include (a) a balance sheet as of the end of the respective
fiscal month, (b) an income statement for such respective fiscal month, and for
the fiscal year to date, subject to normal year-end adjustments, all setting
forth in comparative form the corresponding figures for the corresponding period
of the preceding fiscal year, and (c) a statement of cash flows for the fiscal
year to date, subject to normal year-end adjustments, setting forth in
comparative form the corresponding figures for the corresponding
CREDIT AGREEMENT - Page 13
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period of the preceding fiscal year, all prepared in accordance with GAAP and
certified as true and correct by a Responsible Officer of such Person. The
Monthly Unaudited Financial Statements for the Borrower and its Subsidiaries
shall be prepared on a Consolidated and consolidating basis in accordance with
GAAP.
Net Amount of Eligible Receivables shall mean and include at any time,
without duplication, the gross amount of Eligible Receivables at such time less
(a) unpaid sales, excise, or similar taxes owed by the Borrower or any of its
subsidiaries, and (b) returns, discounts, claims, credits and allowance of any
nature at any time issued, owing, granted, outstanding, available or claimed.
Net Income shall mean gross revenues and other proper income credits
for such Person, less all proper expenses and other income charges for such
Person, including taxes on income, all determined in accordance with GAAP;
provided, that there shall not be included in such revenues any extraordinary or
nonrecurring items, as determined in accordance with GAAP.
Notes shall mean, individually and collectively, the Revolving Note and
the Term Note.
Obligations shall mean, without duplication, all obligations,
liabilities and Indebtedness of the Borrower and the Guarantors with respect to
the Security Documents and other Loan Documents, including without limitation,
(a) the principal of and interest on the Loans and (b) the payment or
performance of all other obligations, liabilities and Indebtedness of the
Borrower or the Guarantors to the Lender hereunder, under the Notes, under the
Letters of Credit, under the Applications or under any one or more of the other
Loan Documents, including all fees, costs, expenses and indemnity obligations
hereunder and thereunder.
Organizational Documents shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement and the
certificate of limited partnership establishing such partnership; with respect
to a joint venture, the joint venture agreement establishing such joint venture,
and with respect to a trust, the instrument establishing such trust; in each
case including any and all modifications thereof as of the date of the Loan
Document referring to such Organizational Document and any and all future
modifications thereof which are consented to by the Lender.
Parties shall mean all Persons other than the Lender executing any Loan
Document.
Past Due Rate shall mean, on any day, the lesser of (a) the sum of (i)
the Alternate Base Rate, plus (ii) one percent (1%) or (b) the Highest Lawful
Rate, if any, applicable to the Lender on such day.
PBGC shall mean the Pension Benefit Guaranty Corporation.
Permitted Affiliate Transactions shall mean
CREDIT AGREEMENT - Page 14
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(a) full-time employment agreements and incentive compensation programs
with employees on commercially reasonable terms;
(b) officer, director or employee loans for work related expenditures;
(c) advances to directors, officers or employees of the General
Partner, the Borrower and/or its Subsidiaries to provide for the payment of
reasonable expenses incurred by such Persons in the performance of such Persons'
responsibilities to the Borrower; and
(d) indemnities provided on behalf of officers, directors or employees
of the General Partner, the Borrower and/or in its Subsidiaries as determined in
good faith by the Borrower's Board of Directors or senior management.
Permitted Dispositions shall mean the following dispositions of assets:
(a) sales of inventory and other assets in the ordinary course of
business and for fair and adequate consideration;
(b) dispositions of damaged, worn-out or obsolete Property, or Property
which is no longer necessary for the proper conduct of any Person's business;
(c) the abandonment of any assets or Properties which are no longer
useful for the proper conduct of business and cannot (after good faith efforts
to sell the same) be sold;
(d) the liquidation of Permitted Investment Securities;
(e) transfers of Property from the Borrower to its domestic
Subsidiaries (whether presently existing or hereafter created in accordance with
the other provisions of this Agreement) or from one Subsidiary of the Borrower
to another domestic Subsidiary of the Borrower, provided, that if the entity to
whom such transfer or disposition is made is not the Borrower or is not yet a
Guarantor, simultaneously with such transfer, such entity executes and delivers
to the Lender a Joinder Agreement, together with all of the requested Security
Documents, as required at such time by the Lender, appropriately completed;
(f) sale/leaseback transactions permitted pursuant to Section 8.15
hereof; and
(g) leases to any Person of real Property of the Borrower, provided
that the terms (including lease term and rent) of such leases are commercially
reasonable.
Permitted Investments shall mean
(a) the endorsement of negotiable instruments for deposit or collection
in the ordinary course of business;
(b) Investments in Permitted Investments Securities;
CREDIT AGREEMENT - Page 15
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(c) Investments representing Stock or obligations issued to the
Borrower or its Subsidiaries in settlement of claims against any other Person by
reason of a composition or readjustment of debt or a reorganization of any
debtor of the Borrower and/or its Subsidiaries;
(d) Investments made as a result of the receipt of non-cash
consideration from a Permitted Disposition;
(e) to the extent that any manufacturing and licensing agreements
constitute Investments, any such arrangements entered into in the ordinary
course of business; and
(f) any Stock owned and held by the Borrower or any of its Subsidiaries
in (1) any wholly-owned, domestic Subsidiary of the Borrower created by the
Borrower for purposes of receiving one or more transfers of Property from the
Borrower or any of its other Subsidiaries pursuant to the terms of clause (e) of
the "Permitted Dispositions" definition set forth above or (2) any other
wholly-owned Subsidiary of the Borrower created or acquired with the prior
written consent of the Lender after the Closing Date; and
Permitted Investment Securities shall mean: (1) readily marketable,
direct obligations of the United States of America or any agency or wholly owned
corporation thereof which are backed by the full faith and credit of the United
States, (2) certificates of deposit or other short-term direct obligations of
(i) the Lender, or (ii) any other financial institutions having capital and
surplus in excess of $5,000,000,000, and (3) other Investments mutually agreed
to in writing by the Borrower and the Lender; provided, that in each case
described in clauses (1) and (2), such obligation shall mature not more than one
(1) year from the acquisition thereof.
Person shall mean any individual, corporation, business trust,
unincorporated organization or association, partnership, joint venture,
Governmental Authority or any other form of entity.
Plan shall mean any plan subject to Title IV of ERISA and maintained
for employees of the Borrower or of any member of a "controlled group of
corporations," as such term is defined in the Code, of which the Borrower, any
of its Subsidiaries or any ERISA Affiliate it may acquire from time to time is a
part, or any such plan to which the Borrower, any of its Subsidiaries or any
ERISA Affiliate is required to contribute on behalf of its employees.
Prime Rate shall mean the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank, or its successor financial
institution, at its principal office in New York City as its prime rate in
effect at such time. Without notice to the Borrower or any other Person, the
Prime Rate shall change automatically from time to time as and in the amount by
which said prime rate shall fluctuate, with each such change to be effective as
of the date of each change in such prime rate. THE PRIME RATE IS A REFERENCE
RATE AND DOES NOT NECESSARILY REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED
BY THE CHASE MANHATTAN BANK OR SUCH SUCCESSOR FINANCIAL INSTITUTION TO ANY OF
ITS CUSTOMERS. THE CHASE MANHATTAN BANK OR SUCH SUCCESSOR FINANCIAL INSTITUTION
MAY MAKE COMMERCIAL LOANS OR OTHER LOANS AT RATES OF INTEREST AT, ABOVE AND
BELOW THE PRIME RATE.
CREDIT AGREEMENT - Page 16
<PAGE> 25
Principal Office shall mean the principal office in Dallas, Texas of
the Lender, or at such other place as the Lender may from time to time by notice
to the Borrower designate.
Prior Term Loan means the term loan in the original principal sum of
$640,000.00, evidenced by the Prior Term Note.
Prior Term Note means the promissory note in the original principal sum
of $640,000.00, dated May 29, 1998, executed by Tidel Engineering, Inc, a
Delaware corporation, and the Ultimate Parent, as co-makers.
Proper Form shall mean in form and substance reasonably satisfactory to
the Lender.
Property shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
Quarterly Unaudited Financial Statements shall mean the unaudited
Consolidated financial statements of a Person, which Statements shall include
(a) a balance sheet as of the end of the respective fiscal quarter, (b) an
income statement for such respective fiscal quarter, and for the fiscal year to
date, subject to normal year-end adjustments, all setting forth in comparative
form the corresponding figures for the corresponding period of the preceding
fiscal year, and (c) a statement of cash flows for the fiscal year to date,
subject to normal year-end adjustments, setting forth in comparative form the
corresponding figures for the corresponding period of the preceding fiscal year,
all prepared in accordance with GAAP and certified as true and correct by a
Responsible Officer of such Person. The Quarterly Unaudited Financial Statements
for the Ultimate Parent and for the Borrower shall be prepared on a Consolidated
basis in accordance with GAAP.
Rate Selection Date shall mean that Business Day which is (a) in the
case of the Alternate Base Rate Borrowings, the date of such borrowing, or (b)
in the case of LIBOR Borrowings, the date two (2) Business Days preceding the
first day of any proposed Interest Period.
Rate Selection Notice shall have the meaning ascribed to such term in
Section 2.8(b)(1) hereof.
Receivables shall mean and include all of the accounts, instruments,
documents, chattel paper and general intangibles of the Borrower or any of its
Subsidiaries, whether secured or unsecured, whether now existing or hereafter
created or arising, and whether or not specifically assigned to the Lender.
Refinancing Indebtedness shall mean any Indebtedness of the Borrower or
its Subsidiaries issued in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund other Indebtedness of
such Person, provided, that (a) the principal amount of such Refinancing
Indebtedness does not exceed the then outstanding principal amount of the
Indebtedness so extended, refinanced, renewed, replace, defeased or refunded
(plus the amount of reasonable expenses and any premium or penalty paid in
CREDIT AGREEMENT - Page 17
<PAGE> 26
connection with such extension, refinancing, renewal, replacement, defeasance or
refund in accordance with the terms of the documents governing the original
issuance of such Indebtedness); (b) the interest rates, maturities, amortization
schedules, covenants, defaults, remedies, subordination provisions (with respect
to any Subordinated Indebtedness), collateral security provisions (or absence
thereof) and other terms of such Refinancing Indebtedness are in each case the
same or more favorable to the Borrower and/or its Subsidiaries as those in the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded;
and (c) no Default or Event of Default has occurred and is continuing or would
result from the issuance or origination of such Refinancing Indebtedness.
Regulation D shall mean Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member lenders of the Federal Reserve System.
Regulatory Change shall mean any change on or after the date of this
Agreement in any Legal Requirement (including Regulation D) or the adoption or
making on or after such date of any interpretation, directive or request
applying to a class of lenders including the Lender under any Legal Requirement
(whether or not having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
Reportable Event shall mean a Reportable Event as defined in Section
4043(b) of ERISA.
Request for Extension of Credit shall mean a written request for
extension of credit substantially in the form of Exhibit E attached hereto.
Requirements of Environmental Law shall mean all requirements imposed
by any law (including The Resource Conservation and Recovery Act, The
Comprehensive Environmental Response, Compensation, and Liability Act, the Clean
Water Act, the Clean Air Act, and any state analogues of any of the foregoing),
rule, regulation, or order of any Governmental Authority now or hereafter in
effect which relate to (i) noise; (ii) pollution, protection or cleanup of the
air, surface water, ground water or land; (iii) solid, liquid or gaseous waste
or Hazard Substance generation, recycling, reclamation, release, threatened
release, treatment, storage, disposal or transportation; (iv) exposure of
Persons or property to Hazardous Substances; (v) the safety or health of
employees or other Persons; or (vi) the manufacture, presence, processing,
distribution in commerce, use, discharge, releases, threatened releases,
emissions or storage of Hazardous Substances into the environment. Requirement
of Environmental Law shall mean any one of them.
Responsible Officer shall mean, with respect to any Person, any
president or vice president, or the Financial Officer or controller of such
Person.
Revolving Commitment shall mean the obligation of the Lender to make
Revolving Loans and incur liability for the Letter of Credit Exposure Amount in
an aggregate principal amount at any one time outstanding up to, but not
exceeding, $7,000,000 (as the same may be reduced from time to time pursuant to
Section 2.4 hereof).
CREDIT AGREEMENT - Page 18
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Revolving Loan Maturity Date shall mean the earlier of (a) May 31,
2000, (b) any date that the Revolving Commitment is terminated in full by the
Borrower pursuant to Section 2.4 hereof, and (c) any date the Revolving Loan
Maturity Date is accelerated by the Lender pursuant to Section 9.1 hereof.
Revolving Loans shall mean the Revolving Loans made pursuant to Section
2.1 hereof. Revolving Loan shall mean any one of the Revolving Loans.
Revolving Note shall mean the promissory note, substantially in the
form of Exhibit A attached hereto, of the Borrower evidencing the Revolving
Loans, payable to the order of the Lender in the amount of the Lender's
Revolving Commitment, and all renewals, extensions, modifications,
rearrangements and replacements thereof and substitutions therefor.
Security Agreements shall mean (a) the Security Agreement (Personal
Property) of even effective date herewith, between the Borrower and the Lender,
covering all Receivables, inventory and all other related tangible and
intangible personal Property of the Borrower more particularly described
therein, (b) any and all other security agreements, pledge agreements,
collateral assignments or other similar documents now or hereafter executed in
favor of the Lender as security for the payment or performance of any and or all
of the Obligations, and (c) any amendment, modification, restatement or
supplement of all or any of the above-described agreements and assignments.
Security Documents shall mean the Security Agreements, the Guaranties,
all related financing statements and any and all other agreements, mortgages,
deeds of trust, chattel mortgages, security agreements, pledges, guaranties,
assignments of income, assignments of contract rights, assignments or pledges of
stock or partnership interests, standby agreements, subordination agreements,
undertakings and other instruments and financing statements now or hereafter
executed and delivered in connection with, or as security for, the payment and
performance of the Obligations, as any of them may from time to time be amended,
modified, restated or supplemented.
Statutory Reserves shall mean (a) with respect to the Adjusted LIBOR
Rate, a fraction (expressed as a decimal), the numerator of which is the number
one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentage (including without limitation, any marginal, special,
emergency or supplemental reserves) expressed as a decimal, established by the
Board of Governors of the Federal Reserve System of the United States and any
other banking authority to which the Lender is subject with respect to the
Adjusted LIBOR Rate for Eurocurrency Liabilities (as defined in Regulation D),
including without limitation, those reserve percentages imposed under Regulation
D, and (b) with respect to the Base CD Rate, a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentage
(including, without limitation, any marginal, special, emergency or supplemental
reserves) expressed as a decimal, established by the Board of Governors of the
Federal Reserve System of the United States or any banking authority to which
the Lender is subject with respect to the Base CD Rate for new negotiable
non-personal time deposits in U.S. dollars of over $100,000 with maturities
approximately equal to three months. Statutory
CREDIT AGREEMENT - Page 19
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Reserves shall be adjusted automatically on and as of the effective date of any
change in any applicable reserve percentage. For purposes hereof, LIBOR
Borrowings shall be deemed to constitute Eurocurrency Liabilities (as defined in
Regulation D) and as such, shall be deemed to be subject to such reserve
requirements of Regulation D without benefit of or credit for proration,
exceptions or offsets which may be available from time to time to the Lender
under Regulation D.
Stock shall mean as to a Business Entity, all capital stock or other
indicia of equity rights issued by such Business Entity from time to time.
Subordinated Indebtedness shall mean, with respect to the Borrower or
any Guarantor, Indebtedness subordinated in right of payment to the Borrower's
or such Guarantor's monetary Obligations on terms satisfactory to and approved
in writing by the Lender.
Subsidiary shall mean, as to a particular parent Business Entity, any
Business Entity of which more than fifty percent (50%) of the Stock issued by
such Business Entity is at the time directly or indirectly owned by such parent
Business Entity or by one or more of its Affiliates.
Tangible Net Worth shall mean, as to any Person at any time, (a) the
sum of all such Person's assets, determined in accordance with GAAP less (b) the
sum of all such Person's liabilities, determined in accordance with GAAP, less
(c) the amount of any write-up subsequent to the effective date of this
Agreement in the value of any asset above the cost or depreciated costs thereof
to such Person, less (d) the book value of all assets which would be treated as
intangibles under GAAP, including without limitation, good will, trademarks,
trade names, patents, copyrights and licenses.
Term Loan shall mean the Term Loan made pursuant to Section 3.1 hereof.
Term Loan Commitment shall mean the obligation of the Lender to make
the Term Loan in an aggregate principal amount of Five Hundred Forty-Four
Thousand and No/100 Dollars ($544,000.00).
Term Loan Maturity Date shall mean the earlier of (a) May 31, 2003, and
(b) any date the Term Loan Maturity Date is accelerated by the Lender pursuant
to Section 9.1 hereof.
Term Loan Payment Date means each May 31, August 31, November 30 and
February 28 during the term of the Term Loan, beginning May 31, 1999.
Term Note shall mean the promissory note, substantially in the form of
Exhibit B attached hereto, of the Borrower and Ultimate Parent evidencing the
Term Loan, payable to the order of the Lender in the amount of the Lender's Term
Loan Commitment, and all renewals, extensions, modifications, rearrangements and
replacements thereof and substitutions therefor.
Three-Month Secondary CD Rate shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board of Governors of the
CREDIT AGREEMENT - Page 20
<PAGE> 29
Federal Reserve System of the United States through the public information
telephone line of the Federal Reserve Bank of New York (which rate will, under
the current practices of such Board of Governors, be published in Federal
Reserve Statistical Release H.15(519) during the week following such day), or,
if such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York City received at
approximately 10:00 a.m. on such day (or, if such day shall not be a Business
Day, on the next preceding Business Day) by the Lender from three New York City
negotiable certificate of deposit dealers of recognized standing selected by the
Lender.
Ultimate Parent shall have the meaning assigned to such term in the
preamble of this Agreement.
Unused Revolving Commitment shall mean the daily difference of the
Lender's Revolving Commitment on such day less the Current Sum applicable to the
Lender on such day.
1.2 Accounting Terms and Determinations. Except where specifically
otherwise provided:
(a) the symbol "$" and the word "dollars" shall mean lawful money of
the United States of America;
(b) any accounting term not otherwise defined shall have the meaning
ascribed to it under GAAP;
(c) unless otherwise expressly provided, any accounting concept and all
financial covenants shall be determined on a Consolidated basis, and financial
measurements shall be computed without duplication;
(d) wherever the term "including" or any of its correlatives appears in
the Loan Documents, it shall be read as if it were written "including (by way of
example and without limiting the generality of the subject or concept referred
to);"
(e) wherever the word "herein" or "hereof" is used in any Loan
Document, it is a reference to that entire Loan Document and not just to the
subdivision of it in which the word is used;
(f) references in any Loan Document to Section numbers are references
to the Sections of such Loan Document;
(g) references in any Loan Document to Exhibits, Schedules, Annexes and
Appendices are to the Exhibits, Schedules, Annexes and Appendices to such Loan
Document, they shall be deemed incorporated into such Loan Document by
reference;
(h) any term defined in the Loan Documents which refers to a particular
agreement, instrument or document shall also mean, refer to and include all
modifications, amendments,
CREDIT AGREEMENT - Page 21
<PAGE> 30
supplements, restatements, renewals, extensions and substitutions of the same;
provided that nothing in this subsection shall be construed to authorize any
such modification, amendment, supplement, restatement, renewal, extension or
substitution except as may be permitted by other provisions of the Loan
Documents;
(i) all times of day used in the Loan Documents mean local time in
Dallas, Texas; and
(j) defined terms may be used in the singular or plural, as the context
requires.
2. Revolving Loans; Letters of Credit; Revolving Note; Payments; Prepayments;
Interest Rates.
2.1 Revolving Commitment. Subject to the terms and conditions hereof,
the Lender agrees to make Revolving Loans to the Borrower from time to time on
and after the Closing Date until, but not including, the Revolving Loan Maturity
Date, in an aggregate principal amount at any one time outstanding (including
the Lender's Letter of Credit Exposure Amount at such time) up to, but not
exceeding the Lender's Revolving Commitment. Notwithstanding the foregoing, the
aggregate principal amount of the Revolving Loans outstanding at any time shall
not exceed (a) the lesser of (i) the Revolving Commitment and (ii) the
applicable Borrowing Base at such time less (b) the Letter of Credit Exposure
Amount at such time. Subject to the conditions herein, any such Revolving Loan
repaid prior to the Revolving Loan Maturity Date may be re-borrowed as an
additional Revolving Loan by the Borrower pursuant to the terms of this
Agreement.
2.2 Revolving Loans.
(a) Subject to Sections 5.1 and 5.2 hereof, (i) all Revolving
Loans shall be advanced in accordance with the Lender's Revolving Commitment;
and (ii) the initial Revolving Loans shall be made on the Closing Date by the
Lender against delivery of the Revolving Note.
(b) When requesting a Revolving Loan hereunder, the Borrower
shall give the Lender notice of a request for a Revolving Loan in accordance
with Section 5.1(a) hereof.
(c) Except as otherwise provided or specified in Section
2.2(f) below, the Lender shall make its Revolving Loans available on the
proposed dates thereof by, as soon as practicable, but in no event later than
5:00 p.m. on such date, crediting the amount to a general deposit account
designated and maintained by the Borrower with the Lender at the Principal
Office.
(d) Each Revolving Loan made by the Lender on any date shall
be in an amount greater than $10,000; provided, however, that the LIBOR
Borrowings made on any date shall be in a minimum aggregate principal amount of
$500,000, with any increases over such minimal amount being in integral
aggregate multiples of $100,000.
CREDIT AGREEMENT - Page 22
<PAGE> 31
(e) When and if the daily collection and application
procedures for Receivables are implemented and are continuing in accordance with
the provisions of Section 7.15(b) hereof, the Lender shall render to the
Borrower each month a statement of the Borrower's account of all transactions
which shall be deemed to be correct and accepted by and be binding upon the
Borrower unless the Lender receives a written statement of the Borrower's
exceptions to such account statement within thirty (30) days after such
statement was rendered to the Borrower.
2.3 Commitment and Other Fees.
(a) In consideration of the Lender's Revolving Commitment, the
Borrower agrees to pay to the Lender a commitment fee ("Commitment Fee")
(computed on the basis of the actual number of days elapsed in a year composed
of 360 days, subject to the terms of Section 10.6 hereof) in an amount equal to
the product of (A) one quarter of one percent (0.25%) times (B) the Lender's
Unused Revolving Commitment. The Commitment Fee shall be due and payable in
arrears (i) on the first Business Day of each December, March, June and
September prior to the Revolving Loan Maturity Date, commencing June 1, 1999,
and (ii) on the Revolving Loan Maturity Date, with each Commitment Fee to
commence to accrue as of the date hereof and to be effective as to any reduction
in the Revolving Commitment as of the date of any such decrease, and each
Commitment Fee shall cease to accrue (except with respect to interest at the
Past Due Rate on any unpaid portion thereof) on the Revolving Loan Maturity
Date. All past due Commitment Fees shall bear interest at the Past Due Rate and
shall be payable upon demand by the Lender.
(b) When and if the daily collection and application
procedures for Receivables are implemented and are continuing in accordance with
the provisions of Section 7.15(b) hereof, the Borrower hereby agrees to pay to
the Lender an administration fee in the amount of $10,000 per annum, payable in
advance in semi-annual installments of $5,000, commencing on any date such daily
collection procedures are implemented, and thereafter semi-annually on the same
Business Day of each subsequent six-month period in which such daily collection
procedures are continuing; provided, however, prior to the implementation of
such collection procedures, Borrower hereby agrees to pay the Lender an
administration fee in the amount of $5,000 per annum, payable in advance with
the first payment being due and payable on [the Closing Date (such amount having
been paid)] and annually thereafter, on each anniversary of the Closing Date.
2.4 Termination and Reductions of Revolving Commitment.
(a) Upon at least five (5) Business Days' prior irrevocable
written notice to the Lender, the Borrower may at any time in whole permanently
terminate, or from time to time in part permanently reduce, the Commitment;
provided, however, that the Revolving Commitment shall not be reduced at any
time to an amount not less than the aggregate of the Lender's Current Sum
outstanding at such time. Each partial reduction of the Revolving Commitment
shall be in a minimum of $500,000 or an integral multiple of $100,000 in excess
thereof.
CREDIT AGREEMENT - Page 23
<PAGE> 32
(b) Simultaneously with any termination or reduction, in whole
or in part, of Revolving Commitment pursuant to Section 2.4(a) above, the
Borrower hereby agrees to pay to the Lender, (i) the Commitment Fee due and
owing through and including date of such termination or reduction on the amount
of the Revolving Commitment of the Lender so terminated or reduced and (ii)
unless such termination or reduction is accomplished with the proceeds of an
Initial Public Offering, a prepayment fee equal to one percent (1.00%) of the
Revolving Commitment of the Lender so terminated or reduced if such termination
or reduction occurs on or before the first anniversary of the Closing Date.
After the first anniversary date of the Closing Date, the Revolving Commitment
may be terminated or reduced, in whole or in part, without any prepayment fee,
penalty or other similar charge.
(c) To effect the payment of any and all Commitment Fees and
all other Obligations outstanding and owing hereunder or under any other Loan
Documents, subject to the provisions of Sections 2.1 and 5.1 hereof, the Lender
may, but shall not be obligated to, make a Revolving Loan if (i) such Revolving
Loan is to be made prior to the Revolving Loan Maturity Date, (ii) the
Availability would be equal to or greater than zero after giving effect to such
Revolving Loan, and (iii) no Default or Event of Default shall have occurred
which is then continuing. The inability of the Lender to cause the payment of
any such Commitment Fees or other Obligations in accordance with the preceding
sentence shall not in any way whatsoever affect the Borrower's and Guarantors'
obligation to otherwise pay such amounts in accordance with the applicable terms
hereof or of any other Loan Documents.
2.5 Mandatory and Voluntary Prepayments.
(a) If the Current Sum applicable to the Lender at any time
exceeds the Lender's Revolving Commitment, the Lender shall notify the Borrower
of the deficiency (such notice being permitted to be given orally and need not
be in writing) and the Borrower shall immediately make a prepayment on the
Lender's Revolving Note or otherwise reimburse Lender for Letter of Credit
Advances or cause one or more Letters of Credit to be canceled and surrendered
in an amount sufficient to reduce the Lender's Current Sum to an amount no
greater than the Lender's Revolving Commitment. Any prepayments required by this
subparagraph (a) shall be applied to outstanding Alternate Base Rate Borrowings
up to the full amount thereof before such prepayments are applied to outstanding
LIBOR Borrowings (together with any Consequential Loss resulting from such
prepayment).
(b) The Borrower shall make prepayments of the Revolving Loans
from time to time so that the Availability equals or exceeds zero at all times.
Specifically, if the Availability at any time is less than zero, the Lender
shall notify the Borrower of the deficiency (such notice being permitted to be
given orally and need not be in writing) and the Borrower shall immediately make
a prepayment on the Revolving Note or otherwise reimburse the Lender for Letter
of Credit Advances or cause one or more Letters of Credit to be canceled and
surrendered in an amount sufficient to cause the Availability to be at least
equal to zero. Any prepayments required by this subparagraph (b) shall be
applied to outstanding Alternate Base Rate Borrowings up to the full amount
thereof before such prepayments are applied to outstanding LIBOR Borrowings
(together with any Consequential Loss resulting from such prepayment).
CREDIT AGREEMENT - Page 24
<PAGE> 33
(c) In addition to the mandatory prepayments required by Sections
2.5(a) and above, the Borrower shall have the right, at its option and subject
to the requirements of Section 2.4, to prepay any of the Revolving Loans in
whole at any time or in part from time to time, without premium or penalty,
except as otherwise provided in Section 2.4, this Section 2.5 or subsections
(a), (b) or (c) of Section 2.9 hereof. Each prepayment under this subsection
shall applied to the prepayment of the aggregate unpaid principal amount of the
Revolving Note. Prepayments under this subparagraph (c) shall be subject to the
following additional conditions:
(1) In giving notice of prepayment as hereinafter
provided, the Borrower shall specify, for the purpose of paragraphs (2)
and (3) immediately following, the manner of application of such
prepayment as between Alternate Base Rate Borrowings and LIBOR
Borrowings; provided, that in no event shall any LIBOR Borrowing be
partially prepaid.
(2) Prepayments applied to any LIBOR Rate Borrowing
may be made on any Business Day, provided, that (i) the Borrower shall
have given the Lender at least five (5) Business Days' prior
irrevocable written or telecopied notice of such prepayment, specifying
the principal amount of the LIBOR Borrowing to be prepaid, the
particular LIBOR Borrowing to which such prepayment is to be applied
and the prepayment date; and (ii) if such prepayment is made on any day
other than the last day of the Interest Period corresponding to the
LIBOR Borrowing to be prepaid, the Borrower shall pay directly to the
Lender, on the last day of such Interest Period, the Consequential Loss
as a result of such prepayment.
(3) Prepayments applied to any Alternate Base Rate
Borrowing may be made on any Business Day, provided that the Borrower
shall have given the Lender prior irrevocable written notice or notice
by telephone (which is to be promptly confirmed in writing) of such
prepayment on the Business Day of such prepayment, specifying the
principal amount of the Alternate Base Rate Borrowing to be prepaid.
(d) Notice of any prepayment having been given, the principal
amount specified in such notice, together with (in the case of any prepayment of
a LIBOR Borrowing) interest thereon to the date of prepayment, shall be due and
payable on such prepayment date.
2.6 Revolving Note; Payments.
(a) All Revolving Loans made by Lender to the Borrower shall
be evidenced by a single Revolving Note dated as of the Closing Date, delivered
and payable to the Lender in a principal amount equal to the Lender's Revolving
Commitment as of the Closing Date.
(b) The outstanding principal balance of each and every
Revolving Loan, as evidenced by the Revolving Note, shall mature and be fully
due and payable on the Revolving Loan Maturity Date.
CREDIT AGREEMENT - Page 25
<PAGE> 34
(c) Subject to Section 10.6 hereof, the Borrower hereby agrees
to pay accrued interest on the unpaid principal balance of the Revolving Loans
on the Interest Payment Dates, commencing the first of such dates to occur after
the date hereof. After the Revolving Loan Maturity Date, accrued and unpaid
interest on the Revolving Loans shall be payable on demand.
(d) To effect payment of accrued interest owing on the
Revolving Loans as of the Interest Payment Dates, subject to the provisions of
Sections 2.1 and 5.1 hereof, the Lender may, but shall not be obligated to, make
a Revolving Loan to pay in full the amount of accrued interest owing and payable
on the Revolving Loans as of the respective Interest Payment Date if (i) such
Revolving Loan is to be made prior to the Revolving Loan Maturity Date, (ii) the
Availability would be equal to or greater than zero after giving effect to such
Revolving Loan, and (iii) no Default or Event of Default shall have occurred
which is then continuing. The inability of the Lender to cause a payment of any
accrued interest owing on the Revolving Loans on any Interest Payment Date as of
the respective due date thereof in accordance with the preceding sentence shall
not in any way whatsoever effect the Borrower's obligation to otherwise pay such
amounts in accordance with the applicable terms hereof or any other Loan
Documents.
2.7 Application of Payments and Prepayments.
(a) Except as otherwise provided in Sections 2.5(a) and (b)
hereof, prepayments on the Revolving Note shall be applied to payment of the
aggregate unpaid principal amounts of the Revolving Note, with the balance of
any such prepayments, if any, being applied to accrued interest. Payments of
accrued interest on the Revolving Note in accordance with Section 2.6(c) hereof
shall be applied to the aggregate accrued interest then outstanding under the
Revolving Note, while payment by the Borrower of the aggregate principal amount
outstanding under the Revolving Note on the Revolving Loan Maturity Date shall
be applied to principal.
(b) All sums payable by the Borrower to the Lender hereunder
or pursuant to the Revolving Note shall be payable in United States dollars in
immediately available funds not later than 12:00 noon on the date such payment
or prepayment is due and shall be made without set-off, counterclaim or
deduction of any kind. Any such payment or prepayment received and accepted by
the Lender after 12:00 noon shall be considered for all purposes (including the
payment of interest, to the extent permitted by law) as having been made on the
next succeeding Business Day. All such payments or prepayments shall be made at
the Principal Office. If any payment or prepayment becomes due and payable on a
day which is not a Business Day, then the date for the payment thereof shall be
extended to the next succeeding Business Day and interest shall be payable
thereon at the then applicable rate per annum during such extension
2.8 Interest Rates for Revolving Loans.
(a) Subject to Section 10.6 hereof, the Revolving Note shall
bear interest on their respective outstanding principal balances at the
Alternate Base Rate; provided, that (1) all past due principal and interest
shall bear interest at the Past Due Rate, which shall be payable on demand, and
(2) subject to the provisions hereof, the Borrower shall have the option of
having all or any portion of the principal balances from time to time
outstanding under the Revolving
CREDIT AGREEMENT - Page 26
<PAGE> 35
Note bear interest until their respective maturities at a rate per annum equal
to the Adjusted LIBOR Rate (together with the Alternate Base Rate, individually
herein called an "Interest Option" and collectively called "Interest Options").
The records of the Lender with respect to Interest Options, Interest Periods and
the amounts of Revolving Loans to which they are applicable shall be binding and
conclusive, absent manifest error. Interest on the Revolving Loans shall be
calculated at the Alternate Base Rate, except where it is expressly provided
pursuant to this Agreement that the Adjusted LIBOR Rate is to apply.
(b) The Borrower shall have the right to designate or convert
its Interest Options in accordance with the provisions hereof. Provided no
Default or Event of Default has occurred and is continuing and subject to the
provisions of the last sentence of Subsection 2.8(a) hereinabove and of Section
2.9 hereof, the Borrower may elect to have the Adjusted LIBOR Rate apply or
continue to apply to all or any portion of the principal balances of the
Revolving Note. Each change in Interest Options shall be a conversion of the
rate of interest applicable to the specified portion of the Revolving Loans, but
such conversion alone shall not change the outstanding principal balance of the
Revolving Note. The Interest Options shall be designated or converted in the
manner provided below:
(1) The Borrower shall give the Lender notice by
telephone, promptly confirmed by written notice (the "Rate Selection
Notice") substantially in the form of Exhibit F hereto. Each such
telephone and written notice shall specify the amount and type of
borrowings which are the subject of the designation, if any; the amount
and type of borrowings into which such borrowings are to be converted
or for which an Interest Option is designated; the proposed date for
the designation or conversion (which, in the case of conversion of
LIBOR Borrowings, except as provided in Section 2.9 hereof, shall be
the last day of the Interest Period applicable thereto) and the
Interest Period or Periods, if any, selected by the Borrower. Such
notice by telephone shall be irrevocable and shall be given to the
Lender no later than the applicable Rate Selection Date. If (x) a new
Revolving Loan is to be a LIBOR Borrowing, (y) an existing LIBOR
Borrowing is maturing at the time that a new Revolving Loan is being
requested and the Borrower is electing to have such existing portion of
the outstanding principal balance of the Revolving Note going forward
bear interest at the same Interest Option and for the same Interest
Period as the new Revolving Loan, or (z) a portion of an Alternate Rate
Borrowing is to be converted so as to bear interest at the same
Interest Option and for the same Interest Period as the new Revolving
Loan, then the Rate Selection Notice shall be included in the Request
for Extension of Credit applicable to the new Revolving Loan, which
shall be given to the Lender no later than the applicable Rate
Selection Date.
(2) No more than three (3) LIBOR Borrowings and
corresponding Interest Periods shall be outstanding at any one time.
Each LIBOR Borrowing shall be in a minimum aggregate principal amount
of at least $500,000, with any increases over such minimum amount being
in integral aggregate multiples of $100,000.
(3) Principal included in any borrowing shall not be
included in any other borrowing which exists at the same time.
CREDIT AGREEMENT - Page 27
<PAGE> 36
(4) Each designation or conversion shall occur on a
Business Day.
(5) Except as provided in Section 2.9 hereof, no
LIBOR Borrowing shall be converted on any day other than the last day
of the applicable Interest Period.
(c) All interest and fees (including the Commitment Fee) will
be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable, unless the effect of so computing shall be to cause the rate of
interest to exceed the Highest Lawful Rate.
2.9 Special Provisions Applicable to LIBOR Borrowings.
(a) If, after the date of this Agreement, the adoption of any
applicable Legal Requirement or any change in any applicable Legal Requirement
or in the interpretation or administration thereof by any Governmental Authority
or compliance by the Lender with any request or directive (whether or not having
the force of law) of any Governmental Authority shall at any time make it
unlawful or impossible for the Lender to permit the establishment of or to
maintain any LIBOR Borrowing, the commitment of the Lender to establish or
maintain the Adjusted LIBOR Rate affected by such adoption or change shall
forthwith be canceled and the Borrower shall forthwith, upon demand by the
Lender to the Borrower, (1) convert the Adjusted LIBOR Rate with respect to
which such demand was made to the Alternate Base Rate; (2) pay all accrued and
unpaid interest to date on the amount so converted; and (3) pay any amounts
required to compensate the Lender for any additional cost or expense which the
Lender may incur as a result of such adoption of or change in such Legal
Requirement or in the interpretation or administration thereof and any
Consequential Loss which the Lender may incur as a result of such conversion to
the Alternate Base Rate. If, when the Lender so notifies the Borrower, the
Borrower has given a Rate Selection Notice specifying one or more borrowings of
the type with respect to which such demand was made but the selected Interest
Period or Interest Periods has not yet begun, such Rate Selection Notice shall
be deemed to be of no force and effect, as if never made, and the balance of the
Revolving Loans specified in such Rate Selection Notice shall bear interest at
the Alternate Base Rate until a different available Interest Option shall be
designated in accordance herewith.
(b) If the adoption of any applicable Legal Requirement or any
change in any applicable Legal Requirement or in the interpretation or
administration thereof by any Governmental Authority or compliance by the Lender
with any request or directive (whether or not having the force of law) from any
Governmental Authority shall at any time as a result of any portion of the
principal balance of the Revolving Note being maintained on the basis of the
Adjusted LIBOR Rate:
(1) subject the Lender (or make it apparent that the
Lender is subject) to any tax (including any United States interest
equalization tax), levy, impost, duty, charge, fee (collectively,
"Taxes"), or any deduction or withholding for any Taxes on or from the
payment due under any LIBOR Borrowing or other amounts due hereunder,
other than income and franchise taxes of the United States and its
political subdivisions; or
CREDIT AGREEMENT - Page 28
<PAGE> 37
(2) change the basis of taxation of payments due from
the Borrower to the Lender under any LIBOR Borrowing (otherwise than by
a change in the rate of taxation of the overall net income of the
Lender); or
(3) impose, modify, increase or deem applicable any
reserve requirement (excluding that portion of any reserve requirement
included in the calculation of the Statutory Reserves, special deposit
requirement or similar requirement (including state law requirements
and Regulation D)) imposed, modified, increased or deemed applicable by
any Governmental Authority against assets held by the Lender, or
against deposits or accounts in or for the account of the Lender, or
against loans made by the Lender, or against any other funds,
obligations or other Property owned or held by the Lender; or
(4) impose on the Lender any other condition
regarding any LIBOR Borrowing;
and the result of any of the foregoing is to increase the cost to the Lender of
agreeing to make or of making, renewing or maintaining such borrowing on the
basis of the Adjusted LIBOR Rate, or reduce the amount of principal or interest
received by the Lender, then, upon demand by the Lender, the Borrower shall pay
to the Lender, from time to time as specified by the Lender, additional amounts
which shall compensate the Lender for such increased cost or reduced amount. The
Lender will promptly notify the Borrower in writing of any event, upon becoming
actually aware of it, which will entitle the Lender to additional amounts
pursuant to this paragraph. The Lender's determination of the amount of any such
increased cost, increased reserve requirement or reduced amount shall be
conclusive and binding, absent manifest error, provided that the calculation
thereof is set forth in reasonable detail in such notice.
The Borrower shall have the right, if it receives from the Lender any
notice referred to in the preceding paragraph, upon three (3) Business Days'
notice to the Lender, either (i) to repay in full (but not in part) any
borrowing with respect to which such notice was given, together with any accrued
interest thereon, or (ii) to convert the Adjusted LIBOR Rate in effect with
respect to such borrowing to the Alternate Base Rate; provided, that any such
repayment or conversion shall be accompanied by payment of (x) the amount
required to compensate the Lender for the increased cost or reduced amount
referred to in the preceding paragraph; (y) all accrued and unpaid interest to
date on the amount so repaid or converted, and (z) any Consequential Loss which
may be incurred as a result of such repayment or conversion.
(c) If for any reason with respect to any Interest Period the
Lender shall have determined (which determination shall be conclusive and
binding upon the Borrower) that: (1) the Lender is unable through its customary
general practices to determine a rate at which the Lender is offered deposits in
United States dollars by prime banks in the London interbank market, in the
appropriate amount for the appropriate period, or by reason of circumstances
affecting the London interbank market, generally, the Lender is not being
offered deposits for the applicable Interest Period and in an amount equal to
the amount requested by the Borrower, or (2) the Adjusted LIBOR Rate will not
reflect the actual cost to the Lender of making and
CREDIT AGREEMENT - Page 29
<PAGE> 38
maintaining any LIBOR Borrowing hereunder for any proposed Interest Period, then
the Lender shall give the Borrower notice thereof and thereupon, (A) any Rate
Selection Notice previously given by the Borrower designating an Adjusted LIBOR
Rate which has not commenced as of the date of such notice from the Lender shall
be deemed for all purposes hereof to be of no force and effect, as if never
given, and (B) until the Lender shall notify the Borrower that the circumstances
giving rise to such notice from the Lender no longer exist, each Rate Selection
Notice requesting an Adjusted LIBOR Rate shall be deemed a request for an
Alternate Base Rate Borrowing, and each outstanding LIBOR Borrowing then in
effect shall be converted, without any notice to or from the Borrower, upon the
termination of the Interest Period then in effect, to an Alternate Base Rate
Borrowing.
(d) THE BORROWER HEREBY AGREES TO INDEMNIFY THE LENDER AGAINST
AND HOLD THE LENDER HARMLESS FROM ANY LOSS OR EXPENSE WHICH IT MAY INCUR OR
SUSTAIN AS A CONSEQUENCE OF ANY UNTIMELY PAYMENT (MANDATORY OR OPTIONAL) OR
DEFAULT BY THE BORROWER IN THE PAYMENT OF ANY PRINCIPAL AMOUNT OF OR INTEREST ON
THE NOTE, OR ANY FAILURE BY THE BORROWER TO CONVERT OR TO BORROW ANY LIBOR
BORROWING ON THE DATE SPECIFIED BY THE BORROWER, IN EACH CASE INCLUDING ANY
INTEREST PAYABLE BY THE LENDER TO THE LENDERS OF THE FUNDS OBTAINED BY IT IN
ORDER TO MAKE OR MAINTAIN ANY LIBOR BORROWING (OR ANY PORTION THEREOF), AND, TO
THE EXTENT NOT COVERED ABOVE, ANY CONSEQUENTIAL LOSS. THIS AGREEMENT SHALL
SURVIVE THE PAYMENT OF THE REVOLVING NOTE. A CERTIFICATE AS TO ANY ADDITIONAL
AMOUNTS PAYABLE TO THE LENDER PURSUANT TO THIS PARAGRAPH SUBMITTED BY THE LENDER
TO THE BORROWER SHALL BE CONCLUSIVE AND BINDING UPON THE BORROWER, ABSENT
MANIFEST ERROR, PROVIDED THE CALCULATION THEREOF IS SET FORTH IN REASONABLE
DETAIL IN SUCH NOTICE.
(e) If the Borrower requests quotes of the Adjusted LIBOR Rate
for different Interest Periods being considered for election by the Borrower,
the Lender will use reasonable efforts to provide such quotes to the Borrower
promptly. However, all such quotes provided shall be representative only and
shall not be binding on the Lender, nor shall they be determinative, directly or
indirectly, of any Adjusted LIBOR Rate or any component of any rate, nor will
the Borrower's failure to receive or the Lender's failure to provide any
requested quote or quotes either (1) excuse or extend the time for performance
of an obligation of the Borrower or for the exercise of any right, option or
election of the Borrower or (2) impose any duty or liability on the Lender. If
the Borrower requests a list of the Business Days in any calendar month, the
Lender will use reasonable efforts to provide such list promptly. However, any
such list provided shall be understood to identify only those days which the
Lender believes in good faith at the time such list is prepared will be the
Business Days for such month. The Lender shall not have any liability for any
failure to provide, delay in providing, error or mistake in or omission from,
any such quote or list.
(f) If the Lender has a LIBOR Lending Office which differs
from its Domestic Lending Office, all Revolving Loans advanced by the Lender's
LIBOR Lending Office shall be deemed to have been made by the Lender and the
obligation of the Borrower to repay such Revolving Loans shall nevertheless be
to the Lender and shall be deemed held by the Lender, to the extent of such
portions of the Revolving Loan, for the account of the Lender's LIBOR Lending
Office.
CREDIT AGREEMENT - Page 30
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(g) Notwithstanding any provision of this Agreement to the
contrary, the Lender shall be entitled to fund and maintain its funding of all
or any part of the Revolving Loans hereunder in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement, all determinations
hereunder shall be made as if the Lender had actually funded and maintained its
portion of each LIBOR Borrowing during each Interest Period for the Revolving
Loans through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the LIBOR Rate for such
Interest Period.
(h) The Borrower's obligation to pay increased costs and
Consequential Loss with regard to each LIBOR Borrowing as specified in this
Section 2.9 hereof shall survive termination of this Agreement.
2.10 Letters of Credit.
(a) Subject to the terms and conditions contained herein, the
Borrower shall have the right to utilize a portion of the Revolving Commitment
from time to time prior to the Revolving Loan Maturity Date to obtain from the
Lender one or more Letters of Credit for the account of the Borrower in such
amounts and in favor of such beneficiaries as the Borrower from time to time
shall request; provided, that in no event shall the Lender have any obligation
to issue any Letter of Credit if (i) the face amount of such Letter of Credit,
plus the Letter of Credit Exposure Amount at such time would exceed $500,000,
(ii) the face amount of such Letter of Credit, plus the aggregate of the
Lender's Current Sum at such time, would exceed the lesser of (1) the Revolving
Commitment or (2) the Availability, (iii) such Letter of Credit would have an
expiry date beyond the earlier to occur of (1) one month prior to the scheduled
Revolving Loan Maturity Date, (2) 90 days after the issuance date of such Letter
of Credit if such Letter of Credit is a documentary sight Letter of Credit or
(3) 365 days after the issuance date of such Letter of Credit if such Letter of
Credit is a standby Letter of Credit, (iv) such Letter of Credit is not in a
form and does not contain terms satisfactory to the Lender in its sole and
absolute discretion, (v) the Borrower have not executed and delivered such
Applications and other instruments and agreements relating to such Letter of
Credit as the Lender shall have requested, or (vi) an event has occurred and is
continuing which constitutes a Default or Event of Default.
(b) If requesting the issuance of any Letter of Credit, the
Borrower shall give at least three (3) Business Days' prior written notice to
the Lender, at its Domestic Lending Office, which written notice shall be the
requisite Application for a Letter of Credit on the Lender's customary form.
(c) The Borrower promises to pay to the order of the Lender
the amount of all Letter of Credit Advances. To effect repayment of any such
Letter of Credit Advance, the Lender shall automatically satisfy such Letter of
Credit Advance (subject to the terms and conditions of Sections 2.1 and 5.1
hereof) by making a Revolving Loan if (i) such Letter of Credit Advance is (and
such Revolving Loan is to be) made prior to the Revolving Loan Maturity Date,
(ii) the Availability would be equal to or greater than zero after giving effect
to such Revolving Loan and (iii) no Default or Event of Default shall have
occurred which is then continuing. If the Lender does not make a Revolving Loan
to satisfy such Letter of Credit Advance, each such letter of Credit Advance
shall be considered for all purposes as a demand
CREDIT AGREEMENT - Page 31
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obligation owing by the Borrower to the Lender, and each Letter of Credit
Advance shall bear interest from the date thereof at the Past Due Rate, without
notice of presentment, demand, protest or other formalities of any kind (said
past due interest on such Letter of Credit Advance being payable on demand). The
failure of the Lender to affect repayment of any such Letter of Credit Advance
in accordance with the preceding sentences shall not in any way whatsoever
affect the Borrower's obligation to pay each Letter of Credit Advance on demand
and to pay interest at the Past Due Rate on the amount of unreimbursed Letter of
Credit Advance. All rights, powers, benefits and privileges of this Agreement
with respect to the Revolving Note, all security therefor (including the
Collateral) and guaranties thereof (including the Guaranties) and all
restrictions, provisions for repayment or acceleration and all other covenants,
warranties, representations and agreements of the Borrower contained in this
Agreement with respect to the Revolving Note shall apply to such Letter of
Credit Advances.
(d) In consideration of the issuance of each Letter of Credit
pursuant to the provisions of this Section 2.10, the Borrower agrees to pay
(subject to Section 10.6 hereof) to the Lender a letter of credit fee (computed
on the basis of the actual number of days elapsed in a year composed of 360
days) in an amount equal to, (i) with respect to each documentary letter of
credit, the product of (a) the Applicable Margin in effect for LIBOR Borrowings
for the applicable period times (b) the undrawn upon amount of the applicable
Letter of Credit, and (ii) with respect to each standby letter of credit, the
product of (a) the Applicable Margin in effect for LIBOR Borrowings for the
applicable period plus 200 basis points times (b) the undrawn upon amount of the
applicable Letter of Credit, with each letter of credit fee to commence to
accrue as of the date of issuance of such Letter of Credit and to be effective
as to any reductions in the undrawn amount of such Letter of Credit as of the
date of any such reduction (whether resulting from payments thereunder by the
Lender, by agreement of the beneficiary thereunder or automatically by the terms
of such Letter of Credit), and each letter of credit fee shall cease to accrue
(except with respect to interest at the Past Due Rate on any unpaid portion
thereof) on the date that such Letter of Credit expires, is returned to the
Lender undrafted upon by the beneficiary thereof or is fully paid by the Lender.
Said letter of credit fees shall be payable in arrears to the Lender at its
Principal Office in immediately available funds (i) on the first Business Day of
each calendar month that such Letter of Credit remains open, and (ii) on the
date that such Letter of Credit expires, is returned to the Lender undrafted
upon by the beneficiary thereof or is fully paid by the Lender. All past due
letter of credit fees shall bear interest at the Past Due Rate and shall be
payable upon demand by the Lender. The Borrower also hereby agrees to pay to the
Lender any and all other issuance, amendment, negotiation, and other normal and
customary fees which are charged by the Lender in connection with the issuance
or negotiation of any of Letter of Credit and the presentation or payment of any
draw under any such Letter of Credit, with all of such amounts being due and
payable to the Lender upon demand.
(e) The obligations of the Borrower under this Agreement in
respect of the Letters of Credit and all Letter of Credit Advances are absolute,
unconditional and irrevocable, shall be paid strictly in accordance with the
terms of this Agreement, under all circumstances whatsoever, including the
following circumstances:
CREDIT AGREEMENT - Page 32
<PAGE> 41
(1) any lack of validity or enforceability of this
Agreement, any Letter of Credit or any Loan Document;
(2) any amendment or waiver of default under or any
consent to departure from the terms of this Agreement or any Letter of
Credit without the express prior written consent of the Lender;
(3) the existence of any claim, set-off, defense or
other right which any beneficiary or any transferee of any Letter of
Credit (or any entities for whom any such beneficiary or any such
transferee may be acting), or any Person (other than the Lender) may
have, whether in connection with this Agreement, the Letters of Credit,
the transactions contemplated hereby or any unrelated transaction;
(4) any statement, draft, certificate, or any other
document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever; provided
that the Lender will examine each document presented under each Letter
of Credit to ascertain that such document appears on its face to comply
with the terms thereof; and
(5) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
In the event that any restriction or limitation is imposed upon or
determined or held to be applicable to the Lender or the Borrower by,
under or pursuant to any Legal Requirement now or hereafter in effect
or by reason of any interpretation thereof by any Governmental
Authority, which in the respective sole judgment of the Lender would
prevent the Lender from legally incurring liability under a Letter of
Credit issued or proposed to be issued hereunder, then the Lender shall
give prompt written notice thereof to the Borrower, whereupon the
Lender shall have no obligation to issue any additional Letters of
Credit then or at any time thereafter. In addition, if as a result of
any Regulatory Change which imposes, modifies or deems applicable (x)
any tax, reserve, special deposit or similar requirement against any
Letters of Credit issued or participated to by the Lender, (y) any fee,
expense or assessment against the Letters of Credit issued by the
Lender for deposit insurance, or (z) any other charge, expense or
condition which increases the actual cost to the Lender of issuing or
maintaining such Letters of Credit, or reduces any amount receivable by
the Lender hereunder in respect of any Letter of Credit or any
participation therein (which increase in cost, or reduction in amount
receivable, shall be the result of the Lender's reasonable allocation
of the aggregate of such increases or reductions resulting from such
event), then the Borrower (subject to Section 10.6 hereof) shall pay to
the Lender, upon demand and from time to time, amounts sufficient to
compensate such Person for each such increase from the effective date
of such increase to the date of demand therefor. Each such demand shall
be accompanied by a certificate setting forth in reasonable detail the
calculation of the amount then being demanded in accordance with the
preceding sentence and each such certificate shall be conclusive absent
manifest error.
CREDIT AGREEMENT - Page 33
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(f) THE BORROWER HEREBY INDEMNIFIES AND HOLDS HARMLESS LENDER
FROM AND AGAINST ANY AND ALL CLAIMS AND DAMAGES, LOSSES, LIABILITIES, COSTS OR
EXPENSES WHICH LENDER MAY INCUR (OR WHICH MAY BE CLAIMED AGAINST LENDER BY ANY
PERSON WHATSOEVER) IN CONNECTION WITH THE EXECUTION AND DELIVERY OR TRANSFER OF
OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT; PROVIDED, THAT THE
BORROWER SHALL NOT BE REQUIRED TO INDEMNIFY LENDER FOR ANY CLAIMS, DAMAGES,
LOSSES, LIABILITIES, COSTS OR EXPENSES TO THE EXTENT, BUT ONLY TO THE EXTENT,
CAUSED BY (I) THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE PARTY SEEKING
INDEMNIFICATION OR (II) LENDER'S FAILURE TO PAY UNDER ANY LETTER OF CREDIT AFTER
THE PRESENTATION TO IT OF A REQUEST REQUIRED TO BE PAID UNDER APPLICABLE LAW.
NOTHING IN THIS SECTION 2.10(F) IS INTENDED TO LIMIT THE OBLIGATIONS OF THE
BORROWER UNDER ANY OTHER PROVISION OF THIS AGREEMENT.
2.11 Recapture. If on any Interest Payment Date the Lender does not
receive payment in full of interest computed at the Alternate Base Rate and/or
the Adjusted LIBOR Rate, as applicable (computed without regard to any
limitation by the Highest Lawful Rate) because the sum of the Alternate Base
Rate and/or the Adjusted LIBOR Rate, as applicable (so computed) exceeds or has
exceeded the Highest Lawful Rate applicable to the Lender, the Borrower shall
pay to the Lender, in addition to interest otherwise required, on each Interest
Payment Date thereafter, the Excess Interest Amount (calculated as of each such
subsequent Interest Payment Date); provided that in no event shall the Borrower
be required to pay, for any computation period, interest at a rate exceeding the
Highest Lawful Rate applicable to the Lender during such period. As used herein,
the term "Excess Interest Amount" shall mean, on any day, the amount by which
(a) the amount of all interest which would have accrued prior to such day on the
outstanding principal of the Revolving Note (had the Alternate Base Rate and/or
the Adjusted LIBOR Rate, as applicable, at all times been in effect without
limitation by the Highest Lawful Rate applicable to the Lender) exceeds (b) the
aggregate amount of interest actually paid to the Lender on the Revolving Note
on or prior to such day.
2.12 Use of Proceeds. The proceeds of the Revolving Loans will be used
to (i) refinance the existing Indebtedness of Tidel Engineering, Inc. to the
Lender, and (ii) finance general working capital needs of Borrower.
3. Term Loan; Term Note; Payments; Prepayments; Interest Rates.
3.1 Term Loan Commitment. Subject to the terms and conditions hereof,
the Lender agrees to continue the Prior Term Loan in the form of a Term Loan to
the Borrower and to the Ultimate Parent, as co-borrowers, on the Closing Date
until, but not including, the Term Loan Maturity Date, in a principal amount up
to, but not exceeding the Term Loan Commitment.
CREDIT AGREEMENT - Page 34
<PAGE> 43
3.2 Mandatory and Voluntary Prepayments.
(a) The Borrower and the Ultimate Parent shall have the right,
at their option and subject to the requirements of Section 2.4, to prepay the
Term Loan as provided in this Section 3.2. Any prepayment under this subsection
shall applied to the prepayment of the aggregate unpaid principal amount of the
Term Note. Prepayment under this subparagraph (a) shall be subject to the
following additional conditions:
(1) In no event shall the Term Note be partially
prepaid.
(2) Prepayment applied to the Term Note may be made
on any Business Day, provided, that (i) the Borrower shall have given
the Lender at least five (5) Business Days' prior irrevocable written
or telecopied notice of such prepayment, specifying the principal
amount of the Term Note to be prepaid, which shall be the entire amount
of the outstanding principal of the Term Note, and (ii) if such
prepayment is made on any day other than the Term Loan Maturity Date,
the Borrower shall pay directly to the Lender, on the date of such
prepayment, the Consequential Loss as a result of such prepayment.
(b) Notice of any prepayment having been given, the principal
amount specified in such notice, together with interest thereon to the date of
prepayment, shall be due and payable on such prepayment date.
3.3 Term Note; Payments.
(a) The Term Loan made by the Lender to the Borrower shall be
evidenced by a Term Note dated as of the Closing Date, delivered and payable to
the Lender in a principal amount equal to the Term Loan Commitment as of the
Term Loan Closing Date.
(b) Principal payments in the amount of Thirty-Two Thousand
and No/100 Dollars ($32,000.00), each, shall be due and payable quarterly, on
each Term Loan Payment Date. The remaining outstanding principal balance of the
Term Loan, as evidenced by the Term Note, shall mature and be fully due and
payable on the Term Loan Maturity Date.
(c) Subject to Section 10.6 hereof, the Borrower hereby agrees
to pay accrued interest on the unpaid principal balance of the Term Loan on each
Term Loan Payment Date. After the Term Loan Maturity Date, accrued and unpaid
interest on the Term Loan shall be payable on demand.
(d) To effect payment of accrued interest owing on the Term
Loan as of the Interest Payment Dates, subject to the provisions of Sections 2.1
and 5.1 hereof, the Lender may, but shall not be obligated to, make a Revolving
Loan to pay in full the amount of accrued interest owing and payable on the Term
Loan as of the respective Interest Payment Date if (i) such Revolving Loan is to
be made prior to the Revolving Loan Maturity Date, (ii) the Availability would
be equal to or greater than zero after giving effect to the Revolving Loan, and
(iii) no Default or Event of Default shall have occurred which is then
continuing. The inability
CREDIT AGREEMENT - Page 35
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of the Lender to cause a payment of any accrued interest owing on the Term Loan
on any Interest Payment Date as of the respective due date thereof in accordance
with the preceding sentence shall not in any way whatsoever effect the
Borrower's and the Ultimate Parent's obligation to otherwise pay such amounts in
accordance with the applicable terms hereof or any other Loan Documents.
3.4 Application of Payments and Prepayments.
(a) Prepayment on the Term Note shall be applied to payment of
the aggregate unpaid principal amount of the Term Note, with the balance of any
such prepayments, if any, being applied to accrued interest. Payments of accrued
interest on the Term Note in accordance with Section 3.3(c) hereof shall be
applied to the aggregate accrued interest then outstanding under the Term Note,
while payment by the Borrower of the aggregate principal amount outstanding
under the Term Note on the Term Loan Maturity Date shall be applied to
principal.
(b) All sums payable by the Borrower to the Lender hereunder
or pursuant to the Term Note shall be payable in United States dollars in
immediately available funds not later than 12:00 noon on the date such payment
or prepayment is due and shall be made without set-off, counterclaim or
deduction of any kind. Any such payment or prepayment received and accepted by
the Lender after 12:00 noon shall be considered for all purposes (including the
payment of interest, to the extent permitted by law) as having been made on the
next succeeding Business Day. All such payments or prepayments shall be made at
the Principal Office. If any payment or prepayment becomes due and payable on a
day which is not a Business Day, then the date for the payment thereof shall be
extended to the next succeeding Business Day and interest shall be payable
thereon at the then applicable rate per annum during such extension.
3.5 Interest Rate for Term Loan.
(a) Subject to Section 10.6 hereof, the Term Note shall bear
interest on its outstanding principal balances at a rate per annum equal to the
Fixed Rate.
(b) All interest will be computed on the basis of a year of
360 days and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which payable, unless the effect of so
computing shall be to cause the rate of interest to exceed the Highest Lawful
Rate.
3.6 Special Provisions Applicable to the Term Loan. THE BORROWER AND
ULTIMATE PARENT HEREBY AGREE TO INDEMNIFY THE LENDER AGAINST AND HOLD THE LENDER
HARMLESS FROM ANY LOSS OR EXPENSE WHICH IT MAY INCUR OR SUSTAIN AS A CONSEQUENCE
OF ANY UNTIMELY PAYMENT (MANDATORY OR OPTIONAL) OR DEFAULT BY THE BORROWER OR
THE ULTIMATE PARENT IN THE PAYMENT OF ANY PRINCIPAL AMOUNT OF OR INTEREST ON THE
TERM NOTE, INCLUDING ANY INTEREST PAYABLE BY THE LENDER TO THE LENDERS OF THE
FUNDS OBTAINED BY IT IN ORDER TO MAKE OR MAINTAIN THE TERM LOAN (OR ANY PORTION
THEREOF), AND, TO THE EXTENT NOT COVERED ABOVE, ANY CONSEQUENTIAL LOSS. THIS
AGREEMENT SHALL SURVIVE THE PAYMENT OF THE TERM NOTE. A CERTIFICATE AS TO ANY
ADDITIONAL AMOUNTS PAYABLE TO THE LENDER PURSUANT TO THIS PARAGRAPH
CREDIT AGREEMENT - Page 36
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SUBMITTED BY THE LENDER TO THE BORROWER AND ULTIMATE PARENT SHALL BE CONCLUSIVE
AND BINDING UPON THE BORROWER AND ULTIMATE PARENT, ABSENT MANIFEST ERROR,
PROVIDED THE CALCULATION THEREOF IS SET FORTH IN REASONABLE DETAIL IN SUCH
NOTICE.
3.7 Use of Proceeds. The proceeds of the Term Loan will be used to
refinance the existing Indebtedness of Ultimate Parent and Tidel Engineering,
Inc. to the Lender.
4. Collateral.
4.1 Security Documents. The Loans and all other Obligations shall be
secured by Collateral described in the Security Documents and are entitled to
the benefits thereof. The Borrower shall duly execute and deliver the Security
Documents, all consents of third parties necessary to permit the effective
granting of the Liens created thereby, financing statements pursuant to the
Uniform Commercial Code and other documents, all in Proper Form, as may be
reasonably required by the Lender to grant to the Lender a valid, perfected and
enforceable first priority Lien on and security interest in the Collateral
(subject only to the Liens permitted under Section 8.2 hereof).
4.2 Filing and Recording. The Borrower shall, at its sole cost and
expense, cause all financing statements and other Security Documents pursuant to
this Agreement to be duly recorded and/or filed or otherwise perfected in all
places necessary, in the opinion of the Lender, and take such other actions as
the Lender may reasonably request, in order to perfect and protect the Liens of
the Lender in the Collateral. The Borrower, to the extent permitted by law,
hereby authorizes the Lender to file any financing statement in respect of any
Lien created pursuant to the Security Documents which may at any time be
required or which, in the opinion of the Lender, may at any time be desirable,
although the same may have been executed only by the Lender or, at the option of
the Lender, to sign such financing statement on behalf of the Borrower and file
the same, and the Borrower hereby irrevocably designates the Lender, its agent,
representatives and designees as its agent and attorney-in-fact for this
purpose. In the event that any re-recording or refiling thereof (or the filing
of any statements of continuation or assignment of any financing statement) is
reasonably required to protect and preserve such Lien, the Borrower shall, at
the Borrower's cost and expense, cause the same to be recorded and/or refiled at
the time and in the manner reasonably requested by the Lender.
5. Conditions.
5.1 All Loans. The obligation of the Lender to make any Revolving Loan
and the obligation of the Lender to issue any Letter of Credit is subject to the
accuracy of all representations and warranties of the Borrower on the date of
such Loan or issuance of such Letter of Credit, to the performance by the
Borrower of its obligations under the Loan Documents and to the satisfaction of
the following further conditions:
(a) the Lender shall have received the following, all of which
shall be duly executed and in Proper Form: (1) in the case of a Revolving Loan,
other than a Revolving Loan for the purposes described in Sections 2.6(d),
2.10(d) and 3.3(d),
CREDIT AGREEMENT - Page 37
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(i) by no later than 12:00 noon on the
applicable Rate Selection Date, telephonic
notice from the Borrower of the proposed
date and amount of such Revolving Loan, and
(ii) no later than 1:00 p.m. on the applicable
Rate Selection Date, a Request for Extension
of Credit, signed by a Responsible Officer
of the General Partner.
or, in the case of issuance of a Letter of Credit, a completed Application (as
may be required by the Lender) signed by a Responsible Officer of the General
Partner by 12:00 noon three (3) Business Days prior to the proposed date of
issuance of such Letter of Credit and payment of the first letter of credit fee
as and by the time required in Section 2.10 of this Agreement, along with, in
each case, such financial information as the Lender may reasonably require to
substantiate compliance with all financial covenants contained herein by the
Borrower; and (2) such other Applications, certificates and other documents as
the Lender may reasonably require;
(b) Availability must be in excess of or equal to zero; after
giving effect to the requested Revolving Loan(s) or Letter(s) of Credit;
(c) all representations and warranties of the Borrower and any
other Person set forth in this Agreement and in any other Loan Document shall be
true and correct in all material respects with the same effect as though made on
and as of such date, except for (1) those representations and warranties which
relate only to the Closing Date or (2) such changes in the representations and
warranties otherwise permitted by the terms of this Agreement;
(d) the Borrower (and each Guarantor, if applicable) shall be
in compliance with all the terms and provisions contained in this Agreement or
in any other Loan Document which are to be observed or performed by the Borrower
(or such Guarantor, if applicable);
(e) prior to the making of such Revolving Loan or the issuance
of such Letter of Credit, there shall have occurred no Material Adverse Effect
in the assets, liabilities, financial condition, business or affairs of the
Borrower or any of its Subsidiaries since the date hereof;
(f) no Default or Event of Default shall have occurred and be
continuing;
(g) if requested by the Lender, it shall have received a
certificate executed by the Financial Officer or other Responsible Officer of
the General Partner as to the compliance with subparagraphs (b) through (f)
above;
(h) the making of such Revolving Loan or the issuance of such
Letter of Credit, shall not be prohibited by, or subject the Lender to, any
penalty or onerous condition under any Legal Requirement; and
CREDIT AGREEMENT - Page 38
<PAGE> 47
(i) the Borrower shall have paid all legal fees and expenses
of the type described in Section 10.9 hereof through the date of such Revolving
Loan or the issuance of such Letter of Credit.
5.2 First Loan. In addition to the matters described in Section 5.1
hereof, the obligation of the Lender to make the initial Revolving Loan or the
obligation of the Lender to issue the first Letter of Credit is subject to the
receipt by the Lender of each of the following, in Proper Form:
(a) the Notes, executed by the Borrower and Ultimate Parent,
as applicable;
(b) the Security Documents executed by the Borrower;
(c) a certificate executed by the General Partner of the
Borrower dated as of the date thereof, substantially in the form attached hereto
as Exhibit G;
(d) certified copies of the Organizational Documents of the
Borrower;
(e) a certificate from the Secretary of State or other
appropriate public official of the State of Delaware as to the continued
existence of the Borrower in the State of Delaware;
(f) certificates from the appropriate public officials of
Texas and Delaware as to the existence, good standing and qualification as a
foreign limited partnership (as may be appropriate) of the Borrower in such
jurisdictions;
(g) the most recent schedule and aging of Receivables of the
Borrower (dated within thirty (30) days of the Closing Date), as well as a
current Borrowing Base Certificate executed by a Responsible Officer of the
General Partner in the form attached hereto as Exhibit H;
(i) a copy of the field examination, including a takeover
field examination, of the Borrower's books and records and the results of such
field examination;
(j) evidence that the Borrower has [$700,000] or more of
Availability, after giving effect to the Revolving Loans occurring and the
Letters of Credit issued on the Closing Date;
(k) a legal opinion from counsel for the Borrower (said
counsel to be reasonably acceptable to the Lender), dated as of the Closing
Date, addressed to the Lender and acceptable in all respects to the Lender in
its sole and absolute discretion;
(l) certificates of insurance satisfactory to the Lender in
all respects evidencing the existence of all insurance required to be maintained
by the Borrower pursuant to the terms of this Agreement and the Security
Documents;
CREDIT AGREEMENT - Page 39
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(m) the Borrower and the Lender shall have entered into the
Lockbox Agreements;
(n) copies of all major customer and supplier contracts with
respect to the Borrower;
(o) copies of all employment agreements, management fee
agreements and tax sharing agreements;
(p) copies of all lease and warehouse agreements entered into
by Borrower;
(q) waivers or subordinations of any and all landlord and
warehousemen liens (whether statutory or contractual) held by any owner, or
warehousemen, of each real Property leased by the Borrower or where Borrower's
Property is warehoused;
(r) copies of all loan agreements, notes and other
documentation evidencing any Indebtedness of the Borrower;
(s) evidence satisfactory to the Lender that there has been no
material adverse change in the business, assets, operations, or financial
condition of Tidel Engineering, Inc. between February 28, 1999 and the merger of
Tidel Engineering, Inc. into Borrower;
(t) an executed disbursement authorization letter from the
Borrower to the Lender with respect to the disbursement of the proceeds of the
Loans and the issuance of the Letters of Credit, if any, to be made or issued on
the Closing Date;
(u) all other Loan Documents and any other instruments or
documents consistent with the terms of this Agreement and relating to the
transactions contemplated hereby as the Lender may reasonably request, executed
by the Borrower or any other Person required by the Lender, including without
limitation, the Lockbox Agreements;
and subject to the further conditions that, at the time of the initial Loan, (1)
the ownership, partnership structure, solvency and capitalization of the
Borrower shall be reasonably satisfactory to the Lender in all respects; (2) the
Lender shall have had the opportunity, if they elect, to examine the books of
account and other records and files of the Borrower and to make copies hereof,
and to conduct a pre-closing audit which shall include, without limitation,
verification of Eligible Receivables, verification of satisfactory status of
customer and supplier accounts, payment of payrolls taxes and accounts payable
and formulation of an opening Borrowing Base as of the Closing Date (with the
results of such examination and audits to have been satisfactory to the Lender
in all respects); (3) all such actions as the Lender shall reasonably require to
perfect the Liens created pursuant to the Security Documents shall have been
taken, including without limitation, the delivery to the Lender of all Property
with respect to which possession is necessary for the purpose of perfecting such
Liens, and with respect to Collateral covered by the Security Agreements, the
filing of appropriately completed and duly executed Uniform Commercial Code
financing statements; (4) the Lender shall also have received evidence
reasonably satisfactory to it that the Liens created by the Security Documents
constitute
CREDIT AGREEMENT - Page 40
<PAGE> 49
first priority Liens (except for any Liens expressly provided for in Section 8.2
below); (5) the Borrower shall have paid all fees owing to the Lender by the
Borrower under this Agreement, including without limitation, legal fees and
expenses described in Section 10.9 or otherwise and (6) all other legal matters
incident to the transactions herein contemplated shall be reasonably
satisfactory to counsel for the Lender.
6. Representations and Warranties.
To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender, as of the date hereof and as of the date
any Loan is made hereunder or any Letter of Credit is issued hereunder, as
follows:
6.1 Organization; Capitalization. The Borrower is duly organized and
validly existing under the laws of the state of its formation; has all power and
authority to own its Property and assets and to conduct its business as
presently conducted; and is duly qualified to do business in Texas and Delaware.
The partnership interests of Borrower are owned as follows: (i) one percent
(1.0%) general partnership interest owned by General Partner and (ii)
ninety-nine percent (99.0%) limited partnership interest owned by Limited
Partner. The General Partner is duly organized, validly existing and in good
standing under the laws of the state of its incorporation; has all the power and
authority to own its Property and assets and conduct its business as presently
conducted, and is duly qualified to do business and in good standing in each and
every state in the United States of America where its business requires such
qualification. The authorized capital stock of the General Partner consists of
100 shares of common stock, $.01 par value, of which 100 are issued and
outstanding and owned beneficially and of record by Ultimate Parent.
6.2 Financial Statements.
(a) The financial statements of the Borrower delivered to the
Lender in connection with this Agreement, including without limitation, the
financial statements of Tidel Engineering, Inc. dated as of February 28, 1999,
fairly present, in accordance with GAAP, the financial condition and the results
of operations of the Tidel Engineering, Inc. as of the dates and for the periods
indicated. No Material Adverse Effect has occurred since the dates of such
financial statements.
(b) The Borrower has heretofore furnished to the Lender, for
each quarter from the projected Closing Date through the first anniversary of
the Closing Date and for the 1999 fiscal year, projected income statements,
balance sheets and cash flows of the Borrower, together with one or more
schedules demonstrating prospective compliance with all financial covenants
contained in this Agreement, such projections disclosing all assumptions made by
the Borrower in formulating such projections. The projections are based upon
estimates and assumptions, all of which are reasonable in light of the
conditions which existed as of the time the projections were made, have been
prepared on the basis of the assumptions stated therein and reflect as of the
Closing Date a reasonable estimate of the Borrower as to the results of
operations and other information projected therein.
CREDIT AGREEMENT - Page 41
<PAGE> 50
6.3 Enforceable Obligations; Authorization. The Loan Documents are
legal, valid and binding obligations of the Borrower, enforceable in accordance
with their respective terms, except as may be limited by bankruptcy, insolvency
and other similar laws affecting creditors rights generally and by general
equitable principles. The execution, delivery and performance of the Loan
Documents have all been duly authorized, with respect to the General Partner, by
all necessary corporate, and if necessary, shareholder action, and with respect
to Borrower, by all necessary partnership, and if necessary, partner action; are
within the power and authority of the Borrower and General Partner; do not and
will not contravene or violate any Legal Requirement or the Organizational
Documents of the Borrower or General Partner; do not and will not result in the
creation of any Lien upon any Property of the Borrower except as expressly
contemplated therein. All necessary approvals of any Governmental Authority and
all other requisite permits, registrations and consents for that performance
have been obtained for the delivery and performance of the Loan Documents.
6.4 Other Debt. The Borrower is not in default in the payment of any
other Indebtedness or under any agreement, mortgage, deed of trust, security
agreement or lease to which it is a party, the result of which has, or is
reasonably likely to have, a Material Adverse Effect.
6.5 Litigation. Except as set forth on Schedule 6.5 attached hereto,
there is no litigation or administrative proceeding pending or, to the knowledge
of the Borrower, threatened against, nor any outstanding judgment, order or
decree affecting, the Borrower or any Subsidiary of the Borrower before or by
any Governmental Authority or arbitral body which individually or in the
aggregate have, or are reasonably likely to have, a Material Adverse Effect.
Neither the Borrower, nor any Subsidiary thereof, is in default with respect to
any judgment, writ, rule, regulation, order or decree of any Governmental
Authority.
6.6 Taxes. Except as otherwise permitted pursuant to the terms of
Section 7.2 hereof, the Borrower has filed all federal, state, local or foreign
tax returns required to have been filed and paid all taxes shown thereon to be
due, except those for which extensions have been obtained if adequate reserves
with respect thereto are maintained in accordance with GAAP. No federal income
tax returns of the Borrower have been audited by the Internal Revenue Service,
and the Borrower has not, as of the Closing Date, requested or been granted any
extension of time to file any Federal, state, local or foreign tax return. The
Borrower is not a party to, and does not have any obligation under, any tax
sharing arrangement.
6.7 No Material Misstatements. No information, report, financial
statement, exhibit or schedule prepared or furnished by or on behalf of the
Borrower to the Lender in connection with this Agreement or any other Loan
Documents knowingly contains any material misstatement of fact or knowingly
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
6.8 Subsidiaries. As of the date hereof, the Borrower has no
Subsidiaries or any other material minority ownership interests in any other
Person.
CREDIT AGREEMENT - Page 42
<PAGE> 51
6.9 Representations by Others. All representations and warranties made
by or on behalf of the Borrower in any Loan Document shall constitute
representations and warranties of the Borrower hereunder.
6.10 Permits, Licenses, Etc. The Borrower possesses all material
permits, licenses, patents, patent rights, trademarks, trademark rights, trade
names, trade name rights and copyrights which are required to conduct its
business.
6.11 ERISA. No Reportable Event has occurred with respect to any Plan.
Each Plan complies in all material respects with all applicable provisions of
ERISA, and the Borrower or each ERISA Affiliate have filed all reports required
by ERISA and the Code to be filed with respect to each Plan. The Borrower does
not have any knowledge of any event which could reasonably be expected to result
in a liability of the Borrower or any ERISA Affiliate to the PBGC other than for
applicable premiums. No accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any Plan. No event has occurred and no condition exists that could
reasonably be expected to constitute grounds for a Plan to be terminated under
circumstances which would cause the Lien provided under Section 4068 of ERISA to
attach to any Property of the Borrower or any ERISA Affiliate. No event has
occurred and no condition exists that could reasonably be expected to cause the
Lien provided under Section 302 of ERISA or Section 412 of the Code to attach to
any Property of the Borrower or any ERISA Affiliate.
6.12 Title to Properties; Possession Under Leases.
(a) The Borrower has good and indefeasible title to, or a
valid leasehold interest in, all of its Property and assets shown on the most
recent balance sheets of Tidel Engineering, Inc. referred to in Section 6.2
hereof and all assets and Property acquired since the date of such balance
sheets, except for such Property disposed of in accordance with the terms hereof
or no longer used or useful in the conduct of its business or as has been
disposed of in the ordinary course of business, and except for minor defects in
title that do not interfere with the ability of the Borrower or any of its
Subsidiaries to conduct its business as now conducted. All such assets and
Property are free and clear of all Liens other than those permitted by Section
8.2 hereof.
(b) The Borrower has complied in all material respects with
all obligations under all leases to which it is a party and under which it is in
occupancy, except where noncompliance does not effect the Borrower's use or
occupancy thereof, and all such leases are in full force and effect, and the
Borrower enjoys peaceful and undisturbed possession under all such leases.
Schedule 6.12 attached hereto sets forth each of such leases of real Property in
existence as of the Closing Date, and the Borrower has provided the Lender with
complete and correct copies of all of such leases of real Property in effect as
of the Closing Date where Collateral is located.
6.13 Assumed Names. The Borrower is not currently conducting its
business under assumed name or names, except as set forth on Schedule 6.13
attached hereto or as disclosed in
CREDIT AGREEMENT - Page 43
<PAGE> 52
writing to the Lender within a reasonable time before the Borrower commences to
conduct business under the applicable assumed name or names.
6.14 Investment Company Act. The Borrowers is not an investment company
within the meaning of the Investment Company Act of 1940, as amended, or,
directly or indirectly, controlled by or acting on behalf of any Person which is
an investment company, within the meaning of said Act.
6.15 Public Utility Holding Company Act. The Borrower is not a "public
utility company," or an "affiliate" or a "subsidiary company" of a "public
utility company," or a "holding company," or a "subsidiary company" of a
"registered holding company," or an "affiliate" of a "registered holding
company" or of a "subsidiary company" of a "registered holding company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended
("PUHCA"). To the best of the Borrower's knowledge, the Borrower is not an
affiliate" or a "subsidiary company" of an unregistered, non-exempt "holding
company as such terms are defined in PUHCA.
6.16 Indebtedness Agreements. Schedule 6.16 attached hereto is a
complete and correct list of (i) all credit agreements for borrowed money,
indentures and capitalized leases and all Property subject to any Lien securing
such Indebtedness or lease obligation, (ii) each letter of credit and guaranty,
(iii) all other material instruments in effect as of the date hereof providing
for, evidencing, securing or otherwise relating to any Indebtedness for borrowed
money of the Borrower (other than the Indebtedness hereunder), and (iv) all
obligations of the Borrower to issuers of appeal bonds issued for account of the
Borrower. The Borrower shall, upon request by the Lender, deliver to the Lender
a complete and correct copy of all such credit agreements, indentures,
capitalized leases, letters of credit, guarantees and other instruments or
leases described in Schedule 6.16 or arising after the date hereof, including
any modifications or supplements thereto, as in effect on the date hereof.
6.17 Environmental Matters. Except as is described on Schedule 6.17
attached hereto, no activity of the Borrower requires any Environmental Permit
which has not been obtained and which is not now in full force and effect. The
Borrower is in compliance with all limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Requirement of Environmental Law or Environmental
Permit. The Borrower (and, to the knowledge of the Borrower, each of the prior
owners or operators and predecessors in interest with respect to any of its
Property) (i) has obtained and maintained in effect all Environmental Permits,
(ii) along with its Property has been (except as disclosed in the lease of the
premises known as 2310 McDaniel Drive, as in effect on the Closing Date, and as
to which, to the knowledge of Borrower, proper remediation has occurred pursuant
to the terms of such lease) and is in compliance with all applicable
Requirements of Environmental Law and Environmental Permits, (iii) along with
its Property is not subject to any (A) Environmental Claims or (B) Environmental
Liabilities, in either case direct or contingent, and whether known or unknown,
arising from or based upon any act, omission, event, condition or circumstance
occurring or existing on or prior to the date hereof, and (iv) has not received
individually or collectively any notice of any violation or alleged violation of
any Requirements of Environmental Law or Environmental Permit or any
Environmental Claim in connection with
CREDIT AGREEMENT - Page 44
<PAGE> 53
its Property. The present and future liability (including any Environmental
Liability and any other damage to Persons or Property), if any, of the Borrower
and with respect to the Property of the Borrower which is reasonably expected to
arise in connection with Requirements of Environmental Law, Environmental
Permits and other environmental matters will not have a Material Adverse Effect.
6.18 No Change in Credit Criteria or Collection Policies. There has
been no material adverse change in credit criteria or collection policies
concerning Receivables of the Borrower since [June 1, 1991].
6.19 Solvency.
(a) The fair salable value of the assets of the Borrower is
not less than the amount that will be required to be paid on or in respect of
the probable liability on the existing debts and other liabilities (including
contingent liabilities) of the Borrower, as they become absolute and mature.
(b) The assets of the Borrower do not constitute unreasonably
small capital for the Borrower to carry out its business as now conducted and as
proposed to be conducted including the capital needs of the Borrower, taking
into account the particular capital requirements of the business conducted by
the Borrower and projected capital requirements and capital availability
thereof.
(c) The Borrower does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be received by the Borrower, and of amounts to be payable on
or in respect of debt of the Borrower). The cash flow of the Borrower, after
taking into account all anticipated uses of the cash of the Borrower, should at
all times be sufficient to pay all such amounts on or in respect of debt of the
Borrower when such amounts are required to be paid.
(d) The Borrower does not believe that final judgments against
it in actions for money damages presently pending, if any, will be rendered at a
time when, or in an amount such that, it will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account the
maximum reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered). The cash flow of the
Borrower, after taking into account all other anticipated uses of the cash of
the Borrower (including the payments on or in respect of debt referred to in
subparagraph (c) of this Section 6.19), should at all times be sufficient to pay
all such judgments promptly in accordance with their terms.
6.20 Status of Receivables and Other Collateral. The Borrower
represents and warrants that (a) it is and shall be the sole owner, free and
clear of all Liens except in favor of the Lender or otherwise permitted under
Section 8.2 hereunder, of and fully authorized to sell, transfer, pledge and/or
grant a security interest in each and every item of all Collateral owned by it;
(b) each Eligible Receivable is and shall be a good and valid account
representing an undisputed bona fide indebtedness incurred or an amount
indisputably owed by the account
CREDIT AGREEMENT - Page 45
<PAGE> 54
debtor therein named, for a fixed sum as set forth in the invoice relating
thereto with respect to an absolute sale and delivery upon the specified terms
of goods sold by the Borrower, or work, labor and/or services theretofore
rendered by the Borrower; (c) no Eligible Receivable is or shall be subject to
any defense, offset, counterclaim, discount or allowance (as of the time of its
creation) except as may be stated in the invoice relating thereto or discounts
and allowances as may be customary in the Borrower's business; (d) none of the
transactions underlying or giving rise to any Eligible Receivable shall violate
any applicable state or federal laws or regulations, and all documents relating
to any Receivable shall be legally sufficient under such laws or regulations and
shall be legally enforceable in accordance with their terms, subject, as to
enforceability, to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creators' rights generally;
(e) to the best of the Borrower's knowledge, each account debtor, guarantor or
endorser with respect to any Eligible Receivable is solvent and able to pay all
Receivables on which it is obligated in full when due; (f) all documents and
agreements relating to Eligible Receivables shall be true and correct and in all
respects what they purport to be; (g) to the best of the Borrower's knowledge,
all signatures and endorsements that appear on all documents and agreements
relating to Eligible Receivables shall be genuine and all signatories and
endorsers with respect thereto shall have full capacity to contract; (h) it
shall maintain books and records pertaining to the Collateral owned by it in
detail, form and scope as the Lender shall reasonably require; (i) the Borrower
will immediately notify the Lender if any Receivables arise out of contracts
with the United States or any department, agency or instrumentality thereof, and
will, upon request from the Lender, execute any instruments and take any steps
required by the Lender in order that all monies due or to become due under any
such contract shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act; (j) it will, immediately upon learning
thereof, report to the Lender any material loss or destruction of, or
substantial damage to, any of the Collateral, and any other matters adversely
affecting the value, enforceability or collectibility of any of the Collateral;
(k) if any amount payable under or in connection with any Receivable is
evidenced by a promissory note or other instrument, as such terms are defined in
the Uniform Commercial Code, such promissory note or instrument shall be
immediately pledged, endorsed, assigned and delivered to the Lender as
additional collateral; (l) it shall not re-date any invoice or sale or make
sales on extended dating beyond that customary in the industry; and (m) it shall
not be entitled to pledge the Lender's credit on any purchases or for any
purpose whatsoever.
6.21 Y2K Representation. Unless otherwise disclosed to the Lender, as
of no later than June 30, 1999, on the basis of a comprehensive review and
assessment of Borrower's systems and equipment and inquiry made of Borrower's
material suppliers, vendors and customers, Borrower's management will be of the
view that the "Year 2000 problem" (that is, the inability of computer, as well
as embedded microchips in non-computing devices, to perform date-sensitive
functions with respect to certain dates prior to and after December 31, 1999)
(the "Year 2000 Problem"), including costs of remediation, will not result in a
material adverse change in the operations, business, properties, condition
(financial or otherwise) or prospects of Borrower. By no later than June 30,
1999, Borrower will have developed feasible contingency plans adequately to
ensure uninterrupted and unimpaired business operation in the event of failure
of its own or a third party's systems or equipment due to the Year 2000 Problem,
including those of vendors, customers, and suppliers, as well as a general
failure of or interruption in its communications and delivery infrastructure.
CREDIT AGREEMENT - Page 46
<PAGE> 55
7. Affirmative Covenants.
The Borrower covenants and agrees with the Lender that prior to the
termination of this Agreement, it will do, cause each of its Subsidiaries, if
any, to do, and if necessary cause to be done, each and all of the following:
7.1 Businesses and Properties. At all times: (a) do or cause to be done
all things necessary to obtain, preserve, renew and keep in full force and
effect the rights, licenses, permits, franchises, patents, copyrights,
trademarks and trade names material to the conduct of its businesses; (b)
maintain and operate such businesses in the same general manner in which are
they are presently conducted and operated; (c) comply with all Legal
Requirements applicable to the operation of such businesses whether now in
effect or hereafter enacted (including without limitation, all Legal
Requirements relating to public and employee health and safety and all
Environmental Laws) and with any and all other Legal Requirements; and (d)
maintain, preserve and protect all Property material to the conduct of such
businesses and keep such Property in good repair, working order and condition,
and from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.
7.2 Taxes. Pay and discharge promptly when due all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or profits
or in respect of its Property before the same shall become delinquent or in
default, as well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, and in excess of $10,000 with respect to claims for
labor, material and supplies or in excess of $10,000 with respect to claims for
taxes, assessments and governmental charges or levies, might give rise to Liens
upon such properties or any part thereof (except as otherwise permitted by
Section 8.2 hereof), unless being diligently contested in good faith by
appropriate proceedings and as to which adequate reserves in an amount not less
than the aggregate amount secured by such Liens have been established in
accordance with GAAP; provided, however, that such contested amounts giving rise
to such Liens shall be immediately paid upon commencement of any procedure or
proceeding to foreclose any of such Liens unless the same shall be validly
stayed by a court of competent jurisdiction or a surety bond, which is
satisfactory in all respects to the Lender, is delivered to the Lender in an
amount no less than such contested amounts.
7.3 Financial Statements and Information. Furnish to the Lender three
(3) copies of each of the following:
(a) Annual Statements. As soon as available and in any event
within one hundred twenty-one (121) days after the end of each fiscal
year of the Borrower or the Ultimate Parent, as the case may be, Annual
Audited Financial Statements of the Ultimate Parent and its
Subsidiaries, and Annual Consolidating Financial Statements of the
Ultimate Parent, its subsidiaries, and the Borrower;
CREDIT AGREEMENT - Page 47
<PAGE> 56
(b) Monthly Statements. As soon as available and in any event
within thirty (30) days after the end of each fiscal month of the
Borrower, Monthly Unaudited Financial Statements of the Borrower and
its Subsidiaries;
(c) Quarterly Statements. As soon as available and in any
event within forty-five (45) days after the end of each fiscal quarter
of the Ultimate Parent and of the Borrower, Quarterly Unaudited
Financial Statements of the Ultimate Parent and the Borrower,
respectively;
(d) Compliance Certificate. Concurrently with the financial
statements of Borrower provided for in Subsections 7.3(a) and 7.3(b)
hereof, (1) a Compliance Certificate, signed by a Responsible Officer
of the General Partner, and (2) a written certificate in Proper Form,
identifying each Subsidiary which is otherwise required by the
provisions of Section 7.10 hereof to become a Guarantor at the request
of the Lender, but which has not yet done so as of the date of such
certificate, and providing an explanation of the reasons why each such
Subsidiary is not a Guarantor, signed by a Responsible Officer of the
General Partner;
(e) Management Letters. As soon as available and in any event
within five (5) days after the date of issuance thereof, a management
letter prepared by the independent public accountants who reported on
the financial statements provided for in Subsection 7.3(a) above with
respect to the internal audit and financial controls of the Ultimate
Parent, Borrower and either of their Subsidiaries;
(f) Agings. As soon as available and in any event within
fifteen (15) days after the end of each month, account receivable
agings and reconciliations, accounts payable agings and
reconciliations, monthly sales report, monthly inventory summary and
all other schedules, computations and other information, in reasonable
detail, as may be required or requested by the Lender, all certified by
a Responsible Officer of the General Partner;
(g) Borrowing Base Certificate. As soon as available and in
any event on the Monday after the end of each week, a Borrowing Base
Certificate, signed by a Responsible Officer of the General Partner in
the form attached hereto as Exhibit H;
(h) Projections. As soon as available and in any event within
thirty (30) days subsequent to the commencement of each fiscal year of
the Borrower, management-prepared Consolidated financial projections of
the Borrower and its Subsidiaries for the immediately following fiscal
year (setting forth such projections on both an annual basis and on a
monthly basis), such projections to be in such format and detail as
reasonably requested by the Lender;
(i) SEC Reports. Promptly after the same become publicly
available, copies of such financial information, registration
statements, annual, periodic and other reports, and such proxy
statements and other information, if any, as shall be filed by the
Ultimate Parent with the Securities and Exchange Commission pursuant to
the requirements of the
CREDIT AGREEMENT - Page 48
<PAGE> 57
Securities Act of 1993 or the Securities Exchange Act of 1934 or
submitted to any shareholders of the Ultimate Parent or any Subsidiary
thereof, including without limitation, all 10-Q and 10-K Reports; and
(j) Other Information. Such other information relating to the
financial condition, operations and business affairs of the Borrower or
any of its Subsidiaries as from time to time may be reasonably
requested by the Lender.
7.4 Inspection. Upon reasonable notice (which may be telephonic
notice), at all reasonable times and as often as the Lender may request, permit
any authorized representative designated by the Lender to visit and inspect the
Properties and financial records of the Borrower and its Subsidiaries and to
make extracts from such financial records at the Lender's expense, and permit
any authorized representative designated by the Lender to discuss the affairs,
finances and condition of the General Partner and its Subsidiaries with the
appropriate Financial Officer and such other officers as the General Partner
shall deem appropriate and the Borrower's independent public accountants, as
applicable. The Lender agrees that it shall schedule any meeting with any such
independent public accountant through the Borrower, and a Responsible Officer of
the General Partner shall have the right to be present at any such meeting. At
the Borrower's expense, the Lender shall have the right to examine, as often as
it may request (but initially scheduled for three (3) times in each fiscal year
of the Borrower prior to a Default or Event of Default) the existence and
condition of the Receivables, books and records of the Borrower and its
Subsidiaries and to review their compliance with the terms and conditions of
this Agreement and the other Loan Documents, subject to governmental
confidentiality requirements. When and if the daily collection and application
procedures for Receivables are implemented and continuing in accordance with
Section 7.15(b) hereof, the Lender shall also have the right to verify with any
and all customers of the Borrower and any of its Subsidiaries the existence and
condition of the Receivables, as often as the Lender may require, without prior
notice to or consent of the Borrower or any of its Subsidiaries.
7.5 Further Assurances. Promptly execute and deliver any and all other
and further instruments which may be requested by the Lender to (a) cure any
defect, error or omission in the execution and delivery of any Loan Document and
(b) grant, preserve, protect and perfect the first priority Liens created by the
Security Documents in the Collateral.
7.6 Books and Records. Maintain financial records and books in
accordance with accepted financial practice in the Borrower's industry and GAAP.
7.7 Insurance.
(a) Keep its insurable Properties adequately insured at all
times by financially sound and reputable insurers.
(b) Maintain such other insurance, to such extent and against
such risks, including fire and other risks insured against by extended coverage,
employee liability and business interruption, as is customary with companies
similarly situated and in the same or similar businesses, provided, however,
that such insurance shall insure the Property of the
CREDIT AGREEMENT - Page 49
<PAGE> 58
Borrower against all risk of physical damage, including without limitation, loss
by fire, explosion, theft, fraud and such other casualties as may be reasonably
satisfactory to the Lender, but in no event at any time in an amount less than
the replacement value of the Collateral.
(c) Maintain in full force and effect worker's compensation
coverage and public liability insurance against claims for personal injury or
death or property damage occurring upon, in, about or in connection with its
operations and with the use of any Properties owned, occupied or controlled by
the Borrower or any of its Subsidiaries, in such amounts as is customary with
companies similarly situated and in the same or similar businesses.
(d) Maintain such other insurance as may be required by law or
as may be reasonably requested by the Lender for purposes of assuring compliance
with this Section 7.7. All insurance covering tangible personal Property subject
to a Lien in favor of the Lender granted pursuant to the Security Documents
shall provide that, in the case of each separate loss, the full amount of
insurance proceeds shall be payable to the Lender and shall further provide for
at least thirty (30) days' prior written notice to the Lender of the
cancellation or substantial modification thereof.
7.8 ERISA. At all times: (a) make contributions to each Plan in a
timely manner and in an amount sufficient to comply with the minimum funding
standards requirements of ERISA; (b) immediately upon acquiring knowledge of (i)
any Reportable Event in connection with any Plan for which no administrative or
statutory exemption exists or (ii) any "prohibited transaction," as such term is
defined in Section 4975 of the Code, in connection with any Plan, furnish the
Lender a statement executed by a Responsible Officer of the General Partner or
such Subsidiary setting forth the details thereof and the action which the
Borrower or any such Subsidiary proposes to take with respect thereto and, when
known, any action taken by the Internal Revenue Service with respect thereto;
(c) notify the Lender promptly upon receipt by the Borrower or any Subsidiary
thereof of any notice of the institution of any proceedings or other actions
which may result in the termination of any Plan by the PBGC and furnish the
Lender with copies of such notice; (d) pay when due, or within any applicable
grace period allowed by the PBGC, all required premium payments to the PBGC; (e)
furnish the Lender with copies of the annual report for each Plan filed with the
Internal Revenue Service not later than ten (10) days after the Lender requests
such report; (f) furnish the Lender with copies of any request for waiver of the
funding standards or extension of the amortization periods required by Sections
303 and 304 of ERISA or Section 412 of the Code promptly after the request is
submitted to the Secretary of the Treasury, the Department of Labor or the
Internal Revenue Service, as the case may be; and (g) pay when due all
installment contributions required under Section 302 of ERISA or Section 412 of
the code or within ten (10) days of a failure to make any such required
contributions when due furnish the Lender with written notice of such failure.
7.9 Use of Proceeds. Subject to the terms and conditions contained
herein, (a) use the proceeds of the Loans for (a) financing ongoing working
capital needs of the Borrower and its Subsidiaries not otherwise prohibited
herein and/or (b) payment of the Obligations, as provided in this Agreement;
provided, that no proceeds of any Loan shall be used (a) for the purpose of
purchasing or carrying directly or indirectly any margin stock as defined in
Regulation U ("Reg U") of the Board of Governors of the Federal Reserve System,
(b) for the purpose of
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reducing or retiring any Indebtedness which was originally incurred to purchase
or carry any such margin stock, (c) for any other purpose which would cause such
Loan to be a "purpose credit" within the meaning of Reg U and (d) for any
purpose which would constitute a violation of Reg U or of Regulations G, T or X
of the Board of Governors of the Federal Reserve System or any successor
regulation of any thereof or of any other rule, statute or regulation governing
margin stock from time to time.
7.10 Guarantors; Joinder Agreements. Promptly inform the Lender of the
creation or acquisition of any Subsidiary of the Borrower after the Closing Date
and, if required by the Lender, promptly cause any such Subsidiary created after
the Closing Date (except as provided for below) to become a Guarantor by
execution and delivery to the Lender a Guaranty or a Joinder Agreement (if a
Joinder Agreement is requested by the Lender in lieu of a Guaranty) and execute
and deliver to the Lender any applicable Security Documents required by the
Lender, together with such related certificates, legal opinions and documents as
the Lender may reasonably require.
7.11 Notice of Events. Notify the Lender immediately upon acquiring
knowledge of the occurrence of, or if the Borrower or any of its Subsidiaries
causes or intends to cause, as the case may be: (a) the institution of any
lawsuit, administrative proceeding or investigation affecting the Borrower or
any of its Subsidiaries, including without limitation, any audit by the Internal
Revenue Service, (b) any development or change in the business or affairs of the
Borrower or any of its Subsidiaries which is reasonably likely to have a
Material Adverse Effect; (c) any Event of Default or any Default, together with
a detailed statement by a Responsible Officer of the General Partner of the
steps being taken to cure the effect of such Event of Default or Default; (d)
the occurrence of a default or event of default by the Borrower or any of its
Subsidiaries under any agreement or series of related agreements to which it is
a party; (e) any violation by, or investigation of, the Borrower or any of its
Subsidiaries in connection with any actual or alleged violation of any Legal
Requirement imposed by the Environmental Agency which is reasonably likely to
have a Material Adverse Effect; and (f) any material change in the accuracy of
the representations and warranties of the Borrower or any of any of its
Subsidiaries in this Agreement or any other Loan Document.
7.12 Environmental Matters. Without limiting the generality of Section
7.1(c) hereof, (a) comply in all material respects with all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Requirement of
Environmental Law or Environmental Permit; (b) obtain and maintain in effect all
Environmental Permits; and (c) keep its Property free of any Environmental
Claims or Environmental Liabilities.
7.13 End of Fiscal Year. Cause each of its fiscal years to end on
September 30.
7.14 Pay Obligations and Perform Other Covenants. Make full and timely
payment of the Obligations, whether now existing or hereafter arising, duly
comply with all of the terms and covenants contained in this Agreement and in
each of the other Loan Documents at all times and places and in the manner set
forth therein, and except for the filing of continuation statements and the
making of other filings by the Lender as secured party or assignee, at all times
take all
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actions necessary to maintain the Liens and security interests provided for
under or pursuant to this Agreement and the Security Documents as valid
perfected first priority Liens on the Collateral intended to be covered thereby
(subject only to other Liens expressly permitted by Section 8.2 hereof) and
supply all information to the Lender necessary for such maintenance.
7.15 Collection of Receivables; Application of Lockbox Agreement
Proceeds.
(a) At the Borrower's own cost and expense, arrange for
remittances on all Receivables to be made directly to lockbox(es) designated by
the Lender under the terms of the Lockbox Agreements or in such other manner as
the Lender may direct. Prior to the implementation of the procedures discussed
in Section 7.15(b) below, the proceeds of all Receivables collected through such
lockbox(es) shall not be required to be remitted to the Lender for application
to the Revolving Loans and for other disbursements approved by the Lender as set
forth in Section 7.15(b) below, but instead shall be available for unrestricted
use by the Borrower by deposit of such proceeds into one or more operating
accounts maintained by the Borrower with the Lender.
(b) If at any time, either (i) a Default or Event of Default
shall occur and be continuing or (ii) Availability shall be less than $50,000
for more than five (5) consecutive Business Days after the Lender has notified
the Borrower in writing that Availability has fallen below $50,000 for any
reason, all remittances on all Receivables processed through lockbox(es) in
accordance with Section 7.15(a) above shall at all times thereafter be promptly
deposited in one or more accounts designated by the Lender, subject to
withdrawal by the Lender only, as hereinafter provided. In connection therewith,
the Lender is irrevocably authorized, in accordance with the terms of the
implementation and processing instructions for the applicable Lockbox
Agreement(s), to cause all such remittances on all Receivables to be promptly
deposited in such account or accounts designated by the Lender. All remittances
and payments that are deposited in accordance with the foregoing will be
immediately applied by the Lender to reduce the outstanding balance of the
Revolving Loans, subject to the continued accrual of interest on the Revolving
Loan balances to which such remittances and payments are applied for one (1)
Business Day (or two (2) Business Days in the case of remittances and payments
received after 12:00 noon) and in any event subject to final collection in cash
of the item deposited.
(c) As long as the procedures implemented under Section
7.15(b) above are in effect and are continuing, the Borrower shall cause all
payments, if any, received by the Borrower or any of its Subsidiaries on account
of Receivables which are not forwarded directly to the above-described
lockbox(es) (whether in the form of cash, checks, notes, drafts, bills of
exchanges, money orders or otherwise) to be promptly deposited in precisely the
form received (but with any endorsements of the Borrower or the applicable
Subsidiary necessary for deposit or collection) in the account or accounts
designated by the Lender in accordance with the provisions of Section 7.15(b)
above.
(d) In addition to the financial reporting requirements set
forth in Section 7.3 hereof, as long as the daily collection procedure
implemented by the provisions of Section 7.15(b) above is in effect, the
Borrower shall furnish to the Lender on each Business Day
CREDIT AGREEMENT - Page 52
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a copy of a Receivables report setting forth the sales, collections and credits
for the Borrower and its Subsidiaries for the preceding Business Day prior to
the date of such Receivables report.
(e) If and when the daily collection procedures discussed in
Section 7.15(b) above are implemented in accordance with the provisions thereof,
such daily collection procedures shall thereafter continue to be in effect until
the end of the fiscal quarter of the Borrower during which all existing Defaults
and Events of Default, if applicable, shall have been cured to the satisfaction
of the Lender and Availability shall have increased to an amount equal to or
greater than $50,000, if applicable.
7.16 Additional Receivables Documentation. In addition to the
Receivables information delivered pursuant to the other provisions of this
Agreement, furnish such further schedules and/or information as the Lender may
reasonably require relating to the Receivables (including without limitation,
sales invoices if the same are required by the Lender), and the Borrower shall
notify the Lender of any non-compliance in respect of the representations and
warranties contained in Section 6.21 hereof. The items to be provided under this
Section 7.16 are to be in Proper Form and are to be executed and delivered to
the Lender from time to time solely for its convenience in maintaining records
of the Collateral. The Borrower's failure to give any of such items to the
Lender shall not affect, terminate, modify or otherwise limit the Lender's Lien
or security interest in the Collateral.
7.17 Y2K Covenant. Borrower has completed or accomplished, or will use
their best efforts to complete or accomplish, the following:
(a) By June 30, 1999 prepare a comprehensive, detailed
inventory and assessment of the risk posed by the Year 2000 Problem as it may
affect Borrower's own business, properties or operations;
(b) By June 30, 1999 make detailed inquiry of material
suppliers, vendors and customers of Borrower, to ascertain whether such persons
are aware of the need to address the Year 2000 Problem and whether they are
taking appropriate steps to do so;
(c) By June 30, 1999 prepare a detailed project plan and
budget for ensuring that the Year 2000 Problem is successfully addressed in all
material respects as it pertains to Borrower's own business, properties or
operations, and containing contingency plans to mitigate the effects of any
third party's unexpected failure to address the Year 2000 Problem;
(d) By September 30, 1999 renovate all systems and equipment
affected by the Year 2000 Problem to cause them to perform correctly
date-sensitive functions for relevant date data from before and after December
31, 1999 ("Year 2000 Compliance") or replace them with technology not so
affected, and commence testing; and
(e) By September 30, 1999 complete testing and installation of
all material systems and equipment to ensure timely Year 2000 Compliance.
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7.18 Further Information. Subsequent to June 30, 1999, Borrower shall
deliver to the Lender, (a) promptly upon sending or receipt, copies of any and
all management letters and correspondence relating to management letters, sent
or received by Borrower to or from the independent public accountants who
reported on the financial statements provided for in Subsection 7.3(a) above,
and (b) upon request, a copy of Borrower's plan, timetable and budget to address
the Year 2000 Problem, together with periodic updates thereof and expenses
incurred to date, any third party assessment of Borrower's Year 2000 remediation
efforts, and any Year 2000 contingency plans, and any estimates of Borrower's
potential litigation exposure (if any) to the Year 2000 Problem.
8. Negative Covenants.
The Borrower covenants and agrees with the Lender that prior to the
termination of this Agreement, the Borrower will not, and will not suffer or
permit any of its Subsidiaries, if any, to, do any of the following:
8.1 Indebtedness. Except as otherwise permitted hereby, create, incur,
suffer or permit to exist, or assume or guarantee, directly or indirectly, or
become or remain liable with respect to any Indebtedness, whether direct,
indirect, absolute, contingent or otherwise, except the following:
(a) Indebtedness to the Lender pursuant hereto;
(b) Indebtedness secured by Liens permitted by Section 8.2
hereof;
(c) Purchase money Indebtedness incurred to finance the
Borrower's purchase of equipment used for the Borrower's or any of its
Subsidiaries' operations, not to exceed $100,000 in the aggregate at any time
during the period of time from the Closing Date and thereafter;
(d) Subordinated Indebtedness and Indebtedness due Ultimate
Parent in an aggregate principal amount at any time outstanding not to exceed
$350,000;
(e) other liabilities existing on the date of this Agreement
and set forth on Schedule 6.16 attached hereto;
(f) current accounts payable and unsecured current
liabilities, not the result of borrowings, to vendors, suppliers and persons
providing services, for expenditures on ordinary trade terms for goods and
services normally required by the Borrower or any of its Subsidiaries in the
ordinary course of its business;
(g) payment of or reimbursement of current and deferred taxes
and other assessments and governmental charges (to the extent permitted by any
of the other provisions of this Agreement); and
(h) Refinancing Indebtedness.
CREDIT AGREEMENT - Page 54
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8.2 Liens. Except as otherwise permitted hereby, create or suffer to
exist any Lien upon any of its Property (including without limitation, real
property assets) now owned or hereafter acquired, or acquire any Property upon
any conditional sale or other title retention device or arrangement or any
purchase money security agreement; provided, however, that the Borrower and its
Subsidiaries (or any of them) may create or suffer to exist:
(a) Liens in effect on the date hereof and which are described
on Schedule 8.2 attached hereto, provided, that the Property covered thereby
does not increase in quantity and such Liens may not be renewed and extended
except as permitted by Section 8.2(l) below;
(b) Liens in favor of the Lender;
(c) Liens incurred and pledges and deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance, old-age pensions, social security and other similar laws
(not including any lien described in Section 412(m) of the Code);
(d) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and vendors' liens and other similar liens, incurred
in good faith in the ordinary course of business and securing obligations which
are not overdue for a period of more than fifteen (15) days or which are being
contested in good faith by appropriate proceedings as to which the Borrower or
any of its Subsidiaries, as the case may be, shall, to the extent required by
GAAP, consistently applied, have set aside on its books adequate reserves;
(e) Liens securing the payment of taxes, assessments and
governmental charges or levies, that are not delinquent or are being diligently
contested in good faith by appropriate proceedings and as to which adequate
reserves have been established in accordance with GAAP; provided, however, that
in no event shall the aggregate amount of taxes, assessments and governmental
charges or levies which are being contested at any time exceed $50,000 and that
in no event shall the aggregate amount of such reserves be less than the
aggregate amount secured by such Liens;
(f) Zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of property
or minor irregularities of title (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created, assumed
or permitted to exist and arising by, through or under a landlord or owner of
the leased property, with or without consent of the lessee) which do not in the
aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of its business;
(g) Liens securing the performance of utility services, bids,
tenders, leases, contracts (other than for the repayment of borrowed money),
statutory obligations, surety customs and appeal bonds and other obligations of
like nature, incurred as an incident to and in the ordinary course of business;
CREDIT AGREEMENT - Page 55
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(h) Purchase money Liens securing the Indebtedness permitted
by Section 8.1(c) above, provided, that as a result of the creation of any such
Lien, (i) no Default or Event of Default shall have occurred, (ii) the principal
amount of such Lien does not exceed 100% of the purchase price of the asset
acquired with such permitted Indebtedness plus accrued interest on such
Indebtedness plus protective advances made by the holder of such permitted
Indebtedness, and (iii) such Lien shall not apply to any other Property other
than the asset acquired with such purchase money Indebtedness;
(i) Any attachment or judgment Lien, unless the judgment it
secures shall not, within thirty (30) days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall not have been
discharged within thirty (30) days after the expiration of any such stay;
(j) Liens arising by operation of law under Article 2 of the
Code in favor of unpaid sellers or prepaying buyers of goods relating to amounts
that are not past due in accordance with their respective terms of sale;
(k) Statutory or contractual Liens of landlords;
(l) Liens securing any Refinancing Indebtedness or other
renewals, replacement, reinstatements or refinancings (but not increases) of any
obligation secured by any of the Liens described in this definition;
(m) Liens on Property of a Person existing at the time such
Person is acquired by, merged into or consolidated with the Borrower or any of
its Subsidiaries in accordance with the terms hereof, provided that such Liens
were in existence prior to the contemplation of such acquisition, merger or
consolidation and do not extend to any assets other than those of the Person so
merged into, consolidated with or acquired by the Borrower or such Subsidiary;
and
(n) To the extent the contractual relationships described in
clauses (g) and (h) of the definition of "Permitted Dispositions" constitute
Liens, any such Liens.
Provided, however, that notwithstanding anything contained above in this Section
8.2 to the contrary, if any of the permitted Liens are of the type that are
being contested in good faith by appropriate proceedings as to the Borrower or
any of its Subsidiaries, the Indebtedness giving such contested Lien(s) must be
immediately paid upon commencement of any foreclosure process or proceeding with
respect to such Lien(s) unless the same shall be effectively stayed or a surety
bond with respect thereto (which is satisfactory in all respects to the Lender),
is posted.
8.3 Contingent Liabilities. Except as otherwise permitted hereby,
create, incur, suffer or permit to exist, directly or indirectly, any Contingent
Obligations, except for Contingent Obligations incurred for the benefit of any
Subsidiary of the Borrower, if the primary obligation of such Subsidiary is
otherwise permitted by any other provisions of this Agreement.
CREDIT AGREEMENT - Page 56
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8.4 Mergers, Consolidations and Dispositions and Acquisitions of
Assets. Except as otherwise permitted hereby, in any single transaction or
series of related transactions, directly or indirectly:
(a) Wind up its affairs, terminate, liquidate or dissolve;
(b) Except as permitted by Section 8.4(e) and in connection
with Permitted Investments, be a party to any merger or consolidation;
(c) Except in connection with Permitted Dispositions, sell,
convey, lease, transfer or otherwise dispose of all or any portion of the assets
of the Borrower and/or its Subsidiaries, or agree to take any such action;
(d) Sell, assign, pledge, transfer or otherwise dispose of, or
in any way part with control of, any Stock of any of its Subsidiaries or any
Indebtedness or obligations of any character of any of its Subsidiaries, or
permit any such Subsidiary to do so with respect to any Stock of any other
Subsidiary or any Indebtedness or obligations of any character of the Borrower
or any of its Subsidiaries, or permit any of its Subsidiaries to issue any
additional Stock other than to the Borrower;
(e) Without the prior written consent of the Lender, purchase
or otherwise acquire, directly or indirectly, in a single transaction or a
series of related transactions, all or a substantial portion of the assets of
any Person or any shares of Stock of, or similar interest in, any Person;
provided, however that:
(1) any Subsidiary of the Borrower may merge or
consolidate with the Borrower or any other domestic Subsidiary of the Borrower,
provided that if one or more of the entities so merging or consolidation was a
Guarantor, if the surviving entity is not the Borrower or is not yet a
Guarantor, such surviving entity shall simultaneously with such merger, execute
and deliver to the Lender a Joinder Agreement, together with all requested
Security Documents, as required at such time by the Lender, appropriately
completed; and
(2) any transfer of assets otherwise permitted by
clause (e) of the definition of "Permitted Dispositions" may occur; or
(f) Permit any Person other than General Partner or Limited
Partner to own or control, directly or indirectly, any partnership interest of
Borrower.
8.5 Nature of Business. Materially change the nature of its business or
enter into any business which is substantially different from the business in
which it is engaged as of the Closing Date.
8.6 Transactions with Related Parties.
(a) Except for (i) Permitted Affiliate Transactions, (ii)
transactions, contracts or agreements existing on the date of this Agreement and
which are set forth on Schedule 8.6
CREDIT AGREEMENT - Page 57
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attached hereto, provided that, management fees may be paid to the Ultimate
Parent and/or the General Partner, in no event exceed, on a cumulative basis,
$250,000 annually, (iii) transactions, contracts or agreements otherwise
permitted hereby, and (iv) any renewals and extensions of such existing
transactions, contracts or agreements, so long as such renewals and extensions
are upon terms and conditions substantially identical to the terms and
conditions set forth in the existing transactions, contracts and agreements (or
otherwise no less favorable to the Borrower and the Guarantors, as applicable):
(A) enter into any other transaction, contract or agreement of any kind with any
Affiliate, officer or director of the General Partner or any of Borrower's
Subsidiaries, unless such transaction, contract or agreement is made upon terms
and conditions not less favorable to such Person than those which could have
been obtained from wholly independent and unrelated sources; and (B) the
Borrower will not permit the compensation paid by the Borrower or any of its
Subsidiaries to any officer, stockholder, director, partner or proprietor of the
General Partner or any of Borrower's Subsidiaries to be excessive, based on the
reasonable determination of the Borrower's compensation committee, taking into
consideration the financial circumstances of the Borrower or the applicable
Subsidiary and the position and qualifications of such Person.
(b) Permit any officer or director of the General Partner or
any of Borrower's Subsidiaries to acquire or otherwise usurp any partnership or
corporate opportunity rightfully belonging to the Borrower or such Subsidiary in
any manner which would constitute a breach of such officer's or director's duty
of loyalty to the Borrower or such Subsidiary.
8.7 Investments; Loans. Except as otherwise permitted hereby, make,
directly or indirectly, any loan or advance to or have any Investment in any
Person, or make any commitment to make such loan, advance or Investment, except:
(a) Stock of any Subsidiary created or acquired after the
Closing Date in accordance with the other provisions of this Agreement or with
the prior written consent of the Lender; and
(b) Permitted Investments.
8.8 ERISA Compliance.
(a) At any time engage in any "prohibited transaction" as
defined in ERISA; or permit any Plan to be terminated in a manner which could
result in the imposition of a Lien on any Property of the Borrower or any of its
Subsidiaries pursuant to ERISA.
(b) Engage in any transaction in connection with which the
Borrower or any Subsidiary thereof could be subject to either a material civil
penalty assessed pursuant to the provisions of Section 502 of ERISA or a tax
imposed under the provisions of Section 4975 of the Code.
(c) Terminate any Plan in a "distress termination" under
Section 4041 of ERISA, or take any other action which could result in a
liability of the Borrower or any Subsidiary thereof to the PBGC.
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(d) Fail to make payment when due of all amounts which, under
the provisions of any Plan, the Borrower or any Subsidiary thereof is required
to pay as contributions thereto, or, with respect to any Plan, permit to exist
any "accumulated funding deficiency" (within the meaning of Section 302 of ERISA
and Section 412 of the Code), whether or not waived, with respect thereto.
(e) Adopt an amendment to any Plan requiring the provision of
security under Section 307 of ERISA or Section 401(a)(29) of the Code.
8.9 Credit Extensions. Extend credit other than (a) normal and prudent
extensions of credit to customers for goods and services in the ordinary course
of business and (b) loans otherwise permitted by the provisions of Section 8.7
above.
8.10 Change in Accounting Method. Make or permit any change in
accounting method or financial reporting practices except as may be required by
GAAP, as in effect from time to time.
8.11 Interest Coverage Ratio. Permit the Interest Coverage Ratio of the
Borrower (expressly excluding Ultimate Parent, its Subsidiaries and Borrower's
Subsidiaries) to be less than 3.00 to 1.00. The Interest Coverage Ratio will be
measured as of the last day of each month for the period consisting of the
immediately preceding twelve (12) months.
8.12 Tangible Net Worth. Permit the Tangible Net Worth of the Borrower
(expressly excluding Ultimate Parent, its Subsidiaries and Borrower's
Subsidiaries), as determined at any time and from time to time, to be less than
the sum of the following:
(i) $9,000,000.00 (which was the Tangible Net Worth of Tidel
Engineering, Inc. as of September 30, 1998); plus
(ii) an amount equal to fifty percent (50%) of positive net
income of Tidel Engineering, Inc. for the period from October 1, 1998
through March 31, 1999, plus
(iii) the amount, which shall be added to the sum of clauses
(i) and (ii) above as of the end of each calendar month, on a
cumulative basis, beginning with the calendar month ending April 30,
1999 and continuing each calendar month thereafter through the term of
this Agreement, that is equal to the sequential monthly calculations of
fifty percent (50%) of the positive (but not the negative) net income
of the Borrower for each calendar month occurring on and after April
30, 1999.
8.13 Capital Expenditures. Make, directly or indirectly, Capital
Expenditures other than such expenditures which do not exceed One Million Three
Hundred Thousand Dollars ($1,300,000.00) in any fiscal year.
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8.14 Sales of Receivables. Sell, assign, discount, transfer or
otherwise dispose of any Receivables, promissory notes, drafts or trade
acceptances or other rights to receive payment held by it, with or without
recourse.
8.15 Sale and Lease-Back Transactions. Enter into any arrangement,
directly or indirectly, with any Person whereby the Borrower or any of its
Subsidiaries shall sell or transfer any Property, real or personal, which is
used or useful in its business, whether now owned or hereafter acquired, and
thereafter rent or lease such Property or other Property which the Borrower or
such Subsidiary intends to use for substantially the same purpose or purposes as
the Property being sold or transferred.
8.16 Change of Name or Place of Business. Permit the Borrower or any of
its Subsidiaries to change its address, name, location of its chief executive
office or principal place of business or the place it keeps its books and
records, unless the Borrower has (a) notified the Lender of such change in
writing at least thirty (30) days before the effective date of such change, (b)
taken such action, reasonably satisfactory to the Lender, to have caused the
Liens against all Collateral in favor of the Lender to be at all times fully
perfected and in full force and effect and (c) delivered such certificates of
Governmental Authorities as the Lender may reasonably require substantiating
such name change.
8.17 Availability. Allow Availability to be less than zero at any time.
8.18 Distribution of Capital. The Borrower shall not directly or
indirectly declare or make, or incur any liability to make, any distribution of
income or capital on account of any general or limited partnership interest of
Borrower now or hereafter in existence ("Distributions"), or set aside or
otherwise deposit or invest any sums for such purpose, except Distributions to
the Ultimate Parent, the General Partner or the Limited Partner by Borrower, so
long as no Event of Default has occurred or would result therefrom, solely for
the following purposes:
(a) reimbursement of or payment of Federal income tax
liabilities and state income and franchise tax liabilities, if any, of
the General Partner or the Limited Partner, in the amount of such
Federal income tax liabilities or state income and franchise tax
liabilities, if any, and at such time or thereafter as the same become
due and payable; and
(b) payment of principal and interest by the Ultimate Parent
as they become due and payable under the Term Loan.
9. Events of Default and Remedies.
9.1 Events of Default. If any of the following events shall occur and
be continuing, then the Lender may, by written notice (or facsimile notice
promptly confirmed in writing) to the Borrower, take any or all of the following
actions at the same or different times: (1) accelerate the Revolving Loan
Maturity Date and declare the Revolving Note, accelerate the Term Loan Maturity
Date and declare the Term Note, all Letter of Credit Advances, the Commitment
Fees and all other Obligations then outstanding to be, and thereupon the
Revolving Note, the Term
CREDIT AGREEMENT - Page 60
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Note, said Letter of Credit Advances, the Commitment Fees and all other
Obligations shall forthwith become, immediately due and payable, without further
notice of any kind, notice of acceleration or of intention to accelerate,
presentment and demand or protest, or other notice of any kind all of which are
hereby expressly WAIVED by the Borrower; (2) terminate all or any portion of the
Commitments and any obligation to issue any additional Letters of Credit; (3)
demand that the Borrower and the Guarantors provide the Lender, and the Borrower
and the Guarantors jointly and severally agree upon such demand to provide, cash
collateral in an amount equal to the aggregate Letter of Credit Exposure Amount
then outstanding, on terms and pursuant to documents in agreement and
satisfactory in all respects to the Lender; and (4) exercise any and all other
rights pursuant to the Loan Documents:
(a) The Borrower shall fail to pay or prepay any principal of
or interest on the Notes, any Application, the Commitment Fees or any other
Obligation hereunder as and when due and payable, whether at the due date
thereof (by acceleration, lapse of time or otherwise) or at any date fixed for
prepayment thereof in accordance with the other provisions of this Agreement; or
(b) The Borrower or any of its Subsidiaries (i) shall fail to
pay at maturity, or within any applicable period of grace, any Indebtedness, or
the equivalent thereof (excluding Indebtedness outstanding hereunder and
accounts payable created in the ordinary course of business), in excess of
$50,000 in principal amount unless such payment is being contested in good faith
(by appropriate proceedings) and adequate reserves have been provided therefor,
or (ii) shall default in any other manner with respect to any Indebtedness, or
the equivalent thereof (excluding Indebtedness outstanding hereunder), in excess
of $50,000 in principal amount if the effect of any such default or event of
default shall be to accelerate or to permit the holder of any such Indebtedness
or equivalent obligation, at its option, to accelerate the maturity of such
Indebtedness or equivalent obligations prior to the stated maturity thereof,
(iii) shall fail to observe or perform any term, covenant or agreement contained
in any agreement or obligation, other than any Loan Document, by which the
Borrower or any of its Subsidiaries is bound, or (iv) is in default under or in
violation of any Legal Requirement, or
(c) Any representation or warranty made or deemed made in
connection with any Loan Document shall prove to have been incorrect, false or
misleading in any material respect when made or deemed to have been made; or
(d) Default shall occur in the punctual and complete
performance or observance of any covenant, condition or agreement to be observed
or performed on the part of the Borrower or any of its Subsidiaries pursuant to
the terms of any provision of this Agreement or any other Loan Document;
provided, however, Borrower shall have fifteen (15) days from the date of
default to cure any default under Sections 7.1, 7.5, 7.6, 7.7, 7.8 and 7.13
hereof.
(e) Final judgment or judgments (or any decree or decrees for
the payment of any fine or any penalty) for the payment of an uninsured money
award in excess of $50,000 in the aggregate shall be rendered against the
Borrower or any of its Subsidiaries and the same shall remain undischarged for a
period of thirty (30) days during which execution shall not be effectively
stayed or bonded; or
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(f) The General Partner, the Borrower or any of its
Subsidiaries shall claim, or any court shall find or rule, that the Lender does
not have a valid Lien on any portion of the Collateral which may now or
hereafter have been provided to secure the Obligations hereunder; or
(g) Any order shall be entered in any proceeding against the
General Partner, the Borrower or any Subsidiaries decreeing the dissolution,
liquidation or split-up thereof, and such order shall remain effect for thirty
(30) days; or
(h) The General Partner, the Borrower or any of its
Subsidiaries shall have concealed, removed, or permitted to be concealed or
removed, any part of its Property, with intent to hinder, delay or defraud its
creditors or any of them, or made or suffered a transfer of any of its Property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or shall have made any transfer of its Property to or for the benefit of a
creditor at a time when other creditors similarly situated have not been paid;
or
(i) A change shall occur in the financial condition, business
affairs or otherwise of the Borrower or any of its Subsidiaries, or in the value
of the Collateral given as security for the Obligations hereunder, which would
or does have a Material Adverse Effect; or
(j) Any of the following shall occur: (1) a Reportable Event
shall have occurred with respect to a Plan; (2) the filing by the Borrower, any
ERISA Affiliate, or an administrator of any Plan of a notice of intent to
terminate such Plan in a "distressed termination" under the provisions of
Section 4041 of ERISA; (3) the receipt of notice by the Borrower, any ERISA
Affiliate or an administrator of a Plan that the PBGC has instituted proceedings
to terminate (or appoint a trustee to administer) such a Plan; (4) any other
event or condition exists which might, in the opinion of the Lender, constitute
grounds under the provisions of Section 4042 of ERISA for the termination of or
the appointment of a trustee to administer any Plan by the PBGC; (5) a Plan
shall fail to maintain a minimum funding standard required by Section 412 of the
Code for any plan year or a waiver of standard is sought or granted under the
provisions of Section 412(d) of the Code; (6) the Borrower or any ERISA
Affiliate has incurred, or is likely to incur, a liability under the provisions
of Section 4062, 4063, 4064 or 4201 of ERISA; (7) the Borrower or any ERISA
Affiliate fails to pay the full amount of an installment required under Section
412(m) of the Code; or (8) the occurrence of any other event or condition with
respect to any Plan which would constitute an event of default or default under
any other agreement entered into by the Borrower or any ERISA Affiliate; or
(k) One or more notices of Liens arising from unpaid federal,
state or local taxes exceeding $25,000 in the aggregate shall be filed against
any of the Properties or assets of the Borrower or any of its Subsidiaries,
provided, however, that a reserve against the Borrowing Base will be established
in an amount equal to the amount of any and all federal, state or local taxes
less than such $25,000 aggregate threshold which are claimed to be owing under
any such notices of Liens; or
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(l) This Agreement, any of the Notes, any of the Security
Documents or any other Loan Documents shall for any reason cease to be, or shall
be asserted by the General Partner, the Borrower or any Guarantor, not to be, a
legal, valid and binding obligation of the Borrower or such Guarantors, as
applicable, enforceable in accordance with its terms, or the Lien purported to
be created by any of the Security Documents shall for any reason cease to be, or
be asserted by the General Partner, the Borrower or any Guarantor, as applicable
not to be, a valid, first priority perfected Lien against any Collateral (except
to the extent otherwise permitted under this Agreement or any of the Security
Documents); or
(m) The Borrower or any of its Subsidiaries which is a party
to any of the Lockbox Agreements fails to perform and/or cause to be performed
and observed, all covenants, provisions and conditions to be performed,
discharged and observed by the Borrower or any such Subsidiary under the terms
of the Lockbox Agreements.
In addition, if any of the following events shall occur, then the Notes, the
Letter of Credit Advances, the Commitment Fees and all other Obligations then
outstanding and payable hereunder shall automatically, without demand,
presentment, protest, notice of intent to accelerate, notice of acceleration or
other notice to any Person of any kind, all of which are hereby expressly WAIVED
by the Borrower, become immediately due and payable and all Commitments and
further obligation to issue any additional Letters of Credit shall be
immediately and automatically terminated:
(n) The General Partner, the Borrower or any of its
Subsidiaries shall make a general assignment for the benefit of creditors or
shall petition or apply to any tribunal for the appointment of a trustee,
custodian, receiver or liquidator of all or any substantial part of its
business, estate or assets or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter in
effect; or
(o) Any such petition or application shall be filed or any
such proceeding shall be commenced against the General Partner, the Borrower or
any of its Subsidiaries and the General Partner, the Borrower or such Subsidiary
by any act or omission shall indicate approval thereof, consent thereto or
acquiescence therein, or an order shall be entered appointing a trustee,
custodian, receiver or liquidator of all or any substantial part of the assets
of the General Partner, the Borrower or any of its Subsidiaries or granting
relief to the General Partner, the Borrower or any of its Subsidiaries or
approving the petition in any such proceeding, and such order shall remain in
effect for more than thirty (30) days; or
(p) The General Partner, the Borrower or any of its
Subsidiaries shall admit in writing its inability to pay its debts as they
become due or fail generally to pay its debts as they become due or suffer any
writ of attachment or execution or any similar process to be issued or levied
against it or any substantial part of its Property which is not released,
stayed, bonded or vacated within ten (10) days after its issue or levy.
9.2 Remedies Cumulative. No remedy, right or power conferred upon the
Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter
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existing at law, in equity, or otherwise, and all such remedies, rights and
powers shall be cumulative.
10. Miscellaneous.
10.1 No Waiver. No waiver of any Default or Event of Default shall be
deemed to be a waiver of any other Default or Event of Default. No failure to
exercise and no delay on the part of the Lender in exercising any right or power
under any Loan Document or at law or in equity shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
the abandonment or discontinuance of steps to enforce any such right or power,
preclude any further or other exercise thereof or the exercise of any other
right or power. No course of dealing between the Borrower and the Lender shall
operate as a waiver of any right or power of the Lender. Subject to the
provisions of Section 10.11 hereof, no amendment, modification or waiver of any
provision of this Agreement or any other Loan Document, nor any consent to any
departure therefrom, shall be effective unless the same is in writing and signed
by the Person against whom it is sought to be enforced, and then it shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on the Borrower or any other Person shall entitle the
Borrower or any other Person to any other or further notice or demand in similar
or other circumstances.
10.2 Notices. All notices under the Loan Documents shall be in writing
and either (i) delivered against receipt therefor, (ii) mailed by registered or
certified mail, return receipt requested, or (iii) sent by telex, telecopy
(promptly confirmed by mail, except for any notice pursuant to Section
5.1(a)(ii) hereof which need not be confirmed by mail) or telegram, in each case
to the intended recipient at the "Address for Notices" specified below its name
on the signature pages hereof. The Borrower or Ultimate Parent may change its
address for purposes hereof by providing written notice of such address change
to the Lender in accordance with the provisions of this Section 10.2, with any
such change in address only being effective ten (10) Business Days after such
change of address has been deemed given in accordance with the provisions
hereof. Notices shall be deemed to have been given (whether actually received or
not) when delivered (or, if mailed, on the next Business Day); however, the
notices required or permitted by Sections 2.2(b) and 5.1(a) hereof shall be
effective only when actually received by the Lender.
10.3 Governing Law. UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN
DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS (OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF) AND THE
UNITED STATES OF AMERICA.
10.4 Survival; Parties Bound. All representations, warranties,
covenants and agreements made by or on behalf of the Borrower in connection
herewith shall survive the execution and delivery of the Loan Documents, shall
not be affected by any investigation made by any Person, and shall bind the
Borrower and its successors, trustees, receivers and assigns and inure to the
benefit of the successors and assigns of the Lender, provided that the
undertaking of the Lender hereunder to make Loans to the Borrower and to issue
Letters of Credit for the
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account of the Borrower shall not inure to the benefit of any successor or
assign of the Borrower. The term of this Agreement shall be until the final
maturity of the Notes and the payment of all amounts due under the Loan
Documents.
10.5 Counterparts. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
10.6 Limitation of Interest. The Borrower and the Lender intend to
strictly comply with all applicable laws, including applicable usury laws, if
any. Accordingly, the provisions of this Section 10.6 shall govern and control
over every other provision of this Agreement or any other Loan Document which
conflicts or is inconsistent with this Section, even if such provision declares
that it controls. As used in this Section, the term "interest" includes the
aggregate of all charges, fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Loans and the
Commitments. In no event shall the Borrower or any other Person be obligated to
pay, or the Lender have any right or privilege to reserve, receive or retain,
(Y) any interest in excess of the maximum amount of non-usurious interest
permitted under the laws of the United States or of any state, if any, which are
applicable to the Lender, or (Z) total interest in excess of the amount which
the Lender could lawfully have contracted for, reserved, received, retained or
charged had the interest been calculated for the full term of the Loans at the
Highest Lawful Rate, if any, applicable to the Lender. On each day, if any, that
the sum of the Alternate Base Rate or the Adjusted LIBOR Rate, as applicable,
and the Applicable Margin, or any other applicable rate called for under any
other Loan Document exceeds the Highest Lawful Rate, if any, applicable to the
Lender, the rate at which interest shall accrue for the applicable type of
borrowing owing to the Lender shall automatically be fixed by operation of this
sentence at the Highest Lawful Rate applicable to the Lender for that day, and
shall remain fixed at the Highest Lawful Rate applicable to the Lender for each
day thereafter until the total amount of interest accrued and owing to the
Lender equals the total amount of interest which would have accrued on such
borrowing owing to the Lender if there were no such ceiling rate as is imposed
by this sentence. Thereafter, interest shall accrue at the Alternate Base Rate
plus the Applicable Margin, the Adjusted LIBOR Rate plus the Applicable Margin
or such other applicable rate, respectively, unless and until the sum of the
Alternate Base Rate and the Applicable Margin, the sum of the Adjusted LIBOR
Rate and the Applicable Margin or such other applicable rate (whichever is
applicable to the situation) again exceeds the Highest Lawful Rate applicable to
the Lender when the provisions of the immediately preceding since shall again
automatically operate to limit the interest accrual rate. The daily interest
rates to be used in calculating interest at the Highest Lawful Rate for the
Lender shall be determined by dividing the applicable Highest Lawful Rate, if
any, for the Lender per annum by the number of days in the calendar year for
which such calculation is being made. None of the terms and provisions contained
in this Agreement or in any other Loan Document which directly or indirectly
relate to interest shall ever be construed without reference to this Section
10.6, or be construed to create a
CREDIT AGREEMENT - Page 65
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contract to pay the Lender for the use, forbearance or detention of money at an
interest rate in excess of the Highest Lawful Rate applicable to the Lender. If
the term of any Loans or any of the Notes is shortened by reason of acceleration
of maturity as a result of any Default or Event of Default or by any other
cause, or by reason of any required or permitted prepayment, and if for that (or
any other) reason the Lender at any time is owed or receives (and/or has
received) interest in excess of interest calculated at the Highest Lawful Rate
applicable to the Lender, then and in any such event all of any such excess
interest owed to or received by the Lender shall be canceled automatically as of
the date of such acceleration, prepayment or other event which produces the
excess, and, if such excess interest has been paid to the Lender, it shall be
credited pro tanto against the then-outstanding principal balance of the
Borrower's obligations to the Lender, effective as of the date or dates when the
event occurs which causes it to be excess interest, until such excess is
exhausted or all of such principal has been fully paid and satisfied, whichever
occurs first, and any remaining balance of such excess shall be promptly
refunded to its payor. To the extent the Laws of the State of Texas are
applicable for purposes of determining the "Highest Lawful Rate," such term
shall mean the "weekly ceiling" from time to time in effect under Article lD.
003, Title 79, Revised Civil Statutes of Texas, as amended, or, if permitted by
applicable Law and effective upon the giving of the notices required by such
Article lD. 103 and under the Texas Finance Code (or effective upon any other
date otherwise specified by applicable Law), the "monthly ceiling," the
"quarterly ceiling" or "annualized ceiling" from time to time in effect under
such Chapter lD of the Texas Credit Title, whichever that the Lender shall elect
to substitute for the "weekly ceiling," and vice versa, each such substitution
to have the effect provided in such Chapter lD of the Texas Credit Title; and
the Lender shall be entitled to make such election from time to time and one or
more times and, without notice to Borrower, to leave any such substitute rate in
effect for subsequent periods in accordance with Chapter lD of the Texas Credit
Title. Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil
Statutes of Texas, 1925, as amended, and pursuant to Chapter 346.004 of the
Texas Finance Code, as amended, Borrower agrees that Chapter 15 of the Texas
Credit Title and Chapter 346 of the Texas Finance Code (which regulates certain
revolving credit loan accounts and revolving tri-party accounts) shall not
govern or in any manner apply to the Obligations.
10.7 Survival. The obligations of the Borrower under Sections 2.3,
2.4(b), 2.9, 2.10(f), 10.9, 10.10 and 10.17 hereof shall survive the repayment
of the Loans, the termination of the Commitments and the cancellation or
expiration of the Letters of Credit.
10.8 Captions. The headings and captions appearing in the Loan
Documents have been included solely for convenience and shall not be considered
in construing the Loan Documents.
10.9 Expenses, Etc. Whether or not any Loan is ever made or any Letter
of Credit ever issued, the Borrower agrees to pay or reimburse on demand the
Lender for paying: (a) the reasonable fees and expenses of Hughes & Luce,
L.L.P., counsel to the Lender or any other legal counsel engaged by the Lender,
in connection with (i) the preparation, execution and delivery of this Agreement
(including the exhibits and schedules hereto) and the Loan Documents and the
making of the Loans and the issuance of Letters of Credit hereunder, and (ii)
any modification, supplement or waiver of any of the terms of this Agreement,
the Letters of Credit or any other
CREDIT AGREEMENT - Page 66
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Loan Document; (b) all reasonable and documented costs and expenses (including
reasonable and documented attorneys fees) of the Lender in connection with the
enforcement of this Agreement, the Letters of Credit or any other Loan Document;
(c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement, any Letter of Credit or any other Loan Document or any other document
referred to herein or therein; (d) all costs, expenses, taxes, assessments and
other charges incurred in connection with any filing, registration, recording or
perfection of any security interest contemplated by this Agreement, any other
Loan Document or any document referred to herein or therein, and the cost of
title insurance; and (e) reasonable and documented expenses of due diligence
incurred prior to or as of the Closing Date.
10.10 Indemnification. THE BORROWER AGREES TO INDEMNIFY THE LENDER AND
EACH AFFILIATE THEREOF AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES,
COUNSEL OR AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES (INCLUDING ENVIRONMENTAL LIABILITIES), CLAIMS (INCLUDING
ENVIRONMENTAL CLAIMS) OR DAMAGES TO WHICH ANY OF THEM MAY BECOME SUBJECT,
INSOFAR AS SUCH LOSSES, LIABILITIES, CLAIMS OR DAMAGES ARISE OUT OF OR RESULT
FROM ANY (a) ACTUAL OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY
EXTENSION OF CREDIT (WHETHER A LOAN OR A LETTER OF CREDIT) BY THE LENDER
HEREUNDER, (b) BREACH BY THE BORROWER OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, (c) VIOLATION BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF ANY LAW,
RULE, REGULATION OR ORDER INCLUDING ANY REQUIREMENTS OF ENVIRONMENTAL LAW, (d)
LIENS OR SECURITY INTERESTS GRANTED ON ANY PROPERTY PURSUANT TO OR UNDER THE
LOAN DOCUMENTS, TO THE EXTENT RESULTING FROM ANY HAZARDOUS SUBSTANCE LOCATED IN,
ON OR UNDER ANY SUCH PROPERTY, (e) OWNERSHIP BY THE LENDER OF ANY PROPERTY
FOLLOWING FORECLOSURE UNDER THE LOAN DOCUMENTS, TO THE EXTENT SUCH LOSSES,
LIABILITIES, CLAIMS OR DAMAGES ARISE OUT OF OR RESULT FROM ANY HAZARDOUS
SUBSTANCE, LOCATED IN, ON OR UNDER SUCH PROPERTY PRIOR TO OR AT THE TIME OF SUCH
FORECLOSURE, INCLUDING LOSSES, LIABILITIES, CLAIMS OR DAMAGES WHICH ARE IMPOSED
UPON PERSONS UNDER LAWS RELATING TO OR REGULATING HAZARDOUS SUBSTANCES, SOLELY
BY VIRTUE OF OWNERSHIP, (f) THE LENDER BEING DEEMED AN OPERATOR OF ANY SUCH
PROPERTY BY A COURT OR OTHER REGULATORY OR ADMINISTRATIVE AGENCY OR TRIBUNAL OR
OTHER THIRD PARTY, TO THE EXTENT SUCH LOSSES, LIABILITIES, CLAIMS OR DAMAGES
ARISE OUT OF OR RESULT FROM ANY HAZARDOUS SUBSTANCE, PETROLEUM, PETROLEUM
PRODUCT OR PETROLEUM WASTE LOCATED IN ON OR UNDER SUCH PROPERTY AT OR PRIOR TO
THE TIME OF ANY FORECLOSURE THEREON UNDER THE LOAN DOCUMENT, OR (g)
INVESTIGATION, LITIGATION OR OTHER PROCEEDING (INCLUDING ANY THREATENED
INVESTIGATION OR PROCEEDING) RELATING TO ANY OF THE FOREGOING, AND THE BORROWER
AGREES TO REIMBURSE THE LENDER, AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL AND AGENTS, UPON DEMAND FOR ANY EXPENSES
(INCLUDING LEGAL FEES) INCURRED IN CONNECTION WITH ANY SUCH INVESTIGATION OR
PROCEEDING, AND WHETHER ANY SUCH LOSS, LIABILITY, CLAIM OR DAMAGE RESULTS FROM
THE NEGLIGENCE OF ANY SUCH INDEMNIFIED PERSON; BUT EXCLUDING ANY SUCH LOSSES,
LIABILITIES, CLAIMS, DAMAGES OR EXPENSES INCURRED BY A PERSON OR ANY AFFILIATE
THEREOF OR THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL OR AGENTS BY
REASON OF (i) THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PERSON,
AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE OR AGENT OR (ii) OWNERSHIP OR OPERATION
OF ANY PROPERTY BY THE LENDER FOLLOWING FORECLOSURE UNDER THE LOAN DOCUMENTS IF
SUCH LOSSES, LIABILITIES, ETC. ARE ATTRIBUTABLE SOLELY TO THE POST-FORECLOSURE
ACTIONS OF THE LENDER.
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10.11 Amendments, Waivers, Etc. No amendment, modification or waiver of
any provision of this Agreement, any of the Notes or any other Loan Document,
nor any consent to any departure by the Borrower therefrom, shall in any event
be effective unless the same shall be or consented to by the Lender and the
Borrower, and each such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
10.12 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
permitted assigns. The Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Lender.
(b) The Lender may assign to one or more Persons all or a
portion of its interests, rights and obligations under this Agreement or may
sell participations to any Person in all or part of any Loan, or all or part of
the Notes, the Letter of Credit Exposure Amount or Commitments.
(c) The Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.12, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to the Lender by
or on behalf of the Borrower; provided, however, that as a condition to any such
disclosure of information relating to the Borrower, the Lender shall require
such proposed assignee or participant to agree in writing to keep confidential
all information with respect to the Borrower furnished to it by the Lender in
connection with any proposed assignment or participation (other than information
generally available to the public or otherwise available to the Lender on a
non-confidential basis).
(d) Notwithstanding anything herein to the contrary, the
Lender may pledge and assign all or any portion of its rights and interests
under the Loan Documents to any Federal Reserve Bank.
10.13 Entire Agreement. This Agreement and the other Loan Documents
embody the entire agreement and understanding among the Borrower and the Lender
relating to the subject matter hereof and supersedes all prior proposals,
agreements and understandings relating to the subject matter hereof. Any
conflict between the provisions of this Agreement and the provisions of any
other Loan Documents shall be governed by the provisions of this Agreement. The
Borrower certifies that it is relying on no representation, warranty, covenant
or agreement except for those set forth in this Agreement and the other Loan
Documents of even date herewith.
10.14 Severability. If any provision of any Loan Documents shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions shall not be
affected or impaired thereby.
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10.15 Disclosures. Every reference in the Loan Documents to disclosures
of the Borrower to the Lender in writing, to the extent that such references
refer to disclosures at or prior to the execution of this Agreement, shall be
deemed strictly to refer only to written disclosures delivered to the Lender in
an orderly manner prior to or concurrently with the execution hereof.
10.16 Taxes.
(a) As used in this Section 10.16, the following terms shall
have the following meanings:
(i) "Indemnifiable Tax" means any Tax, but excluding,
in any case any Tax that (a) would not be imposed in respect of a
payment to the Lender under this Agreement, under any of the Notes or
under any of the other Loan Documents except for a present or former
connection between the jurisdiction of the Governmental Authority
imposing such Tax and the Lender (or a shareholder or other Person with
an interest in the Lender), including a connection arising from the
Lender's (or shareholder of the Lender or such other Person) being or
having been citizen or resident of such jurisdiction, or being or
having been organized, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or
fixed place of business in such jurisdiction, but excluding a
connection arising solely from the Lender having executed, delivered,
performed its obligations or received a payment under, or enforced,
this Agreements, any of the Notes or any other Loan Documents, or (b)
is imposed under United States federal income tax law or any state
income tax law.
(ii) "Tax" means any present or future tax, levy,
impost, duty, charge assessment or fee of any nature (including
interest thereon and penalties and additions thereto) that is imposed
by any Governmental Authority in respect of a payment to the Lender
under this Agreement, under any of the Notes or under any of the other
Loan Documents.
(b) If the Borrower is required by any Applicable Legal
Requirement to make any deduction or withholding for or on account of any
payment to be made by it under this Agreement, under any of the Notes or under
any other Loan Documents, then the Borrower shall (i) promptly notify the Lender
that is entitled to such payment of such requirement to so deduct or withhold
such Tax, (ii) pay to the relevant authorities the full amount required to be so
deducted or withheld, (iii) promptly forward to the Lender an official receipt
(or certified copies thereof), or other documentation reasonably acceptable to
the Lender holder, evidencing such payment to such Governmental Authorities and
(iv) if such Tax is an Indemnifiable Tax, pay, to the extent permitted by law,
to the Lender, in addition to whatever net amount of such payment is paid to the
Lender, such additional amount as is necessary to ensure that the total amount
actually received by the Lender (free and clear of Indemnifiable Tax) will equal
the full amount of the payment the Lender would have received had no such
deduction or withholding been required. If the Borrower pays any additional
amount to the Lender pursuant to the preceding sentence and the Lender shall
receive a refund of an Indemnifiable Tax with respect to which, in
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the good faith opinion of the Lender, such payment was made, the Lender shall
pay to the Borrower the amount of such refund promptly upon receipt thereof.
(c) In the event that any Governmental Authority notifies the
Borrower that it has improperly failed to withhold or deduct any Tax from a
payment received by the Lender under this Agreement, under any of the Notes or
under any other Loan Document, the Borrower agrees to timely and fully pay such
Tax to such Governmental Authority and the Lender shall, upon receipt of written
notice of such payment, immediately pay to the Borrower, an amount necessary in
order that the amount of such payment to the Borrower after payment of all Taxes
with respect to such payment, shall equal the amount that the Borrower paid to
such Governmental Authority pursuant to this clause (c).
(d) The Lender shall, upon request by the borrower, take
requested measures to mitigate the amount of Indemnifiable Tax required to be
deducted or withheld from any payment made by the Borrower under this Agreement,
under any of the Notes or under any other Loan Documents if such measures can,
in the sole and absolute opinion of the Lender, be taken without the Lender
suffering any economic, legal, regulatory or other disadvantage (provided,
however, that the Lender shall not be required to designate a funding office
that is not located in the United States of America).
(e) Notwithstanding the foregoing, in no event shall the
amount payable under this Section 10.16 (to the extent, if any, constituting
interest under applicable laws) together with all amounts constituting interest
under applicable laws and payable in connection with this Agreement or any of
the Notes, exceed the Highest Lawful Rate or the maximum amount of interest
permitted to be charged by applicable laws.
10.17 Waiver of Claims. THE BORROWER HEREBY WAIVES AND RELEASES THE
LENDER FROM ANY AND ALL CLAIMS OR CAUSES OF ACTION WHICH THE BORROWER MAY OWN,
HOLD OR CLAIM IN RESPECT OF ANY OF THEM AS OF THE DATE HEREOF.
10.18 Right of Setoff. Upon the occurrence and during the continuation
of any Event of Default, the Lender is hereby authorized at any time and from
time to time, without notice to the Borrower or any of the Guarantors (any such
notice being expressly waived by the Borrower and by the Guarantors by their
execution of a Guaranty or a Joinder Agreement), to setoff and apply any and all
deposits (general or special, time or demand, provisional or final, whether or
not such setoff results in any loss of interest or other penalty, and including
without limitation all certificates of deposit) at any time held, and any other
funds or property at any time held, and other Indebtedness at any time owing by
the Lender to or for the credit or the account of the Borrower or any such
Guarantor against any and all of the Indebtedness arising in connection with
this Agreement irrespective of whether or not the Lender will have made any
demand under this Agreement, any of the Notes or any other Loan Document. The
Borrower and each of the Guarantors (by their execution of a Guaranty or a
Joinder Agreement) also hereby grants to the Lender a security interest in and
hereby transfers, assigns, sets over, and conveys to the Lender, as security for
payment of all Loans and Letter of Credit Exposure Amount, all such deposits,
funds or property of the Borrower or any such Guarantor or Indebtedness of the
Lender to the Borrower or any such Guarantor. Should the right of the Lender to
realize funds in any manner
CREDIT AGREEMENT - Page 70
<PAGE> 79
set forth hereinabove be challenged and any application of such funds be
reversed, whether by court order or otherwise, the Lender shall make restitution
or refund to the Borrower or such Guarantor, as applicable. The Lender agrees to
promptly notify the Borrower after any such setoff and application, provided
that the failure to give such notice will not affect the validity of such setoff
and application. The rights of the Lender under this Section are in addition to
other rights and remedies (including without limitation other rights of setoff)
which the Lender may have.
10.19 Waiver of Right to Jury Trial. EXCEPT AS PROHIBITED BY APPLICABLE
LAW, EACH PARTY HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, THE NOTES, ANY OF THE OTHER LOAN DOCUMENTS OR
ANY TRANSACTIONS EVIDENCED THEREBY.
10.20 Additional Provisions Regarding Collection of Receivables;
Control of Inventory and other Collateral.
(a) So long as the procedures discussed in Section 7.15(b)
hereof have been implemented and are continuing, the Borrower hereby constitutes
the Lender or the Lender's designee as the Borrower's attorney-in-fact with
power to endorse the Borrower's name upon any notes, acceptances, checks,
drafts, money orders or other evidence of payment of any Receivables or any
other Collateral that may come into its possession; to sign or endorse the
Borrower's name on any invoice, bill of lading or other title or ownership
documents relating to any Receivables or inventory, drafts against any customers
of the Borrower, assignments and verifications of Receivables and notices to
customers of the Borrower; to send verifications of Receivables; to notify the
U.S. Postal Service authorities to change the address for delivery of mail
addressed to the Borrower to such address as the Lender may designate at any
time after the occurrence of any Event of Default which is continuing and to do
all other acts and things necessary to carry out this Agreement. All acts of
said attorney or designee are hereby ratified and approved by the Borrower, and
said attorneys or designee shall not be liable for any acts of omission or
commission, for any error of judgment or for any mistake of fact or law,
provided that the Lender or its designee shall not be relieved of liability to
the extent it is determined by a final judicial decision that its act, error or
mistake constituted gross negligence or willful misconduct. The power of
attorney granted under this subparagraph is coupled with an interest and is
irrevocable until all of the Obligations are paid in full and this Agreement and
the Commitments are terminated.
(b) The Lender, without notice to or consent of the Borrower,
at any time after the occurrence and during the continuation of an Event of
Default; (i) may sue upon or otherwise collect, extend the time of payment of,
or compromise or settle for cash, credit or otherwise upon any terms, any of the
Receivables or any instruments or insurance applicable thereto and/or release
any account debtor thereon; (ii) is authorized and empowered to accept or direct
shipments of inventory and accept the return of the goods represented by any of
the Receivables; and (iii) shall have the right to receive, endorse, assign
and/or deliver in its name or the name of the Borrower any and all checks,
drafts and other instruments for the payment of money relating
CREDIT AGREEMENT - Page 71
<PAGE> 80
to the Receivables, and the Borrower hereby waives notice of presentment,
protest and non-payment of any instrument so endorsed.
(c) Nothing herein contained shall be construed to constitute
the Borrower as agent of the Lender for any purpose whatsoever, and the Lender
shall not be responsible or liable for any shortage, discrepancy, damage, loss
or destruction of any part of the Collateral wherever the same may be located
and regardless of the cause thereof (except to the extent it is determined by a
final judicial decision that the Lender's act or omission constituted gross
negligence of willful conduct). The Lender shall not, under any circumstances or
in any event whatsoever, have any liability for any error or omission or delay
of any kind occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof or for any damage
resulting therefrom (except to the extent it is determined by a final judicial
decision that the Lender's error, omission or delay constituted gross negligence
or willful misconduct). The Lender does not, by anything herein or in any
assignment or otherwise, assume any of the Borrower's obligations under any
contract or agreement assigned to the Lender, and the Lender shall not be
responsible in any way for the performance by the Borrower of any of the terms
and conditions thereof.
(d) Upon the occurrence and during the continuation of any
Event of Default: (i) if any of the Receivables includes a charge for any tax
payable to any governmental tax authority, the Lender is hereby authorized (but
in no event obligated) in its discretion to pay the amount thereof to the proper
taxing authority for the account of the Borrower and to charge the Borrower's
account therefor; and (ii) the Borrower shall notify the Lender if any
Receivables include any tax due to any such taxing authority and, in the absence
of such notice, the Lender shall have the right to retain the full proceeds of
such Receivables and shall not be liable for any taxes that may be due from the
Borrower by reason of the sale and delivery creating such Receivables.
(e) Upon the occurrence and continuation of any Event of
Default, the Lender may at any time and from time to time employ and maintain in
the premises of the Borrower a custodian selected by the Lender who shall have
full authority to do all acts necessary to protect the Lender's interests and to
report to the Lender thereon. The Borrower hereby agrees to cooperate with any
such custodian and to do so whatever the Lender may reasonably request to
preserve the Collateral. All costs and expenses incurred by the Lender by reason
of the employment of the custodian shall be charged to the Borrower's account
and added to the Obligations.
10.21 Joint and Several Obligations. Notwithstanding anything to the
contrary contained herein or in any other Loan Documents, the Borrower and the
Guarantors are jointly and severally responsible for their respective
agreements, covenants, representations, warranties and obligations contained and
set forth in this Agreement or in any other Loan Document to which they are a
party.
10.22 Venue; Service of Process. BORROWER, FOR ITSELF, ITS SUCCESSORS
AND ASSIGNS, HEREBY (A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS OF THE STATE OF
CREDIT AGREEMENT - Page 72
<PAGE> 81
TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY
LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE
OBLIGATION BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN DISTRICT COURTS
OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS, DALLAS DIVISION, (C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY
LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM,
(D) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN HOUSTON,
TEXAS, IN CONNECTION WITH ANY SUCH LITIGATION AND TO DELIVER TO LENDER EVIDENCE
THEREOF, (E) IF SERVICE OF PROCESS UPON THE REGISTERED AGENT IS UNSUCCESSFUL
AFTER ONE GOOD FAITH ATTEMPT, IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT
OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH LITIGATION BY THE MAILING OF
COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO
SUCH BORROWER AT ITS ADDRESS SET FORTH HEREIN, AND (F) IRREVOCABLY AGREES THAT
ANY LEGAL PROCEEDING AGAINST LENDER ARISING OUT OF OR IN CONNECTION WITH THE
LOAN DOCUMENTS ON THE OBLIGATION SHALL BE BROUGHT IN THE DISTRICT COURTS OF
DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS, DALLAS DIVISION. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN
ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW.
10.23 No Other Agreements. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10.24. Restatement of Credit Agreement. This Agreement is given in
renewal, amendment, replacement, and restatement in its entirety (but not in
novation, extinguishment or satisfaction of that certain Credit Agreement dated
as of June 12, 1997, executed by and between Tidel Engineering, Inc., the
non-surviving entity of the merger between Tidel Engineering, Inc. and the
Borrower, and Texas Commerce Bank National Association, the
predecessor-in-interest to the Lender (including any and all amendments thereto,
the "Prior Credit Agreement"). To the extent of any conflict between the terms
of this Agreement and the terms of the Prior Credit Agreement, the terms of this
Agreement shall control. All rights, titles, liens and security interests
securing the obligations of Tidel Engineering under the Prior Credit Agreement
are
CREDIT AGREEMENT - Page 73
<PAGE> 82
preserved, maintained and carried forward to secure the Obligations, as defined
in this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
CREDIT AGREEMENT - Page 74
<PAGE> 83
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc., its sole
general partner
By:
-----------------------------
Mark K. Levenick,
President and Chief Executive
Officer
TIDEL TECHNOLOGIES, INC.,
a Delaware corporation
By:
------------------------------------
Mark K. Levenick,
Chief Operating Officer
Address for Notices:
Borrower:
Tidel Engineering, L.P.
c/o Tidel Cash Systems, Inc.
5847 San Felipe, Suite 900
Houston, Texas 77057
Attention: James T. Rash
Ultimate Parent:
Tidel Technologies, Inc.
5847 San Felipe, Suite 900
Houston, Texas 77057
Attention: James T. Rash
CREDIT AGREEMENT - Page 75
<PAGE> 84
CHASE BANK OF TEXAS, N.A., a national
banking association, as a Lender
By:
------------------------------------
Joanne Bramanti, Vice President
Address for Notices:
12875 Josey Lane
Dallas, Texas 75234
Attention: Ms. Joanne Bramanti
Domestic Lending Office:
12875 Josey Lane
Dallas, Texas 75234
Attention: Ms. Joanne Bramanti
CREDIT AGREEMENT - Page 76
<PAGE> 85
EXHIBIT "A"
TO
CREDIT AGREEMENT
Revolving Note Form
(See attached)
EXHIBIT A
<PAGE> 86
EXHIBIT "B"
TO
CREDIT AGREEMENT
Term Note Form
(See attached)
EXHIBIT B
<PAGE> 87
EXHIBIT "C"
TO
CREDIT AGREEMENT
Standard Lockbox Agreement
(See attached)
EXHIBIT C
<PAGE> 88
EXHIBIT "D"
TO
CREDIT AGREEMENT
Compliance Certificate
(See attached)
EXHIBIT D
<PAGE> 89
EXHIBIT "E"
TO
CREDIT AGREEMENT
Request for Extension of Credit
(See attached)
EXHIBIT E
<PAGE> 90
EXHIBIT "F"
TO
CREDIT AGREEMENT
Rate Selection Notice
(See attached)
EXHIBIT F
<PAGE> 91
EXHIBIT "G"
TO
CREDIT AGREEMENT
Secretary's Certificate of General Partner
(See attached)
EXHIBIT G
<PAGE> 92
EXHIBIT "H"
TO
CREDIT AGREEMENT
Borrowing Base Certificate Form
(See attached)
EXHIBIT H
<PAGE> 93
SCHEDULE "6.5"
TO
CREDIT AGREEMENT
Material Litigation
In August, 1998, Tidel Engineering, Inc. ("Tidel") filed a lawsuit (identified
as Cause No. DV98-06733 in the 192nd District Court of Dallas County, Texas)
against Defendant Hanco Systems, Inc. ("Hanco") for its failure to pay for goods
accepted pursuant to a distributor agreement between Tidel and Hanco. The amount
for which Tidel sued equals $298,492.03, plus accrued prejudgment interest in
the amount of $21,939.16. In response, Hanco removed the case to federal court
(identified as Civil Action No. 3-98CV2279-D, currently pending in the United
States District Court of the Northern District of Texas, Dallas Division). Hanco
subsequently filed counterclaims for the following causes of action: various
breaches of the distributor agreement, defamation, breach of warranty, negligent
misrepresentation, promissory estoppel, breach of implied promise, negligence
and violations of the Texas Deceptive Trade Practices Act. Hanco seeks to
recover $6.45 million in actual damages plus an unspecified amount in punitive
damages on their counterclaims. Tidel believes that these counterclaims are
wholly unsupported by the facts and were filed merely to avoid or delay paying
monies rightfully owed to Tidel.
SCHEDULE 6.5
<PAGE> 94
SCHEDULE "6.12"
TO
CREDIT AGREEMENT
Leases of Real Property
1. 2310 McDaniel Drive
Carrollton, Texas 75006
2. 1624 Diplomat
Carrollton, Texas 75006
SCHEDULE 6.12
<PAGE> 95
SCHEDULE "6.13"
TO
CREDIT AGREEMENT
List of Assumed Names
NONE
SCHEDULE 6.13
<PAGE> 96
SCHEDULE "6.16"
TO
CREDIT AGREEMENT
Indebtedness & Capital Leases
1. Capital Lease of one 1999 Cadillac Seville / Smart Lease under lease
agreement between GMAC, as lessor, and Tidel Engineering, Inc., as
lessee, dated November 3, 1998.
2. Operating Lease relating to cellular phones with Southwestern Bell,
previously entered into by Tidel Engineering, Inc.
SCHEDULE 6.16
<PAGE> 97
SCHEDULE "6.17"
TO
CREDIT AGREEMENT
Environmental Matters
NONE
SCHEDULE 6.17
<PAGE> 98
SCHEDULE "8.2"
TO
CREDIT AGREEMENT
Liens
NONE
SCHEDULE 8.2
<PAGE> 99
SCHEDULE "8.6"
TO
CREDIT AGREEMENT
List of Existing Transactions with Related Parties
(1) Tax Allocation Agreement among the Borrower, Tidel Technologies, Inc.,
Tidel Cash Systems, Inc., and AnyCard International, Inc., dated
October 30, 1998.
SCHEDULE 8.6
<PAGE> 1
EXHIBIT 4.03
REVOLVING CREDIT NOTE
Dallas, Texas
$7,000,000.00 April 1, 1999
FOR VALUE RECEIVED, TIDEL ENGINEERING, L.P., a Delaware limited
partnership (herein called "Borrower"), promises to pay to the order of CHASE
BANK OF TEXAS, N.A., a national banking association (herein called "Payee"), at
2200 Ross Avenue, Dallas, Texas 75201, or at such other place as Payee may
hereafter designate in writing, in immediately available funds and in lawful
money of the United States of America, the principal sum of SEVEN MILLION AND
NO/100 DOLLARS ($7,000,000.00) (or the unpaid balance of all principal advanced
against this note, if that amount is less), together with interest on the unpaid
principal balance of this note from time to time outstanding until maturity at
the rate or rates provided for in the Credit Agreement and interest on all past
due amounts at the Past Due Rate as provided in the Credit Agreement; provided,
that for the full term of this note, the interest rate produced by the aggregate
of all sums paid or agreed to be paid to the holder of this note for the use,
forbearance or detention of the debt evidenced hereby shall not exceed the
Highest Lawful Rate, if any, applicable to Payee.
If, for any reason whatever, the interest paid or received on this note
during its full term produces a rate which exceeds the Highest Lawful Rate, if
any, applicable to Payee, the holder of this note shall refund to the payor or,
at the holder's option, credit against the principal of this note such portion
of said interest as shall be necessary to cause the interest paid on this note
to produce a rate equal to the Highest Lawful Rate, if any, applicable to payee.
All sums paid or agreed to be paid to the holder of this note for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
in equal parts throughout the full term of this note, so that the interest rate
is uniform throughout the full term of this note. To the extent the laws of the
State of Texas are applicable for purposes of determining the "Highest Lawful
Rate," such term shall mean the "weekly ceiling" from time to time in effect
under Article 1D.003, Title 79, Revised Civil Statutes of Texas, as amended, or
if permitted by applicable law and effective upon the giving of the notices
required by Article 1D.103 (or effective upon any other date otherwise specified
by applicable Law), the "monthly ceiling," the "quarterly ceiling," or
"annualized ceiling" from time to time in effect under such Chapter 1D of the
Texas Credit Title, whichever that Lender shall elect to substitute for the
"weekly ceiling," and vice versa, each such substitution to have the effect
provided in Chapter 1D of the Texas Credit Title; and Lender shall be entitled
to make such election from time to time and one or more times and, without
notice to Borrower, to leave any such substitute rate in effect for subsequent
periods in accordance with Chapter 1D of the Texas Credit Title. Pursuant to
Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas,
1925, as amended, and Section 346.004 of the Texas Finance Code, as amended,
Borrower agrees that Chapter 15 of the Texas Credit Title and Chapter 346 of the
Texas Finance Code (which regulate certain revolving credit loan accounts and
revolving tri-party accounts) shall not govern or in any manner apply to the
Obligations.
REVOLVING CREDIT NOTE - Page 1
<PAGE> 2
This note has been issued pursuant to the terms of a Credit Agreement
(which, as it may have been or may be amended, restated, modified or
supplemented from time to time, is herein called the "Credit Agreement") dated
the date hereof by and among Borrower, Payee and Tidel Technologies, Inc., to
which reference is made for all purposes. This note is a Note under the terms of
the Credit Agreement, and advances against this note by Payee or other holder
hereof, payments and prepayments hereunder and acceleration hereof shall be
governed by the Credit Agreement. Capitalized words and phrases used herein and
not defined herein and which are defined in the Credit Agreement shall have the
same meanings herein as are ascribed to them in the Credit Agreement.
The unpaid principal balance of this note at any time shall be the
total of all principal lent or advanced against this note less the sum of all
principal payments and permitted prepayments made on this note by or for the
account of Borrower. All loans and advances and all payments and permitted
prepayments made hereon may be endorsed by the holder of this note on the
schedule which is attached hereto (and hereby made a part hereof for all
purposes) or otherwise recorded in the holder's records; provided, that any
failure to make notation of (a) any advance shall not cancel, limit or otherwise
affect Borrower's obligations or any holder's rights with respect to that
advance, or (b) any payment or permitted prepayment of principal shall not
cancel, limit or otherwise affect Borrower's entitlement to credit for that
payment as of the date received by the holder.
Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect or
maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS (OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF)
AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
This note is a renewal, modification and rearrangement, and not a
novation or extinguishment, of that certain Revolving Credit Note (the "Prior
Note") dated May 27, 1998, executed by Tidel Engineering, Inc., the
non-surviving entity of the merger between Tidel Engineering, Inc. and the
Borrower, payable to the order of Payee, in the original principal amount of
$7,000,000.00. All rights, titles, liens and security interests securing the
Prior Note are preserved, maintained and carried forward to secure this note.
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc., its general partner
By:
------------------------------------------
Mark K. Levenick,
President and Chief Executive Officer
REVOLVING CREDIT NOTE - Page 2
<PAGE> 1
EXHIBIT 4.04
TERM NOTE
Dallas, Texas
$544,000.00 April 1, 1999
FOR VALUE RECEIVED, TIDEL ENGINEERING, L.P., a Delaware limited
partnership, and TIDEL TECHNOLOGIES, INC., a Delaware corporation (herein called
"Borrowers"), jointly and severally promise to pay to the order of CHASE BANK OF
TEXAS, N.A., a national banking association (herein called "Payee"), at 2200
Ross Avenue, Dallas, Texas 75201, or at such other place as Payee may hereafter
designate in writing, in immediately available funds and in lawful money of the
United States of America, the principal sum of FIVE HUNDRED FORTY-FOUR THOUSAND
AND NO/100 DOLLARS ($544,000.00), together with interest on the unpaid principal
balance of this note from time to time outstanding until maturity at the rate or
rates provided for in the Credit Agreement and interest on all past due amounts
at the Past Due Rate as provided in the Credit Agreement; provided, that for the
full term of this note, the interest rate produced by the aggregate of all sums
paid or agreed to be paid to the holder of this note for the use, forbearance or
detention of the debt evidenced hereby shall not exceed the Highest Lawful Rate,
if any, applicable to Payee.
If, for any reason whatever, the interest paid or received on this note
during its full term produces a rate which exceeds the Highest Lawful Rate, if
any, applicable to Payee, the holder of this note shall refund to the payor or,
at the holder's option, credit against the principal of this note such portion
of said interest as shall be necessary to cause the interest paid on this note
to produce a rate equal to the Highest Lawful Rate, if any, applicable to payee.
All sums paid or agreed to be paid to the holder of this note for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
in equal parts throughout the full term of this note, so that the interest rate
is uniform throughout the full term of this note. To the extent the laws of the
State of Texas are applicable for purposes of determining the "Highest Lawful
Rate," such term shall mean the "weekly ceiling" from time to time in effect
under Article 1D.003, Title 79, Revised Civil Statutes of Texas, as amended, or
if permitted by applicable law and effective upon the giving of the notices
required by Article 1D.103 (or effective upon any other date otherwise specified
by applicable Law), the "monthly ceiling," the "quarterly ceiling," or
"annualized ceiling" from time to time in effect under such Chapter 1D of the
Texas Credit Title, whichever that Lender shall elect to substitute for the
"weekly ceiling," and vice versa, each such substitution to have the effect
provided in Chapter 1D of the Texas Credit Title; and Lender shall be entitled
to make such election from time to time and one or more times and, without
notice to Borrower, to leave any such substitute rate in effect for subsequent
periods in accordance with Chapter 1D of the Texas Credit Title.
This note has been issued pursuant to the terms of a Credit Agreement
(which, as it may have been or may be amended, restated, modified or
supplemented from time to time, is herein called the "Credit Agreement") dated
the date hereof, by and among Tidel Engineering, L.P., Tidel Technologies, Inc.
and Payee, to which reference is made for all purposes. This note is the Term
Note under the terms of the Credit Agreement, and the advance against this note
by Payee
TERM NOTE - Page 1
<PAGE> 2
or other holder hereof, payments and prepayments hereunder and acceleration
hereof shall be governed by the Credit Agreement. Capitalized words and phrases
used herein and not defined herein and which are defined in the Credit Agreement
shall have the same meanings herein as are ascribed to them in the Credit
Agreement.
The unpaid principal balance of this note at any time shall be the
total of all principal lent or advanced against this note less the sum of all
principal payments and permitted prepayments made on this note by or for the
account of Borrowers. All loans and advances and all payments and permitted
prepayments made hereon may be endorsed by the holder of this note on the
schedule which is attached hereto (and hereby made a part hereof for all
purposes) or otherwise recorded in the holder's records; provided, that any
failure to make notation of (a) any advance shall not cancel, limit or otherwise
affect Borrowers' obligations or any holder's rights with respect to that
advance, or (b) any payment or permitted prepayment of principal shall not
cancel, limit or otherwise affect Borrowers' entitlement to credit for that
payment as of the date received by the holder.
Borrowers and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect or
maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS (OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF)
AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
This note is a renewal, modification and rearrangement, and not a
novation or extinguishment, of that certain Term Note (the "Prior Note") dated
May 27, 1998, executed by Tidel Technologies, Inc. and Tidel Engineering, Inc.,
the non-surviving entity of the merger between Tidel Engineering, Inc. and the
Borrower, payable to the order of Payee, in the original principal amount of
$640,000.00. All rights, titles, liens and security interests securing the Prior
Note are preserved, maintained and carried forward to secure this note.
[This space intentionally left blank. The next page is the signature page.]
TERM NOTE - Page 2
<PAGE> 3
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc., its general
partner
By:
----------------------------------
Mark K. Levenick,
President and Chief Executive
Officer
TIDEL TECHNOLOGIES, INC.,
a Delaware corporation
By:
---------------------------------------
Mark K. Levenick,
Chief Operating Officer
TERM NOTE - Page 3
<PAGE> 1
EXHIBIT 4.05
SECURITY AGREEMENT
(PERSONAL PROPERTY)
This Security Agreement (as amended, supplemented or restated from time to
time, this "Agreement") dated as of April 1, 1999, is by and between TIDEL
ENGINEERING, L.P. (the "Debtor"), whose address is 2310 McDaniel Drive,
Carrollton, Texas 75006, and CHASE BANK OF TEXAS, N.A., a national banking
association, whose address is 2200 Ross Avenue, 6th Floor, Dallas, Texas 75201
(the "Secured Party"), under the Credit Agreement (as amended, restated and
supplemented from time to time, the "Credit Agreement") of even date herewith,
by and among Debtor, Secured Party and Tidel Technologies, Inc.
Debtor and Secured Party agree as follows:
Any capitalized term used in this Agreement and not otherwise defined
herein shall have the meaning ascribed to such term in the Credit Agreement. All
principles of construction set forth in Section 1.2 of the Credit Agreement are
incorporated herein by reference for all purposes.
ARTICLE 1
CREATION OF SECURITY INTEREST
1.1 In order to secure the prompt and unconditional payment of the
indebtedness herein referred to and the performance of the obligations,
covenants, agreements and undertakings herein described, Debtor hereby grants to
Secured Party a security interest in, and mortgage, collaterally assign as
security and pledge to Secured Party, all of Debtor's rights, titles and
interests of every kind and character now owned or hereafter acquired, created
or arising in and to the following:
ACCOUNTS
(a) all accounts, receivables, accounts receivable, reports, customer
lists, purchase orders, monies due or recoverable from pension funds,
tax refunds, book debts, contract rights and rights to payment no
matter how evidenced;
(b) all chattel paper, notes, drafts, acceptances, payments under leases
of equipment or sale of inventory, and other forms of obligations
received by or belonging to Debtor for goods sold or leased and/or
services rendered by Debtor;
(c) all purchase orders, instruments and other documents (including all
documents of title) evidencing obligations to Debtor, including those
for or representing obligations for goods sold or leased and/or
services rendered by Debtor;
(d) all monies due or to become due to Debtor under all contracts for or
arising from the sale or lease of goods and/or performance of services
by Debtor no matter how evidenced and whether or not earned by
performance;
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 1
<PAGE> 2
(e) all accounts, receivables, accounts receivable and contract rights
arising as a result of Debtor's having paid accounts payable (or
having had goods sold or leased to Debtor or services performed for
Debtor giving rise to accounts payable) which accounts payable were
paid for or were incurred by Debtor on behalf of any third parties
pursuant to an agreement or otherwise;
(f) all goods, the sale and delivery of which give rise to any of the
foregoing, including any such goods which are returned to Debtor for
credit;
INVENTORY
all goods, merchandise, raw materials, work in process, finished goods, and
other tangible personal property of whatever nature now owned by Debtor or
hereafter from time to time existing or acquired, wherever located and held
for sale or lease, including those held for display or demonstration or out
on lease or consignment, or furnished or to be furnished under contracts of
service or used or usable or consumed or consumable in Debtor's business or
which are finished or unfinished goods and all accessions and appurtenances
thereto, together with all warehouse receipts and other documents
evidencing any of the same and all containers, packing, packaging, shipping
and similar materials;
EQUIPMENT
all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of
every kind and description owned by Debtor or in which Debtor has an
ownership interest, whether now owned or hereafter acquired by Debtor and
wherever located, and all parts, accessories and special tools and all
increases and accessions thereto and substitutions and replacements
therefor;
GENERAL INTANGIBLES
all general intangibles of Debtor, whether now owned or hereafter created
or acquired by Debtor, including all choses in action, causes of action,
corporate or other business records, deposit accounts, inventions,
blueprints, designs, patents, patent applications, trademarks, trademark
applications, trade names, trade secrets, service marks, goodwill, brand
names, copyrights, registrations, licenses, franchises, customer lists, tax
refund claims, computer programs, operational manuals, all claims under
guaranties, security interests or other security held by or granted to
Debtor to secure payment of any of the Accounts by an account debtor, all
rights to indemnification and all other intangible property of every kind
and nature (other than Accounts);
CASH, CASH EQUIVALENTS AND OTHER PROPERTY
all property or interests in property now owned or hereafter acquired by
Debtor, and all property or interests in property now owned or hereafter
acquired by Debtor in the
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 2
<PAGE> 3
possession, custody or control of Secured Party or any agent or Affiliate
of Secured Party for any purpose (whether for safekeeping, deposit,
custody, pledge, transmission, collection or otherwise) and all rights and
interests of Debtor, now existing or hereafter arising and however and
wherever arising, in respect of any and all (i) notes, drafts, letters of
credit, stocks, bonds, and debt and equity securities, whether or not
certificated, and warrants, options, puts and calls and other rights to
acquire or otherwise relating to the same; (ii) money; (iii) proceeds of
loans, including, without limitation, all of the Loans made to Debtor under
the Credit Agreement; and (iv) insurance proceeds;
together with all accessions, appurtenances and additions to and substitutions
for any of the foregoing; all products and proceeds of any of the foregoing; all
renewals and replacements of any of the foregoing; and all accounts,
instruments, notes, chattel paper, documents (including all documents of title),
books, records, computer programs, computer tapes, computer discs, contract
rights and other general intangibles arising from any of the foregoing
(including all insurance and claims for insurance affected or held for the
benefit of Debtor or Secured Party in respect of any of the foregoing). All of
the properties and interests described in this Section 1.1 are herein
collectively called the "Collateral." The inclusion of proceeds does not
authorize Debtor to sell, dispose of or otherwise use the Collateral in any
manner not otherwise authorized herein.
1.2 Debtor acknowledges, agrees and confirms that value has been given to
Debtor by Secured Party and that Debtor and Secured Party have not agreed to
postpone the time for attachment of the security interests in and assignments of
the Collateral which are evidenced hereby.
ARTICLE 2
SECURED INDEBTEDNESS
2.1 This Agreement is made to secure all of the following debt and
obligations:
(a) All Indebtedness at any time evidenced by the Notes, the
Applications, and any and all modifications, extensions, renewals,
rearrangements, replacements and increases of each thereof.
(b) All other Obligations of Debtor or any other party under or in
connection with the Credit Agreement, this Agreement and the other Loan
Documents owed to Secured Party.
2.2 The term "Debt" means and includes all of the Indebtedness and other
Obligations described or referred to in Section 2.1. The Debt includes interest
and all other Obligations accruing or arising after (a) commencement of any case
under any bankruptcy or similar laws by or against Debtor or any Guarantor
(Debtor and each such Guarantor being herein called individually an "Obligor"
and collectively, "Obligors") or (b) the obligations of any Obligor shall cease
to exist by operation of law or for any other reason (it being the intention of
Secured Party to not reinstate the liability of any discharged Obligor, but only
to confirm that the discharge of any Obligor from liability for the Debt shall
not effect all remaining Obligors' liability for
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 3
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interest and other Obligations accruing or arising with respect to the Debt
after any such discharged Obligor has been released from liability for all or
any portion of the Debt. The Debt also includes all reasonable attorneys' fees
and any other reasonable expenses incurred by Secured Party in enforcing any of
the Loan Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants as follows:
(a) Debtor is the legal and equitable owner and holder of marketable title
to the Collateral free of any material adverse claim and free of any Lien except
only for the Liens granted hereby and those other Liens (if any) expressly
referred to, described in or permitted by this Agreement or any other Loan
Documents. Except with respect to Liens permitted by this Agreement or by the
terms of the other Loan Documents, Debtor has not heretofore signed any
financing statement or other similar instrument directly or indirectly affecting
the Collateral or any part of it which has not been completely terminated of
record, and no such financing statement or other similar instrument signed by
Debtor is now on file in any public office.
(b) As of the date of this Agreement, the location of Debtor is the address
set forth at the beginning of this Agreement and in this regard, Debtor's
location is defined to mean (i) Debtor's place of business if Debtor has only
one such place of business; or (ii) Debtor's chief executive office if Debtor
has more than one place of business. As of the date of this Agreement, the
primary books and records of Debtor with regard to the Collateral are maintained
and kept at such address of Debtor set forth at the beginning of this Agreement.
(c) No part of the Collateral consists or will consist of consumer goods,
farm products or timber and the like or accounts resulting from the sale
thereof.
(d) Debtor has the right to use, assign and pledge, without payment of any
amounts to any third parties (other than normal licensing fees payable to
licensors of prefabricated software programs currently utilized by Debtor, if
any), any and all accounting, monitoring, billing, recordkeeping or other
similar types of systems, together with all related software, currently utilized
by Debtor in its operations. Prior to commencement of any use by Debtor of any
custom designed or similar types of accounting, monitoring, billing,
recordkeeping or other similar types of systems, together with all related
software, Debtor shall cause any and all licensors thereof to consent in writing
to the use by Secured Party of such systems and related software upon payment by
Secured Party to such licensors of the amounts normally due and payable on a
periodic basis by Debtor to such licensors in connection with Debtor's day to
day use and implementation of such systems and related software (the form of
such consents from the applicable licensors to be upon terms and conditions
reasonably acceptable to Secured Party).
(e) As of the date of this Agreement, Debtor has not ever changed its name
whether by amendment of its organizational documents or otherwise, except as
disclosed in the Organizational Documents of Debtor delivered to Secured Party
in connection with the execution and delivery of the Credit Agreement and all
other Loan Documents.
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 4
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(f) The Collateral is free from damage caused by fire or other casualty.
(g) None of the products manufactured and sold, nor any processes or
know-how used by Debtor, presently infringe or are alleged to infringe, in any
material respect, any patent, trade secret, trademark, service mark, tradename,
copyright or other proprietary right of any other Person.
(h) Except for Liens expressly permitted by this Agreement or any of the
other Loan Documents, the Liens of this Agreement will constitute valid and
perfected first and prior Liens on the Collateral when a financing statement
covering the Collateral is duly filed for record in the offices of the Secretary
of State of the State of Texas.
(i) As of the date hereof, other than Inventory of Debtor which is in
transit, all of the Inventory and Equipment of Debtor is located at the
locations described on Schedule 1 attached hereto.
ARTICLE 4
COVENANTS
4.1 Debtor covenants and agrees with Secured Party as follows:
(a) Debtor shall furnish to Secured Party such instruments as may be
required by Secured Party to assure the transferability of any Collateral when
and as often as may be reasonably requested by Secured Party.
(b) If the validity or priority of this Agreement or of any material
rights, titles, security interests or other interests created or evidenced
hereby shall be attacked, endangered or questioned or if any legal proceedings
are instituted with respect thereto, Debtor will give prompt written notice
thereof to Secured Party and at Debtor's own cost and expense will diligently
endeavor to cure any defect that may be developed or claimed, and will take all
necessary and proper steps for the defense of such legal proceedings, and
Secured Party (whether or not named as a party to legal proceedings with respect
thereto) is hereby authorized and empowered to take such additional steps as in
its reasonable judgment and discretion may be necessary or proper for the
defense of any such legal proceedings or the protection of the validity or
priority of this Agreement and the rights, titles, security interests and other
interests created or evidenced hereby, and all expenses so incurred of every
kind and character shall constitute sums advanced pursuant to Section 4.2 of
this Agreement.
(c) Notwithstanding the security interest in proceeds granted herein,
Debtor will not, except as otherwise expressly permitted herein or in the other
Loan Documents, sell, lease, exchange, lend, rent, assign, license, transfer or
otherwise dispose of, or pledge, hypothecate or grant any Lien in, or permit to
exist any Lien against, all or any part of the Collateral or any interest
therein or permit any of the foregoing to occur or arise or permit title to the
Collateral, or any interest therein, to be vested in any other party, in any
manner whatsoever, by operation of law or otherwise, without the prior written
consent of Secured Party. Except as
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 5
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provided by the Loan Documents or as otherwise permitted herein, Debtor shall
not, without the prior written consent of Secured Party, (i) acquire any such
Collateral under any arrangement whereby the seller or any other person retains
or acquires any security interest in such Collateral or (ii) return or give
possession of any such Collateral to any supplier or any other Person except in
the ordinary course of business. Subject to the exercise of Secured Party's
rights and remedies granted herein or in any other Loan Document, Debtor may use
the Collateral in any lawful manner not inconsistent with this Agreement or the
other Loan Documents or with the terms or conditions of any policy of insurance
thereon and may also sell or lease such Collateral in the ordinary course of
business except as otherwise provided under the other Loan Documents. A sale in
the ordinary course of business does not include a transfer in partial or total
satisfaction of a debt. Subject to the exercise of Secured Party's rights and
remedies granted herein or in any other Loan Document, Debtor may also use and
consume any raw materials or supplies, the use and consumption of which are
necessary to carry on the business of Debtor.
(d) If any portion of the Collateral is now or hereafter evidenced by
any promissory notes, trade acceptances or other instruments for the payment of
money having an original principal or face amount in excess of $10,000, Debtor
will immediately deliver them to Secured Party, appropriately endorsed to
Secured Party's order. Regardless of the form of endorsement, Debtor waives
presentment, demand, notice of dishonor, protest and notice of protest. After an
Event of Default which is continuing, but prior to such delivery, such
Collateral shall be held in trust for the benefit of Secured Party and subject
to the Liens granted herein.
(e) Debtor shall maintain property and liability insurance policies
covering the Collateral and claims related to the Collateral ("Collateral
Insurance") in accordance with the requirements of Section 6.7 of the Credit
Agreement. Debtor shall deliver certificates evidencing renewal of the
Collateral Insurance before termination of any insurance policies representing
Collateral Insurance. Upon request, Debtor shall deliver certificates evidencing
the Collateral Insurance and copies of the underlying policies as they are
available. Promptly upon obtaining knowledge thereof, Debtor shall notice
Secured Party of any casualty to the Collateral which exceeds $100,000
("Material Casualty"). At the request of Secured Party, Debtor shall pursue
claims for payment related to the Material Casualty.
(f) Upon the receipt by Secured Party or Debtor of any insurance
proceeds from insurance policies required to be maintained pursuant to Section
6.7 of the Credit Agreement on account of (1) each separate loss, damage or
injury to any Collateral in excess of $100,000 if no Default or Event of Default
shall have occurred which is continuing or (2) any separate loss, damage or
injury to any Collateral (regardless of the amount of loss, damage or injury) if
a Default or Event of Default shall have occurred which is continuing, such
insurance proceeds shall be promptly delivered and turned over to Secured Party
(if the same have not been previously received by Secured Party), and except as
otherwise specified below, such insurance proceeds shall be promptly applied by
Secured Party in payment of the Debt (such order and manner of application to he
at the discretion of Secured Party). With respect to such net insurance
proceeds, Debtor may elect, by written notice delivered to Secured Party, not
later than the tenth day after receipt of such net proceeds by Secured Party or
Debtor, to utilize and apply all or a portion of such net proceeds for the
purpose of replacing, repairing or restoring the
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 6
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relevant Collateral, and in such event, any required application of such
net proceeds against the Debt in accordance with the preceding sentence
shall be reduced dollar for dollar by the amount of such election by
Debtor. Such an election by Debtor shall not be effective, however, unless
(1) at the time of such election no Default or Event of Default shall have
occurred which is continuing, (2) Debtor shall have certified to Secured
Party that the net proceeds of the insurance adjustment for such loss,
damage or injury to Collateral, together with other funds available to
Debtor, shall be sufficient to complete such contemplated replacement,
repair or restoration in accordance with all applicable laws, regulations
and ordinances, and (3) if the amount of the net proceeds in question
exceeds $100,000, Debtor shall have obtained the written consent of the
Secured Party to such use and application of such insurance proceeds.
(g) In the event of a valid election by Debtor under Section
4.1(f) above to utilize all or a portion of such insurance proceeds to
replace, repair or restore the relevant Collateral, upon the request of
Secured Party, Debtor shall place into an account under Secured Party's
control (the "Insurance Proceeds Account") the amount of net insurance
proceeds to be utilized for such contemplated replacement, repair or
restoration, pursuant to agreements in form, scope and substance reasonably
satisfactory to Secured Party (including a pledge of such Insurance
Proceeds Account as additional security for the Debt). The Insurance
Proceeds Account, including all earnings thereon, if any, shall be
available to Debtor solely for the replacement, repair or restoration of
the Collateral suffering the applicable injury, loss or damage; provided,
however, that at any time that a Default or Event of Default shall occur
and be continuing, the balance of the Insurance Proceeds Account, together
with all earnings thereon, may be immediately applied by Secured Party to
repay the Debt in such order as Secured Party shall elect in its
discretion. Secured Party shall be entitled to require proof, as a
condition to Debtor making of any withdrawal from the Insurance Proceeds
Account, that the amount of such withdrawal is being applied for the
purposes permitted hereunder. Additionally, any proceeds of the Insurance
Proceeds Account may be made available and advanced by Secured Party
directly to Debtor, or directly to suppliers, manufacturers, contractors
and other persons entitled to payment in accordance with and subject to
reasonable conditions to disbursements as Secured Party may impose to
assure that such replacement, repair or restoration of the relevant
Collateral is paid for and performed and that no Liens arise by reason
thereof.
(h) No Inventory nor Equipment shall be located at any location,
other than the locations set forth on Schedule 1 attached hereto, which has
not been disclosed in writing to Secured Party in advance of such Inventory
or Equipment being located at such location and for which Financing
Statements, and landlord subordinations or warehousemens' agreements, as
the case may be, (if such locations are not owned by Debtor) covering such
portion of the Inventory or Equipment, as the case may be, have not been
executed and delivered by Debtor and filed for record with the appropriate
Governmental Authority necessary to perfect the Liens granted hereby.
(i) Debtor agrees to defend the Collateral and its proceeds
against all claims and demands of any Person at any time claiming the
Collateral.
4.2 If Debtor fails to comply with any of its agreements, covenants or
obligations under this Agreement or any other Loan Document, after giving
effect to any applicable cure
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period, Secured Party (in Debtor's name or in Secured Party's own name) may
perform them or cause them to be performed for the account and at the expense of
Debtor, but shall have no obligation to perform any of them or cause them to be
performed. Any and all expenses thus incurred or paid by Secured Party shall be
Debtor's obligations to Secured Party due and payable on demand, or if no demand
is sooner made, then they shall be due on or before four (4) years after the
respective dates on which they were incurred, and each shall bear interest from
the date one (1) Business Day after Secured Party demands payment for such
amounts until the date Debtor repays such amounts to Secured Party, at the Past
Due Rate. Upon making any such payment or incurring any such expense, Secured
Party shall be fully and automatically subrogated to all of the rights of the
person, corporation or body politic receiving such payment. Any amounts owing by
Debtor to Secured Party pursuant to this or any other provision of this
Agreement shall automatically and without notice be and become a part of the
Debt and shall be secured by this and all other instruments securing the Debt.
The amount and nature of any such expense and the time when it was paid shall be
fully established by the affidavit of Secured Party or any of Secured Party's
officers or agents. The exercise of the privileges granted to Secured Party in
this Section shall in no event be considered or constitute a cure of the default
or a waiver of Secured Party's right at any time after an Event of Default to
declare the Debt to be at once due and payable, but is cumulative of such right
and of all other rights given by this Agreement, the Credit Agreement, the Notes
and the Loan Documents and of all rights given Secured Party by law.
ARTICLE 5
ASSIGNMENT OF PAYMENTS; CERTAIN POWERS
OF SECURED PARTY; NO ASSUMPTION
5.1 Upon the occurrence of an Event of Default and so long as it is
continuing and has not been expressly waived by Secured Party in writing,
Secured Party may request Debtor to notify each account debtor and each other
Person (each a "Collateral Obligor") obligated to make payment in respect of any
of the Collateral of the Liens in such Collateral granted herein and instruct
such Collateral Obligor to pay over to Secured Party, all or any part of the
Collateral without making any inquiries as to the status or balance of Debtor
and without any notice to or further consent of Debtor. If Debtor does not
promptly comply with such request, Secured Party may, but shall not be obligated
to, directly notify each such Collateral Obligor of the Liens in the Collateral
granted herein and instruct such Collateral Obligor to pay over to Secured
Party, all or any part of the Collateral without making any inquiries as to the
status or balance of Debtor and without any notice to or further consent of
Debtor.
5.2 The powers conferred on Secured Party pursuant to this Article 5
are conferred solely to protect Secured Party's interest in the Collateral and
shall not impose any duty or obligation on Secured Party to perform any of the
powers herein conferred. Additionally, the powers conferred on Secured Party
pursuant to this Article 5 are cumulative of all other similar, related or
additional powers conferred on Secured Party by the terms and provisions of
Section 9.21 of the Credit Agreement and are not intended to limit or restrict
in any manner whatsoever any of such powers and rights conferred on Secured
Party under the terms and provisions of the Credit Agreement or any other Loan
Documents. No exercise of any of such rights provided for in this Article 5 or
in the Credit Agreement shall constitute a retention of
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collateral in satisfaction of the indebtedness as provided for in Section 9.505
of the Uniform Commercial Code of Texas or the state or states where the
applicable Collateral is located.
ARTICLE 6
EVENTS OF DEFAULT
An Event of Default under the Credit Agreement shall constitute an Event of
Default (herein so called) under this Agreement.
ARTICLE 7
REMEDIES IN EVENT OF DEFAULT
7.1 In addition to the other rights and remedies provided for in the Credit
Agreement, upon the occurrence and during the continuation of an Event of
Default:
(a) Secured Party is authorized, in any legal manner and without
breach of the peace, to take possession of the Collateral (DEBTOR HEREBY WAIVES
ALL CLAIMS FOR DAMAGES ARISING FROM OR CONNECTED WITH ANY SUCH TAKING, EXCEPT AS
MAY BE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SECURED PARTY)
and of all books, records and accounts relating thereto and to exercise without
interference from Debtor any and all rights which Debtor has with respect to the
management, possession, operation, protection, preservation, distribution or
resale of the Collateral, including the right to sell or rent the same for the
account of Debtor and to deduct from such sale proceeds or such rents all costs,
expenses and liabilities of every character incurred by Secured Party in
collecting such sale proceeds or such rents, and in managing, operating,
maintaining, protecting or preserving the Collateral and to apply the remainder
of such sales proceeds or such rents on the Debt in such manner as Secured Party
may elect. Before any sale, Secured Party may, at its option, complete the
processing of any of the Collateral and/or repair or recondition the same to
such extent as Secured Party may deem advisable and any reasonable sums expended
therefor by Secured Party shall be reimbursed by Debtor. Secured Party may take
possession of Debtor's premises to complete such processing, repairing and/or
reconditioning, using the facilities and other property of Debtor to do so, to
store any Collateral and to conduct any sale as provided for herein, all without
compensation to Debtor. All costs, expenses, and liabilities incurred by Secured
Party in collecting such sales proceeds or such rents, or in managing,
operating, maintaining, protecting or preserving such properties, or in
processing, repairing and/or reconditioning the Collateral if not paid out of
such sales proceeds or such rents as hereinabove provided, shall constitute a
demand obligation owing by Debtor and shall bear interest from the date of
expenditure until paid at the Past Due Rate, all of which shall constitute a
portion of the Debt. If necessary to obtain the possession provided for above,
Secured Party may invoke any and all legal remedies to dispossess Debtor,
including specifically one or more actions for forcible entry and detainer. In
connection with any action taken by Secured Party pursuant to this paragraph,
Secured Party shall not be liable for any loss sustained by Debtor resulting
from any failure to sell or let the Collateral, or any part thereof, or from any
other act or omission of Secured Party with respect to the Collateral unless
such loss is caused by the gross negligence or willful misconduct of Secured
Party, nor shall Secured Party be obligated to perform or discharge any
obligation, duty, or liability under any sale or lease
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agreement covering the Collateral or any part thereof or under or by reason of
this instrument or the exercise of rights or remedies hereunder.
(b) Secured Party may, without notice except as hereinafter
provided, sell the Collateral or any part thereof at public or private sale
(with or without appraisal or having the Collateral at the place of sale) for
cash, upon credit, or for future delivery, and at such price or prices as
Secured Party may deem best, and Secured Party may be the purchaser of any and
all of the Collateral so sold and may apply upon the purchase price therefor any
of the Debt and thereafter hold the same absolutely free from any right or claim
of whatsoever kind. In any such public or private sale, Secured Party may (but
shall not be obligated to) submit a bid in the form of a credit against the Debt
owed to Secured Party, and Secured Party or its designee may accept title to
property purchased at such public or private sale. Upon any such sale Secured
Party shall have the right to deliver, assign and transfer to the purchaser
thereof the Collateral so sold. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right of whatsoever kind,
including any equity or right of redemption, stay or appraisal which Debtor has
or may have under any rule of law or statute now existing or hereafter adopted.
To the extent notice is required by applicable law, Secured Party shall give
Debtor written notice at the address set forth herein (which shall satisfy any
requirement of notice or reasonable notice in any applicable statute) of Secured
Party's intention to make any such public or private sale. Such notice (if any
is required by applicable law) shall be personally delivered or mailed, postage
prepaid, at least ten (10) calendar days before the date fixed for a public
sale, or at least (10) calendar days before the date after which the private
sale or other disposition is to be made, unless the Collateral is of a type
customarily sold on a recognized market, is perishable or threatens to decline
speedily in value. Such notice (if any is required by applicable law), in case
of public sale, shall state the time and place fixed for such sale or, in case
of private sale or other disposition other than a public sale, the time after
which the private sale or other such disposition is to be made. Any public sale
shall be held at such time or times, within the ordinary business hours and at
such place or places, as Secured Party may fix in the notice of such sale. At
any sale, the Collateral may be sold in one lot as an entirety or in separate
parcels as Secured Party may determine. Secured Party shall not be obligated to
make any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at any time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by Secured Party
until the selling price is paid by the purchaser thereof, but Secured Party
shall not incur liability in case of the failure of such purchaser to take up
and pay for the Collateral so sold, and in case of any such failure, such
Collateral may again be sold upon like notice. Each and every method of
disposition described in this Section shall constitute disposition in a
commercially reasonable manner. Each Obligor, to the extent applicable, shall
remain liable for any deficiency.
(c) Secured Party shall have all the rights of a secured party
after default under the Uniform Commercial Code of the state or states where the
applicable Collateral is situated, and in conjunction with, in addition to or in
substitution for those rights and remedies:
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 10
<PAGE> 11
(i) Secured Party may require Debtor to assemble the Collateral
and make it available at a place Secured Party designates which is mutually
convenient to allow Secured Party to take possession or dispose of the
Collateral; and
(ii) it shall not be necessary that Secured Party take possession
of the Collateral or any part thereof before the time that any sale
pursuant to the provisions of this Article is conducted and it shall not be
necessary that the Collateral or any part thereof be present at the
location of such sale; and
(iii) before application of proceeds of disposition of the
Collateral to the Debt, such proceeds shall be applied to the reasonable
expenses of retaking, holding, preparing for sale or lease, selling,
leasing, licensing, sublicensing and the like, as well as reasonable
attorneys' fees and legal expenses incurred by Secured Party, each Obligor,
to the extent applicable, to remain liable for any deficiency; and
(iv) the sale by Secured Party of less than the whole of the
Collateral shall not exhaust the rights of Secured Party hereunder, and
Secured Party is specifically empowered to make successive sale or sales
hereunder until the whole of the Collateral shall be sold; and, if the
proceeds of such sale of less than the whole of the Collateral shall be
less than the aggregate of the Debt, this Agreement and the security
interest created hereby shall remain in full force and effect as to the
unsold portion of the Collateral just as though no sale had been made; and
(v) in the event any sale hereunder is not completed or is
defective in the reasonable opinion of Secured Party, such sale shall not
exhaust the rights of Secured Party hereunder and Secured Party shall have
the right to cause a subsequent sale or sales to be made hereunder; and
(vi) any and all statements of fact made in any bill of sale or
assignment or other instrument evidencing any foreclosure sale hereunder
shall be taken as rebuttable evidence of the truth of the facts so stated;
and
(vii) Secured Party may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any
sale held by Secured Party, including the sending of notices and the
conduct of sale, but in the name and on behalf of Secured Party; and
(viii) demand of performance, advertisement and presence of
property at sale are hereby WAIVED and Secured Party is hereby authorized
to sell hereunder any evidence of debt it may hold as security for the
Debt. Except as provided herein or in any other Loan Document, all demands
and presentments of any kind or nature are expressly WAIVED by Debtor.
Debtor WAIVES the right to require Secured Party to pursue any other remedy
for the benefit of Debtor and agrees that Secured Party may proceed against
any Obligor for the amount of the Debt owed to Secured Party without taking
any action against any other Obligor or any other person or entity and
without
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 11
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selling or otherwise proceeding against or applying any of the Collateral in
Secured Party's possession.
(d) Secured Party may apply to a court of competent jurisdiction for
the appointment of a receiver, or a receiver and manager, over Debtor, or any or
all of the Collateral, with such duties, powers and obligations as the court
making such appointment shall confirm, and Debtor hereby irrevocably consents to
the appointment of such receiver or such receiver and manager.
7.2 All remedies expressly provided for in the Agreement are cumulative of
any and all other remedies existing at law or in equity and are cumulative of
any and all other remedies provided for in any other instrument securing the
payment of the Debt, or any part thereof, or otherwise benefiting Secured Party,
and the resort to any remedy provided for hereunder or under any such other
instrument or provided for by law shall not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies.
7.3 Secured Party may resort to any security given by this Agreement or to
any other security now existing or hereafter given to secure the payment of the
Debt, in whole or in part, and in such portions and in such order as may seem
best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
7.4 To the full extent Debtor may do so, Debtor agrees that Debtor will not
at any time insist upon, plead, claim or take the benefit or advantage of any
law now or hereafter in force providing for any appraisement, valuation, stay,
extension or redemption, and Debtor, for Debtor, Debtor's successors, receivers,
trustees and assigns, and for any and all persons ever claiming any interest in
the Collateral, to the extent permitted by law, hereby WAIVE and release all
rights of redemption, valuation, appraisement, stay of execution, notice of
intention to mature or to declare due the whole of the Debt, notice of election
to mature or to declare due the whole of the Debt and all rights to a marshaling
of the assets of Debtor, including the Collateral, or to a sale in inverse order
of alienation in the event of foreclosure of the security interest hereby
created.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Subject to the automatic reinstatement provisions of Section 8.21
below, upon full satisfaction of the Debt, complete performance of all of the
obligations of the Obligors under the Loan Documents and final termination of
Secured Party's obligations, if any, to make any further advances under any Note
or to provide any other financial accommodations to any Obligor, all rights
under this Agreement shall terminate and the Collateral shall become wholly
clear of the security interest evidenced hereby, and upon written request by
Debtor such security interest shall be released by Secured Party in due form and
at Debtor's cost.
8.2 Secured Party may waive any default without waiving any other prior or
subsequent default. Secured Party may remedy any default without waiving the
default
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remedied. The failure by Secured Party to exercise any right, power or remedy
upon any default shall not be construed as a waiver of such default or as a
waiver of the right to exercise any such right, power or remedy at a later date.
No single or partial exercise by Secured Party of any right, power or remedy
hereunder shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, power or remedy hereunder may be exercised at any
time and from time to time. No modification or waiver of any provision hereof
nor consent to any departure by Debtor therefrom shall in any event be effective
unless the same shall be in writing and signed by Secured Party, and then such
waiver or consent shall be effective only in the specific instances, for the
purpose for which given and to the extent therein specified. No notice to nor
demand on Debtor in any case shall of itself entitle Debtor to any other or
further notice or demand in similar or other circumstances. Acceptance by
Secured Party of any payment in an amount less than the amount then due on the
Debt shall be deemed an acceptance on account only and shall not in any way
affect the existence of a default hereunder.
8.3 Subject to Section 9.11 of the Credit Agreement, Secured Party may at
any time and from time to time in writing (a) waive compliance by Debtor with
any covenant herein made by Debtor to the extent and in the manner specified in
such writing; (b) consent to Debtor's doing any act which hereunder Debtor is
prohibited from doing, or consent to Debtor's failing to do any act which
hereunder Debtor is required to do, to the extent and in the manner specified in
such writing; (c) release any part of the Collateral, or any interest therein,
from the security interest of this Agreement; or (d) release any Person liable,
either directly or indirectly, for the Debt or for any covenant herein or in any
other instrument now or hereafter securing the payment of the Debt, without
impairing or releasing the liability of any other Person. No such act shall in
any way impair the rights of Secured Party hereunder except to the extent
specifically agreed to by Secured Party in such writing.
8.4 Secured Party shall not be required to take any steps necessary to
preserve any rights against prior parties to any of the Collateral.
8.5 The Liens and other rights of Secured Party hereunder shall not be
impaired by any indulgence, moratorium or release granted by Secured Party,
including but not limited to (a) any renewal, extension or modification which
Secured Party may grant with respect to the Debt; (b) any surrender compromise,
release, renewal, extension, exchange or substitution which Secured Party may
grant in respect of any item of the Collateral, or any part thereof or any
interest therein; or (c) any release or indulgence granted to any endorser,
guarantor or surety of the Debt.
8.6 A carbon, photographic or other reproduction of this Agreement or of
any financing statement relating to this Agreement shall be sufficient as a
financing statement. Debtor will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
8.7 This Agreement may be executed in several identical counterparts and by
the parties hereto on separate counterparts, and each counterpart, when so
executed and delivered,
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shall constitute an original instrument, and all such separate counterparts
shall constitute but one and the same instrument.
8.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a Person other than Debtor, Secured Party may, without notice
to Debtor deal with such successor or successors in interest with reference to
this Agreement and to the Debt in the same manner as with Debtor, without in any
way vitiating or discharging Debtor's liability hereunder or upon the Debt. No
sale of the Collateral, and no forbearance on the part of Secured Party and no
extension of the time for the payment of the Debt given by Secured Party shall
operate to release, discharge, modify, change or affect, in whole or in part,
the liability of Debtor hereunder for the payment of the Debt or the liability
of any other person hereunder for the payment of the Debt, except as agreed to
in writing by Secured Party or as expressly provided in the Credit Agreement.
8.9 Any other or additional security taken for the payment of any of the
Debt shall not in any manner affect the security given by this Agreement.
8.10 To the extent that proceeds of the Debt are used to pay indebtedness
secured by any outstanding Lien against the Collateral, such proceeds have been
advanced by Secured Party at Debtor's request, and Secured Party shall be
subrogated to any and all Liens owned by any owner or holder of such outstanding
Lien, irrespective of whether said Lien is released.
8.11 If any part of the Debt cannot be lawfully secured by this Agreement,
or if the Liens of this Agreement cannot be lawfully enforced to pay any part of
the Debt, then and in either such event, at the option of Secured Party, all
payments on the Debt shall be deemed to have been first applied against that
part of the Debt.
8.12 Subject to Section 9.11 of the Credit Agreement, this Agreement shall
not be changed orally but shall be changed only by agreement in writing signed
by Debtor and Secured Party. No course of dealing between the parties, no usage
of trade and no parole or extrinsic evidence of any nature shall be used to
supplement or modify any of the terms or provisions of this Agreement.
8.13 Any notice, request or other communication required or permitted to be
given hereunder shall be given as provided in the Credit Agreement.
8.14 This Agreement shall be binding upon Debtor, and the trustees,
receivers, successors and assigns of Debtor, including all successors in
interest of Debtor in and to all or any part of the Collateral, and shall
benefit Secured Party and its successors and assigns.
8.15 If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and this Agreement shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this Agreement is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (a) it is not
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 14
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prohibited by applicable law and (b) applicable law neither provides for nor
allows any material sanctions to be imposed against Secured Party for having
bargained for and obtained it.
8.16 Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of any of the Collateral in its possession if it takes
such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by Debtor shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. Secured Party
shall not be responsible in any way for any depreciation in the value of the
Collateral, nor shall any duty or responsibility whatsoever rest upon Secured
Party to take any steps to preserve rights against prior parties or to enforce
collection of the Collateral by legal proceedings or otherwise, the sole duty of
Secured Party, its successors and assigns, being to receive collections,
remittances and payments on such Collateral as and when made and received by
Secured Party and, as provided by the Credit Agreement, to apply the amount or
amounts so received, after deduction of any collection costs incurred, as
payment upon any of the Debt or to hold the same for the account and order of
Debtor.
8.17 In the event Debtor instructs Secured Party, in writing or orally, to
deliver any or all of the Collateral to a third Person, and Secured Party agrees
to do so, the following conditions shall be conclusively deemed to be a part of
Secured Party's agreement, whether or not they are specifically mentioned to
Debtor at the time of such agreement: (i) Secured Party shall not assume any
responsibility for checking the genuineness or authenticity of any Person
purporting to be a messenger, employee or representative of such third Person to
whom Debtor has directed Secured Party to deliver the Collateral, or the
genuineness or authenticity of any document of instructions delivered by such
Person; (ii) Debtor will be considered by requesting any such delivery to have
assumed all risk of loss as to the Collateral; (iii) Secured Party's sole
responsibility will be to deliver the Collateral to the Person purporting to be
such third Person described by Debtor, or a messenger, employee or
representative thereof; and (iv) Secured Party and Debtor hereby expressly agree
that the foregoing actions by Secured Party shall constitute reasonable care.
8.18 The pronouns used in this Agreement are in the masculine and neuter
genders but shall be construed as feminine, masculine or neuter as occasion may
request. "Secured Party", "Obligor" and "Debtor" as used in this Agreement
include the heirs, devisees, successors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, and
successors and assigns of those parties.
8.19 The section headings appearing in this Agreement have been inserted
for convenience only and shall be given no substantive meaning or significance
whatever in construing the terms and provisions of this Agreement. Terms used in
this Agreement which are defined in the Texas Uniform Commercial Code are used
with the meanings as therein defined. Wherever the term "including" or a similar
term is used in this Agreement, it shall be read as if it were written
"including by way of example only and without in any way limiting the generality
of the clause or concept referred to."
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8.20 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE APPLICABLE LAWS OF THE STATE OF TEXAS (OTHER THAN THE CONFLICTS OF LAWS
PRINCIPLES THEREOF) AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
8.21 Debtor agrees that, if at any time all or any part of any payment
previously applied by Secured Party to the Debt is or must be returned by
Secured Party, or recovered from Secured Party, for any reason (including the
order of any bankruptcy court), this Agreement shall automatically be reinstated
to the same effect, as if the prior application had not been made, and, in
addition, Debtor hereby agrees to indemnify Secured Party against, and to save
and hold Secured Party harmless from any required return by Secured Party, or
recovery from Secured Party, of any such payments because of its being deemed
preferential under applicable bankruptcy, receivership or insolvency laws, or
for any other reason.
8.22 Secured Party may from time to time and at any time, without any
necessity for any notice to or consent by Debtor or any other Person, release
all or any part of the Collateral from the security interests of this Agreement,
with or without cause, including as a result of any determination by Secured
Party that the Collateral or any portion thereof contains or has been
contaminated by or releases or discharges any hazardous or toxic waste, material
or substance.
8.23 This Agreement is given in renewal, amendment, replacement, and
restatement in its entirety (but not in novation, extinguishment or
satisfaction) of that certain Security Agreement (Personal Property) dated June
12, 1997, executed by and between Tidel Engineering, Inc. and Secured Party,
successor-in-interest to Texas Commerce Bank National Association, as amended by
that certain First Amendment to Security Agreement dated May 27, 1998, by and
between Tidel Engineering, Inc. and Secured Party (as amended, the "Prior
Agreement"). To the extent of any conflict between the terms of this Agreement
and the terms of the Prior Agreement, the terms of this Agreement shall control.
8.24 THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
EXECUTED as of the date first written hereinabove.
"Debtor"
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc.,
its sole general partner
By:
--------------------------------------
Mark K. Levenick,
President and Chief Executive Officer
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 16
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"Secured Party"
CHASE BANK OF TEXAS, N.A.,
a national banking association
By:
-------------------------------------------
Joanne Bramanti,
Vice President
Schedule 1 - Inventory and Equipment Locations
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 17
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SCHEDULE 1
TO
SECURITY AGREEMENT (PERSONAL PROPERTY)
Inventory and Equipment Locations
1. 2310 McDaniel Drive
Carrollton, Texas 75006
2. 1624 Diplomat
Carrollton, Texas 75006
SCHEDULE 1
<PAGE> 1
EXHIBIT 4.06
SECURITY AGREEMENT
(PERSONAL PROPERTY)
This Security Agreement (as amended, supplemented or restated from time
to time, this "Agreement") dated as of April 1, 1999, is by and between TIDEL
CASH SYSTEMS, INC. ("TCS"), whose address is 5847 San Felipe, Suite 900,
Houston, Texas 77057, and CHASE BANK OF TEXAS, N.A., a national banking
association, whose address is 2200 Ross Avenue, 6th Floor, Dallas, Texas 75201
(the "Secured Party"), under the Credit Agreement (as amended, restated and
supplemented from time to time, the "Credit Agreement") of even date herewith,
by and among Tidel Technologies, L.P. ("Debtor"), Secured Party and Tidel
Technologies, Inc.
TCS and Secured Party agree as follows:
Any capitalized term used in this Agreement and not otherwise defined
herein shall have the meaning ascribed to such term in the Credit Agreement. All
principles of construction set forth in Section 1.2 of the Credit Agreement are
incorporated herein by reference for all purposes.
ARTICLE 1
CREATION OF SECURITY INTEREST
1.1 In order to secure the prompt and unconditional payment of the
indebtedness herein referred to and the performance of the obligations,
covenants, agreements and undertakings herein described, TCS hereby grants to
Secured Party a security interest in, and mortgage, collaterally assign as
security and pledge to Secured Party, all of TCS's rights, titles and interests
of every kind and character now owned or hereafter acquired, created or arising
in and to the following:
ACCOUNTS
(a) all accounts, receivables, accounts receivable, reports,
customer lists, purchase orders, monies due or recoverable
from pension funds, tax refunds, book debts, contract rights
and rights to payment no matter how evidenced;
(b) all chattel paper, notes, drafts, acceptances, payments under
leases of equipment or sale of inventory, and other forms of
obligations received by or belonging to TCS for goods sold or
leased and/or services rendered by TCS;
(c) all purchase orders, instruments and other documents
(including all documents of title) evidencing obligations to
TCS, including those for or representing obligations for goods
sold or leased and/or services rendered by TCS;
(d) all monies due or to become due to TCS under all contracts for
or arising from the sale or lease of goods and/or performance
of services by TCS no matter how evidenced and whether or not
earned by performance;
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(e) all accounts, receivables, accounts receivable and contract
rights arising as a result of TCS's having paid accounts
payable (or having had goods sold or leased to TCS or services
performed for TCS giving rise to accounts payable) which
accounts payable were paid for or were incurred by TCS on
behalf of any third parties pursuant to an agreement or
otherwise;
(f) all goods, the sale and delivery of which give rise to any of
the foregoing, including any such goods which are returned to
TCS for credit;
INVENTORY
all goods, merchandise, raw materials, work in process, finished goods,
and other tangible personal property of whatever nature now owned by
TCS or hereafter from time to time existing or acquired, wherever
located and held for sale or lease, including those held for display or
demonstration or out on lease or consignment, or furnished or to be
furnished under contracts of service or used or usable or consumed or
consumable in TCS's business or which are finished or unfinished goods
and all accessions and appurtenances thereto, together with all
warehouse receipts and other documents evidencing any of the same and
all containers, packing, packaging, shipping and similar materials;
EQUIPMENT
all machinery, apparatus, equipment, fittings, furniture, fixtures,
motor vehicles and other tangible personal property (other than
Inventory) of every kind and description owned by TCS or in which TCS
has an ownership interest, whether now owned or hereafter acquired by
TCS and wherever located, and all parts, accessories and special tools
and all increases and accessions thereto and substitutions and
replacements therefor;
GENERAL INTANGIBLES
all general intangibles of TCS, whether now owned or hereafter created
or acquired by TCS, including all choses in action, causes of action,
corporate or other business records, deposit accounts, inventions,
blueprints, designs, patents, patent applications, trademarks,
trademark applications, trade names, trade secrets, service marks,
goodwill, brand names, copyrights, registrations, licenses, franchises,
customer lists, tax refund claims, computer programs, operational
manuals, all claims under guaranties, security interests or other
security held by or granted to TCS to secure payment of any of the
Accounts by an account TCS, all rights to indemnification and all other
intangible property of every kind and nature (other than Accounts);
CASH, CASH EQUIVALENTS AND OTHER PROPERTY
all property or interests in property now owned or hereafter acquired
by TCS, and all property or interests in property now owned or
hereafter acquired by TCS in the
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 2
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possession, custody or control of Secured Party or any agent or
Affiliate of Secured Party for any purpose (whether for safekeeping,
deposit, custody, pledge, transmission, collection or otherwise) and
all rights and interests of TCS, now existing or hereafter arising and
however and wherever arising, in respect of any and all (i) notes,
drafts, letters of credit, stocks, bonds, and debt and equity
securities, whether or not certificated, and warrants, options, puts
and calls and other rights to acquire or otherwise relating to the
same; (ii) money; (iii) proceeds of loans; and (iv) insurance proceeds;
together with all accessions, appurtenances and additions to and substitutions
for any of the foregoing; all products and proceeds of any of the foregoing; all
renewals and replacements of any of the foregoing; and all accounts,
instruments, notes, chattel paper, documents (including all documents of title),
books, records, computer programs, computer tapes, computer discs, contract
rights and other general intangibles arising from any of the foregoing
(including all insurance and claims for insurance affected or held for the
benefit of TCS or Secured Party in respect of any of the foregoing). All of the
properties and interests described in this Section 1.1 are herein collectively
called the "Collateral." The inclusion of proceeds does not authorize TCS to
sell, dispose of or otherwise use the Collateral in any manner not otherwise
authorized herein.
1.2 TCS acknowledges, agrees and confirms that value has been given to
TCS by Secured Party and that TCS and Secured Party have not agreed to postpone
the time for attachment of the security interests in and assignments of the
Collateral which are evidenced hereby.
ARTICLE 2
SECURED INDEBTEDNESS
2.1 This Agreement is made to secure all of the following debt and
obligations:
(a) All Indebtedness at any time evidenced by the Notes, the
Applications, and any and all modifications, extensions, renewals,
rearrangements, replacements and increases of each thereof.
(b) All other Obligations of Debtor, TCS or any other party
under or in connection with the Credit Agreement, this Agreement and the other
Loan Documents owed to Secured Party.
2.2 The term "Debt" means and includes all of the Indebtedness and
other Obligations described or referred to in Section 2.1. The Debt includes
interest and all other Obligations accruing or arising after (a) commencement of
any case under any bankruptcy or similar laws by or against Debtor, TCS or any
other Guarantor (Debtor, TCS and each such Guarantor being herein called
individually an "Obligor" and collectively, "Obligors") or (b) the obligations
of any Obligor shall cease to exist by operation of law or for any other reason
(it being the intention of Secured Party to not reinstate the liability of any
discharged Obligor, but only to confirm that the discharge of any Obligor from
liability for the Debt shall not effect all remaining Obligors' liability for
interest and other Obligations accruing or arising with respect to the Debt
after any such discharged Obligor has been released from liability for all or
any portion of the Debt. The
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Debt also includes all reasonable attorneys' fees and any other reasonable
expenses incurred by Secured Party in enforcing any of the Loan Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
TCS represents and warrants as follows:
(a) TCS is the legal and equitable owner and holder of marketable title
to the Collateral free of any material adverse claim and free of any Lien except
only for the Liens granted hereby and those other Liens (if any) expressly
referred to, described in or permitted by this Agreement or any other Loan
Documents. Except with respect to Liens permitted by this Agreement or by the
terms of the other Loan Documents, TCS has not heretofore signed any financing
statement or other similar instrument directly or indirectly affecting the
Collateral or any part of it which has not been completely terminated of record,
and no such financing statement or other similar instrument signed by TCS is now
on file in any public office.
(b) As of the date of this Agreement, the location of TCS is the
address set forth at the beginning of this Agreement and in this regard, TCS's
location is defined to mean (i) TCS's place of business if TCS has only one such
place of business; or (ii) TCS's chief executive office if TCS has more than one
place of business. As of the date of this Agreement, the primary books and
records of TCS with regard to the Collateral are maintained and kept at such
address of TCS set forth at the beginning of this Agreement.
(c) No part of the Collateral consists or will consist of consumer
goods, farm products or timber and the like or accounts resulting from the sale
thereof.
(d) TCS has the right to use, assign and pledge, without payment of any
amounts to any third parties (other than normal licensing fees payable to
licensors of prefabricated software programs currently utilized by TCS, if any),
any and all accounting, monitoring, billing, recordkeeping or other similar
types of systems, together with all related software, currently utilized by TCS
in its operations. Prior to commencement of any use by TCS of any custom
designed or similar types of accounting, monitoring, billing, recordkeeping or
other similar types of systems, together with all related software, TCS shall
cause any and all licensors thereof to consent in writing to the use by Secured
Party of such systems and related software upon payment by Secured Party to such
licensors of the amounts normally due and payable on a periodic basis by TCS to
such licensors in connection with TCS's day to day use and implementation of
such systems and related software (the form of such consents from the applicable
licensors to be upon terms and conditions reasonably acceptable to Secured
Party).
(e) As of the date of this Agreement, TCS has not ever changed its name
whether by amendment of its organizational documents or otherwise, except as
disclosed in the Organizational Documents of TCS delivered to Secured Party in
connection with the execution and delivery of the Credit Agreement and all other
Loan Documents.
(f) The Collateral is free from damage caused by fire or other
casualty.
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(g) None of the products manufactured and sold, nor any processes or
know-how used by TCS, presently infringe or are alleged to infringe, in any
material respect, any patent, trade secret, trademark, service mark, tradename,
copyright or other proprietary right of any other Person.
(h) Except for Liens expressly permitted by this Agreement or any of
the other Loan Documents, the Liens of this Agreement will constitute valid and
perfected first and prior Liens on the Collateral when a financing statement
covering the Collateral is duly filed for record in the offices of the Secretary
of State of the State of Texas.
(i) As of the date hereof, other than Inventory of TCS which is in
transit, all of the Inventory and Equipment of TCS is located at the locations
described on Schedule 1 attached hereto.
ARTICLE 4
COVENANTS
4.1 TCS covenants and agrees with Secured Party as follows:
(a) TCS shall furnish to Secured Party such instruments as may
be required by Secured Party to assure the transferability of any Collateral
when and as often as may be reasonably requested by Secured Party.
(b) If the validity or priority of this Agreement or of any
material rights, titles, security interests or other interests created or
evidenced hereby shall be attacked, endangered or questioned or if any legal
proceedings are instituted with respect thereto, TCS will give prompt written
notice thereof to Secured Party and at TCS's own cost and expense will
diligently endeavor to cure any defect that may be developed or claimed, and
will take all necessary and proper steps for the defense of such legal
proceedings, and Secured Party (whether or not named as a party to legal
proceedings with respect thereto) is hereby authorized and empowered to take
such additional steps as in its reasonable judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or the
protection of the validity or priority of this Agreement and the rights, titles,
security interests and other interests created or evidenced hereby, and all
expenses so incurred of every kind and character shall constitute sums advanced
pursuant to Section 4.2 of this Agreement.
(c) Notwithstanding the security interest in proceeds granted
herein, TCS will not, except as otherwise expressly permitted herein or in the
other Loan Documents, sell, lease, exchange, lend, rent, assign, license,
transfer or otherwise dispose of, or pledge, hypothecate or grant any Lien in,
or permit to exist any Lien against, all or any part of the Collateral or any
interest therein or permit any of the foregoing to occur or arise or permit
title to the Collateral, or any interest therein, to be vested in any other
party, in any manner whatsoever, by operation of law or otherwise, without the
prior written consent of Secured Party. Except as provided by the Loan Documents
or as otherwise permitted herein, TCS shall not, without the prior written
consent of Secured Party, (i) acquire any such Collateral under any arrangement
whereby the
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seller or any other person retains or acquires any security interest in such
Collateral or (ii) return or give possession of any such Collateral to any
supplier or any other Person except in the ordinary course of business. Subject
to the exercise of Secured Party's rights and remedies granted herein or in any
other Loan Document, TCS may use the Collateral in any lawful manner not
inconsistent with this Agreement or the other Loan Documents or with the terms
or conditions of any policy of insurance thereon and may also sell or lease such
Collateral in the ordinary course of business except as otherwise provided under
the other Loan Documents. A sale in the ordinary course of business does not
include a transfer in partial or total satisfaction of a debt. Subject to the
exercise of Secured Party's rights and remedies granted herein or in any other
Loan Document, TCS may also use and consume any raw materials or supplies, the
use and consumption of which are necessary to carry on the business of TCS.
(d) If any portion of the Collateral is now or hereafter
evidenced by any promissory notes, trade acceptances or other instruments for
the payment of money having an original principal or face amount in excess of
$10,000, TCS will immediately deliver them to Secured Party, appropriately
endorsed to Secured Party's order. Regardless of the form of endorsement, TCS
waives presentment, demand, notice of dishonor, protest and notice of protest.
After an Event of Default which is continuing, but prior to such delivery, such
Collateral shall be held in trust for the benefit of Secured Party and subject
to the Liens granted herein.
(e) TCS shall maintain property and liability insurance
policies covering the Collateral and claims related to the Collateral
("Collateral Insurance") in accordance with the requirements of Section 6.7 of
the Credit Agreement. TCS shall deliver certificates evidencing renewal of the
Collateral Insurance before termination of any insurance policies representing
Collateral Insurance. Upon request, TCS shall deliver certificates evidencing
the Collateral Insurance and copies of the underlying policies as they are
available. Promptly upon obtaining knowledge thereof, TCS shall notice Secured
Party of any casualty to the Collateral which exceeds $100,000 ("Material
Casualty"). At the request of Secured Party, TCS shall pursue claims for payment
related to the Material Casualty.
(f) Upon the receipt by Secured Party or TCS of any insurance
proceeds from insurance policies required to be maintained pursuant to Section
6.7 of the Credit Agreement on account of (1) each separate loss, damage or
injury to any Collateral in excess of $100,000 if no Default or Event of Default
shall have occurred which is continuing or (2) any separate loss, damage or
injury to any Collateral (regardless of the amount of loss, damage or injury) if
a Default or Event of Default shall have occurred which is continuing, such
insurance proceeds shall be promptly delivered and turned over to Secured Party
(if the same have not been previously received by Secured Party), and except as
otherwise specified below, such insurance proceeds shall be promptly applied by
Secured Party in payment of the Debt (such order and manner of application to he
at the discretion of Secured Party). With respect to such net insurance
proceeds, TCS may elect, by written notice delivered to Secured Party, not later
than the tenth day after receipt of such net proceeds by Secured Party or TCS,
to utilize and apply all or a portion of such net proceeds for the purpose of
replacing, repairing or restoring the relevant Collateral, and in such event,
any required application of such net proceeds against the Debt in accordance
with the preceding sentence shall be reduced dollar for dollar by the amount of
such election by TCS. Such an election by TCS shall not be effective, however,
unless (1) at the time
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of such election no Default or Event of Default shall have occurred which is
continuing, (2) TCS shall have certified to Secured Party that the net proceeds
of the insurance adjustment for such loss, damage or injury to Collateral,
together with other funds available to TCS, shall be sufficient to complete such
contemplated replacement, repair or restoration in accordance with all
applicable laws, regulations and ordinances, and (3) if the amount of the net
proceeds in question exceeds $100,000, TCS shall have obtained the written
consent of the Secured Party to such use and application of such insurance
proceeds.
(g) In the event of a valid election by TCS under Section
4.1(f) above to utilize all or a portion of such insurance proceeds to replace,
repair or restore the relevant Collateral, upon the request of Secured Party,
TCS shall place into an account under Secured Party's control (the "Insurance
Proceeds Account") the amount of net insurance proceeds to be utilized for such
contemplated replacement, repair or restoration, pursuant to agreements in form,
scope and substance reasonably satisfactory to Secured Party (including a pledge
of such Insurance Proceeds Account as additional security for the Debt). The
Insurance Proceeds Account, including all earnings thereon, if any, shall be
available to TCS solely for the replacement, repair or restoration of the
Collateral suffering the applicable injury, loss or damage; provided, however,
that at any time that a Default or Event of Default shall occur and be
continuing, the balance of the Insurance Proceeds Account, together with all
earnings thereon, may be immediately applied by Secured Party to repay the Debt
in such order as Secured Party shall elect in its discretion. Secured Party
shall be entitled to require proof, as a condition to TCS making of any
withdrawal from the Insurance Proceeds Account, that the amount of such
withdrawal is being applied for the purposes permitted hereunder. Additionally,
any proceeds of the Insurance Proceeds Account may be made available and
advanced by Secured Party directly to TCS, or directly to suppliers,
manufacturers, contractors and other persons entitled to payment in accordance
with and subject to reasonable conditions to disbursements as Secured Party may
impose to assure that such replacement, repair or restoration of the relevant
Collateral is paid for and performed and that no Liens arise by reason thereof.
(h) No Inventory nor Equipment shall be located at any
location, other than the locations set forth on Schedule 1 attached hereto,
which has not been disclosed in writing to Secured Party in advance of such
Inventory or Equipment being located at such location and for which Financing
Statements, and landlord subordinations or warehousemens' agreements, as the
case may be, (if such locations are not owned by TCS) covering such portion of
the Inventory or Equipment, as the case may be, have not been executed and
delivered by TCS and filed for record with the appropriate Governmental
Authority necessary to perfect the Liens granted hereby.
(i) TCS agrees to defend the Collateral and its proceeds
against all claims and demands of any Person at any time claiming the
Collateral.
4.2 If TCS fails to comply with any of its agreements, covenants or
obligations under this Agreement or any other Loan Document, after giving effect
to any applicable cure period, Secured Party (in TCS's name or in Secured
Party's own name) may perform them or cause them to be performed for the account
and at the expense of TCS, but shall have no obligation to perform any of them
or cause them to be performed. Any and all expenses thus incurred or paid
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by Secured Party shall be TCS's obligations to Secured Party due and payable on
demand, or if no demand is sooner made, then they shall be due on or before four
(4) years after the respective dates on which they were incurred, and each shall
bear interest from the date one (1) Business Day after Secured Party demands
payment for such amounts until the date TCS repays such amounts to Secured
Party, at the Past Due Rate. Upon making any such payment or incurring any such
expense, Secured Party shall be fully and automatically subrogated to all of the
rights of the person, corporation or body politic receiving such payment. Any
amounts owing by TCS to Secured Party pursuant to this or any other provision of
this Agreement shall automatically and without notice be and become a part of
the Debt and shall be secured by this and all other instruments securing the
Debt. The amount and nature of any such expense and the time when it was paid
shall be fully established by the affidavit of Secured Party or any of Secured
Party's officers or agents. The exercise of the privileges granted to Secured
Party in this Section shall in no event be considered or constitute a cure of
the default or a waiver of Secured Party's right at any time after an Event of
Default to declare the Debt to be at once due and payable, but is cumulative of
such right and of all other rights given by this Agreement, the Credit
Agreement, the Notes and the Loan Documents and of all rights given Secured
Party by law.
ARTICLE 5
ASSIGNMENT OF PAYMENTS; CERTAIN POWERS
OF SECURED PARTY; NO ASSUMPTION
5.1 Upon the occurrence of an Event of Default and so long as it is
continuing and has not been expressly waived by Secured Party in writing,
Secured Party may request TCS to notify each account debtor and each other
Person (each a "Collateral Obligor") obligated to make payment in respect of any
of the Collateral of the Liens in such Collateral granted herein and instruct
such Collateral Obligor to pay over to Secured Party, all or any part of the
Collateral without making any inquiries as to the status or balance of TCS and
without any notice to or further consent of TCS. If TCS does not promptly comply
with such request, Secured Party may, but shall not be obligated to, directly
notify each such Collateral Obligor of the Liens in the Collateral granted
herein and instruct such Collateral Obligor to pay over to Secured Party, all or
any part of the Collateral without making any inquiries as to the status or
balance of TCS and without any notice to or further consent of TCS.
5.2 The powers conferred on Secured Party pursuant to this Article 5
are conferred solely to protect Secured Party's interest in the Collateral and
shall not impose any duty or obligation on Secured Party to perform any of the
powers herein conferred. Additionally, the powers conferred on Secured Party
pursuant to this Article 5 are cumulative of all other similar, related or
additional powers conferred on Secured Party by the terms and provisions of
Section 9.21 of the Credit Agreement and are not intended to limit or restrict
in any manner whatsoever any of such powers and rights conferred on Secured
Party under the terms and provisions of the Credit Agreement or any other Loan
Documents. No exercise of any of such rights provided for in this Article 5 or
in the Credit Agreement shall constitute a retention of collateral in
satisfaction of the indebtedness as provided for in Section 9.505 of the Uniform
Commercial Code of Texas or the state or states where the applicable Collateral
is located.
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ARTICLE 6
EVENTS OF DEFAULT
An Event of Default under the Credit Agreement shall constitute an
Event of Default (herein so called) under this Agreement.
ARTICLE 7
REMEDIES IN EVENT OF DEFAULT
7.1 In addition to the other rights and remedies provided for in the
Credit Agreement, upon the occurrence and during the continuation of an Event of
Default:
(a) Secured Party is authorized, in any legal manner and
without breach of the peace, to take possession of the Collateral (TCS HEREBY
WAIVES ALL CLAIMS FOR DAMAGES ARISING FROM OR CONNECTED WITH ANY SUCH TAKING,
EXCEPT AS MAY BE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SECURED
PARTY) and of all books, records and accounts relating thereto and to exercise
without interference from TCS any and all rights which TCS has with respect to
the management, possession, operation, protection, preservation, distribution or
resale of the Collateral, including the right to sell or rent the same for the
account of TCS and to deduct from such sale proceeds or such rents all costs,
expenses and liabilities of every character incurred by Secured Party in
collecting such sale proceeds or such rents, and in managing, operating,
maintaining, protecting or preserving the Collateral and to apply the remainder
of such sales proceeds or such rents on the Debt in such manner as Secured Party
may elect. Before any sale, Secured Party may, at its option, complete the
processing of any of the Collateral and/or repair or recondition the same to
such extent as Secured Party may deem advisable and any reasonable sums expended
therefor by Secured Party shall be reimbursed by TCS. Secured Party may take
possession of TCS's premises to complete such processing, repairing and/or
reconditioning, using the facilities and other property of TCS to do so, to
store any Collateral and to conduct any sale as provided for herein, all without
compensation to TCS. All costs, expenses, and liabilities incurred by Secured
Party in collecting such sales proceeds or such rents, or in managing,
operating, maintaining, protecting or preserving such properties, or in
processing, repairing and/or reconditioning the Collateral if not paid out of
such sales proceeds or such rents as hereinabove provided, shall constitute a
demand obligation owing by TCS and shall bear interest from the date of
expenditure until paid at the Past Due Rate, all of which shall constitute a
portion of the Debt. If necessary to obtain the possession provided for above,
Secured Party may invoke any and all legal remedies to dispossess TCS, including
specifically one or more actions for forcible entry and detainer. In connection
with any action taken by Secured Party pursuant to this paragraph, Secured Party
shall not be liable for any loss sustained by TCS resulting from any failure to
sell or let the Collateral, or any part thereof, or from any other act or
omission of Secured Party with respect to the Collateral unless such loss is
caused by the gross negligence or willful misconduct of Secured Party, nor shall
Secured Party be obligated to perform or discharge any obligation, duty, or
liability under any sale or lease agreement covering the Collateral or any part
thereof or under or by reason of this instrument or the exercise of rights or
remedies hereunder.
(b) Secured Party may, without notice except as hereinafter
provided, sell the Collateral or any part thereof at public or private sale
(with or without appraisal or having the
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Collateral at the place of sale) for cash, upon credit, or for future delivery,
and at such price or prices as Secured Party may deem best, and Secured Party
may be the purchaser of any and all of the Collateral so sold and may apply upon
the purchase price therefor any of the Debt and thereafter hold the same
absolutely free from any right or claim of whatsoever kind. In any such public
or private sale, Secured Party may (but shall not be obligated to) submit a bid
in the form of a credit against the Debt owed to Secured Party, and Secured
Party or its designee may accept title to property purchased at such public or
private sale. Upon any such sale Secured Party shall have the right to deliver,
assign and transfer to the purchaser thereof the Collateral so sold. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right of whatsoever kind, including any equity or right of redemption,
stay or appraisal which TCS has or may have under any rule of law or statute now
existing or hereafter adopted. To the extent notice is required by applicable
law, Secured Party shall give TCS written notice at the address set forth herein
(which shall satisfy any requirement of notice or reasonable notice in any
applicable statute) of Secured Party's intention to make any such public or
private sale. Such notice (if any is required by applicable law) shall be
personally delivered or mailed, postage prepaid, at least ten (10) calendar days
before the date fixed for a public sale, or at least (10) calendar days before
the date after which the private sale or other disposition is to be made, unless
the Collateral is of a type customarily sold on a recognized market, is
perishable or threatens to decline speedily in value. Such notice (if any is
required by applicable law), in case of public sale, shall state the time and
place fixed for such sale or, in case of private sale or other disposition other
than a public sale, the time after which the private sale or other such
disposition is to be made. Any public sale shall be held at such time or times,
within the ordinary business hours and at such place or places, as Secured Party
may fix in the notice of such sale. At any sale, the Collateral may be sold in
one lot as an entirety or in separate parcels as Secured Party may determine.
Secured Party shall not be obligated to make any sale pursuant to any such
notice. Secured Party may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at any time and place fixed for the sale, and such sale may be made at any time
or place to which the same may be so adjourned. In case of any sale of all or
any part of the Collateral on credit or for future delivery, the Collateral so
sold may be retained by Secured Party until the selling price is paid by the
purchaser thereof, but Secured Party shall not incur liability in case of the
failure of such purchaser to take up and pay for the Collateral so sold, and in
case of any such failure, such Collateral may again be sold upon like notice.
Each and every method of disposition described in this Section shall constitute
disposition in a commercially reasonable manner. Each Obligor, to the extent
applicable, shall remain liable for any deficiency.
(c) Secured Party shall have all the rights of a secured party
after default under the Uniform Commercial Code of the state or states where the
applicable Collateral is situated, and in conjunction with, in addition to or in
substitution for those rights and remedies:
(i) Secured Party may require TCS to assemble the
Collateral and make it available at a place Secured Party designates
which is mutually convenient to allow Secured Party to take possession
or dispose of the Collateral; and
(ii) it shall not be necessary that Secured Party
take possession of the Collateral or any part thereof before the time
that any sale pursuant to the provisions of
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this Article is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such
sale; and
(iii) before application of proceeds of disposition
of the Collateral to the Debt, such proceeds shall be applied to the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling, leasing, licensing, sublicensing and the like, as well as
reasonable attorneys' fees and legal expenses incurred by Secured
Party, each Obligor, to the extent applicable, to remain liable for any
deficiency; and
(iv) the sale by Secured Party of less than the whole
of the Collateral shall not exhaust the rights of Secured Party
hereunder, and Secured Party is specifically empowered to make
successive sale or sales hereunder until the whole of the Collateral
shall be sold; and, if the proceeds of such sale of less than the whole
of the Collateral shall be less than the aggregate of the Debt, this
Agreement and the security interest created hereby shall remain in full
force and effect as to the unsold portion of the Collateral just as
though no sale had been made; and
(v) in the event any sale hereunder is not completed
or is defective in the reasonable opinion of Secured Party, such sale
shall not exhaust the rights of Secured Party hereunder and Secured
Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(vi) any and all statements of fact made in any bill
of sale or assignment or other instrument evidencing any foreclosure
sale hereunder shall be taken as rebuttable evidence of the truth of
the facts so stated; and
(vii) Secured Party may appoint or delegate any one
or more persons as agent to perform any act or acts necessary or
incident to any sale held by Secured Party, including the sending of
notices and the conduct of sale, but in the name and on behalf of
Secured Party; and
(viii) demand of performance, advertisement and
presence of property at sale are hereby WAIVED and Secured Party is
hereby authorized to sell hereunder any evidence of debt it may hold as
security for the Debt. Except as provided herein or in any other Loan
Document, all demands and presentments of any kind or nature are
expressly WAIVED by TCS. TCS WAIVES the right to require Secured Party
to pursue any other remedy for the benefit of TCS and agrees that
Secured Party may proceed against any Obligor for the amount of the
Debt owed to Secured Party without taking any action against any other
Obligor or any other person or entity and without selling or otherwise
proceeding against or applying any of the Collateral in Secured Party's
possession.
(d) Secured Party may apply to a court of competent
jurisdiction for the appointment of a receiver, or a receiver and manager, over
TCS, or any or all of the Collateral, with such duties, powers and obligations
as the court making such appointment shall confirm,
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and TCS hereby irrevocably consents to the appointment of such receiver or such
receiver and manager.
7.2 All remedies expressly provided for in the Agreement are cumulative
of any and all other remedies existing at law or in equity and are cumulative of
any and all other remedies provided for in any other instrument securing the
payment of the Debt, or any part thereof, or otherwise benefiting Secured Party,
and the resort to any remedy provided for hereunder or under any such other
instrument or provided for by law shall not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies.
7.3 Secured Party may resort to any security given by this Agreement or
to any other security now existing or hereafter given to secure the payment of
the Debt, in whole or in part, and in such portions and in such order as may
seem best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
7.4 To the full extent TCS may do so, TCS agrees that TCS will not at
any time insist upon, plead, claim or take the benefit or advantage of any law
now or hereafter in force providing for any appraisement, valuation, stay,
extension or redemption, and TCS, for TCS, TCS's successors, receivers, trustees
and assigns, and for any and all persons ever claiming any interest in the
Collateral, to the extent permitted by law, hereby WAIVE and release all rights
of redemption, valuation, appraisement, stay of execution, notice of intention
to mature or to declare due the whole of the Debt, notice of election to mature
or to declare due the whole of the Debt and all rights to a marshaling of the
assets of TCS, including the Collateral, or to a sale in inverse order of
alienation in the event of foreclosure of the security interest hereby created.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Subject to the automatic reinstatement provisions of Section 8.21
below, upon full satisfaction of the Debt, complete performance of all of the
obligations of the Obligors under the Loan Documents and final termination of
Secured Party's obligations, if any, to make any further advances under any Note
or to provide any other financial accommodations to any Obligor, all rights
under this Agreement shall terminate and the Collateral shall become wholly
clear of the security interest evidenced hereby, and upon written request by TCS
such security interest shall be released by Secured Party in due form and at
TCS's cost.
8.2 Secured Party may waive any default without waiving any other prior
or subsequent default. Secured Party may remedy any default without waiving the
default remedied. The failure by Secured Party to exercise any right, power or
remedy upon any default shall not be construed as a waiver of such default or as
a waiver of the right to exercise any such right, power or remedy at a later
date. No single or partial exercise by Secured Party of any right, power or
remedy hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time. No modification or waiver of any
provision hereof nor consent to any departure by TCS therefrom shall in any
event be effective unless the same shall be in writing
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and signed by Secured Party, and then such waiver or consent shall be effective
only in the specific instances, for the purpose for which given and to the
extent therein specified. No notice to nor demand on TCS in any case shall of
itself entitle TCS to any other or further notice or demand in similar or other
circumstances. Acceptance by Secured Party of any payment in an amount less than
the amount then due on the Debt shall be deemed an acceptance on account only
and shall not in any way affect the existence of a default hereunder.
8.3 Subject to Section 9.11 of the Credit Agreement, Secured Party may
at any time and from time to time in writing (a) waive compliance by TCS with
any covenant herein made by TCS to the extent and in the manner specified in
such writing; (b) consent to TCS's doing any act which hereunder TCS is
prohibited from doing, or consent to TCS's failing to do any act which hereunder
TCS is required to do, to the extent and in the manner specified in such
writing; (c) release any part of the Collateral, or any interest therein, from
the security interest of this Agreement; or (d) release any Person liable,
either directly or indirectly, for the Debt or for any covenant herein or in any
other instrument now or hereafter securing the payment of the Debt, without
impairing or releasing the liability of any other Person. No such act shall in
any way impair the rights of Secured Party hereunder except to the extent
specifically agreed to by Secured Party in such writing.
8.4 Secured Party shall not be required to take any steps necessary to
preserve any rights against prior parties to any of the Collateral.
8.5 The Liens and other rights of Secured Party hereunder shall not be
impaired by any indulgence, moratorium or release granted by Secured Party,
including but not limited to (a) any renewal, extension or modification which
Secured Party may grant with respect to the Debt; (b) any surrender compromise,
release, renewal, extension, exchange or substitution which Secured Party may
grant in respect of any item of the Collateral, or any part thereof or any
interest therein; or (c) any release or indulgence granted to any endorser,
guarantor or surety of the Debt.
8.6 A carbon, photographic or other reproduction of this Agreement or
of any financing statement relating to this Agreement shall be sufficient as a
financing statement. TCS will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
8.7 This Agreement may be executed in several identical counterparts
and by the parties hereto on separate counterparts, and each counterpart, when
so executed and delivered, shall constitute an original instrument, and all such
separate counterparts shall constitute but one and the same instrument.
8.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a Person other than TCS, Secured Party may, without notice to
TCS deal with such successor or successors in interest with reference to this
Agreement and to the Debt in the same manner as with TCS, without in any way
vitiating or discharging TCS's liability hereunder or upon the
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Debt. No sale of the Collateral, and no forbearance on the part of Secured Party
and no extension of the time for the payment of the Debt given by Secured Party
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of TCS hereunder for the payment of the Debt or the
liability of any other person hereunder for the payment of the Debt, except as
agreed to in writing by Secured Party or as expressly provided in the Credit
Agreement.
8.9 Any other or additional security taken for the payment of any of
the Debt shall not in any manner affect the security given by this Agreement.
8.10 To the extent that proceeds of the Debt are used to pay
indebtedness secured by any outstanding Lien against the Collateral, such
proceeds have been advanced by Secured Party at TCS's request, and Secured Party
shall be subrogated to any and all Liens owned by any owner or holder of such
outstanding Lien, irrespective of whether said Lien is released.
8.11 If any part of the Debt cannot be lawfully secured by this
Agreement, or if the Liens of this Agreement cannot be lawfully enforced to pay
any part of the Debt, then and in either such event, at the option of Secured
Party, all payments on the Debt shall be deemed to have been first applied
against that part of the Debt.
8.12 Subject to Section 9.11 of the Credit Agreement, this Agreement
shall not be changed orally but shall be changed only by agreement in writing
signed by TCS and Secured Party. No course of dealing between the parties, no
usage of trade and no parole or extrinsic evidence of any nature shall be used
to supplement or modify any of the terms or provisions of this Agreement.
8.13 Any notice, request or other communication required or permitted
to be given hereunder shall be given as provided in the Credit Agreement.
8.14 This Agreement shall be binding upon TCS, and the trustees,
receivers, successors and assigns of TCS, including all successors in interest
of TCS in and to all or any part of the Collateral, and shall benefit Secured
Party and its successors and assigns.
8.15 If any provision of this Agreement is held to be illegal, invalid
or unenforceable under present or future laws, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and this Agreement shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this Agreement is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (a) it is not prohibited by applicable law and (b) applicable
law neither provides for nor allows any material sanctions to be imposed against
Secured Party for having bargained for and obtained it.
8.16 Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as TCS requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by TCS shall be deemed a failure to exercise
reasonable care in the
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 14
<PAGE> 15
custody or preservation of such Collateral. Secured Party shall not be
responsible in any way for any depreciation in the value of the Collateral, nor
shall any duty or responsibility whatsoever rest upon Secured Party to take any
steps to preserve rights against prior parties or to enforce collection of the
Collateral by legal proceedings or otherwise, the sole duty of Secured Party,
its successors and assigns, being to receive collections, remittances and
payments on such Collateral as and when made and received by Secured Party and,
as provided by the Credit Agreement, to apply the amount or amounts so received,
after deduction of any collection costs incurred, as payment upon any of the
Debt or to hold the same for the account and order of TCS.
8.17 In the event TCS instructs Secured Party, in writing or orally, to
deliver any or all of the Collateral to a third Person, and Secured Party agrees
to do so, the following conditions shall be conclusively deemed to be a part of
Secured Party's agreement, whether or not they are specifically mentioned to TCS
at the time of such agreement: (i) Secured Party shall not assume any
responsibility for checking the genuineness or authenticity of any Person
purporting to be a messenger, employee or representative of such third Person to
whom TCS has directed Secured Party to deliver the Collateral, or the
genuineness or authenticity of any document of instructions delivered by such
Person; (ii) TCS will be considered by requesting any such delivery to have
assumed all risk of loss as to the Collateral; (iii) Secured Party's sole
responsibility will be to deliver the Collateral to the Person purporting to be
such third Person described by TCS, or a messenger, employee or representative
thereof; and (iv) Secured Party and TCS hereby expressly agree that the
foregoing actions by Secured Party shall constitute reasonable care.
8.18 The pronouns used in this Agreement are in the masculine and
neuter genders but shall be construed as feminine, masculine or neuter as
occasion may request. "Secured Party", "Obligor" and "TCS" as used in this
Agreement include the heirs, devisees, successors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, and
successors and assigns of those parties.
8.19 The section headings appearing in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Agreement.
Terms used in this Agreement which are defined in the Texas Uniform Commercial
Code are used with the meanings as therein defined. Wherever the term
"including" or a similar term is used in this Agreement, it shall be read as if
it were written "including by way of example only and without in any way
limiting the generality of the clause or concept referred to."
8.20 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS (OTHER THAN THE CONFLICTS OF LAWS
PRINCIPLES THEREOF) AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
8.21 TCS agrees that, if at any time all or any part of any payment
previously applied by Secured Party to the Debt is or must be returned by
Secured Party, or recovered from Secured Party, for any reason (including the
order of any bankruptcy court), this Agreement shall automatically be reinstated
to the same effect, as if the prior application had not been made, and, in
addition, TCS hereby agrees to indemnify Secured Party against, and to save and
hold Secured
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 15
<PAGE> 16
Party harmless from any required return by Secured Party, or recovery from
Secured Party, of any such payments because of its being deemed preferential
under applicable bankruptcy, receivership or insolvency laws, or for any other
reason.
8.22 Secured Party may from time to time and at any time, without any
necessity for any notice to or consent by TCS or any other Person, release all
or any part of the Collateral from the security interests of this Agreement,
with or without cause, including as a result of any determination by Secured
Party that the Collateral or any portion thereof contains or has been
contaminated by or releases or discharges any hazardous or toxic waste, material
or substance.
8.23 THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
EXECUTED as of the date first written hereinabove.
"TCS"
TIDEL CASH SYSTEMS, INC.
By:
-------------------------------------
Mark K. Levenick,
President and Chief Executive Officer
"Secured Party"
CHASE BANK OF TEXAS, N.A.,
a national banking association
By:
-------------------------------------
Joanne Bramanti,
Vice President
Schedule 1 - Inventory and Equipment Location
SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 16
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SCHEDULE 1
TO
SECURITY AGREEMENT (PERSONAL PROPERTY)
Inventory and Equipment Location
5847 San Felipe, Suite 900
Houston, Texas 77057
SCHEDULE 1
<PAGE> 1
EXHIBIT 4.07
SECURITY AGREEMENT
(PERSONAL PROPERTY)
This Security Agreement (as amended, supplemented or restated from time
to time, this "Agreement") dated as of April 1, 1999, is by and between TIDEL
SERVICES, INC. ("TSI"), whose address is 300 Delaware Avenue, Suite 1704,
Wilmington, Delaware 19899, and CHASE BANK OF TEXAS, N.A., a national banking
association, whose address is 2200 Ross Avenue, 6th Floor, Dallas, Texas 75201
(the "Secured Party"), under the Credit Agreement (as amended, restated and
supplemented from time to time, the "Credit Agreement") of even date herewith,
by and among Tidel Engineering, L.P. ("Debtor"), Secured Party and Tidel
Technologies, Inc.
TSI and Secured Party agree as follows:
Any capitalized term used in this Agreement and not otherwise defined
herein shall have the meaning ascribed to such term in the Credit Agreement. All
principles of construction set forth in Section 1.2 of the Credit Agreement are
incorporated herein by reference for all purposes.
ARTICLE 1
CREATION OF SECURITY INTEREST
1.1 In order to secure the prompt and unconditional payment of the
indebtedness herein referred to and the performance of the obligations,
covenants, agreements and undertakings herein described, TSI hereby grants to
Secured Party a security interest in, and mortgage, collaterally assign as
security and pledge to Secured Party, all of TSI's rights, titles and interests
of every kind and character now owned or hereafter acquired, created or arising
in and to the following:
ACCOUNTS
(a) all accounts, receivables, accounts receivable, reports,
customer lists, purchase orders, monies due or recoverable
from pension funds, tax refunds, book debts, contract rights
and rights to payment no matter how evidenced;
(b) all chattel paper, notes, drafts, acceptances, payments under
leases of equipment or sale of inventory, and other forms of
obligations received by or belonging to TSI for goods sold or
leased and/or services rendered by TSI;
(c) all purchase orders, instruments and other documents
(including all documents of title) evidencing obligations to
TSI, including those for or representing obligations for goods
sold or leased and/or services rendered by TSI;
(d) all monies due or to become due to TSI under all contracts for
or arising from the sale or lease of goods and/or performance
of services by TSI no matter how evidenced and whether or not
earned by performance;
SECURITY AGREEMENT (Personal Property) - Page 1
<PAGE> 2
(e) all accounts, receivables, accounts receivable and contract
rights arising as a result of TSI's having paid accounts
payable (or having had goods sold or leased to TSI or services
performed for TSI giving rise to accounts payable) which
accounts payable were paid for or were incurred by TSI on
behalf of any third parties pursuant to an agreement or
otherwise;
(f) all goods, the sale and delivery of which give rise to any of
the foregoing, including any such goods which are returned to
TSI for credit;
INVENTORY
all goods, merchandise, raw materials, work in process, finished goods,
and other tangible personal property of whatever nature now owned by
TSI or hereafter from time to time existing or acquired, wherever
located and held for sale or lease, including those held for display or
demonstration or out on lease or consignment, or furnished or to be
furnished under contracts of service or used or usable or consumed or
consumable in TSI's business or which are finished or unfinished goods
and all accessions and appurtenances thereto, together with all
warehouse receipts and other documents evidencing any of the same and
all containers, packing, packaging, shipping and similar materials;
EQUIPMENT
all machinery, apparatus, equipment, fittings, furniture, fixtures,
motor vehicles and other tangible personal property (other than
Inventory) of every kind and description owned by TSI or in which TSI
has an ownership interest, whether now owned or hereafter acquired by
TSI and wherever located, and all parts, accessories and special tools
and all increases and accessions thereto and substitutions and
replacements therefor;
GENERAL INTANGIBLES
all general intangibles of TSI, whether now owned or hereafter created
or acquired by TSI, including all choses in action, causes of action,
corporate or other business records, deposit accounts, inventions,
blueprints, designs, patents, patent applications, trademarks,
trademark applications, trade names, trade secrets, service marks,
goodwill, brand names, copyrights, registrations, licenses, franchises,
customer lists, tax refund claims, computer programs, operational
manuals, all claims under guaranties, security interests or other
security held by or granted to TSI to secure payment of any of the
Accounts by an account TSI, all rights to indemnification and all other
intangible property of every kind and nature (other than Accounts);
CASH, CASH EQUIVALENTS AND OTHER PROPERTY
all property or interests in property now owned or hereafter acquired
by TSI, and all property or interests in property now owned or
hereafter acquired by TSI in the
SECURITY AGREEMENT (Personal Property) - Page 2
<PAGE> 3
possession, custody or control of Secured Party or any agent or
Affiliate of Secured Party for any purpose (whether for safekeeping,
deposit, custody, pledge, transmission, collection or otherwise) and
all rights and interests of TSI, now existing or hereafter arising and
however and wherever arising, in respect of any and all (i) notes,
drafts, letters of credit, stocks, bonds, and debt and equity
securities, whether or not certificated, and warrants, options, puts
and calls and other rights to acquire or otherwise relating to the
same; (ii) money; (iii) proceeds of loans; and (iv) insurance proceeds;
together with all accessions, appurtenances and additions to and substitutions
for any of the foregoing; all products and proceeds of any of the foregoing; all
renewals and replacements of any of the foregoing; and all accounts,
instruments, notes, chattel paper, documents (including all documents of title),
books, records, computer programs, computer tapes, computer discs, contract
rights and other general intangibles arising from any of the foregoing
(including all insurance and claims for insurance affected or held for the
benefit of TSI or Secured Party in respect of any of the foregoing). All of the
properties and interests described in this Section 1.1 are herein collectively
called the "Collateral." The inclusion of proceeds does not authorize TSI to
sell, dispose of or otherwise use the Collateral in any manner not otherwise
authorized herein.
1.2 TSI acknowledges, agrees and confirms that value has been given to
TSI by Secured Party and that TSI and Secured Party have not agreed to postpone
the time for attachment of the security interests in and assignments of the
Collateral which are evidenced hereby.
ARTICLE 2
SECURED INDEBTEDNESS
2.1 This Agreement is made to secure all of the following debt and
obligations:
(a) All Indebtedness at any time evidenced by the Notes, the
Applications, and any and all modifications, extensions, renewals,
rearrangements, replacements and increases of each thereof.
(b) All other Obligations of Debtor, TSI or any other party
under or in connection with the Credit Agreement, this Agreement and the other
Loan Documents owed to Secured Party.
2.2 The term "Debt" means and includes all of the Indebtedness and
other Obligations described or referred to in Section 2.1. The Debt includes
interest and all other Obligations accruing or arising after (a) commencement of
any case under any bankruptcy or similar laws by or against Debtor, TSI or any
other Guarantor (Debtor, TSI and each such Guarantor being herein called
individually an "Obligor" and collectively, "Obligors") or (b) the obligations
of any Obligor shall cease to exist by operation of law or for any other reason
(it being the intention of Secured Party to not reinstate the liability of any
discharged Obligor, but only to confirm that the discharge of any Obligor from
liability for the Debt shall not effect all remaining Obligors' liability for
interest and other Obligations accruing or arising with respect to the Debt
after any such discharged Obligor has been released from liability for all or
any portion of the Debt. The
SECURITY AGREEMENT (Personal Property) - Page 3
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Debt also includes all reasonable attorneys' fees and any other reasonable
expenses incurred by Secured Party in enforcing any of the Loan Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
TSI represents and warrants as follows:
(a) TSI is the legal and equitable owner and holder of marketable title
to the Collateral free of any material adverse claim and free of any Lien except
only for the Liens granted hereby and those other Liens (if any) expressly
referred to, described in or permitted by this Agreement or any other Loan
Documents. Except with respect to Liens permitted by this Agreement or by the
terms of the other Loan Documents, TSI has not heretofore signed any financing
statement or other similar instrument directly or indirectly affecting the
Collateral or any part of it which has not been completely terminated of record,
and no such financing statement or other similar instrument signed by TSI is now
on file in any public office.
(b) As of the date of this Agreement, the location of TSI is the
address set forth at the beginning of this Agreement and in this regard, TSI's
location is defined to mean (i) TSI's place of business if TSI has only one such
place of business; or (ii) TSI's chief executive office if TSI has more than one
place of business. As of the date of this Agreement, the primary books and
records of TSI with regard to the Collateral are maintained and kept at such
address of TSI set forth at the beginning of this Agreement.
(c) No part of the Collateral consists or will consist of consumer
goods, farm products or timber and the like or accounts resulting from the sale
thereof.
(d) TSI has the right to use, assign and pledge, without payment of any
amounts to any third parties (other than normal licensing fees payable to
licensors of prefabricated software programs currently utilized by TSI, if any),
any and all accounting, monitoring, billing, recordkeeping or other similar
types of systems, together with all related software, currently utilized by TSI
in its operations. Prior to commencement of any use by TSI of any custom
designed or similar types of accounting, monitoring, billing, recordkeeping or
other similar types of systems, together with all related software, TSI shall
cause any and all licensors thereof to consent in writing to the use by Secured
Party of such systems and related software upon payment by Secured Party to such
licensors of the amounts normally due and payable on a periodic basis by TSI to
such licensors in connection with TSI's day to day use and implementation of
such systems and related software (the form of such consents from the applicable
licensors to be upon terms and conditions reasonably acceptable to Secured
Party).
(e) As of the date of this Agreement, TSI has not ever changed its name
whether by amendment of its organizational documents or otherwise, except as
disclosed in the Organizational Documents of TSI delivered to Secured Party in
connection with the execution and delivery of the Credit Agreement and all other
Loan Documents.
(f) The Collateral is free from damage caused by fire or other
casualty.
SECURITY AGREEMENT (Personal Property) - Page 4
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(g) None of the products manufactured and sold, nor any processes or
know-how used by TSI, presently infringe or are alleged to infringe, in any
material respect, any patent, trade secret, trademark, service mark, tradename,
copyright or other proprietary right of any other Person.
(h) Except for Liens expressly permitted by this Agreement or any of
the other Loan Documents, the Liens of this Agreement will constitute valid and
perfected first and prior Liens on the Collateral when a financing statement
covering the Collateral is duly filed for record in the offices of the Secretary
of State of the State of Texas.
(i) As of the date hereof, other than Inventory of TSI which is in
transit, all of the Inventory and Equipment of TSI is located at the locations
described on Schedule 1 attached hereto.
ARTICLE 4
COVENANTS
4.1 TSI covenants and agrees with Secured Party as follows:
(a) TSI shall furnish to Secured Party such instruments as may
be required by Secured Party to assure the transferability of any Collateral
when and as often as may be reasonably requested by Secured Party.
(b) If the validity or priority of this Agreement or of any
material rights, titles, security interests or other interests created or
evidenced hereby shall be attacked, endangered or questioned or if any legal
proceedings are instituted with respect thereto, TSI will give prompt written
notice thereof to Secured Party and at TSI's own cost and expense will
diligently endeavor to cure any defect that may be developed or claimed, and
will take all necessary and proper steps for the defense of such legal
proceedings, and Secured Party (whether or not named as a party to legal
proceedings with respect thereto) is hereby authorized and empowered to take
such additional steps as in its reasonable judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or the
protection of the validity or priority of this Agreement and the rights, titles,
security interests and other interests created or evidenced hereby, and all
expenses so incurred of every kind and character shall constitute sums advanced
pursuant to Section 4.2 of this Agreement.
(c) Notwithstanding the security interest in proceeds granted
herein, TSI will not, except as otherwise expressly permitted herein or in the
other Loan Documents, sell, lease, exchange, lend, rent, assign, license,
transfer or otherwise dispose of, or pledge, hypothecate or grant any Lien in,
or permit to exist any Lien against, all or any part of the Collateral or any
interest therein or permit any of the foregoing to occur or arise or permit
title to the Collateral, or any interest therein, to be vested in any other
party, in any manner whatsoever, by operation of law or otherwise, without the
prior written consent of Secured Party. Except as provided by the Loan Documents
or as otherwise permitted herein, TSI shall not, without the prior written
consent of Secured Party, (i) acquire any such Collateral under any arrangement
whereby the
SECURITY AGREEMENT (Personal Property) - Page 5
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seller or any other person retains or acquires any security interest in such
Collateral or (ii) return or give possession of any such Collateral to any
supplier or any other Person except in the ordinary course of business. Subject
to the exercise of Secured Party's rights and remedies granted herein or in any
other Loan Document, TSI may use the Collateral in any lawful manner not
inconsistent with this Agreement or the other Loan Documents or with the terms
or conditions of any policy of insurance thereon and may also sell or lease such
Collateral in the ordinary course of business except as otherwise provided under
the other Loan Documents. A sale in the ordinary course of business does not
include a transfer in partial or total satisfaction of a debt. Subject to the
exercise of Secured Party's rights and remedies granted herein or in any other
Loan Document, TSI may also use and consume any raw materials or supplies, the
use and consumption of which are necessary to carry on the business of TSI.
(d) If any portion of the Collateral is now or hereafter
evidenced by any promissory notes, trade acceptances or other instruments for
the payment of money having an original principal or face amount in excess of
$10,000, TSI will immediately deliver them to Secured Party, appropriately
endorsed to Secured Party's order. Regardless of the form of endorsement, TSI
waives presentment, demand, notice of dishonor, protest and notice of protest.
After an Event of Default which is continuing, but prior to such delivery, such
Collateral shall be held in trust for the benefit of Secured Party and subject
to the Liens granted herein.
(e) TSI shall maintain property and liability insurance
policies covering the Collateral and claims related to the Collateral
("Collateral Insurance") in accordance with the requirements of Section 6.7 of
the Credit Agreement. TSI shall deliver certificates evidencing renewal of the
Collateral Insurance before termination of any insurance policies representing
Collateral Insurance. Upon request, TSI shall deliver certificates evidencing
the Collateral Insurance and copies of the underlying policies as they are
available. Promptly upon obtaining knowledge thereof, TSI shall notice Secured
Party of any casualty to the Collateral which exceeds $100,000 ("Material
Casualty"). At the request of Secured Party, TSI shall pursue claims for payment
related to the Material Casualty.
(f) Upon the receipt by Secured Party or TSI of any insurance
proceeds from insurance policies required to be maintained pursuant to Section
6.7 of the Credit Agreement on account of (1) each separate loss, damage or
injury to any Collateral in excess of $100,000 if no Default or Event of Default
shall have occurred which is continuing or (2) any separate loss, damage or
injury to any Collateral (regardless of the amount of loss, damage or injury) if
a Default or Event of Default shall have occurred which is continuing, such
insurance proceeds shall be promptly delivered and turned over to Secured Party
(if the same have not been previously received by Secured Party), and except as
otherwise specified below, such insurance proceeds shall be promptly applied by
Secured Party in payment of the Debt (such order and manner of application to he
at the discretion of Secured Party). With respect to such net insurance
proceeds, TSI may elect, by written notice delivered to Secured Party, not later
than the tenth day after receipt of such net proceeds by Secured Party or TSI,
to utilize and apply all or a portion of such net proceeds for the purpose of
replacing, repairing or restoring the relevant Collateral, and in such event,
any required application of such net proceeds against the Debt in accordance
with the preceding sentence shall be reduced dollar for dollar by the amount of
such election by TSI. Such an election by TSI shall not be effective, however,
unless (1) at the time
SECURITY AGREEMENT (Personal Property) - Page 6
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of such election no Default or Event of Default shall have occurred which is
continuing, (2) TSI shall have certified to Secured Party that the net proceeds
of the insurance adjustment for such loss, damage or injury to Collateral,
together with other funds available to TSI, shall be sufficient to complete such
contemplated replacement, repair or restoration in accordance with all
applicable laws, regulations and ordinances, and (3) if the amount of the net
proceeds in question exceeds $100,000, TSI shall have obtained the written
consent of the Secured Party to such use and application of such insurance
proceeds.
(g) In the event of a valid election by TSI under Section
4.1(f) above to utilize all or a portion of such insurance proceeds to replace,
repair or restore the relevant Collateral, upon the request of Secured Party,
TSI shall place into an account under Secured Party's control (the "Insurance
Proceeds Account") the amount of net insurance proceeds to be utilized for such
contemplated replacement, repair or restoration, pursuant to agreements in form,
scope and substance reasonably satisfactory to Secured Party (including a pledge
of such Insurance Proceeds Account as additional security for the Debt). The
Insurance Proceeds Account, including all earnings thereon, if any, shall be
available to TSI solely for the replacement, repair or restoration of the
Collateral suffering the applicable injury, loss or damage; provided, however,
that at any time that a Default or Event of Default shall occur and be
continuing, the balance of the Insurance Proceeds Account, together with all
earnings thereon, may be immediately applied by Secured Party to repay the Debt
in such order as Secured Party shall elect in its discretion. Secured Party
shall be entitled to require proof, as a condition to TSI making of any
withdrawal from the Insurance Proceeds Account, that the amount of such
withdrawal is being applied for the purposes permitted hereunder. Additionally,
any proceeds of the Insurance Proceeds Account may be made available and
advanced by Secured Party directly to TSI, or directly to suppliers,
manufacturers, contractors and other persons entitled to payment in accordance
with and subject to reasonable conditions to disbursements as Secured Party may
impose to assure that such replacement, repair or restoration of the relevant
Collateral is paid for and performed and that no Liens arise by reason thereof.
(h) No Inventory nor Equipment shall be located at any
location, other than the locations set forth on Schedule 1 attached hereto,
which has not been disclosed in writing to Secured Party in advance of such
Inventory or Equipment being located at such location and for which Financing
Statements, and landlord subordinations or warehousemens' agreements, as the
case may be, (if such locations are not owned by TSI) covering such portion of
the Inventory or Equipment, as the case may be, have not been executed and
delivered by TSI and filed for record with the appropriate Governmental
Authority necessary to perfect the Liens granted hereby.
(i) TSI agrees to defend the Collateral and its proceeds
against all claims and demands of any Person at any time claiming the
Collateral.
4.2 If TSI fails to comply with any of its agreements, covenants or
obligations under this Agreement or any other Loan Document, after giving effect
to any applicable cure period, Secured Party (in TSI's name or in Secured
Party's own name) may perform them or cause them to be performed for the account
and at the expense of TSI, but shall have no obligation to perform any of them
or cause them to be performed. Any and all expenses thus incurred or paid by
Secured Party shall be TSI's obligations to Secured Party due and payable on
demand, or if no
SECURITY AGREEMENT (Personal Property) - Page 7
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demand is sooner made, then they shall be due on or before four (4) years after
the respective dates on which they were incurred, and each shall bear interest
from the date one (1) Business Day after Secured Party demands payment for such
amounts until the date TSI repays such amounts to Secured Party, at the Past Due
Rate. Upon making any such payment or incurring any such expense, Secured Party
shall be fully and automatically subrogated to all of the rights of the person,
corporation or body politic receiving such payment. Any amounts owing by TSI to
Secured Party pursuant to this or any other provision of this Agreement shall
automatically and without notice be and become a part of the Debt and shall be
secured by this and all other instruments securing the Debt. The amount and
nature of any such expense and the time when it was paid shall be fully
established by the affidavit of Secured Party or any of Secured Party's officers
or agents. The exercise of the privileges granted to Secured Party in this
Section shall in no event be considered or constitute a cure of the default or a
waiver of Secured Party's right at any time after an Event of Default to declare
the Debt to be at once due and payable, but is cumulative of such right and of
all other rights given by this Agreement, the Credit Agreement, the Notes and
the Loan Documents and of all rights given Secured Party by law.
ARTICLE 5
ASSIGNMENT OF PAYMENTS; CERTAIN POWERS
OF SECURED PARTY; NO ASSUMPTION
5.1 Upon the occurrence of an Event of Default and so long as it is
continuing and has not been expressly waived by Secured Party in writing,
Secured Party may request TSI to notify each account debtor and each other
Person (each a "Collateral Obligor") obligated to make payment in respect of any
of the Collateral of the Liens in such Collateral granted herein and instruct
such Collateral Obligor to pay over to Secured Party, all or any part of the
Collateral without making any inquiries as to the status or balance of TSI and
without any notice to or further consent of TSI. If TSI does not promptly comply
with such request, Secured Party may, but shall not be obligated to, directly
notify each such Collateral Obligor of the Liens in the Collateral granted
herein and instruct such Collateral Obligor to pay over to Secured Party, all or
any part of the Collateral without making any inquiries as to the status or
balance of TSI and without any notice to or further consent of TSI.
5.2 The powers conferred on Secured Party pursuant to this Article 5
are conferred solely to protect Secured Party's interest in the Collateral and
shall not impose any duty or obligation on Secured Party to perform any of the
powers herein conferred. Additionally, the powers conferred on Secured Party
pursuant to this Article 5 are cumulative of all other similar, related or
additional powers conferred on Secured Party by the terms and provisions of
Section 9.21 of the Credit Agreement and are not intended to limit or restrict
in any manner whatsoever any of such powers and rights conferred on Secured
Party under the terms and provisions of the Credit Agreement or any other Loan
Documents. No exercise of any of such rights provided for in this Article 5 or
in the Credit Agreement shall constitute a retention of collateral in
satisfaction of the indebtedness as provided for in Section 9.505 of the Uniform
Commercial Code of Texas or the state or states where the applicable Collateral
is located.
SECURITY AGREEMENT (Personal Property) - Page 8
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ARTICLE 6
EVENTS OF DEFAULT
An Event of Default under the Credit Agreement shall constitute an
Event of Default (herein so called) under this Agreement.
ARTICLE 7
REMEDIES IN EVENT OF DEFAULT
7.1 In addition to the other rights and remedies provided for in the
Credit Agreement, upon the occurrence and during the continuation of an Event of
Default:
(a) Secured Party is authorized, in any legal manner and
without breach of the peace, to take possession of the Collateral (TSI HEREBY
WAIVES ALL CLAIMS FOR DAMAGES ARISING FROM OR CONNECTED WITH ANY SUCH TAKING,
EXCEPT AS MAY BE CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SECURED
PARTY) and of all books, records and accounts relating thereto and to exercise
without interference from TSI any and all rights which TSI has with respect to
the management, possession, operation, protection, preservation, distribution or
resale of the Collateral, including the right to sell or rent the same for the
account of TSI and to deduct from such sale proceeds or such rents all costs,
expenses and liabilities of every character incurred by Secured Party in
collecting such sale proceeds or such rents, and in managing, operating,
maintaining, protecting or preserving the Collateral and to apply the remainder
of such sales proceeds or such rents on the Debt in such manner as Secured Party
may elect. Before any sale, Secured Party may, at its option, complete the
processing of any of the Collateral and/or repair or recondition the same to
such extent as Secured Party may deem advisable and any reasonable sums expended
therefor by Secured Party shall be reimbursed by TSI. Secured Party may take
possession of TSI's premises to complete such processing, repairing and/or
reconditioning, using the facilities and other property of TSI to do so, to
store any Collateral and to conduct any sale as provided for herein, all without
compensation to TSI. All costs, expenses, and liabilities incurred by Secured
Party in collecting such sales proceeds or such rents, or in managing,
operating, maintaining, protecting or preserving such properties, or in
processing, repairing and/or reconditioning the Collateral if not paid out of
such sales proceeds or such rents as hereinabove provided, shall constitute a
demand obligation owing by TSI and shall bear interest from the date of
expenditure until paid at the Past Due Rate, all of which shall constitute a
portion of the Debt. If necessary to obtain the possession provided for above,
Secured Party may invoke any and all legal remedies to dispossess TSI, including
specifically one or more actions for forcible entry and detainer. In connection
with any action taken by Secured Party pursuant to this paragraph, Secured Party
shall not be liable for any loss sustained by TSI resulting from any failure to
sell or let the Collateral, or any part thereof, or from any other act or
omission of Secured Party with respect to the Collateral unless such loss is
caused by the gross negligence or willful misconduct of Secured Party, nor shall
Secured Party be obligated to perform or discharge any obligation, duty, or
liability under any sale or lease agreement covering the Collateral or any part
thereof or under or by reason of this instrument or the exercise of rights or
remedies hereunder.
(b) Secured Party may, without notice except as hereinafter
provided, sell the Collateral or any part thereof at public or private sale
(with or without appraisal or having the Collateral at the place of sale) for
cash, upon credit, or for future delivery, and at such price or
SECURITY AGREEMENT (Personal Property) - Page 9
<PAGE> 10
prices as Secured Party may deem best, and Secured Party may be the purchaser of
any and all of the Collateral so sold and may apply upon the purchase price
therefor any of the Debt and thereafter hold the same absolutely free from any
right or claim of whatsoever kind. In any such public or private sale, Secured
Party may (but shall not be obligated to) submit a bid in the form of a credit
against the Debt owed to Secured Party, and Secured Party or its designee may
accept title to property purchased at such public or private sale. Upon any such
sale Secured Party shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right of whatsoever
kind, including any equity or right of redemption, stay or appraisal which TSI
has or may have under any rule of law or statute now existing or hereafter
adopted. To the extent notice is required by applicable law, Secured Party shall
give TSI written notice at the address set forth herein (which shall satisfy any
requirement of notice or reasonable notice in any applicable statute) of Secured
Party's intention to make any such public or private sale. Such notice (if any
is required by applicable law) shall be personally delivered or mailed, postage
prepaid, at least ten (10) calendar days before the date fixed for a public
sale, or at least (10) calendar days before the date after which the private
sale or other disposition is to be made, unless the Collateral is of a type
customarily sold on a recognized market, is perishable or threatens to decline
speedily in value. Such notice (if any is required by applicable law), in case
of public sale, shall state the time and place fixed for such sale or, in case
of private sale or other disposition other than a public sale, the time after
which the private sale or other such disposition is to be made. Any public sale
shall be held at such time or times, within the ordinary business hours and at
such place or places, as Secured Party may fix in the notice of such sale. At
any sale, the Collateral may be sold in one lot as an entirety or in separate
parcels as Secured Party may determine. Secured Party shall not be obligated to
make any sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at any time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by Secured Party
until the selling price is paid by the purchaser thereof, but Secured Party
shall not incur liability in case of the failure of such purchaser to take up
and pay for the Collateral so sold, and in case of any such failure, such
Collateral may again be sold upon like notice. Each and every method of
disposition described in this Section shall constitute disposition in a
commercially reasonable manner. Each Obligor, to the extent applicable, shall
remain liable for any deficiency.
(c) Secured Party shall have all the rights of a secured party
after default under the Uniform Commercial Code of the state or states where the
applicable Collateral is situated, and in conjunction with, in addition to or in
substitution for those rights and remedies:
(i) Secured Party may require TSI to assemble the
Collateral and make it available at a place Secured Party designates
which is mutually convenient to allow Secured Party to take possession
or dispose of the Collateral; and
(ii) it shall not be necessary that Secured Party
take possession of the Collateral or any part thereof before the time
that any sale pursuant to the provisions of
SECURITY AGREEMENT (Personal Property) - Page 10
<PAGE> 11
this Article is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale;
and
(iii) before application of proceeds of disposition
of the Collateral to the Debt, such proceeds shall be applied to the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling, leasing, licensing, sublicensing and the like, as well as
reasonable attorneys' fees and legal expenses incurred by Secured
Party, each Obligor, to the extent applicable, to remain liable for any
deficiency; and
(iv) the sale by Secured Party of less than the whole
of the Collateral shall not exhaust the rights of Secured Party
hereunder, and Secured Party is specifically empowered to make
successive sale or sales hereunder until the whole of the Collateral
shall be sold; and, if the proceeds of such sale of less than the whole
of the Collateral shall be less than the aggregate of the Debt, this
Agreement and the security interest created hereby shall remain in full
force and effect as to the unsold portion of the Collateral just as
though no sale had been made; and
(v) in the event any sale hereunder is not completed
or is defective in the reasonable opinion of Secured Party, such sale
shall not exhaust the rights of Secured Party hereunder and Secured
Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(vi) any and all statements of fact made in any bill
of sale or assignment or other instrument evidencing any foreclosure
sale hereunder shall be taken as rebuttable evidence of the truth of
the facts so stated; and
(vii) Secured Party may appoint or delegate any one
or more persons as agent to perform any act or acts necessary or
incident to any sale held by Secured Party, including the sending of
notices and the conduct of sale, but in the name and on behalf of
Secured Party; and
(viii) demand of performance, advertisement and
presence of property at sale are hereby WAIVED and Secured Party is
hereby authorized to sell hereunder any evidence of debt it may hold as
security for the Debt. Except as provided herein or in any other Loan
Document, all demands and presentments of any kind or nature are
expressly WAIVED by TSI. TSI WAIVES the right to require Secured Party
to pursue any other remedy for the benefit of TSI and agrees that
Secured Party may proceed against any Obligor for the amount of the
Debt owed to Secured Party without taking any action against any other
Obligor or any other person or entity and without selling or otherwise
proceeding against or applying any of the Collateral in Secured Party's
possession.
(d) Secured Party may apply to a court of competent
jurisdiction for the appointment of a receiver, or a receiver and manager, over
TSI, or any or all of the Collateral, with such duties, powers and obligations
as the court making such appointment shall confirm,
SECURITY AGREEMENT (Personal Property) - Page 11
<PAGE> 12
and TSI hereby irrevocably consents to the appointment of such receiver or such
receiver and manager.
7.2 All remedies expressly provided for in the Agreement are cumulative
of any and all other remedies existing at law or in equity and are cumulative of
any and all other remedies provided for in any other instrument securing the
payment of the Debt, or any part thereof, or otherwise benefiting Secured Party,
and the resort to any remedy provided for hereunder or under any such other
instrument or provided for by law shall not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies.
7.3 Secured Party may resort to any security given by this Agreement or
to any other security now existing or hereafter given to secure the payment of
the Debt, in whole or in part, and in such portions and in such order as may
seem best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
7.4 To the full extent TSI may do so, TSI agrees that TSI will not at
any time insist upon, plead, claim or take the benefit or advantage of any law
now or hereafter in force providing for any appraisement, valuation, stay,
extension or redemption, and TSI, for TSI, TSI's successors, receivers, trustees
and assigns, and for any and all persons ever claiming any interest in the
Collateral, to the extent permitted by law, hereby WAIVE and release all rights
of redemption, valuation, appraisement, stay of execution, notice of intention
to mature or to declare due the whole of the Debt, notice of election to mature
or to declare due the whole of the Debt and all rights to a marshaling of the
assets of TSI, including the Collateral, or to a sale in inverse order of
alienation in the event of foreclosure of the security interest hereby created.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Subject to the automatic reinstatement provisions of Section 8.21
below, upon full satisfaction of the Debt, complete performance of all of the
obligations of the Obligors under the Loan Documents and final termination of
Secured Party's obligations, if any, to make any further advances under any Note
or to provide any other financial accommodations to any Obligor, all rights
under this Agreement shall terminate and the Collateral shall become wholly
clear of the security interest evidenced hereby, and upon written request by TSI
such security interest shall be released by Secured Party in due form and at
TSI's cost.
8.2 Secured Party may waive any default without waiving any other prior
or subsequent default. Secured Party may remedy any default without waiving the
default remedied. The failure by Secured Party to exercise any right, power or
remedy upon any default shall not be construed as a waiver of such default or as
a waiver of the right to exercise any such right, power or remedy at a later
date. No single or partial exercise by Secured Party of any right, power or
remedy hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time. No modification or waiver of any
provision hereof nor consent to any departure by TSI therefrom shall in any
event be effective unless the same shall be in writing and
SECURITY AGREEMENT (Personal Property) - Page 12
<PAGE> 13
signed by Secured Party, and then such waiver or consent shall be effective only
in the specific instances, for the purpose for which given and to the extent
therein specified. No notice to nor demand on TSI in any case shall of itself
entitle TSI to any other or further notice or demand in similar or other
circumstances. Acceptance by Secured Party of any payment in an amount less than
the amount then due on the Debt shall be deemed an acceptance on account only
and shall not in any way affect the existence of a default hereunder.
8.3 Subject to Section 9.11 of the Credit Agreement, Secured Party may
at any time and from time to time in writing (a) waive compliance by TSI with
any covenant herein made by TSI to the extent and in the manner specified in
such writing; (b) consent to TSI's doing any act which hereunder TSI is
prohibited from doing, or consent to TSI's failing to do any act which hereunder
TSI is required to do, to the extent and in the manner specified in such
writing; (c) release any part of the Collateral, or any interest therein, from
the security interest of this Agreement; or (d) release any Person liable,
either directly or indirectly, for the Debt or for any covenant herein or in any
other instrument now or hereafter securing the payment of the Debt, without
impairing or releasing the liability of any other Person. No such act shall in
any way impair the rights of Secured Party hereunder except to the extent
specifically agreed to by Secured Party in such writing.
8.4 Secured Party shall not be required to take any steps necessary to
preserve any rights against prior parties to any of the Collateral.
8.5 The Liens and other rights of Secured Party hereunder shall not be
impaired by any indulgence, moratorium or release granted by Secured Party,
including but not limited to (a) any renewal, extension or modification which
Secured Party may grant with respect to the Debt; (b) any surrender compromise,
release, renewal, extension, exchange or substitution which Secured Party may
grant in respect of any item of the Collateral, or any part thereof or any
interest therein; or (c) any release or indulgence granted to any endorser,
guarantor or surety of the Debt.
8.6 A carbon, photographic or other reproduction of this Agreement or
of any financing statement relating to this Agreement shall be sufficient as a
financing statement. TSI will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
8.7 This Agreement may be executed in several identical counterparts
and by the parties hereto on separate counterparts, and each counterpart, when
so executed and delivered, shall constitute an original instrument, and all such
separate counterparts shall constitute but one and the same instrument.
8.8 In the event the ownership of the Collateral or any part thereof
becomes vested in a Person other than TSI, Secured Party may, without notice to
TSI deal with such successor or successors in interest with reference to this
Agreement and to the Debt in the same manner as with TSI, without in any way
vitiating or discharging TSI's liability hereunder or upon the Debt.
SECURITY AGREEMENT (Personal Property) - Page 13
<PAGE> 14
No sale of the Collateral, and no forbearance on the part of Secured Party and
no extension of the time for the payment of the Debt given by Secured Party
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of TSI hereunder for the payment of the Debt or the
liability of any other person hereunder for the payment of the Debt, except as
agreed to in writing by Secured Party or as expressly provided in the Credit
Agreement.
8.9 Any other or additional security taken for the payment of any of
the Debt shall not in any manner affect the security given by this Agreement.
8.10 To the extent that proceeds of the Debt are used to pay
indebtedness secured by any outstanding Lien against the Collateral, such
proceeds have been advanced by Secured Party at TSI's request, and Secured Party
shall be subrogated to any and all Liens owned by any owner or holder of such
outstanding Lien, irrespective of whether said Lien is released.
8.11 If any part of the Debt cannot be lawfully secured by this
Agreement, or if the Liens of this Agreement cannot be lawfully enforced to pay
any part of the Debt, then and in either such event, at the option of Secured
Party, all payments on the Debt shall be deemed to have been first applied
against that part of the Debt.
8.12 Subject to Section 9.11 of the Credit Agreement, this Agreement
shall not be changed orally but shall be changed only by agreement in writing
signed by TSI and Secured Party. No course of dealing between the parties, no
usage of trade and no parole or extrinsic evidence of any nature shall be used
to supplement or modify any of the terms or provisions of this Agreement.
8.13 Any notice, request or other communication required or permitted
to be given hereunder shall be given as provided in the Credit Agreement.
8.14 This Agreement shall be binding upon TSI, and the trustees,
receivers, successors and assigns of TSI, including all successors in interest
of TSI in and to all or any part of the Collateral, and shall benefit Secured
Party and its successors and assigns.
8.15 If any provision of this Agreement is held to be illegal, invalid
or unenforceable under present or future laws, the legality, validity and
enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and this Agreement shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this Agreement is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (a) it is not prohibited by applicable law and (b) applicable
law neither provides for nor allows any material sanctions to be imposed against
Secured Party for having bargained for and obtained it.
8.16 Secured Party shall be deemed to have exercised reasonable care in
the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as TSI requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by TSI shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. Secured Party
shall not be responsible in any way for
SECURITY AGREEMENT (Personal Property) - Page 14
<PAGE> 15
any depreciation in the value of the Collateral, nor shall any duty or
responsibility whatsoever rest upon Secured Party to take any steps to preserve
rights against prior parties or to enforce collection of the Collateral by legal
proceedings or otherwise, the sole duty of Secured Party, its successors and
assigns, being to receive collections, remittances and payments on such
Collateral as and when made and received by Secured Party and, as provided by
the Credit Agreement, to apply the amount or amounts so received, after
deduction of any collection costs incurred, as payment upon any of the Debt or
to hold the same for the account and order of TSI.
8.17 In the event TSI instructs Secured Party, in writing or orally, to
deliver any or all of the Collateral to a third Person, and Secured Party agrees
to do so, the following conditions shall be conclusively deemed to be a part of
Secured Party's agreement, whether or not they are specifically mentioned to TSI
at the time of such agreement: (i) Secured Party shall not assume any
responsibility for checking the genuineness or authenticity of any Person
purporting to be a messenger, employee or representative of such third Person to
whom TSI has directed Secured Party to deliver the Collateral, or the
genuineness or authenticity of any document of instructions delivered by such
Person; (ii) TSI will be considered by requesting any such delivery to have
assumed all risk of loss as to the Collateral; (iii) Secured Party's sole
responsibility will be to deliver the Collateral to the Person purporting to be
such third Person described by TSI, or a messenger, employee or representative
thereof; and (iv) Secured Party and TSI hereby expressly agree that the
foregoing actions by Secured Party shall constitute reasonable care.
8.18 The pronouns used in this Agreement are in the masculine and
neuter genders but shall be construed as feminine, masculine or neuter as
occasion may request. "Secured Party", "Obligor" and "TSI" as used in this
Agreement include the heirs, devisees, successors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, and
successors and assigns of those parties.
8.19 The section headings appearing in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Agreement.
Terms used in this Agreement which are defined in the Texas Uniform Commercial
Code are used with the meanings as therein defined. Wherever the term
"including" or a similar term is used in this Agreement, it shall be read as if
it were written "including by way of example only and without in any way
limiting the generality of the clause or concept referred to."
8.20 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS (OTHER THAN THE CONFLICTS OF LAWS
PRINCIPLES THEREOF) AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
8.21 TSI agrees that, if at any time all or any part of any payment
previously applied by Secured Party to the Debt is or must be returned by
Secured Party, or recovered from Secured Party, for any reason (including the
order of any bankruptcy court), this Agreement shall automatically be reinstated
to the same effect, as if the prior application had not been made, and, in
addition, TSI hereby agrees to indemnify Secured Party against, and to save and
hold Secured Party harmless from any required return by Secured Party, or
recovery from Secured Party, of
SECURITY AGREEMENT (Personal Property) - Page 15
<PAGE> 16
any such payments because of its being deemed preferential under applicable
bankruptcy, receivership or insolvency laws, or for any other reason.
8.22 Secured Party may from time to time and at any time, without any
necessity for any notice to or consent by TSI or any other Person, release all
or any part of the Collateral from the security interests of this Agreement,
with or without cause, including as a result of any determination by Secured
Party that the Collateral or any portion thereof contains or has been
contaminated by or releases or discharges any hazardous or toxic waste, material
or substance.
8.23 THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
EXECUTED as of the date first written hereinabove.
"TSI"
TIDEL SERVICES, INC.
By:
------------------------------------
Andrew Panaccione, Vice President
"Secured Party"
CHASE BANK OF TEXAS, N.A., a national
banking association
By:
------------------------------------
Joanne Bramanti,
Vice President
Schedule 1 - Inventory and Equipment Location
SECURITY AGREEMENT (Personal Property) - Page 16
<PAGE> 17
SCHEDULE 1
TO
SECURITY AGREEMENT (PERSONAL PROPERTY)
Inventory and Equipment Location
300 Delaware Avenue, Suite 1704
Wilmington, Delaware 19899
SCHEDULE 1
<PAGE> 1
EXHIBIT 4.08
UNCONDITIONAL GUARANTY AGREEMENT
THIS UNCONDITIONAL GUARANTY AGREEMENT (this "Guaranty") is executed as of
April 1, 1999, by TIDEL TECHNOLOGIES, INC., a Delaware corporation,
("Guarantor"), for the benefit of CHASE BANK OF TEXAS, N.A. ("Bank").
RECITALS
1. Pursuant to that certain Credit Agreement (as the same may be amended,
modified, increased, supplemented and/or restated from time to time, the "Loan
Agreement"), dated as of the date hereof and executed by and among Tidel
Engineering, L.P. ("Borrower") Bank and Guarantor, the Bank has agreed to make
certain loans to Borrower in the principal amount set forth therein;
2. The Bank is willing to make certain loans under the Loan Agreement but
only on the condition, among others, that Guarantor shall have executed and
delivered to Bank, for its benefit, this Guaranty; and
3. Guarantor will derive substantial direct and indirect benefit from the
making of the loans under the Loan Agreement.
NOW, THEREFORE, as an inducement to Bank to make certain loans to Borrower,
and to extend such additional credit as Bank may from time to time agree to
extend, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Guarantor, jointly and severally,
hereby agrees as follows:
AGREEMENTS
ARTICLE I
NATURE AND SCOPE OF GUARANTY
Section 1.01. Guaranty of Obligations. Guarantor hereby irrevocably and
unconditionally guarantees to Bank and its successors and assigns the due and
punctual payment of the Obligations (hereinafter defined). Guarantor hereby
irrevocably and unconditionally covenants and agrees that it is liable for the
Obligations as primary obligor.
Section 1.02. Definition of Obligations. As used herein, the term
"Obligations" means:
(a) All indebtedness, liabilities, obligations and duties evidenced
by the Revolving Note (as such term is defined in the Loan Agreement), whether
or not Borrower has any recourse liability therefor to Bank and whether or not
the Revolving Note is enforceable against Borrower or any other party liable
thereon;
UNCONDITIONAL GUARANTY AGREEMENT - Page 1
(Tidel Technologies, Inc.)
<PAGE> 2
(b) Any and all other indebtedness, liabilities, obligations and
duties of every kind and character of Borrower to Bank arising pursuant to or
related to the Loan Agreement, the Revolving Note, or any loan agreement,
security agreement, collateral document or other document, instrument or
contract executed in connection with the Loan Agreement whether now or hereafter
existing or arising, (but expressly excluding the Term Note (as defined in the
Loan Agreement)) regardless of whether such present or future indebtedness,
liabilities, obligations or duties be direct or indirect, primary or secondary,
joint, several, or joint and several, fixed or contingent, and regardless of
whether such present or future indebtedness, liabilities, obligations or duties
may, prior to their acquisition by Bank, be or have been payable to, or be or
have been in favor of, some other person or have been acquired by Bank in any
transaction with one other than Borrower including further, without limitation,
the "Obligations" as defined in the Loan Agreement (but expressly excluding the
Term Note);
(c) Any and all renewals, extensions, modifications and increases
of such indebtedness, liabilities, obligations and duties, or any part thereof,
described in items (a) and (b) of this SECTION 1.02; and
(d) All costs, expenses and fees, including but not limited to
court costs and attorneys' fees, arising in connection with the collection of
any or all amounts, indebtedness, obligations and liabilities of Borrower to
Bank described in items (a) through (c) of this SECTION 1.02 including costs,
expenses and fees arising in connection with the enforcement of this Guaranty.
Section 1.03. Obligations Not Reduced by Offset. The Obligations, and the
liabilities and obligations of Guarantor to Bank hereunder, shall not be
reduced, discharged or released because or by reason of any existing or future
offset, claim or defense of Borrower, or any other party, against Bank or
against payment of the Obligations, whether such offset, claim or defense arises
in connection with the Obligations (or the transactions creating the
Obligations) or otherwise. Without limiting the foregoing or the Guarantor's
liability hereunder, to the extent that Bank advances funds or extends credit to
Borrower, and does not receive payments or benefits thereon in the amounts and
at the times required or provided by applicable agreements or laws, Guarantor is
absolutely liable to make such payments to (and confer such benefits on) Bank,
on a timely basis.
Section 1.04. "Borrower" to Include Successors. The term "Borrower" as used
herein shall include any new or successor entity formed as a result of any
merger or reorganization of Borrower, and all other successors and assigns of
Borrower.
Section 1.05. Payment by Guarantor. The Guarantor shall have the same
rights as Borrower under the Loan Agreement to cure any Event of Default (as
defined in the Loan Agreement) within the time periods, and otherwise in
accordance with the terms, provided in the Loan Agreement. If all or any part of
the Obligations shall not be punctually paid when due, whether at maturity or
earlier by acceleration or otherwise, Guarantor shall, immediately upon demand
by Bank, and without presentment, protest, notice of protest, notice of
non-payment, notice of intention to accelerate or acceleration or any other
notice whatsoever, pay in lawful
UNCONDITIONAL GUARANTY AGREEMENT - Page 2
(Tidel Technologies, Inc.)
<PAGE> 3
money of the United States of America, the amount due on the Obligations to Bank
at Bank's principal office in Dallas, Texas. Such demand(s) may be made at any
time coincident with or after the time for payment of all or part of the
Obligations, and may be made from time to time with respect to the same or
different items of Obligations. Such demand shall be deemed made, given and
received in accordance with SECTION 5.02 hereof.
Section 1.06. No Duty to Pursue Others. It shall not be necessary for Bank
(and Guarantor hereby waives any rights which Guarantor may have to require
Bank), in order to enforce such payment by Guarantor, first to (a) institute
suit or exhaust its remedies against Borrower or others liable on the
Obligations or any other person, (b) enforce Bank's rights against any security
which shall ever have been given to secure the Obligations, (c) enforce Bank's
rights against any other guarantors of the Obligations, (d) join Borrower or any
others liable on the Obligations in any action seeking to enforce this Guaranty,
(e) exhaust any remedies available to Bank against any security which shall ever
have been given to secure the Obligations, or (f) resort to any other means of
obtaining payment of the Obligations. Guarantor hereby waives any other rights
of Guarantor provided by Tex. Bus. Comm. Code Ann. Art. 34. Bank shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Obligations.
Section 1.07. Waiver of Notices, etc. Guarantor hereby waives notice of (a)
any loans or advances made by Bank to Borrower, (b) acceptance of this Guaranty,
(c) any amendment or extension of the Loan Agreement, the Revolving Note or of
any other instrument or document pertaining to all or any part of the
Obligations, (d) the execution and delivery by Borrower and Bank of the Loan
Agreement or of Borrower's execution and delivery of any promissory notes or
other documents in connection therewith, (e) Bank's transfer or disposition of
the Obligations, or any part thereof, (f) protest, proof of non-payment or
default by Borrower, or (g) any other action at any time taken or omitted by
Bank, and, generally, all demands and notices of every kind in connection with
this Guaranty, or any documents or agreements evidencing, securing or relating
to any of the Obligations, except as otherwise specifically provided herein.
Section 1.08. Nature of Guaranty. This Guaranty is an irrevocable,
absolute, continuing guaranty of payment and performance and not a guaranty of
collection. This Guaranty shall continue to be effective with respect to any
Obligations existing or which arise out of commitments made by Bank prior to any
attempted revocation by Guarantor, and as to all renewals and extensions
thereof, in whole or in part, whenever made. The fact that at any time or from
time to time the Obligations may be increased or reduced shall not release,
discharge or reduce the obligation of Guarantor with respect to indebtedness or
obligations of Borrower to Bank thereafter incurred (or other Obligations
thereafter arising). This Guaranty may be enforced by Bank and any subsequent
holder of the Obligations and shall not be discharged by the assignment or
negotiation of all or part of the Obligations.
Section 1.09. Payment of Expenses. In the event that Guarantor should
breach or fail to timely perform any provisions of this Guaranty, Guarantor
shall, immediately upon demand by Bank, pay Bank all costs and expenses
(including court costs and reasonable attorneys' fees) incurred by Bank in the
enforcement hereof or the preservation of Bank's rights hereunder. The covenant
contained in this SECTION 1.09 shall survive the payment of the Obligations.
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Section 1.10. Effect of Bankruptcy. In the event that, pursuant to any
insolvency, bankruptcy, reorganization, receivership or other debtor relief law,
or any judgment, order or decision thereunder, Bank must rescind or restore any
payment, or any part thereof, received by Bank in satisfaction of the
Obligations, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Bank shall be without effect, and this Guaranty shall
remain in full force and effect. It is the intention of Guarantor that
Guarantor's obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such performance.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and agrees
that Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following, and
waives any common law, equitable, statutory or other rights and defenses
(including without limitation rights to notice) which Guarantor might otherwise
have as a result of or in connection with any of the following:
Section 2.01. Modifications, etc. Any renewal, extension, increase,
modification, alteration or rearrangement of all or any part of the Obligations,
or the Loan Agreement, the Revolving Note or any loan agreement, security
agreement, collateral document or other document, instrument, contract or
understanding between Borrower and Bank, or any other parties, pertaining to the
Obligations;
Section 2.02. Adjustment, etc. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Bank to Borrower;
Section 2.03. Condition of Borrower. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution or
lack of power of Borrower or any other party at any time liable for the payment
of all or part of the Obligations; or any dissolution of Borrower, or any sale,
lease or transfer of any or all of the assets of Borrower, or any changes in the
shareholders of Borrower; or any reorganization of Borrower;
Section 2.04. Invalidity of Obligations. The invalidity, illegality or
unenforceability of all or any part of the Obligations, the Revolving Note or
any document or agreement executed in connection with the Obligations, for any
reason whatsoever, including without limitation the fact that (a) the
Obligations, or any part thereof, exceeds the amount permitted by law, (b) the
act of creating the Obligations or any part thereof is ultra vires, (c) the
officers or representatives executing the documents creating the Obligations
acted in excess of their authority, (d) the Obligations violate applicable usury
laws, (e) Borrower has valid defenses, claims or offsets (whether at law, in
equity or by agreement) which render the Obligations wholly or partially
uncollectible from Borrower, (f) the creation, performance or repayment of the
Obligations (or
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the execution, delivery and performance of any document or instrument
representing part of the Obligations or executed in connection with the
Obligations, or given to secure the repayment of the Obligations) is illegal,
uncollectible or unenforceable, or (g) the documents or instruments pertaining
to the Obligations have been forged or otherwise are irregular or not genuine or
authentic;
Section 2.05. Release of Obligors. Any full or partial release of the
liability of Borrower on the Obligations or any part thereof, or of any
co-guarantors, or any other person or entity now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee or assure the payment of the Obligations or any part thereof,
it being recognized, acknowledged and agreed by Guarantor that Guarantor may be
required to pay the Obligations in full, without assistance or support of any
other party, and Guarantor has not been induced to enter into this Guaranty on
the basis of a contemplation, belief, understanding or agreement that other
parties will be liable to perform the Obligations, or that Bank will look to
other parties to perform the Obligations;
Section 2.06. Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Obligations;
Section 2.07. Release of Collateral, etc. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment of any collateral,
property or security, at any time existing in connection with, or assuring or
securing payment of, all or any part of the Obligations;
Section 2.08. Care and Diligence. The failure of Bank or any other party to
exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security;
Section 2.09. Status of Liens. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created or
granted as security for the repayment of the Obligations shall not be properly
perfected or created, or shall prove to be unenforceable or subordinate to any
other security interest or lien, it being recognized and agreed by Guarantor
that Guarantor is not entering into this Guaranty in reliance on, or in
contemplation of the benefits of, the validity, enforceability, collectibility
or value of any collateral for the Obligations;
Section 2.10. Offset. The Obligations, and the liabilities and obligations
of Guarantor to Bank hereunder, shall not be reduced, discharged or released
because of or by reason of any existing or future right of offset, claim or
defense of Borrower against Bank, or any other party, or against payment of the
Obligations, whether such right of offset, claim or defense arises in connection
with the Obligations (or the transactions creating the Obligations) or
otherwise;
Section 2.11. Merger. The reorganization, merger or consolidation of
Borrower into or with any other entity;
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Section 2.12. Preference. Any payment by Borrower to Bank is held to
constitute a preference under bankruptcy laws, or for any reason Bank is
required to refund such payment or pay such amount to Borrower or someone else;
or
Section 2.13. Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to the Obligations, or security and collateral
therefor, if any, whether or not such action or omission prejudices Guarantor or
increases the likelihood that Guarantor will be required to pay the Obligations
pursuant to the terms hereof; IT IS THE UNAMBIGUOUS AND UNEQUIVOCAL INTENTION OF
GUARANTOR THAT GUARANTOR SHALL BE OBLIGATED TO PAY THE OBLIGATIONS WHEN DUE,
NOTWITHSTANDING ANY OCCURRENCE, CIRCUMSTANCE, EVENT, ACTION, OR OMISSION
WHATSOEVER, (INCLUDING, WITHOUT LIMITATION, THE UNENFORCEABILITY OF THE NOTE
AGAINST THE BORROWER WHETHER CONTEMPLATED OR UNCONTEMPLATED, AND WHETHER OR NOT
OTHERWISE OR PARTICULARLY DESCRIBED HEREIN, EXCEPT FOR THE FULL AND FINAL
PAYMENT AND SATISFACTION OF THE OBLIGATIONS.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce Bank to extend credit to Borrower, Guarantor represents and
warrants to Bank that:
Section 3.01. Familiarity and Reliance. Guarantor is familiar with, and
has independently reviewed books and records regarding the financial condition
of Borrower and the terms of the Revolving Note, Loan Agreement and other Loan
Documents (as defined in the Loan Agreement);
Section 3.02. No Representation by Bank. Neither Bank nor any other
party has made any representation, warranty or statement to Guarantor in order
to induce Guarantor to execute this Guaranty;
Section 3.03. Guarantor's Financial Condition. As of the date hereof,
and after giving effect to this Guaranty and the contingent obligation evidenced
hereby, Guarantor is, and will be, solvent, and has and will have assets which,
fairly valued, exceed its obligations, liabilities and debts, and has property
and assets sufficient to satisfy and repay its obligations and liabilities as
they mature;
Section 3.04. Benefit. Guarantor has received, or will receive, direct
or indirect benefit from the making of this Guaranty and the indebtedness
evidenced by the Revolving Note;
Section 3.05. Directors' Determination of Benefit. Guarantor's board of
directors, acting pursuant to a duly called and constituted meeting, after
proper notice, or pursuant to a valid unanimous consent, has determined that
this Guaranty directly or indirectly benefits Guarantor and is in its best
interests;
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Section 3.06. Legality. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions contemplated
hereunder (a) have been duly authorized by all necessary corporate and
stockholder action of Guarantor, and (b) do not, and will not, contravene or
conflict with any law, statute or regulation whatsoever to which Guarantor is
subject or constitute a default (or an event which with notice or lapse of time
or both would constitute a default) under, or result in the breach of, any
indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or
other instrument to which Guarantor is a party or which may be applicable to
Guarantor or any of its assets, or violate any provisions of its Articles (or
Certificate) of Incorporation, Bylaws or any other organizational document of
Guarantor; this Guaranty is a legal, valid and binding obligation of Guarantor
and is enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights;
Section 3.07. Organization and Good Standing. Guarantor (a) is, and
will continue to be, a corporation duly organized, validly existing, and in good
standing under the laws of the state in which it is incorporated, and (b)
possesses all requisite power and authority to execute and deliver and comply
with the terms of this Guaranty; and
Section 3.08. Survival. All representations and warranties made by
Guarantor herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS;
WAIVER OF SUBROGATION
Section 4.01. Subordination of All Guarantor Claims. As used herein,
the term "Guarantor Claims" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. Except as otherwise allowed under the Loan Agreement,
until the Obligations shall be paid and satisfied in full, and in cash as to
monetary Obligations, and Guarantor shall have performed all of its obligations
hereunder, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any amount upon the Guarantor Claims.
Section 4.02. Waiver of Subrogation. Unless and until the Obligations
have been paid in full and subject to SECTION 4.07, Guarantor hereby waives and
releases, to the fullest extent permitted by law:
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(a) Any and all rights that would result in Guarantor being
deemed a "creditor", under the United States Bankruptcy Code, of
Borrower or any other person, on account of payments made or
obligations performed by Guarantor relating to this Guaranty; and
(b) Any claim, right or remedy which Guarantor may now have or
hereafter acquire against Borrower that arises hereunder and/or from
the performance by any Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any
claim, right or remedy of Bank against Borrower or any security which
now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity under contract, by statute, under common law or
otherwise.
Section 4.03. Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, Bank shall have the right to prove
their claims in any such proceeding so as to establish their rights hereunder
and receive directly from the receiver, trustee or other court custodian
dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to Bank.
Section 4.04. Payments Held in Trust. In the event that,
notwithstanding SECTIONS 4.01, 4.02 and 4.03 above, Guarantor should receive any
funds, payment, claim or distribution which is prohibited by such Sections,
Guarantor agrees to hold in trust for Bank an amount equal to the amount of all
funds, payments, claims or distributions so received, and agrees that it shall
have absolutely no dominion over the amount of such funds, payments, claims or
distributions, except to pay them promptly to Bank, and Guarantor covenants
promptly to pay the same to Bank.
Section 4.05. Liens Subordinate. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Guarantor Claims shall be and remain
inferior and subordinate to any liens, security interests, judgment liens,
charges or other encumbrances upon Borrower's assets securing payment of the
Obligations, regardless of whether such encumbrances in favor of Guarantor or
Bank presently exist or are hereafter created or attached. Without the prior
written consent of Bank, Guarantor shall not (a) exercise or enforce any
creditor's right it may have against Borrower, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceedings
(judicial or otherwise, including without limitation the commencement of, or
joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of
Borrower held by Guarantor.
Section 4.06. Notation of Records. All promissory notes, accounts
receivable ledgers or other evidences of the Guarantor Claims accepted by or
held by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty.
Section 4.07. Disgorged Payments. If after receipt of any payment of
all or any part of the Obligations, Bank is for any reason compelled to
surrender such payment to any person or
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<PAGE> 9
entity because such payment is determined to be void or voidable as a
preference, impermissible setoff, or a diversion of trust funds, or for any
reason, this Guaranty shall continue in full force notwithstanding any contrary
action which may have been taken by Bank in reliance upon such payment, and any
such contrary action so taken shall be without prejudice to Bank's rights under
this Guaranty and shall be deemed to have been conditioned upon such payment
having become final and irrevocable.
ARTICLE V
MISCELLANEOUS
Section 5.01. Waiver. No failure to exercise, and no delay in
exercising, on the part of Bank, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of Bank
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless in writing and signed by Bank and
no such consent or waiver shall extend beyond the particular case and purpose
involved. No notice or demand given in any case shall constitute a waiver of the
right to take other action in the same, similar or other instances without such
notice or demand.
Section 5.02. Notices. Any notices or other communications required or
permitted to be given by this Guaranty must be given in writing and in the
manner and at the addresses set forth in the Loan Agreement, or at such other
address as Guarantor or the Bank shall so designate in writing.
Section 5.03. Usury Compliance. It is the intention of Borrower,
Guarantor and Bank to conform strictly to applicable usury laws. Accordingly, no
agreements, conditions, provisions or stipulations contained in this Guaranty or
any other instrument, document or agreement between Guarantor or Borrower and
Bank or default of Guarantor or Borrower, or the exercise by Bank of the right
to accelerate the payment of the maturity of principal and interest, or to
exercise any option whatsoever contained in this Guaranty or any other agreement
between Guarantor or Borrower and Bank, or the arising of any contingency
whatsoever, shall entitle Bank to collect, in any event, interest exceeding the
maximum rate of interest permitted by applicable state or federal law in effect
from time to time hereafter (the "Maximum Legal Rate") and in no event shall
Guarantor be obligated to pay interest exceeding such Maximum Legal Rate and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Guarantor to pay a
rate of interest exceeding the Maximum Legal Rate, shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such Maximum Legal Rate. In the event any interest is charged in
excess of the Maximum Legal Rate ("Excess"), Guarantor acknowledges and
stipulates that any such charge shall be the result of an accident and bona fide
error, and such Excess shall be, first, applied to reduce the principal then
unpaid hereunder; second, applied to reduce the Obligations; and third, returned
to Guarantor, it being the intention of the parties hereto not to enter at any
time into a usurious or otherwise illegal relationship. Guarantor
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<PAGE> 10
recognizes that, with fluctuations in the applicable rate on the Obligations and
the Maximum Legal Rate, such an unintentional result could inadvertently occur.
By the execution of this Guaranty, Guarantor covenants that the credit or return
of any Excess shall constitute the acceptance by Guarantor of such Excess.
Section 5.04. Choice of Law; Forum Selection. This Agreement and the
other Loan Documents are being executed and delivered, and are intended to be
performed in the State of Texas. Except to the extent that the laws of the
United States may apply to the terms of this Agreement or any other Loan
Document, the substantive laws of the State of Texas shall govern the validity,
construction, enforcement and interpretation of this Guaranty. In the event of a
dispute involving this Guaranty, Guarantor irrevocably agrees that venue for
such dispute shall lie in any court of competent jurisdiction in Dallas County,
Texas.
Section 5.05. Invalid Provisions. In the case any one or more of the
provisions contained in this Guaranty should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained therein shall not in any way be affected thereby,
unless such continued effectiveness of this Guaranty, as modified, would be
contrary to the basic understandings and intentions of the parties as expressed
herein.
Section 5.06. Parties Bound. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Bank, assign any of its rights, powers,
duties or obligations hereunder.
Section 5.07. Headings. Section headings are for convenience of
reference only and shall in no way affect the interpretation of this Guaranty.
Section 5.08. Multiple Counterparts. This Guaranty may be executed in
multiple counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute this Guaranty by
signing any counterpart.
Section 5.09. Rights and Remedies. If Guarantor becomes liable for any
indebtedness owing by Borrower to Bank, by endorsement or otherwise, other than
under this Guaranty, such liability shall not be in any manner impaired or
affected hereby and the rights of Bank hereunder shall be cumulative of any and
all other rights that Bank may ever have against Guarantor. The exercise by Bank
of any right or remedy hereunder or under any other instrument, or at law or in
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy.
SECTION 5.10. INDEMNITY. GUARANTOR HEREBY AGREES TO INDEMNIFY, HOLD
HARMLESS, AND DEFEND BANK AND ITS DIRECTORS, OFFICERS, AGENTS, COUNSEL AND
EMPLOYEES ("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL LOSSES,
LIABILITIES, DAMAGES, COSTS, EXPENSES, SUITS, ACTIONS AND PROCEEDINGS ("LOSSES")
EVER SUFFERED OR INCURRED BY ANY INDEMNIFIED PERSON ARISING OUT OF OR RELATING
TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR ANY OTHER TRANSACTION CONTEMPLATED
HEREBY AND THEREBY, INCLUDING,
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WITHOUT LIMITATION, ANY LOSSES CAUSED BY THE NEGLIGENCE OF SUCH INDEMNIFIED
PERSON, BUT NOT INCLUDING ANY LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF SUCH INDEMNIFIED PERSON OR THE DEFAULT BY SUCH INDEMNIFIED PERSON
OF SUCH INDEMNIFIED PERSON'S OBLIGATIONS UNDER ANY LOAN DOCUMENT, AND GUARANTOR
SHALL REIMBURSE BANK AND EACH OTHER INDEMNIFIED PERSON FOR ANY EXPENSES
(INCLUDING IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE
OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING HEREFROM AND
THEREFROM, INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUESTS OR
SUBPOENAS, REGARDLESS OF WHETHER BANK OR SUCH OTHER INDEMNIFIED PERSON IS A
PARTY THERETO). WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS INDEMNITY
SHALL EXTEND TO ANY CLAIMS ASSERTED AGAINST BANK OR ANY OTHER INDEMNIFIED PERSON
BY ANY PERSON OR ENTITY UNDER ANY ENVIRONMENTAL LAWS OR SIMILAR LAWS BY REASON
OF THE BORROWER'S, GUARANTOR'S OR ANY OTHER PERSON'S OR ENTITY'S FAILURE TO
COMPLY WITH LAWS APPLICABLE TO SOLID OR HAZARDOUS WASTE MATERIALS OR OTHER TOXIC
SUBSTANCES. EACH INDEMNIFIED PERSON MAY SELECT ITS OWN COUNSEL WITH RESPECT TO
ANY LOSSES, IN ADDITION TO THE GUARANTOR'S COUNSEL, AND SHALL BE INDEMNIFIED
THEREFOR HEREUNDER. NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS GUARANTY, THE
OBLIGATIONS OF THE GUARANTOR UNDER THIS SECTION 5.10 SHALL SURVIVE THE PAYMENT
IN FULL OF THE BORROWER'S OBLIGATIONS UNDER THE LOAN AGREEMENT AND THE
TERMINATION OF THE LOAN AGREEMENT AND THIS GUARANTY.
Section 5.11. Replacement of Prior Guaranty. This Guaranty is given in
renewal, amendment, replacement, and restatement in its entirety (but not in
novation, extinguishment or satisfaction) of that certain Unconditional Guaranty
Agreement dated June 12, 1997, executed by Guarantor, formerly known as American
Medical Technologies, Inc. d/b/a AMT Industries, Inc., for the benefit of Bank,
successor-in-interest to Texas Commerce Bank National Association (the "Prior
Guaranty"). To the extent of any conflict between the terms of this Guaranty and
the terms of the Prior Guaranty, the terms of this Guaranty shall control.
SECTION 5.12. NOTICE OF FINAL AGREEMENT. THIS GUARANTY CONSTITUTES A
WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES. SUCH
WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS GUARANTY.
UNCONDITIONAL GUARANTY AGREEMENT - Page 11
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EXECUTED as of the day and year first above written.
GUARANTOR:
TIDEL TECHNOLOGIES, INC.
By:-------------------------
Mark K. Levenick,
Chief Operating Officer
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<PAGE> 1
EXHIBIT 4.09
UNCONDITIONAL GUARANTY AGREEMENT
THIS UNCONDITIONAL GUARANTY AGREEMENT (this "Guaranty") is executed as
of April 1, 1999, by TIDEL SERVICES, INC., a Delaware corporation,
("Guarantor"), for the benefit of CHASE BANK OF TEXAS, N.A. ("Bank").
RECITALS
1. Pursuant to that certain Credit Agreement (as the same may be
amended, modified, increased, supplemented and/or restated from time to time,
the "Loan Agreement"), dated as of the date hereof and executed by and among
Tidel Engineering, L.P. ("Borrower"), Bank and Tidel Technologies, Inc., the
Bank has agreed to make certain loans to Borrower in the principal amount set
forth therein;
2. The Bank is willing to make certain loans under the Loan Agreement
but only on the condition, among others, that Guarantor shall have executed and
delivered to Bank, for its benefit, this Guaranty; and
3. Guarantor will derive substantial direct and indirect benefit from
the making of the loans under the Loan Agreement.
NOW, THEREFORE, as an inducement to Bank to make certain loans to
Borrower, and to extend such additional credit as Bank may from time to time
agree to extend, and for other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, Guarantor, jointly and
severally, hereby agrees as follows:
AGREEMENTS
ARTICLE I
NATURE AND SCOPE OF GUARANTY
Section 1.01. Guaranty of Obligations. Guarantor hereby irrevocably and
unconditionally guarantees to Bank and its successors and assigns the due and
punctual payment of the Obligations (hereinafter defined). Guarantor hereby
irrevocably and unconditionally covenants and agrees that it is liable for the
Obligations as primary obligor.
Section 1.02. Definition of Obligations. As used herein, the term
"Obligations" means:
(a) All indebtedness, liabilities, obligations and duties
evidenced by the Notes (as such term is defined in the Loan Agreement), whether
or not Borrower has any recourse liability therefor to Bank and whether or not
the Notes are enforceable against Borrower or any other party liable thereon;
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(b) Any and all other indebtedness, liabilities, obligations
and duties of every kind and character of Borrower to Bank arising pursuant to
or related to the Loan Agreement, the Notes, or any loan agreement, security
agreement, collateral document or other document, instrument or contract
executed in connection with the Loan Agreement whether now or hereafter existing
or arising, regardless of whether such present or future indebtedness,
liabilities, obligations or duties be direct or indirect, primary or secondary,
joint, several, or joint and several, fixed or contingent, and regardless of
whether such present or future indebtedness, liabilities, obligations or duties
may, prior to their acquisition by Bank, be or have been payable to, or be or
have been in favor of, some other person or have been acquired by Bank in any
transaction with one other than Borrower including further, without limitation,
the "Obligations" as defined in the Loan Agreement;
(c) Any and all renewals, extensions, modifications and
increases of such indebtedness, liabilities, obligations and duties, or any part
thereof, described in items (a) and (b) of this SECTION 1.02; and
(d) All costs, expenses and fees, including but not limited to
court costs and attorneys' fees, arising in connection with the collection of
any or all amounts, indebtedness, obligations and liabilities of Borrower to
Bank described in items (a) through (c) of this SECTION 1.02 including costs,
expenses and fees arising in connection with the enforcement of this Guaranty.
Section 1.03. Obligations Not Reduced by Offset. The Obligations, and
the liabilities and obligations of Guarantor to Bank hereunder, shall not be
reduced, discharged or released because or by reason of any existing or future
offset, claim or defense of Borrower, or any other party, against Bank or
against payment of the Obligations, whether such offset, claim or defense arises
in connection with the Obligations (or the transactions creating the
Obligations) or otherwise. Without limiting the foregoing or the Guarantor's
liability hereunder, to the extent that Bank advances funds or extends credit to
Borrower, and does not receive payments or benefits thereon in the amounts and
at the times required or provided by applicable agreements or laws, Guarantor is
absolutely liable to make such payments to (and confer such benefits on) Bank,
on a timely basis.
Section 1.04. "Borrower" to Include Successors. The term "Borrower" as
used herein shall include any new or successor entity formed as a result of any
merger or reorganization of Borrower, and all other successors and assigns of
Borrower.
Section 1.05. Payment by Guarantor. The Guarantor shall have the same
rights as Borrower under the Loan Agreement to cure any Event of Default (as
defined in the Loan Agreement) within the time periods, and otherwise in
accordance with the terms, provided in the Loan Agreement. If all or any part of
the Obligations shall not be punctually paid when due, whether at maturity or
earlier by acceleration or otherwise, Guarantor shall, immediately upon demand
by Bank, and without presentment, protest, notice of protest, notice of
non-payment, notice of intention to accelerate or acceleration or any other
notice whatsoever, pay in lawful money of the United States of America, the
amount due on the Obligations to Bank at Bank's
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principal office in Dallas, Texas. Such demand(s) may be made at any time
coincident with or after the time for payment of all or part of the Obligations,
and may be made from time to time with respect to the same or different items of
Obligations. Such demand shall be deemed made, given and received in accordance
with SECTION 5.02 hereof.
Section 1.06. No Duty to Pursue Others. It shall not be necessary for
Bank (and Guarantor hereby waives any rights which Guarantor may have to require
Bank), in order to enforce such payment by Guarantor, first to (a) institute
suit or exhaust its remedies against Borrower or others liable on the
Obligations or any other person, (b) enforce Bank's rights against any security
which shall ever have been given to secure the Obligations, (c) enforce Bank's
rights against any other guarantors of the Obligations, (d) join Borrower or any
others liable on the Obligations in any action seeking to enforce this Guaranty,
(e) exhaust any remedies available to Bank against any security which shall ever
have been given to secure the Obligations, or (f) resort to any other means of
obtaining payment of the Obligations. Guarantor hereby waives any other rights
of Guarantor provided by Tex. Bus. Comm. Code Ann. Art. 34. Bank shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Obligations.
Section 1.07. Waiver of Notices, etc. Guarantor hereby waives notice of
(a) any loans or advances made by Bank to Borrower, (b) acceptance of this
Guaranty, (c) any amendment or extension of the Loan Agreement, the Notes or of
any other instrument or document pertaining to all or any part of the
Obligations, (d) the execution and delivery by Borrower and Bank of the Loan
Agreement or of Borrower's execution and delivery of any promissory notes or
other documents in connection therewith, (e) Bank's transfer or disposition of
the Obligations, or any part thereof, (f) protest, proof of non-payment or
default by Borrower, or (g) any other action at any time taken or omitted by
Bank, and, generally, all demands and notices of every kind in connection with
this Guaranty, or any documents or agreements evidencing, securing or relating
to any of the Obligations, except as otherwise specifically provided herein.
Section 1.08. Nature of Guaranty. This Guaranty is an irrevocable,
absolute, continuing guaranty of payment and performance and not a guaranty of
collection. This Guaranty shall continue to be effective with respect to any
Obligations existing or which arise out of commitments made by Bank prior to any
attempted revocation by Guarantor, and as to all renewals and extensions
thereof, in whole or in part, whenever made. The fact that at any time or from
time to time the Obligations may be increased or reduced shall not release,
discharge or reduce the obligation of Guarantor with respect to indebtedness or
obligations of Borrower to Bank thereafter incurred (or other Obligations
thereafter arising). This Guaranty may be enforced by Bank and any subsequent
holder of the Obligations and shall not be discharged by the assignment or
negotiation of all or part of the Obligations.
Section 1.09. Payment of Expenses. In the event that Guarantor should
breach or fail to timely perform any provisions of this Guaranty, Guarantor
shall, immediately upon demand by Bank, pay Bank all costs and expenses
(including court costs and reasonable attorneys' fees) incurred by Bank in the
enforcement hereof or the preservation of Bank's rights hereunder. The covenant
contained in this SECTION 1.09 shall survive the payment of the Obligations.
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Section 1.10. Effect of Bankruptcy. In the event that, pursuant to any
insolvency, bankruptcy, reorganization, receivership or other debtor relief law,
or any judgment, order or decision thereunder, Bank must rescind or restore any
payment, or any part thereof, received by Bank in satisfaction of the
Obligations, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Bank shall be without effect, and this Guaranty shall
remain in full force and effect. It is the intention of Guarantor that
Guarantor's obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such performance.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and
agrees that Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following, and
waives any common law, equitable, statutory or other rights and defenses
(including without limitation rights to notice) which Guarantor might otherwise
have as a result of or in connection with any of the following:
Section 2.01. Modifications, etc. Any renewal, extension, increase,
modification, alteration or rearrangement of all or any part of the Obligations,
or the Loan Agreement, the Notes or any loan agreement, security agreement,
collateral document or other document, instrument, contract or understanding
between Borrower and Bank, or any other parties, pertaining to the Obligations;
Section 2.02. Adjustment, etc. Any adjustment, indulgence, forbearance
or compromise that might be granted or given by Bank to Borrower;
Section 2.03. Condition of Borrower. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution or
lack of power of Borrower or any other party at any time liable for the payment
of all or part of the Obligations; or any dissolution of Borrower, or any sale,
lease or transfer of any or all of the assets of Borrower, or any changes in the
shareholders of Borrower; or any reorganization of Borrower;
Section 2.04. Invalidity of Obligations. The invalidity, illegality or
unenforceability of all or any part of the Obligations, the Notes or any
document or agreement executed in connection with the Obligations, for any
reason whatsoever, including without limitation the fact that (a) the
Obligations, or any part thereof, exceeds the amount permitted by law, (b) the
act of creating the Obligations or any part thereof is ultra vires, (c) the
officers or representatives executing the documents creating the Obligations
acted in excess of their authority, (d) the Obligations violate applicable usury
laws, (e) Borrower has valid defenses, claims or offsets (whether at law, in
equity or by agreement) which render the Obligations wholly or partially
uncollectible from Borrower, (f) the creation, performance or repayment of the
Obligations (or the execution, delivery and performance of any document or
instrument representing part of the
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Obligations or executed in connection with the Obligations, or given to secure
the repayment of the Obligations) is illegal, uncollectible or unenforceable, or
(g) the documents or instruments pertaining to the Obligations have been forged
or otherwise are irregular or not genuine or authentic;
Section 2.05. Release of Obligors. Any full or partial release of the
liability of Borrower on the Obligations or any part thereof, or of any
co-guarantors, or any other person or entity now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee or assure the payment of the Obligations or any part thereof,
it being recognized, acknowledged and agreed by Guarantor that Guarantor may be
required to pay the Obligations in full, without assistance or support of any
other party, and Guarantor has not been induced to enter into this Guaranty on
the basis of a contemplation, belief, understanding or agreement that other
parties will be liable to perform the Obligations, or that Bank will look to
other parties to perform the Obligations;
Section 2.06. Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Obligations;
Section 2.07. Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or impairment of any
collateral, property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Obligations;
Section 2.08. Care and Diligence. The failure of Bank or any other
party to exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security;
Section 2.09. Status of Liens. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created or
granted as security for the repayment of the Obligations shall not be properly
perfected or created, or shall prove to be unenforceable or subordinate to any
other security interest or lien, it being recognized and agreed by Guarantor
that Guarantor is not entering into this Guaranty in reliance on, or in
contemplation of the benefits of, the validity, enforceability, collectibility
or value of any collateral for the Obligations;
Section 2.10. Offset. The Obligations, and the liabilities and
obligations of Guarantor to Bank hereunder, shall not be reduced, discharged or
released because of or by reason of any existing or future right of offset,
claim or defense of Borrower against Bank, or any other party, or against
payment of the Obligations, whether such right of offset, claim or defense
arises in connection with the Obligations (or the transactions creating the
Obligations) or otherwise;
Section 2.11. Merger. The reorganization, merger or consolidation of
Borrower into or with any other entity;
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Section 2.12. Preference. Any payment by Borrower to Bank is held to
constitute a preference under bankruptcy laws, or for any reason Bank is
required to refund such payment or pay such amount to Borrower or someone else;
or
Section 2.13. Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to the Obligations, or security and collateral
therefor, if any, whether or not such action or omission prejudices Guarantor or
increases the likelihood that Guarantor will be required to pay the Obligations
pursuant to the terms hereof; IT IS THE UNAMBIGUOUS AND UNEQUIVOCAL INTENTION OF
GUARANTOR THAT GUARANTOR SHALL BE OBLIGATED TO PAY THE OBLIGATIONS WHEN DUE,
NOTWITHSTANDING ANY OCCURRENCE, CIRCUMSTANCE, EVENT, ACTION, OR OMISSION
WHATSOEVER, (INCLUDING, WITHOUT LIMITATION, THE UNENFORCEABILITY OF THE NOTE
AGAINST THE BORROWER WHETHER CONTEMPLATED OR UNCONTEMPLATED, AND WHETHER OR NOT
OTHERWISE OR PARTICULARLY DESCRIBED HEREIN, EXCEPT FOR THE FULL AND FINAL
PAYMENT AND SATISFACTION OF THE OBLIGATIONS.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce Bank to extend credit to Borrower, Guarantor represents and
warrants to Bank that:
Section 3.01. Familiarity and Reliance. Guarantor is familiar with, and
has independently reviewed books and records regarding the financial condition
of Borrower and the terms of the Notes, Loan Agreement and other Loan Documents
(as defined in the Loan Agreement);
Section 3.02. No Representation by Bank. Neither Bank nor any other
party has made any representation, warranty or statement to Guarantor in order
to induce Guarantor to execute this Guaranty;
Section 3.03. Guarantor's Financial Condition. As of the date hereof,
and after giving effect to this Guaranty and the contingent obligation evidenced
hereby, Guarantor is, and will be, solvent, and has and will have assets which,
fairly valued, exceed its obligations, liabilities and debts, and has property
and assets sufficient to satisfy and repay its obligations and liabilities as
they mature;
Section 3.04. Benefit. Guarantor has received, or will receive, direct
or indirect benefit from the making of this Guaranty and the indebtedness
evidenced by the Notes;
Section 3.05. Directors' Determination of Benefit. Guarantor's board of
directors, acting pursuant to a duly called and constituted meeting, after
proper notice, or pursuant to a valid unanimous consent, has determined that
this Guaranty directly or indirectly benefits Guarantor and is in its best
interests;
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Section 3.06. Legality. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions contemplated
hereunder (a) have been duly authorized by all necessary corporate and
stockholder action of Guarantor, and (b) do not, and will not, contravene or
conflict with any law, statute or regulation whatsoever to which Guarantor is
subject or constitute a default (or an event which with notice or lapse of time
or both would constitute a default) under, or result in the breach of, any
indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or
other instrument to which Guarantor is a party or which may be applicable to
Guarantor or any of its assets, or violate any provisions of its Articles (or
Certificate) of Incorporation, Bylaws or any other organizational document of
Guarantor; this Guaranty is a legal, valid and binding obligation of Guarantor
and is enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights;
Section 3.07. Organization and Good Standing. Guarantor (a) is, and
will continue to be, a corporation duly organized, validly existing, and in good
standing under the laws of the state in which it is incorporated, and (b)
possesses all requisite power and authority to execute and deliver and comply
with the terms of this Guaranty; and
Section 3.08. Survival. All representations and warranties made by
Guarantor herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS;
WAIVER OF SUBROGATION
Section 4.01. Subordination of All Guarantor Claims. As used herein,
the term "Guarantor Claims" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. Except as otherwise allowed under the Loan Agreement,
until the Obligations shall be paid and satisfied in full, and in cash as to
monetary Obligations, and Guarantor shall have performed all of its obligations
hereunder, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any amount upon the Guarantor Claims.
Section 4.02. Waiver of Subrogation. Unless and until the Obligations
have been paid in full and subject to SECTION 4.07, Guarantor hereby waives and
releases, to the fullest extent permitted by law:
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<PAGE> 8
(a) Any and all rights that would result in Guarantor being
deemed a "creditor", under the United States Bankruptcy Code, of
Borrower or any other person, on account of payments made or
obligations performed by Guarantor relating to this Guaranty; and
(b) Any claim, right or remedy which Guarantor may now have or
hereafter acquire against Borrower that arises hereunder and/or from
the performance by any Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any
claim, right or remedy of Bank against Borrower or any security which
now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity under contract, by statute, under common law or
otherwise.
Section 4.03. Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, Bank shall have the right to prove
their claims in any such proceeding so as to establish their rights hereunder
and receive directly from the receiver, trustee or other court custodian
dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to Bank.
Section 4.04. Payments Held in Trust. In the event that,
notwithstanding SECTIONS 4.01, 4.02 and 4.03 above, Guarantor should receive any
funds, payment, claim or distribution which is prohibited by such Sections,
Guarantor agrees to hold in trust for Bank an amount equal to the amount of all
funds, payments, claims or distributions so received, and agrees that it shall
have absolutely no dominion over the amount of such funds, payments, claims or
distributions, except to pay them promptly to Bank, and Guarantor covenants
promptly to pay the same to Bank.
Section 4.05. Liens Subordinate. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Guarantor Claims shall be and remain
inferior and subordinate to any liens, security interests, judgment liens,
charges or other encumbrances upon Borrower's assets securing payment of the
Obligations, regardless of whether such encumbrances in favor of Guarantor or
Bank presently exist or are hereafter created or attached. Without the prior
written consent of Bank, Guarantor shall not (a) exercise or enforce any
creditor's right it may have against Borrower, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceedings
(judicial or otherwise, including without limitation the commencement of, or
joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of
Borrower held by Guarantor.
Section 4.06. Notation of Records. All promissory notes, accounts
receivable ledgers or other evidences of the Guarantor Claims accepted by or
held by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty.
Section 4.07. Disgorged Payments. If after receipt of any payment of
all or any part of the Obligations, Bank is for any reason compelled to
surrender such payment to any person or
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<PAGE> 9
entity because such payment is determined to be void or voidable as a
preference, impermissible setoff, or a diversion of trust funds, or for any
reason, this Guaranty shall continue in full force notwithstanding any contrary
action which may have been taken by Bank in reliance upon such payment, and any
such contrary action so taken shall be without prejudice to Bank's rights under
this Guaranty and shall be deemed to have been conditioned upon such payment
having become final and irrevocable.
ARTICLE V
MISCELLANEOUS
Section 5.01. Waiver. No failure to exercise, and no delay in
exercising, on the part of Bank, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of Bank
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless in writing and signed by Bank and
no such consent or waiver shall extend beyond the particular case and purpose
involved. No notice or demand given in any case shall constitute a waiver of the
right to take other action in the same, similar or other instances without such
notice or demand.
Section 5.02. Notices. Any notices or other communications required or
permitted to be given by this Guaranty must be given in writing and in the
manner set forth in the Loan Agreement. Any such notices or other communications
must be given to the Bank at the address set forth in the Loan Agreement and to
the Guarantor at the address set forth on the signature page hereto, or at such
other address as Guarantor or the Bank shall so designate in writing.
Section 5.03. Usury Compliance. It is the intention of Borrower,
Guarantor and Bank to conform strictly to applicable usury laws. Accordingly, no
agreements, conditions, provisions or stipulations contained in this Guaranty or
any other instrument, document or agreement between Guarantor or Borrower and
Bank or default of Guarantor or Borrower, or the exercise by Bank of the right
to accelerate the payment of the maturity of principal and interest, or to
exercise any option whatsoever contained in this Guaranty or any other agreement
between Guarantor or Borrower and Bank, or the arising of any contingency
whatsoever, shall entitle Bank to collect, in any event, interest exceeding the
maximum rate of interest permitted by applicable state or federal law in effect
from time to time hereafter (the "Maximum Legal Rate") and in no event shall
Guarantor be obligated to pay interest exceeding such Maximum Legal Rate and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Guarantor to pay a
rate of interest exceeding the Maximum Legal Rate, shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such Maximum Legal Rate. In the event any interest is charged in
excess of the Maximum Legal Rate ("Excess"), Guarantor acknowledges and
stipulates that any such charge shall be the result of an accident and bona fide
error, and such Excess shall be, first, applied to reduce the principal then
unpaid hereunder; second, applied to reduce the Obligations; and third, returned
to Guarantor, it being the intention of the parties
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<PAGE> 10
hereto not to enter at any time into a usurious or otherwise illegal
relationship. Guarantor recognizes that, with fluctuations in the applicable
rate on the Obligations and the Maximum Legal Rate, such an unintentional result
could inadvertently occur. By the execution of this Guaranty, Guarantor
covenants that the credit or return of any Excess shall constitute the
acceptance by Guarantor of such Excess.
Section 5.04. Choice of Law; Forum Selection. This Agreement and the
other Loan Documents are being executed and delivered, and are intended to be
performed in the State of Texas. Except to the extent that the laws of the
United States may apply to the terms of this Agreement or any other Loan
Document, the substantive laws of the State of Texas shall govern the validity,
construction, enforcement and interpretation of this Guaranty. In the event of a
dispute involving this Guaranty, Guarantor irrevocably agrees that venue for
such dispute shall lie in any court of competent jurisdiction in Dallas County,
Texas.
Section 5.05. Invalid Provisions. In the case any one or more of the
provisions contained in this Guaranty should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained therein shall not in any way be affected thereby,
unless such continued effectiveness of this Guaranty, as modified, would be
contrary to the basic understandings and intentions of the parties as expressed
herein.
Section 5.06. Parties Bound. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Bank, assign any of its rights, powers,
duties or obligations hereunder.
Section 5.07. Headings. Section headings are for convenience of
reference only and shall in no way affect the interpretation of this Guaranty.
Section 5.08. Multiple Counterparts. This Guaranty may be executed in
multiple counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute this Guaranty by
signing any counterpart.
Section 5.09. Rights and Remedies. If Guarantor becomes liable for any
indebtedness owing by Borrower to Bank, by endorsement or otherwise, other than
under this Guaranty, such liability shall not be in any manner impaired or
affected hereby and the rights of Bank hereunder shall be cumulative of any and
all other rights that Bank may ever have against Guarantor. The exercise by Bank
of any right or remedy hereunder or under any other instrument, or at law or in
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy.
SECTION 5.10. INDEMNITY. GUARANTOR HEREBY AGREES TO INDEMNIFY, HOLD
HARMLESS, AND DEFEND BANK AND ITS DIRECTORS, OFFICERS, AGENTS, COUNSEL AND
EMPLOYEES ("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL LOSSES,
LIABILITIES, DAMAGES, COSTS, EXPENSES, SUITS, ACTIONS AND PROCEEDINGS ("LOSSES")
EVER SUFFERED OR INCURRED BY ANY INDEMNIFIED PERSON ARISING OUT OF OR RELATING
TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR ANY OTHER
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TRANSACTION CONTEMPLATED HEREBY AND THEREBY, INCLUDING, WITHOUT LIMITATION, ANY
LOSSES CAUSED BY THE NEGLIGENCE OF SUCH INDEMNIFIED PERSON, BUT NOT INCLUDING
ANY LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNIFIED PERSON OR THE DEFAULT BY SUCH INDEMNIFIED PERSON OF SUCH INDEMNIFIED
PERSON'S OBLIGATIONS UNDER ANY LOAN DOCUMENT, AND GUARANTOR SHALL REIMBURSE BANK
AND EACH OTHER INDEMNIFIED PERSON FOR ANY EXPENSES (INCLUDING IN CONNECTION WITH
THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED
CLAIM, ACTION OR PROCEEDING ARISING HEREFROM AND THEREFROM, INCLUDING ANY SUCH
COSTS OF RESPONDING TO DISCOVERY REQUESTS OR SUBPOENAS, REGARDLESS OF WHETHER
BANK OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO). WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THIS INDEMNITY SHALL EXTEND TO ANY CLAIMS ASSERTED
AGAINST BANK OR ANY OTHER INDEMNIFIED PERSON BY ANY PERSON OR ENTITY UNDER ANY
ENVIRONMENTAL LAWS OR SIMILAR LAWS BY REASON OF THE BORROWER'S, GUARANTOR'S OR
ANY OTHER PERSON'S OR ENTITY'S FAILURE TO COMPLY WITH LAWS APPLICABLE TO SOLID
OR HAZARDOUS WASTE MATERIALS OR OTHER TOXIC SUBSTANCES. EACH INDEMNIFIED PERSON
MAY SELECT ITS OWN COUNSEL WITH RESPECT TO ANY LOSSES, IN ADDITION TO THE
GUARANTOR'S COUNSEL, AND SHALL BE INDEMNIFIED THEREFOR HEREUNDER.
NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS GUARANTY, THE OBLIGATIONS OF THE
GUARANTOR UNDER THIS SECTION 5.10 SHALL SURVIVE THE PAYMENT IN FULL OF THE
BORROWER'S OBLIGATIONS UNDER THE LOAN AGREEMENT AND THE TERMINATION OF THE LOAN
AGREEMENT AND THIS GUARANTY.
SECTION 5.11. NOTICE OF FINAL AGREEMENT. THIS GUARANTY CONSTITUTES A
WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES. SUCH
WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS GUARANTY.
EXECUTED as of the day and year first above written.
GUARANTOR:
TIDEL SERVICES, INC.
By:
---------------------------------------
Andrew Panaccione, Vice President
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Address for Notices:
300 Delaware Avenue, Suite 1704
Wilmington, Delaware 19899
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(TIDEL SERVICES, INC.)
<PAGE> 1
EXHIBIT 4.10
UNCONDITIONAL GUARANTY AGREEMENT
THIS UNCONDITIONAL GUARANTY AGREEMENT (this "Guaranty") is executed as
of April 1, 1999, by TIDEL CASH SYSTEMS, INC., a Delaware corporation,
("Guarantor"), for the benefit of CHASE BANK OF TEXAS, N.A. ("Bank").
RECITALS
1. Pursuant to that certain Credit Agreement (as the same may be
amended, modified, increased, supplemented and/or restated from time to time,
the "Loan Agreement"), dated as of the date hereof and executed by and among
Tidel Engineering, L.P. ("Borrower") Bank and Tidel Technologies, Inc., the Bank
has agreed to make certain loans to Borrower in the principal amount set forth
therein;
2. The Bank is willing to make certain loans under the Loan Agreement
but only on the condition, among others, that Guarantor shall have executed and
delivered to Bank, for its benefit, this Guaranty; and
3. Guarantor will derive substantial direct and indirect benefit from
the making of the loans under the Loan Agreement.
NOW, THEREFORE, as an inducement to Bank to make certain loans to
Borrower, and to extend such additional credit as Bank may from time to time
agree to extend, and for other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, Guarantor, jointly and
severally, hereby agrees as follows:
AGREEMENTS
ARTICLE I
NATURE AND SCOPE OF GUARANTY
Section 1.01. Guaranty of Obligations. Guarantor hereby irrevocably and
unconditionally guarantees to Bank and its successors and assigns the due and
punctual payment of the Obligations (hereinafter defined). Guarantor hereby
irrevocably and unconditionally covenants and agrees that it is liable for the
Obligations as primary obligor.
Section 1.02. Definition of Obligations. As used herein, the term
"Obligations" means:
(a) All indebtedness, liabilities, obligations and duties
evidenced by the Notes (as such term is defined in the Loan Agreement), whether
or not Borrower has any recourse liability therefor to Bank and whether or not
the Notes are enforceable against Borrower or any other person liable thereon;
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(b) Any and all other indebtedness, liabilities, obligations
and duties of every kind and character of Borrower to Bank arising pursuant to
or related to the Loan Agreement, the Notes, or any loan agreement, security
agreement, collateral document or other document, instrument or contract
executed in connection with the Loan Agreement whether now or hereafter existing
or arising, regardless of whether such present or future indebtedness,
liabilities, obligations or duties be direct or indirect, primary or secondary,
joint, several, or joint and several, fixed or contingent, and regardless of
whether such present or future indebtedness, liabilities, obligations or duties
may, prior to their acquisition by Bank, be or have been payable to, or be or
have been in favor of, some other person or have been acquired by Bank in any
transaction with one other than Borrower including further, without limitation,
the "Obligations" as defined in the Loan Agreement;
(c) Any and all renewals, extensions, modifications and
increases of such indebtedness, liabilities, obligations and duties, or any part
thereof, described in items (a) and (b) of this SECTION 1.02; and
(d) All costs, expenses and fees, including but not limited to
court costs and attorneys' fees, arising in connection with the collection of
any or all amounts, indebtedness, obligations and liabilities of Borrower to
Bank described in items (a) through (c) of this SECTION 1.02 including costs,
expenses and fees arising in connection with the enforcement of this Guaranty.
Section 1.03. Obligations Not Reduced by Offset. The Obligations, and
the liabilities and obligations of Guarantor to Bank hereunder, shall not be
reduced, discharged or released because or by reason of any existing or future
offset, claim or defense of Borrower, or any other party, against Bank or
against payment of the Obligations, whether such offset, claim or defense arises
in connection with the Obligations (or the transactions creating the
Obligations) or otherwise. Without limiting the foregoing or the Guarantor's
liability hereunder, to the extent that Bank advances funds or extends credit to
Borrower, and does not receive payments or benefits thereon in the amounts and
at the times required or provided by applicable agreements or laws, Guarantor is
absolutely liable to make such payments to (and confer such benefits on) Bank,
on a timely basis.
Section 1.04. "Borrower" to Include Successors. The term "Borrower" as
used herein shall include any new or successor entity formed as a result of any
merger or reorganization of Borrower, and all other successors and assigns of
Borrower.
Section 1.05. Payment by Guarantor. The Guarantor shall have the same
rights as Borrower under the Loan Agreement to cure any Event of Default (as
defined in the Loan Agreement) within the time periods, and otherwise in
accordance with the terms, provided in the Loan Agreement. If all or any part of
the Obligations shall not be punctually paid when due, whether at maturity or
earlier by acceleration or otherwise, Guarantor shall, immediately upon demand
by Bank, and without presentment, protest, notice of protest, notice of
non-payment, notice of intention to accelerate or acceleration or any other
notice whatsoever, pay in lawful money of the United States of America, the
amount due on the Obligations to Bank at Bank's
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<PAGE> 3
principal office in Dallas, Texas. Such demand(s) may be made at any time
coincident with or after the time for payment of all or part of the Obligations,
and may be made from time to time with respect to the same or different items of
Obligations. Such demand shall be deemed made, given and received in accordance
with SECTION 5.02 hereof.
Section 1.06. No Duty to Pursue Others. It shall not be necessary for
Bank (and Guarantor hereby waives any rights which Guarantor may have to require
Bank), in order to enforce such payment by Guarantor, first to (a) institute
suit or exhaust its remedies against Borrower or others liable on the
Obligations or any other person, (b) enforce Bank's rights against any security
which shall ever have been given to secure the Obligations, (c) enforce Bank's
rights against any other guarantors of the Obligations, (d) join Borrower or any
others liable on the Obligations in any action seeking to enforce this Guaranty,
(e) exhaust any remedies available to Bank against any security which shall ever
have been given to secure the Obligations, or (f) resort to any other means of
obtaining payment of the Obligations. Guarantor hereby waives any other rights
of Guarantor provided by Tex. Bus. Comm. Code Ann. Art. 34. Bank shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Obligations.
Section 1.07. Waiver of Notices, etc. Guarantor hereby waives notice of
(a) any loans or advances made by Bank to Borrower, (b) acceptance of this
Guaranty, (c) any amendment or extension of the Loan Agreement, the Notes or of
any other instrument or document pertaining to all or any part of the
Obligations, (d) the execution and delivery by Borrower and Bank of the Loan
Agreement or of Borrower's execution and delivery of any promissory notes or
other documents in connection therewith, (e) Bank's transfer or disposition of
the Obligations, or any part thereof, (f) protest, proof of non-payment or
default by Borrower, or (g) any other action at any time taken or omitted by
Bank, and, generally, all demands and notices of every kind in connection with
this Guaranty, or any documents or agreements evidencing, securing or relating
to any of the Obligations, except as otherwise specifically provided herein.
Section 1.08. Nature of Guaranty. This Guaranty is an irrevocable,
absolute, continuing guaranty of payment and performance and not a guaranty of
collection. This Guaranty shall continue to be effective with respect to any
Obligations existing or which arise out of commitments made by Bank prior to any
attempted revocation by Guarantor, and as to all renewals and extensions
thereof, in whole or in part, whenever made. The fact that at any time or from
time to time the Obligations may be increased or reduced shall not release,
discharge or reduce the obligation of Guarantor with respect to indebtedness or
obligations of Borrower to Bank thereafter incurred (or other Obligations
thereafter arising). This Guaranty may be enforced by Bank and any subsequent
holder of the Obligations and shall not be discharged by the assignment or
negotiation of all or part of the Obligations.
Section 1.09. Payment of Expenses. In the event that Guarantor should
breach or fail to timely perform any provisions of this Guaranty, Guarantor
shall, immediately upon demand by Bank, pay Bank all costs and expenses
(including court costs and reasonable attorneys' fees) incurred by Bank in the
enforcement hereof or the preservation of Bank's rights hereunder. The covenant
contained in this SECTION 1.09 shall survive the payment of the Obligations.
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Section 1.10. Effect of Bankruptcy. In the event that, pursuant to any
insolvency, bankruptcy, reorganization, receivership or other debtor relief law,
or any judgment, order or decision thereunder, Bank must rescind or restore any
payment, or any part thereof, received by Bank in satisfaction of the
Obligations, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Bank shall be without effect, and this Guaranty shall
remain in full force and effect. It is the intention of Guarantor that
Guarantor's obligations hereunder shall not be discharged except by Guarantor's
performance of such obligations and then only to the extent of such performance.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and
agrees that Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following, and
waives any common law, equitable, statutory or other rights and defenses
(including without limitation rights to notice) which Guarantor might otherwise
have as a result of or in connection with any of the following:
Section 2.01. Modifications, etc. Any renewal, extension, increase,
modification, alteration or rearrangement of all or any part of the Obligations,
or the Loan Agreement, the Notes or any loan agreement, security agreement,
collateral document or other document, instrument, contract or understanding
between Borrower and Bank, or any other parties, pertaining to the Obligations;
Section 2.02. Adjustment, etc. Any adjustment, indulgence, forbearance
or compromise that might be granted or given by Bank to Borrower;
Section 2.03. Condition of Borrower. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution or
lack of power of Borrower or any other party at any time liable for the payment
of all or part of the Obligations; or any dissolution of Borrower, or any sale,
lease or transfer of any or all of the assets of Borrower, or any changes in the
shareholders of Borrower; or any reorganization of Borrower;
Section 2.04. Invalidity of Obligations. The invalidity, illegality or
unenforceability of all or any part of the Obligations, the Notes or any
document or agreement executed in connection with the Obligations, for any
reason whatsoever, including without limitation the fact that (a) the
Obligations, or any part thereof, exceeds the amount permitted by law, (b) the
act of creating the Obligations or any part thereof is ultra vires, (c) the
officers or representatives executing the documents creating the Obligations
acted in excess of their authority, (d) the Obligations violate applicable usury
laws, (e) Borrower has valid defenses, claims or offsets (whether at law, in
equity or by agreement) which render the Obligations wholly or partially
uncollectible from Borrower, (f) the creation, performance or repayment of the
Obligations (or the execution, delivery and performance of any document or
instrument representing part of the
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<PAGE> 5
Obligations or executed in connection with the Obligations, or given to secure
the repayment of the Obligations) is illegal, uncollectible or unenforceable, or
(g) the documents or instruments pertaining to the Obligations have been forged
or otherwise are irregular or not genuine or authentic;
Section 2.05. Release of Obligors. Any full or partial release of the
liability of Borrower on the Obligations or any part thereof, or of any
co-guarantors, or any other person or entity now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to pay,
perform, guarantee or assure the payment of the Obligations or any part thereof,
it being recognized, acknowledged and agreed by Guarantor that Guarantor may be
required to pay the Obligations in full, without assistance or support of any
other party, and Guarantor has not been induced to enter into this Guaranty on
the basis of a contemplation, belief, understanding or agreement that other
parties will be liable to perform the Obligations, or that Bank will look to
other parties to perform the Obligations;
Section 2.06. Other Security. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Obligations;
Section 2.07. Release of Collateral, etc. Any release, surrender,
exchange, subordination, deterioration, waste, loss or impairment of any
collateral, property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Obligations;
Section 2.08. Care and Diligence. The failure of Bank or any other
party to exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security;
Section 2.09. Status of Liens. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created or
granted as security for the repayment of the Obligations shall not be properly
perfected or created, or shall prove to be unenforceable or subordinate to any
other security interest or lien, it being recognized and agreed by Guarantor
that Guarantor is not entering into this Guaranty in reliance on, or in
contemplation of the benefits of, the validity, enforceability, collectibility
or value of any collateral for the Obligations;
Section 2.10. Offset. The Obligations, and the liabilities and
obligations of Guarantor to Bank hereunder, shall not be reduced, discharged or
released because of or by reason of any existing or future right of offset,
claim or defense of Borrower against Bank, or any other party, or against
payment of the Obligations, whether such right of offset, claim or defense
arises in connection with the Obligations (or the transactions creating the
Obligations) or otherwise;
Section 2.11. Merger. The reorganization, merger or consolidation of
Borrower into or with any other entity;
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Section 2.12. Preference. Any payment by Borrower to Bank is held to
constitute a preference under bankruptcy laws, or for any reason Bank is
required to refund such payment or pay such amount to Borrower or someone else;
or
Section 2.13. Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to the Obligations, or security and collateral
therefor, if any, whether or not such action or omission prejudices Guarantor or
increases the likelihood that Guarantor will be required to pay the Obligations
pursuant to the terms hereof; IT IS THE UNAMBIGUOUS AND UNEQUIVOCAL INTENTION OF
GUARANTOR THAT GUARANTOR SHALL BE OBLIGATED TO PAY THE OBLIGATIONS WHEN DUE,
NOTWITHSTANDING ANY OCCURRENCE, CIRCUMSTANCE, EVENT, ACTION, OR OMISSION
WHATSOEVER, (INCLUDING, WITHOUT LIMITATION, THE UNENFORCEABILITY OF THE NOTE
AGAINST THE BORROWER WHETHER CONTEMPLATED OR UNCONTEMPLATED, AND WHETHER OR NOT
OTHERWISE OR PARTICULARLY DESCRIBED HEREIN, EXCEPT FOR THE FULL AND FINAL
PAYMENT AND SATISFACTION OF THE OBLIGATIONS.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce Bank to extend credit to Borrower, Guarantor represents and
warrants to Bank that:
Section 3.01. Familiarity and Reliance. Guarantor is familiar with, and
has independently reviewed books and records regarding the financial condition
of Borrower and the terms of the Notes, Loan Agreement and other Loan Documents
(as defined in the Loan Agreement);
Section 3.02. No Representation by Bank. Neither Bank nor any other
party has made any representation, warranty or statement to Guarantor in order
to induce Guarantor to execute this Guaranty;
Section 3.03. Guarantor's Financial Condition. As of the date hereof,
and after giving effect to this Guaranty and the contingent obligation evidenced
hereby, Guarantor is, and will be, solvent, and has and will have assets which,
fairly valued, exceed its obligations, liabilities and debts, and has property
and assets sufficient to satisfy and repay its obligations and liabilities as
they mature;
Section 3.04. Benefit. Guarantor has received, or will receive, direct
or indirect benefit from the making of this Guaranty and the indebtedness
evidenced by the Notes;
Section 3.05. Directors' Determination of Benefit. Guarantor's board of
directors, acting pursuant to a duly called and constituted meeting, after
proper notice, or pursuant to a valid unanimous consent, has determined that
this Guaranty directly or indirectly benefits Guarantor and is in its best
interests;
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Section 3.06. Legality. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions contemplated
hereunder (a) have been duly authorized by all necessary corporate and
stockholder action of Guarantor, and (b) do not, and will not, contravene or
conflict with any law, statute or regulation whatsoever to which Guarantor is
subject or constitute a default (or an event which with notice or lapse of time
or both would constitute a default) under, or result in the breach of, any
indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or
other instrument to which Guarantor is a party or which may be applicable to
Guarantor or any of its assets, or violate any provisions of its Articles (or
Certificate) of Incorporation, Bylaws or any other organizational document of
Guarantor; this Guaranty is a legal, valid and binding obligation of Guarantor
and is enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights;
Section 3.07. Organization and Good Standing. Guarantor (a) is, and
will continue to be, a corporation duly organized, validly existing, and in good
standing under the laws of the state in which it is incorporated, and (b)
possesses all requisite power and authority to execute and deliver and comply
with the terms of this Guaranty; and
Section 3.08. Survival. All representations and warranties made by
Guarantor herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS;
WAIVER OF SUBROGATION
Section 4.01. Subordination of All Guarantor Claims. As used herein,
the term "Guarantor Claims" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. Except as otherwise allowed under the Loan Agreement,
until the Obligations shall be paid and satisfied in full, and in cash as to
monetary Obligations, and Guarantor shall have performed all of its obligations
hereunder, Guarantor shall not receive or collect, directly or indirectly, from
Borrower or any other party any amount upon the Guarantor Claims.
Section 4.02. Waiver of Subrogation. Unless and until the Obligations
have been paid in full and subject to SECTION 4.07, Guarantor hereby waives and
releases, to the fullest extent permitted by law:
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(a) Any and all rights that would result in Guarantor being
deemed a "creditor", under the United States Bankruptcy Code, of
Borrower or any other person, on account of payments made or
obligations performed by Guarantor relating to this Guaranty; and
(b) Any claim, right or remedy which Guarantor may now have or
hereafter acquire against Borrower that arises hereunder and/or from
the performance by any Guarantor hereunder including, without
limitation, any claim, remedy or right of subrogation, reimbursement,
exoneration, contribution, indemnification, or participation in any
claim, right or remedy of Bank against Borrower or any security which
now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity under contract, by statute, under common law or
otherwise.
Section 4.03. Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, Bank shall have the right to prove
their claims in any such proceeding so as to establish their rights hereunder
and receive directly from the receiver, trustee or other court custodian
dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor hereby assigns such dividends and payments to Bank.
Section 4.04. Payments Held in Trust. In the event that,
notwithstanding SECTIONS 4.01, 4.02 and 4.03 above, Guarantor should receive any
funds, payment, claim or distribution which is prohibited by such Sections,
Guarantor agrees to hold in trust for Bank an amount equal to the amount of all
funds, payments, claims or distributions so received, and agrees that it shall
have absolutely no dominion over the amount of such funds, payments, claims or
distributions, except to pay them promptly to Bank, and Guarantor covenants
promptly to pay the same to Bank.
Section 4.05. Liens Subordinate. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Guarantor Claims shall be and remain
inferior and subordinate to any liens, security interests, judgment liens,
charges or other encumbrances upon Borrower's assets securing payment of the
Obligations, regardless of whether such encumbrances in favor of Guarantor or
Bank presently exist or are hereafter created or attached. Without the prior
written consent of Bank, Guarantor shall not (a) exercise or enforce any
creditor's right it may have against Borrower, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceedings
(judicial or otherwise, including without limitation the commencement of, or
joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of
Borrower held by Guarantor.
Section 4.06. Notation of Records. All promissory notes, accounts
receivable ledgers or other evidences of the Guarantor Claims accepted by or
held by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty.
Section 4.07. Disgorged Payments. If after receipt of any payment of
all or any part of the Obligations, Bank is for any reason compelled to
surrender such payment to any person or
UNCONDITIONAL GUARANTY AGREEMENT - Page 8
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<PAGE> 9
entity because such payment is determined to be void or voidable as a
preference, impermissible setoff, or a diversion of trust funds, or for any
reason, this Guaranty shall continue in full force notwithstanding any contrary
action which may have been taken by Bank in reliance upon such payment, and any
such contrary action so taken shall be without prejudice to Bank's rights under
this Guaranty and shall be deemed to have been conditioned upon such payment
having become final and irrevocable.
ARTICLE V
MISCELLANEOUS
Section 5.01. Waiver. No failure to exercise, and no delay in
exercising, on the part of Bank, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right. The rights of Bank
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless in writing and signed by Bank and
no such consent or waiver shall extend beyond the particular case and purpose
involved. No notice or demand given in any case shall constitute a waiver of the
right to take other action in the same, similar or other instances without such
notice or demand.
Section 5.02. Notices. Any notices or other communications required or
permitted to be given by this Guaranty must be given in writing and in the
manner set forth in the Loan Agreement. Any such notices or other communications
must be given to the Bank at the address set forth in the Loan Agreement and to
the Guarantor at the address set forth on the signature page hereto or at such
other address as Guarantor or the Bank shall so designate in writing.
Section 5.03. Usury Compliance. It is the intention of Borrower,
Guarantor and Bank to conform strictly to applicable usury laws. Accordingly, no
agreements, conditions, provisions or stipulations contained in this Guaranty or
any other instrument, document or agreement between Guarantor or Borrower and
Bank or default of Guarantor or Borrower, or the exercise by Bank of the right
to accelerate the payment of the maturity of principal and interest, or to
exercise any option whatsoever contained in this Guaranty or any other agreement
between Guarantor or Borrower and Bank, or the arising of any contingency
whatsoever, shall entitle Bank to collect, in any event, interest exceeding the
maximum rate of interest permitted by applicable state or federal law in effect
from time to time hereafter (the "Maximum Legal Rate") and in no event shall
Guarantor be obligated to pay interest exceeding such Maximum Legal Rate and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Guarantor to pay a
rate of interest exceeding the Maximum Legal Rate, shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such Maximum Legal Rate. In the event any interest is charged in
excess of the Maximum Legal Rate ("Excess"), Guarantor acknowledges and
stipulates that any such charge shall be the result of an accident and bona fide
error, and such Excess shall be, first, applied to reduce the principal then
unpaid hereunder; second, applied to reduce the Obligations; and third, returned
to Guarantor, it being the intention of the parties
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hereto not to enter at any time into a usurious or otherwise illegal
relationship. Guarantor recognizes that, with fluctuations in the applicable
rate on the Obligations and the Maximum Legal Rate, such an unintentional result
could inadvertently occur. By the execution of this Guaranty, Guarantor
covenants that the credit or return of any Excess shall constitute the
acceptance by Guarantor of such Excess.
Section 5.04. Choice of Law; Forum Selection. This Agreement and the
other Loan Documents are being executed and delivered, and are intended to be
performed in the State of Texas. Except to the extent that the laws of the
United States may apply to the terms of this Agreement or any other Loan
Document, the substantive laws of the State of Texas shall govern the validity,
construction, enforcement and interpretation of this Guaranty. In the event of a
dispute involving this Guaranty, Guarantor irrevocably agrees that venue for
such dispute shall lie in any court of competent jurisdiction in Dallas County,
Texas.
Section 5.05. Invalid Provisions. In the case any one or more of the
provisions contained in this Guaranty should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained therein shall not in any way be affected thereby,
unless such continued effectiveness of this Guaranty, as modified, would be
contrary to the basic understandings and intentions of the parties as expressed
herein.
Section 5.06. Parties Bound. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Bank, assign any of its rights, powers,
duties or obligations hereunder.
Section 5.07. Headings. Section headings are for convenience of
reference only and shall in no way affect the interpretation of this Guaranty.
Section 5.08. Multiple Counterparts. This Guaranty may be executed in
multiple counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute this Guaranty by
signing any counterpart.
Section 5.09. Rights and Remedies. If Guarantor becomes liable for any
indebtedness owing by Borrower to Bank, by endorsement or otherwise, other than
under this Guaranty, such liability shall not be in any manner impaired or
affected hereby and the rights of Bank hereunder shall be cumulative of any and
all other rights that Bank may ever have against Guarantor. The exercise by Bank
of any right or remedy hereunder or under any other instrument, or at law or in
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy.
SECTION 5.10. INDEMNITY. GUARANTOR HEREBY AGREES TO INDEMNIFY, HOLD
HARMLESS, AND DEFEND BANK AND ITS DIRECTORS, OFFICERS, AGENTS, COUNSEL AND
EMPLOYEES ("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL LOSSES,
LIABILITIES, DAMAGES, COSTS, EXPENSES, SUITS, ACTIONS AND PROCEEDINGS ("LOSSES")
EVER SUFFERED OR INCURRED BY ANY INDEMNIFIED PERSON ARISING OUT OF OR RELATING
TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR ANY OTHER
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TRANSACTION CONTEMPLATED HEREBY AND THEREBY, INCLUDING, WITHOUT LIMITATION, ANY
LOSSES CAUSED BY THE NEGLIGENCE OF SUCH INDEMNIFIED PERSON, BUT NOT INCLUDING
ANY LOSSES CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNIFIED PERSON OR THE DEFAULT BY SUCH INDEMNIFIED PERSON OF SUCH INDEMNIFIED
PERSON'S OBLIGATIONS UNDER ANY LOAN DOCUMENT, AND GUARANTOR SHALL REIMBURSE BANK
AND EACH OTHER INDEMNIFIED PERSON FOR ANY EXPENSES (INCLUDING IN CONNECTION WITH
THE INVESTIGATION OF, PREPARATION FOR OR DEFENSE OF ANY ACTUAL OR THREATENED
CLAIM, ACTION OR PROCEEDING ARISING HEREFROM AND THEREFROM, INCLUDING ANY SUCH
COSTS OF RESPONDING TO DISCOVERY REQUESTS OR SUBPOENAS, REGARDLESS OF WHETHER
BANK OR SUCH OTHER INDEMNIFIED PERSON IS A PARTY THERETO). WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THIS INDEMNITY SHALL EXTEND TO ANY CLAIMS ASSERTED
AGAINST BANK OR ANY OTHER INDEMNIFIED PERSON BY ANY PERSON OR ENTITY UNDER ANY
ENVIRONMENTAL LAWS OR SIMILAR LAWS BY REASON OF THE BORROWER'S, GUARANTOR'S OR
ANY OTHER PERSON'S OR ENTITY'S FAILURE TO COMPLY WITH LAWS APPLICABLE TO SOLID
OR HAZARDOUS WASTE MATERIALS OR OTHER TOXIC SUBSTANCES. EACH INDEMNIFIED PERSON
MAY SELECT ITS OWN COUNSEL WITH RESPECT TO ANY LOSSES, IN ADDITION TO THE
GUARANTOR'S COUNSEL, AND SHALL BE INDEMNIFIED THEREFOR HEREUNDER.
NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS GUARANTY, THE OBLIGATIONS OF THE
GUARANTOR UNDER THIS SECTION 5.10 SHALL SURVIVE THE PAYMENT IN FULL OF THE
BORROWER'S OBLIGATIONS UNDER THE LOAN AGREEMENT AND THE TERMINATION OF THE LOAN
AGREEMENT AND THIS GUARANTY.
SECTION 5.11. NOTICE OF FINAL AGREEMENT. THIS GUARANTY CONSTITUTES A
WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES. SUCH
WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS GUARANTY.
EXECUTED as of the day and year first above written.
GUARANTOR:
TIDEL CASH SYSTEMS, INC.
By:
-------------------------------------
Mark K. Levenick, President and Chief
Executive Officer
Address for Notices:
5847 San Felipe, Suite 900
Houston, Texas 77057
UNCONDITIONAL GUARANTY AGREEMENT - Page 11
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 1
EXHIBIT 4.11
PLEDGE AND SECURITY AGREEMENT
(STOCK)
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is executed as of
the 1st day of April, 1999 by TIDEL TECHNOLOGIES, INC., a Delaware corporation
("Pledgor"), in favor of CHASE BANK OF TEXAS, N.A., a national banking
association ("Pledgee").
RECITALS:
A. Tidel Engineering, L.P., a Delaware limited partnership (the
"Borrower"), Pledgor and Pledgee have entered into that certain Credit Agreement
dated of even date herewith (as amended, modified or supplemented from time to
time, the "Loan Agreement"), pursuant to which Pledgee has agreed to make
available to Borrower certain credit facilities subject to the terms and
conditions contained therein.
B. Pledgor is the legal, record and beneficial owner of:
(i) 100 shares of the issued and outstanding common
stock, $0.01 par value of Tidel Services, Inc.
("TSI"), evidenced by TSI common stock certificate
no. 1, registered in the name of Pledgor;
(ii) 100 shares of the issued and outstanding common
stock, $0.01 par value of Tidel Cash Systems, Inc.
("TCS"), evidenced by TCS common stock certificate
no. 2, registered in the name of Pledgor; and
(iii) 680,818 shares of the issued and outstanding common
stock, $0.01 par value of 3CI Complete Compliance
Corporation ("3CI"), evidenced by 3CI common stock
certificates nos. C-0063, C-0070, C-0094 and C-0319
through C-0324, registered in the name of Pledgor.
All of the common stock described in clauses (i), (ii) and (iii) preceding are
referenced to collectively as the "Initial Pledged Stock". Each of TSI, TCS and
3CI are individually referred to herein as an "Issuer", and collectively, the
"Issuers", as applicable.
C. It is a condition precedent to the obligations of Pledgee under the
Loan Agreement that Pledgor shall have executed and delivered this Agreement to
Pledgee.
D. Pledgor, by virtue of its ownership of the Initial Pledged Stock,
deems it to be in its best interest, based on sound judgment, in that valuable
benefits will be derived by the Pledgor by virtue of the Loans, to execute and
deliver to Pledgee this Agreement.
E. In consideration of these premises and in order to induce Pledgee to
extend the credit pursuant to the Loan Agreement, and for other good and
valuable consideration, the
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 1
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receipt and sufficiency of which is hereby acknowledged, the Pledgor and Pledgee
hereby agree as follows:
AGREEMENTS:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Loan Agreement shall have such defined meanings when used herein.
2. Pledge. The Pledgor hereby pledges, assigns, hypothecates, transfers
and delivers to the Pledgee, and hereby grants to Pledgee a first lien on, and
security interest in, (a) the Initial Pledged Stock, (b) all shares of stock,
common or preferred, options, interests, participations, and other equivalents,
warrants, convertible debentures and all agreements, instruments and documents
convertible, in whole or part, into any one or more of the foregoing
(collectively, "Stock") of the Issuers which Pledgor shall, from time to time,
become entitled to receive or shall receive as set forth in SECTION 3 hereof
(together with any Stock options or rights received pursuant to SECTION 3
hereof, the "Additional Pledged Stock"; the Additional Pledged Stock and the
Initial Pledged Stock being sometimes hereinafter referred to as the "Pledged
Stock"), (c) all other Collateral (as defined in SECTION 4 hereof) as may be
pledged to Pledgee at any time and from time to time hereunder and (d) all
proceeds thereof, together with appropriate undated stock powers duly executed
in blank, as collateral security for (i) the due and punctual payment and
performance by Pledgor of its obligations, covenants, agreements and
liabilities, absolute or contingent, liquidated or unliquidated, now existing or
hereinafter incurred under, arising out of or in connection with this Agreement,
(ii) the prompt and complete payment when due (whether at the stated due date,
by acceleration or otherwise) of the unpaid principal of and interest on the
Notes issued to evidence the Loans made by Pledgee to Borrower pursuant to the
Loan Agreement as well as collection costs therefor, and (iii) the due and
punctual payment and performance by Borrower of all Obligations (as defined in
the Loan Agreement) to Pledgee, absolute or contingent, liquidated or
unliquidated, now existing or hereinafter incurred (all the foregoing being
hereinafter called the "Obligations").
3. Stock Dividends, Distributions, etc. If, while this Agreement is in
effect, the Pledgor shall become entitled to receive or shall receive any Stock
certificate (including, without limitation, any certificate representing a Stock
dividend or a distribution in connection with any reclassification, increase or
reduction of capital, or issued in connection with any reorganization), option
or rights, whether as an addition to, in substitution of, or in exchange for any
shares of any Pledged Stock, or otherwise, the Pledgor agrees to accept the same
as Pledgee's agent and to hold the same in trust on behalf of and for the
benefit of the Pledgee segregated from the other assets of the Pledgor and to
deliver the same forthwith to the Pledgee, in the exact form received, with the
endorsement of the Pledgor, when necessary and/or appropriate, to undated stock
powers, duly executed in blank, to be held by the Pledgee, subject to the terms
hereof, as additional collateral security for the Obligations, and such other
documents as the Pledgee shall reasonably request in order to perfect the
Pledgee's security interest therein. Any sums paid upon or in respect of the
Pledged Stock upon the liquidation or dissolution of any Issuer shall be paid
over to the Pledgee, to be held by it in trust as additional collateral security
for the Obligations; and in case any distribution of capital shall be made on or
in respect of the Pledged Stock or any property shall be distributed upon or
with respect to the
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 2
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Pledged Stock pursuant to the recapitalization or reclassification of the
capital of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Pledgee, to be held by it as additional
collateral security for the Obligations. All sums of money and property so paid
or distributed in respect of the Pledged Stock which are received by the Pledgor
shall, until paid or delivered to the Pledgee, be held by the Pledgor in trust,
segregated from the other assets of the Pledgor, as additional collateral
security for the Obligations.
4. Collateral. The Pledged Stock and all other property at any time and
from time to time pledged to Pledgee hereunder (whether described in SCHEDULE l
hereof or not) and all income therefrom and proceeds thereof, are herein
collectively sometimes called the "Collateral".
5. Record Ownership of Pledged Stock. Whether or not an Event of
Default has occurred and is continuing, Pledgee at any time may have the Pledged
Stock registered in its name, or in the name of its nominee or nominees, as
pledgee; and, as to any Pledged Stock so registered, Pledgee shall execute and
deliver (or cause to be executed and delivered) to Pledgor all such proxies,
powers of attorney, dividend coupons or orders, and other documents as Pledgor
may reasonably request for the purpose of enabling Pledgor to exercise the
voting rights and powers which it is entitled to exercise under this Agreement
and to receive the dividends and other payments in respect of the Pledged Stock
which it is authorized to receive and retain under this Agreement and the Loan
Agreement.
6. Voting of Pledged Stock. As long as an Event of Default has not
occurred and is not continuing, Pledgor shall be entitled to exercise all voting
rights pertaining to the Pledged Stock; provided, however, that no vote shall be
cast or consent, waiver or ratification given or action taken which would impair
the Collateral or violate any provision of this Agreement, the Loan Agreement or
the Loan Documents. After the occurrence and during the continuance of an Event
of Default, the right to vote the Pledged Stock and all other corporate rights
pertaining to the Pledged Stock shall be vested exclusively in Pledgee,
including any and all rights of conversion, exchange, subscription or any other
rights, privileges or options pertaining to any shares of the Pledged Stock as
if Pledgee were the absolute owner thereof, including, without limitation, the
right to exchange at its discretion any and all of the Pledged Stock upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
any Issuer or upon the exercise by such Issuer or the Pledgee of any right,
privilege or option pertaining to any shares of the Pledged Stock, and in
connection therewith, to deposit and deliver any and all of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine, all without liability
except to account for property actually received by it, but the Pledgee shall
have no duty to exercise any of the aforesaid rights, privileges or options or
be responsible for any failure to do so or delay in so doing. To this end,
Pledgor hereby irrevocably constitutes and appoints Pledgee the proxy and
attorney-in-fact of Pledgor, with full power of substitution, to vote, and to
act with respect to, the Pledged Stock standing in the name of Pledgor or with
respect to which Pledgor is entitled to vote and act, subject to the
understanding that such proxy may not be exercised unless an Event of Default
has occurred and is continuing. The proxy herein granted is coupled with an
interest, is irrevocable, and shall continue until the Obligations have been
paid and performed in full.
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 3
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7. Limitations on Pledgee's Obligations. The Pledgee shall not be
liable for failure to collect or realize upon the Obligations or any collateral
security or guarantee therefor, or any part thereof, or for any delay in so
doing nor shall the Pledgee be under any obligation to take any action
whatsoever with regard thereto.
8. The Pledgee's Appointment as Attorney-in-Fact. (a) In addition to,
and without limiting the scope of any other provision in this Agreement, the
Pledgor hereby irrevocably constitutes and appoints the Pledgee and any officer
or agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Pledgor and in the name of the Pledgor or in its own name, from
time to time in the Pledgee's discretion, for the purpose of carrying out the
actions and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, hereby gives the Pledgee the power and
right, on behalf of the Pledgor, without notice to or assent by the Pledgor to
do the following upon the occurrence and during the continuance of an Event of
Default: (i) to ask, demand, collect, receive and give acquittances and receipts
for any and all monies due and to become due under the Collateral; (ii) in the
name of the Pledgor or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under the Collateral; (iii) to file any claim or
to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Pledgee for the purpose of collecting any
and all such moneys due under the Collateral whenever payable; (iv) to pay or
discharge taxes, liens, security interests or other encumbrances levied or
placed on or threatened against the Collateral; (v) to direct any party liable
for any payment under the Collateral to make payment of any and all moneys due
and to become due thereunder directly to the Pledgee or as the Pledgee shall
direct; (vi) to receive payment of and receipt for any and all moneys, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (vii) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of the Collateral; (viii) to defend any suit, action or proceeding
brought against the Pledgor with respect to any Collateral; (ix) to settle,
compromise or adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as the Pledgee may
deem appropriate; (x) exercise voting rights attributable to the Pledged Stock
pursuant to SECTION 6; and (xi) generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Pledgee were the absolute owner thereof for all
purposes, and to do, at the Pledgee's option and the Pledgor's expense, at any
time, or from time to time, all acts and things which the Pledgee deems
necessary to protect, preserve or realize upon the Collateral and the Pledgee's
security interest therein, in order to effect the intent of this Agreement, all
as fully and effectively as the Pledgor might do.
The Pledgor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 4
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(b) The powers conferred on the Pledgee hereunder are solely to protect
its interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Pledgee shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to the
Pledgor for any act or failure to act.
(c) The Pledgor also authorizes the Pledgee, at any time and from time
to time, to execute, in connection with any sale of the Collateral, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
9. Performance by the Pledgee of the Pledgor's Obligations. If the
Pledgor fails to perform or comply with any of its agreements contained herein
and the Pledgee, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, then the expenses of the Pledgee incurred in connection with such
performance or compliance, together with interest thereon to accrue at a rate of
interest equal to the Highest Lawful Rate from the date such expenses are
incurred, shall be payable by the Pledgor to the Pledgee on demand and shall
constitute Obligations secured hereby.
10. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) The Pledgor shall fail to pay its Obligations when due;
(b) Any representation, warranty or statement made or deemed made by
the Pledgor herein or in connection herewith shall prove to have been incorrect
or untrue in any material respect on or as of the date made or deemed made;
(c) The Pledgor shall default in the observance or performance of any
term, covenant, or agreement contained herein and Pledgor shall fail to cure
such default within fifteen (15) days after the occurrence of such default; or
(d) An Event of Default (subject to any applicable cure period), as
such term is defined in the Loan Agreement, shall occur and be continuing.
11. Remedies. (a) Upon the occurrence and during the continuance of any
Event of Default, and at any time thereafter, the Pledgee may declare all of the
Obligations or any part thereof immediately due and payable and, without demand
of performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
the Pledgor or any other person (all and each of which demands, advertisements
and/or notices are hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give option or options to purchase, contract to sell or
otherwise dispose of and deliver said Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange, broker's board
or at the Pledgee's offices 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, with the right to
the Pledgee
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 5
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upon any such sale or sales, public or private, to purchase the whole or any
part of said Collateral so sold, free of any right or equity of redemption in
the Pledgor, which right or equity is hereby expressly waived or released. The
Pledgee 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, safekeeping
or otherwise of any and all of the Collateral or in any way relating to the
rights of the Pledgee hereunder, including reasonable attorneys' fees and legal
expenses, to the payment in whole or in part of the Obligations in such order as
the Pledgee may elect, the Pledgor remaining liable for any deficiency remaining
unpaid after such application, and only after so applying such net proceeds and
after the payment by the Pledgee of any amount required by any provision of law,
including, without limitation, Section 9-504 (a) (3) of the Uniform Commercial
Code of the State of Texas (the "Code"), need the Pledgee account for the
surplus, if any, to the Pledgor. The Pledgor agrees that, to the extent
permitted by law, the Pledgee need not give more than ten (10) days' notice of
the time and place of any public sale or of the time after which a private sale
or other intended disposition is to take place and that such notice is
reasonable notification of such matters. No notification need be given to the
Pledgor if it has signed after default a statement renouncing or modifying any
right to notification of sale or other intended disposition. IN ADDITION TO THE
RIGHTS AND REMEDIES GRANTED TO IT IN THIS AGREEMENT AND IN ANY OTHER INSTRUMENT
OR AGREEMENT SECURING, EVIDENCING OR RELATING TO ANY OF THE OBLIGATIONS, THE
PLEDGEE SHALL HAVE ALL THE RIGHTS AND REMEDIES OF A SECURED PARTY UNDER THE
CODE. All waivers by the Pledgor of rights (including rights to notice) and all
rights and remedies afforded the Pledgor herein, and all other provisions of
this Agreement, are expressly made subject to any applicable mandatory
provisions of law limiting, or imposing conditions (including conditions as to
reasonableness) upon such waivers of the effectiveness thereof or any such
rights and remedies. Any sale or other disposition of the Collateral shall be in
compliance with all provisions of law (including applicable securities laws, and
regulations and applicable provisions of the Code).
(b) If Pledgee shall determine to exercise its right to sell any or all
of the Pledged Stock pursuant to this SECTION 11 hereof, and if in the opinion
of counsel for Pledgee it is advisable to have the Pledged Stock, or that
portion thereof to be sold, registered under the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), the Pledgor will cause the
Issuer of such Pledged Stock to execute and deliver, and cause the directors and
officers thereof to execute and deliver, all at the Pledgor's expense, all such
instruments and documents, and to do or cause to be done all such other acts and
things as may be necessary to register the Pledged Stock, or that portion
thereof to be sold, under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for a period of 180 days from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and to make all
amendments thereto and/or to the related prospectus which are necessary, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. The
Pledgor agrees to cause each Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any jurisdiction which Pledgee shall designate
and to cause each Issuer to make available to its security holders, as soon as
practicable, an earnings statement which will satisfy the provisions of Section
11(a) of the Securities Act.
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 6
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(c) The Pledgor recognizes that the Pledgee may be unable to effect a
public sale of any or all the Pledged Stock by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Pledgee shall be under no obligation
to delay a sale of any of the Pledged Stock for the period of time necessary to
permit the Issuer of such securities to register such securities for public sale
under the Securities Act, or under applicable state securities laws, even if
such Issuer would agree to do so.
(d) The Pledgor further agrees to do or cause to be done all such other
acts and things as may be necessary to make such sale or sales of any portion of
all of the Pledged Stock valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales, all at the Pledgor's
expense. The Pledgor further agrees that a breach of any of the covenants
contained in this SECTION 11 will cause irreparable injury to Pledgee, that
Pledgee has no adequate remedy at law in respect of such breach and, as a
consequence, agrees that each and every covenant contained in this paragraph
shall be specifically enforceable against the Pledgor and the Pledgor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no default of the
covenants, terms or conditions of the Loan Agreement has occurred. The Pledgor
further acknowledges the impossibility of ascertaining the amount of damages
which would be suffered by Pledgee by reason of a breach of any such covenants
and, consequently, agrees that, if Pledgee shall sue for damages for breach,
Pledgor shall pay, as liquidated damages and not as a penalty, an amount equal
to the value of the Pledged Stock on the date Pledgee shall demand compliance
with this paragraph, but in no event to exceed the amount of the Obligations.
12. Waiver of Subrogation. Notwithstanding anything to the contrary in
this Agreement, unless and until the Obligations have been indefeasibly paid and
performed in full, the Pledgor hereby irrevocably waives all rights Pledgor may
have at law or in equity (including, without limitation, any law subrogating the
Pledgor to the rights of the Pledgee) to seek contribution, indemnification, or
any other form of reimbursement from the Issuer, any other guarantor or pledgor,
or any other person now or hereafter primarily or secondarily liable for any
obligations of the Borrower to the Pledgee, for any disbursement made by the
Pledgor under or in connection with this Agreement or otherwise. The Pledgor
further agrees that, to the extent that the waiver of any such subrogation,
contribution, reimbursement, indemnity or otherwise is found to be void or
voidable for any reason, any such rights which the Pledgor may have shall be
junior and subordinate in all respects to the rights of the Pledgee against the
Borrower.
13. Actions by Pledgee. No action that the Pledgee may take or omit to
take in connection with the Loan Agreement or any of the Loan Documents, any
indebtedness owing by
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 7
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Borrower to the Pledgee (including, without limitation, renewals, extensions,
modifications and increases thereof), or any security for the payment of any
indebtedness of Borrower to the Pledgee, or for the performance of any
obligation or undertaking of Borrower, nor any course of dealing with Borrower
or any other Person, shall release the Pledgor from its obligations hereunder,
affect this Agreement in any way, or afford the Pledgor any recourse against the
Pledgee. By way of example, but not in limitation of the foregoing, the Pledgor
hereby expressly agrees that the Pledgee may, from time to time, without notice
to the Pledgor:
(a) sell, assign, transfer or grant participations in the
Loans and/or any right held by the Pledgee pursuant to or in connection with the
Loan Agreement and the Loan Documents;
(b) amend, change, or modify, in whole or in part, any
documents or instruments evidencing, securing or relating to any indebtedness or
undertaking of Borrower to the Pledgee;
(c) accelerate, change, extend, or renew the time for payment
of the Notes or any other indebtedness arising under any documents or
instruments evidencing, securing or relating to any indebtedness or undertaking
of Borrower to the Pledgee;
(d) compromise or settle any amount due or owing, or claimed
to be due or owing, under the Notes or under any documents or instruments
evidencing, securing or relating to any indebtedness or undertaking of Borrower
to the Pledgee;
(e) surrender, release, or subordinate any or all security for
any indebtedness or undertaking of Borrower to the Pledgee or accept additional
or substituted security therefor;
(f) release any guarantor or pledgor of any indebtedness or
undertaking of the Borrower to the Pledgee, or substitute or add additional
guarantors or pledgors; and
(g) apply collateral securing the Notes to other indebtedness
also secured by such collateral.
The provisions of this Agreement shall extend and be applicable to all renewals,
increases, amendments, extensions, modifications of and substitutions for the
Loan Agreement and the Loan Documents, and all references herein to the Loan
Agreement and the Loan Documents shall be deemed to include any renewal,
increase, extension, amendment or modification thereof or substitution therefor.
14. No Impairment. The obligations, guaranties, undertakings,
covenants, agreements and duties of the Pledgor under this Agreement shall not
be affected or impaired by any of the following, although without notice to or
consent of the Pledgor:
(a) any failure, omission or delay on the part of the Pledgee (i) to
enforce, assert or exercise any right, power or remedy conferred on the Pledgee
by the provisions of the Loan Agreement and the Loan Documents or otherwise
inuring to the holders of the rights of the Pledgee under the Loan Agreement and
the Loan Documents, or (ii) to make demand first upon Borrower or to proceed
against Borrower;
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 8
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(b) the voluntary or involuntary liquidation, dissolution, sale of all
or substantially all assets, marshalling of assets or liabilities, receivership,
conservatorship, assignment for the benefit of creditors, insolvency,
bankruptcy, reorganization, arrangement, composition or other proceedings under
laws for the protection of debtors affecting Borrower or any of the assets of
Borrower, or any discharge from liability or rejection of burdensome contracts
or obligations in the course of or resulting from any such proceedings;
(c) the release, by operation of law or otherwise, of Borrower or any
guarantor from any obligation under the Loan Agreement or any of the Loan
Documents;
(d) the invalidity, deficiency, illegality or unenforceability of the
Loan Agreement and the Loan Documents, in whole or in part, or of any of the
provisions thereof, or failure to perfect or maintain perfection of any
security, or any defense or excuse for failure to perform on account of force
majeure, act of God, casualty, impossibility, impracticability, or other defense
or excuse whatsoever; or
(e) without limiting the foregoing, any fact or event (whether or not
similar to any of the foregoing) which in the absence of this provision would or
might constitute or afford a legal or equitable discharge or release of or
defense to a guarantor or surety.
None of the foregoing shall be a defense to this Agreement, and this Agreement
is a primary obligation of the Pledgor.
15. Other Pledgors or Guarantors. The liabilities and obligations of
the Pledgor hereunder shall not be reduced or limited by reason of any guaranty
or pledge executed in favor of the Pledgee by any other Person, and this
Agreement shall be enforceable against the Pledgor without regard to any such
guaranty or pledge.
16. Representations, Warranties and Covenants of the Pledgor. The
Pledgor represents and warrants that (a) it is the legal, record and beneficial
owner of, and has good and, subject to applicable securities laws described in
SECTION 11 hereof, marketable title to, the Initial Pledged Stock, subject to no
pledge, lien, mortgage, hypothecation, security interest, charge, option, voting
proxy or other encumbrance whatsoever, except the existing lien and security
interest created by this Agreement; (b) it is duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
full power, authority and legal right to pledge the Initial Pledged Stock
pursuant to this Agreement; (c) this Agreement has been duly authorized,
executed and delivered by Pledgor and constitutes a legal, valid and binding
obligation of the Pledgor, and is enforceable in accordance with its terms; (d)
no consent of any other party (including, without limitation, the stockholders
or creditors of the Pledgor) and no consent, license, permit, approval or
authorization of, exemption by, notice or report to, or registration, filing or
declaration with, any Governmental Authority, domestic or foreign, is required
to be obtained by the Pledgor or the Pledgee in connection with the execution,
delivery or performance of this Agreement or the pledge of such shares
hereunder, in each case which has not been obtained or made, as the case may be,
and is not in full force and effect; (e) the execution, delivery and performance
of this Agreement will not violate any provision of any
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 9
<PAGE> 10
applicable law, or of any mortgage, indenture, lease, contract, or other
agreement, instrument or undertaking to which Pledgor is a party or which
purports to be binding upon Pledgor or upon any of its assets and will not
result in the creation or imposition of any lien, charge or encumbrance on or
security interest in any of the assets of Pledgor except as contemplated by this
Agreement or the Loan Agreement; (f) all the shares of the Initial Pledged Stock
have been duly and validly issued, are fully paid and non-assessable and have
not been issued in violation of any preemptive or other rights of any person;
(g) the Pledgor has not created any options, warrants, rights, calls,
commitments, plans, contracts or other agreements of any character, which
provide for the purchase, issuance or transfer of any shares of capital stock of
Issuer pledged hereby; and (h) the pledge, assignment and delivery of such
Initial Pledged Stock pursuant to this Agreement constitutes and, provided
Pledgee retains possession of the Initial Pledged Stock, at all times
(disregarding, however the effects of the change in any law relating to the
pledge of stock generally) will constitute a valid first lien on and a first
perfected security interest in such shares of the Initial Pledged Stock, and the
proceeds thereof, subject to no prior Lien, or to any agreement purporting to
grant to any third party other than Pledgee a security interest in the property
or assets of the Pledgor which would include the Initial Pledged Stock. Pledgor
covenants and agrees that at its expense it will defend the right, title and
security interest of the Pledgee in and to the Pledged Stock and the proceeds
thereof against the claims and demands of all persons whomsoever; and covenants
and agrees that he will have like title to and right to pledge any other
property at any time hereafter pledged to the Pledgee as Collateral hereunder
and will likewise defend the right of the Pledgee thereto and security interest
therein.
17. No Disposition. etc. Without the prior written consent of the
Pledgee, Pledgor agrees that it will not sell, assign, transfer, exchange, or
otherwise dispose of, or grant any option with respect to, the Collateral, nor
will it create, incur or permit to exist any pledge, lien, mortgage,
hypothecation, security interest, charge, option or any other encumbrance with
respect to any of the Collateral, or any interest therein, or any proceeds
thereof, except for the lien and security interest provided for by this
Agreement and except as permitted by this Agreement or by the Loan Agreement.
Without the prior written consent of the Pledgee, the Pledgor agrees that it
will not vote to enable any Issuer to issue or sell any stock or other
securities of any nature in addition to or in exchange or substitution for the
Pledged Stock or grant or issue any options, warrants, or rights of any kind to
acquire, or securities convertible into, shares of such Issuer's stock.
18. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Pledgee, the Pledgor will execute and
deliver such further documents and do such further acts and things which are
necessary in the reasonable judgment of the Pledgee to effect the purpose of
this Agreement or to obtain, maintain and perfect the security interest granted
under this Agreement in any applicable jurisdiction, and any expense of Pledgee
so incurred shall be a part of the Obligations.
19. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 10
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20. No Waiver; Cumulative Remedies. The Pledgee shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by the
Pledgee, and then only to the extent therein set forth. A waiver by the Pledgee
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which Pledgee would otherwise have on any future
occasion. No failure to exercise nor any delay in exercising on the part of the
Pledgee, any right, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies provided by law.
21. Waivers, Amendments, Entirety. None of the terms or provisions of
this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Pledgee. This Agreement and all
obligations of the Pledgor hereunder shall be binding upon the successors and
assigns of the Pledgor, and shall, together with the rights and remedies of
Pledgee hereunder, inure to the benefit of Pledgee and its successors and
assigns. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO THE CHOICE OF LAWS RULES THEREOF. THE CERTIFICATES
REPRESENTING THE PLEDGED STOCK SHALL BE DELIVERED TO PLEDGOR IN THE STATE OF
TEXAS.
23. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.
24. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against the
Pledgor or Borrower for liquidation or reorganization, should the Pledgor or
Borrower become insolvent or make an assignment for the benefit of creditors or
should a receiver or trustee be appointed for all or any significant part of the
Pledgor's assets or the assets of Borrower and shall continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of the
Obligations, or any part thereof is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
the Obligations, whether as a "voidable preference", "fraudulent conveyance", or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount and not so rescinded, reduced, restored or returned.
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 11
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25. Replacement of Prior Agreement. This Agreement is given in renewal,
amendment, replacement, and restatement in its entirety (but not in novation,
extinguishment or satisfaction) of that certain Pledge and Security Agreement
dated June 12, 1997, executed by Pledgor, formerly known as American Medical
Technologies, Inc. d/b/a AMT Industries, Inc., for the benefit of Pledgee,
successor-in-interest to Texas Commerce Bank National Association, as amended by
that certain First Amendment to Pledge and Security Agreement dated May 27,
1998, executed by and between Pledgor and Pledgee (as amended, the "Prior
Agreement"). To the extent of any conflict between the terms of this Agreement
and the terms of the Prior Agreement, the terms of this Agreement shall control.
IN WITNESS WHEREOF, Pledgor has caused this Agreement to be duly
executed and delivered as of the day and year first above written.
TIDEL TECHNOLOGIES, INC.
By:
------------------------------------
Mark K. Levenick,
Chief Operating Officer
PLEDGE AND SECURITY AGREEMENT (TIDEL TECHNOLOGIES, INC.) - Page 12
<PAGE> 1
EXHIBIT 4.12
PLEDGE AND SECURITY AGREEMENT
(LIMITED PARTNERSHIP INTEREST)
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is executed as of
the 1st day of April, 1999 by TIDEL SERVICES, INC., a Delaware corporation
("Pledgor"), in favor of CHASE BANK OF TEXAS, N.A., a national banking
association ("Pledgee").
RECITALS:
A. Tidel Engineering, L.P., a Delaware limited partnership (the
"Borrower"), Tidel Technologies, Inc. ("TTI") and Pledgee have entered into that
certain Credit Agreement dated of even date herewith (as amended, modified or
supplemented from time to time, the "Loan Agreement"), pursuant to which Pledgee
has agreed to make available to Borrower a credit facility subject to the terms
and conditions contained therein.
B. Pledgor is the legal, record and beneficial owner of TELP
Partnership Interest (defined below).
C. It is a condition precedent to the obligations of Pledgee under the
Loan Agreement that Pledgor shall have executed and delivered this Agreement to
Pledgee.
D. Pledgor, by virtue of its ownership of the TELP Partnership
Interest, deems it to be in its best interest, based on sound judgment, in that
valuable benefits will be derived by the Pledgor by virtue of the Loans, to
execute and deliver to Pledgee this Agreement.
E. In consideration of these premises and in order to induce Pledgee to
extend the credit pursuant to the Loan Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Pledgor and Pledgee hereby agree as follows:
AGREEMENTS:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Loan Agreement shall have such defined meanings when used herein.
2. Pledge. The Pledgor hereby pledges, assigns, hypothecates, transfers
to the Pledgee, and hereby grants to Pledgee a first lien on, and security
interest in the following property whether now owned or hereafter acquired:
(a) all of the right, title and interest, now and hereafter
existing, of Pledgor, as a limited partner (the "TELP Partnership Interest"), in
and to the Borrower, which was formed pursuant to that certain Agreement of
Limited Partnership of Tidel Engineering, L.P. (as the same may be amended,
modified, or restated from time to time, the "TELP Partnership Agreement") dated
as of March 24, 1999;
PLEDGE AND SECURITY AGREEMENT - Page 1
(TIDEL SERVICES, INC.)
<PAGE> 2
(b) any and all proceeds and distributions made pursuant to
the TELP Partnership Agreement (the "Proceeds"), due or to become due to Pledgor
under the TELP Partnership Agreement; and
(c) any and all present and future accounts, certificates of
deposit, securities, general intangibles, chattel paper and other proceeds
arising from, or by virtue of, or from the disposition of, or claims against any
other person or entities with respect to, all or any part of the property
described in clauses (a) or (b) preceding (all of the property described in
clauses (a), (b), and (c) being referred to collectively as the "Collateral"),
as collateral security for (i) the due and punctual payment and performance by
Pledgor of its obligations, covenants, agreements and liabilities, absolute or
contingent, liquidated or unliquidated, now existing or hereinafter incurred
under, arising out of or in connection with this Agreement, (ii) the prompt and
complete payment when due (whether at the stated due date, by acceleration or
otherwise) of the unpaid principal of and interest on the Notes issued to
evidence the Loans made by Pledgee pursuant to the Loan Agreement as well as
collection costs therefor, and (iii) the due and punctual payment and
performance of all Obligations (as defined in the Loan Agreement) by Borrower
(and any other party liable therefor) to Pledgee, absolute or contingent,
liquidated or unliquidated, now existing or hereinafter incurred (all the
foregoing being hereinafter called the "Obligations"). Notwithstanding anything
to the contrary herein, the pledge by Pledgee of any and all proceeds and
distributions made pursuant to the TELP Partnership Agreement is not intended to
prohibit any distributions permitted under the Loan Agreement.
3. Distributions, etc. Any sums paid upon or in respect of the TELP
Partnership Interest upon the liquidation or dissolution of Borrower shall be
paid over to the Pledgee, to be held by it in trust as additional collateral
security for the Obligations; and in case any distribution of capital shall be
made on or in respect of the TELP Partnership Interest or any property shall be
distributed upon or with respect to the TELP Partnership Interest pursuant to
the recapitalization of Borrower or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Pledgee, to be held by it as
additional collateral security for the Obligations. All sums of money and
property so paid or distributed in respect of the TELP Partnership Interest
which are received by the Pledgor shall, until paid or delivered to the Pledgee,
be held by the Pledgor in trust, segregated from the other assets of the
Pledgor, as additional collateral security for the Obligations.
4. Voting Rights. As long as an Event of Default has not occurred and
is not continuing, Pledgor shall be entitled to exercise all voting rights with
respect to the TELP Partnership Interest; provided, however, that no vote shall
be cast or consent, waiver or ratification given or action taken which would
impair the Collateral or violate any provision of this Agreement, the Loan
Agreement or the Loan Documents. After the occurrence and during the continuance
of an Event of Default, the right to vote the TELP Partnership Interest and all
other rights pertaining to the TELP Partnership Interest shall be vested
exclusively in Pledgee, including any and all rights to vote and to give
consents, waivers or ratifications with respect to the TELP Partnership Interest
as if Pledgee were the absolute owner thereof, including, without
PLEDGE AND SECURITY AGREEMENT - Page 2
(TIDEL SERVICES, INC.)
<PAGE> 3
limitation, the right to take any action to enforce the TELP Partnership
Interest, but the Pledgee shall have no duty to exercise any of the aforesaid
rights, privileges or options or be responsible for any failure to do so or
delay in so doing. To this end, Pledgor hereby irrevocably constitutes and
appoints Pledgee the attorney-in-fact of Pledgor, with full power of
substitution, to vote, and to act with respect to, the TELP Partnership Interest
standing in the name of Pledgor or with respect to which Pledgor is entitled to
vote and act, subject to the understanding that such appointment may not be
exercised unless an Event of Default has occurred and is continuing. The
appointment as attorney-in-fact herein granted is coupled with an interest, is
irrevocable, and shall continue until the Obligations have been paid and
performed in full.
5. Limitations on Pledgee's Obligations. The Pledgee shall not be
liable for failure to collect or realize upon the Obligations or any collateral
security or guarantee therefor, or any part thereof, or for any delay in so
doing nor shall the Pledgee be under any obligation to take any action
whatsoever with regard thereto.
6. The Pledgee's Appointment as Attorney-in-Fact. (a) In addition to,
and without limiting the scope of any other provision in this Agreement, the
Pledgor hereby irrevocably constitutes and appoints the Pledgee and any officer
or agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Pledgor and in the name of the Pledgor or in its own name, from
time to time in the Pledgee's discretion, for the purpose of carrying out the
actions and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, hereby gives the Pledgee the power and
right, on behalf of the Pledgor, without notice to or assent by the Pledgor to
do the following upon the occurrence and during the continuance of an Event of
Default: (i) to ask, demand, collect, receive and give acquittances and receipts
for any and all monies due and to become due under the Collateral; (ii) in the
name of the Pledgor or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under the Collateral; (iii) to file any claim or
to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Pledgee for the purpose of collecting any
and all such moneys due under the Collateral whenever payable; (iv) to pay or
discharge taxes, liens, security interests or other encumbrances levied or
placed on or threatened against the Collateral; (v) to direct any party liable
for any payment under the Collateral to make payment of any and all moneys due
and to become due thereunder directly to the Pledgee or as the Pledgee shall
direct; (vi) to receive payment of and receipt for any and all moneys, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (vii) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of the Collateral; (viii) to defend any suit, action or proceeding
brought against the Pledgor with respect to any Collateral; (ix) to settle,
compromise or adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as the Pledgee may
deem appropriate; (x) exercise voting rights attributable to the TELP
Partnership Interest pursuant to SECTION 4; and (xi) generally to sell,
transfer, pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the
PLEDGE AND SECURITY AGREEMENT - Page 3
(TIDEL SERVICES, INC.)
<PAGE> 4
Pledgee were the absolute owner thereof for all purposes, and to do, at the
Pledgee's option and the Pledgor's expense, at any time, or from time to time,
all acts and things which the Pledgee deems necessary to protect, preserve or
realize upon the Collateral and the Pledgee's security interest therein, in
order to effect the intent of this Agreement, all as fully and effectively as
the Pledgor might do.
The Pledgor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
(b) The powers conferred on the Pledgee hereunder are solely
to protect its interests in the Collateral and shall not impose any duty upon it
to exercise any such powers. Pledgee shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and neither it
nor any of its officers, directors, employees or agents shall be responsible to
the Pledgor for any act or failure to act.
(c) The Pledgor also authorizes the Pledgee, at any time and
from time to time, to execute, in connection with any sale of the Collateral,
any endorsements, assignments or other instruments of conveyance or transfer
with respect to the Collateral.
7. Performance by the Pledgee of the Pledgor's Obligations. If the
Pledgor fails to perform or comply with any of its agreements contained herein
and the Pledgee, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, then the expenses of the Pledgee incurred in connection with such
performance or compliance, together with interest thereon to accrue at a rate of
interest equal to the Highest Lawful Rate from the date such expenses are
incurred, shall be payable by the Pledgor to the Pledgee on demand and shall
constitute Obligations secured hereby.
8. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) The Pledgor shall fail to pay its Obligations when due;
(b) Any representation, warranty or statement made or deemed
made by the Pledgor herein or in connection herewith shall prove to have been
incorrect or untrue in any material respect on or as of the date made or deemed
made;
(c) The Pledgor shall default in the observance or performance
of any term, covenant, or agreement contained herein and Pledgor shall fail to
cure such default within fifteen (15) days after the occurrence of such default;
or
(d) An Event of Default (subject to any applicable cure
period), as such term is defined in the Loan Agreement, shall occur and be
continuing.
PLEDGE AND SECURITY AGREEMENT - Page 4
(TIDEL SERVICES, INC.)
<PAGE> 5
9. Remedies. (a) Upon the occurrence and during the continuance of any
Event of Default, and at any time thereafter, the Pledgee may declare all of the
Obligations or any part thereof immediately due and payable and, without demand
of performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
the Pledgor or any other person (all and each of which demands, advertisements
and/or notices are hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give option or options to purchase, contract to sell or
otherwise dispose of and deliver said Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange, broker's board
or at the Pledgee's offices 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, with the right to
the Pledgee upon any such sale or sales, public or private, to purchase the
whole or any part of said Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity is hereby expressly waived or
released. The Pledgee 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, safekeeping or otherwise of any and all of the Collateral or in any
way relating to the rights of the Pledgee hereunder, including reasonable
attorneys' fees and legal expenses, to the payment in whole or in part of the
Obligations in such order as the Pledgee may elect, the Pledgor remaining liable
for any deficiency remaining unpaid after such application, and only after so
applying such net proceeds and after the payment by the Pledgee of any amount
required by any provision of law, including, without limitation, Section 9-504
(a) (3) of the Uniform Commercial Code of the State of Texas (the "Code"), need
the Pledgee account for the surplus, if any, to the Pledgor. The Pledgor agrees
that, to the extent permitted by law, the Pledgee need not give more than ten
(10) days' notice of the time and place of any public sale or of the time after
which a private sale or other intended disposition is to take place and that
such notice is reasonable notification of such matters. No notification need be
given to the Pledgor if it has signed after default a statement renouncing or
modifying any right to notification of sale or other intended disposition. IN
ADDITION TO THE RIGHTS AND REMEDIES GRANTED TO IT IN THIS AGREEMENT AND IN ANY
OTHER INSTRUMENT OR AGREEMENT SECURING, EVIDENCING OR RELATING TO ANY OF THE
OBLIGATIONS, THE PLEDGEE SHALL HAVE ALL THE RIGHTS AND REMEDIES OF A SECURED
PARTY UNDER THE CODE. All waivers by the Pledgor of rights (including rights to
notice) and all rights and remedies afforded the Pledgor herein, and all other
provisions of this Agreement, are expressly made subject to any applicable
mandatory provisions of law limiting, or imposing conditions (including
conditions as to reasonableness) upon such waivers of the effectiveness thereof
or any such rights and remedies. Any sale or other disposition of the Collateral
shall be in compliance with all provisions of law (including applicable
securities laws, and regulations and applicable provisions of the Code).
(b) If Pledgee shall determine to exercise its right to sell
any or all of the TELP Partnership Interest pursuant to this SECTION 9 hereof,
and if in the opinion of counsel for Pledgee it is advisable to have the TELP
Partnership Interest, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
PLEDGE AND SECURITY AGREEMENT - Page 5
(TIDEL SERVICES, INC.)
<PAGE> 6
the Pledgor will cause the Borrower to execute and deliver, and cause the
general partner thereof to execute and deliver, all at the Pledgor's expense,
all such instruments and documents, and to do or cause to be done all such other
acts and things as may be necessary to register the TELP Partnership Interest,
or that portion thereof to be sold, under the provisions of the Securities Act
and to cause the registration statement relating thereto to become effective and
to remain effective for a period of 180 days from the date of the first public
offering of the TELP Partnership Interest, or that portion thereof to be sold,
and to make all amendments thereto and/or to the related prospectus which are
necessary, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission applicable
thereto. The Pledgor agrees to cause Borrower to comply with the provisions of
the securities or "Blue Sky" laws of any jurisdiction which Pledgee shall
designate and to cause Borrower to make available to its security holders, as
soon as practicable, an earnings statement which will satisfy the provisions of
Section 11(a) of the Securities Act.
(c) The Pledgor recognizes that the Pledgee may be unable to
effect a public sale of any or all the TELP Partnership Interest by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws, but may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers who will be obliged to agree, among
other things, to acquire such securities for their own account for investment
and not with a view to the distribution or resale thereof. The Pledgor
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable to the seller than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such private sale shall
be deemed to have been made in a commercially reasonable manner. Pledgee shall
be under no obligation to delay a sale of any of the TELP Partnership Interest
for the period of time necessary to permit the Borrower to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if the Borrower would agree to do so.
(d) The Pledgor further agrees to do or cause to be done all
such other acts and things as may be necessary to make such sale or sales of any
portion of all of the TELP Partnership Interest valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees
that a breach of any of the covenants contained in this SECTION 9 will cause
irreparable injury to Pledgee, that Pledgee has no adequate remedy at law in
respect of such breach and, as a consequence, agrees that each and every
covenant contained in this paragraph shall be specifically enforceable against
the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no default of the covenants, terms or conditions of the Loan
Agreement has occurred. The Pledgor further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by Pledgee by reason
of a breach of any such covenants and, consequently, agrees that, if Pledgee
shall sue for damages for breach, Pledgor shall pay, as liquidated damages and
not as a penalty, an amount equal to the value of the TELP Partnership Interest
on the date Pledgee shall demand compliance with this paragraph, but in no event
to exceed the amount of the Obligations.
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(TIDEL SERVICES, INC.)
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10. Waiver of Subrogation. Notwithstanding anything to the contrary in
this Agreement, unless and until the Obligations have been indefeasibly paid and
performed in full, the Pledgor hereby irrevocably waives all rights Pledgor may
have at law or in equity (including, without limitation, any law subrogating the
Pledgor to the rights of the Pledgee) to seek contribution, indemnification, or
any other form of reimbursement from the Borrower, any other guarantor or
pledgor, or any other person now or hereafter primarily or secondarily liable
for any obligations of the Borrower to the Pledgee, for any disbursement made by
the Pledgor under or in connection with this Agreement or otherwise. The Pledgor
further agrees that, to the extent that the waiver of any such subrogation,
contribution, reimbursement, indemnity or otherwise is found to be void or
voidable for any reason, any such rights which the Pledgor may have shall be
junior and subordinate in all respects to the rights of the Pledgee against the
Borrower.
11. Actions by Pledgee. No action that the Pledgee may take or omit to
take in connection with the Loan Agreement or any of the Loan Documents, any
indebtedness owing by Borrower to the Pledgee (including, without limitation,
renewals, extensions, modifications and increases thereof), or any security for
the payment of any indebtedness of Borrower to the Pledgee, or for the
performance of any obligation or undertaking of Borrower, nor any course of
dealing with Borrower or any other Person, shall release the Pledgor from his
obligations hereunder, affect this Agreement in any way, or afford the Pledgor
any recourse against the Pledgee. By way of example, but not in limitation of
the foregoing, the Pledgor hereby expressly agrees that the Pledgee may, from
time to time, without notice to the Pledgor:
(a) sell, assign, transfer or grant participations in the
Loans and/or any right held by the Pledgee pursuant to or in connection with the
Loan Agreement and the Loan Documents;
(b) amend, change, or modify, in whole or in part, any
documents or instruments evidencing, securing or relating to any indebtedness or
undertaking of Borrower or TTI to the Pledgee;
(c) accelerate, change, extend, or renew the time for payment
of the Notes or any other indebtedness arising under any documents or
instruments evidencing, securing or relating to any indebtedness or undertaking
of Borrower or TTI to the Pledgee;
(d) compromise or settle any amount due or owing, or claimed
to be due or owing, under the Notes or under any documents or instruments
evidencing, securing or relating to any indebtedness or undertaking of Borrower
or TTI to the Pledgee;
(e) surrender, release, or subordinate any or all security for
any indebtedness or undertaking of Borrower or TTI to the Pledgee or accept
additional or substituted security therefor;
(f) release any guarantor or pledgor of any indebtedness or
undertaking of the Borrower or TTI to the Pledgee, or substitute or add
additional guarantors or pledgors; and
PLEDGE AND SECURITY AGREEMENT - Page 7
(TIDEL SERVICES, INC.)
<PAGE> 8
(g) apply collateral securing the Notes to other indebtedness
also secured by such collateral.
The provisions of this Agreement shall extend and be applicable to all renewals,
increases, amendments, extensions, modifications of and substitutions for the
Loan Agreement and the Loan Documents, and all references herein to the Loan
Agreement and the Loan Documents shall be deemed to include any renewal,
increase, extension, amendment or modification thereof or substitution therefor.
12. No Impairment. The obligations, guaranties, undertakings,
covenants, agreements and duties of the Pledgor under this Agreement shall not
be affected or impaired by any of the following, although without notice to or
consent of the Pledgor:
(a) any failure, omission or delay on the part of the Pledgee
(i) to enforce, assert or exercise any right, power or remedy conferred on the
Pledgee by the provisions of the Loan Agreement and the Loan Documents or
otherwise inuring to the holders of the rights of the Pledgee under the Loan
Agreement and the Loan Documents, or (ii) to make demand first upon Borrower or
TTI or to proceed against Borrower or TTI;
(b) the voluntary or involuntary liquidation, dissolution,
sale of all or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, composition or other
proceedings under laws for the protection of debtors affecting Borrower or TTI
or any of the assets of Borrower or TTI, or any discharge from liability or
rejection of burdensome contracts or obligations in the course of or resulting
from any such proceedings;
(c) the release, by operation of law or otherwise, of Borrower
or TTI or any guarantor from any obligation under the Loan Agreement or any of
the Loan Documents;
(d) the invalidity, deficiency, illegality or unenforceability
of the Loan Agreement and the Loan Documents, in whole or in part, or of any of
the provisions thereof, or failure to perfect or maintain perfection of any
security, or any defense or excuse for failure to perform on account of force
majeure, act of God, casualty, impossibility, impracticability, or other defense
or excuse whatsoever; or
(e) without limiting the foregoing, any fact or event (whether
or not similar to any of the foregoing) which in the absence of this provision
would or might constitute or afford a legal or equitable discharge or release of
or defense to a guarantor or surety.
None of the foregoing shall be a defense to this Agreement, and this Agreement
is a primary obligation of the Pledgor.
13. Other Pledgors or Guarantors. The liabilities and obligations of
the Pledgor hereunder shall not be reduced or limited by reason of any guaranty
or pledge executed in favor
PLEDGE AND SECURITY AGREEMENT - Page 8
(TIDEL SERVICES, INC.)
<PAGE> 9
of the Pledgee by any other Person, and this Agreement shall be enforceable
against the Pledgor without regard to any such guaranty or pledge.
14. Representations, Warranties and Covenants of the Pledgor. The
Pledgor represents and warrants that:
(a) it is the legal, record and beneficial owner of, and has
good and, subject to applicable securities laws described in SECTION 9 hereof,
marketable title to, the TELP Partnership Interest, subject to no pledge, lien,
mortgage, hypothecation, security interest, charge, option, or other encumbrance
whatsoever, except the existing lien and security interest created by this
Agreement;
(b) it is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has full power,
authority and legal right to pledge the TELP Partnership Interest pursuant to
this Agreement;
(c) this Agreement has been duly authorized, executed and
delivered by Pledgor and constitutes a legal, valid and binding obligation of
the Pledgor, and is enforceable in accordance with its terms;
(d) other than the approvals, if any, required under the TELP
Partnership Agreement, no consent of any other party (including, without
limitation, the stockholders or creditors of the Pledgor) and no consent,
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any Governmental Authority,
domestic or foreign, is required to be obtained by the Pledgor or the Pledgee in
connection with the execution, delivery or performance of this Agreement or the
pledge of the TELP Partnership Interest hereunder, in each case which has not
been obtained or made, as the case may be, and is not in full force and effect;
(e) the execution, delivery and performance of this Agreement
will not violate any provision of any applicable law, or of any mortgage,
indenture, lease, contract, or other agreement, instrument or undertaking to
which Pledgor is a party or which purports to be binding upon Pledgor or upon
any of its assets and will not result in the creation or imposition of any lien,
charge or encumbrance on or security interest in any of the assets of Pledgor
except as contemplated by this Agreement or the Loan Agreement;
(f) the TELP Partnership Interest is not a security, as
defined in Article 8 of the Texas Business and Commerce Code; and
(g) the pledge and assignment of the Collateral pursuant to
this Agreement constitutes and will constitute a valid first lien on and a first
perfected security interest in the Collateral, and the proceeds thereof, subject
to no prior Lien, or to any agreement purporting to grant to any third party
other than Pledgee a security interest in the property or assets of the Pledgor
which would include the Collateral.
PLEDGE AND SECURITY AGREEMENT - Page 9
(TIDEL SERVICES, INC.)
<PAGE> 10
Pledgor covenants and agrees (a) that at its expense it will
defend the right, title and security interest of the Pledgee in and to the
Collateral against the claims and demands of all persons whomsoever;
(b) that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee as Collateral
hereunder and will likewise defend the right of the Pledgee thereto and security
interest therein;
(c) to observe, perform and discharge all obligations,
covenants and warranties provided for under the terms of the TELP Partnership
Agreement to be kept, observed and performed by Pledgor, and to inform Pledgee
promptly in writing of any notice received by Pledgor: (i) with respect to any
obligation to be performed but alleged not to have been performed by Pledgor
under the TELP Partnership Agreement; and (ii) of any default or claimed default
by any party to the TELP Partnership Agreement;
(d) to enforce or secure the enforcement, in the name of
Pledgee, of the performance of each and every obligation, term, covenant,
condition and agreement to be performed by any other party under the terms of
the TELP Partnership Agreement;
(e) not to vote in favor of, or cause, the termination of the
Borrower, or vote in favor of any modification, extension, renewal, amendment or
material alteration of any term of the TELP Partnership Agreement without, in
each such instance, the prior written consent of Pledgee; and
(f) that Pledgee, after the occurrence of an Event of Default,
without notice to Pledgor, shall have the right at any time and from time to
time to notify and direct the general partner, or such other appropriate party,
of the Borrower to thereafter make all disbursements of the Proceeds directly to
Pledgee; such general partner or other party shall be fully protected in relying
on the written statement of Pledgee that it holds a security interest that
entitles Pledgee to receive any such disbursement, and the receipt by Pledgee of
such disbursements shall be full acquittance thereof to the party making such
disbursements.
15. No Disposition. Without the prior written consent of the Pledgee,
Pledgor agrees that it will not sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Collateral, nor will it
create, incur or permit to exist any pledge, lien, mortgage, hypothecation,
security interest, charge, option or any other encumbrance with respect to any
of the Collateral, or any interest therein, or any proceeds thereof, except for
the lien and security interest provided for by this Agreement and except as
permitted by this Agreement or by the Loan Agreement.
16. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Pledgee, the Pledgor will execute and
deliver such further documents and do such further acts and things which are
necessary in the reasonable judgment of the Pledgee to effect the purpose of
this Agreement or to obtain, maintain and perfect the security
PLEDGE AND SECURITY AGREEMENT - Page 10
(TIDEL SERVICES, INC.)
<PAGE> 11
interest granted under this Agreement in any applicable jurisdiction, and any
expense of Pledgee so incurred shall be a part of the Obligations.
17. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. No Waiver; Cumulative Remedies. The Pledgee shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by the
Pledgee, and then only to the extent therein set forth. A waiver by the Pledgee
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which Pledgee would otherwise have on any future
occasion. No failure to exercise nor any delay in exercising on the part of the
Pledgee, any right, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies provided by law.
19. Waivers, Amendments, Entirety. None of the terms or provisions of
this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Pledgee. This Agreement and all
obligations of the Pledgor hereunder shall be binding upon the successors and
assigns of the Pledgor, and shall, together with the rights and remedies of
Pledgee hereunder, inure to the benefit of Pledgee and its successors and
assigns. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO THE CHOICE OF LAWS RULES THEREOF.
21. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.
22. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against the
Pledgor, Borrower or TTI for liquidation or reorganization, should the Pledgor,
Borrower or TTI become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of the Pledgor's assets or the assets of Borrower or TTI and
shall continue to be
PLEDGE AND SECURITY AGREEMENT - Page 11
(TIDEL SERVICES, INC.)
<PAGE> 12
effective or be reinstated, as the case may be, if at any time payment and
performance of the Obligations, or any part thereof is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligee of the Obligations, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be reinstated
and deemed reduced only by such amount and not so rescinded, reduced, restored
or returned.
IN WITNESS WHEREOF, Pledgor has caused this Agreement to be duly
executed and delivered as of the day and year first above written.
TIDEL SERVICES, INC.
By:
------------------------------------
Andrew Panaccione, Vice President
PLEDGE AND SECURITY AGREEMENT - Page 12
(TIDEL SERVICES, INC.)
<PAGE> 1
EXHIBIT 4.13
PLEDGE AND SECURITY AGREEMENT
(GENERAL PARTNERSHIP INTEREST)
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is executed as of
the 1st day of April, 1999 by TIDEL CASH SYSTEMS, INC., a Delaware corporation
("Pledgor"), in favor of CHASE BANK OF TEXAS, N.A., a national banking
association ("Pledgee").
RECITALS:
A. Tidel Engineering, L.P., a Delaware limited partnership (the
"Borrower"), Tidel Technologies, Inc. ("TTI") and Pledgee have entered into that
certain Credit Agreement dated of even date herewith (as amended, modified or
supplemented from time to time, the "Loan Agreement"), pursuant to which Pledgee
has agreed to make available to Borrower a credit facility subject to the terms
and conditions contained therein.
B. Pledgor is the legal, record and beneficial owner of TELP
Partnership Interest (defined below).
C. It is a condition precedent to the obligations of Pledgee under the
Loan Agreement that Pledgor shall have executed and delivered this Agreement to
Pledgee.
D. Pledgor, by virtue of its ownership of the TELP Partnership
Interest, deems it to be in its best interest, based on sound judgment, in that
valuable benefits will be derived by the Pledgor by virtue of the Loans, to
execute and deliver to Pledgee this Agreement.
E. In consideration of these premises and in order to induce Pledgee to
extend the credit pursuant to the Loan Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Pledgor and Pledgee hereby agree as follows:
AGREEMENTS:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Loan Agreement shall have such defined meanings when used herein.
2. Pledge. The Pledgor hereby pledges, assigns, hypothecates, transfers
to the Pledgee, and hereby grants to Pledgee a first lien on, and security
interest in the following property whether now owned or hereafter acquired:
(a) all of the right, title and interest, now and hereafter
existing, of Pledgor, as a general partner (the "TELP Partnership Interest"), in
and to the Borrower, which was formed pursuant to that certain Agreement of
Limited Partnership of Tidel Engineering, L.P. (as the
PLEDGE AND SECURITY AGREEMENT - Page 1
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 2
same may be amended, modified, or restated from time to time, the "TELP
Partnership Agreement") dated as of March 24, 1999;
(b) any and all proceeds and distributions made pursuant to
the TELP Partnership Agreement (the "Proceeds"), due or to become due to Pledgor
under the TELP Partnership Agreement; and
(c) any and all present and future accounts, certificates of
deposit, securities, general intangibles, chattel paper and other proceeds
arising from, or by virtue of, or from the disposition of, or claims against any
other person or entities with respect to, all or any part of the property
described in clauses (a) or (b) preceding (all of the property described in
clauses (a), (b), and (c) being referred to collectively as the "Collateral"),
as collateral security for (i) the due and punctual payment and performance by
Pledgor of its obligations, covenants, agreements and liabilities, absolute or
contingent, liquidated or unliquidated, now existing or hereinafter incurred
under, arising out of or in connection with this Agreement, (ii) the prompt and
complete payment when due (whether at the stated due date, by acceleration or
otherwise) of the unpaid principal of and interest on the Notes issued to
evidence the Loans made by Pledgee pursuant to the Loan Agreement as well as
collection costs therefor, and (iii) the due and punctual payment and
performance of all Obligations (as defined in the Loan Agreement) by Borrower
(and any other party liable therefor) to Pledgee, absolute or contingent,
liquidated or unliquidated, now existing or hereinafter incurred (all the
foregoing being hereinafter called the "Obligations"). Notwithstanding anything
to the contrary herein, the pledge by Pledgee of any and all proceeds and
distributions made pursuant to the TELP Partnership Agreement is not intended to
prohibit any distributions permitted under the Loan Agreement.
3. Distributions, etc. Any sums paid upon or in respect of the TELP
Partnership Interest upon the liquidation or dissolution of Borrower shall be
paid over to the Pledgee, to be held by it in trust as additional collateral
security for the Obligations; and in case any distribution of capital shall be
made on or in respect of the TELP Partnership Interest or any property shall be
distributed upon or with respect to the TELP Partnership Interest pursuant to
the recapitalization of Borrower or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Pledgee, to be held by it as
additional collateral security for the Obligations. All sums of money and
property so paid or distributed in respect of the TELP Partnership Interest
which are received by the Pledgor shall, until paid or delivered to the Pledgee,
be held by the Pledgor in trust, segregated from the other assets of the
Pledgor, as additional collateral security for the Obligations.
4. Voting Rights. As long as an Event of Default has not occurred and
is not continuing, Pledgor shall be entitled to exercise all voting rights with
respect to the TELP Partnership Interest; provided, however, that no vote shall
be cast or consent, waiver or ratification given or action taken which would
impair the Collateral or violate any provision of this Agreement, the Loan
Agreement or the Loan Documents. After the occurrence and during the continuance
of an Event of Default, the right to vote the TELP Partnership Interest and all
PLEDGE AND SECURITY AGREEMENT - Page 2
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 3
other rights pertaining to the TELP Partnership Interest shall be vested
exclusively in Pledgee, including any and all rights to vote and to give
consents, waivers or ratifications with respect to the TELP Partnership Interest
as if Pledgee were the absolute owner thereof, including, without limitation,
the right to take any action to enforce the TELP Partnership Interest, but the
Pledgee shall have no duty to exercise any of the aforesaid rights, privileges
or options or be responsible for any failure to do so or delay in so doing. To
this end, Pledgor hereby irrevocably constitutes and appoints Pledgee the
attorney-in-fact of Pledgor, with full power of substitution, to vote, and to
act with respect to, the TELP Partnership Interest standing in the name of
Pledgor or with respect to which Pledgor is entitled to vote and act, subject to
the understanding that such appointment may not be exercised unless an Event of
Default has occurred and is continuing. The appointment as attorney-in-fact
herein granted is coupled with an interest, is irrevocable, and shall continue
until the Obligations have been paid and performed in full.
5. Limitations on Pledgee's Obligations. The Pledgee shall not be
liable for failure to collect or realize upon the Obligations or any collateral
security or guarantee therefor, or any part thereof, or for any delay in so
doing nor shall the Pledgee be under any obligation to take any action
whatsoever with regard thereto.
6. The Pledgee's Appointment as Attorney-in-Fact. (a) In addition to,
and without limiting the scope of any other provision in this Agreement, the
Pledgor hereby irrevocably constitutes and appoints the Pledgee and any officer
or agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Pledgor and in the name of the Pledgor or in its own name, from
time to time in the Pledgee's discretion, for the purpose of carrying out the
actions and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, hereby gives the Pledgee the power and
right, on behalf of the Pledgor, without notice to or assent by the Pledgor to
do the following upon the occurrence and during the continuance of an Event of
Default: (i) to ask, demand, collect, receive and give acquittances and receipts
for any and all monies due and to become due under the Collateral; (ii) in the
name of the Pledgor or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of moneys due under the Collateral; (iii) to file any claim or
to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Pledgee for the purpose of collecting any
and all such moneys due under the Collateral whenever payable; (iv) to pay or
discharge taxes, liens, security interests or other encumbrances levied or
placed on or threatened against the Collateral; (v) to direct any party liable
for any payment under the Collateral to make payment of any and all moneys due
and to become due thereunder directly to the Pledgee or as the Pledgee shall
direct; (vi) to receive payment of and receipt for any and all moneys, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (vii) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of the Collateral; (viii) to defend any suit, action or proceeding
brought against the Pledgor with respect to any Collateral; (ix) to settle,
compromise or adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as the Pledgee
PLEDGE AND SECURITY AGREEMENT - Page 3
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 4
may deem appropriate; (x) exercise voting rights attributable to the TELP
Partnership Interest pursuant to SECTION 4; and (xi) generally to sell,
transfer, pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the Pledgee were the
absolute owner thereof for all purposes, and to do, at the Pledgee's option and
the Pledgor's expense, at any time, or from time to time, all acts and things
which the Pledgee deems necessary to protect, preserve or realize upon the
Collateral and the Pledgee's security interest therein, in order to effect the
intent of this Agreement, all as fully and effectively as the Pledgor might do.
The Pledgor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
(b) The powers conferred on the Pledgee hereunder are solely
to protect its interests in the Collateral and shall not impose any duty upon it
to exercise any such powers. Pledgee shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and neither it
nor any of its officers, directors, employees or agents shall be responsible to
the Pledgor for any act or failure to act.
(c) The Pledgor also authorizes the Pledgee, at any time and
from time to time, to execute, in connection with any sale of the Collateral,
any endorsements, assignments or other instruments of conveyance or transfer
with respect to the Collateral.
7. Performance by the Pledgee of the Pledgor's Obligations. If the
Pledgor fails to perform or comply with any of its agreements contained herein
and the Pledgee, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, then the expenses of the Pledgee incurred in connection with such
performance or compliance, together with interest thereon to accrue at a rate of
interest equal to the Highest Lawful Rate from the date such expenses are
incurred, shall be payable by the Pledgor to the Pledgee on demand and shall
constitute Obligations secured hereby.
8. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) The Pledgor shall fail to pay its Obligations when due;
(b) Any representation, warranty or statement made or deemed
made by the Pledgor herein or in connection herewith shall prove to have been
incorrect or untrue in any material respect on or as of the date made or deemed
made;
(c) The Pledgor shall default in the observance or performance
of any term, covenant, or agreement contained herein and Pledgor shall fail to
cure such default within fifteen (15) days after the occurrence of such default;
or
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(TIDEL CASH SYSTEMS, INC.)
<PAGE> 5
(d) An Event of Default (subject to any applicable cure
period), as such term is defined in the Loan Agreement, shall occur and be
continuing.
9. Remedies. (a) Upon the occurrence and during the continuance of any
Event of Default, and at any time thereafter, the Pledgee may declare all of the
Obligations or any part thereof immediately due and payable and, without demand
of performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
the Pledgor or any other person (all and each of which demands, advertisements
and/or notices are hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give option or options to purchase, contract to sell or
otherwise dispose of and deliver said Collateral, or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange, broker's board
or at the Pledgee's offices 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, with the right to
the Pledgee upon any such sale or sales, public or private, to purchase the
whole or any part of said Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity is hereby expressly waived or
released. The Pledgee 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, safekeeping or otherwise of any and all of the Collateral or in any
way relating to the rights of the Pledgee hereunder, including reasonable
attorneys' fees and legal expenses, to the payment in whole or in part of the
Obligations in such order as the Pledgee may elect, the Pledgor remaining liable
for any deficiency remaining unpaid after such application, and only after so
applying such net proceeds and after the payment by the Pledgee of any amount
required by any provision of law, including, without limitation, Section 9-504
(a) (3) of the Uniform Commercial Code of the State of Texas (the "Code"), need
the Pledgee account for the surplus, if any, to the Pledgor. The Pledgor agrees
that, to the extent permitted by law, the Pledgee need not give more than ten
(10) days' notice of the time and place of any public sale or of the time after
which a private sale or other intended disposition is to take place and that
such notice is reasonable notification of such matters. No notification need be
given to the Pledgor if it has signed after default a statement renouncing or
modifying any right to notification of sale or other intended disposition. IN
ADDITION TO THE RIGHTS AND REMEDIES GRANTED TO IT IN THIS AGREEMENT AND IN ANY
OTHER INSTRUMENT OR AGREEMENT SECURING, EVIDENCING OR RELATING TO ANY OF THE
OBLIGATIONS, THE PLEDGEE SHALL HAVE ALL THE RIGHTS AND REMEDIES OF A SECURED
PARTY UNDER THE CODE. All waivers by the Pledgor of rights (including rights to
notice) and all rights and remedies afforded the Pledgor herein, and all other
provisions of this Agreement, are expressly made subject to any applicable
mandatory provisions of law limiting, or imposing conditions (including
conditions as to reasonableness) upon such waivers of the effectiveness thereof
or any such rights and remedies. Any sale or other disposition of the Collateral
shall be in compliance with all provisions of law (including applicable
securities laws, and regulations and applicable provisions of the Code).
PLEDGE AND SECURITY AGREEMENT - Page 5
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 6
(b) If Pledgee shall determine to exercise its right to sell
any or all of the TELP Partnership Interest pursuant to this SECTION 9 hereof,
and if in the opinion of counsel for Pledgee it is advisable to have the TELP
Partnership Interest, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"), the
Pledgor will cause the Borrower to execute and deliver, and cause the general
partner thereof to execute and deliver, all at the Pledgor's expense, all such
instruments and documents, and to do or cause to be done all such other acts and
things as may be necessary to register the TELP Partnership Interest, or that
portion thereof to be sold, under the provisions of the Securities Act and to
cause the registration statement relating thereto to become effective and to
remain effective for a period of 180 days from the date of the first public
offering of the TELP Partnership Interest, or that portion thereof to be sold,
and to make all amendments thereto and/or to the related prospectus which are
necessary, all in conformity with the requirements of the Securities Act and the
rules and regulations of the Securities and Exchange Commission applicable
thereto. The Pledgor agrees to cause Borrower to comply with the provisions of
the securities or "Blue Sky" laws of any jurisdiction which Pledgee shall
designate and to cause Borrower to make available to its security holders, as
soon as practicable, an earnings statement which will satisfy the provisions of
Section 11(a) of the Securities Act.
(c) The Pledgor recognizes that the Pledgee may be unable to
effect a public sale of any or all the TELP Partnership Interest by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws, but may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers who will be obliged to agree, among
other things, to acquire such securities for their own account for investment
and not with a view to the distribution or resale thereof. The Pledgor
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable to the seller than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such private sale shall
be deemed to have been made in a commercially reasonable manner. Pledgee shall
be under no obligation to delay a sale of any of the TELP Partnership Interest
for the period of time necessary to permit the Borrower to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if the Borrower would agree to do so.
(d) The Pledgor further agrees to do or cause to be done all
such other acts and things as may be necessary to make such sale or sales of any
portion of all of the TELP Partnership Interest valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Pledgor's expense. The Pledgor further agrees
that a breach of any of the covenants contained in this SECTION 9 will cause
irreparable injury to Pledgee, that Pledgee has no adequate remedy at law in
respect of such breach and, as a consequence, agrees that each and every
covenant contained in this paragraph shall be specifically enforceable against
the Pledgor and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no default of the covenants, terms or conditions of the Loan
Agreement has occurred. The Pledgor further acknowledges the impossibility of
ascertaining the amount of damages which would be suffered by Pledgee by reason
of a breach of any such covenants and, consequently, agrees that, if Pledgee
shall sue for
PLEDGE AND SECURITY AGREEMENT - Page 6
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 7
damages for breach, Pledgor shall pay, as liquidated damages and not as a
penalty, an amount equal to the value of the TELP Partnership Interest on the
date Pledgee shall demand compliance with this paragraph, but in no event to
exceed the amount of the Obligations.
10. Waiver of Subrogation. Notwithstanding anything to the contrary in
this Agreement, unless and until the Obligations have been indefeasibly paid and
performed in full, the Pledgor hereby irrevocably waives all rights Pledgor may
have at law or in equity (including, without limitation, any law subrogating the
Pledgor to the rights of the Pledgee) to seek contribution, indemnification, or
any other form of reimbursement from the Borrower, any other guarantor or
pledgor, or any other person now or hereafter primarily or secondarily liable
for any obligations of the Borrower to the Pledgee, for any disbursement made by
the Pledgor under or in connection with this Agreement or otherwise. The Pledgor
further agrees that, to the extent that the waiver of any such subrogation,
contribution, reimbursement, indemnity or otherwise is found to be void or
voidable for any reason, any such rights which the Pledgor may have shall be
junior and subordinate in all respects to the rights of the Pledgee against the
Borrower.
11. Actions by Pledgee. No action that the Pledgee may take or omit to
take in connection with the Loan Agreement or any of the Loan Documents, any
indebtedness owing by Borrower to the Pledgee (including, without limitation,
renewals, extensions, modifications and increases thereof), or any security for
the payment of any indebtedness of Borrower to the Pledgee, or for the
performance of any obligation or undertaking of Borrower, nor any course of
dealing with Borrower or any other Person, shall release the Pledgor from his
obligations hereunder, affect this Agreement in any way, or afford the Pledgor
any recourse against the Pledgee. By way of example, but not in limitation of
the foregoing, the Pledgor hereby expressly agrees that the Pledgee may, from
time to time, without notice to the Pledgor:
(a) sell, assign, transfer or grant participations in the
Loans and/or any right held by the Pledgee pursuant to or in connection with the
Loan Agreement and the Loan Documents;
(b) amend, change, or modify, in whole or in part, any
documents or instruments evidencing, securing or relating to any indebtedness or
undertaking of Borrower or TTI to the Pledgee;
(c) accelerate, change, extend, or renew the time for payment
of the Notes or any other indebtedness arising under any documents or
instruments evidencing, securing or relating to any indebtedness or undertaking
of Borrower or TTI to the Pledgee;
(d) compromise or settle any amount due or owing, or claimed
to be due or owing, under the Notes or under any documents or instruments
evidencing, securing or relating to any indebtedness or undertaking of Borrower
or TTI to the Pledgee;
(e) surrender, release, or subordinate any or all security for
any indebtedness or undertaking of Borrower or TTI to the Pledgee or accept
additional or substituted security therefor;
PLEDGE AND SECURITY AGREEMENT - Page 7
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 8
(f) release any guarantor or pledgor of any indebtedness or
undertaking of the Borrower or TTI to the Pledgee, or substitute or add
additional guarantors or pledgors; and
(g) apply collateral securing the Notes to other indebtedness
also secured by such collateral.
The provisions of this Agreement shall extend and be applicable to all renewals,
increases, amendments, extensions, modifications of and substitutions for the
Loan Agreement and the Loan Documents, and all references herein to the Loan
Agreement and the Loan Documents shall be deemed to include any renewal,
increase, extension, amendment or modification thereof or substitution therefor.
12. No Impairment. The obligations, guaranties, undertakings,
covenants, agreements and duties of the Pledgor under this Agreement shall not
be affected or impaired by any of the following, although without notice to or
consent of the Pledgor:
(a) any failure, omission or delay on the part of the Pledgee
(i) to enforce, assert or exercise any right, power or remedy conferred on the
Pledgee by the provisions of the Loan Agreement and the Loan Documents or
otherwise inuring to the holders of the rights of the Pledgee under the Loan
Agreement and the Loan Documents, or (ii) to make demand first upon Borrower or
TTI or to proceed against Borrower or TTI;
(b) the voluntary or involuntary liquidation, dissolution,
sale of all or substantially all assets, marshalling of assets or liabilities,
receivership, conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, composition or other
proceedings under laws for the protection of debtors affecting Borrower or TTI
or any of the assets of Borrower or TTI, or any discharge from liability or
rejection of burdensome contracts or obligations in the course of or resulting
from any such proceedings;
(c) the release, by operation of law or otherwise, of Borrower
or TTI or any guarantor from any obligation under the Loan Agreement or any of
the Loan Documents;
(d) the invalidity, deficiency, illegality or unenforceability
of the Loan Agreement and the Loan Documents, in whole or in part, or of any of
the provisions thereof, or failure to perfect or maintain perfection of any
security, or any defense or excuse for failure to perform on account of force
majeure, act of God, casualty, impossibility, impracticability, or other defense
or excuse whatsoever; or
(e) without limiting the foregoing, any fact or event (whether
or not similar to any of the foregoing) which in the absence of this provision
would or might constitute or afford a legal or equitable discharge or release of
or defense to a guarantor or surety.
None of the foregoing shall be a defense to this Agreement, and this Agreement
is a primary obligation of the Pledgor.
PLEDGE AND SECURITY AGREEMENT - Page 8
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 9
13. Other Pledgors or Guarantors. The liabilities and obligations of
the Pledgor hereunder shall not be reduced or limited by reason of any guaranty
or pledge executed in favor of the Pledgee by any other Person, and this
Agreement shall be enforceable against the Pledgor without regard to any such
guaranty or pledge.
14. Representations, Warranties and Covenants of the Pledgor. The
Pledgor represents and warrants that:
(a) it is the legal, record and beneficial owner of, and has
good and, subject to applicable securities laws described in SECTION 9 hereof,
marketable title to, the TELP Partnership Interest, subject to no pledge, lien,
mortgage, hypothecation, security interest, charge, option, or other encumbrance
whatsoever, except the existing lien and security interest created by this
Agreement;
(b) it is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has full power,
authority and legal right to pledge the TELP Partnership Interest pursuant to
this Agreement;
(c) this Agreement has been duly authorized, executed and
delivered by Pledgor and constitutes a legal, valid and binding obligation of
the Pledgor, and is enforceable in accordance with its terms;
(d) other than the approvals, if any, required under the TELP
Partnership Agreement, no consent of any other party (including, without
limitation, the stockholders or creditors of the Pledgor) and no consent,
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any Governmental Authority,
domestic or foreign, is required to be obtained by the Pledgor or the Pledgee in
connection with the execution, delivery or performance of this Agreement or the
pledge of the TELP Partnership Interest hereunder, in each case which has not
been obtained or made, as the case may be, and is not in full force and effect;
(e) the execution, delivery and performance of this Agreement
will not violate any provision of any applicable law, or of any mortgage,
indenture, lease, contract, or other agreement, instrument or undertaking to
which Pledgor is a party or which purports to be binding upon Pledgor or upon
any of its assets and will not result in the creation or imposition of any lien,
charge or encumbrance on or security interest in any of the assets of Pledgor
except as contemplated by this Agreement or the Loan Agreement;
(f) the TELP Partnership Interest is not a security, as
defined in Article 8 of the Texas Business and Commerce Code; and
(g) the pledge and assignment of the Collateral pursuant to
this Agreement constitutes and will constitute a valid first lien on and a first
perfected security interest in the Collateral, and the proceeds thereof, subject
to no prior Lien, or to any agreement purporting to
PLEDGE AND SECURITY AGREEMENT - Page 9
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 10
grant to any third party other than Pledgee a security interest in the property
or assets of the Pledgor which would include the Collateral.
Pledgor covenants and agrees (a) that at its expense it will
defend the right, title and security interest of the Pledgee in and to the
Collateral against the claims and demands of all persons whomsoever;
(b) that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee as Collateral
hereunder and will likewise defend the right of the Pledgee thereto and security
interest therein;
(c) to observe, perform and discharge all obligations,
covenants and warranties provided for under the terms of the TELP Partnership
Agreement to be kept, observed and performed by Pledgor, and to inform Pledgee
promptly in writing of any notice received by Pledgor: (i) with respect to any
obligation to be performed but alleged not to have been performed by Pledgor
under the TELP Partnership Agreement; and (ii) of any default or claimed default
by any party to the TELP Partnership Agreement;
(d) to enforce or secure the enforcement, in the name of
Pledgee, of the performance of each and every obligation, term, covenant,
condition and agreement to be performed by any other party under the terms of
the TELP Partnership Agreement;
(e) not to vote in favor of, or cause, the termination of the
Borrower, or vote in favor of any modification, extension, renewal, amendment or
material alteration of any term of the TELP Partnership Agreement without, in
each such instance, the prior written consent of Pledgee; and
(f) that Pledgee, after the occurrence of an Event of Default,
without notice to Pledgor, shall have the right at any time and from time to
time to notify and direct the general partner, or such other appropriate party,
of the Borrower to thereafter make all disbursements of the Proceeds directly to
Pledgee; such general partner or other party shall be fully protected in relying
on the written statement of Pledgee that it holds a security interest that
entitles Pledgee to receive any such disbursement, and the receipt by Pledgee of
such disbursements shall be full acquittance thereof to the party making such
disbursements.
15. No Disposition. Without the prior written consent of the Pledgee,
Pledgor agrees that it will not sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Collateral, nor will it
create, incur or permit to exist any pledge, lien, mortgage, hypothecation,
security interest, charge, option or any other encumbrance with respect to any
of the Collateral, or any interest therein, or any proceeds thereof, except for
the lien and security interest provided for by this Agreement and except as
permitted by this Agreement or by the Loan Agreement.
16. Further Assurances. Pledgor agrees that at any time and from time
to time upon the written request of the Pledgee, the Pledgor will execute and
deliver such further documents
PLEDGE AND SECURITY AGREEMENT - Page 10
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 11
and do such further acts and things which are necessary in the reasonable
judgment of the Pledgee to effect the purpose of this Agreement or to obtain,
maintain and perfect the security interest granted under this Agreement in any
applicable jurisdiction, and any expense of Pledgee so incurred shall be a part
of the Obligations.
17. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. No Waiver; Cumulative Remedies. The Pledgee shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by the
Pledgee, and then only to the extent therein set forth. A waiver by the Pledgee
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which Pledgee would otherwise have on any future
occasion. No failure to exercise nor any delay in exercising on the part of the
Pledgee, any right, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights or remedies provided by law.
19. Waivers, Amendments, Entirety. None of the terms or provisions of
this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Pledgee. This Agreement and all
obligations of the Pledgor hereunder shall be binding upon the successors and
assigns of the Pledgor, and shall, together with the rights and remedies of
Pledgee hereunder, inure to the benefit of Pledgee and its successors and
assigns. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO THE CHOICE OF LAWS RULES THEREOF.
21. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.
22. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against the
Pledgor, Borrower or TTI for liquidation or reorganization, should the Pledgor,
Borrower or TTI become insolvent or make an
PLEDGE AND SECURITY AGREEMENT - Page 11
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 12
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Pledgor's assets or the assets
of Borrower or TTI and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Obligations,
whether as a "voidable preference", "fraudulent conveyance", or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount and not
so rescinded, reduced, restored or returned.
IN WITNESS WHEREOF, Pledgor has caused this Agreement to be duly
executed and delivered as of the day and year first above written.
TIDEL CASH SYSTEMS, INC.
By:
---------------------------------------
Mark K. Levenick, President and Chief
Executive Officer
PLEDGE AND SECURITY AGREEMENT - Page 12
(TIDEL CASH SYSTEMS, INC.)
<PAGE> 1
EXHIBIT 4.14
PATENT ASSIGNMENT
WHEREAS, Tidel Engineering, Inc., a Delaware corporation located at
2310 McDaniel Drive, Carrollton, Texas 75006 merged with and into Tidel
Engineering, L.P. as of March 31, 1999, and is record owner of the patents
described on Exhibit A attached (the "Patents"); and
WHEREAS, Tidel Engineering, L.P., a limited partnership organized and
existing under the laws of the State of Delaware and having offices at 2310
McDaniel Drive, Carrollton, Texas 75006 ("Assignee") is desirous of acquiring,
pursuant to the merger of the Assignor into the Assignee, the entire right,
title and interest in and to the Patents;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the undersigned transfers to
Assignee, its successors and assigns, its entire right, title and interest in
and to the Patents and all rights and benefits under any applicable law, treaty
or convention; and the undersigned authorizes the Commissioner of Patents and
Trademarks of the United States or foreign equivalent thereof to issue the
Letters Patent or similar legal protection to the Assignee.
The undersigned authorizes the Assignee, its successors and assigns, to
insert in this instrument the filing date and serial number of the application
when ascertained.
The undersigned authorizes the Assignee, its successors and assigns, or
anyone it may properly designate, to apply for Letters Patent or similar legal
protection, in its own name if desired, in any and all foreign countries.
The undersigned represents to the Assignee, its successors and assigns,
that it has not and shall not execute any writing or do any act whatsoever
conflicting with this Assignment and that it will at any time upon request,
without additional consideration, but at the expense of the Assignee, its
successors and assigns, execute such additional writings and do such additional
acts as the Assignee, its successors and assigns, may deem desirable to perfect
its enjoyment of this grant, and render all assistance in making application for
and obtaining, maintaining, and enforcing the Letters Patent or similar legal
protection on the invention in any and all countries.
1
<PAGE> 2
Executed effective as of March 31, 1999.
ASSIGNOR:
TIDEL ENGINEERING, INC.
By:
----------------------------------------
Mark K. Levenick, President
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, _____________________ on this day personally appeared MARK
K. LEVENICK, known to me or proved to me on the oath of MARK K. LEVENICK or
through ______________ (description or identity card or other documents) to be
the person whose name is subscribed to the foregoing instrument and acknowledged
to me that he executed the same for the purposes and consideration therein
expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of April, A.D., 1999.
--------------------------------------
Notary Public, State of Texas
My Commission Expires:
--------------------------------------
Typed/Printed Name of Notary
2
<PAGE> 3
SCHEDULE 1
TO PATENT
SECURITY AGREEMENT
------------------
PATENT REGISTRATIONS
--------------------
<TABLE>
<CAPTION>
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES
---------- ---------- ----- --------------
<S> <C> <C> <C> <C>
1. 4,877,235 10/31/89 Currency Sorter and Storage Device October 31, 2006
2. 5,095,748 3/17/92 Sonic Tank Monitoring System March 17, 2009
3. 5,220,157 6/15/93 Scrip Controlled Cash Dispensing System June 15, 2010
4. 5,340,967 8/23/94 Method for Storing and Dispensing Cash August 23, 2011
5. 5,508,500 4/16/96 Method for Storing and Dispensing Cash April 16, 2013
</TABLE>
FOREIGN PATENTS
---------------
<TABLE>
<CAPTION>
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES
---------- ---------- ----- --------------
<S> <C> <C> <C> <C>
1. 180049 11/9/95 Mexican counterpart to No. 2 above August 5, 2011
(Annuities paid
through 11/9/00)
</TABLE>
PATENT APPLICATIONS
-------------------
NONE
PATENT LICENSES
---------------
NONE
3
<PAGE> 1
EXHIBIT 4.15
PATENT SECURITY AGREEMENT
WHEREAS, TIDEL ENGINEERING, L.P., a Delaware limited partnership
("Grantor"), owns the patents, patent registrations, and patent applications
listed on Schedule 1 annexed hereto, and is a party to, or has been assigned the
rights by the party to, the patent licenses listed on Schedule 1 annexed hereto;
and
WHEREAS, Grantor, Chase Bank of Texas, N.A., a national banking
association ("Grantee"), and Tidel Technologies, Inc., a Delaware corporation,
are parties to that certain Credit Agreement dated as of the date hereof (as
heretofore or hereafter amended, modified and in effect from time to time, the
"Loan Agreement"), providing for extensions of credit to be made by Grantee to
Grantor; and
WHEREAS, pursuant to the terms of the Security Agreement (as defined in
the Loan Agreement), Grantor has granted to Grantee a security interest in all
of the assets of Grantor including all right, title and interest of Grantor in,
to and under all now owned and hereafter acquired patents and patent
applications, and all products and proceeds thereof, to secure the payment of
all amounts owing by Grantor under the Loan Agreement including, without
limitation, all the Obligations (as defined in the Loan Agreement);
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Patent Collateral"),
whether presently existing or hereafter created or acquired:
(1) each patent, patent registration and patent application,
including, without limitation, the patents, patent
registrations (together with any reissues, continuations or
extensions thereof) and patent applications referred to in
Schedule 1 annexed hereto;
(2) each patent license, including, without limitation, each
patent license listed on Schedule 1 annexed hereto; and
(3) all products and proceeds of the foregoing, including,
without limitation, any claim by Grantor against third parties
for past, present or future infringement of any patent or
patent registration including, without limitation, the patents
and patent registrations referred to in Schedule 1 annexed
hereto, the patent registrations issued with respect to the
patent applications referred in Schedule 1 and the patents
licensed under any patent license.
This security interest is granted in conjunction with the security interests
granted to Grantee pursuant to the Loan Agreement. Grantor hereby acknowledges
and affirms that the rights and remedies of Grantee with respect to the security
interest in the Patent Collateral made and granted hereby are
PATENT SECURITY AGREEMENT - Page 1
<PAGE> 2
more fully set forth in the Loan Agreement, the terms and provisions of which
are incorporated by reference herein as if fully set forth herein.
This Patent Security Agreement is given in renewal, amendment,
replacement, and restatement in its entirety (but not in novation,
extinguishment or satisfaction) of that certain Patent Security Agreement dated
June 12, 1997, executed by Tidel Engineering, Inc., for the benefit of Grantee,
successor-in-interest to Texas Commerce Bank National Association (the "Prior
Agreement"). To the extent of any conflict between the terms of this Patent
Security Agreement and the terms of the Prior Agreement, the terms of this
Patent Security Agreement shall control.
IN WITNESS WHEREOF, Grantor has caused this Patent Security Agreement
to be duly executed by its duly authorized officer thereunto as of the 1st day
of April, 1999.
GRANTOR:
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc., its general partner
By:
------------------------------------------
Mark K. Levenick, President and Chief
Executive Officer
Acknowledged, agreed and accepted as
of the date hereof:
GRANTEE:
CHASE BANK OF TEXAS, N.A.
By:
-----------------------------------
Joanne Bramanti,
Vice President
PATENT SECURITY AGREEMENT - Page 2
<PAGE> 3
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
On the _____ day of _______, 1999 before me personally appeared Mark K.
Levenick, to me personally known or proved to me on the basis of satisfactory
evidence to be the person described in and who executed the foregoing instrument
as the President and Chief Executive Officer of Tidel Cash Systems, Inc., the
general partner of Tidel Engineering, L.P., who being by me duly sworn, did
depose and say that he is the President and Chief Executive Officer of Tidel
Cash Systems, Inc., the corporation which executed the foregoing instrument;
that he signed the said instrument on behalf of said corporation and limited
partnership; and that he acknowledged said instrument to be the free act and
deed of said corporation.
----------------------------------------
Notary Public
[Seal]
My commission expires:
- ----------------------------------------
PATENT SECURITY AGREEMENT - Page 3
<PAGE> 4
SCHEDULE 1
TO PATENT
SECURITY AGREEMENT
PATENT REGISTRATIONS
<TABLE>
<CAPTION>
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES
---------- ---------- ----- --------------
<S> <C> <C> <C>
1. 4,877,235 10/31/89 Currency Sorter and Storage Device July 14, 2008
2. 5,095,748 3/17/92 Sonic Tank Monitoring System March 17, 2010
3. 5,220,157 6/15/93 Scrip Controlled Cash Dispensing System September 24, 2011
4. 5,340,967 8/23/94 Method for Storing and Dispensing Cash September 24, 2011
5. 5,508,500 4/16/96 Method for Storing and Dispensing Cash September 24, 2011
</TABLE>
FOREIGN PATENTS
<TABLE>
<CAPTION>
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES
---------- ---------- ----- --------------
<S> <C> <C> <C>
1. 180049 11/9/95 Mexican counterpart to No. 2 above August 5, 2011
(Annuities paid
through 11/9/00)
</TABLE>
PATENT APPLICATIONS
NONE
PATENT LICENSES
NONE
Schedule 1-1
<PAGE> 1
EXHIBIT 4.16
TRADEMARK ASSIGNMENT
WHEREAS, Tidel Engineering, Inc., a Delaware corporation, has an office
and principal place of business at 2310 McDaniel Drive, Carrollton, Texas 75006
(herein "Assignor"), and has adopted and is using the marks described on
attached Exhibit A.
WHEREAS, Tidel Engineering, L.P., a Delaware limited partnership, has
an office and principal place of business at 2310 McDaniel Drive, Carrollton,
Texas 75006 (herein "Assignee") and desires, pursuant to a merger of the
Assignor with and into the Assignee, to acquire the Assignor's entire right,
title and interest in and to the marks described on attached Exhibit A.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are acknowledged, the Assignor assigns to the Assignee,
effective as of March 31, 1999, pursuant to and in connection with the merger of
the Assignor into the Assignee as of March 31, 1999, the Assignor's entire
right, title and interest in and to the marks described on Exhibit A, attached
together with the good will of the business associated with such marks.
TIDEL ENGINEERING, INC.
By:
------------------------------------
Mark K. Levenick, President
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, ___________________ on this day personally appeared MARK K.
LEVINICK, known to me or proved to me on the oath of MARK K. LEVENICK or through
______________ (description or identity card or other documents) to be the
person whose name is subscribed to the foregoing instrument and acknowledged to
me that he executed the same for the purposes and consideration therein
expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of April A.D.,
1999.
---------------------------------------
Notary Public, State of Texas
My Commission Expires:
---------------------------------------
Typed/Printed Name of Notary
1
<PAGE> 2
EXHIBIT "A"
TRADEMARK REGISTRATIONS
<TABLE>
<CAPTION>
Registration No. Registration Date Title
---------------- ----------------- -----
<S> <C> <C>
1150280 4/07/81 TIDEL Systems
</TABLE>
TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
Application No. Application Date Title
--------------- ---------------- -----
<S> <C> <C>
1/26/99 Stylized Tidel Swish
-----------
</TABLE>
TRADEMARK LICENSES
NONE
UNREGISTERED MARKS
TACC
TACC II
TACC-II"Ci"
TACC-II "Cii"
TACC-II "SST"
TACC-IV
GTM
Tidel Engineering
Tidel
EMS2000
EMS3000
ETM
Chameleon
2
<PAGE> 1
EXHIBIT 4.17
TRADEMARK SECURITY AGREEMENT
WHEREAS, Tidel Engineering, L.P., a Delaware limited partnership
("Grantor"), owns the trademarks, trademark registrations, and trademark
applications listed on Schedule 1 annexed hereto, and is a party to, or has been
assigned the rights by the party to, the trademark licenses listed on Schedule 1
annexed hereto; and
WHEREAS, Grantor, Chase Bank of Texas, N.A., a national banking
association ("Grantee"), and Tidel Technologies, Inc., a Delaware corporation,
are parties to that certain Credit Agreement dated as of the date hereof (as
heretofore or hereafter amended, modified and in effect from time to time, the
"Loan Agreement"), providing for extensions of credit to be made by Grantor to
Grantee; and
WHEREAS, pursuant to the terms of the Security Agreement (as defined in
the Loan Agreement), Grantor has granted to Grantee a security interest in all
of the assets of Grantor including all right, title and interest of Grantor in,
to and under all now owned and hereafter acquired trademarks, together with the
goodwill of the business symbolized by Grantor's trademarks, and all proceeds
thereof, to secure the payment of all amounts owing by Grantor under the Loan
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor does hereby grant to
Grantee a continuing security interest in all of Grantor's right, title and
interest in, to and under the following (all of the following items or types of
property being herein collectively referred to as the "Trademark Collateral"),
whether presently existing or hereafter created or acquired:
(1) each trademark, trademark registration and trademark
application, including, without limitation, the trademarks,
trademark registrations (together with any renewals, reissues,
continuations or extensions thereof) and trademark
applications referred to in Schedule 1 annexed hereto, and all
of the goodwill of the business connected with the use of, and
symbolized by, each trademark, trademark registration and
trademark application;
(2) each trademark license and all of the goodwill of the
business connected with the use of, and symbolized by, each
trademark license; and
(3) all products and proceeds of the foregoing, including,
without limitation, any claim by Grantor against third parties
for past, present or future (a) infringement or dilution of
any trademark or trademark registration including, without
limitation, the trademarks and trademark registrations
referred to in Schedule 1 annexed hereto, the trademark
registrations issued with respect to the trademark
applications referred in Schedule 1 and the trademarks
licensed under any trademark license, or (b) injury to the
goodwill associated with any trademark, trademark registration
or trademark licensed under any trademark license.
TRADEMARK SECURITY AGREEMENT - Page 1
<PAGE> 2
This security interest is granted in conjunction with the security interests
granted to Grantee pursuant to the Loan Agreement. Grantor hereby acknowledges
and affirms that the rights and remedies of Grantee with respect to the security
interest in the Trademark Collateral made and granted hereby are more fully set
forth in the Loan Agreement, the terms and provisions of which are incorporated
by reference herein as if fully set forth herein.
This Trademark Security Agreement is given in renewal, amendment,
replacement, and restatement in its entirety (but not in novation,
extinguishment or satisfaction) of that certain Trademark Security Agreement
dated June 12, 1997, executed by Tidel Engineering, Inc., for the benefit of
Grantee, successor-in-interest to Texas Commerce Bank National Association (the
"Prior Agreement"). To the extent of any conflict between the terms of this
Trademark Security Agreement and the terms of the Prior Agreement, the terms of
this Trademark Security Agreement shall control.
IN WITNESS WHEREOF, Grantor has caused this Trademark Security
Agreement to be duly executed by its duly authorized officer thereunto as of the
1st day of April, 1999.
GRANTOR:
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc., its general partner
By:
-------------------------------------
Mark K. Levenick, President and Chief
Executive Officer
Acknowledged, agreed and accepted as
of the date hereof:
GRANTEE:
CHASE BANK OF TEXAS, N.A.
By:
---------------------------------
Joanne Bramanti,
Vice President
TRADEMARK SECURITY AGREEMENT - Page 2
<PAGE> 3
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
On the _____ day of _______, 1999 before me personally appeared Mark K.
Levenick, to me personally known or proved to me on the basis of satisfactory
evidence to be the person described in and who executed the foregoing instrument
as the President and Chief Executive Officer of Tidel Cash Systems, Inc., the
general partner of Tidel Engineering, L.P., who being by me duly sworn, did
depose and say that he is the President and Chief Executive Officer of Tidel
Cash Systems, Inc., the corporation which executed the foregoing instrument;
that he signed the said instrument on behalf of said corporation and limited
partnership; and that he acknowledged said instrument to be the free act and
deed of said corporation.
----------------------------------------
Notary Public
(Seal)
My commission expires:
- ----------------------------------------
TRADEMARK SECURITY AGREEMENT - Page 3
<PAGE> 4
SCHEDULE 1
TO TRADEMARK
SECURITY AGREEMENT
TRADEMARK REGISTRATIONS
NONE
TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
Trademark No. Issue Date Title Trademark Expires
- ------------- ---------- ----- -----------------
<S> <C> <C> <C>
1. Anycard 5/28/92 Servicemark Application [pending application]
Application
SN74-279712
2. Stylized Tidel Swish ___/___/98 Trademark Application [pending application]
SN____________
</TABLE>
TRADEMARK LICENSES
NONE
UNREGISTERED MARKS
TACC II
TAC-II "Ci"
TACC-II "Cii"
TACC-II "SST"
TACC-IV
GTM
Tidel Engineering
Tidel
EMS2000
EMS3000
ETM
Chameleon
Schedule 1 - 1
<PAGE> 1
EXHIBIT 4.18
REVOLVING CREDIT NOTE
Dallas, Texas
$7,000,000.00 September 30, 1999
FOR VALUE RECEIVED, TIDEL ENGINEERING, L.P., a Delaware limited
partnership (herein called "Borrower"), promises to pay to the order of CHASE
BANK OF TEXAS, N.A., a national banking association (herein called "Payee"), at
2200 Ross Avenue, Dallas, Texas 75201, or at such other place as Payee may
hereafter designate in writing, in immediately available funds and in lawful
money of the United States of America, the principal sum of SEVEN MILLION AND
NO/100 DOLLARS ($7,000,000.00) (or the unpaid balance of all principal advanced
against this note, if that amount is less), together with interest on the unpaid
principal balance of this note from time to time outstanding until maturity on
September 30, 2001, at the rate or rates provided for in the Credit Agreement
and interest on all past due amounts at the Past Due Rate as provided in the
Credit Agreement; provided, that for the full term of this note, the interest
rate produced by the aggregate of all sums paid or agreed to be paid to the
holder of this note for the use, forbearance or detention of the debt evidenced
hereby shall not exceed the Highest Lawful Rate, if any, applicable to Payee.
If, for any reason whatever, the interest paid or received on this note
during its full term produces a rate which exceeds the Highest Lawful Rate, if
any, applicable to Payee, the holder of this note shall refund to the payor or,
at the holder's option, credit against the principal of this note such portion
of said interest as shall be necessary to cause the interest paid on this note
to produce a rate equal to the Highest Lawful Rate, if any, applicable to payee.
All sums paid or agreed to be paid to the holder of this note for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
in equal parts throughout the full term of this note, so that the interest rate
is uniform throughout the full term of this note. To the extent the laws of the
State of Texas are applicable for purposes of determining the "Highest Lawful
Rate," such term shall mean the "weekly ceiling" from time to time in effect
under Chapter 303 of the Texas Finance Code, as amended, or if permitted by
applicable law and effective upon the giving of the notices required by Section
303.403 of the Texas Finance Code (or effective upon any other date otherwise
specified by applicable Law), the "monthly ceiling," the "quarterly ceiling," or
"annualized ceiling" from time to time in effect under such Chapter 303 of the
Texas Finance Code, whichever that Lender shall elect to substitute for the
"weekly ceiling," and vice versa, each such substitution to have the effect
provided in Chapter 303 of the Texas Finance Code; and Lender shall be entitled
to make such election from time to time and one or more times and, without
notice to Borrower, to leave any such substitute rate in effect for subsequent
periods in accordance with Chapter 303 of the Texas Finance Code. Pursuant
Section 346.004 of the Texas Finance Code, as amended, Borrower agrees that
Chapter 346 of the Texas Finance Code (which regulates certain revolving credit
loan accounts and revolving tri-party accounts) shall not govern or in any
manner apply to the Obligations.
REVOLVING CREDIT NOTE - Page 1
<PAGE> 2
This note has been issued pursuant to the terms of that certain Credit
Agreement dated April 1, 1999, by and among Borrower, Payee and Tidel
Technologies, Inc., as amended by that certain First Amendment to Credit
Agreement dated the date hereof, by and among Borrower, Payee and Tidel
Technologies, Inc. (which, as it may be amended, restated, modified or
supplemented from time to time, is herein called the "Credit Agreement"), to
which reference is made for all purposes. This note is a Note under the terms of
the Credit Agreement, and advances against this note by Payee or other holder
hereof, payments and prepayments hereunder and acceleration hereof shall be
governed by the Credit Agreement. Capitalized words and phrases used herein and
not defined herein and which are defined in the Credit Agreement shall have the
same meanings herein as are ascribed to them in the Credit Agreement.
The unpaid principal balance of this note at any time shall be the
total of all principal lent or advanced against this note less the sum of all
principal payments and permitted prepayments made on this note by or for the
account of Borrower. All loans and advances and all payments and permitted
prepayments made hereon may be endorsed by the holder of this note on the
schedule which is attached hereto (and hereby made a part hereof for all
purposes) or otherwise recorded in the holder's records; provided, that any
failure to make notation of (a) any advance shall not cancel, limit or otherwise
affect Borrower's obligations or any holder's rights with respect to that
advance, or (b) any payment or permitted prepayment of principal shall not
cancel, limit or otherwise affect Borrower's entitlement to credit for that
payment as of the date received by the holder.
Borrower and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect or
maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS (OTHER THAN THE CONFLICTS OF LAWS PRINCIPLES THEREOF)
AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
REVOLVING CREDIT NOTE - Page 2
<PAGE> 3
This note is a renewal, modification and rearrangement, and not a
novation or extinguishment, of that certain Revolving Credit Note dated May 27,
1998, executed by Tidel Engineering, Inc., the non-surviving entity of the
merger between Tidel Engineering, Inc. and the Borrower, payable to the order of
Payee, in the original principal amount of $7,000,000.00, and that certain
Revolving Credit Note dated April 1, 1999, executed by Borrower, payable to the
order of Payee, in the original principal amount of $7,000,000.00 (collectively,
the "Prior Notes"). All rights, titles, liens and security interests securing
the Prior Notes are preserved, maintained and carried forward to secure this
note.
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc., its general partner
By:
-----------------------------------------
Mark K. Levenick,
President and Chief Executive Officer
REVOLVING CREDIT NOTE - Page 3
<PAGE> 1
EXHIBIT 4.19
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "Amendment") is made and
entered into as of September 30, 1999, by and among CHASE BANK OF TEXAS, N.A., a
national banking association ("Lender"), TIDEL ENGINEERING, L.P. ("Borrower"), a
Delaware limited partnership, and TIDEL TECHNOLOGIES, INC., a Delaware
corporation ("Ultimate Parent").
R E C I T A L S:
A. On April 1, 1999, Lender, Borrower, and Ultimate Parent entered into
that certain Credit Agreement (the "Credit Agreement") pursuant to which Lender
agreed to make loans and advances (collectively the "Loans") to Borrower and
Ultimate Parent in accordance with the terms thereof. The Loans are evidenced by
that certain Revolving Credit Note of even date with the Credit Agreement, in
the stated principal amount of $7,000,000.00, and that certain Term Note of even
date with the Credit Agreement, in the stated principal amount of $544,000.00,
each bearing interest and being payable to the order of Lender as therein
provided (collectively, the "Notes"). The Credit Agreement, the Notes and the
documents, instruments and agreements executed in connection therewith are
collectively referred to herein as the "Loan Documents".
B. Borrower has requested Lender to extend the term of the Credit
Agreement and to modify the minimum Tangible Net Worth requirement of Section
8.12 of the Credit Agreement.
C. Lender, at the request of Borrower, for good and valuable
consideration, is willing to enter into this Amendment upon the terms and
conditions set forth below:
A G R E E M E N T:
NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrower and Lender hereby covenant and agree
as follows:
1. Defined Terms. Capitalized terms used but not otherwise defined
herein shall have the meanings given to them in the Credit Agreement.
2. Eligible Receivables. Clause (d) of the definition of "Eligible
Receivables" in Section 1.1 of the Credit Agreement is hereby amended to read in
its entirety as follows:
(d) the total Receivables owing to the Borrower by the applicable
account debtor constitute 10% or less of the aggregate Receivables
owing to the Borrower by all account debtors, or if the total
Receivables of the applicable account debtor (other than Credit Card
Center, in which case 20%, and CardPro, Inc./CardTronics, in which case
15%) exceed 10% of the aggregate of all Receivables owing to the
Borrower and its Subsidiaries by all account debtors, the Receivables
of the applicable account debtor up
FIRST AMENDMENT - Page 1
<PAGE> 2
to such respective percentage limit shall be deemed to constitute
Eligible Receivables (subject to compliance with all other applicable
standards of eligibility) and the Receivables of the applicable account
debtor exceeding such respective percentage limit shall be included
within Eligible Receivables (subject to compliance with all other
applicable standards of eligibility) only if the Receivables exceeding
such respective percentage limit are backed or secured by credit
insurance reasonably satisfactory to the Lender in all respects and
such credit insurance has been assigned to the Lender upon terms
reasonably acceptable to the Lender in its discretion;
3. Revolving Loan Maturity Date. The definition of "Revolving Loan
Maturity Date" in Section 1.1 of the Credit Agreement is hereby amended to read
in its entirety as follows:
Revolving Loan Maturity Date shall mean the earlier of (a)
September 30, 2001, (b) any date that the Revolving Commitment is
terminated in full by the Borrower pursuant to Section 2.4 hereof, and
(c) any date the Revolving Loan Maturity Date is accelerated by the
Lender pursuant to Section 9.1 hereof.
4. Tangible Net Worth. Section 8.12 of the Credit Agreement is hereby
amended to read in its entirety as follows:
8.12 Tangible Net Worth. Permit the Tangible Net Worth of the
Borrower (expressly excluding Ultimate Parent, its Subsidiaries and
Borrower's Subsidiaries), as determined at any time and from time to
time, to be less than the sum of the following:
(i) $11,000,000.00; plus
(ii) the amount, which shall be added to clause (i) above as
of the end of each calendar month, on a cumulative basis, beginning
with the calendar month beginning October 1, 1998 and continuing each
calendar month thereafter through the term of this Agreement, that is
equal to the sequential monthly calculations of fifty percent (50%) of
the positive (but not the negative) net income of the Borrower for each
calendar month, beginning on and after October 1, 1998 (it being
acknowledged that such calculations for calendar months prior to April
1, 1999 shall be made with respect to Tidel Engineering, Inc., the
predecessor-in-interest to the Borrower); plus
(iii) the amount of all capital contributions to Borrower on
or after October 1, 1998 (it being acknowledged that such calculations
for calendar months prior to April 1, 1999 shall be made with respect
to Tidel Engineering, Inc., the predecessor-in-interest to the
Borrower, and shall be made with respect to the amount of consideration
received in exchange for equity interests issued by Tidel Engineering,
Inc. during the applicable period of time).
5. Exhibit D. Exhibit D to the Credit Agreement is hereby deleted in
its entirety and replaced with Exhibit D attached hereto.
FIRST AMENDMENT - Page 2
<PAGE> 3
6. Exhibit H. Exhibit H to the Credit Agreement is hereby deleted in
its entirety and replaced with Exhibit H attached hereto.
7. Conditions Precedent. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent, unless specifically
waived in writing by Lender:
(a) Lender shall have received a Revolving Credit Note, in
form and substance satisfactory to Lender, duly executed by the
Borrower;
(b) The representations and warranties contained herein and in
all Loan Documents, as amended hereby, shall be true and correct in all
material respects as of the date hereof as if made on the date hereof;
and
(c) No Event of Default by Borrower or Ultimate Parent under
the Loan Documents, as amended hereby, as of the date hereof, shall
have occurred and be continuing and no event or conditions shall have
occurred that with the giving of notice or lapse of time or both would
be an Event of Default by Borrower or Ultimate Parent under the Loan
Documents, as amended hereby, as of the date hereof, unless such Event
of Default has been specifically waived in writing by Lender.
8. Costs and Expenses. Borrower agrees to reimburse Lender for Lender's
costs and expenses, including, but not limited to, reasonable attorneys' fees
and legal expenses, incurred by Lender in connection with the preparation of
this Amendment and in connection with the negotiation and consummation of the
transaction contemplated hereby.
9. The Credit Agreement. All references to the Credit Agreement in the
Loan Documents shall be deemed to be the Credit Agreement, as modified hereby.
Borrower expressly promises to perform all of its obligations under the Credit
Agreement and other Loan Documents, as modified by this Amendment.
10. Acknowledgments of Borrower and Ultimate Parent. Borrower and
Ultimate Parent each hereby acknowledge and agree that (a) Lender is not in
default in the performance of its obligations under the Loan Documents; (b)
Borrower and Ultimate Parent have no claims, counterclaims, offsets, credits or
defenses to the Loan Documents and the performance of their respective
obligations thereunder, or if Borrower or Ultimate Parent have any such claims,
counterclaims, offsets, credits or defenses to the Loan Documents or any
transaction related to the Loans and/or the Loan Documents, same are hereby
waived, relinquished and released in consideration of Lender's execution and
delivery of this Amendment; (c) all of the provisions of the Loan Documents,
except as amended hereby, are in full force and effect; and (d) upon the
execution hereof, the Credit Agreement, the Notes, and the other Loan Documents,
as amended herein, are not in default by Borrower or Ultimate Parent.
11. Full Force and Effect. Except as expressly modified and amended in
this Amendment, all of the terms, provisions and conditions of the Credit
Agreement, the Notes, and
FIRST AMENDMENT - Page 3
<PAGE> 4
all other Loan Documents are and shall remain in full force and effect and are
incorporated herein by reference.
12. Counterparts. This Amendment may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original, and all of
which taken together shall constitute but one and the same instrument.
13. No Oral Agreements. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS
EMBODY THE ENTIRE AGREEMENT AMONG THE PARTIES AND SUPERSEDES ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT MATTER HEREOF.
THIS WRITTEN AMENDMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES.
FIRST AMENDMENT - Page 4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Credit Agreement as of the day and year first above written.
LENDER:
CHASE BANK OF TEXAS, N.A.,
a national banking association
By:
----------------------------------------
Joanne Bramanti, Vice President
BORROWER:
TIDEL ENGINEERING, L.P.,
a Delaware limited partnership
By: Tidel Cash Systems, Inc., its sole
general partner
By:
-------------------------------
Mark K. Levenick,
President and Chief Executive
Officer
ULTIMATE PARENT:
TIDEL TECHNOLOGIES, INC.,
a Delaware corporation
By:
----------------------------------------
Mark K. Levenick,
Chief Operating Officer
FIRST AMENDMENT - Page 5
<PAGE> 6
By its execution below, each of Tidel Technologies, Inc., a Delaware
corporation, Tidel Services Inc., a Delaware corporation, and Tidel Cash
Systems, Inc., a Delaware corporation (each individually, a "Guarantor"),
acknowledges and consents to all of the terms and conditions of this Amendment,
and ratifies and confirms its respective Guaranty to and for the benefit of
Lender. Each Guarantor acknowledges that such Guarantor has no claims,
counterclaims, offsets, credits or defenses to the Loan Documents and the
performance of its obligations thereunder, or if such Guarantor does have any
such claims, counterclaims, offsets, credits or defenses to the Loan Documents
or any transaction related to the Loans and/or the Loan Documents, same are
hereby waived, relinquished and released in consideration of Lender's execution
and delivery of this Amendment. Further, each Guarantor agrees that nothing
contained in this Amendment shall adversely affect any right or remedy of Lender
under its respective Guaranty and that with respect to such Guaranty, all
references in such Guaranty to the "Obligations" shall mean the "Obligations",
as amended by this Amendment; that the execution and delivery of this Amendment
shall in no way change or modify such Guarantor's obligations as Guarantor
pursuant to its Guaranty; and that the execution and delivery of any agreements
by Borrower and Lender in connection with this Amendment shall not constitute a
waiver by Lender of any of Lender's rights against any Guarantor.
TIDEL TECHNOLOGIES, INC.,
a Delaware corporation
By:
-------------------------------------
Mark K. Levenick,
Chief Operating Officer
TIDEL SERVICES, INC.,
a Delaware corporation
By:
-------------------------------------
Andrew Panaccione, Vice President
TIDEL CASH SYSTEMS, INC.,
a Delaware corporation
By:
-------------------------------------
Mark K. Levenick, President and Chief
Executive Officer
FIRST AMENDMENT - Page 6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND CONSOLIDATED
STATEMENTS OF INCOME FOR THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 2,423,844
<SECURITIES> 0
<RECEIVABLES> 15,137,056
<ALLOWANCES> 566,917
<INVENTORY> 6,128,741
<CURRENT-ASSETS> 25,551,299
<PP&E> 3,912,348
<DEPRECIATION> 1,932,575
<TOTAL-ASSETS> 28,696,069
<CURRENT-LIABILITIES> 7,527,905
<BONDS> 5,246,634
0
0
<COMMON> 160,680
<OTHER-SE> 15,130,850
<TOTAL-LIABILITY-AND-EQUITY> 28,696,069
<SALES> 45,873,341
<TOTAL-REVENUES> 45,873,341
<CGS> 30,912,917
<TOTAL-COSTS> 30,912,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 380,957
<INCOME-PRETAX> 4,735,964
<INCOME-TAX> 1,800,000
<INCOME-CONTINUING> 2,935,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,935,964
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
