Rule 424(b)(3)
Registration Statement No. 106716
REOFFER PROSPECTUS
TOTAL IDENTITY CORP.
6,000,000 Shares of Common Stock
($.01 par value)
This prospectus forms a part of a registration statement, which
registers an aggregate of 6,000,000 shares of common stock issued or issuable
from time-to-time under the Total Identity Corp., f/k/a TMI Holdings, Inc., 2003
Omnibus Securities Plan (the "Omnibus Plan") and the 2003 Non-Qualified Stock
Grant and Option Plan (the "Non-Qualified Plan") (collectively the "Plans").
Total Identity Corp. is referred to in this prospectus as "Total
Identity," the "Company," "we," "us" or "our." The 6,000,000 shares covered by
this prospectus are referred to as the "shares." Persons who are issued shares
are sometimes referred to as the "selling security holders."
This prospectus also covers the resale of shares by persons who are our
"affiliates" within the meaning of federal securities laws. Affiliated selling
security holders may sell all or a portion of the shares from time to time in
the over-the-counter market, in negotiated transactions, directly or through
brokers or otherwise, and at market prices prevailing at the time of such sales
or at negotiated prices, but which may not exceed 1% of our outstanding common
stock in any three month period. Affiliated selling security holders using this
prospectus for resale purposes will be identified in a prospectus supplement to
be filed from time-to-time.
We will not receive any proceeds from sales of shares by selling
security holders.
These securities have not been approved or disapproved by the
Securities and Exchange Commission nor has the Commission passed on the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
This prospectus does not constitute an offer to sell securities in any
state to any person to whom it is unlawful to make such offer in such state.
The date of this prospectus, as supplemented, is March 3, 2004.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, we file reports,
proxy statements and other information with the Securities and Exchange
Commission. Reports, proxy statements and other information filed with the
Commission can be inspected and copied at the public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of this
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a website on the Internet
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Commission are
incorporated herein by reference and made a part hereof:
- Annual Report on Form 10-KSB filed on May 23, 2003
- Form 8-K Current Report filed on June 9, 2003 and Amended on
June 11, 2003
- Form 8-K Current Report filed on August 19, 2003
- Quarterly Report on Form 10-QSB filed on September 9, 2003
- Form 8-K Current Report filed on October 28, 2003, as amended
by Form 8-K/A Current Report filed on February 9, 2004
- Quarterly Report on Form 10-QSB filed on November 21, 2003
- Form 8-K Current Report filed on December 16, 2003
- Form 8-K Current Report filed on February 25, 2004
All reports and documents filed by us pursuant to Section 13, 14 or
15(d) of the Exchange Act, prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference herein and to be a part hereof from the respective
date of filing of such documents. Any statement incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this prospectus to
the extent that a statement contained herein or in any other subsequently filed
document, which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any statement modified or superseded
shall not be deemed, except as so modified or superseded, to constitute part of
this prospectus.
We hereby undertake to provide without charge to each person, including
any beneficial owner, to whom a copy of the prospectus has been delivered, on
the written request of any such person, a copy of any or all of the documents
referred to above which have been or may be incorporated by reference in this
prospectus, other than exhibits to such documents. Written requests for such
copies should be directed to Corporate Secretary, Total Identity Corp., 2340
Brighton-Henrietta Town Line Road, Rochester, NY 14623.
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THE COMPANY
Recent Developments
On November 14, 2003, our Board of Directors increased the number of
members serving on the board from three to four, and appointed Philip C.
Mistretta to fill the additional seat. Mr. Mistretta was also appointed Chairman
of the Board of Directors, President and Chief Executive Officer of the Company.
At the same meeting, Jeffrey Hoffman was appointed Chief Financial Officer and
Secretary. Richard R. Dwyer, who had served as our President and Chief Executive
Officer, resigned from those positions and was appointed as our Executive Vice
President. On January 12, 2004 (a) Jeffrey Hoffman resigned as Chief Financial
Officer, (b) Richard Dwyer resigned as Executive Vice President and became a
consultant and (c) the Board of Directors increased the number of members
serving on the board from four to five. Matthew P. Dwyer, the brother of Richard
Dwyer, was appointed to fill the additional board seat, and was also appointed
Vice President.
Effective on October 13, 2003, we closed on the acquisition of all of
the issued and outstanding shares of Total Identity Systems Corp. ("TISC"), a
Rochester, New York-based custom sign manufacturer servicing local, regional and
national accounts. TISC operations are our only current business operations. On
December 9, 2003, we notified TISC and Mr. David that we were initiating an
Arbitration with the American Arbitration Association relating to the Stock
Purchase Agreement dated October 13, 2003 by and among us, TISC and David and
the Securities Purchase Agreement dated October 13, 2003 by and between us and
David (collectively, the "Purchase Agreements"). As reported in a Current Report
on Form 8-K filed February 25, 2004, these disputes have been resolved and the
Arbitration discontinued.
On January 31, 2003, we acquired 100% of the assets and outstanding
stock of Kina'ole Development Corporation, a Hawaii corporation. Kina'ole
engages in the sale of manufactured homes. Effective September 30, 2003, we
exchanged all of our shares of Kina'ole for (a) 500,000 shares of our Series B
Preferred Stock previously issued to the former shareholders of Kina'ole, (b)
120,000 shares of the Company's common stock issued to the former Kina'ole
shareholders, and (c) $10,000 payable to such shareholders. As a result of this
exchange, we divested ourselves of the home manufacturing operations conducted
by Kina'ole.
On September 12, 2003, we changed our name to Total Identity Corp.,
and, effective November 3, 2003, our trading symbol on the Over-the-Counter
Bulletin Board was changed to "TIDC".
Total Identity Corp. and our former Chief Executive Officer, Scott
Siegel, were named in a lawsuit filed in the Circuit Court for Broward County,
Florida (Marc Douglas v. Matthew P. Dwyer, William Michael Sessions, John W.
Meyers, Scott Siegel, Neil Dolgin and TMI Holdings, Inc. - Case No. 03-10440).
The suit sought injunctive relief, damages and recovery of securities previously
transferred to various parties in connection with the prior transfer of control
of Total Identity Corp. by the plaintiff. This dispute has been resolved and the
lawsuit settled effective October 1, 2003.
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Currently, our only business is the manufacture and sale of custom-made
signs through Total Identity Systems, Inc., our wholly owned subsidiary. We are
currently seeking other potential acquisition candidates.
Historical Operations
Until August 2001, we managed and operated discount retail outlets
known as thrift stores, which dealt in new and used articles of clothing,
miscellaneous household items, furniture, bric-a-brac and antiques at discounted
prices. In 2001, we operated six thrift stores in Florida. These stores and all
of our other business units were sold on August 27, 2001, in a transaction
involving the sale of substantially all of our assets to Thrift Ventures, Inc.,
a corporation that was controlled by one of our then principal stockholders.
In 2002, the Company underwent two changes of voting control, until its
current management acquired voting control of the Company on February 21, 2003.
RISK FACTORS AFFECTING OUR FUTURE RESULTS OF OPERATIONS
Our future results of operations involve a number of risks and
uncertainties. The following paragraphs discuss a number of risks that could
impact our financial condition and results of operations.
We have only recently commenced revenue-producing operations, and the limited
information available about us makes an evaluation of us difficult
We have conducted limited operations, and we have little operating
history that permits you to evaluate our business and our prospects based on
prior performance. You must consider your investment in light of the risks,
uncertainties, expenses and difficulties that are usually encountered by
companies in their early stages of development. There can be no assurance that
we will successfully address such risks, and the failure to do so could have a
material adverse effect on our business, financial condition and results of
operations.
If we are unable to obtain sufficient financing to fund the payment of the
purchase price for the shares of Total Identity Systems, the former owner may
foreclose on its collateral and reacquire the Total Identity Systems shares and
we will be left with no operations
We recently entered into agreements to resolve disputes with the former
owner of Total Identity Systems relating to our acquisition of 100% of its
capital stock. The remaining balance of the cash portion of the purchase price
for the shares, as modified, is $975,000. Our obligation to pay the balance of
the purchase price is secured by the shares of Total Identity Systems. In the
event we default in the payment of the purchase price, the former owner of Total
Identity Systems could reaquire the shares, in which event we will lose our sole
business operations.
Total Identity has limited historical operations with substantial potential
capital needs
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Total Identity has a limited operating history and limited operations,
and no revenues since the commencement of its 2002 fiscal year. We will continue
to need additional cash infusions in order to continue to develop and implement
our business plan. Even if we acquire short-term cash resources, it will likely
need further debt or equity funding in order to bring products or services to
market and/or consummate acquisitions. However, there are no agreements or
understandings for such purposes at this time.
The electronic sign industry in which Total Identity Systems operates is
significantly affected by many factors out of our control and which cause those
operations to fail.
The electronic sign industry is highly affected by changes in national,
regional and local general economic conditions and other factors outside of our
control such as changes in consumer taste, weather conditions, changes in labor,
equipment and energy costs, fluctuating insurance rates, state and local
regulation and the availability of an adequate pool of hourly-paid employees.
There is substantial doubt as to our ability to continue as a going concern
Our ability to continue as a going concern is dependent on our ability
to raise funds to implement our development of a business plan. Our poor
financial condition could inhibit our ability to achieve a business plan, due to
current operations that are reflecting substantial losses. The future prospect
of profitability is severely in doubt. Because of these difficulties, our
independent auditors have expressed substantial doubt as to our ability to
continue as a going concern.
Lack of funding will adversely affect our ability to generate revenues
Our goals are all contingent upon raising debt or equity funding.
Currently there are limited sources for this necessary funding. There are
significant risks, difficulties, delays and unforeseen expenses associated with
companies with limited or no operating history. Constraints we face due to a
lack of funding include:
- Inability to generate necessary revenue to operate for the
next 12 months or thereafter;
- Operating costs that may exceed our current estimates;
- Unanticipated development expenses; and
- Our ability to generate sufficient revenues to offset the
substantial costs of operating our business.
Start-up expenses and future losses will adversely affect our operations
Because of significant up-front expenses required to enter into new
businesses, we anticipate that we may incur losses until revenues are sufficient
to cover our operating costs. Future losses are likely before our operations
become profitable. As a result of our lack of operating history, you will have
no basis upon which to accurately forecast our:
- Total assets, liabilities, and equity;
- Total revenues;
- Gross and operating margins; and
- Labor costs.
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Accordingly, any subsequent business plans may not either materialize or prove
successful, and we may never be profitable.
We do not expect to pay dividends in the foreseeable future
Total Identity does not presently intend to pay dividends on our common
stock. Total Identity has never paid dividends on our common stock and does not
presently intend to pay cash dividends on our common stock. Any future decisions
as to the payment of dividends will be at the discretion of Total Identity's
Board of Directors, subject to applicable law.
Our management may be unable to effectively integrate future acquisitions and to
manage our growth, and we may be unable to fully realize any anticipated
benefits of any acquisition
Our business strategy includes growth through acquisition and internal
development. We are subject to various risks associated with our growth
strategy, including the risk that we will be unable to identify and recruit
suitable acquisition candidates in the future or to integrate and manage the
acquired companies. Acquired companies' histories, geographical locations,
business models and business cultures can be different from ours in many
respects. If we should consummate one or more acquisitions, our directors and
senior management will face a significant challenge in their efforts to
integrate our business and the business of the acquired companies or assets, and
to effectively manage our continued growth. There can be no assurance that our
efforts to integrate the operations of any acquired assets or companies acquired
in the future will be successful, that we can manage our growth or that the
anticipated benefits of these proposed acquisitions will be fully realized. The
dedication of management resources to these efforts may detract attention from
our day-to-day business. There can be no assurance that there will not be
substantial costs associated with these activities or of the success of our
integration efforts, either of which could have a material adverse effect on our
operating results.
Our strategy of seeking joint ventures or strategic alliances may be
unsuccessful
We may also choose to expand our operations by entering into joint
ventures or other strategic alliances with other parties. Any such transaction
would be accompanied by the risks commonly encountered in such transactions.
These include, among others, the difficulty of assimilating the operations and
personnel and other various factors. There can be no assurance should we enter
into any strategic alliance with a third party that we will be successful in
overcoming these risks or any other problems encountered in connection with
joint ventures or other strategic alliances.
We depend on the continued services of our executive officers and on our ability
to attract and maintain other qualified employees
Our future success depends on the continued services of our executive
officers. The loss of their services would be detrimental to us and could have a
material adverse effect on our business, financial condition and results of
operations. We do not currently maintain key-man insurance on his life. Our
future success is also dependent on our ability to identify, hire, train and
retain other qualified managerial and other employees. Competition for these
individuals is intense and increasing. We may not be able to attract,
assimilate, or retain qualified technical and managerial personnel and our
failure to do so could have a material adverse effect on our business, financial
condition and results of operations.
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Our common stock is thinly traded and an active and visible trading market for
our common stock may not develop
Our common stock is currently traded on a limited basis on the
Over-the-Counter Bulletin Board under the symbol "TIDC." The quotation of our
common stock on the OTCBB does not assure that a meaningful, consistent and
liquid trading market currently exists. We cannot predict whether a more active
market for our common stock will develop in the future. In the absence of an
active trading market:
- investors may have difficulty buying and selling or obtaining
market quotations;
- market visibility for our common stock may be limited; and
- a lack of visibility for our common stock may have a
depressive effect on the market price for our common stock.
The sale of shares eligible for future sale could have a depressive effect on
the market price for our common stock
As of the date of this prospectus, there are 15,934,675 shares of
common stock issued and outstanding.
Of the currently issued and outstanding shares, 32,650 restricted
shares of common stock have been held for in excess of one year and are
currently available for public resale pursuant to Rule 144 promulgated under the
Securities Act ("Rule 144"). Unless registered on a form other than Form S-8,
the resale of our shares of Common Stock owned by officers, directors and
affiliates is subject to the volume limitations of Rule 144. In general, Rule
144 permits our shareholders who have beneficially owned restricted shares of
common stock for at least one year to sell without registration, within a
three-month period, a number of shares not exceeding one percent of the then
outstanding shares of common stock. Furthermore, if such shares are held for at
least two years by a person not affiliated with us (in general, a person who is
not one of our executive officers, directors or principal shareholders during
the three-month period prior to resale), such restricted shares can be sold
without any volume limitation.
Sales of our common stock under Rule 144 or pursuant to such
registration statement may have a depressive effect on the market price for our
common stock.
It is not possible to foresee all risks which may affect us. Moreover,
we cannot predict whether we will successfully effectuate our current business
plan. Each prospective purchaser is encouraged to carefully analyze the risks
and merits of an investment in the shares and should take into consideration
when making such analysis, among others, the Risk Factors discussed above.
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TOTAL IDENTITY CORP. 2003 OMNIBUS SECURITIES PLAN
General
On May 2, 2003, our Board of Directors approved, declared it advisable
and in the Company's best interests and directed that there be submitted to the
holders of a majority of our voting stock for action by written consent, the
Total Identity Corp. 2003 Omnibus Securities Plan (the "2003Omnibus Securities
Plan"). On May 2, 2003, the 2003 Omnibus Securities Plan was approved by written
consent of holders of a majority of our voting stock, and ratified on June 17,
2003.
Purpose
The purpose of the 2003 Omnibus Securities Plan is to promote our
(including its subsidiaries) and that of our shareholders by using equity to
attract, retain and motivate our employees and to encourage and reward our
employees' contributions to our performance and to align their interests with
the interests of our shareholders. In furtherance of this purpose, the 2003
Omnibus Securities Plan authorizes the granting of the following types of
stock-based awards (each, an "Award"):
- stock options (including incentive stock options and
non-qualified stock options);
- restricted stock awards;
- unrestricted stock awards; and
- performance stock awards.
Each of these types of Awards is described below under "Awards."
Eligibility
Our employees and those of any subsidiary are eligible to be granted
Awards under the 2003 Omnibus Securities Plan at the discretion of the Board of
Directors. In determining the eligibility of any person, as well as in
determining the number of shares to be covered by an Award and the type or types
of Awards to be made, the Board of Directors may consider:
- the position, relationship, responsibilities and importance of
the person to us; and
- such other factors as the Board of Directors deems relevant.
Administration
The 2003 Omnibus Securities Plan is currently administered by the Board
of Directors. In the future, the Board of Directors may form a Compensation
Committee to administer the 2003 Omnibus Securities Plan. Any Compensation
Committee must be comprised of at least two non-employee directors. If a
Compensation Committee is formed to administer the 2003 Omnibus Securities Plan,
the Board of Directors will delegate to the Compensation Committee full
authority, in its discretion, to:
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- select the persons to whom Awards will be granted (each a
"Participant");
- grant Awards under the 2003 Omnibus Securities Plan;
- determine the number of shares to be covered by each Award;
- determine the nature, amount, pricing, timing and other terms
of the Award;
- interpret, construe and implement the provisions of the 2003
Omnibus Securities Plan (including the authority to adopt
rules and regulations for carrying out the purposes of the
plan); and
- terminate, modify or amend the 2003 Omnibus Securities Plan.
The 2003 Omnibus Securities Plan is not subject to the provisions of
the Employee Retirement Income Security Act of 1974.
Shares Subject to the Plan
A total of 800,000 shares of Common Stock (subject to adjustment as
described below) are currently reserved for issuance under the 2003 Omnibus
Securities Plan, which may be increased from time to time upon proper
authorization. Shares of common stock issued under the 2003 Omnibus Securities
Plan may be authorized but unissued shares, or shares reacquired by us,
including shares purchased on the open market. The unexercised, unearned or
yet-to-be acquired portions of any Award that expire, terminate or are canceled,
and shares of common stock issued pursuant to Awards under the 2003 Omnibus
Securities Plan that are reacquired by us pursuant to the terms under which such
shares were issued, will again become available for the grant of further Awards.
Adjustment
In general, the aggregate number of shares as to which Awards may be
granted to Participants under the 2003 Omnibus Securities Plan, the number and
kind of shares thereof covered by each outstanding Award, and/or the price per
share thereof in each such Award will, upon a determination of the Board of
Directors, all be proportionately adjusted for any increase or decrease in the
number of issued shares of common stock resulting from an increase, decrease or
exchange in the outstanding shares of common stock or additional shares or new
or different shares are distributed in respect of such shares of common stock,
through merger, consolidation, sale or exchange of all or substantially all of
our assets, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, spin-off or other distribution with respect to
such shares.
Fractional interests will not be issued upon any adjustments made by
the Board or Directors; however, the committee may, in its discretion, make a
cash payment in lieu of any fractional shares of common stock issuable as a
result of such adjustments.
Awards
Stock Options
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Under the 2003 Omnibus Securities Plan, the Board of Directors may
grant either incentive stock options or nonqualified stock options. Incentive
stock options and non-qualified stock options may be granted for such number of
shares of common stock as the Board of Directors determines, so long as such
number of shares does not exceed the amount permitted under the plan, or in the
case of incentive stock options, the amount permissible under I.R.C. Section
422.
The exercise price for each stock option is to be determined by the
Board of Directors. Stock options must have an exercise price of at least 85%
(100% in the case of incentive stock options, or at least 110% in the case of
incentive stock options granted to certain employees owning more than 10% of the
outstanding voting stock) of the fair market value of the common stock on the
date the stock option is granted. Under the 2003 Omnibus Securities Plan, fair
market value of the common stock for a particular date is generally the average
of the closing bid and asked prices per share for the stock as quoted on the OTC
Bulletin Board on such date.
No stock option may be exercised after the expiration of ten years from
the date of grant (or five years in the case of incentive stock options granted
to certain employees owning more than 10% of the outstanding voting stock).
Pursuant to the 2003 Omnibus Securities Plan, the aggregate fair market value of
the common stock, for which one or more incentive stock options granted to any
participant may for the first time become exercisable as incentive stock options
under the federal tax laws during any one calendar year shall not exceed
$100,000.
A stock option may be exercised in whole or in part according to the
terms of the applicable stock option agreement by delivery of written notice of
exercise to us specifying the number of shares to be purchased. The exercise
price for each stock option may be paid by the Participant in cash or by such
other means as the Board of Directors may authorize. Fractional shares are not
to be issued upon exercise of a stock option. The Board of Directors may grant
reload stock options in tandem with stock options that provide for an automatic
grant of a stock option in the event a participant pays the exercise price of a
stock option by delivery of common stock.
The Board of Directors may, in its discretion, at any time after the
grant of a stock option, accelerate vesting of such option, as a whole or in
part, by increasing the number of shares then purchasable. However, the Board of
Directors may not increase the total number of shares subject to an option.
Subject to the foregoing and the other provisions of the 2003 Omnibus
Securities Plan, stock options may be exercised at such times and in such
amounts and be subject to such restrictions and other terms and conditions, if
any, as determined by the Board of Directors.
Restricted Stock
Restricted stock may be awarded by the Board of Directors subject to
such terms, conditions and restrictions as it deems appropriate. Restrictions
may include limitations on voting rights and transferability of the shares,
restrictions based on the duration of employment or engagement with us and
Company's or individual performance. Restricted stock may not be sold or
encumbered until all restrictions expire or are terminated. In this regard, our
Corporate Secretary or such other escrow holder as the Board of Directors may
appoint shall retain physical custody of each certificate representing
restricted stock until all restrictions imposed under the applicable Award
Agreement shall expire or be removed.
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The Board of Directors may require the Participant to pay us an amount
at least equal to the par value of the common stock awarded to the Participant.
Subject to any limitations imposed by the applicable Award Agreement, from the
date a Participant becomes the holder of record of restricted stock, the
Participant has all the rights of a stockholder with respect to such shares,
including the right to vote the shares and to receive all dividends and other
distributions paid with respect to the shares.
The 2003 Omnibus Securities Plan provides that to the extent the Board
of Directors elects to grant an Award of restricted stock, the Award Agreement
applicable thereto shall, except in certain specified situations, provide us
with the right to repurchase the restricted stock then subject to restrictions
immediately upon a termination of employment for any reason whatsoever at a cash
price per share equal to the price paid by the Participant for the restricted
stock.
Unrestricted Stock
The Board of Directors may, in its discretion, grant an Award of
unrestricted stock to any eligible Participant, pursuant to which such
Participant may receive shares of Common Stock free of any vesting restrictions
under the 2003 Omnibus Securities Plan. The Board of Directors may also sell
shares of unrestricted stock to eligible Participants at a purchase price
determined in its discretion. Unrestricted stock may be granted or sold in
respect of past services or other valid consideration, or in lieu of any cash
compensation due to such individual.
Performance Stock Awards
The Board of Directors may make performance stock awards under the 2003
Omnibus Securities Plan based upon terms it deems appropriate. The Board of
Directors may make performance stock awards independent of or in connection with
the granting of any other Award under the 2003 Omnibus Securities Plan. The
Board of Directors shall determine whether and to whom performance stock awards
shall be made, the performance criteria applicable under each such Award, the
periods during which performance is to be measured, and all other limitations
and conditions applicable to the awarded shares. The Board of Directors may
utilize any of the following performance criteria when granting performance
stock awards:
- net income;
- pre-tax income;
- operating income;
- cash flow;
- earnings per share;
- return on equity;
- return on invested capital or assets;
- cost reductions or savings;
- funds from operations;
- appreciation in the fair market value of the common stock;
- earnings before anyone or more of the following: interest, taxes,
depreciation or amortization; and
- such other criteria deemed appropriate by the Board of Directors.
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The Participant receiving a performance stock award shall have the
rights of a stockholder only as to shares actually received by the Participant
and not with respect to shares subject to the Award but not actually received.
At any time prior to the Participant's termination of employment (or other
business relationship), the Board of Directors may, in its discretion,
accelerate, waive or, subject to the other provisions of the 2003 Omnibus
Securities Plan, amend any and all performance criteria specified under any
performance stock award.
Federal Income Tax Consequences
The following is a brief summary of the principal federal income tax
consequences of the grant and exercise of Awards under present law. This summary
is not intended to be exhaustive and does not describe foreign, state or local
tax consequences. Recipients of Awards are advised to consult their personal tax
advisors with regard to all tax consequences arising with respect to the Awards.
Tax Withholding
If a distribution is made under this 2003 Omnibus Securities Plan in
cash, we will withhold taxes as required by law. If an Award is satisfied in the
form of shares of the common stock, then no shares may be issued unless and
until arrangements satisfactory to us have been made to satisfy any tax
withholding obligations applicable with respect to such Award.
Deductibility of Awards
Our deductions for Awards granted under the 2003 Omnibus Securities
Plan are limited by Section 162(m) of the Internal Revenue Code of 1986 (the
"Code") which generally limits our deduction for non-performance based
compensation to $1.0 million per year for our CEO and its other four (4) most
highly compensated officers. We have not paid any compensation that was not
deductible by reason of the prohibition of Section 162(m) to any executive
officers.
Incentive Stock Options
Pursuant to the 2003 Omnibus Securities Plan, employees may be granted
stock options that are intended to qualify as "incentive stock options" under
the provisions of Section 422 of the Code. An optionee will not recognize any
taxable income for federal income tax purposes upon receipt of an incentive
stock option or, generally, at the time of exercise of an incentive stock
option. The exercise of an incentive stock option generally will result in an
increase in an optionee's taxable income for alternative minimum tax purposes.
If an optionee exercises an incentive stock option and does not dispose
of the shares received in a subsequent "disqualifying disposition" (generally, a
sale, gift or other transfer within two years after the date of grant of the
incentive stock option or within one year after the shares are transferred to
the optionee), upon disposition of the shares any amount realized in excess of
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the optionee's tax basis in the shares disposed of will be treated as a
long-term capital gain, and any loss will be treated as a long-term capital
loss. In the event of a disqualifying disposition, the difference between the
fair market value of the shares received on the date of exercise and the
exercise price (limited, in the case of a taxable sale or exchange, to the
excess of the amount realized upon disposition over the optionee's tax basis in
the shares) will be treated as compensation received by the optionee in the year
of disposition. Any additional gain will be taxable as a capital gain and any
loss as a capital loss, which will be long-term or short-term, depending on the
length of time the optionee held the shares.
If the exercise price of an incentive stock option is paid in whole or
in part with shares of common stock, no income gain or loss generally will be
recognized by the optionee with respect to the shares of common stock paid as
the exercise price. However, if such shares of common stock were received upon
the exercise of an incentive stock option, the use of those shares as payment of
the exercise price will be considered a disposition for purposes of determining
whether there has been a disqualifying disposition of those shares.
Neither we nor any of our subsidiaries will be entitled to a deduction
with respect to shares received by an optionee upon exercise of an incentive
stock option and not disposed of in a disqualifying disposition. If an amount is
treated as compensation received by an optionee because of a disqualifying
disposition, we or our subsidiary will generally be entitled to a corresponding
deduction in the same amount for compensation paid.
Non-Qualified Stock Options
An optionee will not recognize any taxable income for federal income
tax purposes upon receipt of a non-qualified stock option. Upon the exercise of
a non-qualified stock option the amount by which the fair market value of the
shares received, determined as of the date of exercise, exceeds the exercise
price, the stock option will be treated as compensation received by the optionee
in the year of exercise. If the exercise price of a non-qualified stock option
is paid in whole or in part with shares of common stock, (i) no income, gain or
loss will be recognized by the optionee on the receipt of shares equal in value
on the date of exercise to the shares delivered in payment of the exercise
price, and (ii) no income, gain or loss will be recognized by the optionee with
respect to the shares of common stock paid as the exercise price of the option.
The fair market value of the remainder of the shares received upon exercise of
the non-qualified stock option, determined as of the date of exercise, less the
amount of cash, if any, paid upon exercise, will be treated as compensation
income received by the optionee on the date of exercise of the stock option. We
or our subsidiary, generally will be entitled to a deduction for compensation
paid in the same amount treated as compensation received by the optionee.
Reload Option Rights
An optionee should not recognize any taxable income for federal income
tax purposes upon receipt of reload option rights, and a reload option should be
treated as a non-qualified stock option.
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Restricted Stock
A recipient of restricted stock will not recognize any taxable income
for federal income tax purposes in the year of the Award, provided the shares
are subject to restrictions (that is, they are non-transferable and subject to a
substantial risk of forfeiture). However, the recipient may elect under Section
83(b) of the Code to recognize compensation income in the year of the Award in
an amount equal to the fair market value of the shares on the date of the Award
(less the amount paid by the recipient for such shares), determined without
regard to the restrictions. If the recipient does not make a Section 83(b)
election, the fair market value of the shares on the date the restrictions lapse
(less the amount paid by the recipient for such shares) will be treated as
compensation income to the recipient and will be taxable in the year the
restrictions lapse. We or one of our subsidiaries generally will be entitled to
a deduction for compensation paid in the same amount treated as compensation
income to the recipient.
Unrestricted Stock
Any shares of common stock received pursuant to an Award of
unrestricted stock will be treated as compensation income received by the
recipient, generally, in the year in which the recipient receives such shares.
In each case, the amount of compensation income will equal the fair market value
of the shares of common stock on the date compensation income is recognized
(less the amount, if any, paid by the recipient for such shares). We or one of
our subsidiaries, generally, will be entitled to a corresponding deduction in
the same amount for compensation paid.
Performance Stock Awards
A recipient of a performance stock award will not recognize any taxable
income for federal income tax purposes upon receipt of the Award. Any shares of
common stock received pursuant to the Award will be treated as compensation
income received by the recipient, generally, in the year in which the recipient
receives such shares of common stock. The amount of compensation income will
equal the fair market value of the shares of common stock on the date
compensation income is recognized. We or one of our subsidiaries, generally,
will be entitled to a deduction for compensation paid in the same amount treated
as compensation income to the recipient.
Other Tax Matters
The exercise by a recipient of a stock option, the lapse of
restrictions on restricted stock, or the deemed earnout of performance stock
awards following the occurrence of a change in control, in certain
circumstances, may result in:
- a 20% federal excise tax (in addition to federal income tax)
to the recipient on certain payments of common stock or cash
resulting from such exercise or deemed the arnount of
performance stock awards or, in the case of restricted stock,
on all or a portion of the fair market value of the shares on
the date the restrictions lapse; and
- the loss of a compensation deduction which would otherwise be
allowable to us or one of our subsidiaries as explained above.
14
Grants Under the 2003 Omnibus Securities Plan
As of the date hereof, Awards covering 740,000 shares have been made
under the 2003 Omnibus Securities Plan.
THE TOTAL IDENTITY CORP. 2003 NON-QUALIFIED SECURITIES PLAN
General
On May 2, 2003, our Board of Directors approved, declared it advisable
and in our best interests and directed that there be submitted to the holders of
a majority of our voting stock for action by written consent, the Total Identity
Holdings, Inc. 2003 Non-Qualified Stock Grant and Option Plan (the "2003
Non-Qualified Securities Plan"). On May 2, 2003, the Board of Directors approval
of the 2003 Non-Qualified Securities Plan was ratified by written consent of a
majority of our voting stock On November 14, 2003, the Board of Directors
increased the number of shares available for issuance under the 2003
Non-Qualified Securities Plan to 3.0 million, and on January 12, 2004 increased
the number of shares available for issuance to 5.2 million.
Purpose
The purpose of the 2003 Non-Qualified Securities Plan is to promote the
interests of the Company (including its subsidiaries) and its stockholders by
using our equity to attract, retain and motivate its management and other
persons, including officers, directors, key employees and certain consultants,
to encourage and reward such persons' contributions to our performance and to
align their interests with the interests of our stockholders. In furtherance of
this purpose, the 2003 Non-Qualified Securities Plan authorizes the granting of
the following types of stock-based awards (each, an "Award"):
- stock options (non-qualified stock options); and
- stock awards (restricted, unrestricted or performance-based).
Each of these types of Awards is described below under "Awards."
Eligibility
Our key employees (including employees who are also directors or
officers), directors and certain consultants or those of any subsidiary are
eligible to be granted Awards under the 2003 Non-Qualified Securities Plan at
the discretion of the Board of Directors. In determining the eligibility of any
person, as well as in determining the number of shares to be covered by an Award
and the type or types of Awards to be made, the Board of Directors may consider:
- the position, relationship, responsibilities and importance of
the person to us; and
- such other factors as the Board of Directors deems relevant.
Selected consultants may participate in the 2003 Non-Qualified Securities Plan
if:
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- the consultant renders bona fide services to us or one of our
subsidiaries;
- the services rendered by the consultant are not in connection
with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or
maintain a market for our securities; and
- the consultant is a natural person who has contracted directly
with us or a subsidiary to render such services.
Administration
The 2003 Non-Qualified Securities Plan currently is administered by the
Board of Directors or by a committee appointed by the Board of Directors. The
Board of Directors or any committee appointed by the Board of Directors has full
authority, in its discretion, to:
- select the persons to whom Awards will be granted (each a
"Participant");
- grant Awards under the 2003 Non-Qualified Securities Plan;
- determine the number of shares to be covered by each Award;
- determine the nature, amount, pricing, timing and other terms
of the Award;
- interpret, construe and implement the provisions of the 2003
Non-Qualified Securities Plan (including the authority to
adopt rules and regulations for carrying out the purposes of
the plan); and
- terminate, modify or amend the 2003 Non-Qualified Securities
Plan.
The 2003 Non-Qualified Securities Plan is not subject to the provisions
of the Employee Retirement Income Security Act of 1974.
Shares Subject to the Plan
A total of 5.2 million shares of Common Stock (subject to adjustment as
described below) are reserved for issuance under the 2003 Non-Qualified
Securities Plan which may be increased from time to time upon proper
authorization. Shares of common stock issued under the 2003 Non-Qualified
Securities Plan may be authorized but unissued shares, or shares reacquired by
the Company, including shares purchased on the open market. The unexercised,
unearned or yet-to-be acquired portions of any Award that expire, terminate or
are canceled, and shares of common stock issued pursuant to Awards under the
2003 Non-Qualified Securities Plan that are reacquired by the Company pursuant
to the terms under which such shares were issued, will again become available
for the grant of further Awards.
Adjustment
In general, the aggregate number of shares as to which Awards may be
granted to Participants under the 2003 Non-Qualified Securities Plan, the number
and kind of shares thereof covered by each outstanding Award, and/or the price
per share thereof in each such Award will, upon a determination of the Board of
Directors, all be proportionately adjusted for any increase or decrease in the
number of issued shares of common stock resulting from an increase, decrease or
exchange in the outstanding shares of common stock or additional shares or new
or different shares are distributed in respect of such shares of common stock,
through merger, consolidation, sale or exchange of all or substantially all of
our assets, or our reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, spin-off or other distribution with
respect to our shares.
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Fractional interests will not be issued upon any adjustments made by
the Board or Directors; however, the committee may, in its discretion, make a
cash payment in lieu of any fractional shares of common stock issuable as a
result of such adjustments.
Awards
Stock Options
Under the 2003 Non-Qualified Securities Plan, the Board of Directors
may only grant non-qualified stock options. Non-qualified stock options may be
granted for such number of shares of common stock as the Board of Directors
determines, so long as such number of shares does not exceed the amount
permitted under the plan. The exercise price for each stock option is determined
by the Board of Directors. No stock option may be exercised after the expiration
of ten years from the date of grant.
Subject to the foregoing and the other provisions of the 2003
Non-Qualified Securities Plan, stock options may be exercised at such times and
in such amounts and be subject to such restrictions and other terms and
conditions, if any, as determined by the Board of Directors.
Stock Grants
Restricted stock may be awarded by the Board of Directors subject to
such terms, conditions and restrictions, if any, as it deems appropriate.
Restrictions may include limitations on voting rights and transferability of the
shares, restrictions based on the duration of employment or engagement with us,
and the Company's or individual performance.
Federal Income Tax Consequences
The following is a brief summary of the principal federal income tax
consequences of the grant and exercise of Awards under present law. This summary
is not intended to be exhaustive and does not describe foreign, state or local
tax consequences. Recipients of Awards are advised to consult their personal tax
advisors with regard to all tax consequences arising with respect to the Awards.
Tax Withholding
If a distribution is made under this 2003 Non-Qualified Securities Plan
in cash, we will withhold taxes as required by law. If an Award is satisfied in
the form of shares of the common stock, then no shares may be issued unless and
until arrangements satisfactory to us have been made to satisfy any tax
withholding obligations applicable with respect to such Award.
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Deductibility of Awards
Our deductions for Awards granted under the 2003 Non-Qualified
Securities Plan are limited by Section 162(m) of the Internal Revenue Code of
1986 (the "Code") which generally limits our deduction for non-performance based
compensation to $1.0 million per year for our CEO and our other four (4) most
highly compensated officers. We have not paid any compensation that was not
deductible by reason of the prohibition of Section 162(m) to any executive
officers.
Non-Qualified Stock Options
An optionee will not recognize any taxable income for federal income
tax purposes upon receipt of a non-qualified stock option. Upon the exercise of
a non-qualified stock option the amount by which the fair market value of the
shares received, determined as of the date of exercise, exceeds the exercise
price, the stock option will be treated as compensation received by the optionee
in the year of exercise. If the exercise price of a non-qualified stock option
is paid in whole or in part with shares of common stock, (i) no income, gain or
loss will be recognized by the optionee on the receipt of shares equal in value
on the date of exercise to the shares delivered in payment of the exercise
price, and (ii) no income, gain or loss will be recognized by the optionee with
respect to the shares of common stock paid as the exercise price of the option.
The fair market value of the remainder of the shares received upon exercise of
the non-qualified stock option, determined as of the date of exercise, less the
amount of cash, if any, paid upon exercise, will be treated as compensation
income received by the optionee on the date of exercise of the stock option. We
or one of our subsidiaries, generally will be entitled to a deduction for
compensation paid in the same amount treated as compensation received by the
optionee.
Reload Option Rights
An optionee should not recognize any taxable income for federal income
tax purposes upon receipt of reload option rights, and a reload option should be
treated as a non-qualified stock option.
Restricted Stock
A recipient of restricted stock will not recognize any taxable income
for federal income tax purposes in the year of the Award, provided the shares
are subject to restrictions (that is, they are non-transferable and subject to a
substantial risk of forfeiture). However, the recipient may elect under Section
83(b) of the Code to recognize compensation income in the year of the Award in
an amount equal to the fair market value of the shares on the date of the Award
(less the amount paid by the recipient for such shares), determined without
regard to the restrictions. If the recipient does not make a Section 83(b)
election, the fair market value of the shares on the date the restrictions lapse
(less the amount paid by the recipient for such shares) will be treated as
compensation income to the recipient and will be taxable in the year the
restrictions lapse. We or one of our subsidiaries generally will be entitled to
a deduction for compensation paid in the same amount treated as compensation
income to the recipient.
Unrestricted Stock
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Any shares of common stock received pursuant to an Award of
unrestricted stock will be treated as compensation income received by the
recipient, generally, in the year in which the recipient receives such shares.
In each case, the amount of compensation income will equal the fair market value
of the shares of common stock on the date compensation income is recognized
(less the amount, if any, paid by the recipient for such shares). We or one of
our subsidiaries, generally, will be entitled to a corresponding deduction in
the same amount for compensation paid.
Performance Stock Awards
A recipient of a performance stock award will not recognize any taxable
income for federal income tax purposes upon receipt of the Award. Any shares of
common stock received pursuant to the Award will be treated as compensation
income received by the recipient, generally, in the year in which the recipient
receives such shares of common stock. The amount of compensation income will
equal the fair market value of the shares of common stock on the date
compensation income is recognized. We or one of our subsidiaries, generally,
will be entitled to a deduction for compensation paid in the same amount treated
as compensation income to the recipient.
Other Tax Matters
The exercise by a recipient of a stock option, the lapse of
restrictions on restricted stock, or the deemed earnout of performance stock
awards following the occurrence of a change in control, in certain
circumstances, may result in:
- a 20% federal excise tax (in addition to federal income tax)
to the recipient on certain payments of common stock or cash
resulting from such exercise or deemed earnout of performance
stock awards or, in the case of restricted stock, on all or a
portion of the fair market value of the shares on the date the
restrictions lapse; and
- the loss of a compensation deduction which would otherwise be
allowable to us or one of our subsidiaries as explained above.
Restrictions Under Securities Laws
The sale of all shares issued under the Plans must be made in
compliance with federal and state securities laws. Our officers, directors and
10% or greater shareholders, as well as certain other persons or parties who may
be deemed to be "affiliates" of ours under federal securities laws, should be
aware that resales by affiliates can only be made pursuant to an effective
registration statement, Rule 144 or other applicable exemption. Our officers,
directors and 10% and greater shareholders may also become subject to the "short
swing" profit rule of Section 16(b) of the Securities Exchange Act of 1934.
Awards Under the 2003 Non-Qualified Securities Plan
As of the date hereof, Awards covering 4,850,000 shares have been made
under the 2003 Non-Qualified Securities Plan.
SELLING SECURITY HOLDERS
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The information under this heading relates to resales of shares covered
by this prospectus by persons who are our "affiliates" as that term in defined
under federal securities laws. Shares issued pursuant to this prospectus to our
affiliates are "control" shares under federal securities laws.
The following table sets forth:
- the name of each affiliated selling security holder,
- the amount of common stock owned beneficially, directly or
indirectly, by each affiliated selling security holder,
- the amount of common stock owned beneficially, directly or
indirectly, by each affiliated selling security holder,
- the maximum amount of shares to be offered by the affiliated
selling security holders pursuant to this prospectus,
- the amount of common stock to be owned by each affiliated
selling security holder following sale of the shares, and
- the percentage of our common stock to be owned by the
affiliated selling security holder following completion of
such offering, and adjusted to give effect to the issuance of
shares upon the exercise of the named selling security
holder's options or warrants, but no other person's options or
warrants.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to securities
and includes any securities, which the person has the right to acquire within 60
days through the conversion or exercise of any security or other right. The
information as to the number of shares of our common stock owned by each
affiliated selling security holder is based upon our books and records and the
information provided by our transfer agent.
We may amend or supplement this prospectus from time to time to update
the disclosure set forth in the table. Because the selling security holders
identified in the table may sell some or all of the shares owned by them which
are included in this prospectus, and because there are currently no agreements,
arrangements or understandings with respect to the sale of any of the shares, no
estimate can be given as to the number of shares available for resale hereby
that will be held by the affiliated selling security holders upon termination of
the offering made hereby. We have therefore assumed, for the purposes of the
following table, that the affiliated selling security holders will sell all of
the shares owned by them that are being offered hereby, but will not sell any
other shares of our common stock that they presently own.
Shares Percentage
to be to be Owned
Name of Selling Number of Shares to Owned After After
Security Holder Shares Owned be Offered Offering Offering
- --------------- ------------ ---------- -------- --------
Matthew P. Dwyer 612,500(1) 600,000(2) 0 0
Richard R. Dwyer 1,425,000(3) 1,100,000(4) 600,000 3.8%
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- -----------
(1) Includes 62,500 currently exercisable options. Does not include 450,000
shares issuable to Matthew P. Dwyer under his employment agreement with the
Company, or options to acquire 437,500 shares, which shares or options cannot be
earned or exercised by Mr. Dwyer during the next 60 days and which are not,
therefore, deemed to be beneficially owned.
(2) Consists of 150,000 outstanding shares and 450,000 shares issuable under the
employment agreement referred to in the immediately preceding note.
(3) Does not include 310,000 shares issuable under a consulting agreement to
Richard R. Dwyer more than 60 days following the date hereof.
(4) Includes the 310,000 shares described in the immediately preceding note.
PLAN OF DISTRIBUTION
The information under this heading includes resales of shares covered
by this prospectus by persons who are our "affiliates" as that term in defined
under federal securities laws.
The shares covered by this prospectus may be resold and distributed
from time to time by the selling security holders in one or more transactions,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of these shares as
principals, at market prices existing at the time of sale, at prices related to
existing market prices, through Rule 144 transactions or at negotiated prices.
Usual and customary or specifically negotiated brokerage fees or commissions may
be paid by the selling security holders in connection with sales of securities.
The selling security holders may sell shares in one or more of the
following methods, which may include crosses or block transactions:
- through the "pink sheets", on the over-the-counter Bulletin
Board, or on such exchanges or over-the-counter markets on
which our shares may be listed from time-to-time, in
transactions which may include special offerings, exchange
distributions and/or secondary distributions, pursuant to and
in accordance with the rules of such exchanges;
- in transactions other than on such exchanges or in the
over-the-counter market, or a combination of such
transactions, including sales through brokers, acting as
principal or agent, sales in privately negotiated
transactions, or dispositions for value, subject to rules
relating to sales by affiliates; or
- through the writing of options on our shares, whether or not
such options are listed on an exchange, or other transactions
requiring delivery of our shares, or the delivery of our
shares to close out a short position.
Any such transactions may be effected at market prices prevailing at
the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices.
In making sales, brokers or dealers used by the selling security
holders may arrange for other brokers or dealers to participate. The selling
security holders who are affiliates of Total Identity and others through whom
such securities are sold may be "underwriters" within the meaning of the
Securities Act for the securities offered, and any profits realized or
commission received may be considered underwriting compensation. Information as
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to whether an underwriter(s) who may be selected by the selling security
holders, or any other broker-dealer, is acting as principal or agent for the
selling security holders, the compensation to be received by underwriters who
may be selected by the selling security holders, or any broker-dealer, acting as
principal or agent for the selling security holders and the compensation to be
received by other broker-dealers, in the event the compensation of other
broker-dealers is in excess of usual and customary commissions, will, to the
extent required, be set forth in a supplement to this prospectus. Any dealer or
broker participating in any distribution of the shares may be required to
deliver a copy of this prospectus, including the supplement, if any, to any
person who purchases any of the shares from or through a dealer or broker.
We have advised the selling security holders that, at the time a resale
of the shares is made by or on behalf of a selling security holder, a copy of
this prospectus is to be delivered.
We have also advised the selling security holders that during the time
as they may be engaged in a distribution of the shares included herein they are
required to comply with Regulation M of the Exchange Act. With certain
exceptions, Regulation M precludes any selling security holders, any affiliated
purchasers and any broker-dealer or other person who participates in the
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids
or purchase made in order to stabilize the price of a security in connection
with the distribution of that security.
Sales of securities by the selling security holders and us or even the
potential of these sales may have an adverse effect on the market price for
shares of our common stock.
DESCRIPTION OF SECURITIES
General
The following description of our capital stock and provisions of our
Articles of Incorporation is a summary thereof and is qualified by reference to
our Articles of Incorporation, copies of which may be obtained upon request. Our
authorized capital consists of 30,000,000 shares of common stock, par value $.01
per share, of which 15,934,675 shares are issued and outstanding. We are
authorized to issue 2,000,000 shares of preferred stock, of which 250,000 shares
are issued or outstanding.
Common Stock
Holders of shares of common stock are entitled to share, on a ratable
basis, such dividends as may be declared by the board of directors out of funds,
legally available therefor. Upon our liquidation, dissolution or winding up,
after payment to creditors, our assets will be divided pro rata on a per share
basis among the holders of our common stock.
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Each share of common stock entitles the holders thereof to one vote.
Holders of common stock do not have cumulative voting rights. Our By-Laws
require that only a majority of our issued and outstanding shares need be
represented to constitute a quorum and to transact business at a stockholders'
meeting. Our common stock has no preemptive, subscription or conversion rights
and is not redeemable by us.
Preferred Stock
Our articles of incorporation authorizes our board of directors to
create and issue series of preferred stock from time to time, with such
designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as permitted under Florida
law.
The Company has established its Series A Preferred Stock consisting in
total of 250,000 shares. This series carries no dividend or conversion rights,
but includes a stated right to vote 10 shares for each share of Series A
Preferred Stock. The Series A Preferred Stock will have priority as to
liquidation with respect to the Common Stock and any series of preferred stock
ranking junior to the Series A Preferred Stock.
As of the date of this prospectus, there were 250,000 shares of
Securities A Preferred Stock issued and outstanding.
We authorized the establishment of its Series B Convertible Preferred
Stock on January 31, 2003, and subsequently filed an amendment to the
designations. The Series B Preferred Stock carries no specified dividend rate
and may be declared pro rata with the common stock on a pari passu basis.
However, no dividend may be declared while we have outstanding indebtedness. Any
dividends will accrue on a non-cumulative basis. Upon liquidation, the Series B
Preferred Stock will have the same liquidation preference equal to that of the
common stock of Total Identity. If at any time at least 5% of Kina'ole's
outstanding common stock is distributed to Total Identity's shareholders on a
pro rata basis, the Series B Preferred Stock will automatically convert into
that number of shares of common stock of Kina'ole equal to 90% of the then
outstanding common stock of Kina'ole. In the original designations, we provided
for each share of Series B Preferred Stock to have 30 votes on all matters
submitted to shareholders. Thereafter, we filed an amendment to eliminate the
voting rights of the Series B Preferred Stock. No redemption rights are provided
with regard to the Series B Preferred Stock. Effective September 30, 2003, we
delivered all of the issued and outstanding shares of Kina'ole's capital stock
in exchange for the 500,000 issued and outstanding shares of Series B Preferred
Stock. There are currently no shares of Series B Preferred Stock issued and
outstanding.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is North American
Transfer Company is North American Transfer Company, 147 West Merrick Road,
Freeport, New York 11520.
EXPERTS
The financial statements of Total Identity Corp. f/k/a/ TMI Holdings,
Inc. as of December 29, 2002, and for the years ended December 29, 2002 and
December 30, 2001, appearing in our Annual Report on Form 10-KSB for the year
ended December 29, 2002 have been audited by Berkowitz, Dick Pollack & Brant,
LLP, Certified Public Accountants, as set forth in their report thereon and are
incorporated by reference in reliance upon the authority of such firm as experts
in auditing and accounting.
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INDEMNIFICATION
The Florida Business Corporation Act allows us to indemnify each of our
officers and directors who are made a party to a proceeding if
(a) the officer or director conducted himself or herself in good
faith;
(b) his or her conduct was in our best interests, or if the
conduct was not in an official capacity, that the conduct was
not opposed to our best interests; and
(c) in the case of a criminal proceeding, he or she had no
reasonable cause to believe that his or her conduct was
unlawful.
Article IX of the Company's Restated Articles of Incorporation provide
as follows:
"Article IX
To the fullest extent permitted by law, no director or officer
of the Corporation shall be personally liable to the Corporation or its
shareholders for damages for breach of any duty owed to the Corporation
or its shareholders. In addition, the Corporation shall have the power,
in its Bylaws or in any resolution of its stockholders or directors, to
undertake to indemnify the officers and directors of this Corporation
against any contingency or peril as may be determined to be in the best
interests of this Corporation, and in conjunction therewith, to
procure, at this Corporation's expense, policies of insurance."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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