-----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, DnDPJzJnvZEY1tjsrHZTYs/Q694qSvq8LarSQCVuxzTEX55k+bzCS6K7aL4qxTPh yxsopHVYQI67iPFB4LKUaA== 0001144204-03-006511.txt : 20031028 0001144204-03-006511.hdr.sgml : 20031028 20031028121535 ACCESSION NUMBER: 0001144204-03-006511 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20031013 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031028 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOTAL IDENTITY CORP CENTRAL INDEX KEY: 0001016611 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 650309540 STATE OF INCORPORATION: FL FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-30011 FILM NUMBER: 03960196 BUSINESS ADDRESS: STREET 1: 4463 PAHE'E STREET STREET 2: SUITE 203-B CITY: LIHUE STATE: HI ZIP: 96766 BUSINESS PHONE: 8083844622 MAIL ADDRESS: STREET 1: 4463 PAHE'E STREET STREET 2: SUITE 203-B CITY: LIHUE STATE: HI ZIP: 96766 FORMER COMPANY: FORMER CONFORMED NAME: TMI HOLDINGS INC/FL DATE OF NAME CHANGE: 20011113 FORMER COMPANY: FORMER CONFORMED NAME: THRIFT MANAGEMENT INC DATE OF NAME CHANGE: 19960711 8-K 1 form8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. October 13, 2003 0-30011 - ----------------------------------------------- ---------------------------- Date of Report (Date of earliest event reported) Commission File Number TOTAL IDENTITY CORP. (Exact name of registrant as specified in its charter) Florida 65-0309540 - ------------------------------------------------ --------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification Number) 11924 Forest Hill Blvd., Suite 22-204 Wellington, Florida 33414 - ------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (561) 202-8184 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) TMI HOLDINGS, INC. - ------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets Acquisition of Total Identity Systems Completed Effective on October 13, 2003, Total Identity Corp. f/k/a TMI Holdings, Inc., completed its acquisition of all of the issued and outstanding shares of Total Identity Systems Corp., a New York corporation. Total Identity Systems is a privately held, Rochester, New York-based custom sign manufacturer servicing local, regional and national accounts. Initially, the Company purchased newly issued shares of Total Identity Systems in an amount equal to 60% of the issued and outstanding shares of Total Identity Systems. The purchase price for those shares was $1,000,000, of which $150,000 was paid at the closing and the balance is payable in three installments prior to December 31, 2003. Immediately following the acquisition, the Company purchased the remaining 40% interest in Total Identity Systems from Robert David. The purchase price for the 40% interest was $800,000, which is payable in monthly installments over a period of three years commencing in April 2004. The $800,000 promissory note evidencing the purchase price has been guaranteed by Total Identity Systems. All of the shares purchased by the Company have been pledged to Mr. David as security for the Company's obligations under both stock purchase agreements. If the Company defaults in the payment of its obligations under either of the stock purchase agreements, Robert David may reacquire the Total Identity Systems Corp. shares purchased by the Company. In connection with the acquisition, (a) Total Identity Systems entered into a three-year employment agreement with Charles Finzer to serve as the President of Total Identity Systems, and (b) the Company entered into a three-year employment agreement with Robert David to serve as a vice president of the Company. Total Identity Systems also entered into a ten-year lease with 2340 Townline Road Corporation, a company wholly owned by Robert David, covering the Rochester, New York facilities where Total Identity Systems currently operates. The lease has been guaranteed by the Company. The Company paid the $150,000 downpayment against the purchase price for the shares acquired from Total Identity Systems through a 12% convertible debenture in the principal amount of $150,000 sold by the Company to Argilus Capital, LLC. The principal amount of the debenture is to be repaid on January 10, 2004 from the proceeds of a financing proposed to be placed by Argilus Capital; provided, that if the financing is not completed by January 10, 2004, Argilus Capital's sole recourse for repayment of the debenture shall be from the proceeds of sale of 400,000 shares of the Company's common stock provided as additional consideration to Argilus Capital by a shareholder of the Company. Interest on the debenture is payable monthly, at the rate of 12% per annum, commencing November 1, 2003. Repayment of the debenture has been guaranteed by Richard R. Dwyer, President of the Company. Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits. (a) Financial Statements for the periods specified in Rule 3-05(b) of Regulation S-X shall be filed by amendment within 60 days of the date of this filing. (b) Pro Forma Financial Information required pursuant to Article 11 of Regulation S-X shall be filed by amendment within 60 days of the date of this filing. (c) Exhibits. 10.1 Stock Purchase Agreement dated October 13, 2003 by and between Total Identity Corp. and Total Identity Systems Corp. 10.2 Stock Purchase Agreement dated October 13, 2003 by and between Total Identity Corp. and Robert David. 10.3 Employment Agreement dated October 13, 2003 by and between Charles Finzer and Total Identity Systems Corp. 10.4 Employment Agreement dated October 13, 2003 by and between Robert David and Total Identity Corp. 10.5 Promissory Note dated October 13, 2003 from Total Identity Systems Corp. to Robert David. 10.6 Pledge Agreement dated October 13, 2003 by and between Total Identity Corp. and Robert David. 10.7 Lease dated October 13, 2003 by and between Total Identity Systems Corp. and 2340 Townline Road Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: October 28, 2003 TOTAL IDENTITY CORP. By: /s/ Richard R. Dwyer ----------------------------------------- Richard R. Dwyer President and Chief Executive Officer EX-10.1 3 ex-10_1.txt Exhibit 10.1 THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT ("AGREEMENT") dated as of October 13, 2003 between TOTAL IDENTITY SYSTEMS CORP., a New York corporation (the "COMPANY"), TOTAL IDENTITY CORP., a Florida corporation (the "PURCHASER") and ROBERT DAVID, an individual resident of the State of New York ("DAVID"). W I T N E S S E T H: WHEREAS, the Company desires to sell and issue to the Purchaser, and the Purchaser desires to purchase from the Company, 120 shares of the Company's common stock, $1.00 par value per share (the "COMMON SHARES"); and WHEREAS, upon completion of the sale and issuance of the Common Shares to the Purchaser, the Purchaser will own 60% of the then issued and outstanding capital stock of the Company; and WHEREAS, David is currently the sole shareholder of the Company and, following the sale of the Common Shares to the Purchaser, David will own 40% of the then issued and outstanding capital stock of the Company. NOW, THEREFORE, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF COMMON SHARES Section 1.1 ISSUANCE OF COMMON SHARES. Upon the following terms and conditions, the Company shall issue and sell the Common Shares to the Purchaser, and the Purchaser shall purchase the Common Shares from the Company. Section 1.2 PURCHASE PRICE. The purchase price for the Common Shares shall be the sum of $1,000,000 (the "PURCHASE PRICE"). The Purchase Price shall be paid $150,000 at the Closing (as hereinafter defined), $250,000 on or before November 7, 2003, $250,000 on or before November 30, 2003 and $350,000 on or before December 31, 2003. The Purchase Price shall be used by the Company for the purposes identified on Schedule A attached hereto and incorporated by reference herein. The parties agree that until such time as the Purchase Price has been paid in full, all expenditures by the Company shall require the dual signatures of Chuck Finzer or Dan Cass, on the one hand, and the Chief Executive Officer of Purchaser or his designee, on the other hand. Section 1.3 THE CLOSING. (a) Timing. The purchase and sale of the Common Shares shall take place at a closing (the "CLOSING") to occur on the date hereof or on such other date and at such other time and place as is mutually agreed upon by the Company and the Purchaser (the "CLOSING DATE") not more than five days following satisfaction or waiver of all conditions set forth Article III of this Agreement. (b) Form of Payment and Closing. On the Closing Date, (i) the Company shall deliver to the Purchaser certificates evidencing the Common Shares, registered to the Purchaser and (ii) the Purchaser shall deliver by wire transfer to the account of Company, the sum of $150,000. The balance of the Purchase Price shall be paid in like manner, in the amounts and on or prior to the dates set forth in Section 1.2. In addition, on the Closing Date, each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing. The Common Shares shall be fully owned and paid for by the Purchaser as of the Closing Date. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND DAVID. Except as otherwise set forth on a Disclosure Schedule delivered by the Company to the Purchaser at the time this Agreement is executed, the Company and David, jointly and severally, hereby make the following representations and warranties to the Purchaser as of the date hereof (except as otherwise specified) and the Closing Date: (a) Organization and Qualification; Material Adverse Effect. The Company is a corporation duly incorporated and existing in good standing under the laws of the State of New York and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company does not have any direct or indirect subsidiaries, except that the Company owns all of the interests in The Markham Company, LLC, a New York limited liability company, and Awnex, LLC, a New York limited liability company (each, a "Subsidiary" and collectively, the "Subsidiaries"). The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means (i) any adverse effect on the business, operations, properties, prospects or financial condition of the Company and which is (either alone or together with all other adverse effects) material to the Company, taken as a whole, and (ii) any material adverse effect on the transactions contemplated under this Agreement or any other agreement or document contemplated hereby. 2 (b) Subsidiaries. Each Subsidiary is a limited liability company, duly organized and validly existing under the laws of its jurisdiction of organization. The Company owns 100% of the membership interests in each Subsidiary free and clear of all liens, charges, encumbrances or security interests. Neither the Company nor any Subsidiary has entered into any agreement or understanding relating to the issuance of additional membership interests or the transfer of currently outstanding membership interests. All the issued and outstanding shares of membership interests of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. The only evidence of ownership of each Subsidiary is its outstanding membership interests. (c) Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement and the agreements contemplated hereby ("TRANSACTION DOCUMENTS") and to issue the Common Shares in accordance with the terms hereof, (ii) the execution and delivery of this Agreement and the other Transaction Documents and the Common Shares by the Company, and the consummation by it of the transactions contemplated hereby, including the issuance of the Common Shares, have been duly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors (or any committee or subcommittee thereof) or stockholders is required or, if required, will have been received on or before the Closing Date, (iii) this Agreement and the Common Shares have been duly executed and delivered by the Company, (iv) this Agreement and the other Transaction Documents constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of creditors' rights and remedies or by other equitable principles of general application, and (B) to the extent the indemnification provisions contained in this Agreement may be limited by applicable federal or state securities laws and (v) the Common Shares have been duly authorized and, upon issuance thereof and payment therefor in accordance with the terms of this Agreement will be validly issued, fully paid and non-assessable, free and clear of any and all liens, claims and encumbrances. (d) Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 200 shares of Common Stock, of which as of the date hereof, 80 shares are issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. As of the date hereof, (i) no shares of the Company's capital stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company, other than preemptive rights held by David which will be unconditionally and irrevocably waived on or prior to the Closing Date (ii) there are no outstanding debt securities, (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or 3 options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company, except for a non-statutory stock option granted to Chuck Finzer to acquire 10% of the capital stock of the Company which option will be terminated on or prior to the Closing Date, (iv) there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the Securities Act of 1933, as amended ("SECURITIES ACT" or "1933 ACT"), (v) there are no outstanding securities of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company, (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Common Shares as described in this Agreement and (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. The Company has furnished to the Purchaser true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the "BY-LAWS"). (e) Issuance of Shares. The Common Shares have been duly authorized and upon issuance in accordance with the terms hereof, the Common Shares will (i) be validly issued and non-assessable, and upon payment of the Purchase Price will be fully paid, (ii) be free from all taxes, liens and charges with respect to the issue thereof, and (iii) not be subject to the preemptive rights of any person, other than preemptive rights held by David which will be unconditionally and irrevocably waived on or prior to the Closing Date. (f) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby and issuance of the Common Shares will not (i) result in a violation of the Certificate of Incorporation or the By-laws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations and the rules and regulations of any principal securities exchange or trading market on which the Common Stock is traded or listed) applicable to the Company or by which any property or asset of the Company is bound or affected. Neither the Company nor any Subsidiary is in violation of any term of, or in default under, (x) its Certificate of Incorporation, By-laws or other organizational documents, (y) any material contract, agreement, mortgage, indebtedness, indenture, instrument, or (z)(i) any judgment, decree or order or (ii) any statute, rule or regulation applicable to the Company or any Subsidiary, the non-compliance with which (in the case of (z)(i) only), would be material to the Company or interfere with the performance of its obligations under the Transaction Documents. Except as specifically contemplated by this Agreement and as required under the 1933 Act, the Company is not required to obtain any consent, authorization or order of, or make any 4 filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under, or contemplated by, the Transaction Documents or the issuance of the Common Shares in accordance with the terms hereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. (g) Financial Statements. The Company has delivered or will deliver to Purchaser (i) the balance sheets of the Company as at January 31, 2003 and 2002, and the related statements of operations, stockholders' equity and cash flows for each the two fiscal years then ended, including the notes thereto, compiled by Gerald Ross CPA and (ii) the balance sheet of the Company as at August 31, 2003 and the related statement of operations for the seven months then ended, prepared by management (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). There are no liabilities of the Company, absolute or contingent, except as set forth on the Company Financial Statements. The Company has no reason to believe that its financial statements cannot be audited in accordance with generally accepted accounting principles and the rules and regulations of the United States Securities and Exchange Commission. (h) Absence of Certain Changes. Since the date of the most recent balance sheet included in the Company Financial Statements, there has been no adverse change or adverse development in the business, properties, assets, operations, financial condition, prospects, liabilities or results of operations of the Company which has had or, to the knowledge of the Company, is reasonably likely to have a Material Adverse Effect. Neither the Company nor any Subsidiary has taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any Subsidiary have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. (i) Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties or assets. (j) Material Agreements. The Company and each Subsidiary is in compliance with the terms and conditions of each material agreement to which it is a party. No party to any material agreement to which the Company or any Subsidiary is a party is in breach of any material obligation thereunder. (k) Acknowledgment Regarding Purchaser's Purchase of Common Shares. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the 5 Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by the Purchaser or any of its respective representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Purchaser's purchase of the Common Shares. The Company further represents to the Purchaser that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives. (l) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of Common Shares to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable shareholder approval provisions, nor will the Company take any action or steps that would cause the offering of the Common Shares to be integrated with other offerings. (m) Employee Relations. Neither the Company nor any Subsidiary is involved in any labor dispute nor, to the knowledge of the Company, is any such dispute threatened, the effect of which would be reasonably likely to result in a Material Adverse Effect. Niether the Company nor any Subsidiary is a party to a collective bargaining agreement. The Company believes that relations between the Company and its employees are good. No officer or significant employee whose departure would be adverse to the Company, taken as a whole, has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment. (n) Intellectual Property Rights. The Company owns or possesses adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. None of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two (2) years from the date of this Agreement. The Company does not have any knowledge of any infringement by the Company or any Subsidiary of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or any Subsidiary regarding trademarks, trade name rights, patents, patent rights, inventions, copyrights, licenses, service names, service marks, service mark registrations, trade secrets or other infringement. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its intellectual properties. (o) Environmental Laws. The Company and each Subsidiary (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the 6 environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business and (iii) is in compliance with all terms and conditions of any such permit, license or approval where such noncompliance or failure to receive permits, licenses or approvals referred to in clauses (i), (ii) or (iii) above could have, individually or in the aggregate, a Material Adverse Effect. (p) Title. Neither the Company nor ay Subsidiary owns any real property and the Company and each Subsidiary has good and marketable title to all personal property owned by them which is material to the business of the Company, in each case free and clear of all liens, encumbrances and defects except such as are described in the Company Financial Statements or such as do not materially and adversely affect the value of such property and do not interfere with the use made and proposed to be made of such property. Any real property and facilities held under lease by the Company or any Subsidiary are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings. (q) Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company is engaged. The Company has not been refused any insurance coverage sought or applied for, nor does the Company have any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company taken as a whole. (r) Regulatory Permits. The Company and each Subsidiary possesses all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities, necessary to conduct its business, and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. (s) Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (t) Foreign Corrupt Practices Act. Neither the Company, nor any director, officer, agent, employee or other person acting on behalf of the Company has, in the course of acting for, or on behalf of, the Company, directly or indirectly used any corporate funds for any unlawful contribution, gift, 7 entertainment or other unlawful expenses relating to political activity; directly or indirectly made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of the United States; or directly or indirectly made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government or party official or employee. (u) Tax Status. The Company and each Subsidiary has made or filed all United States federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (i) has paid all taxes and other governmental assessments and charges, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (ii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes claimed to be due by the taxing authority of any jurisdiction, and the Company is not aware of any basis for any such claim. (v) Certain Transactions. Except for arm's length transactions pursuant to which the Company makes payments in the ordinary course of business upon terms no less favorable than the Company could obtain from third parties, none of the officers, directors or employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director or any such employee has a substantial interest or is an officer, director, trustee or partner. (w) Application of Takeover Protections. There are no anti-takeover provisions contained in the Company's Certificate of Incorporation or any Subsidiary's organizational documents or otherwise which will or could be triggered as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Common Shares and the Purchaser's ownership of the Common Shares. (x) Rights Plan. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. The Company confirms that no provision of such plan will, under any present or future circumstances, delay, prevent or interfere with the performance of any of the Company's obligations under the Transaction Documents and such plan will not be "triggered" by such performance. (y) Obligations Absolute. The Company understands and acknowledges that, subject only to the conditions, qualifications and exceptions (if any) specifically set forth in the Transaction Documents, its obligations under the Transaction Documents are unconditional and absolute. Except to the 8 extent (if any) specifically set forth in the Transaction Documents, the Company's obligations thereunder are not subject to any right of set off, counterclaim, delay or reduction. (z) Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by the Company or the Purchaser relating to this Agreement or the transactions contemplated hereby, provided that any such fees shall be paid by the Company. (aa) Accuracy of Disclosure. Neither the Company Financial Statements, the representations and warranties of the Company contained herein nor any other written information provided by or on behalf of the Company to the Purchaser, contains any untrue statement of a material fact or omits to state any material fact or omits to state any fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Each Purchaser hereby makes the following representations and warranties to the Company as of the date hereof and the Closing Date: (a) Organization and Qualification; Material Adverse Effect. The Purchaser is a corporation duly incorporated and existing in good standing under the laws of the State of Florida and has the requisite corporate power to own its properties and to carry on its business as now being conducted. (b) Authorization; Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Purchaser and is a valid and binding agreement of the Purchaser enforceable against the Purchaser in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. The Purchaser has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and each other agreement entered into by the parties hereto in connection with the transactions contemplated by this Agreement. (c) No Conflicts. The execution, delivery and performance of this Agreement by the Purchaser and the consummation by the Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the certificate of incorporation, by-laws or other documents of organization of the Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Purchaser is bound, or (iii) result in a violation of any law, rule, regulation or decree applicable to the Purchaser. (d) Sophisticated Purchaser. The Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Common Shares. 9 (e) Information. The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company which have been requested and materials relating to the offer and sale of the Common Shares which have been requested by the Purchaser. The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by the Purchaser or its advisors, if any, or its representatives shall modify, amend or affect the Purchaser's right to rely on the Company's representations and warranties contained in Section 2.1 above. The Purchaser understands that its purchase of the Common Shares involves a high degree of risk. The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Common Shares. (f) No Governmental Review. The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Common Shares or the fairness or suitability of the investment in the Common Shares nor have such authorities passed upon or endorsed the merits thereof. (g) Investment Representation. The Purchaser is purchasing the Common Shares for its own account and not with a view to distribution in violation of any securities laws. The Purchaser has been advised and understands that the Common Shares have not been registered under the 1933 Act or under the "blue sky" laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the 1933 Act or if an exemption from registration is available. The Purchaser has been advised and understands that the Company, in issuing the Common Shares is relying upon, among other things, the representations and warranties of the Purchaser contained in this Section 2.2 in concluding that such issuance is a "private offering" and is exempt from the registration provisions of the 1933 Act. (h) No Market for Common Shares. The Purchaser understands that there is no public trading market for the Common Shares, that none is expected to develop, and that the Common Shares must be held indefinitely unless and until registered under the 1933 Act or an exemption from registration is available. (i) Brokers. The Purchaser has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by the Company or the Purchaser relating to this Agreement or the transactions contemplated hereby. ARTICLE III CONDITIONS TO CLOSINGS Section 3.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO SELL. The obligation of the Company to issue and sell the Common Shares to the Purchaser at the Closing is subject to the satisfaction, at or before the Closing, of each of the conditions set forth below. These conditions are for the 10 Company's sole benefit and may be waived by the Company at any time in its sole discretion. (a) Accuracy of the Purchaser's Representations and Warranties. The representations and warranties of the Purchaser will be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time. (b) Performance by the Purchaser. The Purchaser shall have performed all agreements and satisfied all conditions required to be performed or satisfied by the Purchaser at or prior to the Closing. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) Officer's Certificate. The Purchaser shall have delivered a certificate to the Company certifying as to the accuracy of the matters described in subsections (a) through (c) of this Section 3.1 as of the Closing Date. (e) Real Property Lease. The Company shall have entered into a lease with 2340 Townline Road Corporation covering the facilities located at 2340 Brighton-Henrietta Town Line Road , substantially in the form attached hereto as EXHIBIT A. (f) Acquisition of Minority Interest. David and the Purchaser shall have entered into an agreement for the Purchaser to acquire the 40% equity interest in the Company owned by David substantially in the form attached hereto as EXHIBIT B. (g) Employment Agreements. David shall have entered into an employment agreement with the Purchaser substantially in the form attached hereto as EXHIBIT C and Chuck Finzer shall have entered into an employment agreement with the Company substantially in the form attached hereto as EXHIBIT D. (h) Miscellaneous. The Purchaser shall have delivered to the Company such other documents relating to the transactions contemplated by this Agreement or the Company or its counsel may reasonable request. Section 3.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO PURCHASE. The obligation of the Purchaser to acquire and pay for the Common Shares at the Closing is subject to the satisfaction, at or before the Closing, of each of the conditions set forth below. These conditions are for the Purchaser's sole benefit and may be waived by the Purchaser at any time in its sole discretion. 11 (a) Accuracy of the Company's Representations and Warranties. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time. (b) Performance by the Company. The Company shall have performed all agreements and satisfied all conditions required to be performed or satisfied by the Company at or prior to the Closing. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) No Material Adverse Event. No event shall have taken place that, with or without the lapse of time, could reasonably result in a Material Adverse Effect on the Company. (e) Acquisition of Minority Interest. David and the Purchaser shall have entered into an agreement for the Purchaser to acquire the 40% equity interest in the Company owned by David substantially in the form attached hereto as EXHIBIT B. (f) Employment Agreements. David shall have entered into an employment agreement with the Purchaser substantially in the form attached hereto as EXHIBIT C and Chuck Finzer shall have entered into an employment agreement with the Company substantially in the form attached hereto as EXHIBIT D. (g) Officer's Certificate. The Company shall have delivered to the Purchaser a certificate in form and substance satisfactory to the Purchaser and the Purchaser's counsel, executed by an officer of the Company certifying as to the accuracy of the matters described in subsections (a) through (c) of this Section 3.2, as well as the true, correct and complete nature of the Certificate of Incorporation, By-Laws, good standing and authorizing resolutions of the Company. (h) Equipment Lease. The equipment finance lease between M&T Bank, as lessor, and RJD Leasing, as lessee, shall have been assigned to the Company with the consent of M&T Bank, and the Company shall have succeeded to all of the rights of the lessee under such lease, subject to the rights of the SBA in connection with a loan agreement and related documents between the SBA and the Company. The assignment and assumption agreement shall be in form and substance reasonably satisfactory to the Purchaser. The Purchaser agrees that the assignment described in this Section 3.2(h) may be provided by the Company within two business days following the Closing. (i) Waiver of Preemptive Rights. The Company shall have received from David a waiver, in form and substance satisfactory to the Purchaser, waiving any and all preemptive rights that David has or may have arising by reason of the transactions contemplated by this Agreement, or otherwise. 12 (j) Termination of Options. The Company shall have received a termination agreement, in form and substance reasonably satisfactory to the Purchaser, terminating any right of Chuck Finzer to receive and/or exercise any option(s) to purchase shares of capital stock of the Company. (k) Termination of Rights of Trustee. The Company shall have received a termination agreement, in form and substance reasonably satisfactory to the Purchaser, terminating the obligation of David to sell his shares of the Company to any third person, including an insurance trust of which Gerald Ross in the trustee. (l) Indebtedness to Affiliates. As of the Closing Date, there shall be no indebtedness of the Company to any affiliate, and the promissory note in the approximate amount of $591,000 of the Company to David shall have been cancelled. (m) Resignations. The Purchaser shall have received the resignations of all officers and directors of the Company. (n) Miscellaneous. The Company shall have delivered to the Purchaser such other documents relating to the transactions contemplated by this Agreement or the Purchaser or its counsel may reasonable request. ARTICLE IV TERMINATION Section 4.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at any time prior to the Closing by the mutual written consent of the Company and the Purchaser. Section 4.2 TERMINATION BY THE COMPANY. This Agreement may be terminated by the Company in the event of the breach of any material representation, warranty or covenant of the Purchaser contained in this Agreement; provided, however, that such termination shall not prejudice the rights of the Company to seek redress for any such breach on the part of the Purchaser. Section 4.3 TERMINATION BY THE PURCHASER. This Agreement may be terminated by the Purchaser in the event of the breach of any material representation, warranty or covenant of the Company contained in this Agreement; provided, however, that such termination shall not prejudice the rights of the Purchaser to seek redress for any such breach on the part of the Company. 13 ARTICLE V PRE-CLOSING COVENANTS Commencing on the date hereof and continuing through the Closing Date, the Company shall: (a) operate only in the ordinary course of business consistent with past practice; (b) take such action as is reasonably necessary to cause the conditions set forth in Article III to be satisfied on or prior to the Closing Date; (c) not take any action, consent to the taking of any action or permit any action within its control to be taken that could cause any of the representations and warranties contained in Section 2.1 to become inaccurate in any material respect; and (d) not discuss or negotiate with any third party for the issuance of securities of the Company or entering into a business combination with any . ARTICLE VI INDEMNIFICATION Section 6.1 INDEMNIFICATION BY THE COMPANY AND DAVID. The Company and David, jointly and severally, hereby indemnify and hold the Purchaser harmless from and against any and all damages, losses, liabilities, obligations, costs or expenses, including reasonable attorneys fees, incurred by the Purchaser and arising out of (a) the breach of any representation or warranty of the Company and/or David hereunder, (b) the Company's failure to perform any covenant or obligation required to be performed by it hereunder, and/or (c) liabilities or obligations of the Company not disclosed on the Company Financial Statements. Section 6.2 INDEMNIFICATION BY THE PURCHASER. The Purchaser hereby indemnifies and holds the Company harmless from and against any and all damages, losses, liabilities, obligations, costs or expenses, including reasonable attorneys fees, incurred by the Company and arising out of (a) the breach of any representation or warranty of the Purchaser hereunder, or (b) the Purchaser's failure to perform any covenant or obligation required to be performed by it hereunder. Section 6.3 PROCEDURE FOR INDEMNIFICATION. Any party entitled to indemnification under this Article VI (an "Indemnified Party") will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article VI except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an Indemnified Party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the 14 reasonable judgment of counsel to the Indemnified Party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. In the event that the indemnifying party advises an Indemnified Party that it will contest such a claim for indemnification hereunder, or fails, within 30 days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the Indemnified Party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the Indemnified Party's costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The Indemnified Party shall cooperate fully with the indemnifying party in connection with any settlement negotiations or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party, which relates to such action or claim. The indemnifying party shall keep the Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Article VI to the contrary, the indemnifying party shall not, without the Indemnified Party's prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the Indemnified Party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such claim. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the Indemnified Party against the indemnifying party or others, and (b) any liabilities the indemnifying party may be subject to. Section 6.4 Limitations. The obligations of the parties to provide indemnification under this Agreement shall be subject to the following limitations: (a) No claim for indemnification shall be asserted by a party until such time, if any, as the aggregate amount for which indemnification is being sought exceeds $10,000; and (b) No claim for indemnification may be sought by a party after 18 months from the Closing Date. ARTICLE VII GOVERNING LAW; MISCELLANEOUS Section 7.1 GOVERNING LAW; ARBITRATION. This agreement shall be governed by and interpreted in accordance with the laws of the state of Florida without regard to the principles of conflict of laws. Each of the parties irrevocably and unconditionally agrees that any suit, action or legal proceeding 15 arising out of or relating to this Agreement shall be settled by binding arbitration conducted in accordance with the Commercial Rules of Arbitration of the American Arbitration Association ("AAA"). The arbitration shall take place in Palm Beach County, Florida, and shall be heard by three arbitrators selected in accordance with AAA Rules of Commercial Arbitration. The Arbitrators shall render a reasoned award and such award shall be signed and dated. The decision of the arbitrators shall be final and binding upon the parties, and the arbitration award may be entered in any court of competent jurisdiction. Initially, each of the parties shall pay one-half of the fees of the AAA (other than filing fees), including without limitation hearing and arbitrators' fees, and the parties' obligation to pay such fees shall be enforceable in any court of competent jurisdiction. The parties to any arbitration hereunder agree to submit for determination by the arbitrators, the amount of fees and expenses, including reasonable attorney's fees, to be borne by each party. Section 7.2 COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. Section 7.3 HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. Section 7.4 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. Section 7.5 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS. This Agreement supersedes all other prior oral or written agreements between the Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein (including the other Transaction Documents) contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Purchaser, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. Section 7.6 NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing, must be delivered by (i) courier, mail or hand delivery or (ii) facsimile, and will be deemed to have been delivered upon receipt. The addresses and facsimile numbers for such communications shall be: 16 If to the Purchaser: Total Identity Corp. 11924 Forest Hill Blvd. Suite 22-204 Wellington, FL 33414 Telephone: (561) 202-8184 Facsimile: (561) 202-8186 Attention: Richard R. Dwyer President With a copy to: Schneider Weinberger LLP Suite 108 2499 Glades Road Boca Raton, Florida 33431 Telephone: (561) 362-9595 Facsimile: (561) 362-9612 Attention: Steven I. Weinberger, Esq. If to the Company: Total Identity Systems Corp. 2340 Brighton-Henrietta Town Line Road Troy, Michigan 48084 Telephone: (585) 427-9050 Facsimile: (585) 427-9051 Attention: Robert David President With a copy to: Trevett, Lenweaver & Salzer, P.C. 2 State Street, Suite 1000 Rochester, New York 14614 Telephone: (585) 454-2181 Facsimile: (585) 454-4026 Attention: Kenneth Bersani, Esq. 17 If to David: Robert David 2340 Brighton-Henrietta Town Line Road Rochester, New York 14623 Telephone: (585) 427-9050 Facsimile: (585) 427-0199 With a copy to: Trevett, Lenweaver & Salzer, P.C. 2 State Street, Suite 1000 Rochester, New York 14614 Telephone: (585) 454-2181 Facsimile: (585) 454-4026 Attention: Kenneth Bersani, Esq. Each party shall provide three days prior written notice to the other party of any change in address, telephone number or facsimile number. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. Section 7.7 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Neither party shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party. Section 7.8 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. Section 7.9 SURVIVAL. The representations, warranties and agreements of the Company and the Purchaser contained in the Agreement shall survive the Closing for a period of 18 months. Section 7.10 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. Section 7.11 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. Section 7.12 DAYS. Unless the context refers to "business days", all references herein to "days" shall mean calendar days. ---- 18 IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be duly executed as of the date and year first above written. TOTAL IDENTITY CORP., A FLORIDA CORPORATION By: /S/ RICHARD R. DWYER ------------------------------ Richard R. Dwyer, President TOTAL IDENTITY SYSTEMS CORP., A NEW YORK CORPORATION By: /S/ ROBERT DAVID ------------------------------- Robert David, President /S/ ROBERT DAVID ---------------- Robert David 19 SCHEDULE A - USE OF PROCEEDS The proceeds of the Purchase Price for the Common Shares shall be used by the Company solely for the following purposes: o Up to $75,000 for the payment of expenses associated with the private placement of $1 million being conducted by TIC; o Reduction of indebtedness, including without limitation bank debt and payments arising under legal proceedings; and o Working capital. 20 EX-10.2 4 ex-10_2.txt Exhibit 10.2 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT entered into as of October 13, 2003, by and between TOTAL IDENTITY CORP., a Florida corporation (the "Buyer") and ROBERT DAVID, an individual resident of the State of New York (the "Seller"). W I T N E S S E T H: WHEREAS, the Buyer and Total Identity Systems, Inc., a New York corporation ("Total New York") have entered into an agreement of even date herewith pursuant to which the Buyer proposes to acquire 60% of the issued and outstanding shares of Total New York (the "Corporate Stock Purchase Agreement"); and WHEREAS, the Seller owns 40% of the issued and outstanding shares of capital stock of Total New York (the "Minority Interest"); and WHEREAS, the Minority Interest is evidenced by 80 shares of the common stock of Total New York (the "Shares") registered in the name of the Seller; and WHEREAS, the Buyer desire to purchase the Shares from the Seller, and the Seller desires to sell the Shares to the Buyer, upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereto, intending to be legally bound, agree as follows: 1. PURCHASE AND SALE OF SHARES. The Seller hereby sells, assigns, transfers and conveys the Shares to the Buyer, and the Buyer hereby purchases the Shares from the Seller, free and clear of all liens, charges, encumbrances and security interests ("Liens"), upon the terms and conditions set forth herein. 2. PURCHASE PRICE. The purchase price for the Shares (the "Purchase Price") shall be the sum of eight hundred thousand dollars ($800,000.00). The Purchase Price shall be paid by the Buyer's delivery of its promissory note to the Seller in the principal amount of $800,000 (the "Note"). The Note, which shall be in the form of Exhibit A hereto, shall be paid in ten equal quarterly installments of principal, with interest on the outstanding amount of the Note at the rate of 8% per annum. The initial installment of the Purchase Price shall be due and payable six months following the date of the closing of the Corporate Stock Purchase Agreement (the "Corporate Closing"). There shall be offset against the Note, (a) an amount equal to the excess, if any, over $75,000 that Total New York becomes obligated to pay, whether by judgment or settlement, in that certain lawsuit pending against Total New York, under the caption "CJP Enterprises vs. Total Identity Systems Corp." and (b) an amount equal to the excess, if any, over $10,000 that Total New York becomes obligated to pay, whether by judgment or settlement, in that certain lawsuit pending against Total New York under the caption "Grand Image Inc.". 3. SECURITY. In order to secure payment of the Note, the Shares, as well as the shares of common stock of Total New York being acquired by the Buyer pursuant to the Corporate Stock Purchase Agreement (the "Corporate Shares") and, together with the Shares, the "Pledged Shares") shall be pledged to the Buyer pursuant to the terms of a pledge agreement substantially in the form of Exhibit A hereto (the "Pledge Agreement"). At such time as the purchase price for the Corporate Shares under the Corporate Stock Purchase Agreement has been paid in full, 49% of the Pledged Shares (currently 98 shares) shall be delivered to the Buyer and shall be released from the provisions of the Pledge Agreement. The remainder of the Pledged Shares shall continue to be pledged as security under the Pledge Agreement until the Note has been paid in full; provided, however, that (a) in the event that the Buyer defaults in the payment of the purchase price for the Corporate Shares, at the Seller's election, either (a) the Seller may retain all of the Pledged Shares then subject to the Pledge Agreement upon payment to Buyer of all amounts theretofore paid against the purchase price for the Corporate Shares or (b) the Seller shall release to the Buyer a percentage of the Pledged Shares equal to the percentage of the purchase price for the Corporate Shares theretofore paid by the Buyer. In the event the Buyer defaults in the payment of the Note due to circumstances beyond its control (which circumstances shall be limited to wars, strikes, acts of god, terrorism and other customary force majeure events), at the Seller's election, either (y) the Seller may retain all of the Pledged Shares upon payment to the Buyer of all amounts theretofore paid under the Note or (z) the Seller shall release to the Buyer a percentage of the Pledged Shares equal to the percentage of the Note theretofore paid by the Buyer. Unless and until the Buyer shall default under the Note, the Buyer shall be entitled to exercise all voting rights over the Pledged Shares. 4. CLOSING. A closing of the transactions contemplated by this Agreement (the "Closing") shall take place immediately following the Corporate Closing. At the Closing (a) the Seller shall deliver one or more certificates evidencing the Shares, accompanied by Stock Powers duly endorsed for transfer in blank and (b) the Buyer shall deliver the Note to the Seller. In addition, at the Closing each party shall deliver all such other documents, instruments and writings reasonably necessary in order to consummate the transactions contemplated by this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE SELLER TO THE BUYER. The Seller, in order to induce the Buyer to enter into this Agreement and deliver the Purchase Price to the Seller, hereby represent and warrant to the Buyer as follows: (a) ENFORCEABILITY. This Agreement and the Pledge Agreement contain the binding obligations of the Seller, enforceable against the Seller in accordance with the terms and conditions hereof and thereof. (b) AUTHORITY. The Seller has the power and authority to enter into this Agreement and the Pledge Agreement and perform his obligations hereunder and thereunder. (c) NO CONFLICTS. The entering into of this Agreement and the Pledge Agreement by the Seller, and the performance by the Seller of his obligations hereunder and thereunder, will not conflict with or constitute a breach of or default under any agreement to which the Seller is a party or any order or decree of any court or regulatory body to which the Seller is subject. 2 (d) NO CONSENTS. No consent of any third party, including without limitation, any spousal consent, is necessary or required in order for the Seller to enter into this Agreement or the Pledge Agreement and perform his obligations hereunder and thereunder. (e) NO LIENS. The Shares being conveyed by the Seller are and at all times will be owned by the Seller, free and clear of all Liens, and at the Closing, the Seller will deliver good and marketable title to the Shares to the Buyer. (f) CORPORATE STOCK PURCHASE AGREEMENT. The representations and warranties of the Seller and Total New York set forth in Section 2.1 of the Corporate Stock Purchase Agreement are true and correct in all material respects. 6. REPRESENTATIONS AND WARRANTIES OF THE BUYER TO THE SELLER. The Buyer, in order to induce the Seller to enter into this Agreement and deliver the Shares to the Buyer, hereby represents and warrants to the Seller as follows: (a) ENFORCEABILITY. This Agreement, the Note and the Pledge Agreement contain the binding obligations of the Buyer, enforceable against it in accordance with the terms and conditions hereof and thereof. (b) ORGANIZATION; AUTHORITY. The Buyer has been duly organized and is validly existing and in good standing under the laws of the State of Florida and has the power and authority to enter into this Agreement, the Note and the Pledge Agreement and perform its obligations hereunder and thereunder. (c) NO CONSENTS. No consent of any third party is necessary or required in order for the Buyer to enter into this Agreement, the Note and the Pledge Agreement and to perform its obligations hereunder and thereunder. (d) NO CONFLICTS. The entering into this Agreement, the Note and the Pledge Agreement by the Buyer, and the performance by the Buyer of its obligations hereunder and thereunder, will not conflict with or constitute a breach of or default under any agreement to which the Buyer is a party or any order or decree of any court or regulatory body to which the Buyer is subject. (e) SOPHISTICATED PURCHASER. The Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Shares. (f) INVESTMENT REPRESENTATION. The Buyer is purchasing the Common Shares for its own account and not with a view to distribution in violation of any securities laws. The Buyer has been advised and understands that the Shares have not been registered under the 1933 Act or under the "blue sky" laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the 1933 Act or if an exemption from registration is available. 3 7. CONDITIONS TO CLOSING. The obligations of the Seller to sell the Shares and the Buyer to purchase the Shares shall be subject to the occurrence of the Corporate Closing and the following additional conditions precedent. (a) CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SELLER TO SELL. The obligation of the Seller to sell the Shares to the Buyer at the Closing is subject to the satisfaction, at or before the Closing, of each of the conditions set forth below. These conditions are for the Seller's sole benefit and may be waived by the Seller at any time in his sole discretion. (i) Accuracy of the Buyer's Representations and Warranties. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the date of Closing, as though made at that time. (ii) Performance by the Buyer. The Buyer shall have performed all agreements and satisfied all conditions required to be performed or satisfied by the Buyer at or prior to the Closing. (iii) No Injunction. No legal proceedings questioning the validity of this Agreement shall have been commenced and no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (b) CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO BUY. The obligation of the Buyer to purchase the Shares from the Seller at the Closing is subject to the satisfaction, at or before the Closing, of each of the conditions set forth below. These conditions are for the Buyer's sole benefit and may be waived by the Buyer at any time in his sole discretion. (i) Accuracy of the Seller's Representations and Warranties. The representations and warranties of the Seller shall be true and correct in all material respects as of the date when made and as of the date of Closing, as though made at that time. (ii) Performance by the Seller. The Seller shall have performed all agreements and satisfied all conditions required to be performed or satisfied by the Seller at or prior to the Closing. (iii) No Injunction. No legal proceedings questioning the validity of this Agreement shall have been commenced and no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent 4 jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. 8. PRE-CLOSING COVENANTS. Commencing on the date hereof and continuing until the Closing or the earlier termination of this Agreement, the Buyer shall not: (a) take any action, consent to the taking of any action or permit any action within his control to be taken that could cause any of the representations and warranties contained in Section 5 hereof to become inaccurate in any material respect; and (b) discuss or negotiate with any third party for the sale of the Shares or any interest therein, or enter into any agreement to do so. 9. TERMINATION. (a) TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at any time prior to the Closing by the mutual written consent of the Seller and the Buyer. (b) TERMINATION BY THE SELLER. This Agreement may be terminated by the Seller in the event of the breach of any material representation, warranty or covenant of the Buyer contained in this Agreement; provided, however, that such termination shall not prejudice the rights of the Seller to seek redress for any such breach on the part of the Buyer. (c) TERMINATION BY THE BUYER. This Agreement may be terminated by the Buyer in the event of the breach of any material representation, warranty or covenant of the Seller contained in this Agreement; provided, however, that such termination shall not prejudice the rights of the Buyer to seek redress for any such breach on the part of the Seller. (d) TERMINATION OF CORPORATE STOCK PURCHASE AGREEMENT. This Agreement shall terminate in the event of termination of the Corporate Stock Purchase Agreement prior to the closing thereof; provided, however, that such termination shall not prejudice the rights of either the Buyer or the Seller to seek redress for any breach of this Agreement on the part of the other. 10. INDEMNIFICATION. (a) INDEMNIFICATION BY THE SELLER. The Seller hereby indemnify and hold the Buyer harmless from and against any and all damages, losses, liabilities, obligations, costs or expenses, including reasonable attorneys fees, incurred by the Buyer and arising out of (i) the breach of any representation or warranty of the Seller hereunder, (ii) or the Seller's failure to perform any covenant or obligation required to be performed by it hereunder. (b) INDEMNIFICATION BY THE BUYER. The Buyer hereby indemnifies and holds the Seller harmless from and against any and all damages, losses, liabilities, obligations, costs or expenses incurred by the Seller and arising out of (i) the breach of any representation or warranty of the Buyer hereunder, 5 or (ii) the Buyer's failure to perform any covenant or obligation required to be performed by it hereunder. (c) PROCEDURE FOR INDEMNIFICATION. Any party entitled to indemnification under this Section 10 (an "Indemnified Party") will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Section 10 except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an Indemnified Party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of counsel to the Indemnified Party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. In the event that the indemnifying party advises an Indemnified Party that it will contest such a claim for indemnification hereunder, or fails, within 30 days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the Indemnified Party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the Indemnified Party's costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The Indemnified Party shall cooperate fully with the indemnifying party in connection with any settlement negotiations or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party, which relates to such action or claim. The indemnifying party shall keep the Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Section 10 to the contrary, the indemnifying party shall not, without the Indemnified Party's prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the Indemnified Party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such claim. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar rights of the Indemnified Party against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to. (d) LIMITATIONS. The obligations of the parties to provide indemnification under this Agreement shall be subject to the following limitations: (i) No claim for indemnification shall be asserted by a party until such time, if any, as the aggregate amount for which indemnification is being sought exceeds $10,000; and 6 (ii) No claim for indemnification may be sought by a party after 18 months from the Closing Date. 11. MISCELLANEOUS. (a) FEES AND EXPENSES. Each of the parties to this Agreement shall pay its own fees and expenses related to the transactions contemplated by this Agreement. (b) ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof. No provision of this Agreement may be waived or amended other than by a written instrument signed by each of the parties. (c) NOTICES. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (i) upon hand delivery or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of delivery to a reputable express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be as follows: If to the Seller: Robert David 2340 Brighton-Henrietta Town Line Road Rochester, New York 14623 Telephone: (585) 427-9050 Facsimile: (585) 427-0199 With a copy to: Trevett, Lenweaver & Salzer, P.C. 2 State Street, Suite 1000 Rochester, New York 14614 Telephone: (585) 454-2181 Facsimile: (585) 454-4026 Attention: Kenneth Bersani, Esq. 7 If to the Buyer: Total Identity Corp. 11924 Forest Hill Blvd. Suite 22-204 Wellington, FL 33414 Telephone: (561) 202-8184 Facsimile: (561) 202-8186 Attention: Richard R. Dwyer President With a copy to: Schneider Weinberger LLP 2499 Glades Road Suite 108 Boca Raton, Florida 33431 Att: Steven I. Weinberger, Esq. Fax: (561) 362-9612 Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto in accordance herewith. (d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, successors and assigns. (e) GOVERNING LAW; ARBITRATION. This Agreement shall be governed by and interpreted in accordance with the laws of the state of Florida without regard to the principles of conflict of laws. Each of the parties irrevocably and unconditionally agrees that any suit, action or legal proceeding arising out of or relating to this Agreement shall be settled by binding arbitration conducted in accordance with the Commercial Rules of Arbitration of the American Arbitration Association ("AAA"). The arbitration shall take place in Palm Beach County, Florida, and shall be heard by three arbitrators selected in accordance with AAA Rules of Commercial Arbitration. The Arbitrators shall render a reasoned award and such award shall be signed and dated. The decision of the arbitrators shall be final and binding upon the parties, and the arbitration award may be entered in any court of competent jurisdiction. Initially, each of the parties shall pay one-half of the fees of the AAA (other than filing fees), including without limitation hearing and arbitrators' fees, and the parties' obligation to pay such fees shall be enforceable in any court of competent jurisdiction. The parties to any arbitration hereunder agree to submit for determination by the arbitrators, the amount of fees and expenses, including reasonable attorney's fees, to be borne by each party. (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. (g) FURTHER ASSURANCES. From and after the date of this Agreement, upon the request of a party, each other party shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm, carry out and effectuate fully the intent and purposes of this Agreement. (h) SURVIVAL. The representations, warranties and agreements of the Buyer and the Seller contained in the Agreement shall survive the Closing for a period of 18 months. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth in the first paragraph above. SELLER: /S/ ROBERT DAVID ---------------- Robert David BUYER: TOTAL IDENTITY CORP., a Florida corporation By: /S/ RICHARD R. DWYER --------------------- Richard R. Dwyer President 9 EX-10.3 5 ex-10_3.txt Exhibit 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of October 13, 2003 ("Effective Date") by and between TOTAL IDENTITY SYSTEMS CORP., a New York corporation (the "Company") and CHARLES FINZER (the "Employee"). RECITALS: Employee's participation in the business of the Company is critical to the Company's success. The parties wish to provide for the employment of Employee by the Company from and after the date hereof, all on the terms and conditions herein set forth. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. EMPLOYMENT. Subject to Section 3 below, the Company hereby employs Employee for a term of three years, renewable for additional annual terms unless terminated by either party upon 30 days' written notice prior to the applicable annual anniversary hereof (the "Employment Term"), commencing on the Effective Date. Employee will serve as the President of the Company. The Employee shall report to the Chief Executive Officer of the Company's parent, Total Identity Corp., a Florida corporation ("TIC"). Employee hereby accepts such employment. During the term of his employment hereunder, Employee shall devote his time, attention, knowledge and skills faithfully, diligently and to the best of his ability to perform his duties hereunder, and Employee shall not engage in any venture or activity which materially interferes with Employee's performance of his duties hereunder. The Employee agrees to devote a minimum of 40 hours per week to the business of the Company and shall perform his duties at the Company's offices in the Rochester, New York metropolitan area; provided; however, that Employee may be required to travel, consistent with past practice, as may reasonably be necessary in order to discharge his duties to the Company. 2. COMPENSATION. During the Employment Term, the Company shall pay Employee the compensation and other amounts set forth below. 2.1. SALARY. The Company shall pay Employee an initial annual base salary ("Salary") of $175,000. The Employee's Salary shall be payable in installments according to the Company's regular payroll practices and subject to such deductions as may be required by law. Notwithstanding the foregoing, Employee's base Salary shall be subject to adjustment as follows: (a) In the event that revenues of the Company are generated at a $12 million annual run rate for two consecutive quarters, as determined by the Company's then current accountants, Employee's annual base Salary shall be increased to $195,000; (b) In the event that revenues of the Company are generated at a $15 million annual run rate for two consecutive quarters, as determined by the Company's then current accountants, Employee's annual base Salary shall be increased to $220,000; (c) In the event that revenues of the Company are generated at a $20 million annual run rate for two consecutive quarters, as determined by the Company's then current accountants, Employee's annual base Salary shall be increased to $275,000; and (d) In the event that, following any increase in base Salary pursuant to the foregoing provisions of Section 2.1 (a) through (c), revenues decrease below the level that resulted in a Salary increase for two consecutive quarters, then Employee's base Salary shall be decreased to the level corresponding to the annual run rate described above. 2.2. BONUS. The Employee shall be entitled to an annual incentive bonus, payable within 30 days following completion of each annual audit of the Company's financial statement, based upon the Company's profitability, as follows: (a) Employee shall be entitled to a bonus equal to 2% of the Company's annual pre-tax profits, for pre-tax profits up to and including $15 million; (b) Employee shall be entitled to a bonus equal to 3% of the Company's annual pre-tax profits, for pre-tax profits exceeding $15 million; and (c) For purposes of this Section 2.2, "pre-tax profits" shall mean net profits, after deducting (i) all expenses including interest and depreciation but excluding income tax obligations attributable to the Company, (ii) compensation paid to Robert David for his services rendered to TIC, and (iii) an allocable portion, not exceeding $60,000 annually, of compensation paid by TIC to its chief financial officer, all as determined by the Company's then current accountants in accordance with generally accepted accounting principles applied on a consistent basis, consistent with past practice. 2.3. BENEFITS. Employee shall be entitled to receive the following benefits paid by the Company: (a) group health insurance consistent with that made available to the Company's senior officers as a group; provided that, until such time as the Company offers group health insurance to its senior officers, the Company shall reimburse Employee for his existing "Blue Choice Select" health insurance plan provided by Blue Cross-Blue Shield of the Rochester Area covering himself, his spouse and minor children; (b) disability insurance coverage providing for benefits of not more than $95,000 per year; (c) $1.5 million in life insurance naming the Company beneficiary as to $1 million, and Employee's designee for the balance; (d) a $400 per month automobile allowance; (e) four weeks' paid vacation during each calendar year (which shall not accrue from year to year), provided that Employee shall not take more than two consecutive weeks' vacation at any time and that Employee shall provide reasonable notice to the Company of his vacation plans; and (f) reimbursement for reasonable and necessary out-of-pocket expenses incurred in the performance of his duties hereunder (such expenses shall be reimbursed by the Company, from time to time, upon presentation of appropriate receipts therefore, provided such expenses are approved in advance by the Chief Financial Officer or the Board of Directors). 2.4. SALES COMMISSION. Employee shall also be entitled to receive a commission equal to 2.5% of revenues collected from sales by the Company attributable to the direct selling efforts of Employee (the 2 "Commission"). On or before the last day of each month, the Company shall pay Employee Commissions due based upon applicable revenues collected by the Company during the preceding month. Notwithstanding the foregoing, the Company's obligation to pay the Commission cease at such time as Employee's base Salary reaches $220,000 per year. 2.5. OPTIONS. Upon execution of this Agreement, Employee shall be granted options to purchase up to 100,000 shares of the Common Stock of TIC (the "Options"). The Options shall be exercisable at a price of $.60 per share and shall vest as follows: 40,000 Options shall vest on the date of this Agreement, 30,000 Options shall vest on the first anniversary date of this Agreement and 30,000 Options shall vest on the second anniversary date of this Agreement. The Options shall be exercisable for a period of three years from the date of vesting. The Options may, at TIC's election, be granted from a plan established by TIC for its employees and those of its subsidiaries. Any unexercised Options shall terminate immediately upon termination of Employee's employment by the Company. 3. TERMINATION. 3.1. The Employee's employment pursuant to this Agreement shall be terminated by the first to occur of the following events: (a) The death of Employee. (b) The Complete Disability of Employee. "Complete Disability" as used herein shall mean the inability of Employee, due to illness, accident, or any other physical or mental incapacity, to perform the services contemplated by this Agreement for an aggregate of 90 days within any period of 12 consecutive months during the term hereof. (c) The discharge of Employee by the Company for Cause. "Cause" as used herein shall mean: (i) Employee's conviction of a crime involving illegal drug use or alcohol abuse by Employee; (ii) improper or personal use of the Company's property assets; (iii) acts of fraud, dishonesty, malfeasance, criminal activity, wrongful conduct, breach of fiduciary duty by Employee against the Company or its affiliates, or in connection with the performance of his duties hereunder; (iv) Employee's willful failure or refusal to comply with the provisions of this Agreement, or failure (including as a result of Employee's illegal drug use or alcohol abuse that does not involve a criminal conviction) to perform Employee's duties and obligations under this Agreement in any material respect following written notice of such failure or refusal and Employee's failure to cure same within 30 days following Employee's receipt of such notice; 3 (v) the Company not generating average monthly revenues of at least $750,000 during any consecutive three fiscal quarters during the term of this Agreement; or (vi) the Company not achieving profits after direct costs of at least 46%, computed by the Company's then current accountants consistent with past practice, for three consecutive fiscal quarters during the term of this Agreement. 3.2 The Company may terminate Employee's employment by the Company, without cause and at any time, upon seven days' notice to Employee; provided that, in such event, the Company shall continue to pay Employee's Salary for a period of 12 months, based upon Employee's average monthly base Salary during the 12 consecutive months immediately preceding the date of termination. The Company's obligation to make payments to Employee pursuant to this Section 3.2 shall cease at such time as Employee becomes an employee or owner of, or a consultant to, an entity which competes with the business of the Company. 4. RELATED PARTY TRANSACTIONS. So long as Employee is employed by the Company, he shall not, without the prior written consent of the Company, cause or permit the Company, or any subsidiary to enter into or effect any agreement or transaction, or provide or receive any service, between the Company or any subsidiary on the one hand, and Employee or a Related Party (defined below), on the other hand, except for the employment relationship contemplated hereby. In any event, any such agreements, transactions or services shall be at prices and terms which are equal to the prices and terms available for similar agreements, transactions or services with unrelated third parties. As used herein, "Related Party" means (a) any person related by blood, adoption, or marriage to Employee, (b) any director or officer of the Company or any of its subsidiaries, (c) any corporation or other entity in which Employee has, directly or indirectly, at least 5% beneficial interest in the capital stock or other type of equity interest in such corporation or other entity, or (d) any partnership in which Employee is a general partner or a limited partner having a 5% or more interest therein. 5. TREATMENT AND OWNERSHIP OF CONFIDENTIAL INFORMATION. 5.1 CONFIDENTIALITY. The parties hereto acknowledge that Employee shall or may be provided access to, make use of, acquire and/or add to Confidential Information (as that term is defined in Section 5.2 below). Employee covenants and agrees that during the Employment Term and at all times thereafter he shall not, except with the prior written consent of the Company, or except if he is acting during the Employment Period solely for the benefit of the Company or any of the affiliates, at any time, directly or indirectly, disclose, divulge, report, transfer or use, for any purposes whatsoever, any such Confidential Information, including Confidential Information obtained, used, acquired or added by, or disclosed to, Employee prior to the date of this Agreement. Employee further acknowledges that the Confidential Information constitutes valuable, special and unique assets of the Company. 5.2 CONFIDENTIAL INFORMATION DEFINED. For purposes of this Agreement, the term "Confidential Information" shall mean all of the following materials and information which Employee receives, conceives or develops or has received, conceived or developed, in whole or in part, in connection with Employee's affiliation with the Company: 4 (a) The contents of any manuals or other written materials of the Company or any of its affiliates; (b) The names of actual or prospective clients, customers, suppliers, or persons, firms, lenders, or persons, firms, corporations, or other entities with whom Employee may have or has had contact on behalf of the Company or any of its affiliates or to whom any other employee of the Company or any of its affiliates has provided goods or services at any time; (c) The terms of agreements between the Company or any of its affiliates, and any third parties; (d) The contents of actual or prospective customer or client records, which customer and client lists and records shall not only mean one or more of the names and addresses of the customers of the Company or any of its affiliates, but shall also encompass any and all information whatsoever regarding them; (e) Any data or database, or other information compiled by the Company or any of its affiliates, including, but without limitation, information concerning the Company or any of its affiliates, or any business in which the Company or any of its affiliates is engaged or contemplates becoming engaged, any company which the Company or any of its affiliates engages in business, any customer, prospective customer, or other person, firm or corporation to whom or which the Company or any of its affiliates has provided goods or services or to whom or which any employee of the Company or any of its affiliates has provided goods or services on behalf of the Company or any of its affiliates, or any compilation, analysis, evaluation or report concerning or deriving from any data or database, or any other information; (f) All policies, procedures, strategies and techniques regarding training, marketing and sales, either oral or written, and assorted lists containing information pertaining to lenders, customers and/or prospective customers; and (g) Any other information, data, training methods, formulae, technology, business methods, know-how, show-how, source code, subject code, copyright, trademarks, patents or knowledge of a confidential or proprietary nature observed, received, conceived or developed by Employee in connection with Employee's affiliation with the Company. 5.3 EXCLUSIONS. Excluded from the Confidential Information and therefore not subject to the provisions of this Agreement shall be any information which (a) is or becomes generally available to the public through no breach or fault of Employee; provided that this exception shall apply only from and after the date the information became generally available to the public, and (b) Employee can establish by Employee's written records was in Employee's possession at the time of disclosure and was not previously acquired directly or indirectly from the Company, provided that this exception shall apply only from 5 and after the date that the information is disclosed to Employee by a third party or was in Employee's possession. Specific Confidential Information shall not be deemed to be within the foregoing exceptions merely because it is embraced by, or contained or referenced in, more general information in the public domain. Additionally, any combination of features shall not be deemed to be within the foregoing exceptions merely because individual features are in the public domain. If Employee intends to avail himself of any of the foregoing exceptions, Employee shall notify the Company in writing of his intention to do so and the basis for claiming the exception. 5.4 OWNERSHIP. Employee covenants and agrees that all right, title and interest in any Confidential Information shall be and shall remain the exclusive property of the Company and its affiliates, as the case may be. Employee agrees to promptly disclose to the Company all Confidential Information hereafter developed in whole or in part by Employee within the scope of this Agreement and to assign to the Company or any of the affiliates, as the Company determines in its sole discretion, any right, title or interest Employee may have in such Confidential Information. 6. INVENTIONS. 6.1 Employee agrees to promptly inform and to disclose to the Company, in writing, all inventions, concepts, developments, procedures, ideas, innovations, systems, programs, techniques, processes, information, discoveries, improvements and modifications and related documentations, other works of authorship and the like (collectively the "Inventions"), which, during the course of Employee's employment with the Company, Employee has created, made, conceived, written either alone or with others, while in the Company's employ, or while performing services for the affiliates, whether or not during working hours, and at all times thereafter, whether or not such Inventions are patentable, subject to copyright protection or susceptible to any other form of protection which (a) related to the actual business or research of development of the Company or its affiliates; or (b) was suggested by or resulted from any task assigned or to be assigned to Employee or performed by Employee for or on behalf of the Company or any of its affiliates. In the case of any "other works of authorship", such assignment shall be limited to those works of authorship meeting both conditions (a) and (b) above. Employee further acknowledges and agrees that all copyright and any other intellectual property right in Inventions and related documentation, and other works of authorship, created within the scope of Employee's employment, are "works for hire" and are the property of the Company. 6.2 In connection with any of the Inventions assigned by Section 6.1, Employee shall, on the Company's request, promptly execute a specific assignment of title to the Company or its designee, and do anything else reasonably necessary to enable the Company or such designee to secure a patent, copyright or other form of protection therefor in the United States and in other countries. 6.3 Employee further acknowledges and agrees that the Company and its affiliates, licensees, successors or assigns (direct or indirect) are not required to designate Employee as an author of any Invention which is subject to Section 6.1, when it is distributed, publicly or otherwise, or to secure my permission to change or otherwise alter its integrity. Employee hereby waives and releases, to the extent permitted by law, all rights in and to such designation and any rights that Employee may have concerning modifications of such Inventions. 6 6.4 Employee understands that any rights, waivers, releases and assignments herein granted and made by Employee are freely assignable by the Company and are for the benefit of the Company and its affiliates, licensees, successors and assigns. 6.5 Employee affirms that Employee has not disclosed and will not disclose to anyone outside of the Company and its affiliates, or has used, or will use, any Confidential Information or material received in confidence from third parties, such as customers, by the Company or any of its affiliates, other than as permitted by a written agreement between the Company and the third party. 6.6 Employee irrevocably appoints any Company-selected designee to act as his agent and attorney-in-fact to perform all acts necessary to obtain patents and/or copyrights as required by this Agreement if Employee (a) refuses to perform those acts or (b) is unavailable, within the meaning of the United States Patent and Copyright Laws. It is expressly intended by Employee that the foregoing power of attorney is coupled with an interest. 6.7 Employee shall keep complete, accurate and authentic information and records on all Inventions in the manner and form reasonably requested by the Company. Such information and records, and all copies thereof, shall be the property of the Company as to any Inventions within the meaning of this Agreement. In addition, Employee agrees to promptly surrender all such original and copies of such information and records at the request of the Company. 7. RESTRICTIVE COVENANTS. 7.1 ACKNOWLEDGMENTS. Employee agrees and acknowledges that in order to protect the value of the Company and its business, it is necessary and appropriate that Employee undertake not to utilize the special knowledge about the business of the Company that Employee has acquired or may acquire and the relationships with the Company's customers, suppliers and employees to compete with the Company. Employee further acknowledges that: (a) Employee is one of a limited number of persons who will operate and develop the business of the Company; (b) Employee will occupy a position of trust and confidence with the Company during the course of Employee's employment under this Agreement and Employee has and will continue to become familiar with the proprietary and Confidential Information of the Company and its affiliates; (c) The agreements and covenants contained in this Section 7 are essential to protect the Company and the goodwill of its business and are an express condition precedent to the willingness of the Company to sign this Agreement; (d) The Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; 7 (e) The scope and duration of the provisions of this Section 7, and the provisions of Sections 5 and 6, are reasonably designed to protect a valuable interest of the Company and are not excessive in light of the circumstances; and (f) Employee has a means to support Employee and Employee's dependents, if any, other than engaging in the activities prohibited by this Section 7. 7.2 NON-COMPETE. Employee hereby agrees that during the term of Employee's employment by the Company and for the Post-Term Period (as hereinafter defined) identified below (the "Non-Compete Period"), except on behalf of the Company in accordance with this Agreement, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, own, operate, manage, control, engage in, invest in or participate in any manner in, act as a consultant or advisor to, render services for (alone or in association with any person, firm, corporation or entity), or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage in the business now or hereafter conducted by the Company in the Rochester and Buffalo, New York Metropolitan areas (collectively the "Territory"); provided however, that nothing contained herein shall be construed to prevent the Employee from (a) investing in stock or other securities of any public or private enterprise provided that such investment does not require active participation by the Employee and such enterprise does not engage in any activity competitive with the business now or hereafter conducted by the Company ("Permitted Investments"), or (b) attending to such charitable and/or civic activities as are deemed appropriate by Employee; provided that such activities shall not detract from Employee's duties and obligations under this Agreement. For purposes of this Section 7.2, the Post-Term Period shall be (y) two years in the event of termination of Employee's employment by the Company due to the voluntary resignation by Employee and (z) one year in the event the Company terminates Employee's employment "for cause". The restrictions contained in this Section 7.2 shall not apply in the event the Company terminates Employee's employment pursuant to Section 3.2 or in the event that, notwithstanding Employee's compliance with the terms of this Agreement, the Company fails to pay Employee the compensation to which he is entitled under this Agreement 7.3 NON-SOLICITATION. Without limiting the generality of the provisions of Section 7.2 above, Employee hereby agrees that for a period commencing on the date of this Agreement and ending upon expiration of the Non-Compete Period, except on behalf of the Company in accordance with this Agreement, Employee will not, directly or indirectly, as employee, agent, consultant, principal or otherwise, (a) solicit any business from or in any way transact or seek to transact any business with or otherwise seek to influence or alter the relationship between the Company or any of its affiliates with any person or entity to whom the Company or any of its affiliates provided business-related services (i) at any time during the one year period preceding the Termination Date or (ii) if there has been no Termination Date, at any time during the Employment Period or (b) solicit for employment or other services or otherwise seek to influence or alter the relationship between the Company or any of its affiliates of any person who is or was an employee of the Company or any of its affiliates (x) at any time during the one (1) year period preceding the Termination Date or (xi) if there has been no Termination Date, at any time during the Employment Period. 8 7.4 BLUE-PENCIL. If any court of competent jurisdiction shall at any time deem the term of this Agreement or any particular Non-Compete Period too lengthy or the Territory too extensive, the other provisions of this Section 7 shall nevertheless stand, the Non-Compete Period shall be reduced to be the longest period permissible by law under the circumstances and the Territory shall be comprised of the largest territory permissible by law under the circumstances. The court in each case shall reduce the Non-Compete Period and/or Territory to one of permissible duration or size. 8. REMEDIES. Employee acknowledges and agrees that the covenants set forth in Section 5, 6 and 7 of this Agreement are reasonable and necessary for the protection of the business interests of the Company and its affiliates, that irreparable injury will result to the Company if Employee breaches any of the terms of Sections 5, 6 or 7, and that in the event of Employee's actual or threatened breach of any provisions of Section 5, 6 or 7, the Company and its affiliates will have no adequate remedy at law. Employee accordingly agrees that in the event of any actual or threatened breach by Employee of any of the provisions of Section 5, 6 or 7, the Company and its affiliates shall be entitled to seek injunctive relief, specific performance and other equitable relief from any court of competent jurisdiction or in connection with an arbitration pursuant to Section 11.2, without bond and without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company and its affiliates from pursuing any other remedies available to them for such breach or threatened breach, including but not limited to the recovery of damages. 9. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. 9.1 Employee represents and warrants to the Company that: (a) He is not and has not been subject to any litigation or any regulatory or administrative proceeding that could reasonably have an adverse impact on the ability of Employee to render services under this Agreement; (b) He is free of known physical and mental disabilities that would, with or without reasonable accommodations create an undue hardship for the Company or any of its affiliates, impair his performance hereunder and he is fully empowered to enter and perform his obligations under this Agreement; (c) He is under no restrictive covenants to any person or entity that will be violated by his entering into and performing this Agreement; and (d) He is not the subject of any event described in Item 401(d)(1) through (4) of Regulation S-B [or Item 401(f) of Regulation S-K, if then applicable to the Company], promulgated by the Securities and Exchange Commission. 9.2 Employee shall indemnify the Company on demand for and against any and all judgments, losses, claims, damages, expenses and costs (including without limitation all legal fees and costs, even if incident to appeals) incurred or suffered by the Company as a result of any breach by Employee of any of these representations and warranties. 9 10. SUCCESSORS. This Agreement is personal to Employee and may not be assigned by Employee. This Agreement is not assignable by the Company except in connection with the sale of all or substantially all of the Company's assets or stock or upon a merger or any similar transaction. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 11. MISCELLANEOUS. 11.1 MODIFICATION AND WAIVER. Any term or condition of this Agreement may be waived at any time by the party hereto that is entitled to the benefit thereof; provided, however, that any such waiver shall be in writing and signed by the waiving party, and no such waiver of any breach or default hereunder is to be implied from the omission of the other party to take any action on account thereof. A waiver on one occasion shall not be deemed to be a waiver of the same or of any other breach on a future occasion. This Agreement may be modified or amended only by a writing signed by both parties hereto. 11.2 GOVERNING LAW; ARBITRATION. This Agreement shall be construed in accordance with, and all actions arising under or in connection therewith shall be governed by, the internal laws of the State of Florida without regard to the conflicts of laws provisions thereof. Each of the parties irrevocably and unconditionally agrees that any suit, action or legal proceeding arising out of or relating to this Agreement shall be settled by binding arbitration conducted in accordance with the Commercial Rules of Arbitration of the American Arbitration Association ("AAA"). The arbitration shall take place in Palm Beach County, Florida, and shall be heard by three arbitrators selected in accordance with AAA Rules of Commercial Arbitration. The Arbitrators shall render a reasoned award and such award shall be signed and dated. The decision of the arbitrators shall be final and binding upon the parties, and the arbitration award may be entered in any court of competent jurisdiction. Initially, each of the parties shall pay one-half of the fees of the AAA (other than filing fees), including without limitation hearing and arbitrators' fees, and the parties' obligation to pay such fees shall be enforceable in any court of competent jurisdiction. The parties to any arbitration hereunder agree to submit for determination by the arbitrators, the amount of fees and expenses, including reasonable attorney's fees, to be borne by each party. 11.3 TAX WITHHOLDING. The Company may withhold from any amounts payable under this Agreement such taxes as shall be required to be withheld pursuant to any applicable law or regulation. 11.4 SECTION CAPTIONS. Section and other captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 11.5 SEVERABILITY. Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement. 10 11.6 INTEGRATED AGREEMENT. This Agreement constitutes the entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and supersedes any other employment agreements executed before the date hereof. There are no agreements, understandings, restrictions, representations, or warranties among the parties other than those set forth herein or herein provided for. 11.7 INTERPRETATION. No provision of this Agreement is to be interpreted for or against any party because that party or that party's legal representative drafted such provision. For purposes of this Agreement, "herein," "hereby," "hereunder," "herewith," "hereafter," and "hereinafter" refer to this Agreement in its entirety, and not to any particular section or subsection. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. 11.8 NOTICES. All notices, requests, demands, or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or by Federal Express (or similar overnight courier service) to the parties at the following addresses: If to Employee: Chuck Finzer 2340 Brighton-Henrietta Town Line Road Rochester, New York 14623 If to the Company: 11924 Forest Hill Blvd. Suite 22-204 Wellington, FL 33414 Any party may change the address to which notices, requests, demands or other communications to such party shall be delivered or mailed by giving notice thereof to the other parties hereto in the manner provided herein. Any notice may be given on behalf of a party by its counsel. 11.9 NO JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY PROCEEDING BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT. 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COMPANY: TOTAL IDENTITY SYSTEMS CORP. By: /S/ RICHARD R. DWYER ------------------------ Richard R. Dwyer Authorized Representative EMPLOYEE: /S/ CHARLES FINZER ------------------ Charles Finzer 12 EX-10.4 6 ex-10_4.txt Exhibit 10.4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of October 13, 2003 ("Effective Date") by and between TOTAL IDENTITY CORP., a Florida corporation (the "Company") and ROBERT DAVID (the "Employee"). RECITALS: Employee's participation in the business of the Company is critical to the Company's success. The parties wish to provide for the employment of Employee by the Company from and after the date hereof, all on the terms and conditions herein set forth. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. EMPLOYMENT. Subject to Section 3 below, the Company hereby employs Employee for a term of three years, renewable for additional annual terms unless terminated by either party upon 30 days' written notice prior to the applicable annual anniversary hereof (the "Employment Term"), commencing on the Effective Date. Employee will serve as a Vice President of the Company, and will have the responsibility of assisting the Chief Executive Officer of the Company or his designee in connection with the operations of the Company's subsidiary, Total Identity Systems Corp., a New York corporation ("TISC"), and in evaluating the operations of other companies engaged in the business conducted by TISC. The Employee shall report to the Chief Executive Officer of the Company. Employee hereby accepts such employment. During the term of his employment hereunder, Employee shall devote his time, attention, knowledge and skills faithfully, diligently and to the best of his ability to perform his duties hereunder, and Employee shall not engage in any venture or activity which materially interferes with Employee's performance of his duties hereunder. The Employee agrees to devote such time to the affairs of the Company as are necessary in order to fulfill his obligations hereunder. 2. COMPENSATION. During the Employment Term, the Company shall pay Employee the compensation and other amounts set forth below. 2.1. SALARY. The Company shall pay Employee an initial annual base salary ("Salary") of $100,000. The Employee's Salary may be increased in the discretion of the Board of Directors of the Company. 2.2. BONUS. The Employee shall be entitled to an annual incentive bonus, payable within 30 days following completion of each annual audit of the Company's financial statement, equal to 2% of the annual pre-tax profits of TISC. For purposes of this Section 2.2, "pre-tax profits" shall mean net profits of TISC, after deducting (a) all expenses including interest and depreciation but excluding income tax obligations attributable to the Company, (b) compensation paid to Employee for his services rendered to the Company, and (c) an allocable portion, not exceeding $60,000 annually, of compensation paid by the Company to its chief financial officer for services rendered to TISC, all as determined by the Company's then current accountants in accordance with generally accepted accounting principles applied on a consistent basis, consistent with past practice. 2.3. BENEFITS. Employee shall be entitled to receive the following benefits paid by the Company: (a) group health insurance under the existing Blue Cross-Blue Shield health insurance plan maintained by the Company, covering himself, his spouse and minor children; (b) a $400 per month automobile allowance; (c) four weeks' paid vacation during each calendar year (which shall not accrue from year to year), provided that Employee shall not take more than two consecutive weeks' vacation at any time and that Employee shall provide reasonable notice to the Company of his vacation plans; and (d) reimbursement for reasonable and necessary out-of-pocket expenses incurred in the performance of his duties hereunder (such expenses shall be reimbursed by the Company, from time to time, upon presentation of appropriate receipts therefore, provided such expenses are approved in advance by the Chief Financial Officer or the Board of Directors). 3. TERMINATION. 3.1. The Employee's employment and the Company's obligation to compensate Employee pursuant to this Agreement shall be terminated upon the first to occur of the following events: (a) The death of Employee. (b) The Complete Disability of Employee. "Complete Disability" as used herein shall mean the inability of Employee, due to illness, accident, or any other physical or mental incapacity, to perform the services contemplated by this Agreement for an aggregate of 90 days within any period of 12 consecutive months during the term hereof. (c) The discharge of Employee by the Company for Cause. "Cause" as used herein shall mean: (i) Employee's conviction of a crime involving illegal drug use or alcohol abuse by Employee; (ii) improper or personal use of the Company's property assets; (iii) acts of fraud, dishonesty, malfeasance, criminal activity, wrongful conduct, breach of fiduciary duty by Employee against the Company or its affiliates, or in connection with the performance of his duties hereunder; and (iv) Employee's willful failure or refusal to comply with the provisions of this Agreement, or failure (including as a result of Employee's illegal drug use or alcohol abuse that does not involve a criminal conviction) to perform Employee's duties and obligations under this Agreement in any material respect following written notice of such failure or 2 refusal and Employee's failure to cure same within 30 days following Employee's receipt of such notice. 4. RELATED PARTY TRANSACTIONS. So long as Employee is employed by the Company, he shall not, without the prior written consent of the Company, cause or permit the Company, or any subsidiary to enter into or effect any agreement or transaction, or provide or receive any service, between the Company or any subsidiary on the one hand, and Employee or a Related Party (defined below), on the other hand, except for the employment relationship contemplated hereby. In any event, any such agreements, transactions or services shall be at prices and terms which are equal to the prices and terms available for similar agreements, transactions or services with unrelated third parties. As used herein, "Related Party" means (a) any person related by blood, adoption, or marriage to Employee, (b) any director or officer of the Company or any of its subsidiaries, (c) any corporation or other entity in which Employee has, directly or indirectly, at least 5% beneficial interest in the capital stock or other type of equity interest in such corporation or other entity, or (d) any partnership in which Employee is a general partner or a limited partner having a 5% or more interest therein. 5. TREATMENT AND OWNERSHIP OF CONFIDENTIAL INFORMATION. 5.1 CONFIDENTIALITY. The parties hereto acknowledge that Employee shall or may be provided access to, make use of, acquire and/or add to Confidential Information (as that term is defined in Section 5.2 below). Employee covenants and agrees that during the Employment Term and at all times thereafter he shall not, except with the prior written consent of the Company, or except if he is acting during the Employment Period solely for the benefit of the Company or any of the affiliates, at any time, directly or indirectly, disclose, divulge, report, transfer or use, for any purposes whatsoever, any such Confidential Information, including Confidential Information obtained, used, acquired or added by, or disclosed to, Employee prior to the date of this Agreement. Employee further acknowledges that the Confidential Information constitutes valuable, special and unique assets of the Company. 5.2 CONFIDENTIAL INFORMATION DEFINED. For purposes of this Agreement, the term "Confidential Information" shall mean all of the following materials and information which Employee receives, conceives or develops or has received, conceived or developed, in whole or in part, in connection with Employee's affiliation with the Company: (a) The contents of any manuals or other written materials of the Company or any of its affiliates; (b) The names of actual or prospective clients, customers, suppliers, or persons, firms, lenders, or persons, firms, corporations, or other entities with whom Employee may have or has had contact on behalf of the Company or any of its affiliates or to whom any other employee of the Company or any of its affiliates has provided goods or services at any time; (c) The terms of agreements between the Company or any of its affiliates, and any third parties; (d) The contents of actual or prospective customer or client records, which customer and client lists and records shall not only mean 3 one or more of the names and addresses of the customers of the Company or any of its affiliates, but shall also encompass any and all information whatsoever regarding them; (e) Any data or database, or other information compiled by the Company or any of its affiliates, including, but without limitation, information concerning the Company or any of its affiliates, or any business in which the Company or any of its affiliates is engaged or contemplates becoming engaged, any company which the Company or any of its affiliates engages in business, any customer, prospective customer, or other person, firm or corporation to whom or which the Company or any of its affiliates has provided goods or services or to whom or which any employee of the Company or any of its affiliates has provided goods or services on behalf of the Company or any of its affiliates, or any compilation, analysis, evaluation or report concerning or deriving from any data or database, or any other information; (f) All policies, procedures, strategies and techniques regarding training, marketing and sales, either oral or written, and assorted lists containing information pertaining to lenders, customers and/or prospective customers; and (g) Any other information, data, training methods, formulae, technology, business methods, know-how, show-how, source code, subject code, copyright, trademarks, patents or knowledge of a confidential or proprietary nature observed, received, conceived or developed by Employee in connection with Employee's affiliation with the Company. 5.3 EXCLUSIONS. Excluded from the Confidential Information and therefore not subject to the provisions of this Agreement shall be any information which (a) is or becomes generally available to the public through no breach or fault of Employee; provided that this exception shall apply only from and after the date the information became generally available to the public, and (b) Employee can establish by Employee's written records was in Employee's possession at the time of disclosure and was not previously acquired directly or indirectly from the Company, provided that this exception shall apply only from and after the date that the information is disclosed to Employee by a third party or was in Employee's possession. Specific Confidential Information shall not be deemed to be within the foregoing exceptions merely because it is embraced by, or contained or referenced in, more general information in the public domain. Additionally, any combination of features shall not be deemed to be within the foregoing exceptions merely because individual features are in the public domain. If Employee intends to avail himself of any of the foregoing exceptions, Employee shall notify the Company in writing of his intention to do so and the basis for claiming the exception. 5.4 OWNERSHIP. Employee covenants and agrees that all right, title and interest in any Confidential Information shall be and shall remain the exclusive property of the Company and its affiliates, as the case may be. Employee agrees to promptly disclose to the Company all Confidential Information hereafter developed in whole or in part by Employee within the scope of this Agreement and to assign to the Company or any of the affiliates, as the Company determines in its sole discretion, any right, title or interest Employee may have in such Confidential Information. 6. INVENTIONS. 4 6.1 Employee agrees to promptly inform and to disclose to the Company, in writing, all inventions, concepts, developments, procedures, ideas, innovations, systems, programs, techniques, processes, information, discoveries, improvements and modifications and related documentations, other works of authorship and the like (collectively the "Inventions"), which, during the course of Employee's employment with the Company, Employee has created, made, conceived, written either alone or with others, while in the Company's employ, or while performing services for the Company or its affiliates, whether or not during working hours, and at all times thereafter, whether or not such Inventions are patentable, subject to copyright protection or susceptible to any other form of protection which (a) related to the actual business or research of development of the Company or its affiliates; or (b) was suggested by or resulted from any task assigned or to be assigned to Employee or performed by Employee for or on behalf of the Company or any of its affiliates. In the case of any "other works of authorship", such assignment shall be limited to those works of authorship meeting both conditions (a) and (b) above. Employee further acknowledges and agrees that all copyright and any other intellectual property right in Inventions and related documentation, and other works of authorship, created within the scope of Employee's employment, are "works for hire" and are the property of the Company or its affiliates, as the case may be. 6.2 In connection with any of the Inventions assigned by Section 6.1, Employee shall, on the Company's request, promptly execute a specific assignment of title to the Company or its designee, and do anything else reasonably necessary to enable the Company or such designee to secure a patent, copyright or other form of protection therefor in the United States and in other countries. 6.3 Employee further acknowledges and agrees that the Company and its affiliates, licensees, successors or assigns (direct or indirect) are not required to designate Employee as an author of any Invention which is subject to Section 6.1, when it is distributed, publicly or otherwise, or to secure my permission to change or otherwise alter its integrity. Employee hereby waives and releases, to the extent permitted by law, all rights in and to such designation and any rights that Employee may have concerning modifications of such Inventions. 6.4 Employee understands that any rights, waivers, releases and assignments herein granted and made by Employee are freely assignable by the Company and are for the benefit of the Company and its affiliates, licensees, successors and assigns. 6.5 Employee affirms that Employee has not disclosed and will not disclose to anyone outside of the Company and its affiliates, or has used, or will use, any Confidential Information or material received in confidence from third parties, such as customers, by the Company or any of its affiliates, other than as permitted by a written agreement between the Company and the third party. 6.6 Employee irrevocably appoints any Company-selected designee to act as his agent and attorney-in-fact to perform all acts necessary to obtain patents and/or copyrights as required by this Agreement if Employee (a) refuses to perform those acts or (b) is unavailable, within the meaning of the United States Patent and Copyright Laws. It is expressly intended by Employee that the foregoing power of attorney is coupled with an interest. 5 6.7 Employee shall keep complete, accurate and authentic information and records on all Inventions in the manner and form reasonably requested by the Company. Such information and records, and all copies thereof, shall be the property of the Company as to any Inventions within the meaning of this Agreement. In addition, Employee agrees to promptly surrender all such original and copies of such information and records at the request of the Company. 7. RESTRICTIVE COVENANTS. 7.1 ACKNOWLEDGMENTS. Employee agrees and acknowledges that in order to protect the value of the Company and its business, it is necessary and appropriate that Employee undertake not to utilize the special knowledge about the business of the Company that Employee has acquired or may acquire and the relationships with the Company's customers, suppliers and employees to compete with the Company. Employee further acknowledges that: (a) Employee is one of a limited number of persons who will operate and develop the business of the Company; (b) Employee will occupy a position of trust and confidence with the Company during the course of Employee's employment under this Agreement and Employee has and will continue to become familiar with the proprietary and Confidential Information of the Company and its affiliates; (c) The agreements and covenants contained in this Section 7 are essential to protect the Company and the goodwill of its business and are an express condition precedent to the willingness of the Company to sign this Agreement; (d) The Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; (e) The scope and duration of the provisions of this Section 7, and the provisions of Sections 5 and 6, are reasonably designed to protect a valuable interest of the Company and are not excessive in light of the circumstances; and (f) Employee has a means to support Employee and Employee's dependents, if any, other than engaging in the activities prohibited by this Section 7. 7.2 NON-COMPETE. Employee hereby agrees that during the term of Employee's employment by the Company and for the Post-Term Period (as hereinafter defined) identified below (the "Non-Compete Period"), except on behalf of the Company in accordance with this Agreement, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, own, operate, manage, control, engage in, invest in or participate in any manner in, act as a 6 consultant or advisor to, render services for (alone or in association with any person, firm, corporation or entity), or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage in the business now or hereafter conducted by the Company anywhere within the Rochester and Buffalo, New York Metropolitan areas (collectively the "Territory"); provided however, that nothing contained herein shall be construed to prevent the Employee from (a) investing in stock or other securities of any public or private enterprise provided that such investment does not require active participation by the Employee and such enterprise does not engage in any activity competitive with the business now or hereafter conducted by the Company ("Permitted Investments"), or (b) attending to such charitable and/or civic activities as are deemed appropriate by Employee; provided that such activities shall not detract from Employee's duties and obligations under this Agreement. For purposes of this Section 7.2, the Post-Term Period shall be five years. 7.3 NON-SOLICITATION. Without limiting the generality of the provisions of Section 7.2 above, Employee hereby agrees that for a period commencing on the date of this Agreement and ending upon expiration of the Non-Compete Period, except on behalf of the Company in accordance with this Agreement, Employee will not, directly or indirectly, as employee, agent, consultant, principal or otherwise, (a) solicit any business from or in any way transact or seek to transact any business with or otherwise seek to influence or alter the relationship between the Company or any of its affiliates with any person or entity to whom the Company or any of its affiliates provided business-related services (i) at any time during the one year period preceding the Termination Date or (ii) if there has been no Termination Date, at any time during the Employment Period or (b) solicit for employment or other services or otherwise seek to influence or alter the relationship between the Company or any of its affiliates of any person who is or was an employee of the Company or any of its affiliates (x) at any time during the one (1) year period preceding the Termination Date or (xi) if there has been no Termination Date, at any time during the Employment Period. 7.4 BLUE-PENCIL. If any court of competent jurisdiction shall at any time deem the term of this Agreement or any particular Non-Compete Period too lengthy or the Territory too extensive, the other provisions of this Section 7 shall nevertheless stand, the Non-Compete Period shall be reduced to be the longest period permissible by law under the circumstances and the Territory shall be comprised of the largest territory permissible by law under the circumstances. The court in each case shall reduce the Non-Compete Period and/or Territory to one of permissible duration or size. 8. REMEDIES. Employee acknowledges and agrees that the covenants set forth in Section 5, 6 and 7 of this Agreement are reasonable and necessary for the protection of the business interests of the Company and its affiliates, that irreparable injury will result to the Company if Employee breaches any of the terms of Sections 5, 6 or 7, and that in the event of Employee's actual or threatened breach of any provisions of Section 5, 6 or 7, the Company and its affiliates will have no adequate remedy at law. Employee accordingly agrees that in the event of any actual or threatened breach by Employee of any of the provisions of Section 5, 6 or 7, the Company and its affiliates shall be 7 entitled to seek injunctive relief, specific performance and other equitable relief from any court of competent jurisdiction or in connection with an arbitration pursuant to Section 11.2, without bond and without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company and its affiliates from pursuing any other remedies available to them for such breach or threatened breach, including but not limited to the recovery of damages. 9. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. 9.1 Employee represents and warrants to the Company that: (a) He is not and has not been subject to any litigation or any regulatory or administrative proceeding that could reasonably have an adverse impact on the ability of Employee to render services under this Agreement; (b) He is free of known physical and mental disabilities that would, with or without reasonable accommodations create an undue hardship for the Company or any of its affiliates, impair his performance hereunder and he is fully empowered to enter and perform his obligations under this Agreement; (c) He is under no restrictive covenants to any person or entity that will be violated by his entering into and performing this Agreement; and (d) He is not the subject of any event described in Item 401(d)(1) through (4) of Regulation S-B [or Item 401(f) of Regulation S-K, if then applicable to the Company], promulgated by the Securities and Exchange Commission. 9.2 Employee shall indemnify the Company on demand for and against any and all judgments, losses, claims, damages, expenses and costs (including without limitation all legal fees and costs, even if incident to appeals) incurred or suffered by the Company as a result of any breach by Employee of any of these representations and warranties. 10. SUCCESSORS. This Agreement is personal to Employee and may not be assigned by Employee. This Agreement is not assignable by the Company except in connection with the sale of all or substantially all of the Company's assets or stock or upon a merger or any similar transaction. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. 11. MISCELLANEOUS. 11.1 MODIFICATION AND WAIVER. Any term or condition of this Agreement may be waived at any time by the party hereto that is entitled to the benefit thereof; provided, however, that any such waiver shall be in writing and signed by the waiving party, and no such waiver of any breach or default hereunder is to be implied from the omission of the other party to take any action on account thereof. A waiver on one occasion shall not be deemed to be a waiver of the same or of any other breach on a future occasion. This Agreement may be modified or amended only by a writing signed by both parties hereto. 8 11.2 GOVERNING LAW; ARBITRATION. This Agreement shall be construed in accordance with, and all actions arising under or in connection therewith shall be governed by, the internal laws of the State of Florida without regard to the conflicts of laws provisions thereof. Each of the parties irrevocably and unconditionally agrees that any suit, action or legal proceeding arising out of or relating to this Agreement shall be settled by binding arbitration conducted in accordance with the Commercial Rules of Arbitration of the American Arbitration Association ("AAA"). The arbitration shall take place in Palm Beach County, Florida, and shall be heard by three arbitrators selected in accordance with AAA Rules of Commercial Arbitration. The Arbitrators shall render a reasoned award and such award shall be signed and dated. The decision of the arbitrators shall be final and binding upon the parties, and the arbitration award may be entered in any court of competent jurisdiction. Initially, each of the parties shall pay one-half of the fees of the AAA (other than filing fees), including without limitation hearing and arbitrators' fees, and the parties' obligation to pay such fees shall be enforceable in any court of competent jurisdiction. The parties to any arbitration hereunder agree to submit for determination by the arbitrators, the amount of fees and expenses, including reasonable attorney's fees, to be borne by each party. 11.3 TAX WITHHOLDING. The Company may withhold from any amounts payable under this Agreement such taxes as shall be required to be withheld pursuant to any applicable law or regulation. 11.4 SECTION CAPTIONS. Section and other captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. 11.5 SEVERABILITY. Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement. 11.6 INTEGRATED AGREEMENT. This Agreement constitutes the entire understanding and agreement among the parties hereto with respect to the subject matter hereof, and supersedes any other employment agreements executed before the date hereof. There are no agreements, understandings, restrictions, representations, or warranties among the parties other than those set forth herein or herein provided for. 11.7 INTERPRETATION. No provision of this Agreement is to be interpreted for or against any party because that party or that party's legal representative drafted such provision. For purposes of this Agreement, "herein," "hereby," "hereunder," "herewith," "hereafter," and "hereinafter" refer to this Agreement in its entirety, and not to any particular section or subsection. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. 11.8 NOTICES. All notices, requests, demands, or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given upon receipt if delivered in person or by Federal Express (or similar overnight courier service) to the parties at the following addresses: 9 If to Employee: Robert David 2340 Brighton-Henrietta Town Line Road Rochester, New York 14623 If to the Company: 11924 Forest Hill Blvd. Suite 22-204 Wellington, FL 33414 Any party may change the address to which notices, requests, demands or other communications to such party shall be delivered or mailed by giving notice thereof to the other parties hereto in the manner provided herein. Any notice may be given on behalf of a party by its counsel. 11.9 NO JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY PROCEEDING BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY DOCUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COMPANY: TOTAL IDENTITY CORP. By: /S/RICHARD R. DWYER ----------------------- Richard R. Dwyer President EMPLOYEE: /S/ ROBERT DAVID ---------------- Robert David 11 EX-10.5 7 ex-10_5.txt Exhibit 10.5 PROMISSORY NOTE Principal Sum: $800,000 Date: October 13, 2003 FOR VALUE RECEIVED, TOTAL IDENTITY CORP., a Florida corporation (the "Maker") promises to pay to ROBERT DAVID (the "Holder"), at such address as the Holder may from time to time designate in writing to the Maker, the Principal Sum of $800,000.00, with interest on the unpaid balance at the rate of 8% per annum ("Interest"). This is the promissory note referred to in the Stock Purchase Agreement dated October 13, 2003 by and between the Maker and the Holder (the "Stock Purchase Agreement"), and this Note shall be subject to all of the terms and conditions of the Stock Purchase Agreement. This Note is also secured in accordance with the terms of a Pledge Agreement of even date herewith by and between the Maker and the Holder. The principal amount of this Note is subject to offset as provided in Section 2 of the Stock Purchase Agreement. Principal and Interest shall be paid in ten equal quarterly installments of principal, with interest on the outstanding amount of the Note at the rate of 8% per annum. The initial installment shall be due and payable six months following the date of the closing of the Stock Purchase Agreement. Prepayment in any amount is allowed at any time, and from time to time, without penalty. For purposes of this Note, a default shall include the following: 1. The Maker fails to make payment within 15 days of its due date. 2. The Maker becomes insolvent or unable to pay his debts as they mature or makes an assignment for the benefit of creditors, or any proceeding is instituted by or against the Maker alleging that the Maker is insolvent or unable to pay his debts as they mature, and any such proceeding, if involuntary, is not dismissed or stayed on appeal or otherwise within 30 days. 3. The entry of any judgment or the levy of any attachment against the Maker or any property of the Maker, which judgment or attachment is not paid or released within 30 days. 4. Any transfer by the Maker of any collateral securing this Note or the transfer by the Maker of all or substantially all of its assets except to a company wholly-owned by the Maker. 5. The transfer by any guarantor of all or substantially all of its assets. 6. The making of any assignment for the benefit of creditors by the Maker or any guarantor. Time is hereby declared to be of the essence, and if a default occurs under this Note, then the entire Principal and accrued Interest shall at once become due and payable at the option of the Holder upon written notice to the Maker. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. Except as provided in this Note, presentment, protest, notice, notice of dishonor, demand for payment, notice of protest and notice of non-payment are hereby waived. The Maker agrees to pay all of the Holder's expenses of collecting and enforcing this Note, and any guarantee or collateral securing this Note, including, without limitation, expenses and reasonable fees of legal counsel, court costs and the cost of appellate proceedings. The failure or delay by the Holder of this Note in exercising any of his rights hereunder in any instance shall not constitute a waiver thereof in that or any other instance. The Holder of this Note may not waive any of its rights, except in an instrument in writing signed by the Holder. This Note may not be amended except in a writing signed by the Maker and the Holder. TOTAL IDENTITY CORP., a Florida corporation By: /S/ RICHARD R. DWYER ---------------------- Richard R. Dwyer President GUARANTY Total Identity Systems Corp., a New York corporation, hereby unconditionally guarantees the obligations of Total Identity Corp., a Florida corporation, under the foregoing Promissory Note dated October 13, 2003 in the principal amount of $800,000, issued by Total Identity Corp. in favor of Robert David. TOTAL IDENTITY SYSTEMS CORP., a New York corporation By: /S/ RICHARD R. DWYER ---------------------- Richard R. Dwyer President EX-10.6 8 ex-10_6.txt Exhibit 10.6 PLEDGE AGREEMENT THIS AGREEMENT is made this 13th day of October 2003 by and between TOTAL IDENTITY CORP., a Florida corporation ("SHAREHOLDER") and ROBERT DAVID ("SECURED PARTY"). RECITALS A. Secured Party has sold to Shareholder shares of the common capital stock of Total Identity Systems Corp., a New York corporation ("TOTAL NEW YORK") pursuant to a Stock Purchase Agreement dated of even date (the "STOCK PURCHASE AGREEMENT"). B. Secured Party has accepted a promissory note from Shareholder as set forth in the Stock Purchase Agreement as payment for such shares (the "PROMISSORY NOTE"). C. Contemporaneously herewith, Shareholder has acquired shares of the common capital stock of Total New York from Total New York pursuant to a Stock Purchase Agreement (the "CORPORATE STOCK PURCHASE AGREEMENT"). D. Pursuant to the Stock Purchase Agreement, Shareholder and Secured Party are to enter into this Agreement. AGREEMENT NOW, THEREFORE, Shareholder and Secured Party agree as follows: SECTION 1. PLEDGE AND GRANT OF SECURITY INTEREST. As absolute and unconditional security for the payment promptly when due by Shareholder under the Promissory Note, the Stock Purchase Agreement and the Corporate Stock Purchase Agreement, including, without limitation, payment of all principal, interest, costs of collection and attorneys' fees (collectively, the "OBLIGATIONS"), Shareholder hereby pledges, assigns and transfers to Secured Party and grants to Secured Party a security interest in and to: (i) the shares of the common capital stock of Total New York sold to Shareholder under the Stock Purchase Agreement (the "SHARES"); (ii) the shares of the common capital stock of Total New York sold to Shareholder under the Corporate Stock Purchase Agreement (the "CORPORATE SHARES" and, together with the Shares, the "Pledged Shares") and (ii) all share dividends, liquidating dividends, shares resulting from stock splits, reclassifications, warrants, options, non-cash distributions, rights to subscribe and other rights and distributions on or with respect to the Pledged Shares (other than dividends or other distributions paid in cash, if at the time of payment Shareholder is not in default with respect to any of its Obligations under the Promissory Note) (collectively, the "COLLATERAL"). Concurrently herewith, Shareholder shall deliver to Secured Party: (i) the stock certificates representing the Pledged Shares, and (ii) executed stock powers with respect to the Pledged Shares, endorsed in blank. Shareholder authorizes Secured Party to file in the appropriate UCC filing offices UCC-1 financing statements with respect to the security interest created under this Agreement, showing Shareholder as Debtor and Secured Party as secured party and executed by Shareholder. It is the intent of Shareholder and Secured Party that Secured Party shall, except as otherwise set forth in this Agreement, retain a security interest in and to at least 51% of the issued and outstanding shares of common capital stock of Total New York. Accordingly, (a) prior to payment on full of the purchase price for the Corporate Shares, Total New York shall not issue any additional shares of its capital stock without the prior written consent of Secured Party and Shareholder, and, thereafter (b) in the event that Total New York issues additional shares of common capital stock, or securities having voting rights or securities convertible into common capital stock of Total New York, additional securities of Total New York shall be issued to the Shareholder and pledged hereunder so that Secured Party retains a security interest in and to at least 51% of the issued and outstanding shares of common capital stock of Total New York on a fully diluted basis. Any such additional shares shall be deemed "Collateral" within the meaning of this Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder hereby represents and warrants to Secured Party as follows: (a) CAPACITY. Shareholder has full legal right and capacity to execute, deliver and perform this Agreement, and this Agreement constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms. (b) OWNERSHIP OF COLLATERAL. Shareholder is and will continue to be the lawful owner of the Pledged Shares, which is and shall at all times remain free and clear of all security interests, liens, encumbrances, claims and rights of others, except as otherwise permitted under this Agreement. (c) NO VIOLATION. The execution, delivery and performance by Shareholder of this Agreement does not violate, conflict with, result in a breach of any provisions of, constitute a default (or an event which, with or without due notice or lapse of time, or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or (except as contemplated hereby) result in the creation of any security interest, lien, or other encumbrance upon any of the properties or assets of Shareholder under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or loan agreement or other agreement, instrument or obligation to which Shareholder is a party, or by which Shareholder or any of its properties or assets may be bound or affected. (d) CREATION OF VALID SECURITY INTEREST. Upon the delivery to Secured Party of the certificate or certificates representing the Pledged Shares, accompanied by stock powers endorsed in blank, Secured Party shall have a valid first perfected security interest in the Pledged Shares, subject to the terms of this Agreement. SECTION 3. ADDITIONAL AGREEMENTS OF SHAREHOLDER. Shareholder agrees that: (a) DELIVERY OF ADDITIONAL COLLATERAL. Shareholder shall deliver to Secured Party (or an agent designated by Secured Party), 2 promptly upon receipt by Shareholder and without any request therefor by Secured Party, all additional Collateral received by Shareholder after the date of this Agreement. (b) PROXIES. If an Event of Default (as defined in Section 4) has occurred and is continuing, Shareholder shall deliver to Secured Party (or an agent designated by Secured Party), promptly upon request of Secured Party, such proxies and other documents as may be necessary to allow Secured Party to exercise the voting power with respect to any Pledged Shares or other capital shares owned by Shareholder included in the Collateral. In the absence of an Event of Default by Shareholder, Shareholder shall be entitled to exercise all voting rights attendant to the Pledged Shares. SECTION 4. EVENTS OF DEFAULT. (a) If Shareholder fails to perform any material covenant or agreement contained in the Stock Purchase Agreement, the Corporate Stock Purchase Agreement, the Promissory Note or this Agreement (including, without limitation, any failure by Shareholder to pay the Obligations when and as the same become due), or if any material warranty set forth herein or therein should prove to be untrue in any material respect, all of the Obligations shall, at the election of Secured Party, become immediately due and payable, and, subject to the terms and conditions of this Agreement, Secured Party shall be entitled to retain the Collateral or shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as in effect in the State of Florida and under any other applicable law, together with all rights and remedies provided in this Agreement with respect to all of the Collateral subject to this Agreement. Any notification required by law of intended disposition by Secured Party of any of the Collateral shall be deemed reasonably and properly given if given at least 10 days before such disposition and Secured Party agrees to provide such written notice of intended disposition to Shareholder. At any bona fide public sale, Secured Party shall be free to purchase all or any part of the Collateral. Out of the proceeds of any sale, Secured Party shall be entitled to retain an amount sufficient to satisfy Shareholder's obligations to Secured Party, plus the amount of the expenses of the sale and attorneys' fees incurred by Secured Party, and shall pay any balance of such proceeds to Shareholder. (b) Without limitation on the rights provided to Secured Party under Section 4(a), Secured Party may take from time to time, whether before or after any of the Obligations become due and payable, but only if an Event of Default has occurred and is continuing, without notice to Shareholder, all or any of the following actions (and Shareholder hereby appoints Secured Party and Secured Party's successors and assigns as such Shareholder's true and lawful attorney to take such actions, irrevocably and with full power of substitution, in the name of Shareholder or otherwise): (i) to collect by legal proceedings or otherwise, receive and receipt for all dividends, interest, principal payments and other sums now or hereafter payable upon or on account of the Collateral and to endorse any checks, other instruments or orders in connection therewith; (ii) to enter into any extension, reorganization, deposit, merger, or consolidation agreement, or any agreement in any way relating to or affecting the Collateral, and in connection therewith, to deposit or surrender control of such Collateral thereunder, accept other property in exchange for such Collateral and do and perform such 3 acts and things as Secured Party may deem proper, and any money or property received in exchange for such Collateral shall be held by Secured Party pursuant to the provisions of this Agreement; (iii) to make any compromise or settlement Secured Party deems desirable or proper with reference to the Collateral; (iv) to cause all or any part of the Collateral to be transferred to Secured Party's name or to the name of a nominee designated by Secured Party; (v) to date and otherwise complete to the extent Secured Party deems necessary the undated stock powers delivered upon the signing of this Agreement; and (vi) to file any claims or take any actions or institute any proceedings which Secured Party deems necessary or advisable in its sole and complete discretion and to compromise, litigate or settle the same. (c) Shareholder acknowledges that compliance with the Federal securities laws, applicable blue sky or other state securities laws or similar laws analogous in purpose or effect may strictly limit the course of conduct of Secured Party if Secured Party attempts to dispose of all or any part of the Collateral and may also limit the extent to which or the manner in which any subsequent transferee of the Collateral may dispose of the same. Accordingly, SHAREHOLDER AGREES THAT IF ANY COLLATERAL IS SOLD AT ANY PUBLIC OR PRIVATE SALE, SECURED PARTY MAY ELECT TO SELL ONLY TO A BUYER WHO WILL GIVE FURTHER ASSURANCES, SATISFACTORY IN FORM AND SUBSTANCE TO SECURED PARTY, RESPECTING COMPLIANCE WITH THE REQUIREMENTS OF THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED, AND A SALE SUBJECT TO SUCH CONDITION SHALL BE DEEMED COMMERCIALLY REASONABLE. Without limiting the generality of the foregoing, the provisions of this paragraph would apply if, for example, Secured Party were to place all or any part of the Collateral for private placement by an investment banking firm, or if such investment banking firm purchased all or any part of the Collateral for its own account, or if Secured Party placed all or any part of the Collateral privately with a purchaser or purchasers. SECTION 5. RETURN OF COLLATERAL. At such time as the purchase price for the Corporate Shares has been paid in full, a number of Pledged Shares then representing 49% of the issued and outstanding shares of common capital stock of Total New York (currently 98 shares) shall be released to Shareholder free and clear from the restrictions contained in this Agreement. Upon payment in full of all Obligations, Secured Party shall return to Shareholder any portion of the Collateral not theretofore returned or otherwise applied pursuant to this Agreement to satisfy such Obligations. In the event that Shareholder defaults in the payment of the purchase price for the Corporate Shares, at Secured Party's election, either (a) Secured Party may retain all of the Pledged Shares then subject to this Agreement upon payment to Shareholder of all amounts theretofore paid against the purchase price for the Corporate Shares or (b) the Seller shall 4 release to the Buyer a percentage of the Pledged Shares equal to the percentage of the purchase price for the Corporate Shares theretofore paid by the Buyer. In the event that Shareholder defaults in the payment of the Promissory Note due to circumstances beyond its control (which circumstances shall be limited to wars, strikes, acts of god, terrorism and other customary force majeure events), at Secured Party's election, either (y) Secured Party may retain all of the Pledged Shares then subject to this Agreement upon payment to Shareholder of all amounts theretofore paid under the Promissory Note or (z) the Seller shall release to the Buyer a percentage of the Pledged Shares equal to the percentage of the Note theretofore paid by the Buyer. SECTION 6. OBLIGATIONS NOT AFFECTED. (a) The obligations of Shareholder under this Agreement shall remain in full force and effect without regard to, and shall not be impaired or affected by: (i) any amendment, modification, addition, supplement, extension, increase or substitution to or for the Obligations, or any other instrument executed in connection with any of the Obligations, or any assignment or transfer thereof; (ii) any exercise, non-exercise or waiver by Secured Party of any right, remedy, power or privilege under or in respect of the Obligations, this Agreement or any instrument executed pursuant to it; (iii) any waiver, consent, extension, indulgence, delay, or other action or inaction in respect of, the Obligations, this Agreement or any instrument executed pursuant to such or any assignment or transfer thereof; (iv) the disposition, impairment, release, surrender, substitution, or modification of any other collateral securing the Obligations or any failure to perfect a security interest in any such collateral; (v) any release (including adjudication or discharge in bankruptcy) or settlement with any person primarily or secondarily liable for the Obligations (including, without limitation, any maker, indorser, guarantor or surety); (vi) any delay, omission, waiver, or forbearance in exercising any right or power with respect to the Obligations or this Agreement; (vii) any defense arising from the enforceability or validity of the Obligations or this Agreement or any part thereof, or the genuineness, enforceability or validity of any agreement relating thereto; (viii) any other act or omission which might constitute a legal or equitable discharge of Shareholder; (ix) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation, or the like, of Shareholder or any other person, whether or not by notice or knowledge of any of the foregoing. 5 (b) Shareholder hereby waives all defenses based on suretyship or impairment of collateral, presentment, protest, demand for payment, any right of set-off, notice of dishonor or default, notice of acceptance of this guaranty, notice of the incurring of any of the Obligations and notice of any other kind in connection with the Obligations or this Agreement. SECTION 7. PROTECTION OF COLLATERAL. Secured Party may perform, from time to time, at its option, any act which Shareholder has agreed under this Agreement to perform and which Shareholder has failed to perform and take any other action which Secured Party deems necessary for the maintenance, preservation or protection of any of the Collateral or of Secured Party's security interest therein. Shareholder shall, upon demand, repay to Secured Party all moneys advanced by Secured Party in respect to his or her Collateral in connection with the foregoing, together with interest at a rate (or any maximum lesser rate permitted by applicable law) per annum equal to the interest rate on the Promissory Note. SECTION 8. REASONABLE CARE. 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 Shareholder requests in writing with respect to its Collateral, but failure of Secured Party to comply with any such request shall not in itself be deemed a failure to exercise reasonable care, and no failure by Secured Party to do any act with respect to the preservation of any Collateral not so requested by Shareholder shall be deemed a failure to exercise reasonable care in the custody and preservation of such Collateral. SECTION 9. NOTICES. All notices required or permitted to be given pursuant to this Security Agreement shall be given by certified mail, postage prepaid, addressed as follows: To Shareholder at: Total Identity Corp. 11924 Forest Hill Blvd. Suite 22-204 Wellington, Florida 33414 To Secured Party at: Robert David 2340 Brighton-Henrietta Town Line Road Rochester, New York 14623 SECTION 10. REMEDIES CUMULATIVE. No remedy herein conferred is intended to be exclusive of any other remedy, but every such remedy shall be cumulative and in addition to every other remedy conferred in this Agreement, or conferred on Secured Party by any other agreement, instrument or security, or now or hereafter existing at law or in equity or by statute. SECTION 11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, and, without limiting the foregoing, all rights and powers under this Agreement or with respect to Secured Party may be exercised by any successor or assign of Secured Party. 6 SECTION 12. GOVERNING LAW; ARBITRATION. This Agreement shall be governed by the laws of the State of Florida applicable to contracts to be performed entirely within such state and without regard to its conflicts of laws principles. Each of the parties irrevocably and unconditionally agrees that any suit, action or legal proceeding arising out of or relating to this Agreement shall be settled by binding arbitration conducted in accordance with the Commercial Rules of Arbitration of the American Arbitration Association ("AAA"). The arbitration shall take place in Palm Beach County, Florida, and shall be heard by three arbitrators selected in accordance with AAA Rules of Commercial Arbitration. The Arbitrators shall render a reasoned award and such award shall be signed and dated. The decision of the arbitrators shall be final and binding upon the parties, and the arbitration award may be entered in any court of competent jurisdiction. Initially, each of the parties shall pay one-half of the fees of the AAA (other than filing fees), including without limitation hearing and arbitrators' fees, and the parties' obligation to pay such fees shall be enforceable in any court of competent jurisdiction. The parties to any arbitration hereunder agree to submit for determination by the arbitrators, the amount of fees and expenses, including reasonable attorney's fees, to be borne by each party. IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first above written. Shareholder" TOTAL IDENTITY CORP., a Florida corporation By: /S/ RICHARD R. DWYER ---------------------- Richard R. Dwyer President "Secured Party" /S/ ROBERT DAVID ---------------- Robert David 7 STOCK POWER FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ___________________ the _____________________ (_____) common shares of Total Identity Systems Corp., a New York corporation (the "CORPORATION"), standing in the name of the undersigned on the books of the corporation and represented by Certificate(s) Nos. _______ herewith, and does hereby irrevocably constitute and appoint ___________________ attorney to transfer the shares on the books of the corporation, with full power of substitution in the premises. Dated: ____________________ ------------------------------------------------- Richard R. Dwyer, as President of Total Identity Systems Corp., a Florida corporation 8 EX-10.7 9 ex-10_7.txt Exhibit 10.7 LEASE LEASE, dated October , 2003, between 2340 TOWNLINE ROAD CORPORATION, a New York corporation, having a principal address at 2340 Brighton-Henrietta Town Line Road, Rochester, New York 14623, ("Lessor"), and TOTAL IDENTITY SYSTEMS CORP., a New York corporation, having a principal address at 2340 Brighton-Henrietta Town Line Road, Rochester, New York 14623 (the "Lessee"), 1. The Demised Premises; Lease Term; Renewal Term In consideration of the Rent hereinafter reserved and the terms, covenants and conditions set forth in this Lease to be observed and performed by Lessee, Lessor hereby demises and leases to Lessee, and Lessee hereby rents and takes from Lessor, the following property (collectively hereinafter referred to as the "Demised Premises"): 2340 Brighton-Henrietta Town Line Road, Rochester, New York 14623; (a) all the land (the "Land") described in Exhibit A hereto; (b) all buildings, structures and other improvements (the "Improvements") now or hereafter located on the Land, other than Lessee's Equipment as hereinafter defined; and (c) all rights of way or of use, servitudes, licenses, tenements, appurtenances and easements now or hereafter belonging or pertaining unto Lessee, and the permitted successors and assigns of Lessee, upon and subject to all of the terms, covenants and conditions herein contained, for a ten (10) year term commencing on October , 2003, and terminating on October , 2013. If the Lessee is then in compliance with all of the terms and conditions of this Lease, the Lessee shall have one (1) option to renew this Lease for one (1) five (5) year term, which shall commence on the expiration date of the initial term of this Lease. All terms and conditions of this Lease shall remain in full force and effect during the renewal term, except that the Lessee shall have no other renewal option, and the annual rent shall be adjusted to reflect the increase in the Consumer Price Index applicable to the Rochester, New York, metropolitan area in the period between the commencement date of the initial term of the Lease and the commencement date of the renewal term of the Lease. This option shall be exercised by the Lessee no later than one hundred twenty (120) days prior to the expiration date of the initial term of this Lease. 2. Rent Lessee covenants to pay to Lessor as a net minimum rent (the "Fixed Rent") during the Lease Term the sum of TWO HUNDRED SEVENTY THOUSAND DOLLARS ($270,000.00) per annum for the principal of the Lease Term, or the sum of TWENTY TWO THOUSAND FIVE HUNDRED DOLLARS ($22,500.00) per month. The Fixed Rent shall be payable in advance in equal monthly installments on the first day of each calendar month. If the Lease Term does not commence on the first day of a month, the Fixed Rent for the month in which the Lease Term commences shall be appropriately apportioned. The first installment of Fixed Rent shall be paid simultaneously with the execution of this Lease. Each date on which Fixed Rent is payable hereunder is hereinafter referred to as a "Rent Payment Date". 1 Lessee also covenants to pay, from time to time as provided in this Lease, as Additional Rent: all other amounts and obligations which Lessee assumes or agrees to pay under this Lease; interest at the rate of ten percent per annum on such of the foregoing amounts and obligations as are payable to the Lessor and are not paid within ten days after the due date (or, if a demand therefore is required by the terms of this Lease, within ten days after such demand), from the due date or such demand, as the case may be, until the payment thereof; and interest at the rate of ten percent per annum on all installments of Fixed Rent not paid on the due date, from the due date until paid. If Lessee fails to pay any such Additional Rent, Lessor shall have all the rights, powers and remedies provided for in this Lease or at law or in equity or otherwise in the case of nonpayment of rent. All Fixed Rent and Additional Rent (collectively hereinafter referred to as "Rent") shall be paid in such coin or currency (or, subject to collection, by good check payable in such coin or currency) of the United States of America as at the time shall be legal tender for the payment of public and private debts, at the office of Lessor as set forth above, or at such place and to such person as Lessor from time to time may designate. 3. No Counterclaim or Abatement All Rent shall be absolutely net to Lessor so that this Lease shall yield to Lessor the full amount of the installments thereof throughout the Lease t without deduction. All Rent shall be paid to Lessor without notice, demand, counterclaim, setoff, deduction or defense, and nothing shall suspend, defer, diminish, abate or reduce an Rent, except as otherwise specifically provided in this Lease. 4. Use of Demised Premises Lessee covenants that the Demised premises shall be used solely for the design and manufacture of electrical and neon signage, and commercial awnings, and related uses and for no other purpose, unless approved in writing by Lessor. Lessee shall not do or permit any act or thing which is contrary to any legal Requirements or Insurance Requirements, or which might impair the value or usefulness of the Demised Premises or any part thereof. Lessee shall no do or suffer any waste, damage, disfigurement or injury to the Demised Premises. 5. Condition of Demised Premises Lessee represents that Lessee has examined and is fully familiar with the physical condition of the Demised Premises, the Improvements thereon, the 2 sidewalks and strictures adjoining the same, subsurface conditions, and the present tenancies, and uses thereof. Lessee accepts the same, without recourse to Lessor, in the condition and state in which they now are, and agrees that the Demised Premises complies in all respects with all requirements of this Lease. Lessor makes no representation or warranty, express or implied in fact or by law, as to the nature or condition of the Demised Premises, or its fitness or availability for any particular use, or the income from or expenses of operation of the Demised Premises, EXCEPT THAT Lessor represents that, during its ownership of the Demised Premises, the Lessor: (i) has been in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business and (iii) has been in compliance with all terms and conditions of any such permit, license or approval where such noncompliance or failure to receive permits, licenses or approvals referred to in clauses (i), (ii) or (iii) above could have, individually or in the aggregate, a material adverse effect. 6. Maintenance and Repair Lessee, at all times during the Lease Term and at Lessee's expense, shall keep the Demised Premises, and all Improvements now or hereafter located thereon, and all facilities and equipment thereon, and the adjoining sidewalks, parking lots, curbs, vaults and vault space, if any, streets and ways, and all appurtenances to the Demised Premises, in a good and clean order and condition and in such condition as may be required by all Legal Requirements and Insurance Requirements, and promptly shall make all necessary or appropriate repairs, replacements and renewals thereof, whether extraordinary, or foreseen or unforeseen. All repairs, replacements and renewals shall be equal in quality and class to the original work. Lessee waives any right created by any law now or hereafter in force to make repairs to the Demised Premises at Lessors' expense. All property and equipment shall re returned to Lessor at the end of the Lease Term in good working order. Lessee shall be responsible for all structural repairs, and for the maintenance, repair and replacement of all electrical, mechanical, plumbing, heating, ventilation and air conditioning systems. Lessee shall be responsible for waste disposal and snow plowing. 7. Alterations and Additions Lessee shall not be entitled to make any alterations of or additions to the Demises Premises without the prior written consent of Lessor in each instance. The title to all additions, repairs and replacements to any Improvements made during the Lease Term and any renewal thereof, forthwith shall vest in Lessor, and said Improvements, additions, repairs and replacements shall be and become the sole and absolute property of Lessor, without an obligation of payment by lessor therefor. 8. Impositions 3 Subject to Article 11 relating to contests, Lessee, at Lessee's expense, shall bear, pay and discharge all Impositions at least twenty days prior to the last day upon which the same may be paid without any interest, penalty, fine or cost being added for the late payment thereof, and shall furnish to Lessor for inspection within thirty days after request, official receipts of the appropriate taxing authority or other proof satisfactory to Lessor evidencing such payment. If by law any Imposition may be paid in installments, Lessee shall be obligated to pay only those installments as they become due from time to time before any interest, penalty, fine or cost may be added thereto. Any Imposition relating to the fiscal period of the taxing authority, part of which is included within the Lease Term and a part of which precedes or extends beyond the Lease Term, shall, if Lessee shall not be in default hereunder, be apportioned between Lessor and Lessee as of the commencement of expiration, as the case may be, of the Lease Term. At the option of Lessor, which may be exercised by written notice to Lessee, Lessee shall pay to Lessor, on each Rent Payment Date during the Lease Term, an amount equal to one twelfth (1/12) of all Impositions becoming due within the ensuing twelve months, as reasonably estimated by Lessor. Such estimate, and consequently the monthly installments, may be adjusted at any time by Lessor. Each year Lessor shall provide to Lessee an accounting, and if such accounting shows that the total of the monies received hereunder exceeds the amounts paid by Lessor for all Imposition, Lessee shall be credited for the difference against the next installments becoming due hereunder. If Immediately prior to any Rent Payment Date any Imposition is due, in whole or in part, or if on the rendering of an accounting as aforesaid a deficiency exists or may reasonably be expected, Lessee shall pay the same to Lessor on demand. The obligations of the parties hereunder shall survive the expiration or termination of the Lease Term. 9. Compliance With Requirements Subject to Article 11 relating to contests, Lessee, at all time during the Lease Term and at Lessee's expense, promptly and diligently shall: comply with all Legal Requirements and Insurance Requirements, whether or not compliance therewith shall require structural changes in the Improvements or interfere with the use and enjoyment of the Demised Premises or any part thereof; comply with any instruments of record at the time affecting the Demised premises or any part thereof including the instruments listed in Exhibit B hereto; and procure, maintain and comply with all permits, licenses, franchises and other authorizations required for any use of the Demised Premises or any part thereof then being made, including without limitation, all permits, licenses, and franchises which Lessee is required to obtain for the proper erection, installation, operation or maintenance of the Improvements or Lessee's Equipment or any part thereof. 10. Liens Lessee shall not directly or indirectly create or permit to be created or to remain, and shall discharge, any mortgage, lien, security interest, encumbrance or charge on, pledge of or conditional sale or other retention agreement with respect to the Demised Premises or any part thereof, Lessee's interest therein, or any Fixed Rent or other Rent payable under this Lease, other than: the Occupancy Leases; liens for impositions not yet payable, or 4 payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested as permitted in Article 11 hereof; and the liens of mechanics, materialmen, suppliers or vendors, or right thereto, incurred in the ordinary course of business for sums which under the terms of the related contract are not at the time due, provided that adequate provisions of the following paragraph are complied with. If, in connection with any work being performed by or for Lessee or any subtenant or in connection with any materials being furnished to Lessee or any subtenant, and mechanic' lien or other lien or charge shall be filed or made against the Demised Premises or any part thereof, or if any such lien or charge shall be filed or made against Lessor, the Lessee, at Lessee's expense, within thirty days after such lien or charge shall have been filed or made, shall cause the same to be canceled and discharged or record by payment thereof or filing a bond or otherwise. Lessee promptly and diligently shall defend any suit, action or proceeding which may be brought for the enforcement of such lien or charge; shall satisfy and discharge any judgment entered therein within thirty days from the entering of such judgment by payment thereof or filing a bond or otherwise; and on demand shall pay all damages, costs and expenses, including reasonable attorneys' fees, suffered or incurred by Lessor in connection therewith. Nothing contained in this Lease shall constitute any consent or request by Lessor, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Demised Premises or any part thereof, or as giving Lessee any right, power or authority to contract for or permit the performance of any labor or services or furnishing of any materials or other property in any fashion that would permit the filing or making of any lien or claim against Lessor or the Demised Premises. 11. Permitted Contests Lessee, at Lessee's expense, after prior written notice to Lessor, may contest, by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any Imposition or any Legal Requirement, or the application of the instruments referred to in Exhibit B hereto, provided that: Lessee shall first make all contested payments, under protest if Lessee desires, unless such proceedings shall suspend the collection thereof from Lessor, from any Rent and from the Demised Premises; neither the Demised Premises, nor any part thereof or interest therein, nor any Rent would be in any danger of being sold, forfeited, lost or interfered with; in the case of a Legal Requirement, Lessor would not be in any danger of any additional civil or criminal liability for failure to comply therewith and the Demised Premises would not be subject to the imposition of any Lien a result of such failure; and Lessee shall have furnished such security, if any, as may be reasonably requested by Lessor. 12. Utility Service Lessee shall pay all charges for all public or private utility services and all sprinkler systems and protection services at any time rendered to or in connection with the Demised Premises or any part thereof; shall comply with all 5 contracts relating to any such services; and shall do all other things required for the maintenance and continuance of all such services. 13. Insurance Lessee, at all times during the Lease Term and at Lessee's expense, shall provide and maintain in full force and effect with insurers approved by Lessor; (a) insurance with respect to the Improvements against loss or damage by fire, lightning, windstorm, hail, explosion, riot, riot attending strike, civil commotion, aircraft, vehicles, smoke and other risks from time to time included under "extended coverage" policies, in an amount equal to at least 100% of the full replacement value of the Improvements, and in any event in an amount sufficient to prevent Lessor or Less from becoming coinsurer of any loss under applicable policies, which shall be written on a replacement cost basis; (b) public liability and property damage insurance protecting Lessor against any and all liability occasioned by negligence, occurrence, accident or disaster in or about the Demised Premises or any part thereof, or the Improvements now or hereafter erected thereon, or adjoining sidewalks, curbs, vaults and vault space, if any, streets or ways, or any appurtenances thereto, in amounts approved from time to time by Lessor, which amounts at the date hereof shall be, in the case of public liability, $1,000,000.00 per person and $3,000,000.00 per accident, and in the case of property damage, $500,000.00; (c) explosion insurance in respect of any steam and pressure boilers and similar apparatus located on the Demised Premises in amounts approved by Lessor, which amount at the date hereof shall be $500,000.00 (d) war risk insurance when and to the extent obtainable from the Federal Government or any agency thereof; (e) appropriate workers' compensation or other insurance against liability arising from claims of workers in respect of and during the period of any work on or about the Demised Premises; (f) if the Demised Premises are located in an area which has been identified by the Secretary of Housing and Urban Development as a flood hazard area, flood insurance in and amount at least equal to the maximum limit of coverage available for the Demised Premises under the National Flood Insurance Act of 1968; and (g) insurance against such other hazards and in such amounts as is customarily carried by prudent owners and operators of similar properties, and as Lessor reasonably may request. In addition, Lessee, at Lessee's expense, shall keep the rental value of the Improvements insured against loss or damage by all risks from time to time included under "extended coverage" policies, in an amount designated by Lessor from time to time , which amount shall not exceed the aggregate of: the annual Fixed Rent and all other Rent to be paid by Lessee in the succeeding twelve month period, as estimated by Lessor; all Impositions payable by Lessee hereunder of the ensuing twelve month period, as estimated by Lessor if not then fixed; plus the cost of obtaining, for a one year period, all insurance the required to be maintained by Lessee under this Article 13. Lessee shall comply with such other requirements as Lessor from time to time reasonably may request for the protection by insurance of Lessor's interests. All insurance maintained by Lessee pursuant to this Article 13: (a) shall, except for workers' compensation insurance, name Lessor and Lessee as insureds, as their respective interests may appear, and shall include an effective waiver by the issuer o all rights of subrogation against any named insured or such insured's interest in the Demised Premises or any income derived therefrom; (b) shall provide that all insurance claims for losses of less than 6 $10,000.00 shall be adjusted by Lessee, and all insurance claims for losses of such amount or more, except for workers' compensation insurance which shall be adjusted by Lessee, shall be adjusted by Lessor; (c) shall provide, except in the case of public liability and workers' compensation insurance, that insurance proceeds shall be payable to Lessor for the benefit of Lessor and Lessee, as their respective interests may appear; (d) shall provide that any losses shall be payable notwithstanding any act or failure to act or negligence of Lessor or Lessee or any other person; (e) shall provide that no cancellation , reduction in amount or material change in coverage thereof shall be effective until at least ten days after receipt by Lessor and Lessee of written notice thereof; and (f) shall be satisfactory in all other respects to Lessor acting reasonably. Upon the execution of this Lease and thereafter not less than fifteen days prior to the expiration date of ay policy delivered pursuant to this Article 13, Lessee shall deliver to Lessor the originals of all policies or renewal policies, as the case may be, required by this Lease, bearing notations evidencing the payment of the premiums therefor. If at any time Lessee shall neglect or fail to provide or maintain insurance or to deliver insurance policies in accordance with this Article 13, Lessor may effect such insurance as agent for Lessee, by taking out policies in companies selected by Lessor, and the amount of the premiums paid for such insurance shall be paid by Lessee to Lessor on demand. 14. Indemnification By Lessee Lessee shall indemnify and hold Lessor harmless from and against all liabilities, obligations, claims, damages, fines, penalties, interest, causes of action, costs and expenses, including attorneys' fees (but excluding any income or excess profits or franchise taxes of Lessor determined on the basis of general income or revenue or any interest or penalties in respect thereof), imposed upon or incurred by or asserted against Lessor or the Demised Premises by reason of the occurrence or existence of any of the following, whether or not resulting from any negligent act or omission of the Lessor: Ownership of the Demised Premises or any interest therein, or receipt of any rent or other sum therefrom; any accident, injury to or death of persons (including workers) or loss of or damage to property occurring, or claimed to have occurred, on or about the Demised Premises or any part thereof, or any Improvements now or hereafter erected thereon, or the adjoining sidewalks, curbs, vaults or vault space, if any, streets or ways, or appurtenances thereto; any use or condition of the Demised Premises or any part thereof, or any Improvements now or hereafter erected thereon, or the adjoining sidewalks, curbs, vaults or vault space, if any, streets or ways, or appurtenances thereto; any failure on the part of Lessee promptly and fully to comply with or perform any of the terms, covenants or conditions of this Lease; or performance of any labor or services or the furnishing of any materials or other property in respect of the Demised Premises or any part thereof. In the case any suit, action or proceeding is brought against Lessor or filed against the Demised Premises or any part thereof by reason of any such occurrence, Lessee, upon Lessor's request and at Lessee's expense, shall resist and defend such suit, action or proceeding, or cause the same to be resisted and defended by counsel designated by Lessee and approved by Lessor. The obligations of Lessee under this Article 14 shall survive the expiration or termination of the Lease Term. 7 15. Damage to or Destruction of the Demised Premises If there is any material damage to or destruction of the Demised Premises or any part thereof, Lessee promptly shall give written notice thereof to Lessor, generally describing the nature and extent of such damage or destruction. If there is damage to or destruction of the Demised Premises or any part thereof, Lessee, at Lessee's expense whether or not the insurance premises, if any, on account of such damage or destruction shall be sufficient for the purpose, promptly shall commence and complete, subject to Unavoidable Delays, the restoration, replacement or rebuilding of the Demised Premisses as nearly as possible to its value, condition and character immediately prior to such damage or destruction, with such alterations and additions as may be made at Lessee's election pursuant to and subject to the terms, covenants and conditions of Article 7. Pending the completion of such Restoration, Lessee shall perform all temporary work and take all such actions as may be necessary or desirable to protect and preserve the Demised Premises. Insurance proceeds received by Lessor on account of any damage to or destruction of the Demised Premises or any part thereof, less the costs and expenses incurred by Lessor or Lessee in the collection thereof, including without limitation fees and expenses of adjustors and attorneys, shall be applied as hereinafter provided. Net insurance proceeds received on account of any damage to or destruction of the Demised Premises or any pat thereof, unless Lessee is in default under this Lease, shall be paid to Lessee or as Lessee may direct, from time to time as Restoration progresses, to pay or to reimburse Lessee for the cost or Restoration, upon written request of Lessee accompanied by evidence, satisfactory to Lessor, that the amount requested has been paid or is then due and payable and is properly a part of such cost, that there are no mechanics' or similar liens for labor or materials theretofore supplied in connection with the Restoration, and that the balance of said proceeds after making the payment requested will be sufficient to pay the balance of the cost of Restoration. Upon receipt by Lessor of evidence satisfactory to Lessor that the Restoration has been completed and the cost thereof has been paid in full, and that there are no mechanics' or similar liens for labor or materials supplied in connection therewith, the balance, if any, of such proceeds shall be paid to Lessor. Any insurance proceeds held by Lessor on any termination of this Lease and not required to be paid to Lessee pursuant to this Article 15, shall be paid to and retained by Lessor. 16. Taking of the Demised Premises If there is a Taking of the fee of the entire Demised Premises, other than for a temporary use, this Lease shall terminated as of the date of such Taking. In case of a Taking, other than for temporary use, of such perpetual easement on the entire Demised Premises, or of such a substantial part of the Demised Premises, as shall result, in the good faith judgment of Lessor, in the 8 Demised Premises remaining after such Taking (even after Restoration where made) being unsuitable for the use contemplated in this Lease, Lessee may terminate this Lease by written notice e to Lessor given within sixty days after such Taking, as of a date specified in such notice within ninety days after such Taking . Any Taking of the Demised Premises of the character referred to in this Article 16, which results in the termination of this Lease, is referred to herein as a "Total Taking". If there is a taking of the Demised Premises other than a Total Taking, this Lease shall remain in full force and effect as to the principal of the Demised Premises remaining immediately after such Taking, without any abatement or reduction of Rent, except as may be expressly provided in this Article 16, and Lessee, at lessee's expense whether or not the awards or payments, if any, on account of such Taking will be sufficient for the purpose, promptly shall commence and complete, subject to Unavoidable Delays, restoration of the Demised Premises as nearly as possible to its value, condition and character immediately prior to such Taking, except to any reduction in area caused thereby, provided that in the case of a Taking for temporary use Lessee shall not be required to effect Restoration (other that temporary work and actions necessary or desirable for the protection of the Demised Premises) until such Taking for a temporary use is terminated. Awards and other payments on account of a Taking, less fees, costs and expenses incurred in connection therewith, shall be applied as follows: (a) Net awards and payments received on account of a Taking, other than a Taking for temporary use or a Total Taking, shall be held and applied from time to time as Restoration progresses, to pay or to reimburse Lessee for the cost of Restoration, upon written request of Lessee accompanied by evidence, satisfactory to lessor, that the amount requested has been properly paid or is then due and payable and is properly a par to such cost, that there are no mechanics' or similar liens for labor or materials theretofore supplied in connection with the Restoration, and that the balance of said proceeds after making the payment requested will be sufficient to pay the balance of the cost of Restoration. Upon completion of the Restoration, the balance, if any, of such awards and payments shall be paid to and retained by Lessor. (b) Net awards and payments received on account of a Taking for temporary use shall be held and applied to the payment of Rent until such Taking for temporary use is terminated and Restoration , if any, has been completed, provided that, if any portion of such award or payment is made by reason of any damage to or destruction of the Demised Premises, such portion shall be held and applied as provided in the first sentence of clause (a) of this Article 16. The balance, if any, of such awards and payments, unless Lessee is in default hereunder, shall be paid to Lessee. (c) All Awards and payments received on account of a Total Taking shall be paid to Lessor. Notwithstanding the foregoing, if at the time of any Taking or at any time thereafter, Lessee shall be in default under this Lease and such default shall be continuing, Lessor is hereby authorized and empowered, in the name and 9 on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any, for an award on account of any Taking and to collect such award and apply the same, after deducting all fees, costs and expenses incident to the collection thereof, to the during of any then existing default under this Lease. If any portion of an award or other payment received on account of a Taking shall be paid to Lessor pursuant to the second sentence of clause (a) of this Article 16, each installment of Fixed Rent hereunder shall be reduced, commencing with the first Rent Payment Date following the date of such payment, by an amount to be computed by multiplying such installment in effect prior to such date by a fraction, the numerator of which is the amount of the award or payment make to lessor in connection with such Taking after deduction of Lessor's expenses in collection of such awards and payments, including without limitation fees and expenses of appraisers and attorneys, and the denominator of which is the fair market value of the Demised Premises prior to such Taking as determined by Lessor, acting reasonably, as reduced by the amount of any other such award or payment previously made to Lessor pursuant to the second sentence of clause (a) of this Article 16. Revocation by any public authority of any license or permit to maintain or use any vault or other area within the streets adjoining the Demised Premises, shall not affect this Lease, or diminish any Rent payable by Lessee hereunder, or diminish any of Lessee's other obligations hereunder. 17. Quiet Enjoyment. Lessor covenants that so long as Lessee is not in default hereunder in the payment of any Rent or compliance with or the performance of any of the terms, covenants or conditions of this Lease on Lessee's part to be complied with or performed, Lessee shall not be hindered or molested by Lessor in Lessee's enjoyment of the Demised Premises. 18. Right to Cure Lessee's Default If Lessee fails to make any payment or to comply with or perform any term, covenant or condition of this Lease to be complied with or performed by Lessee, Lessor may, but shall be under no obligation to, after thirty days' notice to lessee (or upon shorter notice, or without notice, if necessary to meet an emergency situation or lime limitation of a Legal Requirement), make such payment or perform or cause to be performed such work, labor, services, acts or things, and take such other steps as Lessor may deem advisable to comply with any such term, covenant or condition which is in default. Entry by Lessor upon the Demised Premises for such purpose shall not waive or release Lessee from any obligation or default hereunder. Lessee shall reimburse Lessor (with interest at a rate of ten percent per annum) for all sums so paid by Lessor and all costs and expenses incurred by Lessor in connection with the making of any payments, the performance of any act or other steps taken by Lessor pursuant to this Article 18. 19. Events of Default and Termination 10 If any one or more of the following events ("Events of Default") shall occur: (a) if Lessee shall fail to pay any Fixed Rent when as the same becomes due and payable; or (b) if Lessee shall fail to pay any Rent, other than Fixed Rent, when and as the same becomes due and payable and such failure shall continue for more than ten days; or (c) if Lessee shall fail to comply with or perform any term, covenant or condition of Articles 8, 9, 10, or 13, and such failure shall continue for more than thirty days after the Lessee receives notice of such failure, regardless of the source of such notice; or (d) if Lessee shall fail to comply with or perform any other term, condition or covenant hereof, and such failure shall continue for more than thirty days after notice thereof from Lessor, and Lessee within said period, subject to Unavoidable Delays, shall not commence with due diligence and dispatch the curing of such default, or , having so commenced, thereafter shall or neglect to prosecute or complete with due diligence and dispatch the curing of such default for reasons other than Unavoidable Delays; or (e) If Lessee shall make a general assignment for the benefit of creditors, or shall admit in writing Lessee's inability to pay Lessee's debts as thy become due, or shall file a petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under ay present or future statue, law or regulation, or shall file any answer admitting, or shall fail to contest, the material allegations of a petition filed against Lessee in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Lessee or any material part of Lessee's properties; or (f) If, within ninety days after the commencement of any proceeding against Lessee seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed, or if , within ninety days after the appointment without the consent or acquiescence of Lessee, of any trustee, receiver or liquidator of Lessee or of any part of Lessee's properties, such appointment shall not have been discharged; (g) if a final judgment for the payment of money shall be rendered against Lessee and, within sixty days after the entry thereof, such judgment shall not have been discharged or execution thereof stayed pending appeal, or if, within sixty days after the expiration of any such stay, such judgment shall not have been discharged; then, and in any such Event of Default, regardless of the pendency of ay proceeding which has or might have the effect of preventing Lessee from complying with the terms, covenants or conditions of this Lease, Lessor, at any time thereafter may give a written termination notice to Lessee, and on the date 11 specified in such notice this Lease shall terminate and, subject to Article 24, the Lease term shall expire and terminate by limitation, and all rights of Lessee under this Lease shall cease, unless before such date (i) all arrears of Rent (with interest at the rate of ten percent per annum) and all costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of Lessor hereunder, shall have been paid by Lessee, and (ii) all other defaults at the time existing under this lease shall have been fully remedied to the satisfaction of Lessor. Lessee shall reimburse Lessor for all costs and expenses, including reasonable attorneys' fees, incurred by or on behalf of Lessor occasioned by or in connection with any default by Lessee under this Lease. 20. Repossession If an Event of Default shall have occurred and be continuing, Lessor, whether or not the Lease Term shall have been terminated pursuant to Article 19, may enter upon and repossess the Demised Premises or any part thereof by force, summary proceedings, ejectment or otherwise, and may remove Lessee and all other persons and any and all property therefrom. 21. Reletting At any time or from time to time after the repossession of the Demised Premises or any part thereof pursuant to Article 20, whether or not the Lease Term shall have been terminated pursuant to Article 19, Lessor may (but shall be under no obligation to) relet the Demised Premises or any part thereof for the account of Lessee, for such term or terms (which may be greater than or less than the period which would have otherwise have constituted the balance of the Lease Term) and on such conditions ( which may include concessions of free rent) and for such uses as Lessor, in Lessor's absolute discretion, may determine, and may collect and receive the rents therefrom. Lessor shall not be responsible or liable for nay failure to relet the Demised Premises or any part thereof or for any failure to collect any rent due upon such reletting. 22. Assignments of Subrents Lessee hereby irrevocably assigns to Lessor all rents due or to become due from any assignee of Lessee's interest hereunder and any sublease or any tenant or occupant of the Demised Premises or any part thereof, together with the right to collect and receive such rents, provided that, so long as Lessee is not in default under this Lease, Lessee shall have the right to collect such rents for Lessee's own use and purposes. Upon any default by Lessee under this Lease, Lessor shall have absolute title to such rents and the absolute right to collect the same. Lessor shall apply to the Rent due under this Lease the net amount (after deducting all costs and expenses incident to the collection thereof and the operation and maintenance, including repairs, of the Demised Premises) of any rents so collected and received by Lessor. 23. Survival of Lessee's Obligations and Damages 12 No expiration or termination of the Lease Term pursuant to this Lease, by operation of Law or otherwise (except as expressly provided herein), and no repossession of the Demised Premises or any part thereof pursuant to this Lease or otherwise, shall relieve Lessee of Lessee's obligations or liabilities hereunder, all of which shall survive such expiration, termination or repossession. In the event of any such expiration, termination or repossession, Lessee shall pay to Lessor all Rent up to the time of such expiration, termination or repossession, together with all costs and expenses incurred by Lessor in connection with such termination or repossession including attorneys' fees, and thereafter Lessee, until the end of what would have been the Lease Term in the absence of such expiration, termination or repossession, and whether or not the Demised Premises or any part thereof shall have been relet, shall be liable to Lessor fork and shall pay to Lessor, as liquidated and agreed and current damages for Lessee's default, (a) all Rent which would be payable under this Lease by Lessee in the absence of such expiration, termination or repossession, less (b) all net rents collected by Lessor from the tenants or subtenants of the Demised Premises, if any, and the net proceeds, if any, of any reletting affected for the account of Lessee pursuant to Article 21 after deducting from such proceeds all lessor's expenses in connection with such reletting and other sums owed Lessor, including without limitation all repossession costs, brokerage commissions, legal and accounting expenses, attorneys' fees, employees' expenses, reasonable alteration costs, and expenses of preparation for such reletting. Lessee shall pay such current damages monthly on the Rent Payment Dates applicable in the absence of such expiration , termination or repossession, and Lessor shall be entitled to recover the same from Lessee on each such date. At any time after such expiration, termination or repossession, whether or not Lessor shall have collected any current damages as aforesaid, Lessor shall be entitled to recover from Lessee, and Lessee shall pay to Lessor on demand, as and for liquidated and agreed final damages for Lessee's default and in lieu of all current damages beyond the date of such demand, an amount equal to the excess, if any, of (a) all Rent which would be payable under this Lease from the date of such demand (or, if it be earlier, the date to which Lessee shall have satisfied in full Lessee's obligation under the proceeding paragraph of this Article 24 to pay current damages) until what would be the then unexpired Lease Term in the absence of such expiration, termination or repossession over (b) the then fair net rental value of the Demised Premises for the same period. Upon the payment of such final damages, this Lease, if not already terminated, shall be deemed terminated. If any statute or rule of law shall validly limit the amount of such liquidated final damages to less than the amount above agreed upon, Lessor shall be entitled to the maximum amount allowable under such statute or rule of law. 24. Injunction Lessor, in addition to all other rights, powers and remedies, and notwithstanding the concurrent pendency of summary or other dispossess proceedings, at Lessor's option, shall have the right at all times during the Lease Term to restrain by injunction any violation or attempted violation by Lessee of any of the terms, covenants or conditions of this Lease, and to enforce by injunction any of such terms, covenants or conditions. 13 25. Waivers To the extent permitted by law, Lessee waives: any notice of reentry or of the institution of legal proceedings to that end; any right of redemption, reentry or repossession; any right to trial by jury in any action or proceeding or in any matter in any way connected with this Lease or the Demised premises; and the benefit of any laws now or hereafter in force exempting property for rent or for debt. No failure by the Lessor or Lessee to insist upon the strict performance of and compliance with any term, covenant or condition hereof or to exercise or enforce any right, power or remedy consequent upon a breach thereof, and no submission by Lessee or acceptance by Lessor of full or partial Rent during the continuance of any such breach, shall constitute a waiver of any such breach or of any such term, covenant or condition. No waiver of any breach of any term, covenant or condition of this Lease shall affect or alter this Lease, which shall continue in full force and effect, or the respective rights, powers or remedies of Lessor or Lessee with respect to any other then existing or subsequent breach. 26. Lessor's Remedies Cumulative All of the rights, powers and remedies of Lessor provided for in this Lease or now or hereafter existing at law or in equity, or by statute or otherwise, shall be deemed to be separate, distinct, cumulative and concurrent. No one or more of such rights, powers or remedies, nor any mention of reference to any one or more of them in this Lease, shall be deemed to be in the exclusion of, or a waiver of, any other rights, powers or remedies provided for in this Lease, or now or hereafter existing at law or in equity, or by statute or otherwise. The exercise or enforcement by Lessor of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise or enforcement by Lessor of any or all of such other rights, powers or remedies. 27. Assignment, Subletting and Mortgages Lessee expressly covenants that Lessee shall not voluntarily or involuntarily assign, encumber, mortgage or otherwise transfer this Lease, or sublet the Demised Premises or any part thereof, or suffer or permit the Demised Premises or any part thereof to be used or occupied by others, by operation of law or otherwise, without the prior written consent of Lessor in each instance. Absent such consent, any act or instrument purporting to do any of the foregoing shall be null and void. If this Lease is assigned, whether or not in violation of the terms of this Article 27, Lessor may collect Rent from the assignee. If the Demised Premises or any part thereof are sublet or occupied by anybody other than Lessee, Lessor, after any default by Lessee, may collect rent from the subtenant or occupant, and apply the net amount collected tot he Rent due hereunder. Such collection of rent by Lessor shall not be deemed a waiver of the provisions 14 hereof, the acceptance of the assignee, subtenant or occupant as a tenant, or a release of Lessee from the further observance and performance by Lessee of the terms, covenants and conditions of this Lease. The consent by Lessor to an assignment, encumbrance, transfer or subletting shall not in any way be deemed consent to any further assignment, encumbrance, transfer or subletting. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without the prior written consent of Lessor in each instance, and each permitted sublease shall so provide in its terms. If lessee requests Lessor's consent to a specific assignment or subletting, Lessee shall first submit to Lessor in writing: the name and address of the proposed assignee or sublessee; a counterpart of the proposed agreement of assignment or sublease and all other instruments or agreements pertaining thereto; such information as to the nature and character of the business of the proposed assignee or sublessee and as to the nature of its proposed use of the space, as Lessor reasonably may request; banking, financial or other credit information relating to the proposed assignee or sublessee sufficient to enable Lessor to determine the financial responsibility and character of the proposed assignee or sublessee; and a statement of all sums or other consideration paid or to be paid to Lessee by or for the account of the assignee or sublessee for or in connection with such assignment or sublease, including without limitation sums paid or to be paid for the sale or rental of Lessee's fixtures, leasehold improvements, equipment, furniture or other personal property. Any such consent of Lessor shall be subject to the terms of this Lease and conditional upon there being no default by Lessee, beyond any grace period, under any term, covenant or condition of this Lease at the time that Lessor's consent is requested and on the date of the commencement of the term of any such proposed sublease or the effective date of any such proposed assignment. Upon receiving lessor's written consent, a duly executed copy of the sublease or assignment shall be delivered to Lessor within thirty days after execution thereof. Any such sublease shall provide that the sublessee shall comply with all applicable terms, covenants and conditions of this Lease to be observed or performed by Lessee hereunder. Any such assignment shall contain an assumption by the assignee of all of the terms, covenants and conditions of this Lease to be observed or performed by Lessee. The transfer of a majority of the issued and outstanding capital stock of any corporate tenant or subtenant of this Lease or of a majority of the total interest in any partnership tenant or subtenant, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease or of such sublease. The transfer of outstanding capital stock of any corporate tenant or subtenant, for purpose of this Article 27, shall not include a sale of such stock by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934 as amended, effected through any "over the counter" market or recognized exchange. 15 28. Subordination and Attornment This Lease, and all rights of Lessee hereunder, are and shall be subject to and subordinated in all respects to all mortgages which may now or hereafter affect the Demised Premises, whether or not such mortgages shall also cover other lands or buildings, to each and every advance make or hereafter to be made under such mortgages and to all renewals, modifications, replacements, spreaders, consolidations and extensions of such mortgages. In the event of any sale of the Demised Premises in a foreclosure of any such mortgage or the exercise by the holder of any such mortgages of any other remedies provided for by law or in such mortgage, Lessee, upon written request of the holder of the mortgage or the purchaser at such foreclosure or any person succeeding to the interest of the holder of the mortgage, shall attorn to such holder, purchaser or successor in interest, as the case may be, without change in the terms, covenants or conditions of this Lease. If such a request is made, this Lease shall not be deemed to be terminated by any foreclosure proceedings or other remedies for the enforcement of the mortgage by such holder, purchaser or successor in interest. The provisions of this Article 28 shall be self-operative and no further instrument of subordination and/or attornment shall be required.. In confirmation of such subordination and/or attornment, Lessee promptly shall execute and deliver at Lessee's expense any instrument that Lessor or the holder of any such mortgage may reasonably request to evidence such subordination and/ attornment; and Lessee hereby irrevocably constitutes and appoints Lessor as Lessee's attorney-in-fact, coupled with an interest, to execute, acknowledge and deliver any such instruments for and on behalf of Lessee. 29. Entry by Lessor Lessor and the authorized representatives of Lessor shall have the right to enter the Demised Premises at all reasonable times for the purpose of inspecting the same or for the purpose of doing any work permitted to be done by Lessor under this Lease, and to take all such actions thereon as may be necessary or appropriate for any other purpose. Nothing contained in this Lease shall create or imply any duty on the part of Lessor to make any such inspection or do any such act. Lessor and representatives of Lessor shall have the right to enter the Demised Premises at all reasonable times for the purpose of showing the Demised Premises to prospective purchasers or mortgagees, and at any time during the twelve month period preceding the expiration or termination of this Lease for the purpose of showing the same to prospective tenants, and within said period to display on the Demised Premises advertisements for sale or letting if such advertisements do not interfere unreasonably with the business then conducted on the Demised Premises. No such entry shall constitute an eviction of Lessee. 30. Conveyance by Lessor If the original or any successor Lessor shall convey or otherwise dispose of the Land and Improvements, Lessor shall thereupon be released from all obligations and liabilities of Lessor under this Lease (except those accruing prior to such conveyance or other disposition), and such obligations and liabilities shall be binding solely on the then owner of the Land and Improvements. 16 31. No Merger of Title There shall be no merger of the leasehold estate created by this Lease with the fee estate in the Demised Premises by reason of the fact that the same person may own or hold (a) the leasehold estate created by this Lease or any interest therein, and (b) the fee estate in the Demised Premises or any interest in such fee estate. No such merger shall occur unless and until all persons having any interest in the leasehold estate created by this Lease, an in the fee estate in the Demised Premises, shall join in a written instrument effecting such merger and shall duly record the same. 32. Acceptance of Surrender No modification, termination or surrender of this Lease or surrender of the Demised Premises or any part thereof or of any interest therein by Lessee shall be valid or effective unless agreed to and accepted in writing by Lessor, and no act by any representative or agent of lessor, other than such a written agreement and acceptance, shall constitute an acceptance thereof. 33. End of Lease Term Upon the expiration or termination of the Lease Term, Lessee shall quit, surrender and deliver to Lessor the Demised Premises with the Improvements thereon in good order and condition, ordinary wear and tear excepted, and shall remove all Lessee's equipment therefrom. 34. Brokerage Lessor and Lessee each represents and warrants to the other that such party has not dealt with any broker or finder in connection with the Demised Premises or this Lease. Lessor and Lessee each agrees to indemnify and hold the other harmless from and against any and all commission, liability, claim, loss, damage or expense, including reasonable attorneys' fees, arising from any claims for brokerage or any other fee or commission by any person with whom such party has dealt. 35. Definitions As used in this Lease, the following terms have the following respective meanings: "default" -- any condition or event which constitutes, or which after notice or lapse of time or both would constitute, and Event of Default. "Demised Premises" -- as defined in Article 1. "Event of Default" -- as defined in Article 19. " Fixed Rent" -- as defined in Article 2. 17 "Impositions" -- all taxes, assessments (including without limitation, all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not completed within the Lease Term), water and sewer rents and charges, charges for public utilities, excises, levies, license fees, permit fees, inspection fees and other authorization fees ant other charges of every nature and kind whatsoever (including all interest and penalties thereon), in each case, whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character, which at any time during or in respect of the Lease Term may be assessed, levied, charged, confirmed or imposed on or in respect of or be a lien upon (a) the Demised Premises or any part thereof or any rent therefrom or any estate, right or interest therein, or (b) any occupancy, use or possession of or activity conducted on the Demised Premises or any bar thereof. The term "Impositions" shall exclude, however, any income taxes assessed against Lessor, franchise, estate inheritance or transfer taxes of Lessor, or any tax or charge in replacement or substitution of the foregoing or of a similar character; provided, however, that if at any time during the Lease Term the ten prevailing method of taxation or assessment shall be changed so that the whole or any part of the Impositions theretofore payable by Lessee as above provided, shall instead be levied, charged, assessed or imposed whole or partially on the rents received by Lessor from the Demised Premises, or shall otherwise be imposed against Lessor in the form of a franchise tax or otherwise, then Lessee shall pay the same (and the same shall be deemed Impositions) at least twenty days prior to the last day upon which the same may be paid without interest or penalty for the late payment thereof. "improvements" -- as defined in Article 1. "Insurance Requirements" -- all terms of any insurance policy covering or applicable to the Demised Premises or any part thereof, all requirements of the issuer of any such policy, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters, or its successors or any other body exercising similar functions, applicable to or affecting the Demised Premises or any part thereof or any use or condition of the Demised Premises or any part thereof. "Land" -- as defined in Article 1. "Lease" -- this Lease, as at the time amended, modified or supplemented. "Lease Term" -- as Defined in Article 1, as the same any be extended or renewed. "Legal Requirements" -- all laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorization, directions and requirements of all governments, departments, commissions, boards, courts, authorities, agencies, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Demised Premises or any part thereof, or the Improvements now or hereafter located thereon, or the facilities or equipment therein, or any of the adjoining sidewalks, curbs, vaults or vault space, if any, streets or ways, or the appurtenances to the Demised Premises or the franchises or privileges connected therewith, or any use or condition of the 18 Demised Premises or any part thereof. Legal Requirements shall include all requirements to be complied with pursuant to any certificate of occupancy affecting the Demised Premises. "Lessee's Equipment" -- all fixtures, machinery, apparatus, furniture, furnishings and other equipment and all temporary or auxilary structures installed by or at the request of Lessee or any Occupancy Tenant, if any, in or about the Demised Premises or any part thereof, which (a) are not used and are not procured for use, in whole or in part, in connection with the operation, maintenance and protection of the Demised Premises, and (b) are removable without damage to the Demised Premises. "Occupancy Lease" -- any lease of any space constituting part of the Demised Premises. "Occupancy Tenant" -- any tenant or occupant under any Occupancy Lease. "Occupancy Tenants' Equipment" -- all Lessee's Equipment which under the terms of any Occupancy Lease of otherwise is the property of an Occupancy Tenant. "person" -- an individual, a corporation, an association, a partnership, a joint venture, an organization, or other business entity, or governmental or political unity or agency. "Rent Payment Date" -- as defined in Article 2. "Restoration" -- all restorations, replacements, rebuildings, alterations, additions, temporary repairs and property protection to be performed in connection with a Taking of the Demised Premises or the damage or destruction of the Demised Premises. "Taking" -- a taking during the Lease Term of all or any part of the Demised Premises, or any leasehold or other interest therein or right accruing thereto, as the result of the exercise of the right of condemnation or eminent domain or a sale in lieu or in anticipation of such exercise or a change or grade affecting the Demise Premises or any part thereof. " Total Taking" -- as defined in Article 16. "Unavoidable Delays" -- delays due to strikes, acts of God, governmental restrictions, enemy action, riot, civil commotion, fire, unavoidable casualty or other causes beyond the control of Lessee, provided that no delay shall be deemed an Unavoidable Delay if the Demised Premises or any part thereof or interest therein or any Rent would be in danger of being sold, forfeited, lost or interfered with, or if any Occupancy Tenant, Lessor or Lessee should be in danger of incurring any civil or criminal liability for failure to perform the required act. Lack of funds shall not be deemed a cause beyond the control of Lessee. 19 36. Notices All notices, demands elections and other communications desired or required to be delivered or given under this Lease shall be in writing , and shall be deemed to have been delivered and given when delivered by hand, or on the third business day after the same have been mailed by first class registered or certified mail, postage prepaid, enclosed in a securely sealed envelop addressed to the party to which the same is to be delivered or given at such party's address as set forth in this Lease or at such other address as said party shall have designated in writing in accordance with this Article 37. 38. Miscellaneous All rights, powers and remedies provided herein may be exercised only to the extent that the exercise thereof does not violated any applicable law, and are intended to be limited to the extent necessary so that they will not render this Lease invalid, unenforceable or not entitled to be recorded under any applicable law. If any term, covenant or condition of this Lease shall be held to be invalid, illegal or unenforceable, the validity of the other terms, covenants and conditions of this Lease shall in no way be affected thereby. If any interest provided for herein shall be deemed to be in excess of the maximum amount permitted under applicable law, Lessor shall be deemed to be entitled to the maximum amount permitted under applicable law. The headings in this Lease are for purposes of reference only and shall not limit or limit or define the meaning hereof. This Lease may be changed or modified only by an instrument in writing signed by the party against which enforcement of such change or modification is sought. Subject to Articles 27 and 31, this Lease shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. 39. Right if First Refusal If Lessor desires to sell the Demised Premises, and receives from some third party a purchase offer for the Demised Premises, Lessor agrees to disclose the terms of the offer to Lessee, in writing, within fifteen (15) days following receipt of the offer. Lessee shall have ten (10) days after receiving notice of the terms of the offer within which to elect to purchase the entire Demised Premises on terms identical to those offered by the third party. The election shall be made by written notice to Lessor at the address for notice designated in this Lease, and in the manner designated in this Lease, accompanied by a check for $10,000.00 to the order of Lessor to be applied to the purchase price. Within fifteen (15) days thereafter, the parties shall enter into a formal contract of sale expressly including all terms of the original bona fide offer made to Lessor, except as the parties may mutually agree. If Lessee fails to give the notice and to tender the payment as provided herein, or if Lessee fails to enter into a formal contract of sale as provided herein, Lessor shall be relieved of all liability to Lessee, and may dispose of the Demised Property as it sees fit. 20 40. Option to Purchase. After the first five (5) years of the initial lease term, any improvement in excess of $100,000.00 will automatically trigger the Lessee's right to purchase the Demised Premises at fair market value to be determined by three independent surveys to be paid for by the Lessee. IN WITNESS HEREOF, Lessor and Lessee have executed this Lease on the date first above written. LESSOR 2340 TOWNLINE ROAD CORPORATION By: /S/ ROBERT DAVID ---------------------------- Robert David, President LESSEE TOTAL IDENTITY SYSTEMS CORP. By: /S/ RICHARD R. DWYER ------------------------------- Richard R. Dwyer, President 21 LEASE GUARANTY FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, the undersigned Guarantor, a Florida corporation, irrespective of the genuineness, validity, regularity or enforceability of this Lease, hereby unconditionally guarantees to Robert David the full and prompt payment of all rent and other payments due under this Lease when due, whether by acceleration or otherwise, including interest, late charges and expenses of collection (including reasonable attorneys' fees), and the full and prompt performance of all of the Lessee's obligations under this Lease. The undersigned Guarantor waives presentment for payment, demand, protest and notice of protest and of non-payment. Dated: October 13, 2003 TOTAL IDENTITY CORP. By: /S/ RICHARD R. DWYER ------------------------- Richard R. Dwyer State of New York: County of Monroe: SS. On the 13 day of October, 2003, before me the subscriber, personally appeared Robert David, to me personally known to be the same person described in and who executed the foregoing instrument, and he acknowledged to me that she executed the same. /S/ DANIEL C. CASS ------------------ Notary Public 22 State of New York: County of Monroe: SS. On the 13 day of October, 2003, before me the subscriber, personally appeared Richard Dwyer, to me personally known to be the same person described in and who executed the foregoing instrument, and he acknowledged to me that she executed the same. /S/ DANIEL C. CASS ------------------ Notary Public State of New York: County of Monroe: SS. On the 13 day of October, 2003, before me the subscriber, personally appeared Richard Dwyer, to me personally known to be the same person described in and who executed the foregoing instrument, and he acknowledged to me that she executed the same. /S/ DANIEL C. CASS ------------------ Notary Public 23 -----END PRIVACY-ENHANCED MESSAGE-----