-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JceDS2dONXgG8RbZoPx7mqLSD4DdBs1ftp2pua4X/rt1iRF2Vt9utbR/mYngpGLq CuKjuwcUbNFs6dmxAHHMcw== 0000950129-00-000139.txt : 20000202 0000950129-00-000139.hdr.sgml : 20000202 ACCESSION NUMBER: 0000950129-00-000139 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 20000113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIDEL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000842695 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 752193593 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-17288 FILM NUMBER: 507070 BUSINESS ADDRESS: STREET 1: 5847 SAN FELIPE STE 900 STREET 2: SAN FELIPE PLZ CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137838200 MAIL ADDRESS: STREET 1: 5847 SAN FELIPE STREET 2: SUITE 900 CITY: HOUSTON STATE: TX ZIP: 77057 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MEDICAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 10-K405 1 TIDEL TECHNOLOGIES, INC. - PERIOD DATE 09/30/99 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) 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)
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. 2 --------------------------------------------------- TIDEL TECHNOLOGIES, INC. TABLE OF CONTENTS* ANNUAL REPORT ON FORM 10-K ---------------------------------------------------
PAGE ---- PART I 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
- ------------------ * This Table of Contents is inserted for convenience of reference only and is not a part of this Report as filed. 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. 1 4 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. 2 5 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. 3 6 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. 4 7 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.
Number of Shares ---------------- For Withheld --- -------- 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
b) Ratification of the selection of KPMG LLP as the Company's independent auditors for fiscal year 1999. 5 8 For.................................................. 14,087,369 Against.............................................. 28,860 Abstentions.......................................... 59,525
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:
Quarter Ended High Low ------------- ---------- -------- 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
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. 6 9
Year Ended September 30, ------------------------------------------------ SELECTED STATEMENT OF INCOME DATA: (1) 1999 1998 1997 1996 1995 ---------------------------------- -------- -------- -------- -------- -------- 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)
Year Ended September 30, ------------------------------------------------ SELECTED BALANCE SHEET DATA: (1) 1999 1998 1997 1996 1995 ---------------------------- -------- -------- -------- -------- -------- 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
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 --------------- --------- -------- -------- -------- ------- -------- ------- -------- 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
(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. 7 10 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:
(dollars in 000's) ------------------------------- 1999 1998 1997 ------- ------- ------- 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 ======= ======= =======
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:
(dollars in 000's) --------------------------------------------- 1999 1998 1997 --------- -------- --------- 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
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. 8 11 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:
(dollars in 000's) -------------------------------------------- 1999 1998 1997 -------- -------- -------- Working capital...................................... $ 18,023 $ 15,438 $ 9,377 Total assets......................................... 28,696 24,247 18,263 Shareholders' equity................................. 15,922 13,484 8,092
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 9 12 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 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 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.
Name Age Position ---- --- -------- 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
12 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 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
Long-Term Annual Compensation Compensation ------------------- ------------ Name and Principal Position Year Salary Bonus Options ------------------- ---- ------ ----- ------- 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
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 17 OPTION GRANTS IN THE YEAR ENDED SEPTEMBER 30, 1999
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 ($) ($) ---- ---------- ---------- -------- ---------- --- -------- 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 $133,464
The following table provides the number of options exercisable by the respective optionees and the respective valuations at September 30, 1999: OPTIONS EXERCISABLE AND RELATED VALUES SEPTEMBER 30, 1999
Number of Value of Unexercised Unexercised in-the-Money Options at Options at September 30, 1999 September 30, 1999 (Shares) ($) ---------------------------- ------------------------------ Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- 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
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 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.
Name and Amount and Address of Nature of Percent Title of Beneficial Beneficial of Class Owner Ownership Class (1) -------- ---------- ---------- --------- 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)
* 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 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 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.
SIGNATURE TITLE DATE - --------- ----- ---- /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
18 21 INDEX TO FINANCIAL STATEMENTS
PAGE ---- CONSOLIDATED FINANCIAL STATEMENTS OF TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES 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
All other schedules are omitted because they are not required, are not applicable or the required information is presented elsewhere herein. F-1 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 23 TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, ------------- ASSETS 1999 1998 ------------ ------------ Current Assets: 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 ============ ============
See accompanying notes to consolidated financial statements. F-3 24 TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, ----------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ 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 ============ ============ ============
See accompanying notes to consolidated financial statements. F-4 25 TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED SEPTEMBER 30, -------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-5 26 TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RETAINED SHARES ADDITIONAL EARNINGS TOTAL ISSUED AND COMMON PAID-IN (ACCUMULATED SHAREHOLDERS' OUTSTANDING STOCK CAPITAL DEFICIT) OTHER EQUITY --------------- -------------- -------------- -------------- -------------- -------------- 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 ========== ============ =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-6 27 TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, --------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-7 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 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 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:
1999 1998 ------------- ------------- Federal income tax refunds........................... $ -- $ 621,049 Non-trade notes and accounts......................... 897,368 553,006 ------------- ------------ $ 897,368 $ 1,174,055 ============= ============
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 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:
1999 1998 ------------ ------------ 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 ============ ============
(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:
1999 1998 Useful Life ------------- ------------ ------------- 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 ============ ============
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 32
1999 1998 ------------- ------------- 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 ============= =============
(8) LONG-TERM DEBT Long-term debt consisted of the following at September 30, 1999 and 1998:
1999 1998 ------------- ------------- 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 ============ ============
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:
1999 1998 ------------ ------------ 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 ============ ============
F-12 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:
1999 1998 1997 ------------ ------------ ------------ 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
F-13 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:
Number of Weighted average shares exercise price ---------- ---------------- 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 =========
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:
1999 1998 1997 ------------ ------------- ------------ 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) $ -- ============ ============= ============
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:
1999 1998 1997 ------------ ------------- -------------- 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) $ -- ============ ============= =============
F-14 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:
1999 1998 ------------- ------------- 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 ============ ============
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:
Weighted Net Average Shares Per Share Income Outstanding Amount ------------ -------------- ----------- 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 ============ ============ ===========
(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 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:
Amount ------------ 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 ============
(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 37 SCHEDULE I TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED BALANCE SHEETS
SEPTEMBER 30, ------------------------------ 1999 1998 ------------ ------------ 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 ============ ============
See accompanying notes to condensed financial information of registrant. S-1 38 TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEAR ENDED SEPTEMBER 30, --------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- 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 =========== =========== ===========
See accompanying notes to condensed financial information of registrant. S-2 39 TIDEL TECHNOLOGIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, --------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- 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 =========== =========== ===========
See accompanying notes to condensed financial information of registrant. S-3 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:
1999 1998 ------------ ----------- 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 ============ ===========
(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 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 42 SCHEDULE II TIDEL TECHNOLOGIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ----------------------------------------- ---------- ---------- ---------- ---------- ----------- 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 ========== ========== ========== ========== ==========
S-6 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 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 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 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 EX-4.02 2 CREDIT AGREEMENT, DATED 04/01/99 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 2 Index to Credit Agreement
Page ---- 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
i 3 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
ii 4 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
iii 5 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
iv 6 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
v 7 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
vi 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 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 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 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 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 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 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 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 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 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 18 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 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 20 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 21 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 22 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 23 (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 24 (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 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 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 27 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 28 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 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 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 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 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 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 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 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 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 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 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 39 (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 40 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 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 42 (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 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 44 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 45 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 46 (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 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 48 (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 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 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 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 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 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 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 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 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 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 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 CREDIT AGREEMENT - Page 50 59 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 CREDIT AGREEMENT - Page 51 60 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 61 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. CREDIT AGREEMENT - Page 53 62 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 63 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 64 (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 65 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 66 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. CREDIT AGREEMENT - Page 58 67 (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. CREDIT AGREEMENT - Page 59 68 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 69 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 CREDIT AGREEMENT - Page 61 70 (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 CREDIT AGREEMENT - Page 62 71 (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 CREDIT AGREEMENT - Page 63 72 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 CREDIT AGREEMENT - Page 64 73 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 74 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 75 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. CREDIT AGREEMENT - Page 67 76 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. CREDIT AGREEMENT - Page 68 77 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 CREDIT AGREEMENT - Page 69 78 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 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 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 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 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 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 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 85 EXHIBIT "A" TO CREDIT AGREEMENT Revolving Note Form (See attached) EXHIBIT A 86 EXHIBIT "B" TO CREDIT AGREEMENT Term Note Form (See attached) EXHIBIT B 87 EXHIBIT "C" TO CREDIT AGREEMENT Standard Lockbox Agreement (See attached) EXHIBIT C 88 EXHIBIT "D" TO CREDIT AGREEMENT Compliance Certificate (See attached) EXHIBIT D 89 EXHIBIT "E" TO CREDIT AGREEMENT Request for Extension of Credit (See attached) EXHIBIT E 90 EXHIBIT "F" TO CREDIT AGREEMENT Rate Selection Notice (See attached) EXHIBIT F 91 EXHIBIT "G" TO CREDIT AGREEMENT Secretary's Certificate of General Partner (See attached) EXHIBIT G 92 EXHIBIT "H" TO CREDIT AGREEMENT Borrowing Base Certificate Form (See attached) EXHIBIT H 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 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 95 SCHEDULE "6.13" TO CREDIT AGREEMENT List of Assumed Names NONE SCHEDULE 6.13 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 97 SCHEDULE "6.17" TO CREDIT AGREEMENT Environmental Matters NONE SCHEDULE 6.17 98 SCHEDULE "8.2" TO CREDIT AGREEMENT Liens NONE SCHEDULE 8.2 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 EX-4.03 3 PROMISSORY NOTE, DATED 04/01/99 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 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 EX-4.04 4 TERM NOTE, DATED 04/01/99 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 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 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 EX-4.05 5 SECURITY AGREEMENT 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 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 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 4 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 5 (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 6 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 7 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 7 8 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 8 9 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 9 10 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 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 12 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 12 13 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, SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 13 14 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 15 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." SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 15 16 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 17 "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 18 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 EX-4.06 6 SECURITY AGREEMENT 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; SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 1 2 (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 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 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 3 4 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. SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 4 5 (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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 5 6 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 6 7 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 7 8 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. SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 8 9 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 9 10 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 10 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 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, SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 11 12 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 12 13 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 SECURITY AGREEMENT (PERSONAL PROPERTY) - Page 13 14 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 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 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 17 SCHEDULE 1 TO SECURITY AGREEMENT (PERSONAL PROPERTY) Inventory and Equipment Location 5847 San Felipe, Suite 900 Houston, Texas 77057 SCHEDULE 1 EX-4.07 7 SECURITY AGREEMENT 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 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 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 4 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 5 (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 6 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 7 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 8 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 9 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 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 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 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 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 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 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 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 17 SCHEDULE 1 TO SECURITY AGREEMENT (PERSONAL PROPERTY) Inventory and Equipment Location 300 Delaware Avenue, Suite 1704 Wilmington, Delaware 19899 SCHEDULE 1 EX-4.08 8 UNCONDITIONAL GUARANTY AGREEMENT, DATED 04/01/99 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.) 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.) 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. UNCONDITIONAL GUARANTY AGREEMENT - Page 3 (Tidel Technologies, Inc.) 4 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 4 (Tidel Technologies, Inc.) 5 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 5 (Tidel Technologies, Inc.) 6 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 6 (Tidel Technologies, Inc.) 7 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: UNCONDITIONAL GUARANTY AGREEMENT - Page 7 (Tidel Technologies, Inc.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 8 (Tidel Technologies, Inc.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 9 (Tidel Technologies, Inc.) 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, UNCONDITIONAL GUARANTY AGREEMENT - Page 10 (Tidel Technologies, Inc.) 11 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 (Tidel Technologies, Inc.) 12 EXECUTED as of the day and year first above written. GUARANTOR: TIDEL TECHNOLOGIES, INC. By:------------------------- Mark K. Levenick, Chief Operating Officer UNCONDITIONAL GUARANTY AGREEMENT - Page 12 (Tidel Technologies, Inc.) EX-4.09 9 UNCONDITIONAL GUARANTY AGREEMENT, DATED 04/01/99 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 1 (TIDEL SERVICES, INC.) 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 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 2 (TIDEL SERVICES, INC.) 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. UNCONDITIONAL GUARANTY AGREEMENT - Page 3 (TIDEL SERVICES, INC.) 4 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 4 (TIDEL SERVICES, INC.) 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 5 (TIDEL SERVICES, INC.) 6 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 6 (TIDEL SERVICES, INC.) 7 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: UNCONDITIONAL GUARANTY AGREEMENT - Page 7 (TIDEL SERVICES, INC.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 8 (TIDEL SERVICES, INC.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 9 (TIDEL SERVICES, INC.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 10 (TIDEL SERVICES, INC.) 11 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 11 (TIDEL SERVICES, INC.) 12 Address for Notices: 300 Delaware Avenue, Suite 1704 Wilmington, Delaware 19899 UNCONDITIONAL GUARANTY AGREEMENT - Page 12 (TIDEL SERVICES, INC.) EX-4.10 10 UNCONDITIONAL GUARANTY AGREEMENT, DATED 04/01/99 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 1 (TIDEL CASH SYSTEMS, INC.) 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 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 2 (TIDEL CASH SYSTEMS, INC.) 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. UNCONDITIONAL GUARANTY AGREEMENT - Page 3 (TIDEL CASH SYSTEMS, INC.) 4 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 4 (TIDEL CASH SYSTEMS, INC.) 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 5 (TIDEL CASH SYSTEMS, INC.) 6 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; UNCONDITIONAL GUARANTY AGREEMENT - Page 6 (TIDEL CASH SYSTEMS, INC.) 7 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: UNCONDITIONAL GUARANTY AGREEMENT - Page 7 (TIDEL CASH SYSTEMS, INC.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 8 (TIDEL CASH SYSTEMS, INC.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 9 (TIDEL CASH SYSTEMS, INC.) 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 UNCONDITIONAL GUARANTY AGREEMENT - Page 10 (TIDEL CASH SYSTEMS, INC.) 11 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.) EX-4.11 11 PLEDGE & SECURITY AGREEMENT (STOCK) 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 2 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 3 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 4 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 5 (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 6 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 7 (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 8 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 9 (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 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 11 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 12 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 EX-4.12 12 PLEDGE & SECURITY AGREEMENT 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.) 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.) 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.) 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.) 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.) 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. PLEDGE AND SECURITY AGREEMENT - Page 6 (TIDEL SERVICES, INC.) 7 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.) 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.) 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.) 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.) 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.) 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.) EX-4.13 13 PLEDGE & SECURITY AGREEMENT 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.) 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.) 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.) 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 PLEDGE AND SECURITY AGREEMENT - Page 4 (TIDEL CASH SYSTEMS, INC.) 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.) 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.) 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.) 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.) 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.) 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.) 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.) 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.) EX-4.14 14 PATENT ASSIGNMENT 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 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 3 SCHEDULE 1 TO PATENT SECURITY AGREEMENT ------------------ PATENT REGISTRATIONS --------------------
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES ---------- ---------- ----- -------------- 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
FOREIGN PATENTS ---------------
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES ---------- ---------- ----- -------------- 1. 180049 11/9/95 Mexican counterpart to No. 2 above August 5, 2011 (Annuities paid through 11/9/00)
PATENT APPLICATIONS ------------------- NONE PATENT LICENSES --------------- NONE 3 EX-4.15 15 PATENT SECURITY AGREEMENT 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 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 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 4 SCHEDULE 1 TO PATENT SECURITY AGREEMENT PATENT REGISTRATIONS
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES ---------- ---------- ----- -------------- 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
FOREIGN PATENTS
PATENT NO. ISSUE DATE TITLE PATENT EXPIRES ---------- ---------- ----- -------------- 1. 180049 11/9/95 Mexican counterpart to No. 2 above August 5, 2011 (Annuities paid through 11/9/00)
PATENT APPLICATIONS NONE PATENT LICENSES NONE Schedule 1-1 EX-4.16 16 TRADEMARK ASSIGNMENT 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 2 EXHIBIT "A" TRADEMARK REGISTRATIONS
Registration No. Registration Date Title ---------------- ----------------- ----- 1150280 4/07/81 TIDEL Systems
TRADEMARK APPLICATIONS
Application No. Application Date Title --------------- ---------------- ----- 1/26/99 Stylized Tidel Swish -----------
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 EX-4.17 17 TRADEMARK SECURITY AGREEMENT 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 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 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 4 SCHEDULE 1 TO TRADEMARK SECURITY AGREEMENT TRADEMARK REGISTRATIONS NONE TRADEMARK APPLICATIONS
Trademark No. Issue Date Title Trademark Expires - ------------- ---------- ----- ----------------- 1. Anycard 5/28/92 Servicemark Application [pending application] Application SN74-279712 2. Stylized Tidel Swish ___/___/98 Trademark Application [pending application] SN____________
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 EX-4.18 18 REVOLVING CREDIT NOTE 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 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 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 EX-4.19 19 FIRST AMENDMENT TO CREDIT AGREEMENT 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 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 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 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 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 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 EX-27 20 FINANCIAL DATA SCHEDULE
5 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. 12-MOS SEP-30-1999 OCT-01-1998 SEP-30-1999 2,423,844 0 15,137,056 566,917 6,128,741 25,551,299 3,912,348 1,932,575 28,696,069 7,527,905 5,246,634 0 0 160,680 15,130,850 28,696,069 45,873,341 45,873,341 30,912,917 30,912,917 0 0 380,957 4,735,964 1,800,000 2,935,964 0 0 0 2,935,964 0.18 0.17
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